-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KNoiEafYLEATwgvj4VsSyQDW3x9xggtAM8rTjp1FkK7nIBPwRFbs/pw39h0CgGgK HfjKzenl6/e3tO7xmZ2k6Q== 0000950152-01-001872.txt : 20010330 0000950152-01-001872.hdr.sgml : 20010330 ACCESSION NUMBER: 0000950152-01-001872 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARRY R G CORP /OH/ CENTRAL INDEX KEY: 0000749872 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 314362899 STATE OF INCORPORATION: OH FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08769 FILM NUMBER: 1584683 BUSINESS ADDRESS: STREET 1: 13405 YARMOUTH RD NW CITY: PICKERINGTON STATE: OH ZIP: 43147 BUSINESS PHONE: 6148646400 MAIL ADDRESS: STREET 1: 13405 YARMOUTH RD NW STREET 2: 13405 YARMOUTH RD NW CITY: PICKERINGTON STATE: OH ZIP: 43147 10-K 1 l86966ae10-k.txt R.G. BARRY CORPORATION 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 1-8769 R. G. BARRY CORPORATION ------------------------------------------------------- (Exact name of Registrant as specified in its charter) Ohio 31-4362899 - ------------------------------------------ ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13405 Yarmouth Road N.W., Pickerington, Ohio 43147 - -------------------------------------------- ------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (614) 864-6400 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange On Which Registered - --------------------------------- ------------------------------------------ Common Shares, Par Value $1.00 New York Stock Exchange (9,372,907 outstanding as of March 15, 2001) Series I Junior Participating New York Stock Exchange Class A Preferred Share Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Indicate by check mark 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. [ ] Based upon the closing price reported on the New York Stock Exchange on March 15, 2001 ($2.70), the aggregate market value of the Common Shares of the Registrant held by non-affiliates on that date was approximately $22,603,000. Documents Incorporated by Reference: (1) Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended December 30, 2000, are incorporated by reference into Parts I and II of this Annual Report on Form 10-K. (2) Portions of the Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 10, 2001, are incorporated by reference into Part III of this Annual Report on Form 10-K. Index to Exhibits begins on Page E-1. 2 PART I ITEM 1. BUSINESS. - ------------------ R. G. Barry Corporation ("R. G. Barry") is organized under Ohio law. R. G. Barry and its subsidiaries, Barry de Mexico, S.A. de C.V., Barry de Acuna, S.A. de C.V., Barry de Zacatecas, S.A. de C.V., ThermaStor Technologies, Ltd., LLC, R. G. Barry (Texas) LP, Barry de la Republica Dominicana, S.A. de C.V., R. G. Barry International, Inc., R. G. Barry Holdings, Inc., R. G. Barry (France) Holdings, Inc., Escapade, S.A., Fargeot et Compagnie, S.A., Michel Fargeot, S.A., R.G.B., Inc. and Vesture Corporation ("Vesture") (R. G. Barry and its subsidiaries are referred to collectively as the "Company"), manufacture and market products which serve the comfort needs of people. The Company believes it is the world's largest manufacturer of comfort footwear for at-and-around-the-home, and, through its Vesture subsidiary, manufactures and markets thermal retention technology products incorporating the Company's MICROCORE* technologies. Comfort is the dominant influence in the Company's brand lines. Effective July 22, 1999, R. G. Barry acquired 80% of the outstanding stock of Escapade, S.A., which owns Fargeot et Compagnie, S.A. and Michel Fargeot, S.A. (collectively, "Fargeot"), all of Thiviers, France. The purchase price of $4,173,000 was paid in cash, and the acquisition has been accounted for by the purchase method of accounting. The Escapade purchase agreement includes put and call options for the purchase of the remaining 20% of the shares not owned by R. G. Barry. The 20% shareholder may put the shares to R. G. Barry at any time after July 22, 2004 for a period of five years at the price determined under the purchase agreement. R. G. Barry may call the remaining shares and purchase them at any time after July 22, 2000 for a period of nine years on the same basis. In 1999, the Company recognized that it needed to lower its levels of production and to lessen its manufacturing capacity. The Company closed a plant in Shenzhen, China, although it opened a plant in the Dominican Republic. The Company believed that the customs duty advantages enjoyed between the Dominican Republic and Europe would outweigh the need to reduce capacity. After opening the plant in the Dominican Republic, Mexico completed a new trade agreement with the European Union that will provide duty-free entry into Europe by 2003 for products assembled in Mexico. The Company's need to reduce internal manufacturing capacity coupled with the logistics advantages and manufacturing efficiencies currently enjoyed in the Company's Mexican assembly plants were instrumental in the Company's decision to close the plant in the Dominican Republic in December 2000. In 1999, the Company opened a warehouse in San Antonio, Texas to serve what it believed was a need to house increased finished goods inventory for the Soluna(TM) line of products first introduced in 1999. By 2000, the Soluna(TM) products had not achieved expected results and the Company concluded that this warehouse was too large and too expensive for its prospective use. This was especially so, in light of the significant reduction in inventory levels from 1999 to year-end 2000 in furtherance of the Company's previously-announced strategy. Moreover, the Company's strategy for the future includes acquiring greater portions of its inventories from third-party suppliers, thus reducing the need to take large portions of finished goods into the Company's warehouses for extended periods of time. In mid-2000, the Company closed the San Antonio, Texas warehouse and moved into a smaller facility that the Company already controlled in Laredo, Texas. Further information concerning the restructuring changes which occurred in 1999 and 2000 is presented in Note (14) to the Consolidated Financial Statements on - ------------- * Hereinafter denotes a trademark of the Company registered in the United States Department of Commerce Patent and Trademark Office. -2- 3 pages 32 and 33 of R. G. Barry's Annual Report to Shareholders for the fiscal year ended December 30, 2000, which is incorporated herein by this reference. During the fiscal year ended December 30, 2000, the Company had three operating segments: the Barry Comfort North America group, which includes at-and-around-the-home comfort footwear products manufactured and sold in North America; the Barry Comfort Europe group, which includes at-and-around-the-home comfort footwear products sold in Europe and footwear products sold by Fargeot; and the Thermal group, which includes thermal retention technology products. Financial information on the Company's segments for the three years ended December 30, 2000, is presented in Note (13) to the Consolidated Financial Statements on pages 30, 31 and 32 of R. G. Barry's Annual Report to Shareholders for the fiscal year ended December 30, 2000, which is incorporated herein by this reference. PRINCIPAL PRODUCTS The Company designs, manufactures and markets specialized comfort footwear for men, women and children. The Company is in the business of responding to consumer demand for comfortable footwear combined with attractive appearance. The Company designs, manufactures and markets thermal retention products in the food preservation; portable, personal comfort; and comfort therapy categories as well as products which use thermal retention technology to preserve and/or transport temperature-sensitive or perishable commodities. Barry Comfort North America/Barry Comfort Europe Historically, the Company's primary products have been foam-soled, soft, washable slippers for men, women and children. The Company developed and introduced women's Angel Treads*, the world's first foam-soled, soft, washable slipper, in 1947. Since that time, the Company has introduced additional slipper-type brand lines for men, women and children designed to provide comfort, softness and washability. These footwear products are sold, for the most part, under various brand names including Angel Treads*, Barry*Comfort, Dearfoams*, Dearfoams* for Kids, Dearfoams* for Men, Madye's*, Snug Treds*, Soft Notes*, EZfeet*, Mushrooms* Slippers and Fargeot. The Company has also at times marketed slipper-type footwear under licensed trademarks. See "TRADEMARKS AND LICENSES." The Company's foam-soled footwear lines have fabric uppers made of terry cloths, velours, fleeces, satins, nylons and other washable materials, as well as uppers made of suede and other man-made materials. Different brand lines are marketed for men, women and children with a variety of styles, colors and ornamentation. The marketing strategy for the Company's slipper-type brand lines has been to expand counter and floor space for these products by creating and marketing brand lines to different portions of the consumer market. Retail prices for the Company's footwear normally range from approximately $5 to $30 per pair, depending on the style of footwear, type of retail outlet and retailer mark-up. The Company also manufactures and markets the Soft Notes* foam cushioned casual slipper line. The Company believes that this brand line is a bridge between slippers and casual footwear. The marketing strategy with respect to this product emphasizes the fashion, comfort and versatility provided by the Soft Notes* foam cushioned casual slippers. The Company believes that many consumers of its slippers are loyal to the Company's brand lines, usually own more than one pair of slippers and have a history of repeat purchases. Substantially all -3- 4 of the slipper brand lines are displayed on a self-selection basis in see-through packaging at the point of purchase and have appeal to the "impulse" buyer. The Company believes that many of the slippers are purchased as gifts for others. Many styles of slipper-type footwear have become standard in the Company's brand lines and are in demand year after year. For many of these styles, the most significant changes made in response to fashion changes are in ornamentation, fabric and/or color. The Company often introduces new, updated styles of slippers with a view toward enhancing the fashion appeal and freshness of its products. The Company anticipates that it will continue to introduce new styles in future years in response to fashion changes. It is possible to fit most consumers of the Company's slipper-type footwear within a range of four to six sizes. This allows the Company to carry lower levels of inventories in these slipper lines compared to other footwear manufacturers. Thermal In 1994, the Company introduced on a national basis its thermal retention technology products for consumers featuring MICROCORE* microwave-activated technology developed by the Company. During that year, R. G. Barry also acquired all of the outstanding stock of Vesture, the originators of microwave-heated comfort care products. The Company's MICROCORE* thermal retention technology consists of a family of patented or proprietary technologies which, when energized with heat or cold, act as reservoirs that release heat or cold at a constant temperature for extended periods of time. The MICROCORE* thermal retention products have application as: (1) commercial products which use the Company's MICROCORE* patented thermal retention technology, either hot or cold, to preserve and transport temperature-sensitive or perishable commodities such as food, medicine, pharmaceuticals and flowers; and (2) thermal retention consumer products the Company creates, designs, sells and distributes under its brand names. Since 1997, the focus of the thermal business has been on commercial applications of the thermal retention technologies and on comfort therapy, and personal care items. In the commercial product area, the Company has made a strategic decision to focus on the commercial application of MICROCORE* patented thermal retention technology, either hot or cold, to preserve and/or transport temperature-sensitive or perishable commodities. The Company's POWERTECH* with MICROCORE* is a patented portable heat storage technology which permits portable, electrically-energized heat storage from either A.C. or D.C. power sources and at specific temperatures through the use of a thermostat. Underwriters Laboratories Inc. has granted a UL listing mark to the Company's POWERTECH* with MICROCORE* Pizza Delivery System which is designed to keep pizza hot at oven temperatures for an extended time period so that pizza marketers may deliver pizza to a home oven-hot, dry and crisp. The Company launched its POWERTECH* with MICROCORE* hot food delivery system with Donatos Pizza of Columbus, Ohio, a 130-store regional Midwest pizza chain, in the Fall of 1998. In April 2000, the Company entered into a two-year agreement to supply its Quick Heat(TM) with MICROCORE(R) Pizza Delivery System to Papa John's International, Inc., the nation's No. 3 pizza chain. The Company continues in various stages of testing the POWERTECH* with MICROCORE* Pizza Delivery System with other national and large regional pizza chains throughout the United States. In March 2000, the patent infringement lawsuit which R. G. Barry and Vesture had filed against Domino's Pizza, Inc. and Phase Change Laboratories, Inc. was settled. As a part of this settlement, the -4- 5 Company received a cash payment of $5 million, and entered into a $1 million licensing arrangement with Domino's for the future use of the Company's patented thermal retention technology. The Company's thermal retention products for consumers generally fall within two categories: (1) food preservation products, such as breadwarmer baskets and portable food carriers; and (2) comfort therapy products, such as heating pads and backwarmers, and portable, personal self-care comfort products, such as heated booties, neck packs and shoulder packs. Retail prices for substantially all of the Company's thermal retention consumer products normally range from approximately $12 to $40, depending on the product, type of retail outlet and retailer mark-up. The Company believes that the food preservation and comfort therapy thermal retention products are not weather sensitive and have a year-round sales appeal while the cold weather portion of the portable, personal self-care comfort product line is more seasonal and affected by weather changes. The thermal retention consumer products are sold under the major brand lines of Dearfoams*, Vesture*, Lava*, LavaPac*, LavaBuns* and LavaBooties*. All carry MICROCORE* energy packs. MARKETING The Company's slipper-type brand lines and thermal retention self-care consumer products are sold to traditional department stores, promotional department stores, national chain department stores and specialty stores; through mass merchandising channels of distribution such as discount stores, warehouse clubs, drug and variety chain stores, and supermarkets; and to independent retail establishments. The Company markets these products primarily through Company salespersons and, to a lesser extent, through independent sales representatives. As discussed below, the Company has entered into a strategic alliance with British slipper maker GBR Limited related to the distribution of comfort footwear products in the United Kingdom and Ireland. The Company does not finance its customers' purchases. Each spring and autumn and at numerous other times during the year, new designs and styles are presented to buyers representing the Company's retail customers at regularly scheduled showings. Company designers also produce new styles and experimental designs throughout the year which are evaluated by the Company's sales and marketing personnel. Buyers for department stores and other large retail customers attend the spring and autumn showings and make periodic visits to the Company's showroom in New York. Company salespersons regularly visit retail customers. The Company also regularly makes catalogs available to its current and potential customers and periodically follows up with current and potential customers by telephone. In addition, the Company participates in trade shows, both regionally and nationally. During the 2000 Christmas selling season, the Company again provided approximately 400 temporary merchandisers to service the retail selling floor of department stores and chain stores nationally. The Company believes that this point-of-sale management of the retail selling floor, combined with computerized automatic replenishment systems the Company installed with the stores, put the Company in a position to optimize its comfort footwear business during the fourth quarter. Sales during the last six months of each year have historically been greater than during the first six months. The Company's inventory is largest in early autumn in order to accommodate the retailers' fall selling seasons. The Company advertises principally in the print media. The Company's promotional efforts are often conducted in cooperation with customers. The Company's products are displayed at the retail-store level on a self-selection and gift-purchase basis. -5- 6 The Company believes it has an opportunity for expansion in Europe for its at-and-around-the-home comfort footwear. The Company has begun to build its business in Europe. The Company's international sales are focused on the department store channels and hypermarkets primarily in the United Kingdom and France. In 2000, the Company entered into a strategic alliance with British slipper maker GBR Limited. A new company, Barry (GBR) Limited, was formed to sell comfort footwear products in the United Kingdom and Ireland. After entering into this distributorship-like arrangement, the Company closed its London offices and shifted responsibility for marketing, selling, planning and financial administration for its products in the United Kingdom and Ireland to Barry (GBR) Limited. In return, the Company receives a fee on the transfer of all R. G. Barry-manufactured products to the new company and royalties on the sales of all products supplied to Barry (GBR) Limited by others. The Company's distribution center in Wales now handles products for Barry Comfort Europe and for Barry (GBR) Limited. The Company also markets its comfort footwear products in Canada, Mexico and several other countries around the world. In 2000, the Company's European net sales comprised approximately 7.8% of its total net sales. Financial information for the three years ended December 30, 2000 for the geographic areas in which the Company operates is presented in Note (13) to the Consolidated Financial Statements on pages 30, 31 and 32 of R. G. Barry's Annual Report to Shareholders for the fiscal year ended December 30, 2000, which is incorporated herein by this reference. The Company markets its thermal retention commercial products directly to prospective customers through Company personnel. The Company does not finance its customers' purchases. RESEARCH AND DEVELOPMENT Most of the Company's research efforts are undertaken in connection with the design and consumer appeal of new styles of slipper-type footwear and thermal retention products. During the 2000, 1999 and 1998 fiscal years, the amounts spent by the Company in connection with the research and design of new products and the improvement or redesign of existing products were approximately $2.7 million, $3.7 million and $3.9 million, respectively. Substantially all of the foregoing activities were Company-sponsored. Approximately 50 employees are engaged full time in research and design. MATERIALS The principal raw materials used by the Company in the manufacture of its slipper and thermal retention product brand lines are textile fabrics, threads, foams and other synthetic products. All are available domestically from a wide range of suppliers. The Company has experienced no difficulty in obtaining raw materials from suppliers and anticipates no future difficulty. TRADEMARKS AND LICENSES Approximately 96% of the Company's sales are represented by brand items sold under trademarks owned by the Company. The Company is the holder of many trademarks which identify its products. The trademarks which are most widely used by the Company include: (a) Angel Treads*, Barry*Comfort, Dearfoams*, Dearfoams* for Kids, Dearfoams* for Men, Madye's*, Snug Treds*, Soft Notes*, EZfeet*, and Fargeot, in the Company's Barry Comfort businesses; and (b) Dearfoams*, Vesture*, Lava*, LavaPac*, LavaBuns*, LavaBooties*, MICROCORE* and POWERTECH,* in the Company's Thermal business. The Company believes that its products are identified by its trademarks and, thus, its trademarks are of significant value. Each registered trademark has a duration of 20 years and is subject to an indefinite number of renewals for a like period upon appropriate application. The Company intends to continue the use of each of its trademarks and to renew each of its registered trademarks. -6- 7 The Company has also sold comfort footwear under various names as licensee under license agreements with the owners of those names. In each of the last three fiscal years, less than 1% of the Company's total sales were represented by footwear sold under licensed names. In November 2000, R. G. Barry entered into a license agreement with a subsidiary of Liz Claiborne, Inc. which allows R. G. Barry to manufacture and market slippers under the Liz Claiborne** and Claiborne** labels. R. G. Barry's new Liz Claiborne** Slippers for Women and Claiborne** Slippers for Men will be sold in upper-tier department stores and specialty retailers nationwide. The first collections of Liz Claiborne** Slippers for Women became available to the trade in March 2001, for Fall 2001 delivery. Claiborne** Slippers for Men will be introduced in 2002. The Liz Claiborne** Slippers for Women and Claiborne** Slippers for Men will initially be sold within the United States and Canada, although the licensor may, in its discretion, grant R. G. Barry the right to distribute these slippers in other foreign countries. The initial term of the license agreement continues through December 31, 2005, and is renewable for an additional five-year term if the net sales of slippers bearing the Liz Claiborne** and Claiborne** labels for the year immediately preceding the last year of the initial term equal or exceed a specified level. The licensor has the right to terminate the license agreement if minimum specified net sales levels are not achieved for two consecutive years. CUSTOMERS The only customer of the Company which accounted for more than 10% of the Company's consolidated net sales in the 2000, 1999 and 1998 fiscal years was Wal-Mart Stores, Inc., a Barry Comfort North America customer, which accounted for 21% in 2000, 23% in 1999 and 22% in 1998. BACKLOG OF ORDERS The Company's backlogs of orders at the close of the 2000 and 1999 fiscal years were approximately $8.7 million and $10 million, respectively. The Company anticipates that a large percentage of the orders as of the end of the 2000 fiscal year will be filled during the current fiscal year. Generally, the Company's backlog of unfilled sales orders is largest after the spring and autumn showings of the Company. For example, the Company's approximate backlog of unfilled sales orders following the conclusion of such showings during the last two years was: August 2000 -$47 million; August 1999 - $54 million; February 2000 - $8 million; and February 1999 - $13 million. The Company's backlog of unfilled sales orders reflects the seasonal nature of the Company's sales - approximately 70% to 75% of such sales occur during the second half of the year as compared to approximately 25% to 30% during the first half of the year. INVENTORY While some styles of the Company's slipper-type brand lines change little from year to year, the Company has also introduced, and intends to continue to introduce, new, updated styles in an effort to enhance the comfort and fashion appeal of its products. As a result, the Company anticipates that some of its slipper styles will change from season to season, particularly in response to fashion changes. The Company has introduced a variety of new thermal retention products to compliment its existing products in response to consumer and commercial demand. The Company believes that it will be able to control the level of its obsolete inventory. Traditionally, the Company has had a limited and manageable - -------- ** Denotes a trademark of the licensor registered in the United States Department of Commerce Patent and Trademark Office. -7- 8 exposure to obsolete inventory. However, in 2000, as a result of the Company's aggressive effort to lower inventory levels, the Company sold a sizeable amount of obsolete and out-of-season inventory in a short period of time for little or no profit. By the end of the 2000 fiscal year, the Company had liquidated substantially all of this obsolete and out-of-season inventory. Over the next several years, the Company intends to migrate to a company that produces approximately two-thirds of its products in-house and outsources the remainder to third-party suppliers. In recent years, the Company had produced approximately 90% in-house and outsourced approximately 10%. Early in 2001, the Company opened a representative office in Hong Kong, which will be responsible for procuring outsourced products from the Far East. COMPETITION The Company operates in the portion of the footwear industry providing comfort footwear for at-and-around-the-home. The Company believes that it is a small factor in the highly competitive footwear industry. The Company also believes that it is the world's largest manufacturer of comfort footwear for at-and-around-the-home. The Company also operates in an area where it provides portable warmth and cold through its line of thermal retention technology commercial and consumer products. The Company competes primarily on the basis of the value, quality and comfort of its products, service to its customers, and its marketing expertise. The Company knows of no reliable published statistics which indicate its current relative position in the footwear or any other industry or in the portion of the footwear industry providing comfort footwear for at and around the home or its current relative position in the thermal retention product industry. MANUFACTURING, SALES AND DISTRIBUTION FACILITIES The Company has six manufacturing facilities. The Company operates sewing plants in Nuevo Laredo, Ciudad Acuna, and Zacatecas, Mexico. The Company also operates a cutting plant in Laredo, Texas and a sole molding operation in San Angelo, Texas. The Company produces thermal retention products at its manufacturing facilities in Asheboro, North Carolina, and Nuevo Laredo, Mexico. The Company closed the factory in Santo Domingo, Dominican Republic, in December 2000. The Company maintains sales offices in New York, New York and Paris, France and a sourcing representative office in Hong Kong. The Company also operates distribution centers in Asheboro and Goldsboro, North Carolina; San Angelo and Laredo, Texas; Rhymney, Gwent, Wales; and Thiviers, France. The Company's principal manufacturing, sales and distribution facilities are described more fully in ITEM 2. PROPERTIES. EFFECT OF ENVIRONMENTAL REGULATION Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect on the Company's capital expenditures, earnings or competitive position. The Company believes that the nature of its operations has little, if any, environmental impact. The Company, therefore, anticipates no material capital expenditures for environmental control facilities for its current fiscal year or for the foreseeable future. -8- 9 EMPLOYEES At the close of the 2000 fiscal year, the Company employed approximately 2,600 persons. ITEM 2. PROPERTIES. - -------------------- The Company owns a warehouse facility in Goldsboro, North Carolina, containing approximately 170,000 square feet. The Company leases space aggregating approximately 1 million square feet at an approximate aggregate annual rental of $3.0 million. The following table describes the Company's principal leased properties:
APPROXIMATE APPROXIMATE LEASE LOCATION USE SQUARE FEET ANNUAL RENTAL EXPIRES RENEWALS - -------- --- ----------- ------------- ------- -------- Empire State Building Sales Office 4,300 $115,000 2003 None New York City, N.Y. 2800 Loop 306 Manufacturing, Office, 145,800 $166,000 (1) 2005 10 years San Angelo, Texas Warehouse Distribution Center Shipping, Warehouse 172,800 $462,000 (1) 2007 15 years San Angelo, Texas Cesar Lopez de Lara Manufacturing, Office 90,200 $300,000 2004 None Ave. Nuevo Laredo, Mexico Ciudad Acuna Manufacturing, Office 64,700 $302,000 2004 5 years Industrial Park Ciudad Acuna, Mexico Bob Bullock Loop Manufacturing, Warehouse, 165,000 $386,000 (1) 2001 2 terms-5 Laredo, Texas Office years each Bob Bullock Loop Manufacturing, Warehouse, 76,000 $190,000 (1) 2006 5 years Laredo, Texas Storage Industrial Zone Manufacturing 26,200 $ 58,000 2003 1 term of 5 Zacatecas, Mexico years Industrial Zone Manufacturing 25,800 $ 48,000 2005 3 terms-5 Zacatecas, Mexico years each 120 E. Pritchard St. Manufacturing, Office, 57,500 $ 96,000 (1) 2001 None Asheboro, North Carolina Warehouse
-9- 10
APPROXIMATE APPROXIMATE LEASE LOCATION USE SQUARE FEET ANNUAL RENTAL EXPIRES RENEWALS - -------- --- ----------- ------------- ------- -------- 8000 Interstate Administrative Office 17,000 $322,000 2003 None Highway 10 West San Antonio, Texas Rhymney, Gwent, Wales Warehouse 8,000 $ 21,000 Month- N/A to-Month West Gate Tower Sourcing Representative 1,311 $28,700 2003 None 7 Wing Hong Street Office Lai Chi Kok, Kowloon Hong Kong
- ---------------------- (1) Net lease. The Company believes that all of the buildings owned or leased by it are well maintained, in good operating condition, and suitable for their present uses. ITEM 3. LEGAL PROCEEDINGS. - -------------------------- There are no pending legal proceedings to which R. G. Barry or any of its subsidiaries is a party or to which any of their respective properties are subject, except routine legal proceedings to which they are parties incident to their respective businesses. None of these proceedings are considered by R. G. Barry to be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------ Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT. - ------------------------------------ The following table lists the names and ages of the executive officers of R. G. Barry as of March 15, 2001, the positions with R. G. Barry presently held by each executive officer and the business experience of each executive officer during the past five years. Unless otherwise indicated, each individual has had his principal occupation for more than five years. Executive officers serve at the discretion of the Board of Directors and in the case of Messrs. Zacks, Lenich, Galvis and Viren, pursuant to employment agreements. -10- 11
POSITION(S) HELD WITH R. G. BARRY AND NAME AGE PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS - ---- --- ------------------------------------------- Gordon Zacks 68 Chairman of the Board and Chief Executive Officer since 1979, President from 1992 to February 2001, and a Director since 1959, of R. G. Barry William Lenich 52 President, Chief Operating Officer and a Director of R. G. Barry since February 2001; President and Chief Operating Officer of International from 1997 to February 2001, and Group President of Retail from 1999 to February 2001 and from 1990 to 1997, of Nine West Group, Inc., a women's retail shoe company Christian Galvis 59 Executive Vice President-Operations and a Director since 1992, President-Operations of Barry Comfort Group since January 1998, and Vice President-Operations from 1991 to 1992, of R. G. Barry Daniel D. Viren 54 Senior Vice President - Finance and Chief Financial Officer since June 2000, Secretary and Treasurer since October 2000, Senior Vice President - Administration from 1992 to July 1999, and Assistant Secretary from 1994 to July 1999, of R. G. Barry; Senior Vice President and Chief Financial Officer of Metatec International, Inc., an international information distribution company, from July 1999 to June 2000 Harry Miller 58 Vice President-Human Resources of R. G. Barry since 1993 Donald Van Steyn 56 Vice President, Chief Information Officer since May 2000, Vice President - Information Systems/Services from May 1996 to May 2000 and Director of Information Services from December 1988 to May 1996 of R. G. Barry
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. - ------------------------------------------------------------------------------ The information called for in this Item 5 is incorporated by reference to page 10 of R. G. Barry's Annual Report to Shareholders for the fiscal year ended December 30, 2000. ITEM 6. SELECTED FINANCIAL DATA. - ---------------------------------- The information called for in this Item 6 is incorporated by reference to pages 8 and 9 of R. G. Barry's Annual Report to Shareholders for the fiscal year ended December 30, 2000. -11- 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATION. - ------------- The information called for in this Item 7 is incorporated by reference to pages 11 through 16 of R. G. Barry's Annual Report to Shareholders for the fiscal year ended December 30, 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. - --------------------------------------------------------------------- As of December 30, 2000, R. G. Barry and its subsidiaries were not party to any market risk sensitive instruments which would require disclosure under Item 305 of Regulation S-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - ----------------------------------------------------- The Consolidated Balance Sheets of R. G. Barry and its subsidiaries as of December 30, 2000 and January 1, 2000, the related Consolidated Statements of Operations, of Shareholders' Equity and of Cash Flows for each of the fiscal years in the three-year period ended December 30, 2000, the related Notes to Consolidated Financial Statements and the Independent Auditors' Report, appearing on pages 17 through 34 of R. G. Barry's Annual Report to Shareholders for the fiscal year ended December 30, 2000, are incorporated by reference. Quarterly Financial Data set forth on page 10 of R. G. Barry's Annual Report to Shareholders for the fiscal year ended December 30, 2000, are also incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE. - --------------------- None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. - ------------------------------------------------------------ The information called for in this Item 10 is incorporated by reference to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 10, 2001, under the captions "ELECTION OF DIRECTORS," "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS--Employment Contracts, Restricted Stock Agreements and Termination of Employment and Change-in-Control Arrangements" and "SHARE OWNERSHIP--Section 16(a) Beneficial Ownership Reporting Compliance." In addition, information concerning R. G. Barry's executive officers is included in the portion of Part I of this Annual Report on Form 10-K entitled "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION. - --------------------------------- The information called for in this Item 11 is incorporated by reference to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 10, 2001, under the caption "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS." -12- 13 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - ------------------------------------------------------------------------ The information called for in this Item 12 is incorporated by reference to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 10, 2001, under the captions "SHARE OWNERSHIP" and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS -- Employment Contracts, Restricted Stock Agreements and Termination of Employment and Change-in-Control Arrangements." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------------------------------------------------------- The information called for in this Item 13 is incorporated by reference to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 10, 2001, under the captions "SHARE OWNERSHIP," "ELECTION OF DIRECTORS" and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. - -------------------------------------------------------------------------- (a)(1) FINANCIAL STATEMENTS. -------------------- For a list of all financial statements incorporated by reference in this Annual Report on Form 10-K, see "Index to Financial Statements and Financial Statement Schedules" at page 16. (a)(2) FINANCIAL STATEMENT SCHEDULES. ----------------------------- For a list of all financial statement schedules included in this Annual Report on Form 10-K, see "Index to Financial Statements and Financial Statement Schedules" at page 16. (a)(3) EXHIBITS. -------- Exhibits filed with this Annual Report on Form 10-K are attached hereto. For list of these exhibits, see "Index to Exhibits" beginning at page E-1. (b) REPORTS ON FORM 8-K R. G. Barry filed no Current Reports on Form 8-K during the fiscal quarter ended December 30, 2000. (c) EXHIBITS Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see "Index to Exhibits" beginning at page E-1. (d) FINANCIAL STATEMENT SCHEDULES Financial Statement Schedules included with this Annual Report on Form 10-K are attached hereto. See "Index to Financial Statements and Financial Statement Schedules" at page 16. -13- 14 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. R. G. BARRY CORPORATION Date: March 29, 2001 By: /s/ Daniel D. Viren --------------------- Daniel D. Viren, Senior Vice President-Finance, Secretary and Treasurer 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 on the 29th day of March, 2001. NAME CAPACITY * Chairman of the Board, Chief Executive - ------------------------------- Officer and Director Gordon Zacks * President, Chief Operating Officer and - ------------------------------- Director William Lenich * Executive Vice President-Operations, - ------------------------------- President-Operations of Barry Comfort Christian Galvis Group and Director * Director - ------------------------------- Philip G. Barach * Director - ------------------------------- Richard L. Burrell * Director - ------------------------------- Roger E. Lautzenhiser Director - ------------------------------- Harvey M. Krueger * Director - ------------------------------- Janice Page * Director - ------------------------------- Edward M. Stan * Director - ------------------------------- Harvey Weinberg -14- 15 /s/ Daniel D. Viren Senior Vice President-Finance, - --------------------------- Secretary and Treasurer (Chief Financial Daniel D. Viren and Principal Accounting Officer) - --------------------------- By Daniel D. Viren pursuant to Powers of Attorney executed by the directors and executive officers listed above, which Powers of Attorney have been filed with the Securities and Exchange Commission. /s/ Daniel D. Viren - ---------------------------- Daniel D. Viren -15- 16 R. G. BARRY CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 30, 2000 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ---------------------------------
DESCRIPTION OF FINANCIAL STATEMENTS (ALL OF WHICH ARE PAGE(S) IN ANNUAL INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON REPORT TO SHAREHOLDERS FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000) FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000 Consolidated Balance Sheets at December 30, 2000 and January 1, 2000 ........................................................... 17 Consolidated Statements of Operations for the years ended December 30, 2000, January 1, 2000 and January 2, 1999......................................... 18 Consolidated Statements of Shareholders' Equity for the years ended December 30, 2000, January 1, 2000 and January 2, 1999...................... 18 Consolidated Statements of Cash Flows for the years ended December 30, 2000, January 1, 2000 and January 2, 1999...................... 19 Notes to Consolidated Financial Statements........................................... 20-33 Independent Auditors' Report......................................................... 34
ADDITIONAL FINANCIAL DATA The following additional financial data should be read in conjunction with the Consolidated Financial Statements of R. G. Barry Corporation and its subsidiaries included in the Annual Report to Shareholders for the fiscal year ended December 30, 2000. Schedules not included with this additional financial data have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. Additional Financial Data: Independent Auditor's Report on Financial Statement Schedules: Included at page 17 of this Annual Report on Form 10-K Schedules for the fiscal years ended December 30, 2000, January 1, 2000, January 2, 1999: Schedule 2--Valuation and Qualifying Accounts: Included at pages 18 through 20 of this Annual Report on Form 10-K -16- 17 [KPMG LETTERHEAD] Two Nationwide Plaza Telephone 614 249 2300 Columbus, OH 43215 Fax 614 249 2348 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES The Board of Directors and Shareholders R. G. Barry Corporation: Under date of February 20, 2001 we reported on the consolidated balance sheets of R. G. Barry Corporation and subsidiaries as of December 30, 2000 and January 1, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended December 30, 2000, as contained in the fiscal 2000 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the fiscal year 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Columbus, Ohio February 20, 2001 17 18 SCHEDULE 2 R. G. BARRY CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts December 30, 2000
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------- -------------- -------------- -------------- --------------- ADDITIONS BALANCE AT CHARGED TO ADJUSTMENTS BALANCE AT BEGINNING COSTS AND AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD ----------- -------------- -------------- -------------- --------------- Reserves deducted from accounts receivable: Allowance for doubtful receivables $ 289,000 246,000 151,000(1) 384,000 Allowance for returns 11,200,000 5,077,000 11,200,000(2) 5,077,000 Allowance for promotions 9,293,000 8,680,000 9,293,000(3) 8,680,000 -------------- -------------- -------------- --------------- $ 20,782,000 14,003,000 20,644,000 14,141,000 ============== ============== ============== ===============
Notes: (1.) Write-off uncollectible accounts. (2.) Represents 2000 sales returns reserved for in fiscal 1999. (3.) Represents 2000 promotions expenditures committed to and reserved for in fiscal 1999. -18- 19 SCHEDULE 2 R. G. BARRY CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts January 1, 2000
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------- -------------- -------------- -------------- --------------- ADDITIONS BALANCE AT CHARGED TO ADJUSTMENTS BALANCE AT BEGINNING COSTS AND AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD ------------ -------------- -------------- -------------- --------------- Reserves deducted from accounts receivable: Allowance for doubtful receivables $ 232,000 413,000 356,000(1) 289,000 Allowance for returns 9,749,000 11,200,000 9,749,000(2) 11,200,000 Allowance for promotions 6,040,000 9,293,000 6,040,000(3) 9,293,000 -------------- -------------- -------------- --------------- $ 16,021,000 20,906,000 16,145,000 20,782,000 ============== ============== ============== ===============
Notes: (1.) Write-off uncollectible accounts. (2.) Represents 1999 sales returns reserved for in fiscal 1998. (3.) Represents 1999 promotions expenditures committed to and reserved for in fiscal 1998. -19- 20 SCHEDULE 2 R. G. BARRY CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts January 2, 1999
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------- --------------- -------------- -------------- --------------- ADDITIONS BALANCE AT CHARGED TO ADJUSTMENTS BALANCE AT BEGINNING COSTS AND AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD ------------ --------------- -------------- -------------- --------------- Reserves deducted from accounts receivable: Allowance for doubtful receivables $ 204,000 77,000 49,000(1) 232,000 Allowance for returns 8,410,000 9,749,000 8,410,000(2) 9,749,000 Allowance for promotions 3,989,000 6,040,000 3,989,000(3) 6,040,000 --------------- -------------- -------------- --------------- $ 12,603,000 15,866,000 12,448,000 16,021,000 =============== ============== ============== ===============
Notes: (1.) Write-off uncollectible accounts. (2.) Represents 1998 sales returns reserved for in fiscal 1997. (3.) Represents 1998 promotions expenditures committed to and reserved for in fiscal 1997. -20- 21 R. G. BARRY CORPORATION ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 30, 2000 INDEX TO EXHIBITS
Exhibit No. Description Location ----------- ----------- -------- 2.1 Stock Purchase Agreement, dated July 22, 1999, Incorporated herein by reference to between Mr. Thierry Civetta, Mr. Michel Registrant's Quarterly Report on Form 10-Q Fargeot, FCPR County Natwest Venture France, for the fiscal quarter ended October 2, SCA Capital Prive-Investissements, Hoche 1999 (File No. 1-8769) [Exhibit 2.1] Investissements, and SA Capital Prive, parties of the first part, and R. G. Barry Corporation ("Registrant") and Escapade, S.A., parties of the second part 3.1 Articles of Incorporation of Registrant (as Incorporated herein by reference to filed with Ohio Secretary of State on March 26, Registrant's Annual Report on Form 10-K for 1984) the fiscal year ended December 31, 1988 (File No. 0-12667) ("Registrant's 1988 Form 10-K") [Exhibit 3(a)(i)] 3.2 Certificate of Amendment to the Articles of Incorporated herein by reference to Incorporation of Registrant Authorizing the Registrant's 1988 Form 10-K Series I Junior Participating Class B Preferred [Exhibit 3(a)(i)] Shares (as filed with the Ohio Secretary of State on March 1, 1988) 3.3 Certificate of Amendment to the Articles of Incorporated herein by reference to Registrant (as filed with the Ohio Secretary of Registrant's 1988 Form 10-K State on May 9, 1988) [Exhibit 3(a)(i)] 3.4 Certificate of Amendment to the Articles of Incorporated herein by reference to Incorporation of Registrant (as filed with the Registrant's Annual Report on Form 10-K for Ohio Secretary of State on May 22, 1995) the fiscal year ended December 30, 1995 (File No. 1-8769) ("Registrant's 1995 Form 10-K") [Exhibit 3(b)] 3.5 Certificate of Amendment to Articles of Incorporated herein by reference to Incorporation of Registrant (as filed with the Registrant's 1995 Form 10-K [Exhibit 3(c)] Ohio Secretary of State on September 1, 1995)
E-1 22
Exhibit No. Description Location ----------- ----------- -------- 3.6 Certificate of Amendment to Articles of Incorporated herein by reference to Incorporation of Registrant (as filed with the Registrant's Registration Statement on Form Ohio Secretary of State on May 30, 1997) S-8, filed June 6, 1997 (Registration No. 333-28671) [Exhibit 4(h)(6)] 3.7 Certificate of Amendment to the Articles of Incorporated herein by reference to Incorporation of Registrant Authorizing Registrant's Annual Report on Form 10-K for Series I Junior Participating Class A Preferred the fiscal year ended January 3, 1998 (File Shares (as filed with the Ohio Secretary of No. 1-8769) ("Registrant's 1997 Form 10-K") State on March 10, 1998) [Exhibit 3(a)(7)] 3.8 Articles of Incorporation of Registrant Incorporated herein by reference to (reflecting amendments through March 10, 1998) Registrant's 1997 Form 10-K [Exhibit [for purposes of SEC reporting compliance only 3(a)(8)] -- not filed with the Ohio Secretary of State] 3.9 Regulations of Registrant, as amended Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1988 (File No. 0-12667) [Exhibit 3(b)] 4.1 Revolving Credit Agreement, made to be * effective on March 12, 2001, between Registrant and The Huntington National Bank 4.2 Note Agreement, dated July 5, 1994, between Incorporated herein by reference to Registrant and Metropolitan Life Insurance Registrant's Registration Statement on Form Company S-3, filed July 21, 1994 (Registration No. 33-81820) [Exhibit 4(t)] 4.3 Letter, dated July 16, 1999, from Metropolitan Incorporated herein by reference to Life Insurance Company to Registrant in respect Registrant's Quarterly Report on Form 10-Q of loan agreement dated July 5, 1994 for the fiscal quarter ended July 3, 1999 (File No. 1-8769) [Exhibit 4.2] 4.4 Rights Agreement, dated as of February 19, Incorporated herein by reference to 1998, between Registrant and The Bank of New Registrant's Current Report on Form 8-K, York, as Rights Agent dated March 13, 1998 and filed March 16, 1998 (File No. 1-8769) [Exhibit 4]
E-2 23
Exhibit No. Description Location ----------- ----------- -------- 4.5 Loan Agreement, dated as of January 21, 2000, Incorporated herein by reference to among Banque Tarneaud, S.A., Banque Nationale Registrant's Quarterly Report on Form 10-Q de Paris, and Escapade, S.A. for the fiscal quarter ended April 1, 2000 (File No. 1-8769) [Exhibit 4] 9.1 Zacks-Streim Voting Trust and amendments thereto Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (File No. 1-8769) [Exhibit 9] 9.2 Documentation related to extension of term of Incorporated herein by reference to the Voting Trust Agreement for the Zacks-Streim Registrant's 1995 Form 10-K [Exhibit 10(a)] Voting Trust **10.1 R. G. Barry Corporation Associates' Retirement Incorporated herein by reference to Plan (As Amended and Restated Effective January Registrant's 1997 Form 10-K [Exhibit 10(a)] 1, 1996) **10.2 R. G. Barry Corporation Supplemental Retirement Incorporated herein by reference to Plan Effective January 1, 1997 (now known as Registrant's Annual Report on Form 10-K for the R. G. Barry Corporation Restoration Plan) the fiscal year ended January 1, 2000 (File No. 1-8769) ("Registrant's January 2000 Form 10-K") [Exhibit 10.2] **10.3 Amendment No. 1 to the R.G. Barry Corporation Incorporated here in by reference to Supplemental Retirement Plan Effective January Registrant's January 2000 Form 10-K 1, 1997 (Executed effective as of May 12, 1998) [Exhibit 10.3] **10.4 Amendment No. 2 to the R.G. Barry Corporation Incorporated herein by reference to Supplemental Retirement Plan Effective January Registrant's January 2000 Form 10-K 1, 1997 (Executed effective as of January 1, [Exhibit 10.4] 2000) **10.5 Employment Agreement, dated July 1, 1998, Incorporated herein by reference to between Registrant and Gordon Zacks Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1999 (File No. 1-8769) [Exhibit 10(d)]
E-3 24
Exhibit No. Description Location ----------- ----------- -------- **10.6 Agreement, dated September 27, 1989, between Incorporated herein by reference to Registrant and Gordon Zacks Registrant's Current Report on Form 8-K dated October 11, 1989, filed October 12, 1989 (File No. 0-12667) [Exhibit 28.1] **10.7 Amendment No. 1, dated as of October 12, 1994, Incorporated herein by reference to between Registrant and Gordon Zacks Amendment No. 14 to Schedule 13D, dated January 27, 1995, filed by Gordon Zacks on February 13, 1995 [Exhibit 5] **10.8 Amended Split-Dollar Insurance Agreement, dated Incorporated herein by reference to March 23, 1995, between Registrant and Registrant's 1995 Form 10-K [Exhibit 10(h)] Gordon B. Zacks **10.9 R. G. Barry Corporation 1988 Stock Option Plan Incorporated herein by reference to (Reflects amendments through May 11, 1993) Registrant's Registration Statement on Form S-8, filed August 18, 1993 (Registration No. 33-67594) [Exhibit 4(r)] **10.10 Form of Stock Option Agreement used in Incorporated herein by reference to connection with the grant of incentive stock Registrant's 1995 Form 10-K [Exhibit 10(k)] options pursuant to the R. G. Barry Corporation 1988 Stock Option Plan **10.11 Form of Stock Option Agreement used in Incorporated herein by reference to connection with the grant of non-qualified Registrant's 1995 Form 10-K [Exhibit 10(l)] stock options pursuant to the R. G. Barry Corporation 1988 Stock Option Plan **10.12 Description of Incentive Bonus Program (in Incorporated herein by reference to effect through the fiscal year ended Registrant's Annual Report on Form 10-K for December 30, 2000) the fiscal year ended December 28, 1991 (File No. 1-8769) [Exhibit 10(k)] **10.13 Annual Incentive Program (in effect for the * fiscal year ended December 29, 2001 and after)
E-4 25
Exhibit No. Description Location ----------- ----------- -------- **10.14 R. G. Barry Corporation Employee Stock Purchase Incorporated herein by reference to Plan (Reflects amendments and revisions for Registrant's Registration Statement on Form stock dividends and stock splits through S-8, filed August 18, 1993 (Registration May 11, 1993) No. 33-67596) [Exhibit 4(r)] **10.15 R. G. Barry Corporation 1994 Stock Option Plan Incorporated herein by reference to (Reflects stock splits through June 22, 1994) Registrant's Registration Statement on Form S-8, filed August 24, 1994 (Registration No. 33-83252) [Exhibit 4(q)] **10.16 Form of Stock Option Agreement used in * connection with the grant of incentive stock options pursuant to the R. G. Barry Corporation 1994 Stock Option Plan **10.17 Form of Stock Option Agreement used in * connection with the grant of non-qualified stock options pursuant to the R. G. Barry Corporation 1994 Stock Option Plan **10.18 Executive Employment Agreement, effective as of Incorporated herein by reference to January 4, 1998, between Registrant and Registrant's 1997 Form 10-K [Exhibit 10(q)] Christian Galvis **10.19 Restricted Stock Agreement, effective as of Incorporated herein by reference to January 4, 1998, between Registrant and Registrant's 1997 Form 10-K [Exhibit 10(s)] Christian Galvis **10.20 R. G. Barry Corporation Deferred Compensation Incorporated herein by reference to Plan As Amended and Restated (Effective as of Registrant's 1995 Form 10-K [Exhibit 10(v)] September 1, 1995) **10.21 Amendment No. 1 to the R.G. Barry Corporation Incorporated herein by reference to Deferred Compensation Plan (Effective as of Registrant's January 2000 Form 10-K March 1, 1997) [Exhibit 10.21] **10.22 R. G. Barry Corporation Stock Option Plan for Incorporated herein by reference to Non-Employee Directors (Reflects share splits Registrant's 1997 Form 10-K [Exhibit 10(x)] and amendments through February 19, 1998)
E-5 26
Exhibit No. Description Location ----------- ----------- -------- **10.23 R. G. Barry Corporation 1997 Incentive Stock Incorporated herein by reference to Plan (Reflects amendments through May 13, 1999) Registrant's Registration Statement on Form S-8, filed June 18, 1999 (Registration No. 333-81105) [Exhibit 10] **10.24 Form of Stock Option Agreement used in * connection with the grant of incentive stock options pursuant to the R. G. Barry Corporation 1997 Incentive Stock Plan **10.25 Form of Stock Option Agreement used in * connection with the grant of non-qualified stock options pursuant to the R. G. Barry Corporation 1997 Incentive Stock Plan **10.26 Restricted Stock Agreement, dated as of May 13, Incorporated herein by reference to 1999, between Registrant and Gordon Zacks Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1999 (File No. 1-8769) [Exhibit 10.1] **10.27 Restricted Stock Agreement, effective as of Incorporated herein by reference to March 23, 2000, between Registrant and Registrant's Quarterly Report on Form 10-Q Christian Galvis for the fiscal quarter ended April 1, 2000 (File No. 1-8769) [Exhibit 10] **10.28 Employment Agreement, effective February 19, * 2001, between Registrant and William Lenich **10.29 Executive Employment Agreement, effective as of * June 5, 2000, between Registrant and Daniel D. Viren **10.30 Change in Control Agreement, effective as of * January 4, 2001, between Registrant and Harry Miller **10.31 Change in Control Agreement, effective as of * January 4, 2001, between Donald Van Steyn and Registrant **10.32 Consulting Services Agreement, effective as of * January 1, 2000, between Registrant and Florence Zacks Melton
E-6 27
Exhibit No. Description Location ----------- ----------- -------- **10.33 Agreement, dated February 7, 1952, as amended * by Agreement of Amendment dated September 18, 1961, a Second Amendment dated April 15, 1968 and a Third Amendment dated October 31, 2000, between Registrant and Florence Zacks Melton 13.1 Registrant's Annual Report to Shareholders for Incorporated herein by reference to the the fiscal year ended December 30, 2000 (Not financial statements portion of this Annual deemed filed except for the portions thereof Report on Form 10-K beginning at page 16 which are specifically incorporated by reference into this Annual Report on Form 10-K) 18.1 Letter from Registrant's Independent * Accountants regarding Change in Accounting Methods 21.1 Subsidiaries of Registrant * 23.1 Consent of Independent Certified Public * Accountants 24.1 Powers of Attorney Executed by Directors and * Executive Officers of Registrant
- ----------------------- * Filed herewith ** Management contract or compensatory plan or arrangement. E-7 EX-4.1 2 l86966aex4-1.txt EXHIBIT 4.1 1 Exhibit 4.1 REVOLVING CREDIT AGREEMENT BETWEEN R. G. BARRY CORPORATION, BORROWER, AND THE HUNTINGTON NATIONAL BANK, LENDER. MARCH 12, 2001 2 TABLE OF CONTENTS SECTION 1. COMMITMENT .......................................................1 1.1 Basic Commitment Terms ...........................................1 1.2 Commitment Limitations ..........................................1 1.3 Borrowing Base....................................................1 SECTION 2. REPRESENTATIONS AND WARRANTIES....................................2 2.1 Organization, Corporate Power, etc ...............................2 2.2 Litigation .......................................................2 2.3 Financial Condition ..............................................2 2.4 Title to Properties ..............................................2 2.5 Liabilities ......................................................2 2.6 Investments ......................................................3 2.7 Renegotiation of Government Contracts ............................3 2.8 Taxes ............................................................3 2.9 ERISA ............................................................3 2.10 Use of Proceeds ..................................................3 2.11 Compliance with Law ..............................................3 2.12 Government Consent ...............................................4 2.13 Legal and Binding Obligation .....................................4 2.14 Investment Company Act ...........................................4 2.15 Locations of Business.............................................4 SECTION 3. CERTAIN DEFINITIONS ..............................................4 3.1 "Affiliate" ......................................................4 3.2 "Alternate Base Rate" ............................................5 3.3 "Business Day" ...................................................5 3.4 "Capitalized Lease" ..............................................5 3.5 "Capitalized Lease Obligation" ...................................5 3.6 "Consolidated Current Liabilities.................................5 3.7 "Consolidated Net Income".........................................5 3.8 "Consolidated Net Interest Expense"...............................5 3.9 "Consolidated Net Tangible Assets" ...............................5 3.10 "Consolidated Tangible Net Worth".................................5 3.11 "Consolidated Total Assets" ......................................6 3.12 "Current Debt"....................................................6 3.13 "Debt"............................................................6 3.14 "Default".........................................................6 3.15 "Dollars" and "$".................................................6 3.16 "Domestic Loans"..................................................6 3.17 "Eligible Accounts"...............................................6 3.18 "Eligible Inventory"..............................................7
i 3 3.19 "Eurodollar Interest Rate"........................................8 3.20 "Eurodollar Loans" ..............................................8 3.21 "Event of Default"................................................8 3.22 "Federal Funds Rate"..............................................8 3.23 "Funded Debt".....................................................8 3.24 "GAAP"............................................................8 3.25 "Guaranties"......................................................8 3.26 "Interest Period".................................................9 3.26.1 ...........................................................9 3.26.2 ...........................................................9 3.27 "Investment"......................................................9 3.28 "LIBOR" ..........................................................9 3.29 "LIBOR Business Day" ............................................10 3.30 "Lien"...........................................................10 3.31 "Loan" or "Loans"................................................10 3.32 "Loan Document"..................................................10 3.33 "Metropolitan Agreement".........................................10 3.34 "Net Income".....................................................11 3.35 "Note" or "Notes" ...............................................11 3.36 "Permitted Investments" .........................................11 3.36.1...........................................................11 3.36.2...........................................................11 3.36.3...........................................................11 3.36.4...........................................................11 3.36.5...........................................................11 3.36.6...........................................................11 3.36.7...........................................................11 3.36.8...........................................................11 3.37 "Person" ........................................................12 3.38 "Prime Rate" ....................................................12 3.39 "Subsidiary" ....................................................12 3.40 "Termination Date" ..............................................12 SECTION 4. BORROWING PROVISION..............................................12 4.1 Amount of Revolving Credit.......................................12 4.2 Evidence of Loans Made Under Revolving Credit ...................13 4.3 Commitment Fees .................................................13 4.4 Conversion of Loans .............................................13 4.5 Prepayment ......................................................14 4.6 Termination or Reduction Options ................................14 4.7 Interest Payment Dates ..........................................14 4.8 Payment Method ..................................................14 4.9 No Setoff or Deduction ..........................................15 4.10 Payment on Non-Business Day; Payment Computations ...............15
ii 4 SECTION 5. [INTENTIONALLY OMITTED]..........................................15 SECTION 6. CONDITIONS OF LENDING ...........................................15 6.1 Opinion of Counsel for Borrower .................................15 6.2 Supporting Documents ............................................16 6.3 No Default ......................................................16 6.4 Delivery of Note ................................................16 SECTION 7. PROVISIONS RELATING TO EURODOLLAR LOANS .........................16 7.1 Additional Costs ................................................16 7.2 Additional Eurocurrency Reserves ................................17 7.3 Limitations of Requests and Elections ...........................17 7.4 Illegality and Impossibility ....................................18 7.5 Indemnification .................................................18 7.6 Survival of Obligations .........................................19 SECTION 8. AFFIRMATIVE COVENANTS ...........................................19 8.1 Financial Statements ............................................19 8.2 Out of Pocket Expenses ..........................................20 8.3 Compliance with Statutes; Payment of Taxes ......................20 8.4 Insurance .......................................................20 8.5 Corporate Existence .............................................20 8.6 ERISA ...........................................................20 8.7 Books and Records ...............................................21 8.8 Inspection of Books and Records .................................21 8.9 Notification by Borrower ........................................21 8.10 Amendments to Metropolitan Agreement ............................21 8.11 Notice of Claims ................................................21 8.12 Restriction on Consolidated Assets...............................21 8.13 Resting of Loan..................................................21 SECTION 9. NEGATIVE COVENANTS ..............................................22 9.1 Limitations on Debt..............................................22 9.1.1 ...........................................................22 9.1.2 ...........................................................22 9.1.3............................................................22 9.1.4............................................................22 9.1.5............................................................22 9.1.6............................................................22 9.1.7............................................................22 9.2 Maintenance of Consolidated Tangible Net Worth ..................22 9.3 Restricted Payments .............................................22 9.4 Capital Expenditures.............................................23
iii 5 9.5 Liens ...........................................................23 9.5.1............................................................23 9.5.2............................................................23 9.5.3............................................................23 9.5.4............................................................23 9.5.5............................................................23 9.5.6............................................................24 9.6 Restrictions on Subsidiaries ....................................24 9.6.1 ...........................................................24 9.6.2 ...........................................................24 9.6.3............................................................24 9.7 Disposition of Assets ...........................................24 9.7.1 ...........................................................24 9.7.2 ...........................................................25 9.7.3 ...........................................................25 9.8 Transactions with Affiliates ....................................25 9.9 Restrictions on Borrower ........................................25 9.9.1 ...........................................................25 9.9.2 ...........................................................25 9.10 Permitted Investments ...........................................25 9.11 Limitation on Restrictive Covenants .............................26 9.12 Loan, Advances and Purchases of Stock ...........................26 9.12.1...........................................................26 9.12.2...........................................................26 9.13 EBITDA...........................................................26 SECTION 10. FURTHER ASSURANCE ...............................................26 SECTION 11. TAXES AND STAMPS ................................................27 SECTION 12. [INTENTIONALLY OMITTED] .........................................27 SECTION 13. DEFAULT .........................................................27 13.1 Events of Default ...............................................27 13.1.1...........................................................27 13.1.2...........................................................27 13.1.3...........................................................27 13.1.4...........................................................27 13.1.5...........................................................27 13.1.6...........................................................28 13.1.7...........................................................28 13.1.8...........................................................28 13.1.9...........................................................28 13.1.10 .........................................................29
iv 6 13.2. Remedies ........................................................29 13.2.1 ..........................................................29 13.2.2 ..........................................................29 13.2.3...........................................................30 SECTION 14. MISCELLANEOUS ...................................................30 14.1 Amendments, Etc. ................................................30 14.2 Notices .........................................................30 14.3 Conduct No Waiver; Remedies Cumulative ..........................30 14.4 Reliance on and Survival of Various Provisions ..................31 14.5 Expenses ........................................................31 14.5.1 ..........................................................31 14.5.2 ..........................................................31 14.6 Successors and Assigns ..........................................31 14.7 Assignment to Federal Reserve Banks .............................31 14.8 Counterparts ....................................................32 14.9 Governing Law, Consent to Jurisdiction and Waiver of Immunity ...32 14.10 Waiver of Jury Trial ............................................32 14.11 Headings ........................................................32 14.12 Construction of Certain Provisions ..............................33 14.13 Integration and Severability ....................................33 14.14 Usury ...........................................................33
v 7 EXHIBITS AND SCHEDULES Exhibit A - Form of Revolving Credit Note Exhibit B - Metropolitan Agreement Exhibit C - Form of Written Notice of Loan Conversion Exhibit D - Form of Officer's Compliance Certificate Exhibit E - Form of Monthly Borrowing Base Calculation Schedule 2.1 - Corporate Structure of Borrower and Subsidiaries Schedule 2.2 - Pending Litigation Against Borrower and its Subsidiaries Schedule 2.4 - Liens on Property and Assets of Borrower and its Subsidiaries Schedule 2.15 - Business Locations of Borrower and its Subsidiaries Schedule 9.1 - Existing Debt Schedule 9.3 - Permitted Payments Schedule 9.6 - Existing Subsidiary Debt vi 8 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT (this "Agreement"), is made and entered into to be effective on March 12, 2001, by and between R. G. BARRY CORPORATION, an Ohio corporation (hereinafter called the "Borrower"), and THE HUNTINGTON NATIONAL BANK, a national banking association of Columbus, Ohio (hereinafter called the "Bank"); The Borrower and the Bank hereby agree as follows: SECTION 1. COMMITMENT. 1.1. Basic Commitment Terms. The Borrower has applied to the Bank for revolving credit loans up to an aggregate principal amount of $30,000,000, the proceeds of which are to be used by the Borrower for general corporate purposes, including, without limitation, seasonal financing of inventory and accounts receivable. The Bank is willing to make such loans to the Borrower upon the terms and subject to the conditions hereinafter set forth up to a maximum aggregate principal amount not in excess of $30,000,000 (said amount being hereinafter called the "Commitment" of the Bank). Notwithstanding anything to the contrary contained in any Note evidencing the Loan, the principal amount advanced by the Bank pursuant to the Note held by the Bank shall not exceed the amount of the Bank's Commitment. 1.2. Commitment Limitations. Notwithstanding the foregoing, during the following periods in each year occurring during the term of this Agreement, the aggregate Commitment of the Bank shall be in an amount equal to the lesser of the following amounts or the amount to which the Commitment has been reduced pursuant to Section 4.6 hereof.
Period Commitment ------ ---------- From 12/31 through 1/31 $0 From 02/01 through 02/28 $3,000,000 From 03/01 through 03/31 $15,000,000 From 04/01 through 11/29 $30,000,000 From 11/30 through 12/30 $27,000,000
1.3 Borrowing Base. Notwithstanding the foregoing provisions of Sections 1.1 and 1.2, the aggregate principal balance of the Loans at any time outstanding shall not exceed the lesser of (a) the Commitment of the Bank, reduced as provided in Section 1.2 and (b) the Borrowing Base (as hereinafter defined). As used herein, "Borrowing Base" shall mean the sum of (i) 80% of the Company's Eligible Accounts plus (ii) 40% of the Company's Eligible Inventory. SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Bank: 2.1 Organization, Corporate Power, etc. Each of the Borrower and each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was incorporated, and each has the corporate power and authority to own its property and to carry on its business as now being conducted and each is duly qualified (or is 9 in the process of becoming qualified) and where qualified, is in good standing, to do business in every jurisdiction where such qualification is necessary, except where failure to qualify would not have a material adverse effect upon the financial condition, business or operations of the Borrower and its Subsidiaries, taken as a whole. The Borrower has the corporate power to execute, deliver and perform this Agreement, to borrow hereunder and to execute and deliver the Note herein referred to and to do so will not violate any laws, rules, regulations, orders or decrees, its Articles of Incorporation or Code of Regulations or any other agreement or instrument to which it is a party. Schedule 2.1 attached hereto sets forth the corporate structure of the Borrower and all Subsidiaries, including, in each instance, (i) the jurisdiction of incorporation of each Subsidiary; and (ii) ownership of the shares of each Subsidiary. 2.2 Litigation. Except as set forth in Schedule 2.2 attached hereto, there is no litigation or proceeding pending against the Borrower, or any Subsidiary of the Borrower, nor to the knowledge of the officers of the Borrower or its Subsidiaries threatened, which, if decided adversely to the Borrower or any such Subsidiary, would have a material adverse effect upon the financial condition, business or operations of the Borrower and its Subsidiaries, taken as a whole. 2.3 Financial Condition. The audited financial statements of the Borrower for the fiscal year ended January 1, 2000, certified by KPMG, LLP, independent certified public accountants, and the unaudited financial statements for the fiscal year ended December 30, 2000, fairly reflect the financial condition of the Borrower and each Subsidiary and the results of their operations as of the dates and for the periods stated, and no material adverse change in the financial condition, business or operations of the Borrower and its Subsidiaries, taken as a whole, has occurred since the dates of such financial statements and interim statements. Such financial statements are consolidated statements and have been prepared in accordance with generally accepted accounting principles. 2.4 Title to Properties. Each of the Borrower and each Subsidiary has good and marketable title to its property and assets. Such property and assets of the Borrower and its Subsidiaries are not subject to a mortgage or lien except as shown on Schedule 2.4 attached hereto except for current property taxes not yet due. 2.5 Liabilities. The Borrower and its Subsidiaries have no liabilities, direct or contingent, except (i) those disclosed in the audited financial statements and unaudited statements referred to in Section 2.3 above, and (ii) those incurred in the ordinary course of business since the dates of such reports and unaudited statements referred to in Section 2.3 above, having in the aggregate no materially adverse effect on the financial condition, business or operations of the Borrower and its Subsidiaries, taken as a whole. 2.6 Investments. The Borrower and its Subsidiaries have made no material investments in, advances to or Guaranties of the obligations of any corporation, individual or other entity except those disclosed in the unaudited statements referred to in Section 2.3 above and the Permitted Investments. 2.7 Renegotiation of Government Contracts. The Borrower and its Subsidiaries are not subject to the renegotiation of any government contract in any material amount. 2 10 2.8 Taxes. The Borrower and its Subsidiaries have filed all required federal, state and local tax returns and paid all required federal, state and local taxes as they have become due. Federal income taxes have been audited through 1994, and no material. claims have been assessed and are unpaid with respect to such taxes except as shown in the audited financial statements or unaudited financial statements referred to in Section 2.3 above. 2.9 ERISA. The Borrower and its Subsidiaries (i) have made prompt payment of all contributions required to meet the minimum funding standards set forth in Sections 302 and 305 of the Employee Retirement Income Security Act of 1974 as amended from time to time ("ERISA") with respect to any employee benefit plan ("plan"), and (ii) have not: (a) engaged in any "Prohibited Transaction", as that term is defined in Section 406 of ERISA for which there is no exemption under Section 408 of ERISA, or (b) terminated any such plan in a manner which would result in the imposition of a lien on the property of the Borrower pursuant to Section 4068 of ERISA. 2.10 Use of Proceeds. The proceeds of all borrowings hereunder will be used for general corporate purposes, but not directly or indirectly to purchase or to carry any margin stock as defined by Regulation U of the Board of Governors of the Federal Reserve System, and the Borrower is not in the business of extending credit to purchase or carry margin stock. 2.11 Compliance with Law. The Borrower and its Subsidiaries are not in violation of, whether foreign or domestic, any laws, ordinances, governmental rules, regulations, judgments or agreements to which they are subject and have not failed to obtain any licenses, permits, franchises or other governmental authorizations necessary to the ownership of their properties or to the conduct of their businesses, which violation or failure to obtain might materially and adversely affect the business, prospects, properties or condition (financial or otherwise) of the Borrower. 2.12 Government Consent. Neither the nature of the Borrower or its Subsidiaries, or of their businesses or properties, nor any relationship between the Borrower or its Subsidiaries and any other entity or person, nor any circumstance in connection with the execution of this Agreement, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the Borrower or its Subsidiaries as a condition to the execution, delivery, performance, validity or enforceability of this Agreement (including as to each borrowing hereunder), the Note and documents contemplated herein. 2.13 Legal and Binding Obligation. (i) The Board of Directors of the Borrower has duly authorized the execution, delivery and performance of this Agreement and the Note and this Agreement and the Note will constitute valid and binding obligations of the Borrower enforceable in accordance with their terms; and (ii) the execution of this Agreement, the Note and related documents and compliance by the Borrower with all the provisions of this Agreement are within the corporate powers of the Borrower, are legal and will not conflict with, result in any breach of any of the provisions of, constitute a default under, or result in the creation of any lien or encumbrance upon any property of the Borrower under the provisions of, any agreement, 3 11 charter instrument, bylaw or other instrument to which the Borrower is a party or by which it is bound. 2.14 Investment Company Act. None of the Borrower or any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 2.15 Locations of Business. Schedule 2.15 attached to this Agreement sets forth each place of business in the United States (including without limitation any location at which personal property of such entity is stored or located) for the Borrower and each Subsidiary. SECTION 3. CERTAIN DEFINITIONS. As used herein the following words and terms shall have the following meanings, respectively: 3.1 "Affiliate" means any Person which, directly or indirectly, controls or is controlled by or is under common control with the Borrower or a Subsidiary or which beneficially owns or holds or has the power to direct the voting power of 5% or more of the voting stock of the Borrower or a Subsidiary or which has 5% or more of its voting stock (or, in the case of a Person which is not a corporation, 5% or more of its equity interest) beneficially owned or held, directly or indirectly, by the Borrower or a Subsidiary, and any director or officer of the Borrower or its Subsidiaries. For purposes of this definition, "control" means the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlled by" and "under common control with" have meanings correlative to the foregoing. Subsidiaries are not included within the definition of Affiliate. 3.2 "Alternate Base Rate" means, for any day, a rate per annum equal to the higher of (a) the Prime Rate in effect on such day or (b) the Federal Funds Rate in effect on such day plus 1/2 of 1%. 3.3 "Business Day" means a day other than a Saturday, Sunday or other day on which the Bank is not open for the transaction of substantially all of its banking functions. 3.4 "Capitalized Lease" means and includes at any time any lease of property, real or personal, which in accordance with GAAP would at such time be required to be capitalized on a balance sheet of the lessee. 3.5 "Capitalized Lease Obligation" means at any time the capitalized amount of the rental commitment under a Capitalized Lease which in accordance with GAAP would at such time be required to be shown on a balance sheet of the lessee. 3.6 "Consolidated Current Liabilities" means (i) the liabilities of the Borrower and its Subsidiaries that would (determined on a consolidated basis in accordance with GAAP consistently applied) be classified as "current liabilities" on its consolidated balance sheet, (ii) Guaranties by the Borrower of Current Debt of other Persons, and (iii) debt owed to banks. 4 12 3.7 "Consolidated Net Income" means the aggregate of the Net Income of the Borrower and its Subsidiaries, after eliminating all intercompany items and portions of earnings property attributable to minority interests, if any, in the capital stock of such Subsidiaries, all computed and consolidated in accordance with GAAP. 3.8 "Consolidated Net Interest Expense" means the aggregate of the interest expense of the Borrower and its Subsidiaries less aggregate interest income of the Borrower and its Subsidiaries, all computed and consolidated in accordance with GAAP. 3.9 "Consolidated Net Tangible Assets" means as of the date of any determination thereof, Consolidated Total Assets as of such date less the sum of (i) Consolidated Current Liabilities and (ii) assets properly classified as intangible assets in accordance with GAAP. 3.10 "Consolidated Tangible Net Worth" means as of the date of any determination thereof the sum of all amounts which, in accordance with GAAP, would be included under shareholders' equity plus (to the extent not included in shareholders' equity) preferred stock, as determined on a consolidated basis, on the balance sheet of the Borrower and its Subsidiaries, minus assets properly classified as intangible assets in accordance with GAAP. 3.11 "Consolidated Total Assets" means, as of the date of any determination thereof, the total amount of all assets of the Borrower and its Subsidiaries as determined on a consolidated basis in accordance with GAAP. 3.12 "Current Debt" of any Person shall mean as of the date of any determination thereof (i) all indebtedness of such Person for borrowed money other than Funded Debt of such Person, including, without limitation, debt owed to banks, and (ii) Guaranties by such Person of Current Debt of others. 3.13 "Debt" of any Person means (a) all indebtedness, obligations or other liabilities (other than accounts payable and other accrued expenses arising in the ordinary course of business payable on terms customary in the trade, minority interests and deferred tax and compensation and pension plan liabilities) which in accordance with GAAP should be classified as liabilities on the balance sheet of such entity, including, without limitation, all indebtedness (i) for borrowed money or evidenced by debt securities, debentures, acceptances, notes or other similar instruments, and any accrued interest, fees and charges relating thereto, (ii) under profit payment agreements or in respect of obligations to redeem, repurchase or exchange any securities or to pay dividends in respect of any stock, (iii) with respect to letters of credit issued, (iv) to pay the deferred purchase price of property or services, except accounts payable and accrued expenses arising in the ordinary course of business, or (v) in respect of Capitalized Leases; (b) indebtedness secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations; and (c) all indebtedness, obligations or other liabilities in respect of interest rate contracts and currency agreements, net of liabilities owed by the counterparties thereon. 3.14 "Default" means any event which, with the lapse of time or the giving of notice pursuant to the terms of this Agreement, or both, becomes an Event of Default. 5 13 3.15 "Dollars" and "$" mean the lawful money of the United States of America. 3.16 "Domestic Loans" means the Loans carrying interest at rates based upon the Alternate Base Rate. 3.17 "Eligible Accounts" means the portion of the Borrower's accounts arising in the ordinary course of the Borrower's business from the sale of goods or services to an individual, partnership, corporation, limited liability company or other entity (an "Account Debtor") that the Bank determines, in its sole and reasonable discretion, based on credit policies, market conditions, the Borrower's business and other criteria, is eligible for inclusion in the Borrowing Base. An account shall not be deemed an Eligible Account unless such account is evidenced by an invoice or other documentary evidence reasonably satisfactory to the Bank; is unconditionally due and payable in U.S. dollars to the Borrower from the Account Debtor; and meets all the following requirements until it is collected in full: (a) the account is due and payable (in U.S. dollars), exclusive of sales or other taxes, not more than 60 days from the date of the original invoice therefor and is not more than 60 days past-due, or if a special dating program has been approved in writing by the Bank, the account is due and payable on a date permitted by the terms of such dating program and is not past-due; (b) the account arises from the completed performance of a sale of goods and/or related services, does not constitute a progress billing or advance billing, a "bill and hold," guaranteed sale, sale and return, or other repurchase and return basis, and all such goods have been lawfully shipped (or related services provided) and invoiced to the Account Debtor, and upon the Bank's reasonable request, copies of all invoices, together with all shipping documents and delivery receipts evidencing such shipment having been delivered to the Bank; (c) the account does not arise from a contract with any government or agency thereof or from an individual; (d) the account is not subject to any dispute, prior assignment, claim, lien, subrogation rights, security interest, levy or setoff; (e) the account is not subject to any credit, contra account, allowance, adjustment, levy, return of goods, or discount (collectively a "Contra"), provided, however, that unless the Account Debtor has asserted a Contra, if the amount of the account exceeds the amount of the Contra, such excess shall be considered for eligibility if such excess meets all other requirements of this section; (f) the account does not arise from an Affiliate of the Borrower or any Subsidiary; (g) the account does not, when added to all other accounts of the Account Debtor with the Borrower, produce an aggregate indebtedness from the Account Debtor of more than 30% of the total of all the Borrower's Eligible Accounts; (h) the Account Debtor is not subject to bankruptcy, receivership or similar proceedings and is not insolvent; (i) the account is not evidenced by any chattel paper, promissory note, payment instrument or written agreement; (j) the account does not arise from an Account Debtor whose mailing address is located outside the United States unless (i) the payment for the goods which give rise to such account is assured by an irrevocable letter of credit received by the Borrower, such letter of credit is from a bank acceptable to the Bank and is in form and substance acceptable to the Bank, and payable in the full amount of the account in United States dollars at a place of payment located within the United States, and the proceeds of such letter of credit have been duly assigned to the Bank, to its satisfaction, or (ii) the aggregate amount of all accounts outstanding of such Account Debtor with its mailing address or chief executive office 6 14 located outside the United States does not exceed $1,000,000; provided, however, that, for the purposes of this subsection, each of WalMart Mexico and WalMart Canada shall not be deemed an Account Debtor with a mailing address or chief executive office located outside the United States; (k) the account does not arise from an Account Debtor to whom goods are shipped on a "cash on delivery" or C.O.D. basis; (l) the account does not arise from an Account Debtor who has more than 50% of its accounts with the Borrower more than 90 days past due; and (m) the Bank has not notified the Borrower that the account or the Account Debtor is unsatisfactory or unacceptable (although the Bank reserves the right to do so in its sole discretion at any time). 3.18 "Eligible Inventory" means that portion of the Borrower's inventory, including finished goods and raw materials related to its principal product lines, subject to no Liens, and that the Bank determines in its sole discretion from time to time, based on credit policies, market conditions, the Borrower's business and other matters, is eligible for use in calculating the Borrowing Base. For purposes of determining the Borrowing Base, Eligible Inventory shall not include tooling, work in process, slow moving, obsolete or discontinued inventory, supply items, packaging, or the freight portion of raw materials, inventory in the control of a third Person for processing or storage, consigned inventory or inventory in transit. All inventory shall be valued at the lesser of cost (on a FIFO basis) or market. 3.19 "Eurodollar Interest Rate" means a rate per annum equal to LIBOR plus two and one-quarter percent (2.25%). 3.20 "Eurodollar Loans" means the Loans carrying interest at rates based upon the Eurodollar Interest Rate. "Quoted Eurodollar Loans" means Loans carrying interest at rates based upon the London Interbank Offered Rate. "Daily Eurodollar Loans" means Loans carrying interest at rates based upon the Daily London Interbank Offered Rate. 3.21 "Event of Default" has the meaning specified in Section 13 hereof. 3.22 "Federal Funds Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or if such rate is not so published for any day which is a Business Day, the average of quotations for such day on such transactions received by the Bank from three Federal funds brokers of recognized standing selected by the Bank. 3.23 "Funded Debt" of any Person means (i) indebtedness of such Person for borrowed money or which has been incurred in connection with the acquisition of assets or services, in each case having a final maturity of more than one year from the date of creation thereof (or which is renewable or extendible at the option of the obligor for a period or periods more than one year from the date of creation), including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not the obligation to make such payments shall constitute a current liability of the obligor under GAAP, (ii) Capitalized Lease Obligations of such Person, (iii) obligations secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (iv) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under 7 15 such agreement in the event of default are limited to repossession or sale of property, and (v) all Guaranties by such Person of Funded Debt of others. Funded Debt excludes debt owed to banks. 3.24 "GAAP" means generally accepted accounting principles as in effect at the time of application to the provisions hereof. 3.25 "Guaranties" by any Person means all obligations of such Person guaranteeing, or in effect guaranteeing, any Debt of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person (i) to purchase such Debt or any property or assets constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Debt, (y) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Debt, (iii) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner of such Debt of the ability of the primary obligor to make payment of such Debt, or (iv) otherwise to assure the owner of such Debt against loss in respect thereof. Guaranties does not include endorsement of instruments for deposit or collection in the ordinary course of business. 3.26 "Interest Period" means: 3.26.1 In the case of Quoted Eurodollar Loans, an initial period commencing, as the case may be, on the day such a Loan shall be made by the Bank, or on the day of conversion of any then outstanding Loan to a Loan of such type, and ending on the date one, two, three or six months thereafter, as the Borrower may elect, provided that (A) any Interest Period with respect to a Quoted Eurodollar Loan that shall commence on the last LIBOR Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last LIBOR Business Day of the appropriate subsequent calendar month; and (B) each Interest Period with respect to a Quoted Eurodollar Loan that would otherwise end on a day which is not a LIBOR Business Day shall end on the next succeeding LIBOR Business Day or, if such next succeeding LIBOR Business Day falls in the next succeeding calendar month, on the next preceding LIBOR Business Day. 3.26.2 With respect to Daily Eurodollar Loans and Domestic Loans, an initial period commencing, as the case may be, on the day such a Loan shall be made by the Bank, or on the day of conversion of any then outstanding Loan to a Loan of such type, and ending on the last Business Day of the month in which the Loan is made or converted, and each period thereafter commencing on the first Business Day of each month and ending on the last Business Day of each month. Notwithstanding the provisions of 3.26.1 and 3.26.2 above, no Interest Period may extend beyond the Termination Date. 3.27 "Investment" means any loan, advance, extension of credit or contribution of capital or any investment in, or purchase or other acquisition of, stock, notes, debentures or other securities. 8 16 3.28 "LIBOR" means: (a) with respect to any Quoted Eurodollar Loan, the London Interbank Offered Rate, which is the per annum rate of interest at which deposits in Dollars for the related Interest Period and in an aggregate amount comparable to the amount of such Quoted Eurodollar Loan are offered to the Bank by other prime banks in the London interbank market, as determined by the Bank in its discretion based upon reference to information appearing on page LIBOR01, captioned "British Bankers Assoc. Interest Settlement Rates," of the Reuters America Network, a service of Reuters America Inc. (or such other page that may replace that page on that service for the purpose of displaying the London Interbank Offered Rate) or any comparable index selected by the Bank, the obtaining of rate quotations, or any other reasonable procedure, at approximately 11:00 a.m. London, England, time, on the second LIBOR Business Day prior to the first day of the related Interest Period; all as determined by the Bank, such sum to be rounded up, if necessary, to the nearest whole multiple of 1/16 of 1%; and (b) with respect to any Daily Eurodollar Loan, the Daily London Interbank Offered Rate, which is the per annum rate of interest at which deposits in Dollars for a period of one (1) month and in an aggregate amount comparable to the amount of such Daily Eurodollar Loan are offered to the Bank by other prime banks in the London interbank market, as determined daily by the Bank in its discretion on each LIBOR Business Day, or, when determination is made on a day other than a LIBOR Business Day, on the most recently elapsed LIBOR Business Day, based upon reference by the Bank to information appearing on page LIBOR01, captioned "British Bankers Assoc. Interest Settlement Rates," of the Reuters America Network, a service of Reuters America Inc. (or such other page that may replace that page on that service for the purpose of displaying the London Interbank Offered Rate) or any comparable index selected by the Bank, the obtaining of rate quotations, or any other reasonable procedure, such sum to be rounded up, if necessary, to the nearest whole multiple of 1/16 of 1%. The Daily London Interbank Offered Rate shall be adjusted automatically, without notice, on the effective date of each change in such rate. 3.29 "LIBOR Business Day" means a day which is both a Business Day and a day on which dealings in Dollar deposits are carried out in the London interbank market. 3.30 "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or other encumbrance of any kind in respect of such asset. For the purposes hereof, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease or other title retention agreement relating to such asset. 3.31 "Loan" or "Loans" means any borrowings by the Borrower from the Bank under Section 4 hereof. 3.32 "Loan Document" means each document, instrument and agreement executed in connection with this Agreement. 3.33 "Metropolitan Agreement" means that certain note agreement between the Borrower and Metropolitan Life Insurance Company dated July 5, 1994 with respect to a $15,000,000 extension of credit, a copy of which is attached hereto as Exhibit B. 9 17 3.34 "Net Income" means for any period the net income (or the net deficit, if expenses and charges exceed revenues and other proper income credits) of a corporation or other Person for such period determined in accordance with GAAP. 3.35 "Note" or "Notes" means the Revolving Credit Note as defined in Section 4.2. 3.36 "Permitted Investments" means Investments consisting of: 3.36.1 loans or advances by the Borrower and its Subsidiaries to Subsidiaries in the ordinary course of business; 3.36.2 Investments in corporate debt obligations maturing in one year or less from the date of issuance which, at the time of acquisition by the Borrower or any Subsidiary, are rated "A" or better (or the equivalent) by Standard & Poor's Ratings Group (currently a division of McGraw-Hill, Inc.) or Moody's Investors Service, Inc.; 3.36.3 Investments in direct obligations of the United States of America or any agent or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in either case maturing in twelve months or less from the date of acquisition thereof; 3.36.4 Investments in certificates of deposit maturing within one year from the date of issuance thereof, issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $200,000,000; 3.36.5 loans or advances in the ordinary course of business to suppliers, officers, directors and employees for expenses (including moving expenses related to a transfer) incidental to carrying on the business of the Borrower or any Subsidiary not exceeding $2,000,000 in the aggregate; 3.36.6 receivables arising from the sale of goods and services in the ordinary course of business of the Borrower and its Subsidiaries; 3.36.7 other debt Investments by the Borrower and its Subsidiaries not exceeding $5,000,000, maturing in six months or less from the date of issuance thereof; and 3.36.8 other Investments by the Borrower and its Subsidiaries not exceeding $1,000,000. For purposes of this definition, at any time when a Person becomes a Subsidiary, all Investments of such corporation at such time shall be deemed to have been made by such corporation, as a Subsidiary, at such time. 3.37 "Person" means and includes an individual, a corporation, a partnership, a firm, a joint venture, a limited liability company, a trust, an unincorporated organization or a government or an agency or political subdivision thereof. 10 18 3.38 "Prime Rate" means the prime commercial rate of The Huntington National Bank, as such rate is established and made available from time to time based on its consideration of economic, money market, business and competitive factors, and it is not necessarily the Bank's most favored rate, such rate to be adjusted automatically, without notice, on the effective date of any change in such rate. 3.39 "Subsidiary" means any corporation 50% or more of the outstanding voting stock of which at the time is owned directly or indirectly by the Borrower. 3.40 "Termination Date" means February 28, 2002. SECTION 4. BORROWING PROVISION. 4.1 Amount of Revolving Credit. Relying on the foregoing representations and warranties and subject to the agreements and covenants hereinafter contained, the Bank agrees to make Loans (which may be either Domestic Loans, Quoted Eurodollar Loans or Daily Quoted Eurodollar Loans, or any combination) to the Borrower, from time to time from the date hereof to the Termination Date, at such times and in such amounts as the Borrower shall request, in the aggregate not in excess of Bank's Commitment or such lesser amount as is determined in accordance with Section 1.3. The Borrower shall give the Bank written or telephonic notice by 12:00 noon, Columbus, Ohio, time, three (3) Business Days prior to the date of intended borrowing with respect to any Quoted Eurodollar Loan hereunder and written or telephonic notice by 12:00 noon, Columbus, Ohio, time, on the same Business Day with respect to any Daily Eurodollar Loan or Domestic Loan, which notice shall specify the proposed date of borrowing, the amount thereof, whether such loan is to be a Domestic Loan, a Quoted Eurodollar Loan or a Daily Eurodollar Loan, and if a Quoted Eurodollar Loan, the Interest Period selected. The Bank shall notify the Borrower of the relevant Eurodollar Interest Rate at approximately 12:00 noon, Columbus, Ohio, time, two (2) Business Days prior to the date of intended borrowing of any Quoted Eurodollar Loan. The Borrower shall accept or reject such Eurodollar Rate upon such notification, and such acceptance or rejection shall be irrevocable. In the event of rejection such Loan shall be a Daily Eurodollar Loan or Domestic Loan, as elected by the Borrower. Each Loan shall be in the amount of $100,000 or an integral multiple thereof in the case of a Daily Eurodollar Loan or Domestic Loan or in an amount of not less than $1,000,000 and increments of $250,000 thereafter in the case of a Quoted Eurodollar Loan. Notwithstanding the foregoing, the Borrower shall not have outstanding any more than fifteen (15) Quoted Eurodollar Loans at any one time. The Loans shall be evidenced by Revolving Credit Note (as defined in Section 4.2 hereof). 4.2 Evidence of Loans Made Under Revolving Credit. All Loans made by the Bank pursuant to the Bank's Commitment shall be evidenced by a promissory note, substantially in the form attached hereto as Exhibit A (hereinafter called the "Revolving Credit Note"), payable to the order of the Bank, duly executed on behalf of the Borrower, dated the date of this Agreement. The Bank is hereby authorized by the Borrower to note on the schedule attached to the Revolving Credit Note the date, amount and type of each Loan made to the Borrower, the duration of the related Interest Period if applicable, the amount of each payment or prepayment of principal thereon, and the other information provided for on such schedule, which schedule 11 19 shall constitute prima facie evidence of the information so noted; provided, that failure of the Bank to make any such notation shall not relieve the Borrower of its obligation to repay the outstanding principal amount of any Loan or Loans made to it, all accrued interest thereon and all other amounts payable in accordance with the terms of the Revolving Credit Note or this Agreement. Interest on the Loans evidenced by the Revolving Credit Note shall be payable at the rates specified in Sections 3.2 and 3.19 hereof and on each Interest Payment Date, as hereinafter defined. The terms and conditions of this Agreement are incorporated in the Revolving Credit Note by reference as though the same were written therein. 4.3 Commitment Fees. The Borrower agrees to pay to the Bank an initial commitment fee (the "Loan Fee") in the amount of $225,000, payable in two equal installments of $112,500. The Borrower shall pay the first installment of the Loan Fee in the amount of $112,500 on or before the date of this Agreement, and shall pay the second installment of the Loan Fee in the amount of $112,500 on December 31, 2001; provided, however, that the Borrower's obligation to pay the second installment of the Loan Fee will be waived by the Bank if on December 31, 2001, the Borrower either (a) (i) has reduced the outstanding balance of the Loans to zero, and (ii) is in compliance with all of its obligations pursuant to Section 9 of this Agreement; or (b) has paid in full all sums owing under or in connection with this Agreement from funds that do not include in whole or in part funds obtained from the Bank. The Borrower further agrees to pay the Bank an annual commitment fee (hereinafter called the "Commitment Fee") of three-eighths of one percent (3/8 of 1%) per annum (computed on the basis of a 360-day year for the actual number of days elapsed. In each computation period) of the average daily unused amount of the Commitment of the Bank available to Borrower pursuant to Section 1.1 above, taking into consideration the seasonal adjustment pursuant to Section 1.2 above. The Commitment Fee shall commence to accrue on the date hereof through and including the Termination Date, and shall be paid quarterly in arrears on the last day of March, June, September and December in each year commencing March 31, 2001, and on the termination of the Commitment. 4.4 Conversion of Loans. The Borrower may elect to continue a Loan as a Quoted Eurodollar Loan, a Daily Eurodollar Loan or a Domestic Loan or convert a Loan of one type to a Loan of another type by giving telephonic notice thereof to the Bank not later than 12:00 noon, Columbus, Ohio time, three (3) LIBOR Business Days prior to the day on which the continuation of a Quoted Eurodollar Loan or conversion to a Quoted Eurodollar Loan is to be effective, and not later than 12:00 noon, Columbus, Ohio time, one Business Day prior to the proposed day of conversion of a Quoted Eurodollar Loan to a Daily Eurodollar Loan or Domestic Loan, provided, that an outstanding Quoted Eurodollar Loan may only be converted on the last day of the then current Interest Period with respect to such Loan, and provided, further, that upon the continuation or conversion of a Loan such notice shall also specify the Interest Period (if applicable) to be applicable thereto upon such continuation or conversion. If the Borrower shall fail to timely provide notice with respect to any outstanding Quoted Eurodollar Loan, the Borrower shall be deemed to have elected to convert such Loan to a Domestic Loan on the last day of the Interest Period with respect to such Loan. Telephonic notice shall in each instance be followed within a reasonable period of time by written notice substantially in the form of Exhibit C hereto. In the event of any conflict between telephonic and written notice, the telephonic notice shall control to the extent that such notice has been relied upon by the Bank making the applicable Loan. 12 20 4.5 Prepayment. The Borrower may at any time, upon three (3) Business Days prior written notice to the Bank, repay any or all of the Loans without penalty, except that Quoted Eurodollar Loans may only be paid at the end of the applicable Interest Period and the Borrower may not prepay any portion of any Loan as to which an election for a continuation of or a conversion to a Quoted Eurodollar Loan is pending. Any prepayment shall be in the minimum amount of $100,000 or multiples thereof. All partial prepayments under this Section 4.5 shall be accompanied by the payment of all accrued interest. The Borrower shall make such prepayments as are necessary to keep the amounts outstanding to the Bank hereunder within the Commitment limitations identified in Section 1.2 hereof. 4.6 Termination or Reduction Options. The Borrower shall have the right at any time prior to the Termination Date, upon three (3) Business Days prior written notice to the Bank, (i) to terminate or reduce permanently the aggregate principal amount of the Commitment of the Bank to make Loans hereunder by written notice to the Bank; provided that any permanent reduction of the Commitment of the Bank to make Loans must be accompanied by the repayment of any outstanding principal amount in excess of the amount of the Bank's Commitment, as thereby reduced, together with interest accrued thereon; and provided further that no such termination or reduction which would require prepayment of any Quoted Eurodollar Loan shall be permitted except at the end of the applicable Interest Period. 4.7 Interest Payment Dates. "Interest Payment Date" shall mean (i) the last day of each Interest Period in the case of each Quoted Eurodollar Loan, except that in the case of any Interest Period that is longer than three (3) months for any such Loan, "Interest Payment Date" shall also include the ninetieth (90th) day of such Interest Period; and (ii) in the case of each Domestic Loan and Daily Eurodollar Loan, the last Business Day of each month. 4.8 Payment Method. All payments to be made by the Borrower hereunder will be made in Dollars and in immediately available funds to the Bank at its address set forth in Section 14.2 hereof not later than 3:00 p.m. Columbus, Ohio time on the date on which such payment shall become due. Payments received after 3:00 p.m. Columbus, Ohio time shall be deemed to be payments made prior to 3:00 p.m. on the next succeeding Business Day. At the time of making each such payment, the Borrower shall specify to the Bank that obligation of the Borrower to which such payment is to be applied, or, in the event that the Borrower fails to so specify or if an Event of Default shall have occurred and be continuing, the Bank may apply such payments to indebtedness due hereunder as it may determine in its sole discretion. 4.9 No Setoff or Deduction. All payments of principal and interest on the Loans and other amounts payable by the Borrower hereunder shall be made by the Borrower without setoff or counterclaim, and free and clear of, and without deduction or withholding for, or on account of, any present or future taxes, levies, imposts, duties, fees, assessments, or other charges of whatever nature, imposed by any governmental authority, or by any department, agency or other political subdivision or taxing authority. 4.10 Payment on Non-Business Day; Payment Computations. Except as otherwise provided in this Agreement to the contrary, whenever any installment of principal of, or interest on, any Loan outstanding hereunder or any other amount due hereunder, becomes due and 13 21 payable on a day which is not a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, in the case of any installment of principal, interest shall be payable thereon at the rate per annum determined in accordance with this Agreement during such extension. Computations of interest and other amounts due under this Agreement shall be made on the basis of a year of 360 days for the actual number of days elapsed, including the first day but excluding the last day of the relevant period. SECTION 5. [INTENTIONALLY OMITTED] SECTION 6. CONDITIONS OF LENDING. The obligations of the Bank hereunder are subject to the following tconditions precedent: 6.1 Opinion of Counsel for Borrower. On or before the date of first borrowing hereunder, the Bank shall have received the favorable written opinion of counsel for the Borrower acceptable to the Bank, addressed to the Bank, and satisfactory to counsel for the Bank (i) confirming the accuracy of the representations and warranties set forth in Section 2.1 hereof (except such confirmation may exclude the Borrower's Subsidiaries and any opinion as to the Borrower's qualification to do business in states other than Ohio), and to the best knowledge of such counsel, confirming the accuracy of the representations and warranties set forth in Sections 2.2, 2.12 and 2.14 hereof and those portions of Section 2.13 hereof not described in Section 6.1 (ii) hereof; (ii) stating that (1) this Agreement has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower enforceable in accordance with its terms and (2) the Note when duly executed and delivered by the Borrower to the Bank in accordance with the provisions hereof, will constitute the legal, valid, and binding obligation of the Borrower enforceable in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency and similar laws and to moratorium laws from time to time in effect and to such other exceptions as the Bank may deem acceptable); and (iii) confirming that the terms of this Agreement will not violate any of the terms or conditions of the Metropolitan Agreement. 6.2 Supporting Documents. The Bank shall have received on or before the date of the first borrowing hereunder (i) a copy of the resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance of this Agreement, the borrowings contemplated hereunder and the execution and delivery of the Note provided for herein, (ii) a copy certified by the Secretary of State of Ohio of the Articles of Incorporation of the Borrower; (iii) a copy of the Bylaws or Code of Regulations of the Borrower, certified as true and correct by its secretary or assistant secretary, (iv) a certificate of the secretary or assistance secretary of the Borrower identifying the officers authorized to sign this Agreement and the Note provided for herein and to borrow hereunder, together with samples of each of their signatures, (v) a certificate of good standing as to the Borrower from the Secretary of State of Ohio and of each state in which the Borrower is doing business and required to qualify, and (vi) such additional documents as counsel for the Bank may reasonably request. 6.3 No Default. Each borrowing hereunder shall constitute a certification by the Borrower that (i) the Borrower and each Subsidiary are in compliance with all of the terms and provisions set forth herein on their part to be observed and performed, (ii) no Default or Event of 14 22 Default has occurred or is continuing at the time of such borrowing and (iii) each of the representations and warranties made in Section 2 hereof are true and correct with the same effect as though such representations and warranties had been made at the time of such borrowing, except that the representations and warranties made in Sections 2.3 and 2.5 hereof shall be deemed to refer to the last audited financial statements or interim financial statement delivered to the Bank pursuant to Section 8.1 hereof and further excepting that the occurrence of any material adverse change or effect shall be determined by reference to the Borrower's financial condition, business and operations on the date of this Agreement. 6.4 Delivery of Note. The Borrower shall have executed and delivered the Note to the Bank. SECTION 7. PROVISIONS RELATING TO EURODOLLAR LOANS. 7.1 Additional Costs. In the event that any applicable law, treaty, rule or regulation (whether domestic or foreign) now or hereafter in effect, or any interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive of any such authority (whether or not having the force of law), shall (i) impose taxes on, or affect the basis of taxation of, payments to the Bank of any amounts payable by the Borrower under this Agreement (other than taxes imposed on the overall net income of the Bank by the jurisdiction, or by any political subdivision or taxing authority of any such jurisdiction, in which the Bank has its principal office), or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Bank, or (iii) shall impose any other condition, requirement or charge with respect to this Agreement, the Note or the Eurodollar Loans (including without limitation any capital adequacy requirement, any requirement which affects the manner in which the Bank allocates capital resources to its commitments or any similar requirement), and the result of any of the foregoing is to increase the cost to the Bank of making or maintaining any Loan, to reduce the amount of any sum receivable by the Bank thereon, or to reduce the rate of return on the Bank's capital, then the Borrower shall pay to the Bank, from time to time, upon request of the Bank, additional amounts sufficient to compensate the Bank for such increased cost, reduced sum receivable or reduced rate of return to the extent the Bank is not compensated therefor in the computation of the interest rates applicable to the Loans. A detailed statement as to the amount of such increased cost, reduced sum receivable or reduced rate of return, prepared in good faith and submitted by the Bank to the Borrower, shall be conclusive and binding for all purposes, absent manifest error in computation. 7.2 Additional Eurocurrency Reserves. Without limiting the effect of the provisions of Section 7.1 above, the Borrower shall, upon request the Bank, pay to the Bank on each Interest Payment Date with respect to each Eurodollar Loan at any time outstanding, additional amounts for each day upon which the Bank is required to maintain reserves against "Eurocurrency liabilities" under Regulation D of the Board of Governors of the Federal Reserve System, which additional amount shall be calculated by the Bank with respect to its outstanding Eurodollar Loans as follows: R 1 --------- ----- Additional amount = P x (1-r) - R x 360 15 23 where P = the principal amount of such Loan outstanding on such date; R LIBOR applicable to such Loan for such date (expressed as a decimal); and r = the stated rate (expressed as a decimal) at which such reserve requirements are imposed on the Bank as determined by the Bank. This provision is for the benefit of the Bank and is not intended to increase the expected yield to the Bank above the rates of interest provided for in this Agreement. 7.3 Limitations of Requests and Elections. Notwithstanding any other provision of this Agreement to the contrary, if, upon receiving a request for a Eurodollar Loan pursuant to Section 4.1 hereof, or a request for a continuation of a Eurodollar Loan as a Eurodollar Loan pursuant to Section 4.4 hereof, or conversion of a Domestic Loan to a Eurodollar Loan pursuant to Section 4.4 hereof, (i) deposits in Dollars for periods comparable to the Interest Period elected by the Borrower are not available to the Bank in the London interbank market, or (ii) it is otherwise impossible for any reason to determine LIBOR, or (iii) LIBOR will not adequately and fairly reflect the cost to the Bank of making or maintaining the related Eurodollar Loan, or (iv) by reason of national or international financial, political or economic conditions or by reason of any applicable law, treaty, rule or regulation (whether domestic or foreign) now or hereafter in effect, or the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive of such authority (whether or not having the force of law), including without limitation exchange controls, it is impracticable, unlawful or impossible for the Bank (x) to make the relevant Eurodollar Loan or (y) to continue such Loan as a Eurodollar Loan or (z) to convert a Loan to a Eurodollar Loan, then the Borrower shall not be entitled, so long as such circumstances continue, to request or receive a Eurodollar Loan pursuant to Section 4.1 hereof or a continuation of or conversion to such Loans pursuant to Section 4.4 hereof. In the event that such circumstances no longer exist, the Bank shall again consider requests for Eurodollar Loans pursuant to Section 4.1 hereof, and requests for continuations of and conversions to such Loans pursuant to Section 4.4 hereof. 7.4 Illegality and Impossibility. In the event that any applicable law, treaty, rule or regulation (whether domestic or foreign) now or hereafter in effect, or any interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive of such authority (whether or not having the force of law), including without limitation exchange controls, shall make it unlawful or impossible for the Bank to maintain any Loan under this Agreement, the Borrower shall upon receipt of notice thereof from the Bank, repay in full the then outstanding principal amount of all Loans made by the Bank so affected together with all accrued interest thereon to the date of payment and all amounts due to the Bank under Sections 4 and 7.5 hereof, (i) on the last day of the then current Interest Period, if any, applicable to such Loan if the Bank may lawfully continue to maintain such Loan to such day, or (ii) immediately if the Bank may not continue to maintain such Loan to such day. This provision is for the benefit of the Bank and 16 24 is not intended to increase the yield to the Bank above the rates of interest provided for in this Agreement. 7.5 Indemnification. If the Borrower makes any payment of principal with respect to any Loan on any other date than the last day of an Interest Period applicable thereto (whether pursuant to Sections 4.5, 7.4 or 13.2 hereof or otherwise), or if the Borrower fails to borrow, continue or convert any Loan after notice has been given to the Bank in accordance with Section 4.1 or 4.4 hereof, or fails to make any payment of principal or interest in respect of a Loan when due, or fails to make any prepayment after notice of intention to prepay has been given to the Bank, the Borrower shall reimburse the Bank on demand for any resulting loss or expense incurred by the Bank, including without limitation any loss incurred in obtaining, liquidating or employing deposits from third parties. A detailed statement as to the amount of such loss or expense, prepared in good faith and submitted by the Bank to the Borrower shall be conclusive and binding for all purposes absent manifest error in computation. 7.6 Survival of Obligations. The provisions of this Section 7 shall survive the termination of the Commitment and the payment in full of the Note outstanding pursuant to this Agreement. SECTION 8. AFFIRMATIVE COVENANTS. For as long as the Bank is obligated to lend hereunder and until payment in full of the Note and interest thereon, the Borrower covenants that it will and will cause each Subsidiary, except, as to a Subsidiary, in the case of Sections 8.1, 8.2, 8.9, 8.10 and 8.13 hereof and unless the Bank shall otherwise consent in writing, to: 8.1 Financial Statements. Furnish the Bank a copy of the report of the certified audit of the Borrower and its Subsidiaries for each fiscal year prepared by a certified public accountant of recognized standing and a balance sheet and related statements of income and retained earnings and cash flow of the Borrower and of the Subsidiaries as of the end of and for each quarter certified as to fairness of presentation by an officer of the Borrower and/or the respective Subsidiaries. All financial statements will be consolidated financial statements, will be prepared in accordance with generally accepted accounting principles, and will be in a form satisfactory to the Bank. The annual audits and quarterly statements shall be in the format required for filing with the Securities and Exchange Commission. The engagement of the certified public accountant will require the reporting of any and all Defaults and Events of Default as of the last day of the fiscal year of the Borrower which have come to the attention of such accountant or that no Defaults or Events of Default have come to its attention as of such date. Quarterly financial statements will be accompanied by an officer's compliance certificate, in the form attached hereto as Exhibit D, which shall also indicate whether a Default or Event of Default has occurred and, if so, stating the facts with respect thereto and whether the same has been cured prior to the date of such certificate. In the event that any certificate furnished under this paragraph shall state that a Default or Event of Default has occurred and is continuing, such certificate shall be accompanied by a statement executed by the chief financial officer of the Borrower as to the action taken and proposed to be taken by the Borrower to cure such Default or Event of Default. Such annual and quarterly statements shall, be delivered to the Bank within 120 days and 60 days, respectively, after the close of the fiscal period. 17 25 The Borrower will also furnish the Bank promptly after sending or filing thereof, copies of all financial statements and reports which it sends to its stockholders and copies of all regular and periodic reports and registration statements which it files with the Securities and Exchange Commission. The Borrower will furnish the Bank within a reasonable period of time such additional information and financial statements as the Bank may from time to time request. The Borrower will furnish to the Bank within 25 days of the end of each fiscal month a certificate in the form of Exhibit F signed by its chief financial officer setting forth the calculation of the Borrowing Base as of the end of such month. 8.2 Out of Pocket Expenses. Pay all out-of-pocket expenses of the Bank arising in connection with the transactions contemplated by this Agreement, whether or not consummated, including the reasonable fees and expenses of the Bank's counsel for services rendered in connection with the transaction contemplated hereby including the preparation of this Agreement and related documents, and any amendments or modifications thereto. 8.3 Compliance with Statutes; Payment of Taxes. Comply with all valid and applicable statutes and governmental regulations and pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations, which, if unpaid might become a lien against the property of the Borrower or any subsidiary, except liabilities being contested in good faith by appropriate proceedings and against which the Borrower or applicable Subsidiary has set up adequate reserves in conformity with GAAP. 8.4 Insurance. Maintain insurance in such amounts as is customarily maintained by companies of the same relative size in the same or similar businesses. 8.5 Corporate Existence. Maintain its corporate existence in good standing and comply with all valid and applicable statutes, rules and regulations, and maintain its properties in good operating condition, except a Subsidiary may be merged into the Borrower or consolidated with another Subsidiary. 8.6 ERISA. The Borrower and its Subsidiaries shall with respect to any employee benefit plan under ERISA in effect now or in the future: (a) at all times make prompt payment of contributions required to meet the minimum funding standards set forth in Sections 302 through 305 of ERISA with respect to such plan, (b) if requested by the Bank, promptly, after the filing thereof, furnish to the Bank copies of each annual report required to be filed pursuant to Section 103 of ERISA in connection with such plan for the plan year most recently ended, including any certified financial statements or actuarial statements required pursuant to said Section 103, (c) notify the Bank immediately of any fact, including, but not limited to, any "Reportable Event," as that term is defined in Section 4043 of ERISA, arising in 18 26 connection with such plan which might constitute grounds for termination thereof by the Pension Benefit Guaranty Corporation, or any successor thereto, or for the appointment by the appropriate United States District Court of a trustee to administer such plan, and (d) notify the Bank of any "Prohibited Transaction" as that term is defined in Section 406 of ERISA for which there is no exemption under Section 408 of ERISA. 8.7 Books and Records. Maintain books and records in which full and correct entries will be made of all its business transactions. 8.8 Inspection of Books and Records. Permit the Bank upon its reasonable request to inspect the books and records of the Borrower, to make copies and abstracts thereof and to discuss the affairs of the Borrower with the Borrower's officers. 8.9 Notification by Borrower. Give the Bank prompt written notice of: (a) the occurrence of any Default or Event of Default or any event or condition which, with notice or lapse of time, or both, would constitute an Event of Default, and (b) any development in the business or affairs of the Borrower or any of its Subsidiaries which has resulted in or which is likely in the reasonable judgment of the Borrower to result in a material adverse change in the business, properties, operations or condition, financial or otherwise, of the Borrower or any of its Subsidiaries. 8.10 Amendments to Metropolitan Agreement. Furnish the Bank promptly with a copy of every amendment of the Metropolitan Agreement. 8.11 Notice of Claims. Give the Bank prompt written notice of any claim in excess of $1,000,000,or in which no monetary amount is specified, that is asserted against the Borrower or any of its Subsidiaries in any litigation to which the Borrower or such Subsidiary is a party. 8.12 Restriction on Consolidated Assets. Maintain seventy-five percent (75%) of consolidated tangible assets, excluding intercompany assets which are eliminated when consolidated in accordance with GAAP, under the ownership of and in the name of the Borrower. In the event the Borrower fails to maintain seventy-five percent (75%) of its consolidated tangible assets under its ownership or in its own name, then the Borrower, within a reasonable time thereafter, shall make all significant Subsidiaries, as determined in a commercially reasonable manner by the Bank, obligors on all indebtedness owing to the Bank under this Agreement, either by assumption of such indebtedness as a co-maker with Borrower or by the guaranty of such indebtedness, as the Borrower may elect. 8.13 Resting of Loan. So long as the Commitment is outstanding, the Borrower shall reduce the principal balance of the Loan to zero and maintain the same at zero for a period of not less than 45 (forty-five) consecutive days during the Resting Period. "Resting Period" means the period beginning on December 1, 2001, and ending on the Termination Date. 19 27 SECTION 9. NEGATIVE-COVENANTS. For as long, as the Bank is obligated to lend hereunder and until payment in full of the Note and interest thereon, the Borrower covenants that it will not, without the prior written consent of the Bank: 9.1 Limitations on Debt. Directly or indirectly create, incur, assume or otherwise become or remain liable with respect to any Debt or any Guaranties except: 9.1.1 the Loans; 9.1.2 Debt existing on the date hereof listed on Schedule 9.1 attached hereto, including extensions and refinancings of such Debt; 9.1.3 Debt secured by Liens permitted pursuant to Section 9.5; 9.1.4 secured or unsecured purchase money Debt (including Capitalized Leases) to finance the acquisition of fixed assets, if such Debt (a) has a scheduled maturity and is not due on demand, (b) in the aggregate does not exceed the sum of $2,000,000 outstanding at any time, (c) does not exceed the purchase price of the items being purchased, and (d) is not secured by any property or assets other than the item or items being purchased; 9.1.5 foreign currency agreements in an aggregate notional amount not to exceed $3,000,000 (after netting contracts to buy and sell the same national currency on the same date); 9.1.6 interest rate contracts protecting the Borrower against risks of interest rate fluctuation; and 9.1.7 commercial letters of credit in an aggregate amount outstanding at any one time not exceeding $4,000,000. 9.2 Maintenance of Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth to be less than (i) $49,000,000 as of March 31, 2001, (ii) $46,000,000 as of June 30, 2001, (iii) $48,500,000 as of September 29, 2001, and (iv) $54,000,000 as of December 29, 2001, and as of the end of each fiscal quarter thereafter. 9.3 Restricted Payments. Except as described in Schedule 9.3 attached hereto, declare or pay any dividends (other than dividends payable in capital stock of the Borrower) on any shares of any class of its capital stock or apply any of its property or assets to the purchase, redemption or other retirement of, or make any other distribution, by reduction of capital or otherwise, in respect of, or permit any Subsidiary to purchase, any shares of any class of stock of the Borrower (herein, collectively, "Restricted Payments"); provided, however, that the Borrower may perform its obligations under option agreements to the extent that the consideration paid does not exceed $500,000 in any one fiscal year. 20 28 9.4 Capital Expenditures. Permit total capital expenditures (including expenditures in respect of capital lease obligations) of the Borrower and its Subsidiaries in any one fiscal year to exceed $4,500,000. 9.5 Liens. Permit, and will not permit any of its Subsidiaries to, incur, create, assume or permit to exist any Lien on any property, whether owned as of the date of this Agreement or thereafter acquired, except: 9.5.1 Liens on property of the Borrower or a Subsidiary existing on the date of this Agreement identified on Schedule 2.4 attached hereto; 9.5.2 Liens, pledges or deposits made or incurred by the Borrower or a Subsidiary in connection with worker's compensation, social security or unemployment insurance or to secure the performance of letters of credit, bids, tenders, sales contracts, leases, statutory obligations, surety, appeal and performance bonds and other similar obligations incurred in the ordinary course of business and not in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of property; 9.5.3 Liens incurred by the Borrower or a Subsidiary for taxes, assessments or governmental charges or levies to the extent permitted to remain unpaid by Section 8.3 hereof and materialmen's and warehousemen's Liens securing obligations not overdue, or if overdue, being contested in good faith by appropriate proceedings, provided that adequate reserves are established in accordance with GAAP; 9.5.4 attachment, judgment and other similar Liens arising in connection with judicial proceedings, provided that the execution or other enforcement of such Lien is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings in such manner that the property subject to such Lien is not subject to forfeiture or sale and provided further that adequate reserves are established in accordance with GAAP; 9.5.5 encumbrances in the nature of zoning restrictions, easements, restrictions of record on the use of real property, and landlords' and lessors' Liens, in each case arising or existing in the ordinary course of business of the Borrower or a Subsidiary and which do not materially impair the Borrower's or a Subsidiary's use of the property subject thereto; and 9.5.6 Liens in connection with purchase money Debt permitted pursuant to Section 9.1.4. Any Person which becomes a Subsidiary shall be deemed to have incurred, at the time it becomes a Subsidiary, any Lien of such Person existing immediately after it becomes a Subsidiary. 9.6 Restrictions on Subsidiaries. Permit any Subsidiary to: 21 29 9.6.1 issue or dispose of any shares of its capital stock to any Person other than the Borrower or a Subsidiary, except to the extent, if any, required to qualify directors under any applicable law or required to be issued to other stockholders of such Subsidiary by virtue of their exercise of preemptive rights or as their pro rata share of any stock dividend; or 9.6.2 except as permitted by the proviso in Section 9.9 hereof, sell, assign, transfer, dispose of or in any way part with control of any share of capital stock, of any other Subsidiary owned by it, or any Debt owing to it from another Subsidiary, except in either case to the Borrower or a Subsidiary; or 9.6.3 except for (a) Debt of Subsidiaries owing to Borrower or another Subsidiary; (b) Guaranties of Debt of the Borrower permitted under Section 9.1; (c) Debt of a Subsidiary of the type described in Sections 9.1.2 and 9.1.3; (d) Guaranties of a Subsidiary of the Debt of another Subsidiary of the type described in Sections 9.1.2 or 9.1.3; or (e) Debt described in Schedule 9.6, directly or indirectly create, incur, assume or otherwise become or remain liable with respect to any Debt or any Guaranties. Any corporation which becomes a Subsidiary shall be deemed to have incurred, at the time it becomes a Subsidiary, any Debt of such corporation existing immediately after it becomes a Subsidiary. 9.7 Disposition of Assets. Permit, and will not permit any Subsidiary to, sell, lease, transfer or otherwise dispose of all or any substantial part of its properties and assets, or consolidate with or merge into any other Person, or permit another Person to merge into it, except that: 9.7.1 any Subsidiary may permit any corporation to merge into such Subsidiary, or may consolidate with or merge into, or sell, lease or otherwise dispose of its assets as an entirety or substantially as an entirety to the Borrower, a Subsidiary or any corporation which thereupon becomes a Subsidiary, provided that immediately after the consummation of any such transaction and after giving effect thereto, (A) the Borrower and each Subsidiary shall be in compliance with the provisions of Section 9.1 and 9.6.3 hereof, and (B) no Default or Event of Default shall exist; 9.7.2 the Borrower or any Subsidiary may sell or otherwise dispose of any of its assets in the ordinary course of its business; and 9.7.3 in addition to transactions permitted by Sections 9.7.1 and 9.7.2 above, the Borrower or any Subsidiary may sell or otherwise dispose of any of its assets (including shares of stock and Debt of Subsidiaries) at the fair market value thereof (as determined in good faith by the Board of Directors of the Borrower) if the aggregate net proceeds received by the Borrower and its Subsidiaries from all such sales and all other sales and dispositions during the twelve (12) consecutive calendar months immediately preceding any such sale or other disposition shall not exceed 15% of Consolidated Net Tangible Assets as of the end of the fiscal year of the Borrower immediately preceding such sale or disposition. 22 30 9.8 Transactions with Affiliates. Permit, and will not permit any Subsidiary to, engage in any material transaction with an Affiliate on terms more favorable to such Affiliate than would have been obtainable in arm's length dealing in the ordinary course of business with a Person not an Affiliate. 9.9 Restrictions on Borrower. The Borrower will not: 9.9.1 sell, assign, transfer, dispose of, or in any way part with control of, any share of capital stock of any Subsidiary except (A) to the extent, if any, required to qualify directors of such Subsidiary under any applicable law, or (B) to any Subsidiary; or 9.9.2 sell, assign, transfer, dispose of, or in any way part with control of, any Debt owing from any Subsidiary to the Borrower except to any Subsidiary; provided, however, that all shares of capital stock of all classes, together with all Debt, of any Subsidiary owned by the Borrower and/or its other Subsidiaries may be sold for the fair market value thereof (as determined in good faith by the Board of Directors of the Borrower), as an entirety, if the Subsidiary whose shares of capital stock and Debt are so sold does not own any shares of capital stock or Debt of any other Subsidiary not being simultaneously disposed of as permitted by this proviso and if such sale is permitted by Section 9.7.3 hereof. 9.10 Permitted Investments. Permit, and will not permit any Subsidiary to, make any Investment other than Permitted Investments. 9.11 Limitation on Restrictive Covenants. Except for the covenants in the Metropolitan Agreement as existing on the date of this Agreement, incur, or suffer to exist, any Funded Debt or Current Debt with covenants more restrictive than the covenants contained herein. In the event the Borrower does enter into any Current Debt or Funded Debt with covenants more restrictive than the covenants contained herein (the "Restricted Debt") then the more restrictive covenants shall automatically and immediately be incorporated herein without further action or amendment to this Agreement. Once the Restricted Debt has been paid in full and all documents in connection therewith terminated, the covenants in this Agreement shall automatically and immediately revert back to the covenants which existed on the date of this Agreement, or as subsequently modified by agreement of the Borrower and the Bank, without further action or amendment to this Agreement. 9.12 Loan, Advances and Purchases of Stock. Make or permit to remain outstanding or permit any Subsidiary to make or permit to remain outstanding any loan or advance to, or own, purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any person or entity, provided that this Section 9.12 shall not prohibit or restrict the Borrower's ability to own, purchase or acquire any stock, obligations or securities of, or any other interest in, any Subsidiary if otherwise permitted under the terms of this Agreement, and provided further that if otherwise permitted under the terms of this Agreement the Borrower or any Subsidiary may: 23 31 9.12.1 own, purchase or acquire stock, obligations or securities of a Subsidiary or of a corporation which immediately after such purchase or acquisition will be a Subsidiary; and 9.12.2 acquire and own stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Borrower or any Subsidiary. 9.13 EBITDA. Permit Consolidated Net Income plus Consolidated Net Interest Expense, consolidated taxes, consolidated amortization and consolidated depreciation ("EBITDA") to be less than the following amounts at the end of each of the following periods:
Periods EBITDA ------- ------ Quarter ending March 31, 2001 ($6,000,000) Two quarters ending June 30, 2001 ($11,000,000) Three quarters ending September 29, 2001 ($6,000,000) Four quarters ending December 29, 2001 $3,000,000
SECTION 10. FURTHER ASSURANCE. The Borrower shall furnish at the reasonable request of the Bank opinions of legal counsel and certificates of its officers satisfactory to the Bank regarding matters incident to this Agreement. The Borrower agrees to provide such other documents and information and to take such further action as the Bank may reasonably require in connection with the execution and delivery of this Agreement and the Borrower's performance hereunder. SECTION 11. TAXES AND STAMPS. If in connection with any borrowing hereunder any documentary or recording tax should be assessed or the affixing, of any stamps be required by state or federal governments, the Borrower will pay the tax and the cost of the stamps. SECTION 12. [INTENTIONALLY OMITTED] SECTION 13. DEFAULT. 13.1 Events of Default. The occurrence of any one or more of the following events will constitute an Event of Default: 13.1.1 Default shall be made in the due and punctual payment of any principal of any Note when and as the same shall become due and payable, whether at maturity or by acceleration or otherwise; 13.1.2 Default shall be made in the due and punctual payment of any installment of interest on any Note or Commitment Fees or other amounts hereunder, when and as 24 32 such payments shall become due and payable, and such default shall have continued for a period of 10 days; 13.1.3 Default shall be made in the performance or observance of any covenants, agreements or conditions contained in this Agreement or any Note, other than as set forth in Sections 13.1.1 and 13.1.2 hereof and such default shall have continued for a period of 30 days after any officer of the Borrower becomes aware thereof; 13.1.4 Default shall occur with respect to any indebtedness of the Borrower or any Subsidiary (other than the Note) for borrowed money, including, but not limited to, failure to pay when due any payments required pursuant to such indebtedness, or any other default shall occur with respect to such indebtedness, and such other default shall continue for more than any applicable grace period and the effect of such other default is to cause such indebtedness to remain unpaid or to cause or permit the obligee to cause such indebtedness to become immediately due; 13.1.5 The Borrower or any of its Subsidiaries shall (A) admit in writing its inability to pay its debts or be unable to pay its debts generally as they become due, (B) file a petition in bankruptcy or a petition to take advantage of any insolvency act, (C) make an assignment for the benefit of its creditors, (D) consent to the appointment of a receiver of itself or the whole or any substantial part of its property, (E) file a petition or answer seeking reorganization, arrangement or winding-up under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State thereof or any other country or jurisdiction, (F) have a petition in bankruptcy filed against it and such petition shall remain undismissed for a period of 60 days, or (G) file any answer admitting or not contesting the material allegations of a petition filed against the Borrower or any of its Subsidiaries in any such case or proceeding, or the Borrower or any of its Subsidiaries seeks, approves, consents to or acquiesces in any such case or proceeding or in the appointment of any custodian, trustee, receiver, liquidator or fiscal agent of the Borrower or any of its Subsidiaries for all or a substantial part of the properties or assets of the Borrower or any of its Subsidiaries; 13.1.6 A court of competent jurisdiction shall enter an order, judgment or decree appointing, without the consent of the Borrower or the Subsidiary involved, a receiver or custodian of the Borrower or any of its Subsidiaries or of the whole or any substantial part of their properties, or approving a petition filed against the Borrower and/or any Subsidiary seeking reorganization, arrangement or winding-up of the Borrower and/or such Subsidiary under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State thereof or any other country or jurisdiction, and such order, judgment or decree shall not be vacated or set aside or stayed within 15 days from the date of assumption of such custody or control; 13.1.7 Under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Borrower or any of its Subsidiaries or of the whole or any substantial part of their respective properties and such custody or control shall not be terminated or stayed within 60 days from the date of assumption of such custody or control; 25 33 13.1.8 Final judgment or judgments for the payment of money in the aggregate in excess of $2,000,000 shall be rendered by a court of record against the Borrower and/or any of its Subsidiaries, either individually or some combination thereof, and the Borrower or such Subsidiary or Subsidiaries shall not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within 30 days from the date of entry thereof and within said period of 30 days, or such longer period during which execution of such judgment shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; 13.1.9 A representation or warranty by the Borrower in this Agreement or in any financial statement, certificate, report or opinion delivered pursuant to this Agreement proves to have been incorrect in any material respect when made or deemed made or delivered; or 13.1.10 (A) either the Borrower or any of its Subsidiaries shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time) involving any pension or profit-sharing plan ("Plan"); (B) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan; (C) a Reportable Event (as defined in ERISA) shall occur with respect to, or proceedings shall commence to have a trustee appointed (or a trustee shall be appointed) to administer, or to terminate, any Single Employer Plan (as defined ERISA), which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Bank, likely to result in the termination of such Plan for purposes of Title IV of ERISA; (D) any Single Employer Plan shall terminate for purposes of Title IV of ERISA; (E) the Borrower or any Subsidiary shall, or is, in the reasonable opinion of any of the Bank, likely to incur any liability in connection with a withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan (as defined in ERISA); or (F) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (A) through (F) above, such event or conditions, if any, could reasonably be expected to subject the Borrower or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial condition of the Borrower. 13.2. Remedies. 13.2.1 Upon the occurrence and during the continuance of any Event of Default, the Bank may by notice to the Borrower terminate the Commitment or declare to be immediately due and payable the outstanding principal of, and accrued interest on, the Note and all other amounts due and payable hereunder, or both, whereupon the Commitment of the Bank shall terminate forthwith or all such amounts shall become immediately due and payable, or both, as the case may be, without further notice or demand, provided that in the case of any event or condition described in Section 13.1.5 or 13.1.6 hereof with respect to the Borrower, the Commitment shall automatically terminate forthwith and all such amounts shall automatically become immediately due and payable without notice or demand. The Borrower hereby expressly waives 26 34 presentment, notice of dishonor, protest, notice of protest, diligence in bringing suit against any party and all other similar formalities. 13.2.2 Upon the occurrence and during the continuance of any Event of Default, the Bank may, in addition to the remedies provided in Section 13.2.1 hereof, enforce its rights either by suit in equity, or by action at law, or by other appropriate proceedings, whether for the specific performance (to the extent permitted by law) of any covenants or agreements contained in this Agreement or the Note or in aid of the exercise of any power granted in this Agreement or the Note and may enforce the payment of the Note and any of its rights available at law or in equity. 13.2.3 Upon the occurrence and during the continuance of any Event of Default, the Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any requirement for such notice being expressly waived by the Borrower) to set off and apply against any and all of the obligations of the Borrower now or hereafter existing under this Agreement any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Borrower and any property of the Borrower from time to time, in possession of the Bank, irrespective of whether or not the Bank shall have made any demand hereunder and although such obligations may be contingent and unmatured. The rights of the Bank under this Section 13.2.3 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Bank may have. SECTION 14. MISCELLANEOUS. 14.1 Amendments, Etc. This Agreement may be amended from time to time and any provision hereof may be waived by the parties hereto. No such amendment or waiver of any provision of this Agreement nor consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 14.2 Notices. Except as otherwise provided in this Agreement, all notices, requests, consents and other communications hereunder shall be in writing and shall be delivered or sent to the Borrower at 13405 Yarmouth Rd., N.W., Pickerington, Ohio 43147, Attention: Daniel Viren, Chief Financial Officer; and to The Huntington National Bank at 41 South High Street, Columbus, Ohio 43287, Attention: John M. Luehmann; or to such other address as may be designated by the Borrower or the Bank by notice to the other. All notices shall be deemed to have been given at the time of actual delivery thereof to such address, or if sent by certified or registered mail, postage prepaid, to such address, on the third day after the date of mailing. 14.3 Conduct No Waiver; Remedies Cumulative. No course of dealing on the part of the Bank, nor any delay or failure on the part of the Bank in exercising any rights, powers or privileges hereunder, shall operate as a waiver of such rights, powers or privileges or otherwise prejudice the Bank's rights and remedies hereunder; nor shall any single or partial exercise thereof preclude any further exercise thereof or the exercise of any other right, power or privilege 27 35 by the Bank. No right or remedy conferred upon or reserved to the Bank under this Agreement is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing under any applicable law. Every right and remedy given by this Agreement or by applicable law to the Bank may be exercised from time to time as often as may be deemed expedient by the Bank. 14.4 Reliance on and Survival of Various Provisions. All terms, covenants, agreements, representations and warranties of the Borrower made herein or in any certificate or other document delivered pursuant hereto shall be deemed to be material and to have been relied upon by the Bank, notwithstanding any investigation heretofore or hereafter made by the Bank or on the Bank's behalf, and those covenants and agreements of the Borrower set forth in Section 8 and Section 14.5 hereof shall survive the repayment in full of the Loans and the termination of the Commitment. 14.5 Expenses. 14.5.1 The Borrower agrees to pay and save the Bank harmless from liability for the payment of the reasonable fees and expenses of counsel to the Bank in connection with the preparation, execution and delivery of this Agreement and the Note and the consummation of the transactions contemplated hereby, and in connection with any amendments, waivers or consents in connection therewith, and all reasonable costs and expenses of the Bank (including reasonable fees and expenses of counsel) in connection with any Event of Default or the enforcement of this Agreement or any of the Note. 14.5.2 The Borrower agrees to pay, and indemnify and hold harmless the Bank from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the use of proceeds of the Loans. 14.6 Successors and Assigns. This Agreement shall be binding upon the parties hereto and shall inure to the benefit of the Bank and the Bank's respective successors and assigns. The Bank may assign its entire interest in this Agreement, its Commitment and the Loans to another financial institution, including, but not limited to, one of the Bank's affiliates. With the prior written consent of the Borrower, which consent shall not be unreasonably withheld, the Bank may sell participations in its Commitment and Loans to any financial institution or institutions, provided that, prior to a Default or an Event of Default, the Bank retains full power to make all decisions with respect to any waiver relating to this Agreement, and makes any interest rate quotations based on circumstances relating to it and not to any participant. The Borrower shall not, without the prior consent of the Bank, assign its rights or obligations hereunder or, as the case may be, under the Note and the Bank shall not be obligated to make any Loans hereunder to any entity other than the Borrower. 14.7 Assignment to Federal Reserve Banks. The Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the Bank from its obligations hereunder. 28 36 14.8 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 14.9 Governing Law, Consent to Jurisdiction and Waiver of Immunity. This Agreement is a contract made under, and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with, the laws of the State of Ohio applicable to contracts made and to be performed entirely within such State. The Borrower further agrees that any legal action or proceeding with respect to this Agreement or the Note or the transactions contemplated hereby, may be brought in any court of the State of Ohio, or in the United States courts for the Southern District of Ohio, and the Borrower hereby irrevocably submits to and accepts generally and unconditionally the jurisdiction of those courts with respect to its person, property and revenues and irrevocably consents to service of process in any such action or proceeding by the mailing thereof by U.S. mail to the Borrower at the Borrower's address set forth in Section 14.2 hereof. To the extent permitted by applicable law, the Borrower hereby waives and agrees not to assert in any such action or proceeding, by way of motion, as a defense or otherwise, any claim that (i) it is not personally subject to the jurisdiction of the aforesaid courts, (ii) except as required by applicable law, its property is exempt or immune from attachment or execution, (iii) any such action or proceeding brought in any one of the aforesaid courts is brought in an inconvenient forum, (iv) the venue of any such action or proceeding brought in any one of the aforesaid courts is improper, or (v) this Agreement or any document contemplated herein or the subject matter hereof or thereof may not be enforced in or by any such Court. Nothing in this paragraph shall affect the right of the Bank to serve process in any other manner permitted by law or limit the right of the Bank to bring any such action or proceeding against the Borrower or to obtain execution on any judgment, in any other jurisdiction or in any other manner permitted by law. 14.10 Waiver of Jury Trial. THE BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (i) UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 14.11 Headings. The headings of the various subdivisions hereof are for the convenience of reference only and shall in no way modify any of the terms and provisions hereof. 14.12 Construction of Certain Provisions. All computations required hereunder and all financial terms used herein shall be made or construed in accordance with generally accepted accounting principles. If any provision of this Agreement refers to any action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable 29 37 whether such action is taken directly or indirectly by such Person, whether or not expressly specified in such provision. 14.13 Integration and Severability. This Agreement embodies the entire agreement and understanding between the Borrower and the Bank, and supersedes all prior agreements and understandings, relating to the subject matter hereof. In case any one or more of the provisions of this Agreement or the Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and such invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of the provisions of this Agreement or the Note in any other jurisdiction. 14.14 Usury. Notwithstanding any provisions of this Agreement or the Note, in no event shall the amount of interest paid or agreed to be paid by the Borrower exceed an amount computed at the highest rate of interest permissible under applicable law. If, from any circumstances whatsoever, fulfillment of any provision of this Agreement or the Note at the time performance of such provision shall be due shall involve exceeding the interest rate limitation validly prescribed by law which a court of competent jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be fulfilled shall be reduced to an amount computed at the highest rate of interest permissible under applicable law, and if for any reason whatsoever the Bank shall ever receive as interest an amount which would be deemed unlawful under such applicable law such interest shall be automatically applied by the Bank to the payment of principal of the Loans outstanding hereunder (whether or not then due and payable) and not to the payment of interest, or shall be refunded to the Borrower if such principal has been paid in full. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed in duplicate originals as of the year and day first above written. ATTEST: R. G. BARRY CORPORATION /s/ Travis Wahl By: /s/ Michael Krasnoff - ------------------- -------------------------------- Michael S. Krasnoff Vice President THE HUNTINGTON NATIONAL BANK /s/ Ronald Cook By: /s/ John M. Luehmann - -------------------- --------------------------------- John M. Luehmann Assistant Vice President 30 38 EXHIBIT A REVOLVING CREDIT NOTE March 12, 2001 $30,000,000 FOR VALUE RECEIVED, the undersigned, R. G. BARRY CORPORATION, an Ohio corporation, promises to pay to The Huntington National Bank (hereinafter called the "Bank") or order, at its office at 41 South High Street, Columbus, Ohio 43287 in lawful money of the United States of America and in immediately available funds, the principal sum of Thirty Million Dollars ($30,000,000), or such lesser amount as is then outstanding under this Note as indicated on the records of the Bank, for money loaned with interest upon the unpaid principal balance hereof from time to time outstanding, payable, in like money and funds, in arrears on each interest due date after the date hereof. This Note evidences Eurodollar Loans and/or Domestic Loans and shall bear interest at the rates, respectively, specified in the Credit Agreement described below, which is incorporated herein by reference. Such interest shall be payable on every Daily Eurodollar Loan and Domestic Loan on the last Business Day of each month beginning March 31, 2001, and on the date of conversion thereof to a Quoted Eurodollar Loan. Interest shall be payable on every Quoted Eurodollar Loan on each Interest Payment Date. Interest will be computed on the basis of a 360-day year for the actual number of days in each Interest Period. After an Event of Default or after maturity, whether by acceleration or otherwise, this Note shall bear interest at the Prime Rate plus two percent (2%) per annum. This Note represents Loans made pursuant to the Bank's Commitment under the Revolving Credit Agreement dated as of March 12, 2001, as it has been and may be from time to time amended (the "Credit Agreement"), among the undersigned and the Bank, and the terms and conditions set forth in the Credit Agreement shall be considered a part hereof to the same extent as if written herein, and upon the occurrence of an Event of Default as defined in the Credit Agreement, the entire principal sum and any accrued interest on this Note shall, at the option of the holder of this Note except as to any event or condition described in Section 13.1.5 or 13.1.6 of the Credit Agreement, at once and without notice become due and payable. Capitalized terms used but not defined in this Note shall have the respective meanings assigned to them in the Credit Agreement. The entire unpaid principal and interest on this Note shall be due and payable on the Termination Date. The Bank is hereby authorized by the undersigned to note on a schedule attached to this Note the date, amount and type of each Loan, the interest rate and duration of the related Interest Period (if applicable), and the amount of each payment or prepayment of principal thereon, which schedule shall constitute prima facie evidence of the information so noted, provided, that any failure by the Bank to make any such notation shall not relieve the undersigned of its obligation to repay the outstanding principal amount of this Note, all accrued interest hereon and any other amounts payable in accordance with the terms of this Note and the Credit Agreement. 31 39 All parties to this Note, including endorsers, sureties and guarantors, if any, hereby waive presentment for payment, demand, protest, notice of non-payment or dishonor, and of protest, and any and all other notices and demands whatsoever, and agree to remain bound until the interest and principal are paid in full notwithstanding any extension or extensions of time for payment which may be granted, even though the period of extension may be indefinite, and notwithstanding any inaction by, or failure to assert any legal right available to, the holder of this Note. This Note shall be construed in accordance with and governed by the laws of the State of Ohio. WAIVER OF RIGHT TO TRIAL BY JURY THE UNDERSIGNED ACKNOWLEDGES THAT, AS TO ANY AND ALL DISPUTES THAT MAY ARISE BETWEEN THE UNDERSIGNED AND THE BANK, THE COMMERCIAL NATURE OF THE TRANSACTION OUT OF WHICH THIS NOTE ARISES WOULD MAKE ANY SUCH DISPUTE UNSUITABLE FOR TRIAL BY JURY. ACCORDINGLY, THE UNDERSIGNED HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY AS TO ANY AND ALL DISPUTES THAT MAY ARISE RELATING TO THIS NOTE OR TO ANY OF THE OTHER INSTRUMENTS OR DOCUMENTS EXECUTED IN CONNECTION HEREWITH. The undersigned authorizes any attorney at law to appear in any Court of Record in the State of Ohio or in any other state or territory of the United States after the above indebtedness becomes due, whether by acceleration or otherwise, to waive the issuing and service of process, and to confess judgment against the undersigned in favor of the Bank for the amount then appearing due together with costs of suit, and thereupon to waive all errors and all rights of appeal and stays of execution. The attorney at law authorized hereby to appear for the undersigned may be an attorney at law representing the Bank, and the undersigned hereby expressly waives any conflict of interest that may exist by virtue of such representation. WARNING-BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. R. G. BARRY CORPORATION By: /s/ Michael Krasnoff ----------------------------------------- Michael S. Krasnoff, Vice President 32 40 EXHIBIT B (METROPOLITAN AGREEMENT) R.G. BARRY CORPORATION July 5, 1994 Metropolitan Life Insurance Company One Madison Avenue New York, New York 10010 Attention: Treasurer Dear Sirs: R.G. Barry Corporation, an Ohio corporation (herein called the "Company"), hereby agrees with you as follows: 1. The Loan. Subject to the terms and conditions hereof, you will lend to the Company, and the Company will borrow from you, on July 5, 1994 (herein called the "Closing Date"), the amount of $15,000,000. Said loan shall be evidenced by, and be made against delivery to you on the Closing Date at your Home Office, One Madison Avenue, New York, New York, of, the Company's 9.70% senior promissory note due July 5, 2004 (the "Note"), substantially in the form of Exhibit A hereto, made in the principal amount of $15,000,000, dated the Closing Date, registered in your name and duly executed by the Company. Delivery of the Note shall be made against the advance by you to the Company of immediately available funds in the amount of $15,000,000. 2. The Notes. The term "Notes" as used herein shall include the Note delivered to you on the Closing Date as provided in Section 1 hereof and any promissory note delivered in substitution or exchange therefor or in lieu thereof, and, where applicable, shall include the singular number as well as the plural. The term "Note" shall mean one of the Notes. Each Note shall be substantially in the form of Exhibit A hereto. 3. Replacement of Notes. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction, upon delivery of indemnity reasonably satisfactory to the Company (except that if you or your nominee is the holder of such Note, your own agreement of indemnity shall be deemed to be satisfactory), or, in the case of any such mutilation, upon the surrender of such Note to the Company at the office or agency maintained pursuant to Section 7.1 of the Notes for cancellation of such Note, the Company will make and deliver a new Note, of like tenor, dated the date from which unpaid interest has then accrued, in lieu of such lost, stolen, destroyed or mutilated Note. 33 41 4. Financial Statements, Compliance Certificates and Other Documents and Information. So long as any Note shall be outstanding: (a) The Company will deliver to you, in duplicate, so long as you shall hold any Note (i) within 60 days after the end of each of the first three quarterly periods in each fiscal year of the Company, consolidated statements of income, shareholders' equity and cash flows of the Company and its Subsidiaries for that period and for the portion of such fiscal year ended with that period and a consolidated balance sheet of the Company and its Subsidiaries as at the end of that period, setting forth in each case in comparative form the corresponding figures for the corresponding period or periods of the preceding fiscal year, all in reasonable detail and certified (subject to year-end audit adjustments) by an authorized financial officer of the Company; (ii) within 120 days after the end of each fiscal year of the Company, consolidated statements of income, shareholders' equity and cash flows of the Company and its Subsidiaries for such year and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form the corresponding figures for the previous fiscal year, all in reasonable detail and accompanied by a report of independent public accountants of recognized national standing selected by the Company; (iii) concurrently with the delivery of the financial statements described in clauses (i) and (ii), a certificate signed on behalf of the Company by an authorized financial officer of the Company (1) stating that a review of the activities of the Company and its Subsidiaries during the fiscal period covered by such financial statements has been made with a view to determining whether the Company has kept, observed, performed and fulfilled all its obligations under this Agreement and the Notes, (2) stating that no Default or Event of Default existed at the end of such fiscal period or, if any such Default or Event of Default then existed, specifying all such Defaults and Events of Default and the status thereof and the action taken, being taken or proposed to be taken by the Company with respect thereto, and (3) accompanied by reasonably detailed calculations showing that the Company was in compliance, as of the end of the relevant fiscal period, with the requirements of Sections 8.1, 8.2, 8.5, 8.6, 8.7, 8.9, 8.10 and 8.11 of the Notes; (iv) concurrently with their being provided to the recipients thereof, (1) copies of all financial statements, proxy statements and reports which the Company shall send to its stockholders or any of its Subsidiaries shall send to its stockholders other than the Company; and (2) copies of all regular and periodic reports, if any, which the Company or any of its Subsidiaries shall file with the Securities and 42 Exchange Commission, or any governmental agency or agencies substituted therefor, or with any national securities exchange; (v) immediately upon a responsible officer of the Company's becoming aware of the occurrence of any (1) "reportable event," as defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or (2) nonexempted "prohibited transaction," as defined in Sections 406 and 408 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), in connection with any "employee pension benefit plan," as defined in Section 3 of ERISA established or maintained by the Company or any of its Subsidiaries for the benefit of its employees (a "Plan"), or any trust created thereunder, a written notice specifying the nature thereof, what action the Company is taking or proposes to take with respect thereto and, when known, any action taken or proposed to be taken by the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect thereto; (vi) immediately upon the Company's becoming aware of the existence of any Event of Default or any Default, a written notice specifying the nature and status thereof and what action the Company is taking or proposes to take with respect thereto; and (vii) immediately upon the Company's becoming aware that the holder of any Note or of any other evidence of Debt of the Company or any Subsidiary of the Company has demanded payment, given notice or taken any other action with respect to a claimed Event of Default or a claimed default in respect of or under such other evidence of Debt, a written notice specifying the demand made, notice given or action taken by such holder and the nature and status of the claimed Event of Default or default and what action the Company is taking with respect thereto. (b) The Company will furnish to you such other information with respect to the business, operations, properties or financial condition of the Company or any of its Subsidiaries as you may, from time to time, reasonably request (including, without limitation, such information as may be required to be delivered by the Company to a holder of the Notes and/or any prospective purchasers thereof in accordance with Rule 144A under the Securities Act of 1933, as amended) and at your request will make available for examination copies of any special or extraordinary reports or statements (which the Company will promptly advise you of the existence of) which the Company or any of its Subsidiaries may make to or file with any governmental department, commission, board, bureau or agency, Federal or state, which might be helpful to you in evaluating your investment in the Notes. 5. Inspection. So long as you shall hold any Note, you may visit and inspect any of the properties of the Company or its Subsidiaries, examine its books of account and the books of account of its Subsidiaries, and discuss the affairs, finances and accounts of the Company and its Subsidiaries with its and their officers and independent accountants, all at such reasonable times and as often as you may reasonably desire. 2 43 6. Representations and Warranties. The Company represents and warrants that: (a) Financial Statements. The consolidated balance sheets of the Company and its Subsidiaries as at December 30, 1989, December 29, 1990, December 28, 1991, January 2, 1993 and January 1, 1994, and the related consolidated statements of income, stockholders' equity and cash flows for the fiscal years ended on said dates, including in each case the related schedules and notes, if any, all certified by independent public accountants and heretofore delivered to you, fairly present (i) the financial condition of the Company and its Subsidiaries as at the respective dates of said balance sheets and (ii) the results of operations and cash flows of the Company and its Subsidiaries for such fiscal years. Except as otherwise stated therein or in the notes thereto, all such financial statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved. (b) No Material Changes. There has been no material adverse change in the business, operations, properties or condition, financial or other, of the Company and its Subsidiaries taken as a whole since January 1, 1994. (c) Due Organization and Qualification of Company The Company is a corporation duly organized and existing in good standing under the laws of the State of Ohio and is duly qualified and in good standing as a foreign corporation in every jurisdiction wherein the failure to so qualify would have a material adverse effect upon the business, operations, properties or financial condition of the Company and its Subsidiaries taken as a whole. (d) Business and Subsidiaries. The annual report of the Company on Form 10-K for the fiscal year ended January 1, 1994 (the "10-K") and the quarterly report of the Company on Form 10-Q for the fiscal period ended March 26, 1994 (the "10-Q"), each as filed with the Securities and Exchange Commission and a copy of each of which has heretofore been furnished to you, together correctly describe the general nature of the business conducted during the fiscal year ended January 1, 1994, and presently conducted and presently proposed to be conducted, by the Company and its Subsidiaries and correctly sets forth the principal properties then owned or leased by the Company and its Subsidiaries. Except for the contemplated acquisition of Vesture Corporation and the agreement to lease a distribution center in Laredo, Texas, since January 1, 1994, there has been no material change in the general nature of the business conducted and presently proposed to be conducted, or in the principal properties owned or leased, by the Company and its Subsidiaries. The only present Subsidiaries of the Company are those specifically referred to in the 10-K, each of which is duly organized and existing in good standing under the laws of its jurisdiction of incorporation and is duly qualified and in good standing as a foreign corporation in every jurisdiction wherein the failure to so qualify would have a material adverse effect upon the business, operations, properties or financial condition of the Company and its Subsidiaries taken as a whole. The Company owns all outstanding shares of capital stock of each such Subsidiary except for directors' qualifying shares and all shares of such stock have been validly issued and are fully paid and non-assessable. 3 44 (e) Title to Properties. Either the Company or one of its Subsidiaries has good and marketable fee title to all the real properties and good title to all other properties and assets reflected in the balance sheet as at January 1, 1994, referred to in subsection (a) above, or purported to have been acquired after said date, except, however, property subject to Capitalized Leases or properties and assets sold or otherwise disposed of in the ordinary course of business subsequent to said date. Except as permitted by Section 8.2 of the Notes, there are no Liens on any of the present properties or assets of the Company or its Subsidiaries. (f) Trademarks, Patents, etc. The Company and its Subsidiaries possess all trademarks, trademark rights, trade names, trade name rights, copyrights, patents, patent rights and licenses necessary to conduct their respective businesses as now operated without known conflict with any valid trademarks, trade names, copyrights, patents or licenses of others. (g) Litigation. Other than as referred to in the 10-K and the 10-Q, there are no actions, suits or proceedings (whether or not purportedly on behalf of the Company or any of its Subsidiaries) pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, at law or in equity or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which is likely to result in any material adverse change in the business, operations, properties or condition, financial or other, of the Company and its Subsidiaries taken as a whole; and neither the Company nor any of its Subsidiaries is in default with respect to any order, writ, injunction or decree of any court, arbitrator or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. (h) Leases, etc. None of the assets or property reflected in the balance sheet as at January 1, 1994, referred to in subsection (a) above is held by the Company or its Subsidiaries as lessee under any lease or land purchase contract or as conditional vendee under any conditional sales contract or other title retention agreement other than properties or assets subject to Capitalized Leases reflected in said balance sheet as at January 1, 1994 and other than leasehold improvements not exceeding in the aggregate $3,800,000 net book value. (i) Burdensome Provisions. Neither the Company nor any of its Subsidiaries is a party to any agreement or instrument or subject to any charter or other corporate or legislative restriction materially and adversely affecting the business, operations, properties or condition, financial or other, of the Company and its Subsidiaries, taken as a whole. (j) Compliance with Other Instruments. Neither the Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any bond, debenture, note or other evidence of Debt of the Company or any of its Subsidiaries or contained in any instrument under or pursuant to which any thereof has been issued or made and delivered 4 45 and no other event of default or default exists thereunder or with respect thereto. Neither the execution and delivery of this Agreement, nor the consummation of the transactions herein contemplated, nor compliance with the terms and provisions hereof or of the Notes will conflict with, result in a breach of or violate (x) any law, or any rule, regulation, order, judgment or decree of any governmental department or agency or of any court or arbitrator which is applicable to the Company or any of its property, or (y) any of the terms, conditions or provisions of the Company's certificate of incorporation or by-laws or of any agreement or instrument to which the Company or any of its Subsidiaries is a party, or constitute a default thereunder, or result in the creation or imposition of any Lien upon any of the property or assets of the Company or any of its Subsidiaries pursuant thereto. (k) Force Majeure. Since January 1, 1994, the business, properties and assets of the Company and its Subsidiaries have not been materially and adversely affected in any way as the result of any fire, explosion, earthquake, accident, strike, labor disturbance, requisition or taking of property by governmental authority, flood, drought, embargo, riot, activity of armed forces, or act of God or the public enemy. (l) Foreign Assets Control Regulations, etc. Neither the execution, delivery or performance of this Agreement or the Notes by the Company nor the consummation by the Company of the transactions contemplated hereby will violate the Trading with the Enemy Act, as amended, the International Emergency Economic Powers Act or the Executive Orders of the President of the United States issued pursuant to such Acts, or any regulations or orders issued under such Acts or Executive Orders, including, without limitation, the foreign assets control regulations of the United States Treasury Department (31 C.F.R. Subtitle B, Chapter V, as amended). (m) Tax Liability. The Company and its Subsidiaries have filed all tax returns which, to the knowledge of their respective officers, are required to be filed and have paid all taxes which have become due and payable pursuant to such returns or pursuant to any assessment received by the Company or any Subsidiary other than those being contested in good faith by the Company or such Subsidiary. The Federal income tax liability of the Company has been finally determined by the Internal Revenue Service and satisfied for all taxable years up to and including the taxable year ended on or about December 31, 1987. In the opinion of the Company all tax liabilities were, as of January 1, 1994, and are now, adequately provided for on the books of the Company and its Subsidiaries. (n) Use of Proceeds; Regulation G. The proceeds of the loan to be made by you hereunder will be used by the Company (i) to refinance indebtedness originally incurred by the Company for working capital and (ii) for general corporate purposes. No part of the proceeds from such loan will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock within the meaning of Regulation G (12 C.F.R., Chapter II, Part 207) of the Board of Governors of the Federal Reserve System, and margin stock does not constitute, and the Company does not intend or foresee that margin stock will at any time constitute, more than 20% of the total assets of 5 46 the Company. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, in each case as in effect on the date hereof or as the same may hereafter be in effect. (o) Disclosure. Neither this Agreement, nor the financial statements referred to in subsection (a) of this Section 6, nor the 10-K or the 10-Q or any certificate or other data furnished to you in writing by or on behalf of the Company in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. There is no fact peculiar to the Company which materially and adversely affects or in the future may (so far as the Company can now reasonably foresee) materially and adversely affect the business, operations, properties, prospects, assets or condition, financial or other, of the Company and its Subsidiaries, taken as a whole, which has not been disclosed to you in writing. (p) ERISA. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any Plan. No liability to the Pension Benefit Guaranty Corporation has been or is expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan by the Company or any ERISA Affiliate which is or would be material and adverse to the business, operations, properties, assets, or condition, financial or other, of the Company and its Subsidiaries taken as a whole. Neither the Company nor any ERISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA which is or would be material and adverse to the business, operations, properties, assets or condition, financial or other, of the Company and its Subsidiaries taken as a whole. The execution and delivery of this Agreement and the making of the loan by you hereunder will be exempt from, or will not involve any transaction which is subject to, the prohibitions of Section 406 of ERISA and will not involve any transaction in connection with which a penalty could be imposed under Section 502(i) of ERISA or a tax could be imposed pursuant to Section 4975 of the Code. The representation by the Company in the preceding sentence is made in reliance upon and subject to the accuracy of your representation in Section 7(b) hereof as to the source of the funds to be used by you to make the loan hereunder. 7. (a) Acquisition for Investment; Private Offering. You represent that you are acquiring the Note specified in Section 1 hereof for your own account for investment and not with a view to, or for sale in connection with, the distribution of such Note, nor with any present intention of distributing or selling such Note, provided that the disposition of your property shall at all times be within your control. The Company represents that it has not, either directly or through any agent, offered any of the Notes or other similar securities of the Company to, or solicited offers to acquire any thereof from, or 6 47 otherwise approached or negotiated or communicated in respect of any thereof with, any Person or Persons other than you and not more than 34 other Persons, all of whom are institutional investors and were offered the Notes (or a portion thereof) at private sale for investment. Neither the Company nor any agent on its behalf will offer any of the Notes or other similar securities of the Company to, or solicit any offers to acquire any thereof from, or otherwise approach or negotiate in respect of any thereof with, any Person or Persons so as thereby to bring the offering and issuance of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. (b) Source of Funds. You represent that the source of funds to be used by you to make the loan hereunder and to acquire the Notes will not consist of assets of any separate account (as defined in ERISA) maintained by you. 8. Conditions of Loan. Your obligation to advance the loan on the Closing Date, as provided in Section 1 hereof, shall be subject to the performance by the Company of all its agreements theretofore to be performed hereunder and to the accuracy of its representations and warranties herein contained and to the satisfaction, prior to or concurrently with the making of said loan, of the following further conditions: (a) Opinion of Company's Counsel. You shall have received from Vorys, Sater, Seymour and Pease, counsel for the Company, an opinion dated the Closing Date, in form and substance satisfactory to you, to the effect that (i) the Company is a duly organized and existing corporation in good standing under the laws of the State of Ohio and has the corporate power and authority to own its properties and to carry on its business as now conducted and to enter into this Agreement and to issue the Notes; (ii) this Agreement has been duly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms; (iii) the Note delivered to you on the Closing Date has been duly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms; (iv) it is not necessary in connection with the offering and delivery of the Notes under the circumstances contemplated by this Agreement, to register the Notes under the Securities Act of 1933, as amended and as then in effect, or to qualify an indenture in respect thereof under the Trust Indenture Act of 1939, as amended and as then in effect; (v) no authorization, consent, approval or exemption from, or filing with, any governmental or public body is required in connection with the execution and delivery of this Agreement and the Notes; and as to such other matters incident to the transactions contemplated by this Agreement as you may desire. 7 48 (b) No Event of Default. No Default or Event of Default shall exist on the Closing Date; and the Company shall have delivered to you on the Closing Date a certificate signed by an authorized officer of the Company to such effect. (c) Correctness of Representations, etc. The representations and warranties by the Company in Sections 6 and 7(a) hereof shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date; and the Company shall have delivered to you on the Closing Date a certificate signed by an authorized officer of the Company to such effect. (d) Legality. The Note being acquired by you on the Closing Date shall qualify on the Closing Date as a legal investment for mutual life insurance companies under the New York Insurance Law (without resort to any provision of such Law, such as Section 1405(a)(8) thereof, permitting limited investments by you without restriction as to the character of the particular investment) and such acquisition shall not subject you to any penalty or other onerous condition under or pursuant to any applicable law or governmental regulation. (e) Proceedings, Documents, etc. All proceedings to be taken in connection with the transactions contemplated by this Agreement, and all documents incident thereto, shall be satisfactory in form and substance to you; and you shall have received copies of all documents which you may reasonably request in connection with said transactions and copies of the records of all corporate proceedings in connection therewith in form and substance satisfactory to you. 9. Home Office Payment. Notwithstanding any provision to the contrary contained in the Notes, the Company will promptly and punctually pay to you by wire transfer of immediately available funds, not later than 12:00 noon, New York time, on the date payment is due, to Account No. 002-2-410591, Account Name: Metropolitan Life-Corporate Investments, Reference: PPN 068798A*8, at The Chase Manhattan Bank, N.A., Metropolitan Branch, 33 East 23rd Street, New York, New York 10010, ABA No. 021000021, or such other account or address as may be designated in writing by you, all amounts payable in respect of the principal of, premium, if any, and interest on, any Notes then held by you or your nominee, without any presentment thereof and without any notation of such payment being made thereon. In the event you shall sell any Note you will, prior to the delivery thereof, make a notation thereon of the date to which interest has been paid thereon and, if not theretofore made, a notation thereon of the extent to which any payment has been made on account of the principal thereof. 10. Expenses. Whether or not the loan herein contemplated shall be consummated, the Company shall pay you $15,000 as a transaction fee to cover your expenses in preparing for and documenting the transaction contemplated by this Agreement. You agree that, upon payment of said transaction fee, the Company will not otherwise be liable for the payment of any expenses incurred by you in connection with preparing for, documenting and closing the transaction contemplated by this Agreement, including, without limitation, any legal fees and expenses, travel expenses, and word processing costs. The Corporation will, however, pay all of your out- 8 49 of-pocket expenses, including the reasonable fees and disbursements of your special counsel, if any, in connection with any waiver, modification or consent under or in respect of this Agreement or the Notes, whether or not the same become effective. The Company will save you harmless against any and all liability with respect to, or resulting from any delay in paying, stamp or other documentary taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of the Notes or of any modification of any thereof. The Company's obligations under this Section 10 shall survive the payment or prepayment of the Notes. 11. Definitions. Any terms used herein shall have, unless otherwise herein defined or the context otherwise requires, the respective meanings assigned to them in Exhibit A hereto. 12. Survival of Representations and Warranties; Successors and Assigns. All covenants, agreements, representations and warranties made herein and in certificates delivered pursuant hereto shall survive the making by you of the loan herein contemplated and the execution and delivery to you of the Notes evidencing such loan and shall continue in full force and effect so long as any Note is outstanding and unpaid and as provided in Section 10 hereof. Whenever in this Agreement either of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party (including, in the case of you, any subsequent holder of any of the Notes); and all covenants, promises and agreements in this Agreement contained by or on behalf of the Company, or by or on behalf of you, shall bind and inure to the benefit of the respective successors and assigns of such party hereto (including, in the case of you, any subsequent holder of any of the Notes); provided, however, that you shall not be required to advance the loan as provided in Section 1 hereof to any Person other than the presently existing R.G. Barry Corporation, an Ohio corporation. 13. Notices. All communications provided for hereunder or under the Notes (other than payments in respect thereof which shall be made in accordance with Section 9 hereof) shall be in writing and, if to you, mailed by registered or certified mail or delivered personally or by reputable overnight courier service to Metropolitan Life Insurance Company, One Madison Avenue, New York, New York 10010, Attention: Treasurer, with a copy to Metropolitan Life Insurance Company, Capital Markets Group-Central Territory, One Lincoln Centre, Suite 800, Oakbrook Terrace, Illinois 60181, Attention: Vice-President, or, if to the Company, mailed by registered or certified mail or delivered personally or by reputable overnight courier service to the Company's office at 13405 Yarmouth Road, N.W., Pickerington, Ohio 43147, Attention: Treasurer, or at any other office that the Company or you may hereafter designate by written notice to the other. 14. Law Governing; No Oral Change. This Agreement shall be construed in accordance with the laws of the State of Ohio and cannot be waived, changed, terminated or discharged orally but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, termination or discharge is sought. 15. Headings. The headings of the Sections and subsections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 9 50 Upon your signing the form of acceptance on the enclosed counterpart of this Agreement and returning such counterpart to the Company, this Agreement shall become a binding agreement between you and the Company. Very truly yours, R.G. BARRY CORPORATION By /s/ Gordon Zacks ---------------------------------------- The foregoing agreement is hereby accepted. METROPOLITAN LIFE INSURANCE COMPANY By /s/ Michael J. Kroeger -------------------------------------- 10 51 EXHIBIT A R.G. BARRY CORPORATION 9.70% Senior Promissory Note Due July 5, 2004 Reg. No. New York, New York $ , 19 R.G. BARRY CORPORATION (herein called the "Company"), a corporation duly organized and existing under the laws of the State of Ohio, for value received, hereby promises to pay to _____________ , or registered assigns, on the fifth day of July, 2004, the principal sum of _____________ Dollars ($ _____ ) (or so much thereof as shall not have been prepaid) in such coin or currency of the United States of America as at the time of payment shall be legal tender for public and private debts, at the principal office of The Chase Manhattan Bank, N.A. in the Borough of Manhattan, The City of New York, State of New York, and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid balance of said principal sum from the date hereof at said office, in like coin or currency, semi-annually on the fifth day of July and the fifth day of January in each year, commencing on the first such day after the date hereof, at the rate of nine and seventy one-hundredths per centum (9.70%) per annum until the principal hereof shall have become due and payable. Any payment of principal of, premium, if any, or, to the extent lawful, interest on this Note which is not paid when due shall bear interest at the greater (determined on a daily basis) of eleven and seventy one-hundredths per centum (11.70%) per annum or the rate per annum which The Chase Manhattan Bank, N.A. announces publicly from time to time as its corporate base rate of interest (or such lesser rate, if any, which is the maximum rate permitted by applicable law) (the "Overdue Interest Rate") for the period that the same is overdue. 1. Notes. This Note is one of the 9.70% senior promissory notes due July 5, 2004 of the Company (the "Notes") issued pursuant to a loan agreement dated July 5, 1994 between the Company and Metropolitan Life Insurance Company (the "Agreement"), in the aggregate principal amount of $15,000,000, each in the denomination of $100,000 or a multiple thereof, and bearing interest payable at the same rate and on the same semi-annual dates as the interest on the principal amount of this Note. 2. Register. The Notes are issuable only as registered notes. The Company shall keep at the office or agency maintained pursuant to Section 7.1 hereof a register in which the Company shall register the names and addresses of the holders of the Notes and shall register the transfer of Notes as provided herein. Upon due presentment for registration of transfer of any Note at such office or agency, the Company will execute, register and deliver in exchange therefor a new Note or Notes, each in a minimum denomination of $100,000 principal amount, or any multiple of $1,000 in excess 11 52 thereof, equal in aggregate principal amount to the unpaid principal amount of the Note so presented for registration of transfer, dated the date from which unpaid interest has then accrued thereon and registered in the name or names of the transferee or transferees. At any time at the request of the holder of any Note and upon surrender of such Note for such purpose to the Company at such office or agency, the Company will execute, register and deliver in exchange therefor a new Note or Notes, each in a minimum denomination of $100,000 principal amount, or any multiple of $1,000 in excess thereof, equal in aggregate principal amount to the unpaid principal amount of the Note so surrendered, dated the date from which unpaid interest has then accrued thereon and registered in such name or names as such holder may request. Each Note presented or surrendered for registration of transfer shall be duly endorsed by, or accompanied by a written instrument or instruments of transfer in form satisfactory to the Company duly executed by, the holder thereof or his attorney duly authorized in writing. All exchanges and registrations of transfer of Notes shall be at the expense of the Company other than any taxes incurred by reason of a transfer of title. The Company may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon by anyone other than the Company) for the purpose of receiving payment of or on account of the principal of, premium, if any, or interest on this Note and for all other purposes, and the Company shall not be affected by any notice to the contrary. All payments made to the registered holder hereof shall be valid and effectual to satisfy and discharge the liability upon this Note to the extent of the sum or sums so paid. 3. Prepayments. 3.1. Mandatory Prepayments. The Company covenants and agrees that it shall prepay $2,143,000 principal amount of Notes on July 5 in each of the years 1998 through 2003, inclusive; provided, however, that, upon any partial prepayment of the Notes pursuant to Section 3.2 hereof, the principal amount of each mandatory prepayment of Notes becoming due under this Section 3.1 on or after the date of such prepayment pursuant to Section 3.2 shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment pursuant to Section 3.2. Each prepayment pursuant to this Section 3.1 shall be in the principal amount thereof plus accrued interest to the date of such prepayment, but without premium. 3.2. Optional Prepayments. Upon notice given as provided in Section 3.3 hereof, the Company at its option may prepay the Notes as a whole at any time or in part from time to time (in multiples of $100,000 principal amount) at the Yield Maintenance Price. Each such notice shall specify the date on which such prepayment is to be made (an "Optional Prepayment Date"), the principal amount of the Notes of each holder so to be prepaid and the interest accrued thereon to the Optional Prepayment Date. On the Calculation Date, the Computing Holder shall give written notice to the Company of the amount of the Yield Maintenance Price so to be prepaid, which notice shall set forth in reasonable detail the computation thereof; provided, however, that the failure of the Computing 12 53 Holder to make such determination shall not affect the obligation of the Company to pay such Yield Maintenance Price when due in accordance with the terms of the Notes and the Computing Holder shall have no liability to the Company or any other holder of the Notes for its failure to make such determination. The Yield Maintenance Price set forth in such notice shall be binding on the Company and all of the holders of the Notes, absent demonstrable error. If the Computing Holder shall not have given the notice contemplated by this Section 3.2 by the end of the third Business Day after the Calculation Date, the Company shall be entitled to determine the Yield Maintenance Price in accordance with the terms hereof and such calculation shall be binding on the Computing Holder and all other holders, absent demonstrable error. Promptly after the Calculation Date, the Company shall deliver to each holder on or before the Optional Prepayment Date a certificate signed by a senior financial officer of the Company setting forth the Yield Maintenance Price of the Notes held by such holder so to be prepaid, accompanied by a copy of the written notice by the Computing Holder referred to above. Upon notice of any prepayment pursuant to this Section 3.2 being given as provided in Section 3.3 hereof, the Company covenants and agrees that it will prepay on the Optional Prepayment Date the principal amount of the Notes so to be prepaid as specified in such notice at the Yield Maintenance Price thereof, together with interest accrued thereon to such date fixed for prepayment. 3.3. Notice of Prepayment and Other Notices. The Company shall give written notice of any prepayment of this Note or any portion hereof pursuant to Section 3.2 not less than 30 nor more than 60 days prior to the date fixed for such prepayment in such notice, which notice shall specify the amount so to be prepaid, together with the interest to be paid thereon and the date fixed for such prepayment. Any notice of prepayment and all other notices to be given to any holder of this Note shall be given by registered or certified mail or by personal delivery or delivery by reputable overnight courier service to such holder at its address designated on the date of such notice on the register maintained by the Company. 4. Allocation of Prepayments. If less than the entire principal amount of all the Notes at the time outstanding shall be prepaid at any time pursuant to Section 3.1 or 3.2 hereof, the Company will allocate the principal amount so prepaid (but only in units of $1,000) among the registered holders of Notes in proportion, as nearly as may be, to the respective principal amount of Notes, not theretofore called for prepayment, of which they shall be registered holders. 5. Surrender of Notes; Notation Thereon. Upon any prepayment of a portion of the principal amount of this Note, the registered holder hereof, at its option, may require the Company to execute and deliver at the expense of the Company a new Note dated the date from which unpaid interest has then accrued thereon and payable to such Person or Persons as may be designated by such holder for the aggregate principal amount of this Note then remaining unpaid, upon surrender of this Note, or may present this Note to the Company for notation hereon of the payment of the portion of the principal of this Note so prepaid. 6. Interest After Date Fixed For Prepayment. If this Note or a portion hereof is called for prepayment as herein provided, this Note or such portion, as the case may be, shall cease to bear 13 54 interest from and after the date fixed for such prepayment; provided, however, that if, upon presentation for the purpose, the Company shall fail to pay this Note or such portion, as the case may be, this Note or such portion, as the case may be, shall bear, so far as may be lawful, interest at the Overdue Interest Rate until paid and, so far as may be lawful, any overdue installment of interest shall also bear interest at such Overdue Interest Rate. 7. Affirmative Covenants. The Company covenants and agrees that so long as this Note shall be outstanding: 7.1. Maintenance of Office. The Company will maintain an office or agency in the United States where the Notes may be presented for payment, registration of transfer, replacement or exchange as provided herein and in the Agreement and where notices, presentations and demands to or upon the Company in respect of the Notes may be given or made. Unless another office or agency is designated by the Company, the office of the Company for the purpose of this Section 7.1 shall be 13405 Yarmouth Road, N.W., Pickerington, Ohio 43147. 7.2. Payment of Taxes and Claims. The Company will promptly pay and discharge, and will cause its Subsidiaries to promptly pay and discharge, when due all taxes, assessments and governmental charges or levies imposed upon the Company or any Subsidiary or upon the income and profits of the Company or any Subsidiary, or upon any property, real, personal or mixed, belonging to the Company or any Subsidiary, or upon any part thereof, before the same shall become in default, as well as all claims for labor, materials and supplies which, if unpaid, might become a Lien upon such properties or any part thereof; provided, however, that the Company shall not be required to pay and discharge, or to cause to be paid and discharged, any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings which will prevent the sale or forfeiture of any property of the Company or such Subsidiary and the Company or such Subsidiary, as the case may be, shall set aside on its books reserves with respect to any such tax, assessment, charge, levy or claim so contested in amounts deemed adequate by the Company. 7.3. Corporate Existence. Except as provided in Section 8.6 hereof, the Company will do, and will cause each of its Subsidiaries to do, all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises, provided that this Section 7.3 shall not prevent the termination of the corporate existence of a Subsidiary if such termination is desirable in the conduct of the business of the Company and not disadvantageous in any material respect to the holders of the Notes. 7.4. Maintenance of Properties. The Company will at all times maintain, preserve, protect and keep, and will cause its Subsidiaries to maintain, preserve, protect and keep, its property in good repair, working order and condition, and from time to time make, or cause to be made, all necessary repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times, provided that the Company or any Subsidiary may discontinue the maintenance of any property if such discontinuance is desirable in the conduct of its business and not disadvantageous in any material respect to the holders of the Notes. 14 55 7.5. Insurance. The Company will keep adequately insured, and will cause each of its Subsidiaries to keep adequately insured, by financially sound and reputable insurers, all property of a character usually insured by corporations engaged in the same or a similar business similarly situated against loss or damage of the kinds customarily insured against by such corporations, and will carry, and will cause each of its Subsidiaries to carry, such other insurance as is usually carried by corporations engaged in the same or a similar business similarly situated, provided that the Company shall be permitted to self-insure, if adequate reserves are maintained in connection therewith, against (i) loss or damage to motor vehicles at any time owned or leased by the Company and its Subsidiaries, and (ii) flood loss or damage to the Company's facility in Goldsboro, North Carolina. The Company shall furnish to the holders of the Notes, upon request made by any holder not more frequently than annually, a certificate of an authorized officer describing in reasonable detail all insurance and self-insurance maintained pursuant to this Section 7.5. 7.6. Books and Records. The Company will keep, and will cause each of its Subsidiaries to keep, true and complete books of record and account in accordance with GAAP. 8. Negative Covenants. The Company covenants and agrees that so long as this Note shall be outstanding: 8.1. Limitations on Debt. (i) The Company will not any time permit the ratio of (x) Consolidated Senior Funded Debt to Total Capitalization to exceed 50%, or (y) Consolidated Funded Debt to Total Capitalization to exceed 55%. (ii) The Company will not incur any Current Debt except: (A) unsecured Current Debt owing to banks, insurance companies and similar financial institutions, provided that during each period of twelve (12) consecutive calendar months (such a period being deemed to commence on the first day of every month after May, 1994), there shall be a period of at least sixty (60) consecutive days during which on each and every day during such sixty (60) day period, the aggregate amount of such Current Debt of the Company outstanding at the close of business on each such day (or if such day is not a Business Day, on the next preceding Business Day) during such sixty (60) day period, if deemed to be unsecured Funded Debt of the Company, could then be outstanding without a violation of clause (i) of this Section 8.1, and (B) Current Debt secured by Liens permitted by clause (vi) of Section 8.2 hereof. (iii) The Company will not permit any Subsidiary to incur or be liable in respect of any Current Debt or Funded Debt except (A) unsecured and (to the extent permitted by clause (vi) of Section 8.2 hereof) secured Current Debt or Funded Debt owing to the Company or to a Wholly-Owned Subsidiary and (B) in the case of Vesture Corporation, Debt secured by Liens on its accounts receivable, provided that at the time of incurrence of such Debt by Vesture 15 56 Corporation and immediately after giving effect thereto, (x) the aggregate outstanding principal amount of such Debt shall not exceed $1 million, (y) the Company shall be in compliance with Section 8.1(i) and (z) the Company could incur at least $1 of Debt secured by Liens permitted by Section 8.2(vi), and provided, further, that no such Debt shall be incurred or exist after January 5, 1996. 8.2. Limitations on Liens. The Company will not, and will not permit any of its Subsidiaries to, incur, create, assume or permit to exist any Lien on any property, whether owned on July 5, 1994 or thereafter acquired, except (i) Liens on property of the Company or a Subsidiary existing on July 5, 1994 and, if securing Current Debt or Funded Debt, described in Exhibit B to the Agreement; (ii) Liens, pledges or deposits made or incurred by the Company or a Subsidiary in connection with worker's compensation, social security or unemployment insurance or to secure the performance of letters of credit, bids, tenders, sales contracts, leases, statutory obligations, surety, appeal and performance bonds and other similar obligations incurred in the ordinary course of business and not in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of property; (iii) Liens incurred by the Company or a Subsidiary for taxes, assessments or governmental charges or levies to the extent permitted to remain unpaid by Section 7.2 hereof and materialmen's and warehousemen's Liens securing obligations not overdue, or if overdue, being contested in good faith by appropriate proceedings, provided that adequate reserves are established in accordance with GAAP; (iv) attachment, judgment and other similar Liens arising in connection with judicial proceedings, provided that the execution or other enforcement of such Lien is effectively stayed and the claims secured thereby are being contested in good faith in such manner that the property subject to such Lien is not subject to forfeiture or sale and provided further that adequate reserves are established in accordance with GAAP; (v) encumbrances in the nature of zoning restrictions, easements, restrictions of record on the use of real property, and landlords' and lessors' Liens, in each case arising or existing in the ordinary course of business of the Company or a Subsidiary and which do not materially impair the Company's or a Subsidiary's use of the property subject thereto; and (vi) other Liens on property of the Company or any Subsidiary securing Current Debt or Funded Debt of the Company or such Subsidiary, provided that at the time of incurrence of any such Lien and after giving effect to the Debt secured thereby, (A) the aggregate principal amount of all such Debt secured by Liens permitted by this clause (vi) shall not exceed 15% of Consolidated Net Tangible Assets, and (B) the Company shall be in compliance with clause (i) of Section 8.1 hereof. 16 57 Any corporation which becomes a Subsidiary on or after July 5, 1994 shall be deemed to have incurred, at the time it becomes a Subsidiary, any Debt or Lien of such corporation existing immediately after it becomes a Subsidiary. 8.3. Restrictions on Subsidiaries. The Company will not permit any Subsidiary to (i) issue or dispose of any shares of its capital stock to any Person other than the Company or a Wholly-Owned Subsidiary, except to the extent, if any, required to qualify directors under any applicable law or required to be issued to other stockholders of such Subsidiary by virtue of their exercise of preemptive rights or as their pro rata share of any stock dividend; or (ii) except as permitted by the proviso in Section 8.4 hereof, sell, assign, transfer, dispose of or in any way part with control of any share of capital stock of any other Subsidiary owned by it, or any Debt owing to it from another Subsidiary, except in either case to the Company or a Wholly-Owned Subsidiary. 8.4. Disposition of Securities by Company. The Company will not (i) sell, assign, transfer, dispose of, or in any way part with control of, any share of capital stock of any Subsidiary except (A) to the extent, if any, required to qualify directors of such Subsidiary under any applicable law, or (B) to any Wholly-Owned Subsidiary; or (ii) sell, assign, transfer, dispose of, or in any way part with control of, any Debt owing from any Subsidiary to the Company except to any Wholly-Owned Subsidiary; provided, however, that all shares of capital stock of all classes, together with all Debt, of any Subsidiary owned by the Company and/or its other Subsidiaries may be sold for the fair market value thereof (as determined in good faith by the Board of Directors of the Company), as an entirety, if the Subsidiary whose shares of capital stock and Debt are so sold does not own any shares of capital stock or Debt of any other Subsidiary not being simultaneously disposed of as permitted by this proviso and if such sale is permitted by Section 8.6(iv) hereof. 8.5. Restricted Payments. The Company will not declare or pay any dividends (other than dividends payable in capital stock of the Company) on any shares of any class of its capital stock or apply any of its property or assets to the purchase, redemption or other retirement of, or make any other distribution, by reduction of capital or otherwise, in respect of, or permit any Subsidiary to purchase, any shares of any class of stock of the Company, unless, immediately after giving effect to such action, there exists no Event of Default or Default, and the sum of (i) the amounts declared and paid as dividends (other than dividends paid in capital stock of the Company) on all shares of stock of all classes of the Company or distributed in respect of such shares of stock subsequent to January 1, 1994, and 17 58 (ii) the amounts applied to the purchase (including purchases by Subsidiaries), redemption or retirement of shares of stock of all classes of the Company subsequent to January 1, 1994, will not be in excess of the sum of $4,000,000 plus 50% of cumulative Consolidated Net Income (or, in the case of a negative cumulative Consolidated Net Income, minus 100% of such deficit) for the period (taken as one accounting period) from January 2, 1994 to the date of such action, plus the aggregate amount of the net consideration received by the Company (other than from Subsidiaries) from the issuance or sale after January 1, 1994 of shares of capital stock of the Company, including treasury stock. The amount of any consideration from the issuance or sale after January 1, 1994 of shares of stock received by the Company in the form of property other than cash shall be deemed to be the fair market value of such property (as determined in good faith by the Board of Directors of the Company) at the time of the receipt of such property by the Company. 8.6. Dispositions of Assets; Merger; Consolidation. The Company will not, and will not permit any Subsidiary to, sell, lease, transfer or otherwise dispose of all or any substantial part of its properties and assets, or consolidate with or merge into any other Person, or permit another Person to merge into it, except that (i) any Subsidiary may permit any corporation to merge into such Subsidiary, or may consolidate with or merge into, or sell, lease or otherwise dispose of its assets as an entirety or substantially as an entirety to, the Company, a Wholly-Owned Subsidiary or any corporation which thereupon becomes a Wholly-Owned Subsidiary, provided that immediately after the consummation of any such transaction and after giving effect thereto, (A) the Company shall be in compliance with the provisions of Section 8.1(i), (B) the Company is able to incur at least $1 of Debt secured by Liens permitted by Section 8.2(vi), and (C) no Default or Event of Default shall exist; (ii) the Company may permit any corporation to merge into it or may consolidate with or merge into, or sell or otherwise dispose of (except by lease) its assets as an entirety or substantially as an entirety to, any solvent corporation organized in the United States of America which expressly assumes in writing the due and punctual payment of the principal of, and interest and premium on, the Notes and the due and punctual performance of the obligations of the Company under the Agreement and the Notes, provided that immediately after the consummation of any such transaction and after giving effect thereto, (A) the Company (or such successor or transferee corporation, as the case may be) shall be in compliance with the provisions of Section 8.1(i), (B) the Company (or such successor or transferee corporation, as the case may be) is able to incur at least $1 of Debt secured by Liens permitted by Section 8.2(vi), and (C) no Default or Event of Default shall exist; (iii) the Company or any Subsidiary may sell or otherwise dispose of any of its assets in the ordinary course of its business; and 18 59 (iv) in addition to transactions permitted by subsections (i), (ii), and (iii) above, the Company or any Subsidiary may sell or otherwise dispose of any of its assets (including shares of stock and Debt of Subsidiaries) at the fair market value thereof (as determined in good faith by the Board of Directors of the Company) if the aggregate net proceeds received by the Company and its Subsidiaries from all such sales and other dispositions during the twelve (12) consecutive calendar months immediately preceding any such sale or other disposition shall not exceed 15% of Consolidated Net Tangible Assets as of the end of the fiscal year of the Company immediately preceding such sale or disposition. 8.7. Sale-Leaseback Transactions. The Company will not, and will not permit any Subsidiary to, sell or transfer any property to any Person and thereupon lease, as lessee, the same or similar property unless (A) (i) such lease is a Capitalized Lease and the Company is the lessee thereunder, (ii) immediately after giving effect thereto, the Company is in compliance with the provisions of Section 8.1(i), (iii) immediately after giving effect thereto, the Company is able to incur at least $1 of Debt secured by Liens permitted by Section 8.2(vi), and (iv) all of the provisions of Section 8.6(iv) are complied with in connection with such sale or (B)(i) such lease is an operating lease and the Company is the lessee thereunder, (ii) such property is acquired after July 5, 1994 and is sold and leased-back by the Company within 120 days after such acquisition, (iii) all of the provisions of Section 8.6(iv) hereof are complied with in connection with such sale, and (iv) immediately after giving effect to such sale and lease-back, (x) the aggregate net proceeds received by the Company from all such sales made in connection with transactions contemplated by this Section 8.7(B) after July 5, 1994 (other than such sales with respect to which the related lease-back has expired or otherwise terminated) shall not exceed 5% of Consolidated Net Worth on the last day of the fiscal quarter immediately preceding such sale, and (y) the present value of the aggregate rent payable under all such operating leases then outstanding, discounted at the rate of 12 1/2% per annum, shall not exceed 5% of Consolidated Net Worth on the last day of the fiscal quarter immediately preceding such sale, provided that this Section 8.7 shall not apply to (xx) leases having a term (inclusive of renewal and extension terms) of less than three years, and (yy) leases of motor vehicles, computers and office and data processing equipment. 8.8. Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, engage in any transaction with an Affiliate on terms more favorable to the Affiliate than would have been obtainable in arm's length dealing in the ordinary course of business with a Person not an Affiliate. 8.9. Maintenance of Consolidated Net Worth. The Company will not, on the last day of any fiscal quarter of the Company, permit Consolidated Net Worth to be less than the sum of (i) $25,000,000, plus (ii) 50% of Consolidated Net Income computed on a cumulative basis for the period from and after January 2, 1994 to and including the end of the fiscal quarter for which the determination is being made, provided that if Consolidated Net Income for any fiscal quarter in said period is a deficit figure, the amount added pursuant to clause (ii) for said fiscal quarter shall be zero. 8.10. Maintenance of Current Ratio. The Company will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities to be less than (i) 1.25 to 1 at the 19 60 end of the first and fourth fiscal quarters in each fiscal year of the Company, and (ii) 1.0 to 1 at the end of the second and third fiscal quarters in each fiscal year of the Company. 8.11. Investments. The Company will not, and will not permit any Subsidiary to, make any Investment other than Permitted Investments. 9. Amendment and Waiver. (A) Any provision of the Agreement or of the Notes may, with the consent of the Company, be amended or waived (either generally or in a particular instance and either retroactively or prospectively), by one or more substantially concurrent written instruments signed by the holders of 66 2/3% of the aggregate unpaid principal amount of the Notes; provided that: (i) no such amendment or waiver shall, without the consent of the holders of all the Notes then outstanding, change the rate or time of payment of interest on any of the Notes, or modify any of the provisions of the Notes with respect to the payment or prepayment thereof or with respect to the payment of premium in respect thereof, or change the percentage of the principal amount of the Notes the holders of which are required to effectuate or rescind any acceleration of the Notes, or modify any provision of this Section 9, and (ii) no such waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. Each holder of any Note at the time or thereafter outstanding shall be bound by any such amendment or waiver, whether or not a notation thereof shall have been placed on the Note. (B) The Company shall not, and shall not permit any of its Affiliates to, solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of the Agreement or the Notes unless each holder of a Note (irrespective of the principal amount of Notes then held by it) shall be informed thereof by the Company and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto and any information delivered to any other holder of a Note. The Company shall not, and shall not permit any of its Affiliates to, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any holder of a Note as consideration for or as an inducement to the entering into by such holder of any such amendment or waiver, unless such remuneration is concurrently paid, on the same terms, ratably to all holders of all of the Notes then outstanding, whether or not such holders shall have consented to such waiver or amendment. 10. Definitions. For the purpose of this Note, unless otherwise defined or the context otherwise requires: "Affiliate" means any Person which, directly or indirectly, controls or is controlled by or is under common control with the Company or a Subsidiary or which beneficially owns or holds or has the power to direct the voting power of 5% or more of the Voting Stock of the Company or a Subsidiary or which has 5% or more of its Voting Stock (or, 20 61 in the case of a Person which is not a corporation, 5% or more of its equity interest) beneficially owned or held, directly or indirectly, by the Company or a Subsidiary, and any director or officer of the Company or its Subsidiaries. For purposes of this definition, "control" means the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlled by" and "under common control with" have meanings correlative to the foregoing. "Agreement" shall have the meaning specified in Section 1 hereof. "Business Day" means and includes any day on which banks are required to be open to carry on their normal business in the States of New York and Ohio. "Calculation Date" means the date on which the Yield Maintenance Price on the Notes being prepaid pursuant to Section 3.2 hereof or accelerated pursuant to Section 11 hereof, as the case may be, is to be determined by the Computing Holder with respect to such Notes. If the Notes are being prepaid pursuant to Section 3.2 hereof, the Calculation Date shall be the fifth Business Day prior to the Optional Prepayment Date established pursuant to Section 3.2. If the Notes are being accelerated pursuant to Section 11 hereof, the Calculation Date shall be the date of acceleration of such Notes. "Capital Assets" means all of the assets of the Company and its Subsidiaries other than (i) licenses, patents, copyrights, tradenames or trademarks, goodwill, experimental or organizational expense, unamortized debt discount and expense and all other assets which in accordance with GAAP are deemed intangible, and (ii) inventories, accounts receivable or securities of, or other Investments in, any Person. "Capitalized Lease" means and includes at any time any lease of property, real or personal, which in accordance with GAAP would at such time be required to be capitalized on a balance sheet of the lessee. "Capitalized Lease Obligation" means at any time the capitalized amount of the rental commitment under a Capitalized Lease which in accordance with GAAP would at such time be required to be shown on a balance sheet of the lessee. "Computing Holder" means as of a Calculation Date with respect to (a) the prepayment of Notes pursuant to Section 3.2 hereof or acceleration of the Notes pursuant to clause (3) of the first paragraph of Section 11 hereof, as the case may be, the holder at such date of the largest aggregate principal amount of the outstanding Notes or (b) acceleration pursuant to clause (2) of the first paragraph of Section 11 hereof, the holder of the Notes at such date so being accelerated. For purposes of such determination, the holder of any Note and any of its affiliates or subsidiaries that are holders of any Notes shall be treated as one holder. "Consolidated Current Assets" means the assets of the Company and its Subsidiaries that would (determined on a consolidated basis in accordance with GAAP consistently applied) be classified as "current assets" on its consolidated balance sheet. 21 62 "Consolidated Current Liabilities" means (i) the liabilities of the Company and its Subsidiaries that would (determined on a consolidated basis in accordance with GAAP consistently applied) be classified as "current liabilities" on its consolidated balance sheet, and (ii) Guaranties by the Company of Current Debt of other Persons. "Consolidated Funded Debt" means the aggregate amount of Funded Debt of the Company and its Subsidiaries, as consolidated in accordance with GAAP and after eliminating intercompany items. "Consolidated Net Income" means the aggregate of the Net Income of the Company and its Subsidiaries, after eliminating all intercompany items and portions of earnings properly attributable to minority interests, if any, in the capital stock of such Subsidiaries, all computed and consolidated in accordance with GAAP; provided, however, that Consolidated Net Income shall not include: (1) the Net Income of any Person (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest unless such Net Income shall have been actually received by the Company or any Subsidiary in the form of cash dividends or similar cash distributions; (2) the Net Income of any Subsidiary prior to the date it became a Subsidiary; and (3) any gains or losses on the sale or other disposition of Capital Assets, and any taxes on such gains and any tax deductions or credits on account of such losses. "Consolidated Net Tangible Assets" means as of the date of any determination thereof, Consolidated Total Assets as of such date less the sum of (i) Consolidated Current Liabilities and (ii) assets properly classified as intangible assets in accordance with GAAP. "Consolidated Net Worth" means as of the date of any determination thereof the sum of all amounts which, in accordance with GAAP, would be included under shareholders' equity plus (to the extent not included in shareholders' equity) preferred stock, as determined on a consolidated basis, on the balance sheet of the Company and its Subsidiaries. "Consolidated Senior Funded Debt" means the aggregate amount of Senior Funded Debt of the Company and its Subsidiaries, as consolidated in accordance with GAAP and after eliminating intercompany items. "Consolidated Total Assets" means, as of the date of any determination thereof, the total amount of all assets of the Company and its Subsidiaries as determined on a consolidated basis in accordance with GAAP. "Current Debt" of any Person shall mean as of the date of any determination thereof (i) all indebtedness of such Person for borrowed money other than Funded Debt of such Person, and (ii) Guaranties by such Person of Current Debt of others. 22 63 "Debt" of any Person means all Current Debt of such Person and all Funded Debt of such Person. "Default" means any event or condition the occurrence of which would, with the lapse of time or the giving of notice or both, constitute an Event of Default. "Event of Default" has the meaning specified in Section 11 hereof. "Funded Debt" of any Person means (i) indebtedness of such Person for borrowed money or which has been incurred in connection with the acquisition of assets or services, in each case having a final maturity of more than one year from the date of creation thereof (or which is renewable or extendible at the option of the obligor for a period or periods more than one year from the date of creation), including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not the obligation to make such payments shall constitute a current liability of the obligor under GAAP, (ii) Capitalized Lease Obligations of such Person, (iii) obligations secured by any Lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (iv) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, and (v) all Guaranties by such Person of Funded Debt of others. "GAAP" means generally accepted accounting principles as in effect at the time of application to the provisions hereof. "Guaranties" by any Person shall mean all obligations of such Person guaranteeing, or in effect guaranteeing, any Current Debt or Funded Debt of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person (i) to purchase such Debt or any property or assets constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Debt, (y) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Debt, (iii) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner of such Debt of the ability of the primary obligor to make payment of such Debt, or (iv) otherwise to assure the owner of such Debt against loss in respect thereof. "Investment" means any loan, advance, extension of credit or contribution of capital or any investment in, or purchase or other acquisition of, stock, notes, debentures or other securities. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or other encumbrance of any kind in respect of such asset. For the purposes hereof, a Person shall be deemed to own subject to a Lien any asset which it has acquired or 23 64 holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease or other title retention agreement relating to such asset. "Net Income" means for any period the net income (or the net deficit, if expenses and charges exceed revenues and other proper income credits) of a corporation or other Person for such period determined in accordance with GAAP. "Permitted Investments" means Investments consisting of: (a) loans or advances by the Company and its Subsidiaries to Subsidiaries in the ordinary course of business; (b) Investments in corporate debt obligations maturing in one year or less from the date of issuance which, at the time of acquisition by the Company or any Subsidiary, are rated "A" or better (or the equivalent) by Standard & Poor's Rating Group (currently a division of McGraw-Hill, Inc.) or Moody's Investors Service, Inc.; (c) Investments in direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in either case maturing in twelve months or less from the date of acquisition thereof; (d) Investments in certificates of deposit maturing within one year from the date of issuance thereof, issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $200,000,000; (e) loans or advances in the ordinary course of business to suppliers, officers, directors and employees for expenses (including moving expenses related to a transfer) incidental to carrying on the business of the Company or any Subsidiary; (f) receivables arising from the sale of goods and services in the ordinary course of business of the Company and its Subsidiaries; (g) other debt Investments by the Company and its Subsidiaries not exceeding $5,000,000, maturing in six months or less from the date of issuance thereof; and (h) other Investments by the Company and its Subsidiaries not exceeding $1,000,000. For purposes of this definition, at any time when a corporation becomes a Subsidiary, all Investments of such corporation at such time shall be deemed to have been made by such corporation, as a Subsidiary, at such time. 24 65 "Person" means and includes an individual, a corporation, a partnership, a firm, a joint venture, a trust, an unincorporated organization or a government or an agency or political subdivision thereof. "Senior Funded Debt" mean all Funded Debt other than Subordinated Funded Debt. "Subordinated Funded Debt" means any unsecured Funded Debt of the Company which (x) is subordinated in right of payment to the Notes by provisions substantially identical to those set forth in Schedule I hereto, (y) does not provide for optional prepayments with respect thereto prior to July 5, 2004 and (z) has a maturity extending beyond July 5, 2004, provided that any sinking fund or other mandatory payments or prepayments required to be made in connection with any such Debt prior to July 5, 2004 shall be deemed to be Senior Funded Debt for purposes of all calculations pursuant to Section 8 of the Notes. "Subsidiary" means any corporation more than 50% of the outstanding Voting Stock of which at the time is owned directly or indirectly by the Company and/or by one or more Subsidiaries. "Total Capitalization" means, as of any date, the sum of (i) Consolidated Funded Debt outstanding on such date, (ii) deferred Federal income tax liabilities appearing on a consolidated balance sheet of the Company and its Subsidiaries prepared as of such date in accordance with GAAP, and (iii) Consolidated Net Worth determined as of such date. "Voting Stock" of a corporation means the capital stock of such corporation of the class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the board of directors (or Persons performing similar functions) of such corporation. "Weighted Average Life to Final Maturity" of any indebtedness (including the Notes) as of the time of determination thereof means the number of years (rounded to the nearest one-twelfth) obtained by dividing the then Remaining Dollar-Years of such indebtedness by the then outstanding principal amount of such indebtedness. For the purposes of this definition, "Remaining Dollar-Years" means the sum of the amounts obtained by multiplying the amount of each then remaining sinking fund, serial maturity or other required repayment, including repayment at final maturity, by the number of years (calculated to the nearest one-twelfth) which will elapse between the time of such determination and the date such repayment is scheduled to be made. "Wholly-Owned Subsidiary" means any Subsidiary all of whose outstanding stock (other than directors' qualifying shares) shall at the time be owned by the Company and/or by one or more Wholly-Owned Subsidiaries. "Yield Maintenance Price" means, with respect to any Notes being prepaid pursuant to Section 3.2 hereof or accelerated pursuant to Section 11 hereof, as the case may be, the greater of (1) the sum of the respective Payment Values of each prospective interest payment (excluding from the first prospective interest payment any amount of interest accrued to the 25 66 applicable date of prepayment or acceleration), prospective mandatory principal prepayment and the principal payment at maturity in respect of such Notes (the amount of each such payment being herein referred to as a "Payment"), or (2) the unpaid principal amount of such Notes. The Payment Value of each Payment shall be determined by discounting such Payment at the Reinvestment Rate for the period from the scheduled date of such Payment to the applicable date of prepayment or acceleration, as the case may be. The "Reinvestment Rate" is a rate per annum equal to the sum of (a) .50% and (b) the yield imputed from the yields of those actively traded "On The Run" United States Treasury securities having maturities as close as practicable to the Weighted Average Life to Final Maturity of the Notes so to be prepaid or accelerated, as the case may be. The yields of such United States Treasury securities shall be determined as of 10:00 a.m., Eastern Time, on the Calculation Date by reference to Telerate Access Service (page 500 or the relevant page at the date of determination indicating such yields, or if such data ceases to be available, any publicly available source of similar market data). 11. Events of Default. If one or more of the following events, herein called "Events of Default", shall happen (for any reason whatsoever and whether such happening shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default shall be made in payment of the principal of any Note, with the premium thereon, if any, when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; or (b) default shall be made in the payment of any installment of interest on any Note when and as the same shall become due and payable and such default shall continue for a period of five Business Days; or (c) default shall be made in the due observance or performance of any covenant, condition or agreement on the part of the Company contained in Sections 8.1, 8.2, 8.5, 8.6, 8.7, 8.9, 8.10 or 8.11 hereof or in Section 4(a)(vi) of the Agreement; or (d) default shall be made in the due observance or performance of any other covenant, condition, or agreement on the part of the Company to be observed or performed pursuant to the terms hereof or of the Agreement and such default shall continue for thirty days after the earlier of (i) written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Company by the registered holder of any Note, or (ii) actual knowledge thereof by the chief executive officer, the chief financial officer or the treasurer of the Company; or (e) the Company or any Subsidiary shall be adjudicated a bankrupt or insolvent, or shall consent to the appointment of a receiver, trustee or liquidator of itself or of any substantial part of its property, or shall admit in writing its inability, or shall fail, to pay its debts generally as they come due, or shall make a general assignment for the benefit of creditors, or shall file a voluntary petition in bankruptcy, or a voluntary petition or an answer seeking reorganization in a proceeding, under any bankruptcy law (as now or hereafter in effect), or an answer admitting the material allegations of a petition filed 26 67 against the Company or any Subsidiary in any such proceeding, or shall, by voluntary petition, answer or consent, seek relief under the provisions of any now existing or future bankruptcy or other similar law providing for the reorganization or winding up of corporations, or the Company or its directors or stockholders shall take action looking to the dissolution or liquidation of the Company (except in connection with a consolidation with, or a merger of the Company with or into, another corporation pursuant to Section 8.6 hereof); or (f) an order, judgment or decree shall be entered by any court of competent jurisdiction appointing, without the consent of the Company or a Subsidiary, a receiver, trustee or liquidator of the Company or such Subsidiary or of any of its property, and such receiver, trustee or liquidator shall not have been removed or discharged within sixty days thereafter, or any of the property of the Company or a Subsidiary shall be sequestered and shall not be returned to the possession of the Company or such Subsidiary within sixty days thereafter; or (g) a petition against the Company or any Subsidiary in a proceeding under any bankruptcy law (as now or hereafter in effect) shall be filed and shall not be dismissed within sixty days after such filing, or, in case the approval of such petition by a court of competent jurisdiction is required, shall be filed and approved by such a court as properly filed and such approval shall not be withdrawn or the proceeding dismissed within sixty days thereafter, or if, under the provisions of any other similar law providing for reorganization or winding up of corporations and which may apply to the Company or any Subsidiary, any court of competent jurisdiction shall assume jurisdiction, custody or control of the Company or such Subsidiary or of any of its property and such jurisdiction, custody or control shall not be relinquished or terminated within sixty days thereafter; or (h) (i) default shall be made in the payment of any principal, interest or premium on any bond, debenture, note or other evidence of Debt (other than the Notes) of, or assumed by, the Company or any Subsidiary, when the same shall become due and payable, whether at maturity, by declaration, by call for prepayment or redemption, or otherwise, and such default shall continue for any period of grace provided therein with respect thereto, or (ii) any other default or event of default shall occur with respect to any such evidence of Debt of the Company or any Subsidiary, and the holders of such Debt (or a trustee therefor) shall be permitted by the terms thereof or of any agreement or instrument relating thereto to accelerate the same; provided, however, that the aggregate outstanding principal amount of all such bonds, debentures, notes or other evidences of Debt with respect to which a payment or other default or event of default shall have occurred is in excess of $500,000; or (i) any final judgment or judgments for the payment of money aggregating in excess of $2,000,000 shall be rendered against the Company and/or its Subsidiaries and any one of such judgments shall remain undischarged for a period of thirty days during which execution shall not be effectively stayed; or 27 68 (j) any representation or warranty made by the Company in the Agreement or in any certificate or other instrument delivered thereunder or under the Notes shall prove to be false, incorrect or breached in any material respect on the date as of which made; then (1) upon the occurrence of any Event of Default described in Sections 11(e) or (g) hereof with respect to the Company (each a "Bankruptcy Default"), all of the Notes shall automatically become immediately due and payable, (2) upon the occurrence of any Event of Default described in Sections 11(a) or (b) hereof, the holder of any Note may at any time during its continuance, by written notice to the Company, declare such Note to be due and payable, whereupon such Note shall forthwith mature and become due and payable or (3) upon the occurrence of any Event of Default other than a Bankruptcy Default, the holder or holders of at least a majority in principal amount of the Notes then outstanding (exclusive of any Notes held by the Company or any Affiliate) may at any time during its continuance, by written notice to the Company, declare all of the Notes to be due and payable, whereupon in each case all of the Notes shall forthwith mature and become due and payable. The amount payable upon the occurrence of a Bankruptcy Default shall be the entire unpaid principal amount of the Notes, together with interest accrued thereon, to the extent permitted by law, to the date of payment, and such amount shall be payable without presentment, demand, protest or other requirement of any kind, all of which are expressly waived by the Company. The amount payable upon an acceleration based on any other Event of Default shall be, to the extent permitted by law, the Yield Maintenance Price of the Notes so accelerated, together with interest accrued on the unpaid principal amount of the Notes so accelerated to the date of payment, and such amount shall be payable without presentment, demand, protest or further notice, all of which are expressly waived by the Company. On the Calculation Date, the Computing Holder shall give written notice to the Company (and the Company shall promptly send a copy of such notice to all the other holders of the Notes of the amount of the Yield Maintenance Price of the Notes so accelerated, which notice shall set forth in reasonable detail the computation thereof; provided, however, that the failure of the Computing Holder to make such determination shall not affect the obligation of the Company to pay such Yield Maintenance Price when due in accordance with the terms of the Notes and the Computing Holder shall have no liability to the Company or any other holder of the Notes for its failure to make such determination. The Yield Maintenance Price set forth in such notice shall be binding on the Company and all the holders of the Notes, absent demonstrable error. 12. Suits for Enforcement. In case an Event of Default shall occur and be continuing, the registered holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the holder of this Note. If any registered holder of a Note shall demand payment thereof or take any action in respect of a Default or an Event of Default, the Company will forthwith give written notice, as provided in Section 3.3 hereof, to the other registered holders of Notes, specifying such action and the nature of such Default or Event of Default. The notice to the Computing Holder shall also set forth the respective names and addresses of, and principal amounts of the Notes held by, the other holders of the Notes. 28 69 13. Remedies Not Waived. No course of dealing between the holder hereof and the Company or any delay on the part of the holder hereof in exercising any rights hereunder shall operate as a waiver of any rights of any holder hereof. 14. Remedies Cumulative. No remedy herein conferred upon the holder hereof is intended to be exclusive of any other remedy and each and every remedy shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 15. Costs and Expenses. If any Event of Default shall occur, the Company shall pay to each registered holder hereof, to the extent permitted under applicable law, all out-of-pocket expenses incurred by such holder in connection with such Event of Default and such further amount as shall be sufficient to cover the costs and expenses of collection, including (without limitation) reasonable attorneys' fees. 16. Law Governing. This Note shall be governed by the laws of the State of Ohio. 17. Successors and Assigns. All the covenants, stipulations, promises and agreements in this Note contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. 18. Headings. The headings of the Sections and subsections of this Note are inserted for convenience only and do not constitute a part of this Note. IN WITNESS WHEREOF, R.G. Barry Corporation has caused this Note to be signed in its corporate name by one of its officers thereunto duly authorized and this Note to be dated as of the day and year first above written. R.G. BARRY CORPORATION By ------------------------------------- 29 70 SCHEDULE I 9.70% Senior Promissory Note due July 5, 2004 ------------------------ SUBORDINATION PROVISIONS ------------------------ "Subordination. Anything in this Subordinated Note to the contrary notwithstanding, the indebtedness evidenced by this Subordinated Note shall be subordinate and junior in right of payment, to the extent and in the manner hereinafter set forth, to all obligations of the Company in respect of principal, interest, premium and any other amount payable with respect to Senior Funded Debt (as defined in the Company's 9.70% Senior Promissory Note due 2004) (including interest accruing on such Senior Funded Debt after commencement of any bankruptcy, insolvency, reorganization or similar proceeding relative to the Company or its creditors in their capacity as creditors of the Company, whether or not such interest constitutes an allowed claim in such proceeding), whether such Senior Funded Debt is outstanding on July 5, 1994 or is thereafter created or incurred (all such principal, interest, premium and any other amount payable with respect thereto to which this Subordinated Note is subordinate as aforesaid being sometimes hereinafter referred to as 'Superior Indebtedness'): (a) No Subordinated Note Payments in Certain Circumstances. (i) When Superior Indebtedness is Due in Whole or in Part. Upon the due date of all or any part of the Superior Indebtedness, whether on a regularly scheduled principal or interest payment date, at maturity, by lapse of time, acceleration or otherwise, such Superior Indebtedness then due shall first be paid in full, or such payment shall be fully provided for in cash or in a manner satisfactory to the holders of such Superior Indebtedness, before any payment by the Company is made on account of the principal of or premium, if any, or interest on, or any other amount payable with respect to, this Subordinated Note. (ii) Upon Superior Indebtedness Default. In the event and during the continuation of (x) a default in any payment with respect to any Superior Indebtedness or (y) an event of default (as defined in such Superior Indebtedness or in the instrument under which the same is outstanding, other than a default in the payment of amounts due thereon) with respect to any Superior Indebtedness permitting the holders thereof to accelerate the maturity thereof (provided that any event that would become such an event of default only upon the giving of notice of such event to the Company and the lapse of time shall constitute such an event of default for purposes of this Subordinated Note if such notice has been given to the Company) (such default and event of default being referred to in this Subordinated Note as a 'Superior Indebtedness Default'), no payment shall be made by the Company on or with respect to the principal of, or premium, if any, or interest on, or any other amount payable with respect to, this Subordinated Note unless and until such Superior Indebtedness Default shall have been remedied, nor shall any such payment be made if after giving effect, as if paid, to such payment, any Superior Indebtedness Default would exist. In any such event, the holder of this Subordinated Note shall not 30 71 demand, accept or receive any direct or indirect payment (in cash or property or by setoff, exercise of contractual or statutory rights or otherwise) of or on account of this Subordinated Note, notwithstanding the terms of this Subordinated Note or of any agreement or instrument which governs this Subordinated Note, and no such payment shall be due. (iii) Prior to Due Date or Date Payment Permitted Hereby. Unless and until all principal of, premium, if any, and interest on, and all other obligations of the Company with respect to, the Superior Indebtedness shall have been paid in full, the Company shall not make, and the holder of this Subordinated Note shall not demand, accept or receive (in cash or property or by setoff, exercise of contractual or statutory rights or otherwise), or attempt to collect or commence any legal proceedings to collect, any direct or indirect payment on account of this Subordinated Note prior to the date such payment becomes due and payable pursuant to the terms thereof or, if later, prior to the first date such amount is not prohibited from being paid pursuant to this Subordinated Note. (b) No Commencement of or Joinder in Bringing Involuntary Bankruptcy Proceeding. Unless and until all principal of, premium, if any, and interest on, and all other obligations of the Company in respect of, the Superior Indebtedness shall have been paid in full, the holder of this Subordinated Note will not commence or maintain any action, suit or any other legal or equitable proceeding against the Company, or join with any creditor in bringing any such proceeding, under any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar law, unless the holders of Superior Indebtedness shall also join in bringing such proceeding, provided that this clause (b) shall not prohibit the holder of this Subordinated Note from filing a proof of claim or otherwise participating in any such proceeding not commenced by it. (c) Subordinated Note Subordinated to Prior Payment of all Superior Indebtedness on Dissolution, Liquidation or Reorganization of the Company. In the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceedings relative to the Company or to its creditors, in their capacity as creditors of the Company, or to substantially all of the Company's property, or in the event of any proceedings for liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy, then (i) the holders of all Superior Indebtedness shall first be entitled to receive payment in full of the principal of, premium, if any, interest and all amounts payable on or with respect to, such Superior Indebtedness (whether accruing before or after the commencement of any proceedings described above) before the holder of this Subordinated Note is entitled to receive any payment on account of the principal of, premium, if any, or interest on, or any other amount payable with respect to, this Subordinated Note; (ii) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities to which the holder of this Subordinated Note would be entitled, but for the provisions of this Subordinated Note, shall be paid or distributed by the liquidating trustee or agent or other Person making such payment or 31 72 distribution, directly to the holders of Superior Indebtedness (pro rata to such holders on the basis of the respective amounts of Superior Indebtedness held by such holders) or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Superior Indebtedness may have been issued, as their respective interests may appear (such representatives or trustees being referred to in this Subordinated Note as "Representative" or "Representatives"), to the extent necessary to make payment in full of all principal, premium, if any, interest on, and all other amounts payable with respect to, Superior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of Superior Indebtedness; (iii) the holder of this Subordinated Note irrevocably authorizes and empowers (without imposing any obligation on) each holder of Superior Indebtedness to demand, sue for, collect and receive all payments and distributions in respect of this Subordinated Note, and to file and prove all claims therefor and take all such other action not inconsistent with the foregoing (including the right to vote with respect to this Subordinated Note) in the name of the holder or otherwise, as such holder of Superior Indebtedness or any Representative on behalf of holders of Superior Indebtedness may determine to be necessary or appropriate for the enforcement of this Subordinated Note; and (iv) the holder of this Subordinated Note shall execute and deliver to each holder of Superior Indebtedness or any Representative all such further instruments confirming the above authorization, and all such powers of attorney, proofs of claim, assignments of claim and other instruments, and shall take all such other action as may be reasonably requested by any holder of Superior Indebtedness or any Representative, in order to enable such holder of Superior Indebtedness or any Representative to enforce all claims upon or in respect of this Subordinated Note. (d) Treatment of Payments Received On this Subordinated Note; Subrogation Rights. (i) Should any payment or distribution or security or the proceeds of any thereof be collected or received by the holder in respect of this Subordinated Note, and such collection or receipt is prohibited hereunder prior to the payment in full of the Superior Indebtedness, such holder will forthwith deliver the same to the holders of Superior Indebtedness (pro rata to such holders on the basis of the respective amounts of Superior Indebtedness held by such holders) or their Representatives in precisely the form received (except for the endorsement or the assignment of such payment or distribution by the holder of this Subordinated Note where necessary) for application to payment in full of all Superior Indebtedness, after giving effect to any concurrent payment or distribution to the holders of the Superior Indebtedness and, until so delivered, the same shall be held in trust by the holder of this Subordinated Note as the property of the holders of the Superior Indebtedness; (ii) all payments and distributions received by any holder of Superior Indebtedness or by any Representative of holders of Superior Indebtedness on behalf of such holders of Superior Indebtedness in respect of this Subordinated Note, to the extent received in or converted into cash, may be applied by such holder or such Representative 32 73 first to the payment of any and all reasonable out-of-pocket expenses (including attorney's fees and legal expenses) paid or incurred by such holder or such Representative in enforcing the provisions hereof or in endeavoring to collect or receive upon this Subordinated Note or any security therefor, and any balance thereof shall, solely as between the holder of this Subordinated Note, on the one hand, and the holders of Superior Indebtedness, on the other hand, be applied by such holder or such Representative, in such order of application as such holder or such Representative may from time to time select, toward the payment of Superior Indebtedness remaining unpaid; (iii) the holder of this Subordinated Note shall not be subrogated to the rights of the holders of Superior Indebtedness to receive payments or distributions of assets of the Company until all amounts payable with respect to all Superior Indebtedness shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of Superior Indebtedness of any cash, property or securities to which the holder of this Subordinated Note would be entitled except for these provisions shall, as among the Company, its creditors other than the holders of Superior Indebtedness, and the holder of this Subordinated Note, be deemed to be a payment by the Company to or on account of the Superior Indebtedness. The provisions of this Subordinated Note are intended solely for the purpose of defining the relative rights of the holder of this Subordinated Note, on the one hand, and the holders of the Superior Indebtedness, on the other hand; and (iv) subject to the payment in full of all Superior Indebtedness, the holder of this Subordinated Note shall be subrogated to the rights of the holders of Superior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Superior Indebtedness until all amounts owing on this Subordinated Note shall be paid in full. For purposes of such subrogation, no payments or distributions to the holder of this Subordinated Note of cash, property, securities or other assets by virtue of the subrogation herein provided which otherwise would have been made to the holders of Superior Indebtedness shall, as among the Company, its creditors other than the holders of Superior Indebtedness, and the holder of this Subordinated Note, be deemed to be a payment to or on account of this Subordinated Note. The holder of this Subordinated Note agrees that, in the event that all or any part of any payment made on account of the Superior Indebtedness is recovered from the holders of Superior Indebtedness as a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law, any payment or distribution received by the holder of this Subordinated Note on account of this Subordinated Note at any time after the date of the payment so recovered, whether pursuant to the right of subrogation provided for in this clause (iv) or otherwise, shall be deemed to have been received by the holder of this Subordinated Note in trust as the property of the holders of Superior Indebtedness and the holder of this Subordinated Note shall forthwith deliver the same to the holders of Superior Indebtedness for the equal and ratable benefit of the holders of Superior Indebtedness for application to payment of all Superior Indebtedness in full. (e) Waivers and Agreements of Holder of Subordinated Note. The holder of this Subordinated Note by its acceptance hereof waives any and all notice of renewal, 33 74 extension, accrual or increase in the amount of any of the Superior Indebtedness, present or future, and agrees and consents that without notice to or assent by the holder hereof: (i) the obligations and liabilities of the Company or any other party for or upon the Superior Indebtedness (or any promissory note, security document or guaranty evidencing or securing the same) may, from time to time, in whole or in part, be renewed, extended, increased, modified, amended, accelerated, compromised, supplemented, terminated, sold, exchanged, waived or released; (ii) any Representative acting on behalf of the holders of Superior Indebtedness and any holder of Superior Indebtedness may exercise or refrain from exercising any right, remedy or power granted by or in connection with any agreements relating to the Superior Indebtedness; and (iii) any balance or balances of funds with any holders of the Superior Indebtedness at any time outstanding to the credit of the Company may, from time to time, in whole or in part, be surrendered or released; all as any Representative acting on behalf of the holders of Superior Indebtedness and any holder of Superior Indebtedness may deem advisable and all without impairing, abridging, diminishing, releasing or affecting the subordination of this Subordinated Note to the Superior Indebtedness provided for herein. (f) Company's Obligations With Respect to Subordinated Note Absolute. Nothing contained in this Subordinated Note is intended to or shall impair, as among the Company, its creditors other than the holders of Superior Indebtedness, and the holder of this Subordinated Note, the obligation of the Company, which is absolute and unconditional, to pay to the holder of this Subordinated Note the principal of, premium, if any, and interest on, and all other amounts payable with respect to, this Subordinated Note, as and when the same shall become due and payable (except as otherwise provided above), by lapse of time, acceleration or otherwise, in accordance with its terms, or is intended to or shall affect the relative rights of the holder of this Subordinated Note and other creditors of the Company other than the holders of Superior Indebtedness, nor shall anything herein prevent the holder of this Subordinated Note (i) from taking all appropriate actions to preserve its rights under this Subordinated Note in a manner not inconsistent with the rights of the holders of Superior Indebtedness under this Subordinated Note, or (ii) from exercising all remedies otherwise permitted by applicable law upon default under this Subordinated Note, subject to the rights, if any, under this Subordinated Note of the holders of Superior Indebtedness in respect of cash, property or securities of the Company otherwise payable or deliverable to such holders upon the exercise of any such remedy. (g)(i) Miscellaneous No present or future holder of the Superior Indebtedness shall be prejudiced in its right to enforce the subordination contained herein in accordance with the terms hereof by any act or failure to act on the part of the Company or the holder of this Subordinated Note. The subordination provisions contained herein are for the benefit of the holders of Superior Indebtedness and, so long as Superior Indebtedness is outstanding, may not 34 75 be rescinded, cancelled or modified in any way adverse to the holders of Superior Indebtedness without the prior written consent of each holder of Superior Indebtedness affected thereby. (ii) This Subordinated Note shall be binding upon the Company and the holder of this Subordinated Note, and their respective successors and assigned, and shall inure to the benefit of the holders of Superior Indebtedness and their respective successors and assigns." 35 76 July 16, 1999 R. G. Barry Corporation 13405 Yarmouth Road, N. W. Pickerington, Ohio 43147 Attention: Richard L. Burrell, Senior Vice President - Finance Gentlemen: Reference is made to the loan agreement, dated July 5, 1994 (the "Agreement"), between R. G. Barry Corporation (the "Company") and Metropolitan Life Insurance Company ("MetLife"), pursuant to which MetLife acquired the Company's 9.70% Senior Promissory Note due July 5, 2004 (the "Note") presently outstanding in the principal amount of $10,714,000. Capitalized terms used herein without definition have the meanings ascribed thereto in the Note. The Company has indicated to MetLife that it or a Wholly-Owned Subsidiary will acquire 80% of the outstanding capital stock of Escapade S.A., a French holding company ("Escapade"), which owns 100% of the outstanding capital stock of Fargeot & Cie., a French slipper and footwear manufacturer, for a maximum purchase price of US$5,000,000 (the "Acquisition"). The Company has further indicated to MetLife that a portion of the purchase price for the Acquisition may take the form of a loan to Escapade by the Company or such Wholly-Owned Subsidiary but that the amount of such loan together with the amount of such capital stock investment in Escapade (collectively, the "Investment") will not exceed US$5,000,000. Finally, the Company has indicated to MetLife that such loan will be repaid from the proceeds of a commercial bank loan obtained by Escapade from a French bank (the "Bank Loan") and that the Bank Loan will be secured by a pledge by the Company or such Wholly-Owned Subsidiary of 80% of Escapade's capital stock acquired in the Acquisition (the "Pledge"). As holder of the Note and a party to the Agreement, MetLife hereby waives any Event of Default under Section 11(c) of the Note resulting from (x) a violation of Section 8.1(i), 8.1(iii) and 8.2(vi) of the Note caused by the incurrence by Escapade of the Bank Loan and by the making of the Pledge, provided that the amount of the Bank Loan shall be included as Debt in all calculations made pursuant to said Sections 8.1(i) and 8.2(vi) after such incurrence and making, and (y) a violation of Section 8.11 of the Note caused by the Investment, provided that the amount of the Investment shall be included as an "Investment" (as defined in the Note) in all calculations made pursuant to paragraph (h) of the definition of "Permitted Investments" contained in Section 10 of the Note. 36 77 If the foregoing is acceptable to the Company, please execute the form of acceptance at the foot hereof, whereupon this consent shall become a binding agreement between the Company and MetLife. By such execution, the Company shall be deemed to represent and warrant for the purpose of Section 11(j) of the Note that the Acquisition, the Investment, the Bank Loan and the Pledge shall be made as described in the second paragraph hereof. Very truly yours, Metropolitan Life Insurance Company By /s/ Jacqueline D. Jenkins --------------------------------------- The foregoing is accepted and agreed to: R. G. Barry Corporation By /s/ Richard L. Burrell --------------------------------------- 37 78 EXHIBIT C NOTICE FROM: R. G. BARRY CORPORATION TO: THE HUNTINGTON NATIONAL BANK ATTENTION: JOHN LUEHMANN FAX: (614) 480-5791 TELE: (614) 480-4400 FROM: MICHAEL KRASNOFF FAX: (614) 866-9787 TELE: (614) 864-6400 DATE: -------------------------- SUBJECT: REVOLVING CREDIT LOANS EFFECTIVE DATE OF REQUEST: -------------------------- REQUEST: ---------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- APPROVED AND AUTHORIZED BY: R. G. BARRY CORPORATION By: -------------------------------------------- Michael S. Krasnoff, Vice President 38 79 EXHIBIT D OFFICER'S CERTIFICATE The undersigned certifies pursuant to Section 8.1 of the Revolving Credit Agreement between R. G. Barry Corporation ("Borrower") and The Huntington National Bank, dated March 12, 2001, that there has been no material adverse change in the financial condition or results of operations of the Borrower since execution of the Revolving Credit Agreement; that Borrower is in compliance with all terms and provisions set forth in the Revolving Credit Agreement on its part to be observed and performed; that the quarterly financial statements attached hereto, including a balance sheet, related statements of income and retained earnings and cash flow of the Borrower and each of its Subsidiaries, are a fair presentation of Borrower's finances as of the last day of such quarter; and that no Default or Event of Default has occurred. Certified this day of _, 200_. R. G. BARRY CORPORATION BY: ---------------------------------- ITS: ---------------------------------- 39 80 EXHIBIT E R. G. BARRY CORPORATION REVOLVING CREDIT AGREEMENT-BORROWING BASE REPORT AS OF FISCAL MONTH ____________, ENDING ____________, 2001 Total Accounts Receivable Less Over 60 days from date of invoice Less Foreign Receivables 30% Rule - no accounts over 30% of total Contra Accounts Government Accounts - to extent not over 60 above Eligible Accounts Total Inventory on a FIFO Basis Less Obsolete Items - Reserves Less Supplies, Tooling, etc. Less Inventory held by third parties Less Work in Process Other Eligible Inventory Borrowing Base = 80% of Eligible Accounts + 40% of Eligible Inventory Maximum Loans Outstanding during the month Minimum Loans Outstanding during the month R. G. Barry hereby certifies that the above statement is correct in all material respects of the indicated date. - ---------------------------------------------- ----------------------- Michael S. Krasnoff, V. P. Assistant Treasurer Date 40 81 SCHEDULE 2.1 (CORPORATE STRUCTURE OF THE BORROWER AND SUBSIDIARIES)
Jurisdiction of Corporate Organization Organization Relationship to R. G. Barry Corporation ---------------------- ---------------- --------------------------------------- R. G. Barry Corporation Ohio Parent Company - Publicly traded NYSE R. G. Barry International, Inc. Ohio Wholly owned Sub of R. G. Barry Corporation R. G. B., Inc. Ohio Wholly owned Sub of R. G. Barry Corporation R. G. Barry (Texas) LP Texas Limited partnership, Owned 1% by R. G .Barry Corporation as General Partner, and 99% by R. G. B., Inc. as Limited Partner R. G. Barry Holdings, Inc. Ohio Wholly owned Sub of R. G. Barry Corporation, dormant R. G. Barry (France) Holdings, Inc. Ohio Wholly owned Sub of R. G. Barry Corporation, dormant ThermaStor Technologies, LLC Ohio Wholly owned Sub of R. G. Barry Corporation, dormant Owned 50% by R. G. Barry Corporation and 50% by Vesture Corporation Barry de Acuna, S. A. de C. V. Mexico Wholly owned Mexican Sub of R. G. Barry Corporation Barry de Mexico, S. A. de C. V. Mexico Wholly owned Mexican Sub of R. G. Barry Corporation Barry de Zacatecas, S. A. de C. V. Mexico Wholly owned Mexican Sub of R. G. Barry Corporation Barry de la Republica Dominicana, S. A, Dominican Republic Wholly owned Dominican Sub of de C. V. R. G. Barry Corporation Escapade, S. A. France 80% owned French Sub of R. G. Barry Corporation Fargeot et Cie, S. A. France 100% owned French Sub of Escapade Michel Fargeot, S. A. France 100% owned French Sub of Fargeot et Cie, S. A. Vesture Corporation North Carolina Wholly owned Sub of R. G. Barry Corporation
41 82 SCHEDULE 2.2 (PENDING LITIGATION) None 42 83 SCHEDULE 2.4 (LIENS ON PROPERTY AND ASSETS OF THE BORROWER AND ITS SUBSIDIARIES) The indebtedness of Escapade, S.A., to Banque Tarneaud, SA and to Banque Nationale de Paris is secured by a pledge of the capital stock of Fargeot et Cie, S. A. and.Michel Fargeot, S. A. 43 84 SCHEDULE 2.15 (BUSINESS LOCATIONS OF THE BORROWER AND ITS SUBSIDIARIES)
Domestic Locations Entity ------------------ -------- 13405 Yarmouth Road R. G. Barry Corporation, R.G.B., Inc., R.G. Barry Pickerington, Ohio 43147 International, Inc., R.G. Barry Holdings, Inc., R.G. P. O. Box. 129 Barry (France) Holdings, Inc., ThermaStor Technologies, Columbus, Ohio 43216 LLC 8000 IH 10 West, Suites 1500 and 750 R. G. Barry Corporation San Antonio, Texas 78230 350 Fifth Avenue, Suite 1403-1407 and 14-I R. G. Barry Corporation New York, New York 10118 2201 S. John Street R. G. Barry Corporation Goldsboro, N Carolina 27530 3301 Barry Avenue R. G. Barry Corporation San Angelo, Texas 76901 [warehousing and sole making] R. G. Barry Corporation and R. G. Barry (Texas) LP 2800 Loop 306 & Falls Creek Drive San Angelo, Texas 76904 [materials storage; cutting & lamination] R. G. Barry Corporation and R. G. Barry (Texas) LP 5613 Bob Bullock Loop Rd Laredo Texas 78041 [Daniel Radiator Bldg.] R. G. Barry Corporation [Inventory storage; cutting & lamination] 5711 Bob Bullock Loop Rd Laredo, Texas 78041 [thermal manufacturing] Vesture Corporation 120 East Pritchard Street Asheboro, N. Carolina 27202 SECTION 2. AND 4675-12 NC Hwy 64 East Asheboro, N Carolina Basse Freight Terminal [truck depot] R.G. Barry Corporation Del Rio, Texas 78841
44 85 SCHEDULE 9.1 (EXISTING DEBT OF BORROWER) Note payable from R. G. Barry Corporation to Metropolitan Life Insurance Company dated as of July 4, 1995 in the original principal amount of $15,000,000. Debt of R. G. Barry Corporation appearing on the December 30, 2000 consolidated balance sheet of R. G. Barry Corporation and Subsidiaries as those amounts may be hereafter be extended, modified or refinanced in the ordinary course of the company's business. 45 86 SCHEDULE 9.6 (EXISTING DEBT OF SUBSIDIARIES) Notes payable from Escapade, SA, to Banque Tarneaud, SA and to Banque Nationale de Paris, dated as of January 5, 2000, in the original amount of 14,800,000 French Francs. Debt of the Subsidiaries of R.G. Barry Corporation appearing on the December 30, 2000 consolidated balance sheet of R. G. Barry Corporation and Subsidiaries as those amounts may be hereafter be extended, modified or refinanced in the ordinary course of the company's business. 46 EX-10.13 3 l86966aex10-13.txt EXHIBIT 10.13 1 Exhibit 10.13 R.G. BARRY ANNUAL INCENTIVE PROGRAM PLAN OBJECTIVES AND SPECIFICATIONS OBJECTIVES - ---------- - - Consistently achieve planned corporate profit and strategic goals. - - Reinforce individual performance behavior - Passion to serve the customer - Commitment to excellence - Teamwork - - Enhance ability to attract, recruit, and retain a top-notch professional management team. - - Provide motivation through "'win-sharing." PLAN SPECIFICATIONS 1. PARTICIPATION LEVELS -------------------- All exempt associates participate in the plan. There are ten levels of participation. The levels are listed below and are based on a POSITION'S IMPACT on profits. LEVEL POSITION LEVEL ----- -------------- A Chairman/President B Corporate Officer B-1 Principals (Vesture) C Division Executives - Sales D Division Officers E Senior Level Directors/Managers F Mid-Level Directors/Managers/Professionals G First-Level Managers/Professionals H Entry to First Level Managers/Professionals I Sales Associates The base salary as of the beginning of the plan year (January 1st) is used for the purposes of calculating incentive payments. 2 2. INCENTIVE AWARD OPPORTUNITY --------------------------- Threshold, target and maximum incentive award levels as a percentage of base salary are established by level. Target award opportunities correspond to market competitive incentive opportunity for levels A - F. LEVEL THRESHOLD TARGET MAXIMUM ----------------------------------------------------------------------- A 20% 40% 100% B 12% 24% 60% B-1 12% 24% 60% C 10% 20% 50% D 5% 10% 25% E 4% 8% 20% F 3% 6% 15% G 2% 4% 10% H 1% 2% 5% I 1% 2% 5% A minimum proft level will be established each year such that performance below this level will result in zero payout for all incentive awards. 3. PERFORMANCE MEASUREMENT ----------------------- Award payouts will be determined based on the following determinants of performance: - - Company Financial Performance - Based on Annual Operating Plan profit goals - - Division Financial Performance - Based on Division Annual Operating Plan profit goals - - Corporate Strategic Objectives - Based on the R. G. Barry Strategic Plan - - Division Strategic Objectives - Based on the Division's Strategic Plan - - Individual Performance - Based on individual performance plan as identified with an individual's manager. Key areas to be measured are: - Passion to serve our customer/consumer - Uncompromising commitment to excellence - Teamwork Poor individual performance (individual rating below "fully meets expectations") will eliminate all payouts to that individual regardless of associate level. 2 3 4. PERFORMANCE WEIGHTING BY GROUP ------------------------------
CORPORATE DIVISION CORPORATE DIVISION FINANCIAL FINANCIAL STRATEGIC STRATEGIC INDIVIDUAL LEVEL RESULTS RESULTS OBJECTIVES OBJECTIVES PERFORMANCE - ------------------------------------------------------------------------------------ A - B 75% 0% 25% 0% 0% B-1 25% 25% 0% 50% 0% C - F 25% 25% 0% 50% 0%* G - H 0% 0% 0% 0% 100% I 0% 100% 0% 0% 0%
*For levels C-F, individual performance can result in an additional 10% of the earned award. 5. DETERMINING GOAL ATTAINMENT --------------------------- - - CORPORATE FINANCIAL (AOP) GOAL attainment is calculated formulaically based on actual performance relative to targets established at the beginning of the year. - Target performance level is approved by the Compensation Committee at the beginning of each year. - - STRATEGIC OBJECTIVES are identified by management and submitted to the Board of Directors with the Annual Operating Plan and approved at the beginning of each year. - Management provides evidence of goal attainment on each objective at the end of the year to the Compensation Committee. - Compensation Committee approves degree of goal attainment ranging from "threshold" to "maximum" attainment. - - Each department head may identify up to 25% of associates (level C - F) in their department as superior performers who will receive an additional 10% of earned award. - Superior performers are identified as those individuals who best exemplify the core behaviors of passion to serve the customer, uncompromising commitment to excellence, and teamwork. - - INDIVIDUAL ATTAINMENT (levels G and H) is determined by an individual's manager and approved by the unit/department head. - Overall individual award component funded at target level and distributed based on individual performance. - Poor individual performance (individual rating below "fully meets expectations") will eliminate all payouts to that individual regardless of associate level. 6. CRITERIA FOR PARTICIPATION -------------------------- 3 4 - - Associates must be actively employed by R.G. Barry at the close of the plan year (12/31) - - New hires employed before June 30th will participate on a pro-rated basis. Persons hired after this date will participate in the following year. Exceptions may be made by each divisional Officer. For Associates hired AFTER June 30th, Annual Incentive Program participation levels and eligibility MUST be included in any offer of employment letter, along with a start date of employment. The start date of employment is the entry date of the new Associate into Annual Incentive Program. A Annual Incentive Program participation worksheet (attached) must also be completed. - - Regarding pro-ration; Associates hired or promoted into a Annual Incentive Program eligible position from the first to the fifteenth of the month shall be considered to be hired or promoted as of the first of the month. Associates hired or promoted from the sixteenth to the end of the month shall be considered to be hired or promoted as of the first of the following month. - - Each divisional Officer will be responsible for assigning Annual Incentive Program levels. Final review and approval of Annual Incentive Program levels will be the responsibility of the Officer Group, and the Chairman on a Corporate-wide basis. - - Communication of Annual Incentive Program levels and the Annual Incentive Program program to individual participants will be the responsibility of each divisional Officer. - - Associates who are on Short Term Disability or a Leave of Absence on 12/31 of the plan year (not actively at work) will receive a pro-rated Annual Incentive Program payment upon their return to active full time work. Associates who do NOT return to active full time work will NOT receive a Annual Incentive Program payment without approval of the Compensation Committee. - - Associates who are promoted or transferred from a non-exempt position to an exempt position will receive an incentive payment based on their salary as of the date they became eligible for the Annual Incentive Program, pro-rated for the number of months remaining in the plan year. - - In the event of a newly hired, promoted or transferred Associate, the Officer must complete a Participation Worksheet, sign it and have it approved by the Chairman in order to finalize participation. - - Associates who are promoted from one position to another may be eligible to have their Annual Incentive Program incentive opportunity increased. A Participation Worksheet must be completed to effect a change in categories. For purposes of calculating the payout, the higher percentage will be given to the Associate for the entire plan year. - - Associates demoted or transferred from a exempt position will be eligible to receive a payout based on the number of months they were employed in an exempt position. - - Associates who are employed by R.G. Barry at the close of the plan year under the terms of a severance agreement will NOT be eligible to receive a payout unless expressly stated in the terms of the agreement, and approved by the divisional officer and former Associate, via personal signature. 4 5 - - Associates who separate from R.G. Barry during a plan year for reasons of death or Long Term Disability will NOT be eligible to receive a Annual Incentive Program payment, unless approved by the Compensation Committee. 5. PAYMENT ------- - - All Annual Incentive Program participants will be paid in same currency as their salary. Associates paid in U.S. dollars will receive their Annual Incentive Program payment in U.S. dollars. R.G. Barry Associates who are employed by subsidiary companies and paid in currencies other than U.S. dollars will receive Annual Incentive Program payments in the same currency as their salary. - - Associates who are paid in other currencies will be shown on the Annual Incentive Program worksheet with their salaries expressed in U.S. dollar equivalents as of the date the worksheet is produced. Specific direction will be given regarding the payment of Annual Incentive Program bonuses in non-U.S. currencies at the time of the Annual Incentive Program payment. 5 EX-10.16 4 l86966aex10-16.txt EXHIBIT 10.16 1 EXHIBIT 10.16 STOCK OPTION AGREEMENT (Incentive Stock Options) THIS AGREEMENT is made to be effective as of _________________, by and between R.G. Barry Corporation, an Ohio corporation (the "COMPANY"), and _____________ (the "OPTIONEE"). WITNESSETH: WHEREAS, the Board of Directors of the COMPANY has adopted and the shareholders of the COMPANY have approved the R.G. Barry Corporation 1994 Stock Option Plan (the "PLAN"); and WHEREAS, pursuant to the provisions of the PLAN, the Board of Directors of the COMPANY has appointed a Compensation Committee (the "COMMITTEE") to administer the PLAN and the COMMITTEE has determined that an option to acquire common shares, $1.00 par value (the "COMMON SHARES"), of the COMPANY should be granted to the OPTIONEE upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises, the parties hereto make the following agreement, intending to be legally bound thereby: (1) Grant of OPTION. The COMPANY hereby grants to the OPTIONEE an option (the "OPTION") to purchase ______ COMMON SHARES of the COMPANY. The OPTION is intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). (2) Terms and Conditions of the OPTION. (A) OPTION Price. The purchase price (the "OPTION PRICE") to be paid by the OPTIONEE to the COMPANY upon the exercise of the OPTION shall be $_____ per share, being 100% of the closing sale price for the COMMON SHARES of the COMPANY as shown on the New York Stock Exchange on ______________, subject to adjustment as provided in Section 3. (B) Exercise of the OPTION. The OPTION may not be exercised until the OPTIONEE shall have completed twelve months of continuous employment with the COMPANY and/or its subsidiaries immediately following the date hereof. Thereafter, the OPTION may be exercised as follows: (i) at any time after such twelve-month period, as to ______ of the COMMON SHARES subject to the OPTION; (ii) at any time after twenty-four months from the date of this Agreement, as to an additional ______ of the COMMON SHARES subject to the OPTION; 2 (iii) at any time after thirty-six months from the date of this Agreement, as to an additional ______ of the COMMON SHARES subject to the OPTION; (iv) at any time after forty-eight months from the date of this Agreement as to an additional ______ of the COMMON SHARES subject to the OPTION; and (v) at any time after sixty months from the date of this Agreement as to the remaining ______ of the COMMON SHARES subject to the OPTION. Subject to the other provisions of this Agreement, if the OPTION becomes exercisable as to certain COMMON SHARES, it shall remain exercisable as to those COMMON SHARES until the date of expiration of the OPTION term. The COMMITTEE may, but shall not be required to (unless otherwise provided in this Agreement), accelerate the schedule of the time or times when the OPTION may be exercised. The grant of the OPTION shall not confer upon the OPTIONEE any right to continue in the employment of the COMPANY nor limit in any way the right of the COMPANY to terminate the employment of the OPTIONEE at any time in accordance with law or the COMPANY'S governing corporate documents. (C) OPTION Term. The OPTION shall in no event be exercisable after the expiration of ten (10) years from the date of this Agreement. (D) Method of Exercise. The OPTION may be exercised by giving written notice of exercise to the COMMITTEE in care of the Treasurer of the COMPANY stating the number of full COMMON SHARES subject to the OPTION in respect of which it is being exercised. Payment for all such COMMON SHARES shall be made to the COMPANY at the time the OPTION is exercised in United States dollars in cash (including check, bank draft or money order). If permitted by the COMMITTEE, payment for such COMMON SHARES may be made (i) by delivery of COMMON SHARES of the COMPANY already owned by the OPTIONEE and having a Fair Market Value (as that term is defined in the PLAN) on the date of delivery equal to the OPTION PRICE, or (ii) by delivery of a combination of cash and already owned COMMON SHARES. After payment in full for the COMMON SHARES purchased under the OPTION has been made, the COMPANY shall take all such action as is necessary to deliver appropriate share certificates evidencing the COMMON SHARES purchased upon the exercise of the OPTION as promptly thereafter as is reasonably practicable. (E) Satisfaction of Taxes and Tax Withholding Requirements. The COMMITTEE shall determine the appropriate arrangements for the satisfaction by the COMPANY and the OPTIONEE of all federal, state, local or other income, excise or employment taxes or tax withholding requirements applicable to the exercise of the OPTION or the later disposition of the COMMON SHARES or other property thereby acquired. -2- 3 (3) Adjustments and Changes in the COMMON SHARES. (A) In the event that the outstanding COMMON SHARES of the COMPANY shall be changed into or exchanged for a different kind of shares or other securities of the COMPANY or of another corporation, or for any other property, (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares or otherwise) or if the number of such COMMON SHARES shall be increased through the payment of a stock dividend, then unless such change results in the termination of all outstanding options granted pursuant to the PLAN, there shall be substituted for or added to each COMMON SHARE of the COMPANY subject to the OPTION, the number and kind of shares or other securities or other property into which each outstanding COMMON SHARE of the COMPANY shall be changed, or for which each such COMMON SHARE shall be exchanged, or to which the holder of each such COMMON SHARE shall be entitled, as the case may be. The OPTION shall also be appropriately amended as to the OPTION PRICE and other terms as nay be necessary to reflect the foregoing events. In the event there shall be any other change in the number or kind of the outstanding shares of the COMPANY, or of any shares or other securities or other property into which such shares shall have been changed, or for which they shall have been exchanged, then if the COMMITTEE shall, in its sole discretion, determine that such change equitably requires an adjustment in the OPTION, such adjustment shall be made by the COMMITTEE in accordance with such determination. Fractional shares resulting from any adjustment in the OPTION pursuant to this section 3(A) shall be rounded down to the nearest whole number of shares. (B) Notwithstanding the foregoing, any and all adjustments in connection with the OPTION shall comply in all respects with Section 422 of the CODE, and the regulations promulgated thereunder. (C) Notice of any adjustment pursuant to this Section 3 shall be given by the COMPANY to the OPTIONEE. (4) Acceleration of OPTIONS. (A) In the event that the COMPANY or its shareholders enter into one or more agreements to dispose of all or substantially all of the assets or fifty percent (50%) or more of the outstanding capital stock of the COMPANY by means of sale (whether as a result of a tender offer or otherwise), merger, reorganization or liquidation in one or a series of related transactions (each, an "ACCELERATION EVENT"), then the OPTION shall become exercisable during the fifteen (15) days immediately prior to the scheduled consummation of the ACCELERATION EVENT with respect to the full number of COMMON SHARES subject to the OPTION provided, however, that no such ACCELERATION EVENT will occur in the event that (i) the primary purpose of the transaction is to change the COMPANY'S domicile solely within the United States, (ii) the terms of the agreement(s) require as a prerequisite for the consummation of the transaction that each option granted by the COMPANY pursuant to the PLAN either be assumed by the successor corporation or parent thereof or be replaced with a comparable option to purchase shares of capital stock of the successor corporation or parent thereof, or (iii) the transaction is approved by a majority of the members of the Board of -3- 4 Directors of the COMPANY who had either been in office for more than twelve (12) months prior to such transaction or had been elected, or nominated for election by the COMPANY'S shareholders, by the vote of three-fourths of the directors then still in office who were directors at the beginning of such twelve-month period; and provided further that any exorcise of the OPTION during such fifteen (15) day period shall be conditioned upon the consummation of such transaction and shall be effective only immediately before such consummation, except to the extent that the OPTIONEE may indicate, in writing, that such exercise is unconditional with regard to all or part of the unaccelerated portion of the OPTION. Upon consummation of the ACCELERATION EVENT, the OPTION, whether or not accelerated, shall terminate and cease to be exercisable, unless assumed by the successor corporation or parent thereof. (B) The grant of this OPTION shall not affect in any way the right of the COMPANY to adjust, reclassify, reorganize, or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (5) Non-Assignability of OPTION. The OPTION shall not be assignable or otherwise transferable by the OPTIONEE except by will or by the laws of descent and distribution. The OPTION may not be exercised during the lifetime of the OPTIONEE except by him, his guardian or legal representative. (6) Substitution for OPTION. The COMMITTEE shall have the authority to effect, at any time and from time to time, with the consent of the OPTIONEE, the cancellation of the OPTION and the grant in substitution therefor of one or more new options under the PLAN covering the same or a different number of COMMON SHARES at an option price per share in all events not less than 100% of the closing sale price for the COMMON SNARES of the COMPANY as shown on the New York Stock Exchange-Composite Transactions on the new grant date. (7) Exercise After Termination of Employment. (A) Except as otherwise provided in this Agreement, the OPTION shall be exercisable only by the OPTIONEE, shall be exercisable only while the OPTIONEE is in the employment of the COMPANY and then only if the OPTION has become exercisable by its terms, and if not exercisable by its terms at the time the OPTIONEE ceases to be in the employment of the COMPANY, shall immediately expire on the date of termination of employment. (B) If the OPTION is exercisable by its terms at the time the OPTIONEE ceases to be in the employment of the COMPANY other than by reason of the death, permanent disability or normal retirement of the OPTIONEE, it must be exercised on or before the earlier of three (3) months after the date of the termination of employment of the OPTIONEE or the fixed expiration date of the OPTION after which period the OPTION shall expire. Notwithstanding the foregoing, if the OPTIONEE'S employment is terminated for willful, deliberate or gross misconduct (such as, for example, dishonesty), the OPTION shall, to the extent not previously exercised, expire immediately upon such termination. -4- 5 (C) In the event of the death of the OPTIONEE (i) while in the employment of the COMPANY or (ii) within three (3) months after his termination of employment other than for willful, deliberate or gross misconduct, the unexercised portion of the OPTION (whether or not then exercisable by its terms) shall become immediately exercisable by his estate for a period ending on the earlier of the fixed expiration date of the OPTION or twelve (12) months after the date of death, after which period the OPTION shall expire. For purposes hereof, the estate of an OPTIONEE shall be defined to include the legal representatives thereof or any person who has acquired the right to exercise the OPTION by reason of the death of the OPTIONEE. (D) In the event of the termination of employment of the OPTIONEE by reason of the "permanent disability" or "normal retirement" of the OPTIONEE, the OPTION shall become fully exercisable for a period ending on the earlier of three (3) months after the termination of employment or the fixed expiration date of the OPTION; provided, however, that if such termination of employment occurs by reason of "disability" within the meaning of Section 22(e)(3) of the CODE, said three-month period shall be extended to twelve months. For purposes hereof, "permanent disability" shall be deemed to be the inability of the OPTIONEE to perform the duties of his job with the COMPANY because of a physical or mental disability as evidenced by the opinion of a COMPANY-approved doctor of medicine licensed to practice medicine in the United States of America and "retirement" shall be deemed to be "normal retirement" if the OPTIONEE is at least 65 years of age and has completed at least five (5) consecutive years of employment with the COMPANY at the date of retirement. (8) Restrictions on Transfers of COMMON SHARES. Anything contained in this Agreement or elsewhere to the contrary notwithstanding, the COMPANY may postpone the issuance and delivery of COMMON SHARES upon any exercise of the OPTION until completion of any stock exchange listing or registration or other qualification of such COMMON SHARES under any state or federal law, rule or regulation as the COMPANY may consider appropriate; and may require the OPTIONEE when exercising the OPTION to make such representations and furnish such information as the COMPANY may consider appropriate in connection with the issuance of the COMMON SHARES in compliance with applicable law. COMMON SHARES issued and delivered upon exercise of the OPTION shall be subject to such restrictions on trading, including appropriate legending of certificates to that effect, as the COMPANY, in its discretion, shall determine are necessary to satisfy applicable legal requirements and obligations. (9) Rights of OPTIONEE as Shareholder. The OPTIONEE shall have no rights as a shareholder of the COMPANY with respect to any COMMON SHARES of the COMPANY covered by the OPTION until the date of issuance of a certificate to him evidencing such COMMON SHARES. (10) PLAN as Controlling. All terms and conditions of the PLAN applicable to the OPTION which are not set forth in this Agreement shall be deemed incorporated herein by -5- 6 reference. In the event that any term or condition of this Agreement is inconsistent with the terms and conditions of the PLAN, the PLAN shall be deemed controlling. (11) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. (12) Rights and Remedies Cumulative. All rights and remedies of the COMPANY and of the OPTIONEE enumerated in this Agreement shall be cumulative and, except as expressly provided otherwise in this Agreement, none shall exclude any other rights or remedies allowed by law or in equity, and each of said rights or remedies may be exercised and enforced concurrently. (13) Captions. The captions contained in this Agreement are included only for convenience of reference and do not define, limit, explain or modify this Agreement or its interpretation, construction or meaning and are in no way to be construed as a part of this Agreement. (14) Severability. If any provision of this Agreement or the application of any provision hereof to any person or any circumstance shall be determined to be invalid or unenforceable, then such determination shall not affect any other provision of this Agreement or the application of said provision to any other person or circumstance, all of which other provisions shall remain in full force and effect, and it is the intention of each party to this Agreement that if any provision of this Agreement is susceptible of two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall have the meaning which renders it enforceable. (15) Number and Gender. When used in this Agreement, the number and gender of each pronoun shall be construed to be such number and gender as the context, circumstances or its antecedent may required. (16) Entire Agreement. This Agreement constitutes the entire agreement between the COMPANY and the OPTIONEE in respect of the subject matter of this Agreement, and this Agreement supersedes all prior and contemporaneous agreements between the parties hereto in connection with the subject matter of this Agreement. No officer, employee or other servant or agent of the COMPANY, and no servant or agent of the OPTIONEE, is authorized to make any representation, warranty or other promise not contained in this Agreement. No change, termination or attempted waiver of any of the provisions of this Agreement shall be binding upon any party hereto unless contained in a writing signed by the party to be charged. (17) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successor; and assigns (including successive, as well as immediate, successors and assigns) of the COMPANY. [Remainder of page intentionally left blank; signatures on following page] -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written. COMPANY: R. G. BARRY CORPORATION By: ----------------------------------------- Its: ---------------------------------------- OPTIONEE: ------------------------------------------------- Signature of Optionee ------------------------------------------------- Street Address ------------------------------------------------- City State Zip Code ------------------------------------------------- Telephone Number ------------------------------------------------- Social Security Number -7- EX-10.17 5 l86966aex10-17.txt EXHIBIT 10.17 1 Exhibit 10.17 STOCK OPTION AGREEMENT (Non-Qualified Stock Options) THIS AGREEMENT is made to be effective as of __________________, by and between R. G. Barry Corporation, an Ohio corporation (the "COMPANY"), and _____________ (the "OPTIONEE"). WITNESSETH: WHEREAS, the Board of Directors of the COMPANY has adopted and the shareholders of the COMPANY have approved the R. G. Barry Corporation 1994 Stock Option Plan (the "PLAN"); and WHEREAS, pursuant to the provisions of the PLAN, the Board of Directors of the COMPANY has appointed a Compensation Committee (the "COMMITTEE") to administer the PLAN and the COMMITTEE has determined that an option to acquire common shares, $1.00 par value (the "COMMON SHARES"), of the COMPANY should be granted to the OPTIONEE upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises, the parties hereto make the following agreement, intending to be legally bound thereby: (1) Grant of OPTION. The COMPANY hereby grants to the OPTIONEE an option (the "OPTION") to purchase _____ COMMON SHARES of the COMPANY. The OPTION is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). (2) Terms and Conditions of the OPTION. (A) OPTION Price. The purchase price (the "OPTION PRICE") to be paid by the OPTIONEE to the COMPANY upon the exercise of the OPTION shall be $_____ per share, subject to adjustment as provided in Section 3. (B) Exercise of the OPTION. The OPTION may not be exercised until the OPTIONEE shall have completed twelve months of continuous employment with the COMPANY and/or its subsidiaries immediately following the date hereof. Thereafter, the OPTION may be exercised as follows: (i) at any time after such twelve-month period, as to ____ of the COMMON SHARES subject to the OPTION; (ii) at any time after twenty-four months from the date of this Agreement, as to an additional ____ of the COMMON SHARES subject to the OPTION; (iii) at any time after thirty-six months from the date of this Agreement, as to an additional ____ of the COMMON SHARES subject to the OPTION; 2 (iv) at any time after forty-eight months from the date of this Agreement, as to an additional ____ of the COMMON SHARES subject to the OPTION; and (iv) at any time after sixty months from the date of this Agreement, as to the remaining ____ of the COMMON SHARES subject to the OPTION. Subject to the other provisions of this Agreement, if the OPTION becomes exercisable as to certain COMMON SHARES, it shall remain exercisable as to those COMMON SHARES until the date of expiration of the OPTION term. The COMMITTEE may, but shall not be required to (unless otherwise provided in this Agreement), accelerate the schedule of the time or times when the OPTION may be exercised. The grant of the OPTION shall not confer upon the OPTIONEE any right to continue in the employment of the COMPANY nor limit in any way the right of the COMPANY to terminate the employment of the OPTIONEE at any time in accordance with law or the COMPANY'S governing corporate documents. (C) OPTION Term. The OPTION shall in no event be exercisable after the expiration of ten (10) years from the date of this Agreement. (D) Method of Exercise. The OPTION may be exercised by giving written notice of exercise to the COMMITTEE in care of the Treasurer of the COMPANY stating the number of full COMMON SHARES subject to the OPTION in respect of which it is being exercised. Payment for all such COMMON SHARES shall be made to the COMPANY at the time the OPTION is exercised in United States dollars in cash (including check, bank draft or money order). If permitted by the COMMITTEE, payment for such COMMON SHARES may be made (i) by delivery of COMMON SHARES of the COMPANY already owned by the OPTIONEE and having a Fair Market Value (as that term is defined in the PLAN) on the date of delivery equal to the OPTION PRICE, or (ii) by delivery of a combination of cash and already owned COMMON SHARES. After payment in full for the COMMON SHARES purchased under the OPTION has been made, the COMPANY shall take all such action as is necessary to deliver appropriate share certificates evidencing the COMMON SHARES purchased upon the exercise of the OPTION as promptly thereafter as is reasonably practicable. (E) Satisfaction of Taxes and Tax Withholding Requirements. The COMMITTEE shall determine the appropriate arrangements for the satisfaction by the COMPANY and the OPTIONEE of all federal, state, local or other income, excise or employment taxes or tax withholding requirements applicable to the exercise of the OPTION or the later disposition of the COMMON SHARES or other property thereby acquired. (3) Adjustments and Changes in the COMMON SHARES. (A) In the event that the outstanding COMMON SHARES of the COMPANY shall be changed into or exchanged for a different kind of shares or other securities of the COMPANY or of another corporation or for any other property (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares or otherwise) or if the number of such COMMON SHARES shall be increased through the payment of a stock dividend, then unless such change results in the termination of all outstanding options granted 2 3 pursuant to the PLAN, there shall be substituted for or added to each COMMON SHARE of the COMPANY subject to the OPTION, the number and kind of shares or other securities or other property into which each outstanding COMMON SHARE of the COMPANY shall be changed, or for which each such COMMON SHARE shall be exchanged, or to which the holder of each such COMMON SHARE shall be entitled, as the case may be. The OPTION shall also be appropriately amended as to the OPTION PRICE and other terms as may be necessary to reflect the foregoing events. The number of COMMON SHARES that will vest on the dates set forth in Section 2(B) shall be appropriately adjusted to reflect any such change in the outstanding COMMON SHARES. In the event there shall be any other change in the number or kind of the outstanding shares of the COMPANY, or of any shares or other securities or other property into which such shares shall have been changed, or for which they shall have been exchanged, then if the COMMITTEE shall, in its sole discretion, determine that such change equitably requires an adjustment in the OPTION, such adjustment shall be made by the COMMITTEE in accordance with such determination. Fractional shares resulting from any adjustment in the OPTION pursuant to this Section 3(A) shall be rounded down to the nearest whole number of shares. (B) Notice of any adjustment pursuant to this Section 3 shall be given by the COMPANY to the OPTIONEE. (4) Acceleration of OPTIONS. (A) In the event that the COMPANY or its shareholders enter into one or more agreements to dispose of all or substantially all of the assets or fifty percent (50%) or more of the outstanding capital stock of the COMPANY by means of sale (whether as a result of a tender offer or otherwise), merger, reorganization or liquidation in one or a series of related transactions (each, an "ACCELERATION EVENT"), then the OPTION shall become exercisable during the fifteen (15) days immediately prior to the scheduled consummation of the ACCELERATION EVENT with respect to the full number of COMMON SHARES subject to the OPTION; provided, however, that no such ACCELERATION EVENT will occur in the event that (i) the primary purpose of the transaction is to change the COMPANY'S domicile solely within the United States, (ii) the terms of the agreement(s) require as a prerequisite for the consummation of the transaction that each option granted by the COMPANY pursuant to the PLAN either be assumed by the successor corporation or parent thereof or be replaced with a comparable option to purchase shares of capital stock of the successor corporation or parent thereof, or (iii) the transaction is approved by a majority of the members of the Board of Directors of the COMPANY who had either been in office for more than twelve (12) months prior to such transaction or had been elected, or nominated for election by the COMPANY's shareholders, by the vote of three-fourths of the directors then still in office who were directors at the beginning of such twelve-month period; and provided further that any exercise of the OPTION during such fifteen (15) day period shall be conditioned upon the consummation of such transaction and shall be effective only immediately before such consummation, except to the extent that the OPTIONEE may indicate, in writing, that such exercise is unconditional with regard to all or part of the unaccelerated portion of the OPTION. Upon consummation of the ACCELERATION EVENT, the OPTION, whether or not accelerated, shall terminate and cease to be exercisable, unless assumed by the successor corporation or parent thereof. 3 4 (B) In the event of the occurrence of an ACCELERATION EVENT, if the OPTIONEE is subject to the filing requirements imposed under Section 16(a) of the Securities Exchange Act of 1934 with respect to the COMPANY, the OPTIONEE shall receive a payment of cash equal to the difference between the aggregate "Fair Value" of the COMMON SHARES subject to such accelerated OPTION and the aggregate OPTION PRICE of such COMMON SHARES. Notwithstanding the provisions of the foregoing sentence, no payment of cash shall be made in respect of the accelerated OPTION unless a period of at least six (6) months has elapsed from the date of grant of the OPTION. For purposes of this Section 4(B), "Fair Value" shall mean the highest aggregate fair market value of the subject COMMON SHARES during the 60-day period immediately preceding the date of the consummation of the ACCELERATION EVENT. Payment of said cash shall be made within ten (10) days after said consummation of the ACCELERATION EVENT. The foregoing payments under this section 4(B) shall be made in lieu of and in full discharge of any and all obligations of the COMPANY in respect of the OPTION. (C) The grant of this OPTION shall not affect in any way the right of the COMPANY to adjust, reclassify, reorganize, or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (5) Non-Assignabilitv of OPTION. The OPTION shall not be assignable or otherwise transferable by the OPTIONEE except by will or by the laws of descent and distribution. The OPTION may not be exercised during the lifetime of the OPTIONEE except by him, his guardian or legal representative. (6) Substitution for OPTION. The COMMITTEE shall have the authority to effect, at any time and from time to time, with the consent of the OPTIONEE, the cancellation of the OPTION and the grant in substitution therefor of one or more new options under the PLAN covering the same or a different number of COMMON SHARES. (7) Exercise After Termination of Employment. (A) Except as otherwise provided in this Agreement, the OPTION shall be exercisable only by the OPTIONEE, shall be exercisable only while the OPTIONEE is in the employment of the COMPANY and then only if the OPTION has become exercisable by its terms, and if not exercisable by its terms at the time the OPTIONEE ceases to be in the employment of the COMPANY, shall immediately expire on the date of termination of employment. (B) If the OPTION is exercisable by its terms at the time the OPTIONEE ceases to be in the employment of the COMPANY other than by reason of the death, permanent disability or normal retirement of the OPTIONEE, the OPTION must be exercised on or before the earlier of three (3) months after the date of termination of employment or the fixed expiration date of the OPTION after which period the OPTION shall expire. Notwithstanding the foregoing, if the OPTIONEE's employment is terminated for willful, deliberate or gross misconduct (such as, for example, dishonesty), the OPTION shall, to the extent not previously exercised, expire immediately upon such termination. 4 5 (C) In the event of the death of the OPTIONEE (i) while in the employment of the COMPANY or (ii) within three (3) months after his termination of employment other than for other than will, deliberate or gross misconduct, the unexercised portion of the OPTION (whether or not then exercisable by its terms) shall become immediately exercisable by his estate for a period ending on the earlier of the fixed expiration date of the OPTION or twelve months after the date of death, after which period the OPTION shall expire. For purposes hereof, the estate of an OPTIONEE shall be defined to include the legal representatives thereof or any person who has acquired the right to exercise the OPTION by reason of the death of the OPTIONEE. (D) In the event of the termination of employment of the OPTIONEE by reason of the "permanent disability" of the OPTIONEE, the unexercised portion of the OPTION (whether or not then exercisable by its terms) shall become exercisable for a period ending on the earlier of the fixed expiration date of the OPTION or twelve (12) months from the date of termination, after which period the OPTION shall expire. For purposes hereof, "permanent disability" shall be deemed to be the inability of the OPTIONEE to perform the duties of his job with the COMPANY because of a physical or mental disability as evidenced by the opinion of a COMPANY-approved doctor of medicine licensed to practice medicine in the United States of America. (E) In the event of the termination of employment of the OPTIONEE by reason of the "normal retirement" of the OPTIONEE, the unexercised portion of the OPTION (whether or not then exercisable by its terms) granted to the OPTIONEE on or before his 65th birthday shall become immediately exercisable for a period ending on the earlier of the fixed expiration date of the OPTION or twelve (12) months after the date of death, after which period the OPTION shall expire. Also, in the event of the "normal retirement" of the OPTIONEE, the unexercised portion of the OPTION (whether or not then exercisable by its terms) granted to the OPTIONEE after his 65th birthday and held for a period of at least twelve (12) consecutive months of active employment with the COMPANY after the date of grant shall become immediately exercisable for a period ending on the earlier of the fixed expiration date of the OPTION or twelve (12) months after the date of death, after which period the OPTION shall expire. For purposes hereof, "retirement" shall be deemed to be "normal retirement" if the OPTIONEE is at least 65 years of age and has completed at least five (5) consecutive years of employment with the COMPANY at the date of retirement. (8) Restrictions on Transfers of COMMON SHARES. Anything contained in this Agreement or elsewhere to the contrary notwithstanding, the COMPANY may postpone the issuance and delivery of COMMON SHARES upon any exercise of the OPTION until completion of any stock exchange listing or registration or other qualification of such COMMON SHARES under any state or federal law, rule or regulation as the COMPANY may consider appropriate; and may require the OPTIONEE when exercising the OPTION to make such representations and furnish such information as the COMPANY may consider appropriate in connection with the issuance of the COMMON SHARES in compliance with applicable law. COMMON SHARES issued and delivered upon exercise of the OPTION shall be subject to such restrictions on trading, including appropriate legending of certificates to that 5 6 effect, as the COMPANY, in its discretion, shall determine are necessary to satisfy applicable legal requirements and obligations. (9) Rights of OPTIONEE as Shareholder. The OPTIONEE shall have no rights as a shareholder of the COMPANY with respect to any COMMON SHARES of the COMPANY covered by the OPTION until the date of issuance of a certificate to him evidencing such COMMON SHARES. (10) PLAN as Controlling. All terms and conditions of the PLAN applicable to the OPTION which are not set forth in this Agreement shall be deemed incorporated herein by reference. In the event that any term or condition of this Agreement is inconsistent with the terms and conditions of the PLAN, the PLAN shall be deemed controlling. (11) Government Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. (12) Rights and Remedies Cumulative. All rights and remedies of the COMPANY and of the OPTIONEE enumerated in this Agreement shall be cumulative and, except as expressly provided otherwise in this Agreement, none shall exclude any other rights or remedies allowed by law or in equity, and each of said rights or remedies may be exercised and enforced concurrently. (13) Captions. The captions contained in this Agreement are included only for convenience of reference and do not define, limit, explain or modify this Agreement or its interpretation, construction or meaning and are in no way to be construed as a part of this Agreement. (14) Severability. If any provision of this Agreement or the application of any provision hereof to any person or any circumstance shall be determined to be invalid or unenforceable, then such determination shall not affect any other provision of this Agreement or the application of said provision to any other person or circumstance, all of which other provisions shall remain in full force and effect, and it is the intention of each party to this Agreement that if any provision of this Agreement is susceptible of two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall have the meaning which renders it enforceable. (15) Number and Gender. When used in this Agreement, the number and gender of each pronoun shall be construed to be such number and gender as the context, circumstances or its antecedent may required. (16) Entire Agreement. This Agreement constitutes the entire agreement between the COMPANY and the OPTIONEE in respect of the subject matter of this Agreement, and this Agreement supersedes all prior and contemporaneous agreements between the parties hereto in connection with the subject matter of this Agreement. No officer, employee or other servant or agent of the COMPANY, and no servant or agent of the OPTIONEE, is authorized to make any representation, warranty or other promise not contained in this Agreement. No change, 6 7 termination or attempted waiver of any of the provisions of this Agreement shall be binding upon any party hereto unless contained in a writing signed by the party to be charged. (17) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns (including successive, as well as immediate, successors and assigns) of the COMPANY. [Remainder of page intentionally left blank; signatures on following page] 7 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written. COMPANY: R. G. BARRY CORPORATION By: -------------------------------------------- Its: ------------------------------------------- OPTIONEE: ----------------------------------------------- Signature of Optionee ----------------------------------------------- Street Address ----------------------------------------------- City State Zip Code ----------------------------------------------- Telephone Number ----------------------------------------------- Social Security Number 8 EX-10.24 6 l86966aex10-24.txt EXHIBIT 10.24 1 Exhibit 10.24 STOCK OPTION AGREEMENT (Incentive Stock Option) THIS AGREEMENT is made to be effective as of _________________, by and between R. G. Barry Corporation, an Ohio corporation (the "COMPANY"), and ______________ (the "OPTIONEE"). WITNESSETH: WHEREAS, pursuant to the provisions of the R. G. Barry Corporation 1997 Incentive Stock Plan (as amended, the "PLAN"), the Board of Directors of the COMPANY has appointed a Compensation Committee (the "COMMITTEE") to administer the PLAN and the COMMITTEE has determined that an option to acquire common shares, $1.00 par value (the "COMMON SHARES"), of the COMPANY should be granted to the OPTIONEE upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises, the parties hereto make the following agreement, intending to be legally bound thereby: (1) Grant of OPTION. The COMPANY hereby grants to the OPTIONEE an option (the "OPTION") to purchase _______ COMMON SHARES of the COMPANY (subject to adjustment as provided in Section (3)). The OPTION is intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). (2) Terms and Conditions of the OPTION. (A) OPTION Price. The purchase price (the "OPTION PRICE") to be paid by the OPTIONEE to the COMPANY upon the exercise of the OPTION shall be $____ per share, subject to adjustment as provided in Section (3). (B) Exercise of the OPTION. The OPTION may not be exercised until the OPTIONEE shall have completed twelve months of continuous employment with the COMPANY and/or its subsidiaries immediately following the date hereof. Thereafter, except as otherwise provided in this Agreement, the OPTION may be exercised as follows: (i) at any time after such twelve-month period, as to __% of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)); (ii) at any time after twenty-four months from the date of this Agreement, as to an additional __% of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)); 2 (iii) at any time after thirty-six-months, as to an additional __% of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)); (iv) at any time after forty-eight months from the date of this Agreement, as to an additional __% of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)) and (v) at any time after sixty months from the date of this Agreement, as to the remaining __% of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)). Subject to the other provisions of this Agreement, if the OPTION becomes exercisable as to certain COMMON SHARES, it shall remain exercisable as to those COMMON SHARES until the date of expiration of the OPTION term. The COMMITTEE may, but shall not be required to (unless otherwise provided in this Agreement), accelerate the schedule of the time or times when the OPTION may be exercised. The grant of the OPTION shall not confer upon the OPTIONEE any right to continue in the employment of the COMPANY nor limit in any way the right of the COMPANY to terminate the employment of the OPTIONEE at any time in accordance with law or the COMPANY's governing corporate documents. (C) OPTION Term. The OPTION shall in no event be exercisable after the expiration of ten (10) years from the date of this Agreement. (D) Method of Exercise. The OPTION may be exercised by giving written notice of exercise to the COMPANY in care of the Treasurer of the COMPANY stating the number of COMMON SHARES subject to the OPTION in respect of which it is being exercised. Payment for all such COMMON SHARES shall be made to the COMPANY at the time the OPTION is exercised in United States dollars in cash (including check, bank draft or money order). Payment for such COMMON SHARES also may be made (i) by delivery of COMMON SHARES of the COMPANY already owned by the OPTIONEE and having a Fair Market Value (as that term is defined in the PLAN) on the date of delivery equal to the OPTION PRICE, or (ii) by delivery of a combination of cash and already owned COMMON SHARES. After payment in full for the COMMON SHARES purchased under the OPTION has been made, the COMPANY shall take all such action as is necessary to deliver appropriate share certificates evidencing the COMMON SHARES purchased upon the exercise of the OPTION as promptly thereafter as is reasonably practicable. (3) Adjustments and Changes in the COMMON SHARES. (A) In the event that the outstanding COMMON SHARES of the COMPANY shall be changed into or exchanged for a different kind of shares or other securities of the COMPANY or of another corporation or for any other type of property (whether by reason of -2- 3 merger, consolidation, recapitalization, reclassification, split-up, combination of shares or otherwise) or if the number of such COMMON SHARES shall be increased through the payment of a stock dividend, then unless such change results in the termination of all outstanding options granted pursuant to the PLAN, there shall be substituted for or added to each COMMON SHARE of the COMPANY subject to the OPTION, the number and kind of shares or other securities or other property into which each outstanding COMMON SHARE of the COMPANY shall be changed, or for which each such COMMON SHARE shall be exchanged, or to which the holder of each such COMMON SHARE shall be entitled, as the case may be. The OPTION shall also be appropriately amended as to the OPTION PRICE and other terms as may be necessary to reflect the foregoing events. The number of COMMON SHARES that will vest on the dates set forth in Section (2)(B) shall be appropriately adjusted to reflect any such change in the outstanding COMMON SHARES. In the event there shall be any other change in the number or kind of the outstanding shares of the COMPANY, or of any shares or other securities or other property into which such shares shall have been changed, or for which they shall have been exchanged, then if the COMMITTEE shall, in its sole discretion, determine that such change equitably requires an adjustment in the OPTION, such adjustment shall be made by the COMMITTEE in accordance with such determination. Fractional shares resulting from any adjustment in the OPTION pursuant to this Section 3(A) shall be rounded down to the nearest whole number of shares. (B) Notwithstanding the foregoing, any and all adjustments in connection with the OPTION shall comply in all respects with Section 422 of the CODE, and the regulations promulgated thereunder. (C) Notice of any adjustment pursuant to this Section (3) shall be given by the COMPANY to the OPTIONEE. (D) The grant of this OPTION shall not affect in any way the right of the COMPANY to adjust, reclassify, reorganize, or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (4) Acceleration of OPTION. In the event that the COMPANY or its shareholders enter into one or more agreements to dispose of all or substantially all of the assets or fifty percent (50%) or more of the outstanding capital stock of the COMPANY by means of sale (whether as a result of a tender offer or otherwise), merger, reorganization or liquidation in one or a series of related transactions (each, an "ACCELERATION EVENT"), then the OPTION shall become exercisable during the fifteen (15) days immediately prior to the scheduled consummation of the ACCELERATION EVENT with respect to the full number of COMMON SHARES subject to the OPTION. Upon consummation of the ACCELERATION EVENT, the OPTION, whether or not accelerated, will terminate and cease to be exercisable, unless assumed by the successor corporation or parent thereof. (5) Non-Assignability of OPTION. The OPTION shall not be assignable or otherwise transferable by the OPTIONEE except by will or by the laws of descent and distribution. -3- 4 The OPTION may not be exercised during the lifetime of the OPTIONEE except by him, his guardian or legal representative. (6) Substitution for OPTION. The COMMITTEE shall have the authority to effect, at any time and from time to time, with the consent of the OPTIONEE, the cancellation of the OPTION and the grant in substitution therefor of one or more new options under the PLAN covering the same or a different number of COMMON SHARES at an option price per share in all events not less than 100% of the closing sale price for the COMMON SHARES of the COMPANY as shown on the New York Stock Exchange - Composite Transactions on the new grant date. (7) Exercise After Termination of Employment. (A) Except as otherwise provided in this Agreement, the OPTION shall be exercisable only while the OPTIONEE is in the employment of the COMPANY and then only if the OPTION has become exercisable by its terms, and if not exercisable by its terms at the time the OPTIONEE ceases to be in the employment of the COMPANY, shall immediately expire on the date of termination of employment. (B) If the OPTION is exercisable by its terms at the time the OPTIONEE ceases to be in the employment of the COMPANY other than by reason of OPTIONEE's death, permanent disability or normal retirement (as defined in Section (7)(D) below), it must be exercised on or before the earlier of three (3) months after the date of the termination of employment of the OPTIONEE or the fixed expiration date of the OPTION, after which period the OPTION shall expire. Notwithstanding the foregoing, if the OPTIONEE's employment is terminated for willful, deliberate or gross misconduct (such as, for example, dishonesty), the OPTION shall, to the extent not previously exercised, expire immediately upon such termination. (C) In the event of the death of the OPTIONEE (i) while in the employment of the COMPANY or (ii) within three (3) months after his termination of employment other than for willful, deliberate or gross misconduct, the unexercised portion of the OPTION (whether or not then exercisable by its terms) shall become immediately exercisable by his estate for a period ending on the earlier of the fixed expiration date of the OPTION or twelve months after the date of death, after which period the OPTION shall expire. For purposes hereof, the estate of an OPTIONEE shall be defined to include the legal representatives thereof or any person who has acquired the right to exercise the OPTION by reason of the death of the OPTIONEE. (D) In the event of the termination of employment of the OPTIONEE by reason of the "permanent disability" or "normal retirement" of the OPTIONEE, the unexercised portion of the OPTION (whether or not then exercisable by its terms) shall become immediately exercisable in full for a period ending on the earlier of three (3) months after the termination of employment or the fixed expiration date of the OPTION, after which period the OPTION shall expire; provided, however, that if such termination of employment occurs by reason of "disability" within the meaning of Section 22(e)(3) of the CODE, said three-month period shall be extended to twelve months. For purposes hereof, "permanent disability" shall be deemed to be the inability of -4- 5 the OPTIONEE to perform the duties of his job with the COMPANY because of a physical or mental disability as evidenced by the opinion of a COMPANY-approved doctor of medicine licensed to practice medicine in the United States of America and "retirement" shall be deemed to be "normal retirement" if the OPTIONEE is at least 65 years of age and has completed at least five (5) consecutive years of employment with the COMPANY at the date of retirement. (8) Restrictions on Transfers of COMMON SHARES. Anything contained in this Agreement or elsewhere to the contrary notwithstanding, the COMPANY may postpone the issuance and delivery of COMMON SHARES upon any exercise of the OPTION until completion of any stock exchange listing or registration or other qualification of such COMMON SHARES under any state or federal law, rule or regulation as the COMPANY may consider appropriate; and may require the OPTIONEE when exercising the OPTION to make such representations and furnish such information as the COMPANY may consider appropriate in connection with the issuance of the COMMON SHARES in compliance with applicable law. COMMON SHARES issued and delivered upon exercise of the OPTION shall be subject to such restrictions on trading, including appropriate legending of certificates to that effect, as the COMPANY, in its discretion, shall determine are necessary to satisfy applicable legal requirements and obligations. (9) Rights of OPTIONEE. The OPTIONEE shall have no rights as a shareholder of the COMPANY with respect to any COMMON SHARES of the COMPANY covered by the OPTION until the date of issuance of a certificate to him evidencing such COMMON SHARES. (10) PLAN as Controlling. All terms and conditions of the PLAN applicable to the OPTION which are not set forth in this Agreement shall be deemed incorporated herein by reference. In the event that any term or condition of this Agreement is inconsistent with the terms and conditions of the PLAN, the PLAN shall be deemed controlling. (11) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. (12) Rights and Remedies Cumulative. All rights and remedies of the COMPANY and of the OPTIONEE enumerated in this Agreement shall be cumulative and, except as expressly provided otherwise in this Agreement, none shall exclude any other rights or remedies allowed by law or in equity, and each of said rights or remedies may be exercised and enforced concurrently. (13) Captions. The captions contained in this Agreement are included only for convenience of reference and do not define, limit, explain or modify this Agreement or its interpretation, construction or meaning and are in no way to be construed as a part of this Agreement. -5- 6 (14) Severability. If any provision of this Agreement or the application of any provision hereof to any person or any circumstance shall be determined to be invalid or unenforceable, then such determination shall not affect any other provision of this Agreement or the application of said provision to any other person or circumstance, all of which other provisions shall remain in full force and effect, and it is the intention of each party to this Agreement that if any provision of this Agreement is susceptible of two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall have the meaning which renders it enforceable. (15) Number and Gender. When used in this Agreement, the number and gender of each pronoun shall be construed to be such number and gender as the context, circumstances or its antecedent may required. (16) Entire Agreement. This Agreement constitutes the entire agreement between the COMPANY and the OPTIONEE in respect of the subject matter of this Agreement, and this Agreement supersedes all prior and contemporaneous agreements between the parties hereto in connection with the subject matter of this Agreement. No officer, employee or other servant or agent of the COMPANY, and no servant or agent of the OPTIONEE is authorized to make any representation, warranty or other promise not contained in this Agreement. No change, termination or attempted waiver of any of the provisions of this Agreement shall be binding upon any party hereto unless contained in a writing signed by the party to be charged. (17) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns (including successive, as well as immediate, successors and assigns) of the COMPANY. [Remainder of page intentionally left blank; signatures on following page.] -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written. COMPANY: R. G. BARRY CORPORATION By: ------------------------------- Its: ------------------------------ OPTIONEE: --------------------------------- Name --------------------------------- Street Address --------------------------------- City, State, Zip Code --------------------------------- Social Security Number -7- EX-10.25 7 l86966aex10-25.txt EXHIBIT 10.25 1 Exhibit 10.25 STOCK OPTION AGREEMENT (NON-QUALIFIED STOCK OPTION) THIS AGREEMENT is made to be effective as of __________, 200__, by and between R. G. Barry Corporation, an Ohio corporation (the "COMPANY"), and ____________________ (the "OPTIONEE"). WITNESSETH: WHEREAS, pursuant to the provisions of the R. G. Barry Corporation 1997 Incentive Stock Plan (as amended, the "PLAN"), the Board of Directors of the COMPANY has appointed a Compensation Committee (the "COMMITTEE") to administer the PLAN and the COMMITTEE has determined that an option to acquire common shares, $1.00 par value (the "COMMON SHARES"), of the COMPANY should be granted to the OPTIONEE upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the premises, the parties hereto make the following agreement, intending to be legally bound thereby: (1) GRANT OF OPTION. The COMPANY hereby grants to the OPTIONEE an option (the "OPTION") to purchase ________ COMMON SHARES of the COMPANY (subject to adjustment as provided in Section (3)). The OPTION is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"). (2) TERMS AND CONDITIONS OF THE OPTION. (A) OPTION PRICE. The purchase price (the "OPTION PRICE") to be paid by the OPTIONEE to the COMPANY upon the exercise of the OPTION shall be $_______ per share, subject to adjustment as provided in Section (3). (B) EXERCISE OF THE OPTION. The OPTION may not be exercised until the OPTIONEE shall have completed twelve months of continuous employment with the COMPANY and/or its subsidiaries immediately following the date hereof. Thereafter, except as otherwise provided in this Agreement, the OPTION may be exercised as follows: (i) at any time after such twelve-month period, as to ________ of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)); (ii) at any time after twenty-four months from the date of this Agreement, as to an additional ____ of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)); 2 (iii) at any time after thirty-six months from the date of this Agreement, as to an additional ____ of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)); (iv) at any time after forty-eight months from the date of this Agreement, as to an additional ____ of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section 3)); and (v) at any time after sixty months from the date of this Agreement, as to the remaining ____ of the COMMON SHARES subject to the OPTION (subject to adjustment as provided in Section (3)). Subject to the other provisions of this Agreement, if the OPTION becomes exercisable as to certain COMMON SHARES, it shall remain exercisable as to those COMMON SHARES until the date of expiration of the OPTION term. The COMMITTEE may, but shall not be required to (unless otherwise provided in this Agreement), accelerate the schedule of the time or times when the OPTION may be exercised. The grant of the OPTION shall not confer upon the OPTIONEE any right to continue in the employment of the COMPANY nor limit in any way the right of the COMPANY to terminate the employment of the OPTIONEE at any time in accordance with law or the COMPANY's governing corporate documents. (C) OPTION TERM. The OPTION shall in no event be exercisable after the expiration of ten (10) years from the date of this Agreement. (D) METHOD OF EXERCISE. The OPTION may be exercised by giving written notice of exercise to the COMPANY in care of the Treasurer of the COMPANY stating the number of COMMON SHARES subject to the OPTION in respect of which it is being exercised. Payment for all such COMMON SHARES shall be made to the COMPANY at the time the OPTION is exercised in United States dollars in cash (including check, bank draft or money order). Payment for such COMMON SHARES also may be made (i) by delivery of COMMON SHARES of the COMPANY already owned by the OPTIONEE and having a Fair Market Value (as that term is defined in the PLAN) on the date of delivery equal to the OPTION PRICE, or (ii) by delivery of a combination of cash and already owned COMMON SHARES. After payment in full for the COMMON SHARES purchased under the OPTION has been made, the COMPANY shall take all such action as is necessary to deliver appropriate share certificates evidencing the COMMON SHARES purchased upon the exercise of the OPTION as promptly thereafter as is reasonably practicable. (E) TAX WITHHOLDING. OPTIONEE will pay to the COMPANY the amount of any taxes the COMPANY is required by law to withhold with respect to the exercise of the OPTION. Unless otherwise instructed by OPTIONEE, the COMPANY will withhold from the COMMON SHARES issuable upon exercise of the OPTION that number of COMMON SHARES having a fair market value on the date of exercise (based upon the closing price of the COMMON -2- 3 SHARES as reported on the New York Stock Exchange) equal to the amount of any taxes the COMPANY is required by law to withhold with respect to the exercise of the OPTION. (3) ADJUSTMENTS AND CHANGES IN THE COMMON SHARES. (A) In the event that the outstanding COMMON SHARES of the COMPANY shall be changed into or exchanged for a different kind of shares or other securities of the COMPANY or of another corporation or for any other type of property (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares or otherwise) or if the number of such COMMON SHARES shall be increased through the payment of a stock dividend, then unless such change results in the termination of all outstanding options granted pursuant to the PLAN, there shall be substituted for or added to each COMMON SHARE of the COMPANY subject to the OPTION, the number and kind of shares or other securities into which each outstanding COMMON SHARE of the COMPANY shall be changed, or for which each such COMMON SHARE shall be exchanged, or to which the holder of each such COMMON SHARE shall be entitled, as the case may be. The OPTION shall also be appropriately amended as to the OPTION PRICE and other terms as may be necessary to reflect the foregoing events. The number of COMMON SHARES that will vest on the dates set forth in Section (2)(B) shall be appropriately adjusted to reflect any such change in the outstanding COMMON SHARES. In the event there shall be any other change in the number or kind of the outstanding shares of the COMPANY, or of any shares or other securities into which such shares shall have been changed, or for which they shall have been exchanged, then if the COMMITTEE shall, in its sole discretion, determine that such change equitably requires an adjustment in the OPTION, such adjustment shall be made by the COMMITTEE in accordance with such determination. Fractional shares resulting from any adjustment in the OPTION pursuant to this Section (3)(A) shall be rounded down to the nearest whole number of shares. (B) Notice of any adjustment pursuant to this Section (3) shall be given by the COMPANY to the OPTIONEE. (C) The grant of this OPTION shall not affect in any way the right of the COMPANY to adjust, reclassify, reorganize, or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. (4) ACCELERATION OF OPTION. In the event that the COMPANY or its shareholders enter into one or more agreements to dispose of all or substantially all of the assets or fifty percent (50%) or more of the outstanding capital stock of the COMPANY by means of sale (whether as a result of a tender offer or otherwise), merger, reorganization or liquidation in one or a series of related transactions (each, an "ACCELERATION EVENT"), then the OPTION shall become exercisable during the fifteen (15) days immediately prior to the scheduled consummation of the ACCELERATION EVENT with respect to the full number of COMMON SHARES subject to the OPTION. Upon consummation of the ACCELERATION EVENT, the OPTION, whether or not accelerated, will terminate and cease to be exercisable, unless assumed by the successor corporation or parent thereof. -3- 4 (5) NON-ASSIGNABILITY OF OPTION. Unless otherwise permitted by the COMMITTEE, the OPTION shall not be assignable or otherwise transferable by the OPTIONEE except by will or by the laws of descent and distribution. The OPTION may not be exercised during the lifetime of the OPTIONEE except by him, his guardian or legal representative. If the COMMITTEE permits the assignment of the OPTION, it shall be assignable only to the extent permitted by Section 19 of the PLAN. (6) SUBSTITUTION FOR OPTION. The COMMITTEE shall have the authority to effect, at any time and from time to time, with the consent of the OPTIONEE, the cancellation of the OPTION and the grant in substitution therefor of one or more new options under the PLAN covering the same or a different number of COMMON SHARES at an OPTION PRICE per share not less than 100% of the closing sale price for the COMMON SHARES of the COMPANY as shown on the New York Stock Exchange--Composite Transactions on the new grant date. (7) EXERCISE AFTER TERMINATION OF EMPLOYMENT. (A) Except as otherwise provided in this Agreement, the OPTION shall be exercisable only while the OPTIONEE is in the employment of the COMPANY and then only if the OPTION has become exercisable by its terms, and if not exercisable by its terms at the time the OPTIONEE ceases to be in the employment of the COMPANY, shall immediately expire on the date of termination of employment. (B) If the OPTION is exercisable by its terms at the time the OPTIONEE ceases to be in the employment of the COMPANY other than by reason of the death, permanent disability (as defined in Section (7)(D) below) or normal retirement (as defined in Section (7)(E) below) of the OPTIONEE, the OPTION must be exercised on or before the earlier of three (3) months after the date of termination of employment or the fixed expiration date of the OPTION after which period the OPTION shall expire. Notwithstanding the foregoing, if the OPTIONEE's employment is terminated for willful, deliberate or gross misconduct (such as, for example, dishonesty), the OPTION shall, to the extent not previously exercised, expire immediately upon such termination. (C) In the event of the death of the OPTIONEE (i) while in the employment of the COMPANY or (ii) within three (3) months after his termination of employment other than for willful, deliberate or gross misconduct, the unexercised portion of the OPTION (whether or not then exercisable by its terms) shall become immediately exercisable in full by his estate for a period ending on the earlier of the fixed expiration date of the OPTION or twelve months after the date of death, after which period the OPTION shall expire. For purposes hereof, the estate of an OPTIONEE shall be defined to include the legal representatives thereof or any person who has acquired the right to exercise the OPTION by reason of the death of the OPTIONEE. (D) In the event of the termination of employment of the OPTIONEE by reason of the "permanent disability" of the OPTIONEE, the unexercised portion of the OPTION -4- 5 (whether or not then exercisable by its terms) shall become exercisable for a period ending on the earlier of the fixed expiration date of the OPTION or twelve (12) months from the date of termination of employment, after which period the OPTION shall expire. For purposes hereof, "permanent disability" shall be deemed to be the inability of the OPTIONEE to perform the duties of his job with the COMPANY because of a physical or mental disability as evidenced by the opinion of a COMPANY-approved doctor of medicine licensed to practice medicine in the United States of America. (E) In the event of the termination of employment of the OPTIONEE by reason of the "normal retirement" of the OPTIONEE, the unexercised portion of the OPTION (whether or not then exercisable by its terms) shall become immediately exercisable for a period ending on the earlier of the fixed expiration date of the OPTION or twelve (12) months after the date of death, after which period the OPTION shall expire. For purposes hereof, "retirement" shall be deemed to be "normal retirement" if the OPTIONEE is at least 65 years of age at the date of retirement and has completed at least five (5) consecutive years of employment with the COMPANY at the date of retirement. (8) RESTRICTIONS ON TRANSFERS OF COMMON SHARES. Anything contained in this Agreement or elsewhere to the contrary notwithstanding, the COMPANY may postpone the issuance and delivery of COMMON SHARES upon any exercise of the OPTION until completion of any stock exchange listing or registration or other qualification of such COMMON SHARES under any state or federal law, rule or regulation as the COMPANY may consider appropriate; and may require the OPTIONEE when exercising the OPTION to make such representations and furnish such information as the COMPANY may consider appropriate in connection with the issuance of the COMMON SHARES in compliance with applicable law. COMMON SHARES issued and delivered upon exercise of the OPTION shall be subject to such restrictions on trading, including appropriate legending of certificates to that effect, as the COMPANY, in its discretion, shall determine are necessary to satisfy applicable legal requirements and obligations. (9) RIGHTS OF OPTIONEE. The OPTIONEE shall have no rights as a shareholder of the COMPANY with respect to any COMMON SHARES of the COMPANY covered by the OPTION until the date of issuance of a certificate to him evidencing such COMMON SHARES. (10) PLAN AS CONTROLLING. All terms and conditions of the PLAN applicable to the OPTION which are not set forth in this Agreement shall be deemed incorporated herein by reference. In the event that any term or condition of this Agreement is inconsistent with the terms and conditions of the PLAN, the PLAN shall be deemed controlling. (11) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. -5- 6 (12) RIGHTS AND REMEDIES CUMULATIVE. All rights and remedies of the COMPANY and of the OPTIONEE enumerated in this Agreement shall be cumulative and, except as expressly provided otherwise in this Agreement, none shall exclude any other rights or remedies allowed by law or in equity, and each of said rights or remedies may be exercised and enforced concurrently. (13) CAPTIONS. The captions contained in this Agreement are included only for convenience of reference and do not define, limit, explain or modify this Agreement or its interpretation, construction or meaning and are in no way to be construed as a part of this Agreement. (14) SEVERABILITY. If any provision of this Agreement or the application of any provision hereof to any person or any circumstance shall be determined to be invalid or unenforceable, then such determination shall not affect any other provision of this Agreement or the application of said provision to any other person or circumstance, all of which other provisions shall remain in full force and effect, and it is the intention of each party to this Agreement that if any provision of this Agreement is susceptible of two or more constructions, one of which would render the provision enforceable and the other or others of which would render the provision unenforceable, then the provision shall have the meaning which renders it enforceable. (15) NUMBER AND GENDER. When used in this Agreement, the number and gender of each pronoun shall be construed to be such number and gender as the context, circumstances or its antecedent may required. (16) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the COMPANY and the OPTIONEE in respect of the subject matter of this Agreement, and this Agreement supersedes all prior and contemporaneous agreements between the parties hereto in connection with the subject matter of this Agreement. No officer, employee or other servant or agent of the COMPANY, and no servant or agent of the OPTIONEE is authorized to make any representation, warranty or other promise not contained in this Agreement. No change, termination or attempted waiver of any of the provisions of this Agreement shall be binding upon any party hereto unless contained in a writing signed by the party to be charged. (17) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns (including successive, as well as immediate, successors and assigns) of the COMPANY. [Reminder of page intentionally left blank; signatures on following page.] -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first above written. COMPANY: -------- R. G. BARRY CORPORATION By: -------------------------------------------- Its: ------------------------------------------- OPTIONEE: -------- ----------------------------------------------- Name ----------------------------------------------- Street Address ----------------------------------------------- City, State, Zip Code ----------------------------------------------- Social Security Number -7- EX-10.28 8 l86966aex10-28.txt EXHIBIT 10.28 1 Exhibit 10.28 EMPLOYMENT AGREEMENT FOR WILLIAM LENICH This employment agreement ("Agreement") by and between R. G. Barry Corporation ("Corporation"), an Ohio corporation, and William Lenich ("Executive"), collectively, the "Parties," is effective February 19, 2001 ("Effective Date") and describes the terms and conditions governing Executive's employment with Corporation. ARTICLE 1 TERM OF AGREEMENT This Agreement: [1] Will be effective only if: [a] Executive assumes the duties described in Article 2 no later than February 19, 2001; and [b] Executive meets all generally applicable employment conditions, including [i] passing Corporation's physical examination and controlled substance test and [ii] positive verification of business references. [2] Will remain in effect for 36 full calendar months beginning after the Effective Date, unless it terminates at an earlier date as provided below ("Original Term") and will be extended automatically for an additional 12 months beginning at the end of the Original Term unless, no later than 180 days before the end of the Original Term, either Corporation or Executive notifies the other, in writing, that it/he does not want to extend the term of this Agreement. [3] The Original Term together with the extensions described in subsection [2] is referred to in this Agreement as the "Term." ARTICLE 2 EXECUTIVE'S DUTIES AND AUTHORITY 2.01 During the Term of this Agreement, Executive agrees: [1] To serve as President and Chief Operating Officer of Corporation (or more senior position to which he is appointed), a position that is based in the Columbus, Ohio metropolitan area, and to perform the services that are customarily performed by persons in such executive capacities; [2] To discharge any other duties and responsibilities that the Chairman ("Chairman") of Corporation's Board of Directors ("Board") assigns to him from time to time that are consistent with Executive's title and position; 2 [3] To serve, if elected, as a director of Corporation during the Term and, if appointed or elected, to serve as an officer and director of any entity that is related through common ownership to Corporation (all entities related through common ownership to Corporation are called "Affiliates" and Corporation and all Affiliates are called "Group"). As soon as practicable after the Effective Date, Corporation will take all action necessary to cause Executive to be nominated to membership on the Board; [4] Except for periods of absence attributable to illness, vacations and any leaves of absence authorized by the Board, to: [a] Devote his full business time and attention to the Group's business affairs and to discharge the duties assigned to Executive under this Agreement; and [b] Not to engage in any other business activity, whether or not for gain, profit or other pecuniary advantage. However, Executive may serve as a director of companies other than Group members if that service is approved by the Board. 2.02 The restrictions described in Section 2.01[4][b] will not be construed to prevent Executive from: [1] Investing his personal assets in: [a] Businesses that do not compete with or do business with any Group member and do not require Executive to perform any services connected with the operation or affairs of the businesses in which the investment is made; [b] Stocks or corporate securities described in Section 7.02; or [c] Businesses that compete with or do business with any Group member, but only if: [i] That business's stock is publicly traded; [ii] Executive does not acquire more than five percent of the outstanding common shares issued by the business in which the investment is made; and [iii] Executive does not (and is not required to) perform any services connected with the operation or affairs of the business in which the investment is made. [2] Participating in, or serving as a consultant, advisor, trustee or director of, civic and charitable organizations or activities, but only if this activity [a] does 2 3 not interfere with the performance of his duties under this Agreement and [b] is approved by the Board. 2.03 Executive will have a direct reporting relationship to the Chairman and from: [1] Value Brands Sales; [2] Image Brands Sales; [3] Supermarkets and Drug Chains Sales; [4] Design/Product Development/Merchandising; [5] Operations; and [6] Other officers and employees designated by the Chairman. Also, Executive will be entitled to receive periodic reports from Corporation's International, Financial and Human Resources Departments and other information he reasonably needs to discharge his duties under this Agreement. 2.04 Executive will have all power and authority reasonably required to discharge the duties and responsibilities assigned to him under this Agreement. ARTICLE 3 EXECUTIVE'S COMPENSATION 3.01 During the Term of this Agreement and subject to the terms of this section and of Article 5, Corporation will pay the following amounts to Executive: [1] Beginning on the Effective Date, a base salary at the rate of $450,000 for each full calendar year of employment ("Base Salary"), prorated to reflect partial calendar months and years of employment, and to be paid in installments that correspond with Corporation's normal payroll practices applicable to Corporation's senior executives. Base Salary will not be reduced during the Term of this Agreement without Executive's prior written consent and may be increased during the Term of this Agreement at the discretion of the Board's Executive Compensation Committee, which will review Executive's compensation annually at the same time it reviews compensation paid to other senior executives of the Corporation. [2] An annual cash bonus under (and subject to the terms of) the R. G. Barry Annual Incentive Program (or any successor annual bonus plan, provided that such plan provides Executive with an annual bonus potential at target and maximum levels that are no less than those applied to determine the Chairman's 3 4 bonus), as in effect from time to time, ("Annual Incentive Program") ranging between: [a] 40 percent of Base Salary, if Annual Operating Plan targets are met or exceeded; and [b] 100 percent of Base Salary, if maximum profit targets are met or exceeded. For 2001, this bonus will be prorated on the basis of the number of calendar days between the Effective Date and December 31, 2001. [3] Participation, to the full extent of his eligibility, in all employee benefit and other programs provided to Corporation's senior executives, a description of which has been given to Executive, (other that the supplemental retirement plan that is limited to executives who were employees of Corporation before January 1, 1989) at a level commensurate with Executive's title and position, as these programs may from time to time be amended or modified by the Board or the Board's Executive Compensation Committee. However, Executive will be allowed four weeks' vacation for each calendar year and will be entitled to commercial air travel and hotel accommodations in the same class as that allowed to Chairman. [4] The perquisites and fringe benefits that, on or after the Effective Date, are made available to Corporation's senior executives (other than the supplemental retirement plan that is limited to executives who were employees of Corporation before January 1, 1989), at a level commensurate with Executive's title and position and specifically including a monthly automobile allowance of $1,000. [5] Reimbursement of Executive's initiation fees (but only to the extent of $25,000 during the Term) and recurring dues at a country club located in the Columbus, Ohio metropolitan area. 3.02 Subject to the terms of this section and of Article 5 and as an inducement to Executive to enter into this Agreement, Executive will receive the following special payments and grants: [1] A special one-time cash payment of $100,000 payable only if, within 12 calendar months beginning on or immediately after the Effective Date, [a] Executive purchases a residence in the Columbus, Ohio metropolitan area and [b] Executive and his spouse establish a permanent residence in the Columbus, Ohio metropolitan area. [2] Options to purchase: [a] 190,000 of Corporation's common shares, par value $1.00 per share, ("Shares"). These options will be granted on the Effective Date ("Initial Options") under either the R. G. Barry Corporation 1994 Stock 4 5 Option Plan as in effect on the Effective Date ("1994 Option Plan") or the R. G. Barry Corporation 1997 Incentive Stock Plan as in effect on the Effective Date ("1997 Option Plan"), or both. The Initial Options will be granted under a stock option agreement having terms and conditions consistent with this Agreement and the stock option plan or plans under which they are granted. [b] 150,000 Shares. These options will be granted on the third business day after the closing price of the Shares averages at least $5.00 per Share for 15 consecutive trading days ending during the Original Term of this Agreement ("$5.00 Options"). Corporation will monitor the Shares' closing price during the Original Term to establish when, and if, the conditions described in the preceding sentence are met. If the $5.00 Options cannot be granted under the option plans described in Section 3.02[2][a], they will be granted under a shareholder approved stock option plan that complies with the requirements imposed on "performance based compensation" programs under Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code") or, if no plan of this type is then in effect or if the $5.00 Options cannot, for any reason, be granted under a plan of this type that is then in effect, the $5.00 Options will be granted under a stand-alone stock option agreement. The shareholder approved stock option plan described in the preceding sentence and the stand-alone agreement, also described in the preceding sentence, will contain terms and conditions that are substantially the same as those included in the 1997 Option Plan and will not be inconsistent with this Agreement; and [c] 150,000 Shares. These options will be granted on the third business day after the closing price of the Shares averages at least $10.00 per Share for 15 consecutive trading days ending during the Original Term of this Agreement ("$10.00 Options"). Corporation will monitor the Shares' closing price during the Original Term to establish when, and if, the conditions described in the preceding sentence are met. If the $10.00 Options cannot be granted under the option plans described in Section 3.02[2][a], they will be granted under a shareholder approved stock option plan that complies with the requirements imposed on "performance based compensation" programs under Code ss.162(m) or, if no plan of this type is then in effect or if the $10.00 Options cannot, for any reason, be granted under a plan of this type that is then in effect, the $10.00 Options will be granted under a stand-alone stock option agreement. The shareholder approved stock option plan described in the preceding sentence and the stand-alone agreement, also described in the preceding sentence, will contain terms and conditions that are substantially the same as those included in the 1997 Option Plan and will not be inconsistent with this Agreement. 5 6 [3] All options described in Section 3.02[2] ("Options") will be subject to the following rules: [a] The Options will be incentive stock options [as defined in Code ss.421], to the maximum extent possible and the balance will be nonqualified (nonstatutory) stock options; [b] The number of Options will be adjusted to reflect, as appropriate, the effect of any stock splits, stock dividends and similar events affecting the underlying Shares; [c] Regardless of the obligation otherwise imposed under this section, Corporation will not be obligated to issue the Options if Executive is not a full-time employee of Group on the issue date specified in Section 3.02[2]; or [d] The exercise price for all Options will be the Shares' closing price as reported on the New York Stock Exchange (or other sale securities exchange on which the Shares are then listed or traded) on the date the Options are granted; [e] Except as provided in Article 5, the Options will be subject to the following vesting schedule:
OPTION PERCENT VESTED ------ -------------- Initial Option 20%, at the end of 12 full calendar months beginning after the Effective Date; 40%, at the end of 24 full calendar months beginning after the Effective Date; 60%, at the end of 36 full calendar months beginning after the Effective Date; 80%, at the end of 48 full calendar months beginning after the Effective Date; and 100%, at the end of 60 full calendar months beginning after the Effective Date. $5.00 Options 33-1/3%, at the end of 12 full calendar months beginning after the $5.00 Options are granted; 66-2/3%, at the end of 24 full calendar months beginning after the $5.00 Options are granted; and 100%, at the end of 36 full calendar months beginning after the $5.00 Options are granted.
6 7
OPTION PERCENT VESTED ------ -------------- $10.00 Options 50%, at the end of 12 full calendar months beginning after the $10.00 Options are granted; 80%, at the end of 24 full calendar months beginning after the $10.00 Options are granted; and 100%, at the end of 36 full calendar months beginning after the $10.00 Options are granted.
[f] The Initial Options will expire 10 years after they are granted, unless they are terminated earlier under the terms of this Agreement or under the terms of the option plan(s) under which they are granted and which are applicable to all options granted under those plans (such as, termination of employment or the sale of Corporation); [g] The $5.00 and $10.00 Options will expire 5 years after they are granted, unless they are terminated earlier under the terms of this Agreement or under the terms of the option plan(s) under which they are granted and which are applicable to all options granted under those plans (such as, termination of employment or the sale of Corporation); [h] All Options will vest upon a Change in Control (as defined in Section 5.05[7] or upon a Special Change in Control (as defined in Section 5.05[10]; [i] The terms and conditions of all Options will be described in a written stock option agreement between Executive and Corporation which will reflect the terms of this Agreement and the option plan(s) under which the Options are issued; [j] If any acquisition, merger or other business combination ("Sale Transaction") occurs after which Corporation is not the surviving entity (other than a transaction in which Corporation's shareholders own all of the outstanding shares of the surviving corporation after the Sale Transaction), then unless the surviving corporation will assume Corporation's obligations under this Agreement with respect to the $5.00 and $10.00 Options, with appropriate adjustments to reflect differences in the relative stock prices of Corporation's and the surviving corporation's stock (measured immediately before the completion of the Sale Transaction), the $5.00 Options and $10.00 Options will be issued to Executive 10 business days before the completion of the Sale Transaction but only if the consideration payable to Corporation's shareholders in connection with the Sale Transaction ("Transaction Consideration") equals or exceeds the amount specified in Sections 3.02[2][b] and [c], 7 8 without regard to the averaging of prices described in those sections ("Triggering Price"). If the Transaction Consideration is less than either or both of the Triggering Prices, Executive's rights to receive the $5.00 or $10.00 Options in respect of which the Triggering Price is less than the Transaction Consideration will terminate effective on the date the Sale Transaction is consummated. [k] Corporation will make reasonable efforts to allow Executive to exercise the Options in a cashless exercise transaction. [4] The relocation benefits described in Exhibit A to this Agreement that are generally made available to Corporation's newly hired senior executives, a description of which has been given to Executive, plus [a] an additional 30 days' temporary living expenses beyond the 60 days' normally allowed under this program for this purpose and [b] reimbursement for commercial air travel and other reasonable associated travel expenses between Columbus, Ohio and Wilton, Connecticut twice each calendar month for the three calendar months beginning on or after the Effective Date for Executive or his spouse (the total number of round trips reimbursed under this subsection will not be greater than six). [5] Executive will be eligible to participate in all short-term benefit, bonus, incentive equity, savings or similar plans or programs maintained or provided by Corporation to its senior executives at a level commensurate with Executive's title and position (other than the supplemental retirement plan that is limited to executives who were employees of Corporation before January 1, 1989) ("Bonus Plans"). However: [a] Participation in the Bonus Plans will be conditioned upon the terms and conditions included in the Bonus Plans which are equivalent to those applicable to the Chairman (assuming Chairman is eligible to participate in the Bonus Plans); [b] During the Term of this Agreement, Executive will not participate in any stock option plan except to the extent described in this Agreement, unless the Board decides that he may participate in stock option plans beyond the extent provided in this Agreement; and [c] Nothing in this Agreement will preclude Corporation from amending or terminating any of the Bonus Plans (or adopting new plans or programs) but without Executive's prior written consent, no amendment or termination of any Bonus Plan will reduce any benefit that Executive accrued to the date of that amendment or termination. ARTICLE 4 EXPENSES Corporation will pay or reimburse Executive for all reasonable, ordinary and necessary expenses that he incurs to perform his duties under this Agreement. Reimbursement will be made within 30 days after the date Executive submits appropriate evidence of the 8 9 expenditure to Corporation (and all other information required under Corporation's business expense reimbursement policy). ARTICLE 5 TERMINATION OF EMPLOYMENT DURING TERM OF AGREEMENT 5.01 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. If Executive dies or becomes Disabled during the Term of this Agreement: [1] This Agreement will terminate as of the date Executive dies or becomes Disabled and Corporation will pay or provide to Executive (or to his beneficiary if Executive is dead) and, if appropriate, to his dependents: [a] Any unpaid installments of his Base Salary, calculated to the end of the payroll period during which he terminates employment because of death or Disability; [b] The value of any accrued but unused vacation, calculated to the end of the payroll period during which he terminates employment because of death or Disability (this value will be calculated by dividing the Base Salary by 365 and then multiplying this dollar amount by the number of accrued but unused vacation days); [c] Any amounts Executive is entitled to receive under the terms of any employee benefit plan described in Section 3.01[3]; [d] The unpaid portion (if any) of the amounts described in Section 3.02[1] but only if all the conditions described in that Section were met before Executive died or became Disabled; [e] The unpaid portion of any bonus that has been earned and declared under the Annual Incentive Program for the most recently completed fiscal year; [f] A prorated portion of the bonus that would have been paid to Executive under the Annual Incentive Program for the fiscal year during which he dies or becomes Disabled. This amount will be calculated and paid after the end of the fiscal year in which Executive dies or becomes Disabled and will be determined by multiplying the amount of the bonus Executive would have received under the Annual Incentive Program if he had continued active employment until the end of the fiscal year during which he dies or becomes Disabled by the number of full calendar months he was actively employed during that fiscal year and then dividing this dollar amount by 12 months; [g] Continuation, for a period of six calendar months beginning on or immediately after the date he dies or becomes Disabled, of the medical, dental, prescription drug and hospitalization coverage and benefits for 9 10 which Executive and/or his dependents were eligible before his death or Disability (the cost of these continued benefits will be allocated between Executive and Corporation in the same manner it was allocated before Executive's death or Disability); and [h] If Executive's termination of employment is due to Disability, continuation of his Base Salary for six full calendar months beginning after the date his Disability arose. [2] All unvested Options that were granted before Executive's employment terminates because of his death or Disability will become fully vested as of the date the Executive's employment terminates under this section and all vested Options held by the Executive (or by his estate) will be exercisable to the extent permitted under the terms of the option plan(s) under which they were granted and the individual option agreement under which the Options are issued. However, any Options that have not been granted under Section 3.02[2] as of the date Executive terminates employment because of death or Disability will not be granted. [3] For purposes of this section, Executive will be deemed to have terminated employment on the date of his death or the date he is determined to have become Disabled. [4] "Disability" has the same meaning given to the term under the 1997 Option Plan, whether or not that plan has expired before the condition arises. [5] All amounts payable under this section will be: [a] Paid in accordance with Corporation's payroll procedures (in the case of Base Salary) or on the date provided in the program on which they are based, unless the Parties agree to accelerate one or more of these payments. If this acceleration election is made, the amount distributed will be discounted to reflect its then present value by applying a discount rate equal to the rate paid on 90-day Treasury Bills issued on or immediately before the date the calculation is made or, in the case of distributions made from an employee benefit plan maintained by Corporation, by applying any applicable early distribution discount factor included in the benefit plan from which the amount is paid; and [b] If Executive dies before all payments due under this section have been paid, the unpaid amount will be paid to Executive's beneficiary under the procedures described in Section 10.07. 5.02 VOLUNTARY TERMINATION OF EMPLOYMENT. Executive may voluntarily terminate his employment without Good Reason (as defined in Section 5.05[9]) at any time during the Term of this Agreement by giving Corporation written notice of his intention to do so. This notice will be effective 60 days after it is given unless the Parties mutually agree to 10 11 \accelerate this termination date ("Voluntary Termination Date"). If Executive voluntarily terminates his employment: [1] This Agreement will terminate as of the Voluntary Termination Date and Corporation will pay or provide to Executive: [a] Any unpaid installments of his Base Salary, calculated to the end of the payroll period during which his Voluntary Termination Date occurs; [b] The value of any accrued but unused vacation, calculated to the end of the payroll period during which his Voluntary Termination Date occurs (this value will be calculated by dividing the Base Salary by 365 and then multiplying this dollar amount by the number of accrued but unused vacation days); [c] Any amounts Executive is entitled to receive under the terms of any employee benefit plan described in Section 3.01[3]; [d] The unpaid portion of any bonus that has been earned and declared under the Annual Incentive Program for the most recently completed fiscal year; [e] The unpaid portion (if any) of the amounts described in Section 3.02[1] but only if all the conditions described in that Section were met before Executive's Voluntary Termination Date. [2] All [a] unvested Options will be forfeited as of Executive's Voluntary Termination Date, [b] any vested Options that were granted before Executive's Voluntary Termination Date will be exercisable to the extent permitted under the terms of the option plan(s) under which they were granted and the individual option agreement under which the Options are issued and [c] any Options that have not been granted under Section 3.02[2] as of Executive's Voluntary Termination Date will not be granted. [3] All amounts payable under this section will be: [a] Paid in accordance with Corporation's payroll procedures (in the case of Base Salary) or on the date provided in the program on which they are based, unless the Parties agree to accelerate one or more of these payments. If this acceleration election is made, the amount distributed will be discounted to reflect its then present value by applying a discount rate equal to the rate paid on 90-day Treasury Bills issued on or immediately before the date the calculation is made or, in the case of distributions made from an employee benefit plan maintained by Corporation, by applying any applicable early distribution discount factor included in the benefit plan from which the amount is being paid; and 11 12 [b] If Executive dies before all payments due under this section have been paid, the unpaid amount will be paid to Executive's beneficiary under the procedures described in Section 10.07. 5.03 TERMINATION OF EMPLOYMENT BY CORPORATION WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON. Corporation may terminate Executive's employment without Cause (as defined in Section 5.04[3]) at any time during the Term of this Agreement by giving Executive written notice of its intention to do so and Executive may terminate his employment for Good Reason (as defined in Section 5.05[9]) by giving Corporation written notice of his intention to do so. Notice by Corporation of the termination of Executive's employment without Cause will be effective 30 business days after it is delivered to Executive, unless the parties mutually agree to accelerate this termination date. Notice given by Executive of his termination of employment for Good Reason must specify the Good Reason upon which it is based and, unless the parties mutually agree to accelerate this termination date, will be effective 30 business days after it is given, unless, during this period, Corporation corrects or otherwise resolves the Good Reason for which the notice was given. The effective date of a termination of employment without Cause or for Good Reason is referred to in this Agreement as Executive's "Involuntary Termination Date." If Corporation terminates Executive's employment without Cause or if Executive terminates his employment for Good Reason: [1] This Agreement will terminate as of the Involuntary Termination Date and Corporation will pay to Executive: [a] Any unpaid installments of his Base Salary, calculated to the end of the payroll period during which his Involuntary Termination Date occurs; [b] The value of any accrued but unused vacation, calculated to the end of the payroll period during which his Involuntary Termination Date occurs (this value will be calculated by dividing the Base Salary by 365 and then multiplying this dollar amount by the number of accrued but unused vacation days); [c] The Base Salary for an additional 18 months beginning with the first payroll period that begins after his Involuntary Termination Date; [d] Any amounts Executive is entitled to receive under the terms of any employee benefit plan described in Section 3.01[3]; [e] The unpaid portion of any bonus that has been earned and declared under the Annual Incentive Program for the most recently completed fiscal year; [f] The unpaid portion (if any) of the amounts described in Section 3.02[1] but only if all the conditions described in that Section were met before Executive's Involuntary Termination Date; 12 13 [g] A bonus under the Annual Incentive Program calculated as if Executive had been actively employed throughout the 18 calendar months beginning on his Involuntary Termination Date and had terminated employment at the end of that 18-month period; provided, however, that any requirement in the Annual Incentive Program that requires Executive to be employed on the last day of the plan year in order to be eligible for a bonus under such program shall be disregarded for purposes of calculating the bonus payable to Executive under this Section 5.03[1][g]; and [h] Continuation, for a period of 18 calendar months beginning on or immediately after Executive's Involuntary Termination Date, of the medical, dental, prescription drug and hospitalization coverage and benefits for which Executive and/or his dependents were eligible before his Involuntary Termination Date (the cost of these continued benefits will be allocated between Executive and Corporation in the same manner it was allocated before Executive's Involuntary Termination Date). [2] Also, all [a] unvested Options will become fully vested as of Executive's Involuntary Termination Date, [b] any vested Options that were granted before Executive's Involuntary Termination Date and all vested Options will be exercisable to the extent permitted under the terms of the option plan(s) under which they were granted and the individual option agreement under which the Options are issued and [c] any Options that have not been granted under Section 3.02[2] as of Executive's Involuntary Termination Date will not be granted. [3] All amounts payable under this section will be: [a] Paid in accordance with Corporation's payroll procedures (in the case of Base Salary) or on the date provided in the program on which they are based, unless the Parties agree to accelerate one or more of these payments. If this acceleration election is made, the amount distributed will be discounted to reflect its then present value by applying a discount rate equal to the rate paid on 90-day Treasury Bills issued on or immediately before the date the calculation is made or, in the case of distributions made from an employee benefit plan maintained by Corporation, by applying any applicable early distribution discount factors included in the benefit plan from which the amount is being paid; and [b] If Executive dies before all payments due under this section have been paid, the unpaid amounts will be paid to Executive's beneficiary under the procedures described in Section 10.07. [4] Regardless of other provisions of this section, if the Involuntary Termination Date occurs within the six month period ending on the date of a Change in Control, Executive will receive the amounts and benefits described in Section 5.05 (reduced by any payments and benefits received under this section 13 14 before a Change in Control) in lieu of the amounts and benefits otherwise provided in this section. 5.04 TERMINATION OF EMPLOYMENT BY CORPORATION FOR CAUSE. The Chairman may terminate Executive's employment with Cause at any time during the Term of this Agreement by giving Executive written notice of its intention to do so. This notice must specify the reason for which it is given (including the Cause upon which it is based) and will be effective 30 business days after the date it is given (five calendar days if "Cause" arises because Executive is convicted of a felony), unless Executive corrects, or otherwise remedies within such period, the Cause for which it is given ("For Cause Termination Date"). If this notice is given: [1] This Agreement will terminate as of the For Cause Termination Date and Corporation will pay to Executive: [a] Any unpaid installments of his Base Salary, calculated to the end of the payroll period during which his For Cause Termination Date occurs; [b] The value of any accrued but unused vacation, calculated to the end of the payroll period during which his For Cause Termination Date occurs (this value will be calculated by dividing the Base Salary by 365 and then multiplying this dollar amount by the number of accrued but unused vacation days); [c] Any amounts Executive is entitled to receive under the terms of any employee benefit plan described in Section 3.01[3]; [d] The unpaid portion of any bonus that has been earned and declared under the Annual Incentive Program for the most recently completed fiscal year; [e] The unpaid portion (if any) of the amounts described in Section 3.02[1] but only if all the conditions described in that Section were met before Executive's For Cause Termination Date. [2] Also, [a] all unvested Options will be forfeited as of Executive's For Cause Termination Date, [b] any vested Options that were granted before Executive's For Cause Termination Date will be exercisable to the extent permitted under the terms of the option plan(s) under which they were granted and the individual option agreement under which the Options are issued and [c] any Options that have not been granted under Section 3.02[2] as of Executive's For Cause Termination Date will not be granted. [3]"Cause" means [a] gross negligence materially detrimental to Corporation, [b] conviction of a felony, [c] willful, and continued failure of Executive, after receipt of written notice from Corporation setting forth the specifics of such failure, to perform the duties of his offices with Corporation unless such failure is 14 15 the result of ill health or physical or mental disability or [d] intentional misconduct of Executive materially and demonstrably injurious to Corporation. [4] All amounts payable under this section will be: [a]Paid in accordance with Corporation's payroll procedures (in the case of Base Salary) or on the date provided in the program on which they are based, unless the Parties agree to accelerate one or more of these payments. If this acceleration election is made, the amount distributed will be discounted to reflect its then present value by applying a discount rate equal to the rate paid on 90-day Treasury Bills issued on or immediately before the date the calculation is made or, in the case of distributions made from an employee benefit plan maintained by Corporation, by applying any applicable early distribution discount factor included in the benefit plan from which the amount is being paid; and [b] If Executive dies before all payments due under this section have been paid, the unpaid amount will be paid to Executive's beneficiary under the procedures described in Section 10.07. 5.05 TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL. If a Change in Control occurs during the Term of this Agreement, Executive will receive the following amounts (under the conditions described below): [1] If Executive dies or becomes Disabled during the Term of this Agreement but after a Change in Control, he (or his beneficiary) will receive the amounts described in Section 5.01, as if Executive had died or become Disabled before the Change in Control occurred. [2] If Executive terminates his employment without Good Reason (as defined in Section 5.05[9]) during the Term of this Agreement but after a Change in Control, he (or his beneficiary) will receive the amounts described in Section 5.02, as if Executive had voluntarily terminated his employment without Good Reason before the Change in Control occurred, but only if he follows the procedures described in Section 5.02. [3] If Corporation terminates Executive's employment for Cause (as defined in Section 5.04[3]) during the Term of this Agreement but after a Change in Control, he (or his beneficiary) will receive the amounts described in Section 5.04 as if Executive had been terminated for Cause before the Change in Control occurred. [4] Subject to Section 5.03[4], if Executive notifies Corporation of his intent to terminate his employment for Good Reason during the Term of this Agreement and if that notice is given after a Change in Control occurs or if Corporation notifies Executive of its intent to terminate Executive without Cause (as defined in Section 5.04[3]) during the Term of this Agreement and if that notice is given 15 16 after a Change in Control has occurred, Executive will receive the following amounts: [a] Any unpaid installments of his Base Salary, calculated to the end of the payroll period during which his termination occurs under this section; [b] The value of any accrued but unused vacation, calculated to the end of the payroll period during which his termination occurs under this section (this value will be calculated by dividing the Base Salary by 365 and then multiplying this dollar amount by the number of accrued but unused vacation days); [c] The Base Salary for an additional 36 months beginning with the first payroll period that begins after his termination occurs under this section unless the Parties agree to accelerate these payments. If this acceleration election is made, the amount distributed will be discounted to reflect its then present value by applying a discount rate equal to the rate paid on 90-day Treasury Bills issued on or immediately before the date the calculation is made; [d] Any amounts Executive is entitled to receive under the terms of any employee benefit plan described in Section 3.01[3]; [e] The unpaid portion of any bonus that has been earned and declared under the Annual Incentive Program for the most recently completed fiscal year before Executive's termination occurs under this section; [f] The unpaid portion (if any) of the amounts described in Section 3.02[1] but only if all the conditions described in that Section were met before Executive's termination occurs under this section; [g] Three times the average of the annual bonuses, if any, Executive received under the Annual Incentive Program during all fiscal years ending before Executive's termination occurs under this section; [h] All unvested Options that were granted before Executive's employment terminates under this section will become vested and all granted options will be exercisable to the extent permitted under the terms of the option plan(s) under which they were granted and the individual option agreement under which the Options are issued. However, subject to Section 3.02[3][j], any Options that have not been granted under Section 3.02[2] as of the date Executive terminates employment under this section will not be granted; and [i] Any other Change in Control benefit to which Executive is entitled under the terms of any other plan, program or agreement with any Group Member. 16 17 Also, for a period of 18 calendar months beginning on or immediately after the Executive's employment terminates under this section, Corporation will continue to provide the medical, dental, prescription drug and hospitalization coverage and benefits for which Executive and/or his dependents were eligible before his employment terminated under this section (the cost of these continued benefits will be allocated between Executive and Corporation in the same manner it was allocated before Executive's termination under this section); [5] If the sum of the payments described in this section, any other section of this Agreement and those provided under any other plan, program or agreement between Executive and any Group member constitute "excess parachute payments" as defined in Code ss.280G(b)(1), Corporation will either: [a] Reimburse Executive for the amount of any excise tax due under Code ss.4999, if this procedure provides Executive with an after-tax amount that is larger than the after-tax amount produced under Section 5.05[5][b]; or [b] Reduce the amounts paid to Executive under this Agreement so that his total "parachute payment" as defined in Code ss.280G(b)(2)(A) under this and all other agreements will be $1.00 less than the amount that would be an "excess parachute payment" if this procedure provides Executive with an after-tax amount that is larger than the after-tax amount produced under Section 5.05[5][a]. [6] Payment of the amounts described in this section are expressly conditioned on compliance with the following conditions, in addition to those specified elsewhere in this Agreement: [a] Except as expressly provided in this Agreement, Executive's right to receive the payments described in this section will not decrease the amount of, or otherwise adversely affect, any other benefits payable to Executive under the terms of any of the programs described in Section 3.01[3]; and [b] If any individual (other than Executive), firm, corporation, partnership, joint venture or other entity or group (as described in Section 5.05[7][a]) initiates a tender or exchange offer, distributes proxy materials to Corporation or to Corporation's shareholders or takes other steps to effect, or that may result in, a Change in Control, Executive agrees that the only amounts he will receive under this Agreement will be determined solely with reference to Section 5.02 (and not with reference to this section) if he [i] voluntarily terminates his employment with Corporation during the pendency of that activity other than for death, Disability, Good Reason or by reason of his retirement at or after his Normal or Early Retirement Dates as defined in Corporation's qualified retirement plan or [ii] is indefinitely absent from active employment other than for an 17 18 absence covered by the Family and Medical Leave Act before those efforts are abandoned, that activity is terminated or until a Change in Control has occurred. [7] For purposes of this Agreement, a "Change of Control" will be deemed to have occurred if: [a] Any individual (other than Executive), firm, corporation, partnership, joint venture or other entity or any group (as the term "group" is defined in Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules thereunder on the Effective Date), other than any such entity or group in respect of which Executive is a participant, shall hereafter acquire (or disclose the previous acquisition of) beneficial ownership (as that term is defined in Section 13(d) of the Exchange Act and the rules thereunder on the Effective Date) of shares of the outstanding stock of any class or classes of Corporation which results in such person, firm, corporation, partnership, joint venture, other entity or group possessing more than a majority of the total voting power of Corporation's outstanding voting securities ordinarily having the right to vote for the election of directors of Corporation; or [b] As the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election of directors, or any combination of the foregoing transactions ("Transaction"), the persons who were directors of Corporation immediately before the Transaction shall cease to constitute a majority of the Board or the board of directors of any successor to Corporation; or [c] If the Board at any time declares that one or more events have occurred or are likely to occur which, in their sole determination, create or pose the threat of a Change of Control and which, for that reason, make it desirable and in the best interests of Corporation to invoke those provisions of this Agreement which become effective on or after the occurrence of a Change of Control; provided, however, that no director of Corporation who is a party to this Agreement or an agreement with Corporation similar to this Agreement may participate in considering or voting upon any such resolution; or [d] Any acquisition, merger, consolidation or other business combination occurs in which the Corporation's shareholders (determined immediately before the merger, consolidation or other business combination) do not own at least 51 percent of the equity interest of the surviving entity (measured immediately after the transaction); or [e] A complete liquidation of the Corporation or approval by the Corporation's shareholders of a plan of liquidation or dissolution. 18 19 [8] If Executive's employment terminates under circumstances entitling him to a benefit under this Section 5.05, he will not be subject to Article 6. [9] The term "Good Reason" means, without Executive's express prior written consent, the occurrence of any one or more of the following events during the Term of this Agreement: [a] A material reduction in Executive's duties, responsibilities or status with respect to Corporation, as compared to those in effect on the Effective Date (but will not include any changes in the reporting relationships described in Section 2.03 [i] resulting directly from implementation of a plan that restructures Corporation's business organization and which Executive designed or was materially involved in designing and [ii] to which Executive has specifically agreed in writing); [b] Deprivation of Executive of the title of President and Chief Operating Officer of Corporation without a simultaneous grant of a more senior title; [c] The assignment to Executive of job duties materially inconsistent with Executive's office on the Effective Date; [d] A requirement that Executive relocate his principal office or worksite (or the indefinite assignment of Executive) to a location more than 50 miles distant from [i] the principal office or worksite to which he was permanently assigned as of the Effective Date or [ii] any location to which Executive is permanently assigned, with his consent, after the Effective Date; [e] The failure of Corporation to maintain Executive's relative level of coverage under the employee benefit or retirement plans, policies, practices or arrangements described in Section 3.01[3] and 3.01[4] as in effect on the Effective Date, both in terms of the amount of benefits provided and the relative level of Executive's participation. However, Good Reason will not arise under this subsection if Corporation eliminates and/or modifies any of the programs described in Section 3.01[3] and 3.01[4] if (except as required by law or as needed to preserve the tax-character of the plan, policy, practice or arrangement) Executive's level of coverage under all the programs described in Section 3.01[3] and 3.01[4] is at least as great as the coverage provided to other senior executives of Corporation; [f] Any material breach of this Agreement (including failure to make any payment or grant provided under this Agreement when due or failure to cause any successor to assume this Agreement as described in Article 8 of this Agreement) by or on or in behalf of Corporation that is not cured 19 20 by Corporation within 30 days of its receipt of written notice describing the nature of the alleged breach; [g] Election or appointment of a Chairman or Chief Executive Officer other than Gordon Zacks or Executive; or [h] Failure to nominate or renominate Executive to the Board. [10] For purposes of this Agreement, "Special Change in Control" means any person, firm, corporation, partnership, joint venture, other entity or group in respect of which Executive is a participant (as the term "group" is defined in Section 13(d)(3) of the Exchange Act and the rules thereunder on the Effective Date), acquires after the Effective Date (or discloses the previous acquisition of) beneficial ownership (as that term is defined in Section 13(d) of the Exchange Act and the rules thereunder on the Effective Date) of the shares of the outstanding stock of any class or classes of Corporation that results in such person, firm, corporation, partnership, joint venture, other entity or group possessing more than a majority of the total voting power of Corporation's outstanding voting securities ordinarily having the right to vote for the election of directors. 5.06 Regardless of any other provision of this Agreement, all amounts paid under this Article 5 will be reduced by any amounts payable to Executive from any other broad based severance plan or program (other than any plan or arrangement adopted in connection with a Change in Control) or disability program in which Executive participates (other than a disability plan, program or policy purchased directly by Executive from his personal funds). 5.07 All payments and benefits due to Executive under this Agreement will be provided by Corporation to Executive in the time and manner specified in this Agreement whether or not those benefits are payable after the Term of this Agreement has expired. ARTICLE 6 MITIGATION The Executive is under no obligation to seek employment after a termination of employment for which he is entitled to receive payments described in Section 5.03 ("Severance Period"). However, if Executive does secure full-time employment with another employer in any capacity during the Severance Period, Corporation's obligation to pay Executive the amounts described in Section 5.03[1][c] and [g], will be reduced by the compensation he receives from his new employer (other than with respect to any benefits due under the terms of any employee benefit plan described in Section 3.01[3]) as of the date he begins his new employment. Also, any benefit plan described in Section 5.03[h] that provides medical, dental, prescription and hospital coverage will be secondarily liable (i.e., be the secondary payor) for any benefits that are provided to Executive under his new employer's plans. Corporation may suspend any payments under this Agreement that otherwise would have been made during the pendency of any arbitration relating to amounts or benefits in dispute under this Article 6 but only if Corporation deposits the suspended amount in an 20 21 escrow account held by an independent party. At the conclusion of the relevant arbitration, the balance of the escrow account will be distributed to the prevailing parties (or divided between them as directed by the arbitrator). That distribution will fully discharge Corporation's obligation with respect to the amount suspended except as otherwise provided in the arbitrator's award. ARTICLE 7 NONCOMPETITION/NONSOLICITATION/CONFIDENTIALITY 7.01 For a period of 12 full calendar months (or any longer period, up to 18 months, for which Executive is receiving payments under this Agreement) after Executive's employment terminates for any reason, he will not directly or indirectly engage in, assist or have an active interest in (whether as proprietor, partner, investor, shareholder, officer, director or any type of principal whatsoever) or enter the employment of or act as agent for or adviser or consultant to any person or entity engaged in (or is about to become engaged in) the manufacturing and/or wholesaling of [1] slippers or [2] any other product that then comprises more than ten percent of the Corporation's gross revenues for the most recently completed fiscal year or the annualized gross revenues for the fiscal year in which Executive's employment terminates. However, the restrictions described in this section will not be applied to prevent Executive from obtaining subsequent employment (of any kind) with a diversified retailer (e.g., Macys, Sears Roebuck and/or Nine West Group, etc.). 7.02 Section 7.01 does not prohibit Executive from purchasing, for investment purposes only, any stock or other corporate security that is listed on a national securities exchange or quoted in any national market system (except as otherwise provided in this Agreement), so long as such stock or other corporate security owned by Executive does not represent more than five percent of the market value or voting power of the total stock or other corporate securities of that class. 7.03 Executive is not obligated to comply with the prohibitions described in this Article if Corporation defaults in the payment of any severance compensation or benefits owed under Article 5 of this Agreement. 7.04 For a period of 12 full calendar months (or any longer period, up to 18 months, for which Executive is receiving payments under this Agreement), after Executive's employment terminates for any reason, he will not, on his own behalf or on behalf of any other person, partnership, association, corporation or other entity, solicit or in any manner attempt to influence or induce any employee of the Group to leave the Group's employment nor will he use or disclose to any person, partnership, association, corporation or other entity any information obtained while an employee of Corporation concerning the names and addresses of the Group's employees. 7.05 Executive understands and agrees that due to his position with Corporation, Executive will receive confidential and proprietary information relating to Corporation's and Group's business affairs ("Trade Secrets"), including technical information, product information and formulae, processes, business and marketing plans, strategies, customer information and other information concerning Corporation's and Group's products, 21 22 promotions, development, financing, expansion plans, business policies and practices, salaries and benefits and other forms of information considered by Corporation to be proprietary and confidential and in the nature of trade secrets. Except to the extent that the proper performance of Executives, services and responsibilities under this Agreement may require disclosure and except information that was known by Executive before the Effective Date or was generally available to the public (other than as a result of a violation of the terms of this section), Executive agrees that during his employment with Corporation and at all times thereafter, he will keep Trade Secrets confidential and will not disclose such information, either directly or indirectly, to any third person or entity without Corporation's prior written consent or use such information for his benefit or the benefit of any third person without Corporation's prior written consent. This confidentiality restriction has no temporal, geographical or territorial restrictions; provided, however, that if, in the written opinion of counsel, Executive is legally compelled to disclose Trade Secrets to any tribunal, disclosure of only those Trade Secrets that that counsel advises in writing are legally required to be disclosed will not be considered a violation of this section but only if Executive gives Corporation reasonable advance notice that such disclosure will be required. 7.06 On the effective date of Executive's termination of employment with Corporation, he will promptly return to Corporation all property other than personal property, including keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data, formulae or any other tangible property or document and any and all copies, duplicates or reproductions thereof that have been produced by, received by or otherwise been submitted to Executive in the course of his employment with Corporation. For purposes of this section, "personal property" includes Executive's Rolodex, which he is not required to deliver to Corporation. 7.07 The Parties recognize that the Group will have no adequate remedy at law for breach by Executive of the restrictions imposed by this article and that the Group could suffer substantial and irreparable damage if Executive breaches any of these restrictions. For this reason, Executive agrees that, if Executive breaches any of the restrictions imposed under this article, the Group, in addition to the right to seek monetary damages, may seek a temporary and/or permanent injunction to restrain any breach or threatened breach of these restrictions or a decree of specific performance, mandamus, or other appropriate remedy to enforce compliance with the restrictions imposed under this article. ARTICLE 8 ASSIGNMENT OF AGREEMENT 8.01 Except as specifically provided in this section, Corporation may not assign this Agreement to any person or entity that is not a member of the Group. However, this Agreement will be assigned or transferred to, and will be binding upon and inure to the benefit of, any successor of Corporation, in which case this Agreement will be interpreted and applied by substituting that successor for the "Corporation" under the terms of this Agreement. For these purposes, "successor" means any person, firm, corporation or 22 23 business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or the business of Corporation. 8.02 Because the services to be provided by Executive to Corporation under this Agreement are personal to him, Executive may not assign the duties allocated to him under this Agreement to any other person or entity. However, this Agreement will inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees to the extent of any amounts payable to Executive that are due to Executive upon his death. ARTICLE 9 DISPUTE RESOLUTION 9.01 The Parties agree that arbitration will be the exclusive means of resolving all disputes or questions arising out of or relating to this Agreement (except that nothing included in this Article 9 prevents Corporation from seeking injunctive or other equitable relief if there is a breach or threatened breach of any of the restrictions described in Article 7). Any arbitration may be initiated by either Party by written notice to the other Party specifying the subject of the requested arbitration and appointing that Party's arbitrator. 9.02 The arbitration will take place in Columbus, Ohio (or another location mutually agreed upon by Corporation and Executive) and will be conducted in accordance with the rules of the American Arbitration Association in effect when the arbitration begins. Any determination or award made or approved by the arbitrator will be final and binding on the Parties. Judgment upon any award made in any arbitration may be entered and enforced in any court having competent jurisdiction. 9.03 The costs of arbitration (including legal and other professional fees incurred) will be borne solely by the Party by which they are incurred regardless of the result of the arbitration. ARTICLE 10 MISCELLANEOUS 10.01 Any notices, consents, requests, demands, approvals or other communications to be given under this Agreement must be given in writing and must be sent by registered or certified mail, return receipt requested, to Executive at the last address he has filed in writing with Corporation or, in the case of Corporation, to the Chairman at Corporation's principal offices. 10.02 This Agreement supersedes any prior agreements or understandings, oral or written, between the Parties, or between Executive and Corporation, with respect to the 23 24 subject matter described in this Agreement and constitutes the entire agreement of the Parties with respect to any matter covered in this Agreement. 10.03 This Agreement may not be varied, altered, modified, canceled, changed, or in any way amended except by written agreement of the Parties. 10.04 If any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement will remain in full force and effect. 10.05 This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same Agreement. 10.06 Corporation will withhold from any benefits payable under this Agreement all federal, state, city or other taxes as required by any applicable law or governmental regulation or ruling. 10.07 Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement that are unpaid when Executive dies. This designation must be written and presented in a form acceptable to the Board or the Board's designee, if appropriate, or in the form required by any affected benefit plan or program. Subject to any rules prescribed by the Board, its designee or the affected benefit plan or program, Executive may make or change his designation at any time. 10.08 Failure to insist upon strict compliance with any of the terms, covenants or conditions described in this Agreement will not constitute a waiver of that or any other term, covenant or condition nor will any such failure constitute a waiver or relinquishment of the Party's right to insist subsequently on strict compliance of the affected (and all other) terms, covenants or conditions of this Agreement. 10.09 To the extent not preempted by federal law, the provisions of this Agreement will be construed and enforced in accordance with the laws of the state of Ohio. 24 25 IN WITNESS WHEREOF, the Parties have executed this Agreement, as of 2/19, 2001. R. G. BARRY CORPORATION By: /s/ Gordon Zacks ------------------------------------------------- Title: CEO ---------------------------------------------- WILLIAM LENICH /s/ William Lenich ---------------------------------------------------- Date: 2/19/01 ----------------------------------------------- 25 26 EXHIBIT A WILLIAM LENICH EMPLOYMENT AGREEMENT RELOCATION ASSISTANCE It is the intent of R.G. Barry Corporation to provide uniform and equitable treatment to current Associates who transfer at the company's request. Eligible Associates -- This policy applies to all Associates who transfer at the company's request to a location outside the same metropolitan area (usually 35 or more miles) to commence employment with the company. Associate's Family -- The terms of this policy apply to those members of the Associate's current household who will reside at the new location. Travel Expenses Travel expenses are defined as first class rail cars, coach class air fare or mileage allowance at the current company approved rate. The company will reimburse the Associate and family for the following travel expenses: o One-way travel expenses for the Associate to report to work at the new location. o One-way travel expenses for the Associate to return home to accompany the family on the final move to the new location. o One-way travel expenses for the Associate and family from the old location to the new location for the final move. o Round trip travel, lodging, meals and rental car expenses for the one pre-move house hunting trip of up to five days for the employee and spouse, including reasonable baby-sitting/child care expenses. o Round trip travel expenses (including commercial airfare and other reasonable associated travel expenses) twice each calendar month for the three calendar months beginning February 19, 2001 for Associate or spouse (the total number of round trips reimbursed under this portion of this Exhibit A will not be greater than six). Company reimbursement for any additional trips beyond those stated above must be approved by the Vice President of Human Resources and the Department Vice President (Officer). Temporary Living Expenses 26 27 Temporary living expenses include reasonable charges for lodging, meals, laundry, dry cleaning and long distance telephone calls. These expenses are reimbursed at actual cost, per person, per day. Daily expenses for meals will not be reimbursed if lodging has cooking facilities. Reimbursement is limited to 30 days for non-homeowners, 90 days for homeowners. During this time, the Associate is expected to make every effort to obtain permanent housing. Extensions of temporary living beyond the 30 or 90 day period must be approved by the Vice President of Human Resources and department Vice President (Officer). Travel expenses due to the performance of job duties are not covered under temporary living. For details on policy limitations contact the Corporate Human Resources department. Household Moving and Storage The Corporate Human Resources department is responsible for selection of the moving company for shipment of household goods. R.G. Barry pays the moving company directly, for reasonable charges for packing, loading, transporting, insuring (up to $50,000 Replacement Value Protection Coverage), unloading and unpacking of normal household goods and personal effects of the Associate and members of the household who will reside at the new location. Appliance disconnection and reconnection charges are included. Certain household goods and personal effects are not considered "normal" under the provision of this policy. These include camping trailers, swimming pools, explosives, perishable goods, pets, livestock and other large animals, lumber and other building materials, firewood and boats which are too large to fit into a moving van. The following expenses are not covered by this policy: o Exclusive use of moving van o Expedited Service o Secondary pick-up or delivery o Transportation of indoor potted plants, flowers, shrubs, trees or other plantings Associates are encouraged to drive their second cars and are reimbursed at the current company approved mileage rate. With Vice President approval, second cars, when possible, would be loaded and transported in the moving van. Should temporary storage of household goods and personal effects be necessary, such temporary storage is reimbursed for a maximum of thirty days. After Associate's household goods have been moved to the new location, the Associate will receive $2,000 to help defray the incidental expenses typically occurred in a relocation. 27 28 Sale of Present Home This policy applies to a single-family house, a two-family house (duplex), a condominium, a town house owned and used by the associate as associate's principal residence. Excluded are other property, such as houses not occupied by Associate, farms, summer homes, cooperatives, apartment buildings or mobile homes. The company will reimburse transferred Associates for the following home disposal expenses actually incurred: o Realtor's commission not to exceed 6% of the sale price. Should the sale of the home be accomplished without the service of realtor, an amount equal to 3% of the sale price be paid to the Associate. o Prepayment penalty on mortgage. o Cost of appraisal of the house to obtain a home equity loan. Appraisal costs for other purposes will not be reimbursed. o Reasonable attorney's fees. o Title insurance. o Required statutory fees resulting from the transfer of property including document fees, tax stamps and recording fees. o Settlement, closing or escrow fees. o Termite and gas line inspections, if required. The following expenses are not reimbursable: o Loan origination fee or loan discount commonly referred to as "points." Points paid by the seller are a reduction in the true sale price and the seller should adjust the selling price to reflect the impact of anticipated points. o The cost of repairs, cleaning or maintenance, which may be necessary to sell the home. If the Associate chooses to purchase a home at the new location prior to selling the current home, the company will provide the following assistance in obtaining an equity loan: 28 29 o Contact a bank. o Pay for one appraisal of the current home. o Pay up to one point on the equity loan. o Assist in the payment on the loan until the current home is sold (up to a maximum of six months). If the Associate fails to sell the home at the current location during the 30 day temporary living period, the company will provide payment of the monthly mortgage for the current home up to a maximum of six (6) monthly mortgage payments. It is the Associate's responsibility to sell his/her current home, however, any additional financial assistance must be approved by the Vice President of Human Resources and the Department Vice President (Officer). Renters Assistance If it becomes necessary to terminate a lease before its scheduled expiration date because of a company initiated transfer, the company will reimburse the transferred Associate for the forfeiture of security deposit and any rent payments necessary to fulfill the terms of the lease. It is expected that the Associate will make a reasonable effort to minimize the rent payment. If the Associate chooses to rent at the new location, the application fee for the rental units will be reimbursed by the company. The security deposit at the new location is not reimbursable. The Associate should request that the new lease include a transfer clause. New Home Acquisition Assistance Financial assistance in purchasing a home will be extended to transferred Associates for a 12 month period from the date of transfer. The company will reimburse transferred Associates, regardless of whether housing at the old location was owned or rented, for all normal and reasonable home purchase expenses including: o Mortgage loan application fee o Credit report o Appraisal of the new home o Mortgage origination fee o Mortgage insurance application fee o Title insurance 29 30 o Recording fees o Survey o Pest inspection o Tax revenue stamps o Closing and attorney fees The following home purchase expenses will not be reimbursed: o Homeowners insurance premium o Prepaid interest including mortgage loan discount points or mortgage rate buy downs o Prepaid reserves for real estate taxes, homeowners insurance premium or annual assessments Reimbursable relocation expenses must be reported on a company expense report. Copies of the closing statements for the sale and purchase of a home should be supplied when requesting home sale and acquisition assistance. Copies of the lease and security deposit should be included with requests for renters assistance. A nonpayroll check will be issued for the reimbursement, and no withholding taxes will be deducted. Federal income tax regulations require that all payments directly or indirectly to an Associate for moving expenses must be shown as moving expenses. If the company's reimbursement exceeds the deductible expenses allowed by the Internal Revenue Service, the Associate will be taxed on the excess. At the end of the year, the company will send all Associates who have received reimbursement for moving expenses IRS form #4782 "Employee Moving Expense Information." This form contains the type and amount of reimbursements made during the year and is helpful in completing IRS form 3905, "Moving Expense Adjustment," which will need to be filed with the Associate's 1040 Federal Tax Return. The Company will reimburse you for the additional taxes incurred above the deduction allowed by the IRS. 30 EX-10.29 9 l86966aex10-29.txt EXHIBIT 10.29 1 Exhibit 10.29 VIREN EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT is made to be effective as of June 5, 2000, between R. G. Barry Corporation, an Ohio corporation (the "Company"), and Daniel D. Viren ("Executive") under the following circumstances: A. Executive desires to serve as an employee of the Company in an executive capacity on the terms and conditions stated herein; and B. The Company desires by this Agreement to provide for the employment of Executive by the Company on the terms and conditions stated herein. NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE MUTUAL COVENANTS CONTAINED HEREIN, THE COMPANY AND EXECUTIVE AGREE AS FOLLOWS: Section 1. Employment. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. Section 2. Term of Employment. The term of employment of Executive by the Company under this Agreement shall commence on the effective date of this Agreement (the "Agreement Date") and end on the date which is the third anniversary date of the Agreement Date (the "Term of Employment"). Section 3. Position and Duties. (a) Position. During the Term of Employment, the Company shall employ Executive as, and Executive shall serve as, Senior Vice President and Chief Financial Officer of the Company, with his duties, authority and responsibilities to be as reasonably assigned by the Chief Executive Officer or the Board of Directors of the Company consistent with such title and position. (b) Duties. Executive shall devote his full-time efforts to the business and affairs of the Company and shall perform his duties faithfully, diligently, and to the best of his ability and in conformity with the policies of the Company and under and subject to such reasonable directions and instructions as the Board of Directors and the Chief Executive Officer of the Company may issue from time to time. 2 Section 4. Compensation and Related Matters. (a) Salary. The Company shall pay Executive a base salary of not less than $220,000 per year payable in approximately equal installments in accordance with the Company's normal pay schedule. In the event the Company shall at any time or times after the Agreement Date increase Executive's base salary, then Executive's base salary under this Agreement for any period after any such increase shall be not less than the last amount to which the Company increased the base salary of Executive (such base salary including increases granted after the Agreement Date is hereinafter referred to as "Basic Salary"). Compensation of Executive by Basic Salary payments shall not be deemed exclusive and shall not prevent Executive from participating in any other compensation or benefit plan of the Company. The Basic Salary payments hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay Executive's Basic Salary hereunder. (b) Bonus. The Company shall pay Executive a sign-on bonus in the amount of $50,000. Such bonus shall be payable as follows: $25,000 of such bonus shall be paid within two (2) weeks of the Agreement Date and the remaining $25,000 shall be paid in the first pay period of 2001. (c) Stock Options. The Company shall grant to Executive stock options for 75,000 shares of the Company's stock, which grant shall be on terms consistent with the standard stock option agreement used for employees of the Company. The stock options shall vest ratably over a period of five (5) years. (d) Expenses. During the Term of Employment, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in performing services hereunder, including all reasonable expenses of travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. (e) Other Benefits. During the term of Employment: (1) Executive shall be entitled to receive such perquisites and fringe benefits historically provided by the -2- 3 Company to its senior executives, including, without limitation, the exclusive use of an automobile; (2) Executive shall be entitled to participate in the Company's Executive Supplemental Pension Plan and Executive Variable Life Insurance Plan, as either of the same may be amended from time to time, or any substitute or successor plans; (3) Executive shall be entitled to participate in the Company's Short-Term Incentive Plan (STIPS), as the same may be amended from time to time, or any substitute or successor plan, at a maximum annual level equal to 60% of his Basic Salary (which bonus shall be prorated in 2000 from the Agreement Date to December 31, 2000); and (4) Executive shall be entitled to receive all other employee benefits, including, without limitation, medical, dental, disability, 401(k), retirement, group life and accidental death insurance benefits as are or in the future may be provided by the Company to its senior executives. Section 5. Termination. (a) Termination of Employment Other Than by Executive. Executive's employment hereunder may be terminated without any breach of this Agreement only under the following circumstances: (1) Death. Executive's employment hereunder shall terminate upon his death. (2) Disability. If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been absent from his duties hereunder on a full-time basis for the entire period of four (4) consecutive months, and within ten (10) days after written notice of termination is given (which may occur before or after the end of such four (4) month period) shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate Executive's employment hereunder for Disability. (3) Cause. The Company may terminate Executive's employment hereunder for Cause. For purposes of this Agreement, the Company -3- 4 shall have "Cause" to terminate Executive's employment hereunder only upon: (i) The willful and continued refusal by the Executive to perform his duties with the Company (other than any such refusal resulting from his incapacity due to physical or mental illness), after a demand for substantial performance is delivered to Executive by the Company which specifically identifies the manner in which it is believed that Executive has refused substantially to perform his duties; (ii) Conviction of Executive of any felony; or (iii) Willful and gross misconduct materially and demonstrably injurious to the Company. (b) Termination of Employment by Executive. Executive may terminate his employment hereunder for Good Reason. As used herein, "Good Reason" means any of the following: (1) The assignment to Executive, without his consent, of any duties materially inconsistent with his position, duties, responsibilities and status with the Company on the Agreement Date, or a change in Executive's responsibilities, as in effect on the Agreement Date, which materially diminishes Executive's responsibilities with the Company when considered as a whole; provided, however, that the foregoing shall not constitute Good Reason if done in connection with the termination of Executive's employment because of Disability or for Cause. (2) A reduction by the Company in Executive's Basic Salary. (3) Failure by the Company to comply with the provisions of Section 4(e). (4) The Company's requiring Executive, without his consent, to be based anywhere other than the location where Executive is -4- 5 based on the Agreement Date, if the same requires Executive to relocate his principal residence; or, in the event Executive consents to being based anywhere other than such location, the failure by the Company to pay (or reimburse Executive for) all reasonable moving expenses incurred by Executive relating to a change of Executive's principal residence in connection with such relocation. (5) The failure of the Company to obtain the assumption of this Agreement by any successor as provided in Section 9. (c) Notice of Termination. Any termination of Executive's employment by the Company or by Executive other than termination pursuant to Section 5(a)(1) shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a Notice of Termination shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (d) Date of Termination. "Date of Termination" shall mean (i) if Executive's employment is terminated by his death, the date of his death, (ii) if Executive's employment is terminated pursuant to Section 5(a)(2), ten (10) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such ten (10) day period), or (iii) if Executive's employment is terminated for any other reason, the date on which the Notice of Termination is given. Section 6. Compensation Upon Termination or During Disability. (a) Disability. During any period that Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), Executive shall continue to receive his Basic Salary at the rate then in effect for such period until his employment is terminated pursuant to Section 5(a)(2), provided that payments of Basic Salary so made to Executive shall be reduced by the sum of the amounts, if any, payable to Executive at or prior to the time of any such salary payment under disability benefit plans of the -5- 6 Company and which were not previously applied to reduce any payment of Basic Salary. (b) Death. If Executive's employment is terminated by his death, the Company shall pay to Executive's estate his full Basic Salary through the Date of Termination at the rate in effect on the date of death and shall thereafter have no further obligations to Executive under this Agreement. (c) Termination for Cause. If Executive's employment shall be terminated for Cause, the Company shall pay Executive his full Basic Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Company shall have no further obligations to Executive under this Agreement. (d) Termination for Good Reason or Without Cause. In the event Executive terminates his employment with the Company for Good Reason or the Company terminates Executive's Employment for any reason other than for Cause or Disability, in either case at any time prior to the expiration of the Term of Employment, Executive shall be entitled to the following payments and benefits: (1) The Company shall pay to Executive, not later than thirty (30) days following the Date of Termination, Executive's accrued but unpaid Basic Salary through the Date of Termination plus compensation for current and carried-over unused vacation and compensation days in accordance with the applicable personnel policy. (2) In lieu of any further payments of salary or bonus to Executive after the Date of Termination, the Company shall pay to Executive, not later than ten (10) days following the Date of Termination, a lump sum cash severance payment (the "Severance Payment") equal to the total compensation (including bonus) paid to or accrued for the benefit of Executive by the Company for services rendered during the twelve-month period immediately preceding the Date of Termination. (e) After payment of the sums described in subparagraphs (d)(1) and (d)(2) above, the Company shall have no further obligations to Executive under this Agreement; provided that Executive's right to receive payments under this Agreement shall not decrease the amount of, or otherwise adversely affect, any other benefits payable to Executive under any other plan, agreement or arrangement relating to employee benefits provided by the Company. -6- 7 (f) Voluntary Termination by Executive Without Good Reason. In the event Executive terminates his employment with the Company without Good Reason, the Company shall pay to Executive his full Basic Salary through the Date of Termination at the rate then in effect and the Company shall have no further obligations to Executive under this Agreement. (g) Executive shall not be required to mitigate the amount of any payment provided for in this Section 6 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for him in this Section 6 be reduced by any compensation earned by Executive as the result of employment by another employer or by reason of Executive's receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise. Section 7. Non-Competition; Confidentiality (a) Period. During Executive's employment with the Company and for a period of one (1) year following any termination of Executive's employment with the Company (other than following a Hostile Change of Control (as defined below)), Executive shall not, as a shareholder, employee, officer, director, partner, consultant or otherwise, engage directly or indirectly in any business or enterprise which is in Competition with the Company (as defined below). (b) Competition with the Company. For purposes of this Agreement, (i) the words "Competition with the Company" shall be deemed to include competition with the Company or any entity controlling, controlled by or under common control with the Company (an "Affiliate"), or their respective successors or assigns, or the business of any of them, and (ii) a business or enterprise shall be deemed to be in Competition with the Company if it is engaged in any business activity which is the same or comparable to any business activity of the Company or any Affiliate from time to time during the Term of Employment in any geographic area (whether within or outside the United States) in which the Company or any Affiliate conducted such business. Notwithstanding the foregoing, nothing herein contained shall prevent Executive from purchasing and holding for investment less than 3% of the shares of any corporation the shares of which are regularly traded either on a national securities exchange or in the over-the-counter market. (c) Interpretation of Covenant. The parties hereto agree that the duration and area for which the covenant not to -7- 8 compete set forth in this Section 7 is to be effective are reasonable. In the event that any court determines that the time period or the area, or both of them, are unreasonable and that such covenant is to that extent unenforceable, the parties hereto agree that the covenant shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable. The parties intend that this covenant shall be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America where the covenant not to compete is intended to be effective. The provisions of this Section 7 shall survive any termination of this Agreement. (d) Prohibition on Disclosure or Use. Executive shall at all times keep and maintain Confidential Information (as defined below) confidential, and Executive shall not, at any time, either during or subsequent to the Term of Employment, either directly or indirectly, use any Confidential Information for Executive's own benefit or divulge, disclose, or communicate any Confidential Information to any person or entity in any manner whatsoever other than employees or agents of the Company having a need to know such Confidential Information, and only to the extent necessary to perform their responsibilities on behalf of the Company and other than in the performance of Executive's duties hereunder. (e) Definition of Confidential Information. "Confidential Information" shall mean any and all information (excluding information in the public domain) related to the business of the Company or any Affiliate, including without limitation all processes; inventions; trade secrets; computer programs; engineering or technical data, drawings, or designs; manufacturing techniques; information concerning pricing and pricing policies; marketing techniques; plans and forecasts; new product information; information concerning suppliers; methods and manner of operations; and information relating to the identity and location of all past, present, and prospective customers. (f) Equitable Relief. Executive's obligations contained in this Section 7 are of special and unique character which gives them a peculiar value to the Company, and the Company cannot be reasonably or adequately compensated in damages in an action at law in the event Executive breaches such obligations. Executive therefore expressly agrees that, in addition to any other rights or remedies which the Company may possess, the Company shall be entitled to injunctive and other equitable relief in the form of preliminary and permanent injunctions -8- 9 without bond or other security in the event of any actual or threatened breach of said obligations by Executive. (g) Definition of Change of Control. A "Hostile Change of Control" shall be deemed to have occurred if (i) any "person" (as that term is used in ss.13(d) and ss.14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") on the Agreement Date), including any "group" as such term is used in Section 13(d)(3) of the Exchange Act on the Agreement Date (an "Acquiring Person"), shall hereafter acquire (or disclose the previous acquisition of) beneficial ownership (as that term is defined in Section 13(d) of the Exchange Act and the rules thereunder on the Agreement Date) of shares of the outstanding stock of any class or classes of the Company which results in such person or group possessing more than 50.1% of the total voting power of the Company's outstanding voting securities ordinarily having the right to vote for the election of directors of the Company (a "Control Acquisition"); or (ii) as the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions ("Transaction"), the persons who were directors of the Company immediately before the completion of the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company. Anything contained in this paragraph (g) to the contrary notwithstanding, a "Hostile Change of Control" shall not be deemed to have occurred if the Control Acquisition or the Transaction is approved by a majority of the directors of the Company who were directors of the Company before the completion of the Control Acquisition or the Transaction. Section 8. Waiver. The failure of either party to this Agreement to insist, in any one or more instances, upon the performance of any of the terms, covenants or conditions of this Agreement by the other party hereto, shall not be construed as a waiver or as a relinquishment of any right granted hereunder to the party failing to insist on such performance, or as a waiver of the future performance of any such term, covenant or condition, but the obligations hereunder of both parties hereto shall remain unimpaired and shall continue in full force and effect. Section 9. Successors; Binding Agreement. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company and its subsidiaries to expressly assume -9- 10 and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation in the same amount and on the same terms as he would be entitled hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there be no such designee, to his estate. Section 10. Arbitration. Any dispute or controversy arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association. The award of the arbitrator shall be final, conclusive, and nonappealable and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall be an arbitrator qualified to serve in accordance with the rules of the American Arbitration Association and one who is approved by both the Company and Executive. In the absence of such approval, each party shall designate a person qualified to serve as an arbitrator in accordance with the rules of the American Arbitration Association and the two persons so designated shall select the arbitrator from among those persons qualified to serve in accordance with the rules of the American Arbitration Association. The arbitration shall be held in Columbus, Ohio or such other place as may be agreed upon at the time by the parties to the arbitration. Section 11. Notices. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or -10- 11 mailed by United States registered mail, return receipt requested, postage prepaid, addressed in the case of Executive, to Daniel D. Viren 9287 Din Eidyn Drive Dublin, Ohio 43017 and in the case of the Company, to the principal executive offices of the Company, provided that all notices to the Company shall be directed to the attention of the Company's Chief Executive Officer with copies to the Secretary of the Corporation and to its Board of Directors, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. Section 12. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Executive and a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws (but not the law of conflicts of laws) of the State of Ohio. Section 13. Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. -11- 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year above written. R. G. BARRY CORPORATION By /s/ Gordon Zacks ------------------------------------- Title CEO ---------------------------------- /s/ Daniel D. Viren ---------------------------------------- Daniel D. Viren EX-10.30 10 l86966aex10-30.txt EXHIBIT 10.30 1 Exhibit 10.30 CHANGE IN CONTROL AGREEMENT BETWEEN R. G. BARRY CORPORATION AND HARRY MILLER THIS AGREEMENT is made to be effective as of January 4, 2001, by and between HARRY MILLER (the "Executive") and R. G. Barry Corporation, an Ohio corporation (the "Corporation"). BACKGROUND In order to induce the Executive to remain in the employ of the Corporation, the Corporation wishes to provide the Executive with certain severance benefits in the event his employment with the Corporation terminates subsequent to a change in control of the Corporation under the circumstances described herein. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings unless otherwise expressly provided in this Agreement: (i) Change in Control. A "Change in Control" shall be deemed to have occurred if (i) any "person" (as that term is used in ss.13(d) and ss.14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) on the date hereof, including any "group" as such term is used in Section 13(d)(3) of the Exchange Act on the date hereof (an "Acquiring Person"), shall hereafter acquire (or disclose the previous acquisition of) beneficial ownership (as that term is defined in Section 13(d) of the Exchange Act and the rules thereunder on the date hereof) of shares of the outstanding stock of any class or class of the Corporation which results in such person or group possessing more than 50.1% of the total voting power of the Corporation's outstanding voting securities ordinarily having the right to vote for the election of directors of the Corporation (a "Control Acquisition"); or (ii) as the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors of the Corporation immediately before the completion of the Transaction shall cease to constitute a majority of the Board of Directors of the Corporation or any successor to the Corporation. 2 (ii) Disability. The Executive's employment shall be deemed to have been terminated for "Disability" if, as a result of his incapacity due to physical or mental illness, he shall have been absent from his duties with the Corporation on a full-time basis for the entire period of four consecutive months, and within 30 days after written notice of termination is given (which may occur before or after the end of such four-month period) he shall not have returned to the full-time performance of his duties. (iii) Effective Period. The "Effective Period" means the 36-month period following any Change in Control (even if such 36-month period shall extend beyond the term of this Agreement or any extension thereof). (iv) Termination for Cause. The Corporation shall have "Cause" to terminate the Executive's employment hereunder upon (A) the willful and continued refusal by the Executive substantially to perform his duties with the Corporation (other than any such refusal resulting from his incapacity due to physical or mental illness), after a demand for substantial performance is delivered to the Executive by the Corporation which specifically identifies the manner in which it is believed that the Executive has refused substantially to perform his duties, (B) failure of Executive to comply with any applicable law or regulation affecting the Corporation's business, (C) the commission by Executive of an act of fraud upon or an act evidencing bad faith or dishonesty toward the Corporation, (D) conviction of Executive of any felony or misdemeanor involving moral turpitude, (E) the misappropriation by Executive of any funds, property, or rights of the Corporation, or (F) Executive's breach of any of the provisions of this Agreement. (v) Termination For Good Reason. "Good Reason" shall mean, unless the Executive shall have consented in writing thereto, termination by the Executive of his employment because of any of the following: (A) a reduction in the Executive's title, duties, responsibilities or status, as compared to such title, duties, responsibilities or status immediately prior to the Change in Control or as the same may be increased after the Change in Control; (B) the assignment to the Executive of duties inconsistent with the Executive's office on the date of the Change in Control or as the same may be increased after the Change in Control; (C) a reduction by the Corporation in the Executive's base salary as in effect immediately prior to the Change in Control or as the same may be increased after the Change in Control or a reduction by the Corporation after a Change in Control in the Executive's total compensation (including bonus) so that the Executive's total cash compensation in a given calendar year is less than 90% of Executive's total compensation for the prior calendar year; 2 3 (D) a requirement that the Executive relocate anywhere not mutually acceptable to the Executive and the Corporation or the imposition on the Executive of business travel obligations substantially greater than his business travel obligations during the year prior to the Change in Control; (E) the relocation of the Corporation's principal executive offices to a location outside the greater Columbus, Ohio area; (F) the failure by the Corporation to continue in effect any material fringe benefit or compensation plan, retirement plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating at the time of a Change in Control (or plans providing the Executive with substantially similar benefits), the taking of any action by the Corporation which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the Corporation to provide him with the number of paid vacation days to which he is then entitled on the basis of years of service with the Corporation in accordance with the normal vacation policy in effect immediately prior to the Change in Control; or (G) any breach of this Agreement on the part of the Corporation. (vi) Notice of Termination. A "Notice of Termination" shall mean a notice which shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment. (vii) Date of Termination. "Date of Termination" shall mean (A) if this Agreement is terminated for Disability, 30 days after a Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such 30-day period), (B) if the Executive's employment is terminated for Cause, the date specified in the Notice of Termination, (C) if the Executive's employment is terminated by death, the date of death, and (D) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given, or, if the Corporation terminates the Executive's employment without giving a Notice of Termination, the date on which such termination is effective. 2. TERM. Unless sooner terminated as herein provided, the term of this Agreement shall commence on the date hereof and shall continue until January 4, 2004 (the "Termination Date"). It is understood that no amounts or benefits shall be payable under this Agreement unless (i) there shall have been a Change in Control during the term of this Agreement and (ii) the Executive's employment is terminated at any time during the Effective Period as provided in Section 5 hereof. It is further understood that the Corporation may terminate the Executive's employment at any time before or after a Change in Control, subject to the Corporation providing, if required to do so in accordance with the terms hereof, the severance 3 4 payments and benefits hereinafter specified, which payments and benefits shall only be available if a Change in Control has occurred prior to such termination. Prior to a Change in Control, this Agreement shall terminate immediately if Executive's employment with the Corporation is terminated for any reason. 3. SERVICES DURING CERTAIN EVENTS. In the event any person (as that term is used in Section 1(i) above) commences a tender or exchange offer, distributes proxy materials to the Corporation's shareholders or takes other steps to effect a Change in Control, the Executive agrees he will not voluntarily terminate his employment with the Corporation other than by reason of his retirement at normal retirement age, and will continue to serve as a full-time employee of the Corporation until such efforts to effect a Change in Control are abandoned or terminated or until a Change in Control has occurred. 4. TERMINATION FOLLOWING A CHANGE IN CONTROL. Any termination of Executive's employment by the Corporation for Cause, Disability or otherwise or by the Executive for Good Reason, which, in any case, occurs at any time during the Effective Period, shall be communicated by written Notice of Termination to the other party. 5. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE IN CONTROL. (i) For Cause. If, at any time during the Effective Period, the Executive's employment shall be terminated for Cause, the Corporation shall pay the Executive his full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Corporation shall not have any further obligations to the Executive under this Agreement. (ii) Death or Disability. If, at any time during the Effective Period, the Executive's employment is terminated by reason of the Executive's death or Disability, the Corporation shall pay to the Executive or his legal representative his full base salary through the Date of Termination, and the Corporation shall have no further obligation to the Executive or his legal representative under this Agreement after the Date of Termination. (iii) For Good Reason or Without Cause. If the Executive's employment is terminated by the Corporation for any reason other than for Cause, Disability, or death, or by the Executive for Good Reason, in either case at any time during the Effective Period, then: (A) The Corporation shall pay to the Executive, not later than 30 days following the Date of Termination, the Executive's accrued but unpaid base salary through the Date of Termination plus compensation for current and carried-over unused vacation and compensation days in accordance with the applicable personnel policy. (B) In lieu of any further payments of salary to the Executive after the Date of Termination, the Corporation shall pay to the Executive, not later than thirty 4 5 (30) days following the Date of Termination and notwithstanding any dispute between the Executive and the Corporation as to the payment to the Executive of any other amounts under this Agreement or otherwise, a lump sum cash severance payment (the "Severance Payment") equal to the greater of (i) the total compensation (including bonus) paid to or accrued for the benefit of the Executive by the Corporation for services rendered during the calendar year ending prior to the date on which a Change in Control of the Corporation occurred or (ii) the total compensation (including bonus) paid to or accrued for the benefit of the Executive by the Corporation for services rendered during the twelve-month period immediately preceding the Date of Termination. (iv) The Executive's right to receive payments under this Agreement shall not decrease the amount of, or otherwise adversely affect, any other benefits payable to the Executive under any plan, agreement or arrangement relating to employee benefits provided by the Corporation. (v) The Executive shall not be required to mitigate the amount of any payment provided for in this section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 5 be reduced by any compensation earned by the Executive as the result of employment by another employer or by reason of the Executive's receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise. 6. Non-Competition; Confidentiality (i) Period. For a period of two years following the termination of Executive's employment with the Corporation (other than following a Change in Control), Executive shall not, as a shareholder, employee, officer, director, partner, consultant or otherwise, engage directly or indirectly in any business or enterprise which is in Competition with the Corporation. (ii) Competition with the Corporation. For purposes of this Agreement, (a) the words "Competition with the Corporation" shall be deemed to include competition with the Corporation or any entity controlling, controlled by or under common control with the Corporation (an "Affiliate"), or their respective successors or assigns, or the business of any of them, and (b) a business or enterprise shall be deemed to be in Competition with the Corporation if it is engaged in any business activity which is the same or comparable to any business activity of the Corporation or any Affiliate from time to time during Executive's employment with the Corporation in any geographic area of the United States in which the Corporation or any Affiliate conducted such business. Notwithstanding the foregoing, nothing herein contained shall prevent Executive from purchasing and holding for investment less than 5% of the shares of any corporation the shares of which are regularly traded either on a national securities exchange or in the over-the-counter market. 5 6 (iii) Interpretation of Covenant. The parties hereto agree that the duration and area for which the covenant not to compete set forth in this Section 6 is to be effective are reasonable. In the event that any court determines that the time period or the area, or both of them, are unreasonable and that such covenant is to that extent unenforceable, the parties hereto agree that the covenant shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable. The parties intend that this covenant shall be deemed to be a series of separate covenants, one for each and ever county of each and every state of the United States of America where the covenant not to compete is intended to be effective. (iv) Prohibition on Disclosure or Use. Executive shall at all times keep and maintain Confidential Information (as defined below) confidential, and Executive shall not, at any time, either during or subsequent to his employment with the Corporation, either directly or indirectly, use any Confidential Information for Executive's own benefit or divulge, disclose, or communicate any Confidential Information to any person or entity in any manner whatsoever other than employees or agents of the Corporation having a need to know such Confidential Information, and only to the extent necessary to perform their responsibilities on behalf of the Corporation and other than in the performance of Executive's employment duties to the Corporation. (v) Definition of Confidential Information. "Confidential Information" shall mean any and all information (excluding information in the public domain) related to the business of the Corporation or any Affiliate, including without limitation all processes; inventions; trade secrets; computer programs; engineering or technical data, drawings, or designs; manufacturing techniques; information concerning pricing and pricing policies; marketing techniques; plans and forecasts; new product information; information concerning suppliers; methods and manner of operations; and information relating to the identity and location of all past, present, and prospective customers. (iv) Equitable Relief. Executive's obligations contained in this Section 6 are of special and unique character which gives them a peculiar value to the Corporation, and the Corporation cannot be reasonably or adequately compensated in damages in an action at law in the event Executive breaches such obligations. Executive therefore expressly agrees that, in addition to any other rights or remedies which Corporation may possess, the Corporation shall be entitled to injunctive and other equitable relief in the form of preliminary and permanent injunctions without bond or other security in the event of any actual or threatened breach of said obligations by Executive. The provisions of this Section 6 shall survive any termination of this Agreement. 7. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation and its subsidiaries to expressly assume and agree to perform this 6 7 Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no succession had taken place. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation in the same amount and on the same terms as he would be entitled hereunder if he terminated his employment for Good Reason during the Effective Period, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as defined above and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 7 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. Nothing contained in this Section 7 shall be construed to modify or affect the definition of a "Change in Control" contained in Section 1 hereof. (ii) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 8. ARBITRATION. Any dispute or controversy arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association. The award of the arbitrator shall be final, conclusive and nonappealable and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall be an arbitrator qualified to serve in accordance with the rules of the American Arbitration Association and one who is approved by both the Corporation and the Executive. In the absence of such approval, each party shall designate a person qualified to serve as an arbitrator in accordance with the rules of the American Arbitration Association and the two persons so designated shall select the arbitrator from among those persons qualified to serve in accordance with the rules of the American Arbitration Association. The arbitration shall be held in San Antonio, Texas or such other place as may be agreed upon at the time by the parties to the arbitration. 9. NOTICES. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed in the case of the Executive, to Harry Miller _____________________________ _____________________________ and in the case of the Corporation, to the principal executive offices of the Corporation, provided that all notices to the Corporation shall be directed to the attention of the Corporation's Chief Executive Officer with copies to the Secretary of the Corporation and to its Board of Directors, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7 8 10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and a duly authorized officer of the Corporation. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws (but not the law of conflicts of laws) of the State of Ohio. 11. VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 8 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date and year first above written. R. G. BARRY CORPORATION By: /s/ Gordon Zacks ------------------------------------------ Title: CEO --------------------------------------- /s/ Harry Miller -------------------------------------------- Harry Miller 9 EX-10.31 11 l86966aex10-31.txt EXHIBIT 10.31 1 Exhibit 10.31 CHANGE IN CONTROL AGREEMENT BETWEEN R. G. BARRY CORPORATION AND DONALD VAN STEYN THIS AGREEMENT is made to be effective as of January 4, 2001, by and between DONALD VAN STEYN (the "Executive") and R. G. Barry Corporation, an Ohio corporation (the "Corporation"). BACKGROUND In order to induce the Executive to remain in the employ of the Corporation, the Corporation wishes to provide the Executive with certain severance benefits in the event his employment with the Corporation terminates subsequent to a change in control of the Corporation under the circumstances described herein. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 12. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings unless otherwise expressly provided in this Agreement: (i) Change in Control. A "Change in Control" shall be deemed to have occurred if (i) any "person" (as that term is used in ss.13(d) and ss.14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) on the date hereof, including any "group" as such term is used in Section 13(d)(3) of the Exchange Act on the date hereof (an "Acquiring Person"), shall hereafter acquire (or disclose the previous acquisition of) beneficial ownership (as that term is defined in Section 13(d) of the Exchange Act and the rules thereunder on the date hereof) of shares of the outstanding stock of any class or class of the Corporation which results in such person or group possessing more than 50.1% of the total voting power of the Corporation's outstanding voting securities ordinarily having the right to vote for the election of directors of the Corporation (a "Control Acquisition"); or (ii) as the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors of the Corporation immediately before the completion of the Transaction shall cease to constitute a majority of the Board of Directors of the Corporation or any successor to the Corporation. 2 (ii) Disability. The Executive's employment shall be deemed to have been terminated for "Disability" if, as a result of his incapacity due to physical or mental illness, he shall have been absent from his duties with the Corporation on a full-time basis for the entire period of four consecutive months, and within 30 days after written notice of termination is given (which may occur before or after the end of such four-month period) he shall not have returned to the full-time performance of his duties. (iii) Effective Period. The "Effective Period" means the 36-month period following any Change in Control (even if such 36-month period shall extend beyond the term of this Agreement or any extension thereof). (iv) Termination for Cause. The Corporation shall have "Cause" to terminate the Executive's employment hereunder upon (A) the willful and continued refusal by the Executive substantially to perform his duties with the Corporation (other than any such refusal resulting from his incapacity due to physical or mental illness), after a demand for substantial performance is delivered to the Executive by the Corporation which specifically identifies the manner in which it is believed that the Executive has refused substantially to perform his duties, (B) failure of Executive to comply with any applicable law or regulation affecting the Corporation's business, (C) the commission by Executive of an act of fraud upon or an act evidencing bad faith or dishonesty toward the Corporation, (D) conviction of Executive of any felony or misdemeanor involving moral turpitude, (E) the misappropriation by Executive of any funds, property, or rights of the Corporation, or (F) Executive's breach of any of the provisions of this Agreement. (v) Termination For Good Reason. "Good Reason" shall mean, unless the Executive shall have consented in writing thereto, termination by the Executive of his employment because of any of the following: (A) a reduction in the Executive's title, duties, responsibilities or status, as compared to such title, duties, responsibilities or status immediately prior to the Change in Control or as the same may be increased after the Change in Control; (B) the assignment to the Executive of duties inconsistent with the Executive's office on the date of the Change in Control or as the same may be increased after the Change in Control; (C) a reduction by the Corporation in the Executive's base salary as in effect immediately prior to the Change in Control or as the same may be increased after the Change in Control or a reduction by the Corporation after a Change in Control in the Executive's total compensation (including bonus) so that the Executive's total cash compensation in a given calendar year is less than 90% of Executive's total compensation for the prior calendar year; 2 3 (D) a requirement that the Executive relocate anywhere not mutually acceptable to the Executive and the Corporation or the imposition on the Executive of business travel obligations substantially greater than his business travel obligations during the year prior to the Change in Control; (E) the relocation of the Corporation's principal executive offices to a location outside the greater Columbus, Ohio area; (F) the failure by the Corporation to continue in effect any material fringe benefit or compensation plan, retirement plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating at the time of a Change in Control (or plans providing the Executive with substantially similar benefits), the taking of any action by the Corporation which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the Corporation to provide him with the number of paid vacation days to which he is then entitled on the basis of years of service with the Corporation in accordance with the normal vacation policy in effect immediately prior to the Change in Control; or (G) any breach of this Agreement on the part of the Corporation. (vi) Notice of Termination. A "Notice of Termination" shall mean a notice which shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment. (vii) Date of Termination. "Date of Termination" shall mean (A) if this Agreement is terminated for Disability, 30 days after a Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such 30-day period), (B) if the Executive's employment is terminated for Cause, the date specified in the Notice of Termination, (C) if the Executive's employment is terminated by death, the date of death, and (D) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given, or, if the Corporation terminates the Executive's employment without giving a Notice of Termination, the date on which such termination is effective. 13. TERM. Unless sooner terminated as herein provided, the term of this Agreement shall commence on the date hereof and shall continue until January 4, 2004 (the "Termination Date"). It is understood that no amounts or benefits shall be payable under this Agreement unless (i) there shall have been a Change in Control during the term of this Agreement and (ii) the Executive's employment is terminated at any time during the Effective Period as provided in Section 5 hereof. It is further understood that the Corporation may terminate the Executive's employment at any time before or after a Change in Control, subject to the Corporation providing, if required to do so in accordance with the terms hereof, the severance 3 4 payments and benefits hereinafter specified, which payments and benefits shall only be available if a Change in Control has occurred prior to such termination. Prior to a Change in Control, this Agreement shall terminate immediately if Executive's employment with the Corporation is terminated for any reason. 14. SERVICES DURING CERTAIN EVENTS. In the event any person (as that term is used in Section 1(i) above) commences a tender or exchange offer, distributes proxy materials to the Corporation's shareholders or takes other steps to effect a Change in Control, the Executive agrees he will not voluntarily terminate his employment with the Corporation other than by reason of his retirement at normal retirement age, and will continue to serve as a full-time employee of the Corporation until such efforts to effect a Change in Control are abandoned or terminated or until a Change in Control has occurred. 15. TERMINATION FOLLOWING A CHANGE IN CONTROL. Any termination of Executive's employment by the Corporation for Cause, Disability or otherwise or by the Executive for Good Reason, which, in any case, occurs at any time during the Effective Period, shall be communicated by written Notice of Termination to the other party. 16. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE IN CONTROL. (i) For Cause. If, at any time during the Effective Period, the Executive's employment shall be terminated for Cause, the Corporation shall pay the Executive his full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Corporation shall not have any further obligations to the Executive under this Agreement. (ii) Death or Disability. If, at any time during the Effective Period, the Executive's employment is terminated by reason of the Executive's death or Disability, the Corporation shall pay to the Executive or his legal representative his full base salary through the Date of Termination, and the Corporation shall have no further obligation to the Executive or his legal representative under this Agreement after the Date of Termination. (iii) For Good Reason or Without Cause. If the Executive's employment is terminated by the Corporation for any reason other than for Cause, Disability, or death, or by the Executive for Good Reason, in either case at any time during the Effective Period, then: (A) The Corporation shall pay to the Executive, not later than 30 days following the Date of Termination, the Executive's accrued but unpaid base salary through the Date of Termination plus compensation for current and carried-over unused vacation and compensation days in accordance with the applicable personnel policy. (B) In lieu of any further payments of salary to the Executive after the Date of Termination, the Corporation shall pay to the Executive, not later than thirty 4 5 (30) days following the Date of Termination and notwithstanding any dispute between the Executive and the Corporation as to the payment to the Executive of any other amounts under this Agreement or otherwise, a lump sum cash severance payment (the "Severance Payment") equal to the greater of (i) the total compensation (including bonus) paid to or accrued for the benefit of the Executive by the Corporation for services rendered during the calendar year ending prior to the date on which a Change in Control of the Corporation occurred or (ii) the total compensation (including bonus) paid to or accrued for the benefit of the Executive by the Corporation for services rendered during the twelve-month period immediately preceding the Date of Termination. (iv) The Executive's right to receive payments under this Agreement shall not decrease the amount of, or otherwise adversely affect, any other benefits payable to the Executive under any plan, agreement or arrangement relating to employee benefits provided by the Corporation. (v) The Executive shall not be required to mitigate the amount of any payment provided for in this section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 5 be reduced by any compensation earned by the Executive as the result of employment by another employer or by reason of the Executive's receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise. 17. Non-Competition; Confidentiality (ii) Period. For a period of two years following the termination of Executive's employment with the Corporation (other than following a Change in Control), Executive shall not, as a shareholder, employee, officer, director, partner, consultant or otherwise, engage directly or indirectly in any business or enterprise which is in Competition with the Corporation. (ii) Competition with the Corporation. For purposes of this Agreement, (a) the words "Competition with the Corporation" shall be deemed to include competition with the Corporation or any entity controlling, controlled by or under common control with the Corporation (an "Affiliate"), or their respective successors or assigns, or the business of any of them, and (b) a business or enterprise shall be deemed to be in Competition with the Corporation if it is engaged in any business activity which is the same or comparable to any business activity of the Corporation or any Affiliate from time to time during Executive's employment with the Corporation in any geographic area of the United States in which the Corporation or any Affiliate conducted such business. Notwithstanding the foregoing, nothing herein contained shall prevent Executive from purchasing and holding for investment less than 5% of the shares of any corporation the shares of which are regularly traded either on a national securities exchange or in the over-the-counter market. 5 6 (iii) Interpretation of Covenant. The parties hereto agree that the duration and area for which the covenant not to compete set forth in this Section 6 is to be effective are reasonable. In the event that any court determines that the time period or the area, or both of them, are unreasonable and that such covenant is to that extent unenforceable, the parties hereto agree that the covenant shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable. The parties intend that this covenant shall be deemed to be a series of separate covenants, one for each and ever county of each and every state of the United States of America where the covenant not to compete is intended to be effective. (iv) Prohibition on Disclosure or Use. Executive shall at all times keep and maintain Confidential Information (as defined below) confidential, and Executive shall not, at any time, either during or subsequent to his employment with the Corporation, either directly or indirectly, use any Confidential Information for Executive's own benefit or divulge, disclose, or communicate any Confidential Information to any person or entity in any manner whatsoever other than employees or agents of the Corporation having a need to know such Confidential Information, and only to the extent necessary to perform their responsibilities on behalf of the Corporation and other than in the performance of Executive's employment duties to the Corporation. (v) Definition of Confidential Information. "Confidential Information" shall mean any and all information (excluding information in the public domain) related to the business of the Corporation or any Affiliate, including without limitation all processes; inventions; trade secrets; computer programs; engineering or technical data, drawings, or designs; manufacturing techniques; information concerning pricing and pricing policies; marketing techniques; plans and forecasts; new product information; information concerning suppliers; methods and manner of operations; and information relating to the identity and location of all past, present, and prospective customers. (iv) Equitable Relief. Executive's obligations contained in this Section 6 are of special and unique character which gives them a peculiar value to the Corporation, and the Corporation cannot be reasonably or adequately compensated in damages in an action at law in the event Executive breaches such obligations. Executive therefore expressly agrees that, in addition to any other rights or remedies which Corporation may possess, the Corporation shall be entitled to injunctive and other equitable relief in the form of preliminary and permanent injunctions without bond or other security in the event of any actual or threatened breach of said obligations by Executive. The provisions of this Section 6 shall survive any termination of this Agreement. 18. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation and its subsidiaries to expressly assume and agree to perform this 6 7 Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no succession had taken place. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation in the same amount and on the same terms as he would be entitled hereunder if he terminated his employment for Good Reason during the Effective Period, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean the Corporation as defined above and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 7 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. Nothing contained in this Section 7 shall be construed to modify or affect the definition of a "Change in Control" contained in Section 1 hereof. (ii) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 19. ARBITRATION. Any dispute or controversy arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association. The award of the arbitrator shall be final, conclusive and nonappealable and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall be an arbitrator qualified to serve in accordance with the rules of the American Arbitration Association and one who is approved by both the Corporation and the Executive. In the absence of such approval, each party shall designate a person qualified to serve as an arbitrator in accordance with the rules of the American Arbitration Association and the two persons so designated shall select the arbitrator from among those persons qualified to serve in accordance with the rules of the American Arbitration Association. The arbitration shall be held in Columbus, Ohio or such other place as may be agreed upon at the time by the parties to the arbitration. 20. NOTICES. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed in the case of the Executive, to Donald Van Steyn 5903 Dublin Road Delaware, Ohio 43015 and in the case of the Corporation, to the principal executive offices of the Corporation, provided that all notices to the Corporation shall be directed to the attention of the Corporation's Chief Executive Officer with copies to the Secretary of the Corporation and to its Board of Directors, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7 8 21. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and a duly authorized officer of the Corporation. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws (but not the law of conflicts of laws) of the State of Ohio. 22. VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 8 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the date and year first above written. R. G. BARRY CORPORATION By: /s/ Gordon Zacks --------------------------------------- Title: CEO ------------------------------------- /s/ Donald Van Steyn -------------------------------------------- Donald Van Steyn 9 EX-10.32 12 l86966aex10-32.txt EXHIBIT 10.32 1 Exhibit 10.32 CONSULTING SERVICES AGREEMENT THIS CONSULTING SERVICES AGREEMENT (this "Agreement"), dated September __, 2000, is made to be effective as of the 1st day of January, 2000 by and between R.G. BARRY CORPORATION, an Ohio corporation (the "Company"), and FLORENCE ZACKS MELTON ("Consultant"). WITNESSETH: WHEREAS, the Company is engaged in the business of manufacturing, marketing and selling a variety of slipper-type footwear and other products; WHEREAS, Consultant is a founder of the Company and has been engaged for many years in the design and development of new products and product constructions for the Company; and WHEREAS, on the terms and conditions set forth herein, the Company desires to engage Consultant as a consultant to the Company and Consultant desires to be so engaged by the Company. NOW, THEREFORE, in consideration of the premises and the mutual covenants in this Agreement, the Company and Consultant agree as follows: 1. ENGAGEMENT OF CONSULTANT. The Company hereby retains Consultant as an independent contractor and the Consultant hereby accepts such retention and engagement as an independent contractor, all in accordance with the terms and conditions of this Agreement. 2. TERM OF ENGAGEMENT. The Consultant's engagement under this Agreement will begin on January 1, 2000 (the "Effective Date") and will continue until December 31, 2001 (the "Consulting Period"). The Consulting Period will be automatically extended for additional 12 month periods, unless at least 30 days prior to the end of the last day of the then current term of the Consulting Period, either party gives written notice to the other party that it does not wish to extend the Consulting Period. 3. SERVICES. During the Consulting Period, the Consultant shall make herself available to provide, and so provide, the consulting and advisory services described below (the "Services") as required, from time to time, by the Chief Executive Officer or Board of Directors of the Company (the "Board"), at such times as may be mutually agreed between Consultant and the officer requesting such services or the Board, provided that the Services shall not require Consultant to travel outside the Central Ohio area. Consultant shall devote such time and energy as reasonably required to perform the Services. The Services shall include the following: (i) Consult with Company personnel regarding product designs and constructions and manufacturing techniques; 2 (ii) Serve as a representative of the Company to promote and enhance the Company's image, traditions and reputation; (iii) Make occasional presentations to the Company's associates regarding the Company's traditions, values and philosophy and similar matters; and (iv) Consult on such other matters pertaining to the Company's business as the Company may reasonably request. 4. CONSULTING FEE. As consideration for Consultant's performance of the Services, the Company shall pay Consultant during the Consulting Period a quarterly fee of $15,000. On the date of signing of this Agreement, the Company will pay to Consultant the sum of $45,000 for Services rendered during the first nine months of 2000. Thereafter, so long as this Agreement is in effect, the Company shall pay to Consultant the amount of $15,000 on the first day of each and every October, January, April and July for Services for the following three-month period. All ordinary and reasonable out-of-pocket expenses incurred by Consultant in connection with the performance of the Services shall be reimbursed to Consultant by the Company, provided that if such expenses are reasonably expected to exceed $5,000 in the aggregate during any six-month period, Consultant shall have such expenses approved in advance by the Chief Executive Officer of the Company. 5. TERMINATION. If Consultant dies or becomes Permanently Disabled during the Consulting Period, this Agreement shall automatically terminate on the date of Consultant's death or Permanent Disability, as applicable. Consultant shall be deemed to have a "Permanent Disability" or to be "Permanently Disabled" if she is unable to perform, by reason of physical or mental incapacity, the Services for a total period of 120 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when Consultant became Permanently Disabled. Such determination by the Board shall not be arbitrary or unreasonable, but such decision by the Board shall be final and binding on the parties hereto. If Consultant becomes Permanently Disabled or dies, the Consultant shall be entitled to receive no further payments under this Agreement. If this Agreement is terminated by the Company for any other reason (other than as a result of Consultant's continuing breach of this Agreement after receipt of written notice of the breach and her failure to cure the breach within a reasonable period of time following such notice), the Company shall continue to pay Consultant the consulting fees provided for in Section 4 for the remainder of the Consulting Period. 6. MISCELLANEOUS. (a) Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. (b) Entire Agreement. Except as otherwise expressly set forth herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements with respect to the subject matter hereof. -2- 3 (c) Governing Law. This Agreement shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Ohio without giving effect to provisions thereof regarding conflict of laws. (d) Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be submitted to arbitration by the American Arbitration Association in Columbus, Ohio, and the determination of the American Arbitration Association shall be final and absolute. The arbitration and the arbitrator shall be governed by the Commercial Arbitration Rules of the America Arbitration Association and the pertinent provisions of the laws of the State of Ohio relating to arbitration. Any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Compensation and benefits provided hereunder shall continue while any proceeding entered into pursuant to this section is in progress. (e) Amendment and Waivers. Any provisions of the Agreement may be amended or waived only with the prior written consent of the Company and Consultant. (f) No Effect on Royalty Agreement. Nothing contained in this Agreement shall be deemed an amendment or otherwise affect any other agreement presently in effect between the Company and Consultant. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: R.G. BARRY CORPORATION By: /s/ Daniel D. Viren ------------------------------------- Its: CFO ------------------------------------ CONSULTANT: /s/ Florence Zacks Melton ----------------------------------------- Florence Zacks Melton -3- EX-10.33 13 l86966aex10-33.txt EXHIBIT 10.33 1 Exhibit 10.33 AGREEMENT THIS AGREEMENT made and entered into this 7th day of February, 1952 by and between R. G. Barry Corporation, an Ohio corporation having its principal office at 78 East Chestnut Street, Columbus, Ohio (hereinafter referred to as "Barry"), and Florence Zacks (hereinafter referred to as "Zacks"). WITNESSETH: WHEREAS, Zacks has heretofore created and designed certain products now manufactured by Barry and for which she has been receiving various designer's fees as from time to time agreed upon by the parties, and WHEREAS, the parties desire to ratify and confirm the basis for payments previously made by Barry to Zacks and to evidence in writing the agreement of the parties as to future payments to be made by Barry to Zacks; NOW THEREFORE in consideration of the premises and the mutual covenants hereinafter contained, it is agreed by and between the parties as follows: Zacks agrees that Barry may manufacture and sell and Barry agrees to pay to Zacks three percent (3%) of all gross income received by Barry from the sale of the following products created and designed by Zacks, to-wit: 1. All snap-on shoulder pads including those known as and sold under the names Barry Foam and Barry Bone. 2. All slippers known as and sold under the names of Angel Treads for women, King Barry Angel Treads for men and Platforms. 3. Laundry bags known as and sold under the name of Swishees. 4. Any new items hereafter created and designed by Zacks and manufactured and sold by Barry. 2 Gross income is hereby defined as total sales less returns. excluding, however, the proceeds from sales of any seconds, close-outs or merchandise sold below regular list price. With respect to any new items no fee shall be payable to Zacks from Barry until such time as Barry shall show a profit on any such new item, profit to be calculated in accordance with the customary past practice of Barry. All sums due and payable to Zacks in accordance with the terms of this agreement shall be credited to her account on or before the last day of each succeeding month with respect to all products billed during the preceding month. Barry agrees to make full and true returns to Zacks (which returns shall be under oath if requested) within one month after the close of each fiscal year of Barry of all gross income received by the corporation from the sale of the articles herein licensed to it for manufacture and sale. All license fees due Zacks from Barry shall be accrued monthly but Barry may defer payment thereof up to two and one-half months after the close of each fiscal year of Barry. Upon failure of Barry to make returns as herein provided or to make payment to Zacks of the license fees as herein provided within two and one-half months after the close of each fiscal year of Barry, Zacks may terminate this license by serving written notice upon Barry; but Barry shall not thereby be discharged from any liability to Zacks for any license fees due at the time of the service of said notice. This contract shall not apply to certain shoulder pads created and designed by Florence Zacks covered by patents assigned by her to Barry with respect -2- 3 to which a special agreement entered into by the parties under date of April 7, 1947 shall remain in full force and effect. The parties are also executing as of this date separate licensing agreements with respect to the manufacture by Barry of shoulder pads covered by U. S. Patent No. 2,497,808, and washable scuffs with foam rubber soles covered by U. S. Patent No. 2,563,092, which patents are owned by Zacks, and with respect to said articles the terms of said special licensing agreements shall supercede this agreement. Zacks agrees that she will offer and make available to Barry exclusively for manufacture and sale all products which may hereafter be created and designed by her. In the event, however, Barry shall not agree to undertake the manufacture and sale of any new product, the manufacturing and sale rights of which shall be offered to it by Zacks, within thirty (30) days after such offer, Zacks shall be free to offer such new products and the rights of manufacture and sale therefor to persons, firms or corporations other than Barry, if she so desires. In the event Barry shall undertake the manufacture and sale of any product or products created and designed by Zacks, it shall have the exclusive privilege to continue the manufacture and sale thereof subject to the limitations hereinafter contained. Barry agrees that it will not sell, transfer or assign to any other person, firm or corporation the rights hereby granted to it by Zacks without her consent in writing. Barry reserves the right to discontinue the manufacture and sale of any product or products created and designed by Zacks at any time. If, however, Barry shall discontinue the manufacture and sale of any such product or products for a period of three (3) months, Zacks shall be free to license any other person, firm or corporation to manufacture and sell such product or products created and designed by her and also to terminate the right of Barry to manufacture and sell the same in the event Zacks shall so desire. In the event Barry shall be adjudged a bankrupt or if it shall be placed in receivership, or if it shall make an assignment for the benefit of its creditors, then and in any one of such events Zacks shall be free to license any -3- 4 other person, firm or corporation to manufacture and sell all or any of the products covered by this agreement created and designed by her, and also to terminate all or any of the rights herein granted to Barry in the event Zacks shall so desire. This agreement shall supercede all previous agreements between the parties with respect to creator's and designer's fees and royalties payable by Barry to Zacks. IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first above-mentioned. In the Presence of: R. G. BARRY CORPORATION /s/ Richard F. Sater By: /s/ Aaron Zacks - ---------------------------------- ---------------------------------- /s/ Carl H. Tangeman Sec & treasurer - ---------------------------------- -------------------------------------- /s/ Richard F. Sater /s/ Florence Zacks - ---------------------------------- -------------------------------------- Florence Zacks /s/ Charles D. Minor - ---------------------------------- -4- 5 AGREEMENT OF AMENDMENT THIS AGREEMENT, made and entered into this 18th day of September, 1961, by and between R. G. BARRY CORPORATION (hereinafter referred to as "BARRY"), and FLORENCE ZACKS (hereinafter referred to as "ZACKS"), WITNESSETH: WHEREAS, Barry and Zacks under date of February 7, 1952 entered into an agreement whereby Zacks agreed that Barry may manufacture and sell, and Barry agreed to pay to Zacks three percent (3%) of all gross income received by Barry from the sale of certain products created and designed by Zacks, all as in said agreement more particularly set forth, and WHEREAS, Barry desires to make a public offering of 100,000 shares of its stock of the par value of $1.00 each at $5.00 per share through Arnold Malkan & Co., Inc. as Underwriter, and said Underwriter is reluctant to undertake the sale of said shares at such price unless there is a reduction in the rate of the payments to be made by Barry to Zacks under the aforementioned agreement, and is insistent that a substantial reduction be made as a condition precedent to the proposed underwriting, and WHEREAS, the new capital to be received by Barry from such a sale of additional shares may enable it to increase its business generally with a resulting increase in the manufacture and sale of the products created and designed by Zacks, and WHEREAS, Zacks desires to be helpful in connection with the issuance by Barry of stock to the public, NOW, THEREFORE, in consideration of the premises it is agreed by and between the parties hereto as follows: If, on or before February 15, 1962, Barry, pursuant to Underwriting Agreement with Arnold Malkan & Co., Inc., shall sell all of 100,000 shares of its stock of the par value of 6 $1.00 each at $5.00 per share less underwriting discounts, commissions and expenses, then and in such event the percentage to be paid Zacks by Barry for 1961 and each subsequent year under the aforesaid agreement of February 7, 1952 for the right to manufacture and sell products of Zack's design, not patented, shall be one and one-half percent (1-1/2%) instead of three percent (3%). It is expressly understood that this Agreement of Amendment shall be effective only in the event of consummation of the sale of shares of Barry hereinabove set forth, and that if such sale be not consummated, this Amendment shall be of no force and effect. IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first abovementioned. In the Presence of: R. G. BARRY CORPORATION /s/ Edward M. Stan By /s/ Harry Streim - ------------------------------------ ---------------------------------- Edward M. Stan Harry Streim, President /s/ Richard F. Sater /s/ Florence Zacks - ------------------------------------ ---------------------------------- Richard F. Sater Florence Zacks 2 7 SECOND AMENDMENT TO AGREEMENT THIS AGREEMENT, made and entered into this 15th day of April, 1968, by and between R. G. BARRY CORP. (hereinafter referred to as "BARRY") and FLORENCE ZACKS (hereinafter referred to as "ZACKS", W I T N E S S E T H: WHEREAS, BARRY and ZACKS, under date of February 7, 1952, entered into an agreement whereby ZACKS agreed that BARRY would manufacture and sell, and BARRY agreed to pay to ZACKS three percent (3%) of all gross income received by BARRY from the sale of certain products created and designed by ZACKS, all as in said agreement more particularly set forth, and WHEREAS, under date of September 18, 1961, the aforesaid agreement was amended to reduce from three percent (3%) to one and one-half percent (1-1/2%), the fees to be paid by BARRY to ZACKS, and WHEREAS, BARRY and ZACKS mutually desire to remove any ambiguity in the original agreement regarding the period of time said agreement is to be in force, and WHEREAS, BARRY desires in connection with a proposed secondary underwriting to have its liability under the aforesaid agreement more definite and certain, and WHEREAS, ZACKS feels it is in her best interest at this time to resolve any doubt as to the term of said agreement, and to reduce on a sliding scale the fees to be paid by BARRY to ZACKS in the event a successful secondary underwriting can be achieved. NOW, THEREFORE, in consideration of the premises, it is agreed by and between the parties hereto that said agreement of February 7, 1952, as amended September 18, 1961, be, and is hereby further amended as follows: l. After the death of ZACKS, BARRY shall continue to have the right to manufacture and sell as set forth in the original agreement of February 7, 1952. For a period of five (5) years commencing on the date of ZACKS' death, BARRY shall be obligated to make payments in the same manner and respect as if ZACKS were still living. BARRY shall pay such sums to such beneficiaries as ZACKS may designate in a writing delivered to the company. In the absence of such a designation, BARRY shall make such payments to the estate of ZACKS. 2. Commencing one (1) year after the completion of a secondary stock underwriting, the consideration to be paid ZACKS by BARRY shall be changed from one and one-half percent (1-1/2%) of gross income from the sale of products created and designed by ZACKS to one and four-tenths percent (1-4/10%); one (1) year thereafter the consideration to be paid ZACKS by BARRY shall be further changed from one and four-tenths percent (1-4/10%) of said gross income to one and three-tenths percent (1-3/10%); one (1) year thereafter the consideration shall be changed from one and three-tenths percent (1-3/10%) of said gross income to one and two-tenths percent (1-2/10%); one (1) year thereafter said consideration shall be 8 changed from one and two-tenths percent (1-2/10%) of said gross income to one and one-tenth percent 1-1/10%) and one (1) year thereafter the consideration to be paid ZACKS by BARRY shall be changed from one and one-tenths percent 1-1/10%) of said gross income to one percent (1%). Thereafter, the consideration to be paid ZACKS by BARRY shall remain at one percent (1%) of gross income from the sale of products created and designed by ZACKS until the termination of this agreement, as provided for in paragraph 1 of this Second Amendment to the Agreement. IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first above mentioned. Signed in the presence of: R. G. BARRY CORPORATION /s/ Rita L. Tapia By /s/ Harry Streim - ---------------------------------- -------------------------------------- Harry Streim, Chairman of the Board, Chief Executive Officer /s/ Janet L. Anderson - ---------------------------------- As to R. G. Barry Corporation /s/ Rita L. Tapia /s/ Florence Zacks - ---------------------------------- --------------------------------------- Florence Zacks now Florence Melton /s/ Janet L. Anderson - ---------------------------------- As to Florence Zacks -2- 9 THIRD AMENDMENT THIS AMENDMENT is made this 31st day of October, 2000 by and between R.G. Barry Corporation, an Ohio corporation (the "Company"), and Florence Zacks Melton ("Mrs. Melton"); W I T N E S S E T H: WHEREAS, the Company and Mrs. Melton are parties to an Agreement dated February 7, 1952, as amended by an Agreement of Amendment dated September 18, 1961 and a Second Amendment dated April 15, 1968 (the "Royalty Agreement") pursuant to which Mrs. Melton granted to the Company the exclusive right to utilize various product designs owned by her, including designs created by her after the date of the Royalty Agreement, in exchange for the Company's agreement to pay to Mrs. Melton royalties on its sale of products based on Mrs. Melton's designs; WHEREAS, Mrs. Melton has also granted to the Company the exclusive right to use all patent rights owned by her which relate to slippers and other products manufactured or sold by the Company and its affiliates; WHEREAS, Mrs. Melton has agreed to grant to the Company the option to purchase and acquire her ownership interest in the product designs and patent rights described above upon the occurrence of her death or a change of control of the Company; WHEREAS, the Company has agreed to grant to Mrs. Melton, her assigns and estate, the right to require the Company to purchase and acquire the product designs and patent rights described above on the occurrence of a change of control; and 10 WHEREAS, the parties hereto desire to amend the Royalty Agreement to reflect their agreements described above; NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree to amend the Royalty Agreement as follows: 1. The following paragraphs are hereby added to the Royalty Agreement: A. Option of Company to Purchase Product Designs and Patent Rights. Subject to the terms and conditions set forth below, Mrs. Melton hereby grants to the Company the right and an option (the "Company Option") to purchase all of her right, title and ownership interest in and to the following (together, the "Optioned Property"): (i) all slippers and other footwear products that have been designed and/or created by Mrs. Melton, either alone or with others, including all product designs, constructions, inventions, know-how and rights related thereto, (ii) all other items, products, designs and constructions created by Mrs. Melton which have been manufactured or sold by the Company or which have been presented to the Company for possible manufacture or sale by the Company, and (iii) all patents and patent rights of Mrs. Melton which relate to the manufacture of slippers and other footwear products. The Company Option may be exercised by the Company at any time during the six-month period following the earlier of (A) the death of Mrs. Melton or (B) the occurrence of a Change of Control (as defined below) of the Company. The Company Option shall be exercisable by the Company by giving written notice (the "Company Exercise Notice") of exercise to Mrs. Melton or to her assigns or estate, as applicable. The purchase price (the "Purchase Price") for the 2 11 Optioned Property shall be $750,000 if the Company Option is exercised following a Change of Control of the Company that occurs prior to the death of Mrs. Melton and $500,000 if the Company Option is exercised following the death of Mrs. Melton if her death occurs prior to the occurrence of a Change of Control of the Company. The Company Exercise Notice shall set forth a date for the closing of the purchase and sale of the Optioned Property, which shall be a date not later than 15 days from the date the Company Exercise Notice is mailed or otherwise delivered (the "Company Option Closing"). At the Company Option Closing, Mrs. Melton or her assigns or estate, as the case may be, shall execute and deliver to the Company an assignment of the Optioned Property to the Company, free and clear of any liens or other encumbrances, and the Company shall pay the Purchase Price to Mrs. Melton or to her assigns or estate, in cash or immediately available funds. Mrs. Melton or her assigns or estate, as the case may be, shall also execute and deliver all other instruments of transfer or conveyance that the Company reasonably deems necessary to vest title in the Optioned Property in the Company. For purposes of this Amendment, a "Change of Control" of the Company shall be deemed to have occurred if (i) any individual or entity or group of related individuals or entities (an "Acquiring Person"), shall hereafter acquire (or disclose the previous acquisition of ) beneficial ownership of common shares of the Company which results in the Acquiring Person possessing more than 20% of the total voting power of the Company's outstanding common shares; or (ii) as the result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the individuals who 3 12 were directors of the Company immediately before the completion of such transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company. B. Option of Mrs. Melton to Require Company to Purchase the Optioned Property. Subject to the terms and conditions set forth below, the Company hereby grants to Mrs. Melton, her assigns and estate the right and option (the "Melton Option") to require the Company to purchase the Optioned Property. The Melton Option may be exercised by Mrs. Melton or her estate or assigns at any time during the six-month period following a Change of Control of the Company that occurs prior to the death of Mrs. Melton. The Melton Option shall be exercisable by Mrs. Melton or her assigns or estate by giving written notice (the "Melton Exercise Notice") of exercise of the Melton Option to the Company. The Purchase Price for the Optioned Property upon exercise of the Melton Option shall be $750,000. The Melton Exercise Notice shall set forth a date for the closing of the purchase and sale of the Optioned Property, which shall be a date not later than 15 days from the date the Melton Exercise Notice is mailed or otherwise delivered (the "Melton Option Closing"). At the Melton Option Closing, Mrs. Melton or her assigns or estate, as the case may be, shall execute and deliver to the Company an assignment of the Optioned Property to the Company, free and clear of any liens or other encumbrances, and the Company shall pay the applicable Purchase Price to Mrs. Melton or to her assigns or estate, as applicable, in cash or immediately available funds. Mrs. Melton or her assigns or estate, as applicable, shall also execute and deliver all other instruments of conveyance 4 13 that the Company reasonably deems necessary to vest title in the Optioned Property to the Company. 2. Until the Optioned Property is purchased by the Company in accordance with this Amendment the Royalty Agreement shall remain in full force and effect. The Royalty Agreement shall terminate automatically and without further action of either of the parties as of the date of the Company Option Closing or the Melton Option Closing (except that the Company shall remain obligated to make payment of any royalties accruing prior to the date of the Company Option Closing or the Melton Option Closing, as the case may be). At the Company Option Closing or the Melton Option Closing, as the case may be, the Company shall pay in full, all accrued and unpaid royalties under the Royalty Agreement through the date of such closing. 3. This Amendment shall be deemed an amendment of the Royalty Agreement. The Amendment and the Royalty Agreement (as amended hereby and as previously amended) embody the complete agreement and understanding between the parties with respect to the subject matter of such agreements and supersede and preempt any prior understandings, agreements or representations between the parties, written or oral, which may have related to the subject matter hereof in any way. 4. This Amendment may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together shall constitute one and the same agreement. 5. THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AMENDMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF OHIO. 5 14 6. This Amendment shall inure to the benefit of and be binding upon the Company, its successors and assigns. This Amendment shall inure to the benefit of and be binding upon Mrs. Melton and Mrs. Melton's heirs, legatees, personal representatives, administrators, executors, successors and assigns. The rights and obligations of Mrs. Melton under the Royalty Agreement and this Amendment may be assigned by Mrs. Melton without the consent of the Company; provided, however, that any such assignment must include the transfer to the assignee of the Optioned Property, which Option Property shall remain subject to the terms of this Agreement. 7. Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Amendment. 6 15 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above mentioned. /s/ Florence Z. Melton R.G. BARRY CORPORATION - ---------------------------------- Florence Zacks Melton By /s/ Daniel D. Viren ------------------------------------- Its CFO ------------------------------------- 7 EX-13.1 14 l86966aex13-1.txt EXHIBIT 13.1 1 Exhibit 13.1 SIX YEAR REVIEW OF SELECTED FINANCIAL DATA R.G.BARRY CORPORATION AND SUBSIDIARIES
SUMMARY OF OPERATIONS (THOUSANDS) 2000 1999 1998 1997** 1996 1995 -------- -------- -------- -------- -------- -------- Net sales $149,435 $140,092 $149,404 $148,034 $147,284 $134,034 Cost of sales 93,816 85,996 76,707 77,401 81,797 73,157 Gross profit 55,619 54,096 72,697 70,633 65,487 60,877 Selling, general and administrative expenses 58,321 66,416 56,719 53,137 49,008 48,557 Restructuring and asset impairment charges 1,921 5,914 -- -- -- -- Other income (expense) 1,717 502 380 415 (211) 1,060 Proceeds from litigation, net of expenses incurred 4,476 -- -- -- -- -- Interest expense, net (1,802) (1,651) (1,607) (1,817) (2,483) (2,962) Earnings (loss) before income taxes (232) (19,383) 14,751 16,094 13,785 10,418 Income tax expense (benefit) 522 (4,778) 5,443 6,420 5,511 3,879 Minority interest (52) (20) -- -- -- -- Net earnings (loss) $ (806) $(14,625) $ 9,308 $ 9,674 $ 8,274 $ 6,539 ADDITIONAL DATA Basic earnings (loss) per share* $ (0.09) $ (1.55) $ 0.96 $ 1.02 $ 0.89 $ 0.71 Diluted earnings (loss) per share* $ (0.09) $ (1.55) $ 0.93 $ 0.99 $ 0.84 $ 0.67 Book value per share* $ 6.34 $ 6.46 $ 8.12 $ 7.23 $ 6.26 $ 5.35 Annual % change in net sales 6.7% (6.2)% 0.9% 0.5% 9.9% 14.1% Annual % change in net earnings (94.5)% (257.1)% (3.8)% 16.9% 26.5% 78.9% Net earnings (loss) as a percentage of beginning shareholders' equity (1.3)% (18.5)% 13.5% 16.5% 16.7% 15.3% Basic average number of shares outstanding (in thousands)* 9,399 9,455 9,698 9,504 9,308 9,234 Diluted average number of shares outstanding (in thousands)* 9,399 9,455 9,992 9,820 9,827 9,690 FINANCIAL SUMMARY (THOUSANDS) Current assets $ 70,268 $ 71,678 $ 91,914 $ 84,693 $ 70,792 $ 65,771 Current liabilities 14,715 17,705 17,885 20,908 15,108 19,921 Working capital 55,553 53,973 74,029 63,785 55,684 45,850 Long-term debt 7,637 8,571 10,714 12,992 15,265 15,390 Net shareholders' equity 59,452 60,384 79,139 69,126 58,704 49,533 Net property, plant and equipment 11,741 14,408 12,875 14,231 13,929 14,156 Total assets 89,549 93,164 113,026 107,083 92,180 87,390 Capital expenditures 653 3,381 1,136 2,944 2,404 3,363 Depreciation and amortization of property, plant and equipment 2,109 2,243 2,413 2,531 2,571 2,158
8 2 See also Management's Discussion & Analysis of Financial Condition & Results of Operations. *Retroactively restated to reflect 5-for-4 share split distributed June 17, 1996 and 4-for-3 share split distributed September 15, 1995. **Fiscal year includes fifty-three weeks. Effective in 2000, the Company changed its inventory costing method from LIFO to FIFO. All amounts have been retroactively restated to give effect to the change in costing method. Certain amounts from prior years have been reclassified to conform with current year's presentation. 9 3 MARKET AND DIVIDEND INFORMATION R.G.BARRY CORPORATION AND SUBSIDIARIES MARKET VALUE
QUARTER HIGH LOW CLOSE ------- ------- ------ ------ 2000 FIRST $4.250 $2.750 $3.375 SECOND 4.750 3.000 3.875 THIRD 3.938 2.750 3.000 FOURTH 3.125 2.125 2.375 1999 First $13.125 $8.313 $8.750 Second 9.875 7.625 8.250 Third 8.313 4.750 6.125 Fourth 6.250 3.500 3.938
Stock Exchange: New York Stock Exchange Stock Ticker Symbol: RGB Wall Street Journal Listing: BarryRG Approximate Number of Registered Shareholders: 1,050 No cash dividends were paid during the periods noted. The Company has no current intention to pay cash dividends, and its ability to do so is subject to the restrictions contained in the various loan agreements. See also Note 4 to Consolidated Financial Statements, and Management's Discussion & Analysis of Financial Condition & Results of Operations. QUARTERLY FINANCIAL DATA R.G.BARRY CORPORATION AND SUBSIDIARIES 2000 FISCAL QUARTERS
in thousands, except basic and diluted earnings (loss) per share FIRST SECOND THIRD FOURTH ------- ------- ------- ------- NET SALES $24,238 $22,241 $42,396 $60,560 GROSS PROFIT 8,647 5,861 16,405 24,706 NET EARNINGS (LOSS) 653 (3,588) 137 1,992 BASIC EARNINGS (LOSS) PER SHARE $ 0.07 $ (0.38) $ 0.01 $ 0.21 DILUTED EARNINGS (LOSS) PER SHARE $ 0.07 $ (0.38) $ 0.01 $ 0.21
1999 Fiscal Quarters
First Second Third Fourth ------- ------- ------- ------- Net sales $20,734 $19,168 $48,118 $52,072 Gross profit 8,661 4,883 21,649 18,903 Net earnings (loss) (2,926) (5,167) 1,450 (7,982) Basic earnings (loss) per share $ (0.30) $ (0.55) $ 0.15 $ (0.85) Diluted earnings (loss) per share $ (0.30) $ (0.55) $ 0.15 $ (0.85)
Certain amounts from prior periods have been reclassified to conform with current presentation. See also Management's Discussion & Analysis of Financial Condition & Results of Operations. 10 4 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS R.G.BARRY CORPORATION AND SUBSIDIARIES ACCOUNTING FOR INVENTORIES - A CHANGE IN METHOD FROM LIFO TO FIFO Since 1973, we have used the Last-In, First-Out (LIFO) inventory costing method for domestic inventory of company-manufactured soft washable slippers. For most years since that date, substantially all inventories were accounted for under the LIFO method. As we have expanded into Europe, those inventories have been accounted for using the First-In, First-Out (FIFO) method, and inventories of thermal products also have been accounted for using the FIFO method. In recent years, several events have occurred that make us believe the FIFO method has become the preferable method, one which more appropriately and consistently matches our current costs with revenue. (I) In recent years, we have modified manufacturing methods and geographically moved our manufacturing to take advantage of lower costs of production in parts of the world outside the United States. This has lessened the impact of general inflationary factors normally found in the United States. (II) We have made greater use of and expect to continue to make greater use of independent third party manufacturers. Inventory produced by third party manufacturers had been excluded from LIFO inventory. (III) Thus, in recent years, a smaller and smaller proportional amount of total inventories were valued using the LIFO method. The use of the LIFO method in an environment of a declining pool of LIFO-based inventories, creates the exposure of a LIFO layer liquidation which potentially results in a poor matching of current costs with current revenues. As a result, we believe that the FIFO method will provide a more appropriate matching of current costs with current revenues in the future. Effective in 2000, we changed the method of accounting for domestic inventories of company-manufactured soft washable slippers from the LIFO method to the FIFO method, so that in 2000, all inventories were accounted for using the FIFO method. For all prior years presented, this change has been applied retroactively by restating the financial statements. The effect of the change in accounting method was to decrease the reported net loss for 2000, by $418 thousand after tax, or $0.04 per diluted share. The restatement increased the net loss reported for 1999 by $844 thousand after taxes, or $0.09 per diluted share, and decreased the net income reported for 1998 by $459 thousand after taxes, or $0.05 per diluted share. See also Note 2 to the Consolidated Financial Statements for additional information. Throughout this Annual Report to Shareholders, all financial information has been retroactively restated to reflect this change in method of accounting for inventories from LIFO to FIFO. LIQUIDITY AND CAPITAL RESOURCES Most of the assets we use in the development, production, marketing, warehousing and distribution, and sale of our products are current assets, such as cash, receivables, inventory, and prepaid expenses. To a lesser extent, we also use net property, plant and equipment, and other non-current assets. At the end of 2000, current assets amounted to approximately 78 percent of total assets, compared with 77 percent at the end of 1999. Approximately 13 percent were non-current assets, consisting of net property, plant and equipment, with the remainder, approximately 9 percent, consisting of deferred taxes, goodwill and other. As of the end of 2000, we had $55.5 million in net working capital, made up of $70.2 million in current assets, less $14.7 million in current liabilities. At the end of 1999, we had $54.0 million in net working capital. Asubstantial portion of the increase in net working capital relates to the improved asset management in 2000 when compared with 1999. During 1999, we reacquired in open market purchases approximately 478 thousand of our common shares to hold as treasury shares, spending approximately $4.1 million. In addition, early in the third quarter of 1999, we acquired an 80% interest in Escapade, S. A., for approximately $2.4 million in cash, net of the cash acquired. Escapade is the parent company of Fargeot et Compagnie, a French slipper manufacturer (collectively, "Fargeot"). There were no similar activities in 2000. We ended 2000 with $6.9 million in cash and cash equivalents, $19.7 million in net trade receivables, and $32.8 million in inventory. By comparison, at the end of 1999, we had $10.0 million in cash and cash equivalents, $8.6 million in net trade receivables, and $41.0 million in inventory. The decrease in cash from 1999 to 2000, is due in large part to the $11.0 million increase in net trade receivables from year to year, offset by an $8.2 million decrease in inventory. While there were other less noteworthy changes, the changes in inventory and receivables were the more significant. See also the accompanying Consolidated Statements of Cash Flows. Early in the year, we set an objective of lowering our investment in inventory, and by the end of the year, we were successful in achieving that reduction. During 2000, we reduced total inventories by $8.2 million, with the largest reduction being a $5.7 million reduction in finished goods. Raw materials and work in progress, together, were reduced by approximately $2.5 million. Net trade receivables increased from 1999 to 2000, by $11 million. This is due, in large part, to a $6.6 million reduction in 2000 in offsetting reserves for customer returns and allowances for customer special sales and support programs. The reduction in the offsetting 11 5 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS R.G.BARRY CORPORATION AND SUBSIDIARIES reserves in 2000 relates mainly to the discontinuation in 2000 of the Soluna(TM) line of products, plus improved sell-through at retail of our others products during the 2000 holiday gift-giving season. In addition, we sold nearly $8.5 million more merchandise in the fourth quarter of 2000 than in the fourth quarter of 1999. Approximately $2 million of that sales increase occurred in December, when customers' accounts would not yet be due for payment prior to year-end. Finally, we had one large customer who was late in paying approximately $3 million on its account before year-end, as a result of a paperwork mix-up. The customer's account was paid early in 2001. We have experienced no significant loss from exposure to uncollectable accounts. Traditionally, we have leased most of our operating facilities. We periodically review facilities to determine whether our current facilities will satisfy projected operating needs for the foreseeable future. During the second half of 1999, we opened a new manufacturing facility in the Dominican Republic. Products manufactured in the leased Dominican facility were to be shipped into the European market, at duty rates favorable to comparable shipments from the United States. Subsequent to opening the Dominican facility, Mexico and the European market completed a new duty arrangement, which we believe will, by 2003, result in the same duty situation as had existed with the Dominican Republic. As a result of this new duty arrangement, we closed the Dominican operation. In 1999, we opened a warehouse in San Antonio, Texas to serve what we believed was a need to house increased finished goods inventory for the Soluna(TM) line of Spa-at-home thermal/magnetic products. By 2000, the Soluna(TM) products had not achieved expected results and we concluded that this warehouse was too large and too expensive for its prospective use, especially in light of the significant reduction in inventory levels from 1999 to year-end 2000. In 2000, we moved that operation into a lower cost facility that we had available in Laredo, Texas. These decisions in 2000 to move out of San Antonio and close the Dominican Republic operation are the principal costs associated with the restructuring charge of $1.9 million that appears in the year-end 2000 Consolidated Financial Statements. Typically, we have relied on our unsecured Revolving Credit Agreement ("Revolver"), first executed in February 1996, to satisfy our seasonal working capital needs. Through the years, our banks have agreed to amend the Revolver to accommodate our needs. Several times during 2000, including the latest in October, we amended the Revolver modifying certain provisions. The October 2000 amendment eliminated certain covenant compliance requirements. In March 2001, we entered into a new Revolving Credit Agreement with our main bank, which extends through February 2002. This new Revolver, also unsecured, further modifies certain of the covenants included in the previous Revolver. The new Revolver contains covenants that we believe are not uncommon for agreements of similar type and duration. The new Revolver provides a seasonally adjusted available line of credit with a peak of $30 million from April through November. At times, we have incurred additional long-term debt to provide long-term financing. The last time we incurred additional long-term debt was in 1994, when we issued a $15 million, 9.7 percent note, due in 2004 ("Note"). The balance due under the Note as of the end of 2000, was $8.5 million. The Note contains covenants that we believe are not uncommon among agreements of similar type and duration. The Note and the Revolver place restrictions on the amount of additional borrowings, and contain certain other financial covenants - see also Note 4 to the Consolidated Financial Statements for additional information. The Note requires semi-annual interest payments and annual principal repayments, the first of which was paid in July 1998, of $2.1 million. We are in compliance with all covenants of the Note and the Revolver. We last paid cash dividends in 1981. As of year-end 2000, the Note and the previous Revolver permitted the payment of up to $2 million in a combination of cash dividends and/or the repurchase of common shares for treasury. The new Revolver eliminates our ability to pay cash dividends and further restricts the acquisition of common shares for treasury. We have no current plans to pay cash dividends or to acquire common shares for treasury. We anticipate continuing to use our cash resources to finance operations and to fund the future of the business. While the covenants of the Note, permit us to incur additional long-term debt should that become desirable, the new Revolver limits our ability to do so only upon consent of the bank. See also Note 4 to the Consolidated Financial Statements for additional information. We believe that we have a strong balance sheet, with strong financial ratios. At the end of 2000, total capitalization amounted to $67.1 million, comprised of 11.4 percent long-term debt and 88.6 percent net shareholders' equity. This compares with $69.0 million in total capitalization at year end 1999, comprised of 12.4 percent long-term debt and 87.6 percent net shareholders' equity. Our current ratio, a measure of the relationship of current assets to current liabilities, was 4.77 to 1 at year-end 2000, compared with 4.05 to 1 at year-end 1999. LEGAL PROCEEDINGS In 1998, we filed a lawsuit against Domino's Pizza, Inc., and Phase Change Laboratories, Inc., alleging patent infringement and deceptive advertising. In March 2000, this lawsuit was settled. As a part of the settlement, we received a cash payment of $5 million, and entered into a $1 million licensing arrangement with Domino's for the future use of our patented thermal retention technology. 12 6 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS R.G.BARRY CORPORATION AND SUBSIDIARIES IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS The FASB issued Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133", which is required to be adopted in fiscal years beginning after June 15, 2000. We have adopted the new Statement, which requires companies to recognize all derivatives on the balance sheet at fair value, effective January 1, 2001. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. We do not anticipate that the adoption of this Statement will have a significant effect on our results of operations or financial position. FOREIGN CURRENCY RISK Several years ago, a number of foreign currencies, primarily those in the Far East, Eastern Europe, and Latin America, were subject to fluctuations in value on world currency markets. In some cases, currencies suffered significant devaluation. Our operations are currently conducted primarily in U. S. Dollars and to a much lesser degree, in British Pounds Sterling, French Francs, Euros, and Canadian Dollars - all currencies that historically have not been subject to significant volatility. In accordance with our established policy guidelines, we have at times hedged some of these currencies on a short-term basis, using foreign exchange contracts as a means to protect ourselves from fluctuations. At the end of fiscal 2000, there were no foreign exchange contracts outstanding. The amount under foreign exchange contracts that we have normally maintained has not been material to overall operations. In addition, portions of our labor and other costs are incurred in Mexican Pesos. Normally, we have not hedged the Peso as it has generally declined in value over time when compared to the U. S. Dollar. In addition, forward contracts in this currency generally are neither readily nor economically available. Should the Peso suffer a devaluation compared to the U. S. Dollar, we believe that the impact would likely reduce the effective costs of manufacturing, although any such reduction is not expected to have a significant impact upon our results of operations. IMPLEMENTATION OF THE "EURO" AS A COMMON LEGAL CURRENCY IN EUROPE We believe that we are prepared for the implementation of the "Euro" as the common legal currency in certain European Community countries. The United Kingdom will not immediately join the transition to the Euro, although France has already joined. Our systems were designed several years ago with sufficient flexibility to handle the introduction of the Euro as an added transactional currency. We incurred only a nominal cost in preparing our systems for the introduction of the Euro. RESULTS OF OPERATIONS 2000 SALES AND OPERATIONS COMPARED WITH 1999 Results for 2000 were disappointing. Following the loss incurred in 1999, and the restructuring actions taken at the end of 1999, we anticipated that 2000 would be a profitable year. In 1999, we recognized that we needed to lower our levels of production and to lessen our manufacturing capacity. We closed a plant in Shenzhen, China although we opened a plant in the Dominican Republic. We believed that the customs duty advantages enjoyed between the Dominican Republic and Europe would outweigh our need to reduce capacity. After opening the plant in the Dominican Republic, Mexico completed a new treaty with Europe that we believe will, by 2003, provide the same duty situation as had existed with the Dominican Republic. In December 2000, we closed the plant in the Dominican Republic. In 1999, we opened a warehouse in San Antonio, Texas to serve what we believed was a need to house increased finished goods inventory for the Soluna(TM) line of products first introduced in 1999. By 2000, the Soluna(TM) products had not achieved expected results and we concluded that this warehouse was too large and too expensive for its prospective use. This was especially so, in light of the significant reduction in inventory levels from 1999 to year-end 2000. Moreover, our strategy for the future includes acquiring greater portions of our inventories from third party suppliers, thus reducing the need to take large portions of finished goods into our warehouses for extended periods of time. In mid-2000, we closed the San Antonio warehouse and moved into a smaller warehouse that we already controlled in Laredo, Texas. The opening and subsequent closing of a factory and a warehouse, all within a two-year period, was very costly. During 2000, we provided for a restructuring charge of $1.9 million to handle the costs of closing the Dominican Republic plant and closing the warehouse in San Antonio, as well as various staff reductions which all together involved the elimination of 225 positions. 13 7 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS R.G.BARRY CORPORATION AND SUBSIDIARIES During 2000, net sales totaled $149.4 million, about 6.7 percent greater than in 1999. See also Note 13 of Notes to the Consolidated Financial Statements for a breakdown of net sales by geographic region of the world and by segment of our operations. We operate in three differing business segments: (I) "Barry Comfort North America", which manufactures and markets at-and-around-the-home comfort footwear in North America, (II) "Barry Comfort Europe", which markets footwear principally in western Europe, and (III) "Thermal", which markets thermal retention technology products, principally in North America, that act as hot or cold temperature reservoirs releasing that energy over time. Net sales for Barry Comfort North America increased 5.1 percent to $125.0 million in 2000, from $118.9 million in 1999. The increase in North America net sales was largely the result of providing fresh new comfortable soft washable footwear to our customers with complete and on-time delivery, plus the impact of our aggressive program of inventory liquidation. We believe that sales of these products at retail were generally excellent, whereas retailers generally experienced a mediocre holiday season. Net sales for Barry Comfort Europe were essentially flat at $11.7 million in 2000 and 1999. In Europe, in 2000, we had the benefit of our Fargeot operation for the entire year compared with only half of the year in 1999. In addition, in 2000, we changed the nature of our operations in the United Kingdom. In 1999 and prior, we operated with our own full service sales organization. In mid-year 2000, we shifted to a joint arrangement with GBR Limited, a British footwear marketer. GBR will continue to service our former customers in the United Kingdom with Barry Comfort products that we will continue to supply, although we no longer will incur the expense of supporting a full service organization. This should greatly improve the profitability of serving customers in the United Kingdom. Net sales of Thermal products in 2000 increased by 33.3 percent to $12.7 million from $9.5 million in 1999. This increase largely reflects Vesture's first major success in providing thermal retention quick heat units to a national pizza chain. These units, sold to Papa John's International, Inc., allow the delivery of a pizza that is hotter and fresher than pizzas transported for delivery to consumers by conventional means. Our units provide greater heat than is customary using traditional insulated delivery packages. Gross profit in 2000 amounted to $55.6 million, as compared with gross profit in 1999 of $54.1 million. Gross profit as a percent of net sales declined in 2000 to 37.2 percent, compared with 38.6 percent during 1999. Gross profit was adversely impacted by several items: o As a result of an aggressive effort to lower our inventory levels, we sold a sizable amount of obsolete and out-of-season inventory in a short period of time for little or no profit. This aggressive inventory liquidation, successfully reduced inventories by about $8 million from 1999 to 2000, but at a significant cost. By year-end 2000, substantially all of this inventory had been liquidated. o We continue to see a shift in net sales toward mass merchandisers. o In 2000, we included the operations of our Fargeot subsidiary, which operates with a lower gross margin and a lower expense structure than our other operations. We acquired Fargeot in mid-year 1999. o The new factory in the Dominican Republic required a longer than anticipated time to bring its operations up to normal efficiency standards. As a consequence, we incurred manufacturing variances from inefficient operations. Moreover, with the reduction of inventory by $8 million, we required that less product be manufactured throughout the year. Lower production requirements generally added to the manufacturing variances. Selling, general and administrative expenses decreased by 12.2 percent in 2000 to $58.3 million from $66.4 million in 1999, a significant reduction of nearly $8.1 million. Much of the reduction reflects our plan to aggressively lower the costs of operation throughout the organization -- selling, marketing, warehousing and administration. Lower costs were incurred in all of these areas in 2000. Early in 2000, our lawsuit against Domino's Pizza and Phase Change Laboratories for patent infringement was settled. As a result, we received a payment of $5 million and entered into a $1 million licensing arrangement with Domino's for the future use of our patented thermal retention technology. Net interest expense increased in 2000 to $1.8 million from $1.7 million in 1999. During 2000, the daily average seasonal borrowings under the Revolver amounted to $11.5 million, compared with $9.9 million during 1999, a 15.6 percent increase. In addition, the weighted average interest rate in 2000 increased to 8.2 percent from 6.4 percent in 1999. The loss we incurred in 1999, plus the scheduled $2.1 million annual principal repayment under the Note, contributed to the increase in average borrowings in 2000. General market interest rates increased in 2000 by about one and one-half percent, and the spread over market rates charged by our banks also increased in 2000 by one-half of one percent. While interest expense increased as a result of increased borrowings under the Revolver, there was an nearly offsetting decrease in interest expense resulting from the $2.1 million normal annual repayments of long-term debt. 14 8 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS R.G.BARRY CORPORATION AND SUBSIDIARIES During 2000, we took several actions to align the forecasting of our manufacturing requirements with our customers' demand visibility. As a result, over the next several years, we will migrate to a company that produces about two-thirds of its products in-house and outsources the remainder to third party suppliers. In recent years, we had produced about 90 percent and out-sourced about 10 percent. Early in 2001, we opened a representative office in Hong Kong, which will be responsible for procuring outsourced products from the Far East. In response to the need to lower our production capacity, and as mentioned earlier, we closed the manufacturing facility in the Dominican Republic. With the reduction in inventory levels and the strategic change to outsourcing increased levels of product, the need for the warehouse in San Antonio diminished, and we have transferred that warehousing function to an existing smaller facility in Laredo, Texas. These two actions, coupled with administrative staff reductions, have eliminated 225 associates throughout the organization. The costs associated with closing the Dominican facility, closing the San Antonio warehouse and staff reductions total about $1.9 million, which has been provided for in the results of operations for 2000. For the 2000 fiscal year, after the restructuring and after including the $5 million proceeds from settlement of litigation and the $1 million licensing arrangement, we incurred a loss amounting to $232 thousand before income taxes, compared with a loss before income taxes in 1999 of $19.4 million. As our operations outside the United States were profitable, we incurred foreign taxes of $407 thousand; plus we incurred taxes in a number of states where we operate. In 2000, then, the net loss after income taxes amounted to $806 thousand. The net loss in 1999 after the benefit of current and deferred income taxes, amounted to $14.6 million. For 2000, basic and diluted loss per share amounted to $0.09 per share, compared with basic and diluted loss per share in 1999 of $1.55 per share. 1999 SALES AND OPERATIONS COMPARED WITH 1998 Our disappointments started early in 1999, when Sears, Penney's and Mervyns accelerated their move toward emphasizing in-house private label brands for many categories of merchandise reducing the amount of Dearfoams(R) branded slipper products that they purchased from us. This reduced our sales in 1999 by approximately $8 million from 1998. With reduced sales to these customers, we recognized the need for further emphasis on lowering production levels and reducing our inventories. Lowering production levels was very expensive. Operating our plants at less than optimum capacity resulted in inefficiencies and underutilized capacity. Complicating matters was our having finalized the fall 1999 line later in the season than normal. Finalizing the line late contributed to plant inefficiencies and in some cases contributed to late deliveries to customers. Also during 1999, we aggressively liquidated closeout and irregular inventory, at lower than normal gross profit levels. During 1999, we introduced Soluna(TM) with disappointing sell-through at retail. Early in 1999, retailers were very excited about this new line of products, but consumers did not confirm the retailers' optimism later in the year. We supported Soluna(TM) heavily with promotional activities and incurred significant costs to support the movement of inventory through the retail pipeline. In Europe, we invested heavily in television advertising as a means to strengthen our slippers' brand awareness in France. This added expense increased our costs of operation. In 1999, the costs of our lawsuit against Domino's Pizza and Phase Change Laboratories for patent infringement added to our expense structure. For the fiscal year 1999, net sales amounted to $140.1 million, approximately 6.2 percent lower than net sales in 1998 of $149.4 million. For the 1999 fiscal year, we incurred a loss of $14.6 million. Net sales for Barry Comfort North America decreased in 1999 to $118.9 million from $128.0 million in 1998, a 7.1 percent decline in at-and-around-the-home comfort footwear. The primary contributors to this decline were the decisions of Sears, Penney's, and Mervyns to move toward in-house private label for a sizable portion of their merchandise. Net sales for Barry Comfort Europe, principally in the United Kingdom and France, amounted to $11.6 million in 1999, compared with net sales of $9.5 million in 1998. Net sales of Thermal products declined in 1999 to $9.5 million from $11.9 million in 1998. The decrease was mainly the result of the decision to concentrate efforts on the development of commercial applications of the thermal technologies. We believe our decision in 1999 to exit the consumer products business with these technologies, contributed to the decline in net sales and gross profit. We also believe that sales of Thermal products were adversely affected by the patent infringement of Domino's Pizza and Phase Change Laboratories. 15 9 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS R.G.BARRY CORPORATION AND SUBSIDIARIES Gross profit in 1999 amounted to $54.1 million, as compared with gross profit in 1998 of $72.7 million. Gross profit as a percent of net sales declined in 1999 to 38.6 percent, compared with 48.7 percent during 1998. Gross profit was adversely impacted in 1999, by several items: net sales declined from 1998; lowering production and reducing inventory on hand was very costly, with manufacturing operating at less than optimum levels of capacity, and generating inefficiencies; the new factory in the Dominican Republic operated inefficiently; and closeout, excess inventory was sold at little or no profit. Selling, general and administrative expenses increased significantly in 1999 to $66.4 million, compared with $56.7 million in 1998. The increase in these expenses reflects added costs in a number of areas: we incurred added expenses in support of the marketing and selling of our products, with a sizable portion of the increase associated with the new Soluna(TM) Spa-at-home products; opening a warehouse in San Antonio increased the costs of storage and shipping; we incurred added expenses to defend our proprietary patents against infringement; and we incurred the added costs of French television advertising. Net interest expense increased in 1999 slightly from 1998. During 1999, the daily average seasonal borrowings under the Revolver were $9.9 million, compared with $7.6 million during 1998. The weighted average interest rate in 1999 at 6.4 percent declined slightly from 6.7 percent in 1998. In December 1999, we announced a restructuring plan that was to address the problems experienced during 1999. The estimated $1.9 million cost of the plan was provided for in the operating results for 1999. Early in 2000, the manufacturing facility in Shenzhen, China closed. We reduced the size of the warehouse facility in San Antonio, Texas, reduced the administrative office space in San Antonio, shifted Thermal production to facilities in Mexico, shifted Thermal warehousing to Goldsboro, relocated sample making operations from Columbus to Mexico, streamlined our design and product development processes, and relocated marketing functions to offices in New York City. As a result of the narrowed focus and exiting consumer products and housewares for our Thermal retention technology products, we determined that the goodwill associated with the acquisition of Vesture Corporation in 1994 was impaired with little or no value. Accordingly, we wrote off the $4 million balance of the goodwill. For the 1999 fiscal year, after the restructuring discussed above, we incurred a loss of $19.4 million before income taxes, compared with earnings before taxes in 1998 of $14.8 million. After the benefit of current and deferred income taxes, the net loss in 1999 was $14.6 million. In 1998, net earnings after income taxes were $9.3 million. For 1999, the basic and diluted loss per share was $1.55 per share, compared with basic earnings per share in 1998 of $0.96 per share, and diluted earnings per share of $0.93 per share. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: The statements in this Annual Report to Shareholders, which are not historical fact are forward-looking statements based upon our current plans and strategies, and reflect our current assessment of the risks and uncertainties related to business, including such things as product demand and market acceptance; the economic and business environment and the impact of governmental regulations, both in the United States and abroad; the effects of direct sourcing by customers of competitive products from alternative suppliers; the effect of pricing pressures from retailers; inherent risks of international development, including foreign currency risks, the implementation of the Euro, economic, regulatory and cultural difficulties or delays in our business development outside the United States; our ability to improve processes and business practices to keep pace with the economic, competitive and technological environment; the availability and costs of financing; capacity, efficiency, and supply constraints; weather; and other risks detailed in the our press releases, shareholder communications, and Securities and Exchange Commission filings. Actual events affecting us and the impact of such events on our operations may vary from those currently anticipated. 16 10 CONSOLIDATED BALANCE SHEETS R.G.BARRY CORPORATION AND SUBSIDIARIES
DECEMBER 30, January 1, 2000 2000 ------------ ---------- (in thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,930 $ 10,006 Accounts receivable: Trade (less allowance for doubtful receivables, returns and promotions of $14,141 and $20,782, respectively) 19,650 8,644 Other 1,945 1,010 Inventory 32,796 40,994 Recoverable income taxes 2,820 775 Deferred income taxes 4,401 7,711 Prepaid expenses 1,726 2,538 -------- -------- Total current assets 70,268 71,678 -------- -------- Property, plant, and equipment, at cost 40,187 43,333 Less accumulated depreciation and amortization 28,446 28,925 -------- -------- Net property, plant, and equipment 11,741 14,408 -------- -------- Deferred income taxes 2,339 1,740 Goodwill (less accumulated amortization of $193 and $68, respectively) 2,266 2,602 Other assets 2,935 2,736 -------- -------- $ 89,549 $ 93,164 ======== ======== LIABILITIES AND SHAREHOLDERS'EQUITY CURRENT LIABILITIES: Current installments of long-term debt $ 2,432 $ 2,143 Notes payable to minority holders and others -- 682 Accounts payable 6,206 8,424 Accrued expenses 6,077 6,456 -------- -------- Total current liabilities 14,715 17,705 -------- -------- Accrued retirement cost, excluding current liability 5,975 4,989 Long-term debt, excluding current installments 7,637 8,571 Other 1,476 1,273 -------- -------- Total liabilities 29,803 32,538 -------- -------- Minority interest 294 242 Shareholders' equity: Preferred shares, $1 par value. Authorized 3,775 Class A shares, 225 Series I Junior Participating Class A shares, and 1,000 Class B shares; none issued -- -- Common shares, $1 par value. Authorized 22,500 shares; issued and outstanding 9,371 and 9,349 shares (excluding treasury shares of 980 and 1,003) 9,371 9,349 Additional capital in excess of par value 12,069 12,050 Deferred compensation (461) (539) Accumulated other comprehensive income (337) (92) Retained earnings 38,810 39,616 -------- -------- Net shareholders' equity 59,452 60,384 Commitments and contingencies -- -- -------- -------- $ 89,549 $ 93,164 ======== ========
See accompanying notes to consolidated financial statements. 17 11 CONSOLIDATED STATEMENTS OF OPERATIONS R.G.BARRY CORPORATION AND SUBSIDIARIES
2000 1999 1998 -------- -------- -------- (in thousands, except per share data) Net sales $149,435 $140,092 $149,404 Cost of sales 93,816 85,996 76,707 -------- -------- -------- Gross profit 55,619 54,096 72,697 Selling, general, and administrative expenses 58,321 66,416 56,719 Restructuring and asset impairment charges 1,921 5,914 -- -------- -------- -------- Operating income (loss) (4,623) (18,234) 15,978 Proceeds from litigation, net of expenses incurred 4,476 -- -- Other income 1,717 502 380 Interest expense, net of interest income of $240, $367 and $389, respectively (1,802) (1,651) (1,607) -------- -------- -------- Earnings (loss) before income taxes (232) (19,383) 14,751 Income tax expense (benefit) 522 (4,778) 5,443 Minority interest, net of tax (52) (20) -- -------- -------- -------- Net earnings (loss) $ (806) $(14,625) $ 9,308 ======== ======== ======== Earnings (loss) per common share: Basic $ (0.09) $ (1.55) $ 0.96 ======== ======== ======== Diluted $ (0.09) $ (1.55) $ 0.93 ======== ======== ========
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'EQUITY R.G. BARRY CORPORATION AND SUBSIDIARIES
Additional Accumulated capital in Deferred other Common excess of compen- Retained comprehensive Shareholders' shares par value sation earnings income equity -------- ---------- -------- -------- ------------- ------------ (in thousands) Balance at January 3, 1998 $ 9,564 $ 14,629 $ -- $ 43,415 $ -- $ 67,608 Cumulative effect of change from LIFO to FIFO -- -- -- 1,518 -- 1,518 Comprehensive income: Net earnings -- -- -- 9,308 -- 9,308 Other comprehensive income: Foreign currency translation adjustment -- -- -- -- -- -- Total comprehensive income 9,308 Deferred compensation -- 230 (230) -- -- -- Amortization of deferred compensation -- -- 26 -- -- 26 Stock options exercised 217 793 -- -- -- 1,010 Tender of shares (36) (508) -- -- -- (544) Tax benefit associated with the activity under various stock plans -- 213 -- -- -- 213 -------- -------- -------- -------- -------- -------- Balance at January 2, 1999 9,745 15,357 (204) 54,241 -- 79,139 Comprehensive income: Net loss -- -- -- (14,625) -- (14,625) Other comprehensive income: Foreign currency translation adjustment -- -- -- -- (92) (92) Total comprehensive income -- -- -- -- -- (14,717) Deferred compensation 71 335 (406) -- -- -- Amortization of deferred compensation -- -- 71 -- -- 71 Stock options exercised 11 29 -- -- -- 40 Purchase of shares (478) (3,671) -- -- -- (4,149) -------- -------- -------- -------- -------- -------- Balance at January 1, 2000 9,349 12,050 (539) 39,616 (92) 60,384 Comprehensive income: Net loss -- -- -- (806) -- (806) Other comprehensive income: Foreign currency translation adjustment -- -- -- -- (180) (180) Pension liability adjustment -- -- -- -- (65) (65) Total comprehensive loss -- -- -- -- -- (1,051) Deferred compensation 22 19 (41) -- -- -- Amortization of deferred compensation -- -- 119 -- -- 119 -------- -------- -------- -------- -------- -------- BALANCE AT DECEMBER 30, 2000 $ 9,371 $ 12,069 $ (461) $ 38,810 $ (337) $ 59,452 ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 18 12 CONSOLIDATED STATEMENTS OF CASH FLOWS R.G.BARRY CORPORATION AND SUBSIDIARIES
2000 1999 1998 -------- -------- -------- (in thousands) Cash flows from operating activities: Net earnings (loss) $ (806) $(14,625) $ 9,308 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: Tax benefit associated with activity under various stock plans -- -- 213 Depreciation and amortization of property, plant, and equipment 2,109 2,243 2,413 Amortization of goodwill 136 183 116 Goodwill write-off -- 4,000 -- Deferred income tax expense (benefit) 2,711 (4,535) 663 Loss on disposal of property, plant, and equipment 998 186 35 Amortization of deferred compensation 119 71 26 Minority interest, net of tax 52 20 -- Changes in: Accounts receivable (11,985) 2,907 643 Inventory 8,095 5,245 (1,985) Prepaid expenses and other assets (1,283) (1,039) 394 Accounts payable (2,131) (777) 192 Accrued expenses (458) (2,742) (3,319) Accrued retirement cost, net 921 549 1,019 Other liabilities (58) 292 311 -------- -------- -------- Net cash provided (used) by operating activities (1,580) (8,022) 10,029 -------- -------- -------- Cash flows from investing activities: Acquisition, net of cash acquired -- (2,448) -- Additions to property, plant, and equipment (653) (3,381) (1,136) Proceeds from disposal of property, plant, and equipment 8 10 44 -------- -------- -------- Net cash used in investing activities (645) (5,819) (1,092) -------- -------- -------- Cash flows from financing activities: Repayment of long-term debt, capital lease obligations, and short-term note payable, net (934) (2,278) (2,273) Short-term borrowings -- 489 -- Proceeds from shares issued -- 40 1,010 Purchase of common shares for treasury -- (4,149) (544) -------- -------- -------- Net cash used by financing activities (934) (5,898) (1,807) -------- -------- -------- Effect of exchange rates on cash 83 (49) -- -------- -------- -------- Net increase (decrease) in cash (3,076) (19,788) 7,130 Cash and cash equivalents at beginning of year 10,006 29,596 22,495 -------- -------- -------- Cash and cash equivalents at end of year $ 6,930 $ 9,808 $ 29,625 ======== ======== ======== Supplemental cash flow disclosures: Interest paid $ 2,124 $ 2,113 $ 1,978 ======== ======== ======== Income taxes paid $ 413 $ 4,127 $ 8,752 ======== ======== ========
See accompanying notes to consolidated financial statements. 19 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) OPERATIONS R. G. Barry Corporation (the Company) is a United States based multinational corporation. The Company's principal line of business is comfort products for at and around the home. The predominant market for the Company's products is North America. Products are sold primarily to department and discount stores. (b) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (c) CASH EQUIVALENTS Investments with maturities of three months or less at the date of issuance are considered cash equivalents. (d) INVENTORY Inventory is valued at the lower of cost or market as determined on the first-in, first-out (FIFO) basis. (e) DEPRECIATION AND AMORTIZATION Depreciation and amortization have been provided substantially using the straight-line method over the estimated useful lives of the assets. (f) REVENUE RECOGNITION The Company recognizes revenue when the goods are shipped to customers. The Company has established programs which, in certain circumstances, enable its customers to return product. The effect of these programs is estimated and a returns allowance is provided. (g) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (h) PER-SHARE INFORMATION The computation of basic earnings (loss) per common share for 2000, 1999, and 1998 is based on the weighted average number of outstanding common shares during the period. Diluted earnings per common share for 1998 is based on the weighted average number of outstanding common shares during the period, plus, when their effect is dilutive, potential common shares consisting of certain shares subject to stock options and the stock purchase plan. Diluted loss per common share for 2000 and 1999 does not include effect of potential common shares due to antidilutive effect of these instruments. (i) USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those estimates. (j) FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses as reported in the financial statements approximate their fair value because of the short-term maturity of those instruments. The fair value of the Company's long-term debt is disclosed in note 4. (k) GOODWILL Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on the straight-line method over 20 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered 20 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. (l) STOCK-BASED COMPENSATION The Company follows the intrinsic value method set forth in APB Opinion No. 25, Accounting for Stock Issued to Employees, and provides pro forma net earnings (loss) and pro forma earnings (loss) per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied (see note 9). (m) ADVERTISING AND PROMOTION The Company has certain programs in place to advertise and promote the sale of its products. The Company expenses the costs of advertising and promotion as incurred. For the years ended December 30, 2000, January 1, 2000, and January 2, 1999, advertising and promotion expenses were $11,805, $13,965 and $9,181, respectively. (n) COMPREHENSIVE INCOME Comprehensive income (loss) consists of net income, foreign currency translation adjustments and pension liability adjustments and is presented in the consolidated statements of shareholders' equity. (o) TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS Assets and liabilities of foreign operations have been translated into United States dollars at the applicable rates of exchange in effect at the end of the period. Revenues, expenses and cash flows have been translated at the applicable weighted average rates of exchange in effect during the period. (p) IMPAIRMENTOF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (q) RECLASSIFICATION Certain amounts in the 1999 and 1998 financial statements have been reclassified to conform with the 2000 presentation. (2) INVENTORY In 1973, the Company first began using the Last-In, First-Out (LIFO) inventory costing method for its domestic inventory of company-manufactured soft washable slippers. At that time inventories accounted for under LIFO amounted to substantially all of the Company's inventories. In recent years, the portion of the Company's total inventory using the LIFO method has declined over time. As the Company has expanded into Europe, those inventories have been accounted for using the First-In, First-Out (FIFO) method, and inventories of thermal products have also been accounted for using the FIFO method. Effective in 2000, the Company changed its inventory costing method for its domestic inventories of manufactured soft washable slippers from the LIFO method to the FIFO method. In recent years, several events have occurred that make the Company believe that the FIFO method is a preferable method of more appropriately and consistently matching its current costs with revenue. (i) In recent years the Company has modified its manufacturing methods and geographically moved its manufacturing, so as to take advantage of lower costs of production in parts of the world outside of the United States, thus lessening the impact of general inflationary factors normally found in the United States, (ii) The Company 21 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued has made greater use of and expects to make a greater use of independent third party manufacturers. Inventory produced by third party manufacturers has been excluded from LIFO inventory, and (iii) As noted above, in recent years, a smaller and smaller proportional amount of the Company's total inventories are valued using the LIFO method. The use of the LIFO method, in an environment of a declining pool of LIFO based inventories, creates the exposure of a LIFO layer liquidation which potentially results in a poor matching of current costs with current revenues. As a result, the Company believes that the FIFO method, for the future, will provide a more appropriate matching of current costs with current revenues. The effect of the change in accounting was to decrease the reported net loss for 2000, by $418 after tax, or $0.04 per diluted share. The change has been applied to prior years by retroactively restating the financial statements. The effect of this restatement was to increase retained earnings as of January 3, 1998, the beginning of the earliest year's financial statements provided, by $1,518. The restatement decreases the net income reported for 1998 by $459 or $0.05 per diluted share, and increases the net loss reported for 1999, by $844 or $0.09 per diluted share. Inventory by category for the Company consists of the following:
DECEMBER 30, January 1, 2000 2000 ------------ ---------- (in thousands) Raw materials $ 7,739 $ 8,553 Work in process 1,708 3,407 Finished goods 23,349 29,034 ------- ------- Total inventory $32,796 $40,994 ======= =======
(3) PROPERTY,PLANT,AND EQUIPMENT Property, plant, and equipment consists of the following:
DECEMBER 30, January 1, Estimated 2000 2000 life in years ------------ ---------- ------------- (in thousands) Land and improvements $ 506 $ 507 8-15 Buildings and improvements 5,915 5,854 40-50 Machinery and equipment 26,190 28,092 3-10 Leasehold improvements 7,522 8,608 5-20 Construction in progress 54 272 ------- ------- $40,187 $43,333 ======= =======
(4) LONG-TERM DEBTAND RESTRICTIONS Long-term debt consists of the following:
DECEMBER 30, January 1, 2000 2000 ------------ ---------- (in thousands) 9.7% note, due July 2004 $ 8,571 $10,714 Other notes 1,498 -- ------- ------- 10,069 10,714 Less current installments 2,432 2,143 ------- ------- Long-term debt, excluding current installments $ 7,637 $ 8,571 ======= =======
The 9.7% note, issued in July 1994, requires semiannual interest payments and annual principal repayments of $2,143, which commenced in 1998 and end in 2004. The other notes, issued in January 2000, require quarterly interest and principal payments which commenced in 2000 and end in 2007. The interest rate on these notes is set to Euribor plus 1% on a quarterly basis; at year-end the interest rate on these notes was 5.5%. 22 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued The Company has estimated the fair value of its long-term debt based upon the present value of expected cash flows, considering expected maturities and using current interest rates available to the Company for borrowings with similar terms. The fair value of the 9.7% note was $9,050 and $11,144 at December 30, 2000 and January 1, 2000, respectively. During 2000, the Company modified its unsecured revolving credit agreement with its banks. The principal amendments to the revolver replaced the interest coverage ratio test for the first three quarters of 2000 with minimum operating results and increased the borrowing spread over market rates, and increased the periodic reporting of certain financial information. The agreement provides the Company with a seasonally adjusted amount of credit that has a peak availability of $30 million, with interest at variable rates. At December 30, 2000 and January 1, 2000, no amounts were outstanding. This agreement which provides for annual extensions, currently expires on December 31, 2001. Under the most restrictive covenants of the various loan agreements, the Company is (1) required to maintain a seasonally adjusted current ratio; (2) required to maintain a minimum seasonally adjusted tangible net worth; (3) restricted as to annual acquisition of fixed assets; and (4) restricted with regard to the amount of additional borrowings, purchase of treasury shares and payment of dividends. At December 30, 2000, approximately $2 million of retained earnings was available for the payment of cash dividends and the purchase of treasury shares. There were no covenant violations during 2000 and 1999. The Company maintains compensating cash balances, which are not legally restricted, to defray the costs of other banking services provided. (5) LEASE COMMITMENTS The Company occupies certain manufacturing, warehousing, operating, and sales facilities and uses certain equipment under cancelable and noncancelable operating lease arrangements. A summary of the noncancelable operating lease commitments at December 30, 2000 follows.
Fiscal year AMOUNT ----------- ------- (in thousands) 2001 $ 3,756 2002 3,165 2003 2,794 2004 1,852 2005 1,107 Later fiscal years, through 2007 1,337 ------- $14,011 =======
Substantially all of these operating lease agreements are renewable for periods of 3 to 15 years and require the Company to pay insurance, taxes and maintenance expenses. Rent expense under cancelable and noncancelable operating lease arrangements in 2000, 1999, and 1998, amounted to $6,056, $6,275, and $5,512, respectively. (6) INCOME TAXES Income tax expense (benefit) consists of:
2000 1999 1998 ------- ------- ------- (in thousands) Current expense (benefit): Federal $(2,847) $ (776) $ 4,644 Foreign 433 254 108 State 225 774 297 ------- ------- ------- (2,189) 252 5,049 Deferred expense (benefit) 2,711 (5,030) 394 ------- ------- ------- $ 522 $(4,778) $ 5,443 ======= ======= =======
23 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued The differences between income taxes computed by applying the statutory federal income tax rate (34% in 2000 and 35% in 1999 and 1998) and income tax expense (benefit) in the consolidated financial statements are:
2000 1999 1998 ------- ------- ------- (in thousands) Computed "expected" tax expense (benefit) $ (79) $(6,784) $ 5,163 State income taxes, net of federal income tax benefit 149 502 193 Foreign income taxes 407 69 108 Impairment write down of goodwill -- 1,400 -- Other, net 45 35 (21) ------- ------- ------- $ 522 $(4,778) $ 5,443 ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
DECEMBER 30, 2000 January 1, 2000 ----------------- --------------- (in thousands) Deferred tax assets: Accounts receivable $1,898 $4,526 Inventories 1,326 1,930 Package design costs 287 272 Certain accounting accruals, including such items as self-insurance costs, vacation costs, and others 971 946 Pension costs 2,684 2,219 State NOL carryforward 213 -- ------ ------ Total deferred tax assets 7,379 9,893 Deferred tax liabilities: Royalties 294 -- Property, plant, and equipment 345 442 ------ ------ Total deferred tax liabilities 639 442 ------ ------ Net deferred tax assets $6,740 $9,451 ====== ======
The Company believes the existing net deductible temporary differences will reverse during future periods in which the Company generates net taxable earnings. The Company considers 1999 and 2000 to be unusual years since throughout the Company's history it has regularly been profitable. The Company is in the process of a three year plan to reinvent itself and expects to resume profitable operations in upcoming years. Further, the Company believes it has available certain tax planning strategies that could be implemented, if necessary, to supplement future taxable earnings from operations. The Company has considered the above factors in concluding that it is more likely than not that the Company will realize the future benefits of existing deferred tax assets. There can be no assurance, however, that the Company will generate any specific level of continuing earnings. Deferred taxes are not provided on unremitted earnings of subsidiaries outside the United States because it is expected that the earnings are permanently reinvested. Such earnings may become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. (7) ACCRUED EXPENSES Accrued expenses consist of the following:
DECEMBER 30, 2000 January 1, 2000 ----------------- --------------- (in thousands) Salaries and wages $1,383 812 Income taxes 524 1,239 Restructuring costs 1,026 1,794 Other 3,144 2,611 ------ ------ $6,077 $6,456 ====== ======
24 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G. BARRY CORPORATION AND SUBSIDIARIES continued (8) EMPLOYEE RETIREMENT PLANS The Company and its domestic subsidiaries have a noncontributory retirement plan for the benefit of salaried and nonsalaried employees, the Associates' Retirement Plan (ARP). The employees covered under the ARP are eligible to participate upon the completion of one year of service. Salaried participant benefits are based upon a formula applied to a participant's final average salary and years of service, which is reduced by a certain percentage of the participant's social security benefits. Nonsalaried participant benefits are based on a fixed amount for each year of service. The ARP provides reduced benefits for early retirement. The Company intends to fund the minimum amounts required under the Employee Retirement Income Security Act of 1974. The funded status of the ARP and the accrued retirement costs recognized at December 30, 2000 and January 1, 2000 were:
2000 1999 -------- -------- (in thousands) Change in benefit obligation: Benefit obligation at the beginning of the year $ 23,679 $ 23,163 Service cost 798 843 Interest cost 1,739 1,496 Actuarial (gain)/loss 370 (826) Benefits paid (880) (997) -------- -------- Benefit obligation at the end of the year 25,706 23,679 ======== ======== Change in plan assets: Fair value of plan assets at the beginning of the year 23,618 22,212 Actual return on plan assets 1,010 2,641 Expenses (207) (238) Benefits paid (880) (997) -------- -------- Fair value of plan assets at the end of the year 23,541 23,618 ======== ======== Funded status (2,165) (60) Unrecognized actuarial (gain)/loss 300 (1,297) Unrecognized prior service cost 186 140 -------- -------- Net amount recognized in the consolidated balance sheets $ (1,679) $ (1,217) ======== ========
The Company also has a Supplemental Retirement Plan (SRP) for certain officers and other key employees of the Company as designated by the Board of Directors. The SRP is unfunded, noncontributory, and provides for the payment of monthly retirement benefits. Benefits are based on a formula applied to the recipients' final average monthly compensation, reduced by a certain percentage of their social security benefits. 25 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G. BARRY CORPORATION AND SUBSIDIARIES continued The funded status of the SRP and the accrued retirement cost recognized at December 30, 2000 and January 1, 2000 are:
2000 1999 ------- ------- (in thousands) Change in benefit obligation: Benefit obligation at the beginning of the year $ 4,214 $ 4,216 Service cost 86 81 Interest cost 312 275 Amendments 175 -- Actuarial gain (166) (259) Benefits paid (99) (99) ------- ------- Benefit obligation at the end of the year 4,522 4,214 ======= ======= Change in plan assets: Fair value of plan assets at the beginning of the year -- -- Employer contributions 99 99 Benefits paid (99) (99) ------- ------- Fair value of plan assets at the end of the year -- -- ======= ======= Funded status (4,522) (4,214) Contribution during the fourth quarter 25 25 Unrecognized actuarial (gain)/loss (254) (66) Unrecognized prior service cost 635 547 Unrecognized net transition obligation 20 69 ------- ------- Net amount recognized in the consolidated balance sheets (4,096) (3,639) ======= ======= Amounts recognized in the consolidated balance sheets consist of: Accrued retirement cost, including current liability of $99 (4,395) (3,871) Intangible asset 234 232 Accumulated other comprehensive income 65 -- ------- ------- Net amount recognized $(4,096) $(3,639) ======= =======
The components of net periodic benefit cost for the retirement plans were:
2000 1999 1998 ------- ------- ------- (in thousands) Service cost $ 884 $ 923 $ 770 Interest cost 2,051 1,771 1,591 Expected return on plan assets (2,029) (1,853) (1,655) Net amortization 113 165 (109) ------- ------- ------- $ 1,019 $ 1,006 $ 597 ======= ======= =======
Weighted average assumptions as of December 30, 2000 and January 1, 2000 were:
2000 1999 ------------ ------------ Discount rate 7.50% 7.50% Rate of compensation increase 4.50 - 5.00% 4.50 - 5.00% Expected return on plan assets 9.25% 9.25%
The Company has a 401(k) plan to which salaried and nonsalaried employees may contribute a percentage, as defined, of their compensation per pay period and the Company contributes 50% of the first 3% of each participant's compensation contributed to this plan. The Company's contribution to the 401(k) plan for the year ended December 30, 2000, January 1, 2000 and January 2, 1999 was $254, $261 and $247, respectively. 26 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued (9) SHAREHOLDERS' EQUITY The Company has various stock option plans, which have granted incentive stock options (ISO's) and non-qualified stock options exercisable for periods of up to 10 years from date of grant at prices not less than fair market value at date of grant. Information with respect to options under these plans follows:
ISO NON-QUALIFIED NUMBER NUMBER WEIGHTED-AVERAGE OF SHARES OF SHARES EXERCISE PRICE --------- ------------- ---------------- Outstanding at January 3, 1998 929,200 191,000 $ 8.83 Granted 128,500 156,500 14.08 Exercised (205,600) (11,400) 4.65 Expired/Cancelled (7,100) -- 10.02 -------- ------- ------- Outstanding at January 2, 1999 845,000 336,100 10.85 Granted 331,600 87,000 7.31 Exercised (9,800) -- 3.54 Expired/Cancelled (210,400) (62,700) 10.82 -------- ------- ------- Outstanding at January 1, 2000 956,400 360,400 9.85 Granted 196,900 63,100 3.23 Exercised -- -- -- Expired/Cancelled (633,700) (89,800) 9.68 -------- ------- ------- Balance outstanding at December 30, 2000 519,600 333,700 $ 7.90 ======== ======= ======= Options exercisable at December 30, 2000 235,800 215,100 ======== =======
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------------- ---------------------------------- NUMBER WEIGHTED-AVERAGE NUMBER RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE EXERCISE PRICES AT 12/30/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/30/00 EXERCISE PRICE --------------- ----------- ---------------- ---------------- ----------- ---------------- $5.00 and under 317,600 8.26 $ 3.27 65,000 $ 3.24 5.01 - 10.00 283,700 4.98 $ 8.31 216,200 $ 8.27 10.01 - 15.00 245,300 5.84 $13.17 169,700 $12.96 15.01 and over 6,700 2.36 $16.43 -- -- ------- ------- 853,300 450,900 ======= =======
At December 30, 2000, the remaining number of ISO and nonqualified shares available for grant was 679,000. At December 30, 2000, January 1, 2000, and January 2, 1999, the options outstanding under these plans were held by 73, 81, and 98, employees, respectively, and had expiration dates ranging from 2001 to 2012. Stock appreciation rights may be issued subject to certain limitations. There were no rights outstanding at December 30, 2000, January 1, 2000, or January 2, 1999. Had the Company elected to determine compensation cost based on the fair value at the grant date, as alternatively permitted under SFAS No. 123, the Company's net earnings would have been reduced to the pro forma amounts indicated below:
2000 1999 1998 --------- ---------- --------- Net earnings (loss): As reported $ (806) $ (14,625) $ 9,308 Pro forma (1,400) (15,807) 8,121 Earnings (loss) per share (diluted): As reported (.09) (1.55) .93 Pro forma (.15) (1.67) .82 ========= ========== =========
27 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued Using the Black Scholes option-pricing model, the per-share, weighted- average fair value of stock options granted during 2000, 1999, and 1998, was $1.10, $3.33, and $7.17, respectively, on the date of grant. The assumptions used in estimating the fair value of the options as of December 30, 2000 and January 1, 2000 were:
2000 1999 ------- ------------- Expected dividend yield 0% 0% Expected volatility 45% 40% Risk-free interest rate 6.25% 5% Expected life-- ISO grants 6 years 5.5 years Nonqualified grants 8 years 7.5 - 8 years
The Company has an employee stock purchase plan in which approximately 800 employees are eligible to participate. Under the terms of the plan, employees receive options to acquire common shares at the lower of 85% of the fair market value on their enrollment date or at the end of each two-year plan term.
SHARES SUBSCRIBED ---------- Balance at January 2, 1999 61,000 Subscriptions -- Purchases (900) Expired (60,100) ------- Balance at January 1, 2000 -- Subscriptions 249,300 Purchases -- Expired (10,600) ------- Balance at December 30, 2000 238,700 =======
During December 2000, the Company offered all stock option holders, excluding its Chief Executive Officer, with an option price greater than $5 per share, the opportunity to participate in an option exchange program. The program permitted the option holder to tender his current options for cancellation prior to the end of the year. In return the Company has agreed to reissue to the option holder one-half of the number of option shares tendered, contingent upon continued employment, after the passage of six months and one day. The options, to be granted late in June 2001, will be granted at the then current fair market value. Approximately 557,000 shares were tendered under the program, by 68 associates. 28 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued (10) EARNINGS PER SHARE For the years ended:
2000 ------------------------------------------- LOSS SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- BASIC AND DILUTED EPS-- Net loss allocable to common shareholders $(806) 9,399 $ (.09)
Options to purchase 1,092,000 common shares at prices up to $16.43 were outstanding in 2000 but were not included in the computation of diluted earnings per share because of the net loss incurred by the Company and, therefore, the effect would be anti-dilutive.
1999 ------------------------------------------- Earnings Shares Per-share (Numerator) (Denominator) amount ----------- ------------- --------- BASIC AND DILUTED EPS-- Net loss allocable to common shareholders $(14,625) 9,455 $ (1.55)
Options to purchase 1,316,800 common shares at prices up to $16.43 were outstanding in 1999 but were not included in the computation of diluted earnings per share because of the net loss incurred by the Company and, therefore, the effect would be anti-dilutive.
1998 ------------------------------------------- Earnings Shares Per-share (Numerator) (Denominator) amount ----------- ------------- --------- BASIC EPS -- Net earnings available to common shareholders $9,308 9,698 $ .96 EFFECT OF DILUTIVE SECURITIES -- Stock options -- 294 (.03) DILUTED EPS-- Net earnings available to common shareholders plus assumed conversions 9,308 9,992 .93
(11) PREFERRED SHARE PURCHASE RIGHTS In February, 1998, the Company's Board of Directors declared a distribution of one Preferred Share Purchase Right (Right) for each outstanding common share of the Company to shareholders of record on March 16, 1998. The new Rights replaced similar Rights issued in 1988 which expired on March 16, 1998. Under certain conditions, each new Right may be exercised to purchase one one-hundredth of a share of Series Junior I Participating Class A Preferred Shares, par value $1 per share, at an initial exercise price of $40. The Rights initially will be attached to the Common Shares. The Rights will separate from the Common Shares and a Distribution Date will occur upon the earlier of 10 business days after a public announcement that a person or group has acquired, or obtained the right to acquire 20% or more of the Company's outstanding common shares (Share Acquisition Date) or 10 business days (or such later date as the Board shall determine) after the commencement of a tender or exchange offer that would result in a person or group beneficially owning 20% or more of the Company's outstanding common shares. The Rights are not exercisable until the Distribution Date. 29 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued In the event that any Person becomes the beneficial owner of more than 20% of the then outstanding common shares, each holder of a Right will be entitled to purchase, upon exercise of the Right, common shares having a market value two times the exercise price of the Right. In the event that, at any time following the Share Acquisition Date, the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation or 50% or more of the Company's assets or earning power is sold or transferred, the holder of a Right will be entitled to buy the number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. The Rights, which do not have any voting rights, expire on March 16, 2008, and may be redeemed by the Company at a price of $0.01 per Right at any time until 10 business days following the Share Acquisition Date. Each Class A Preferred Share is entitled to one-tenth of one vote, while Class B Preferred Shares are entitled to ten votes. The preferred shares are entitled to a preference in liquidation. None of these shares have been issued. (12) RELATED-PARTY OBLIGATION The Company and a key executive have entered into an agreement pursuant to which the Company is obligated for up to two years after the death of the key executive to purchase, if the estate elects to sell, up to $4 million of the Company's common shares, at their fair market value. To fund its potential obligation to purchase such shares, the Company has purchased a $5 million life insurance policy on the key executive, the cash surrender value of which is included in other assets in the accompanying consolidated balance sheets. In addition, for a period of 24 months following the key executive's death, the Company will have a right of first refusal to purchase any common shares of the Company owned by the key executive at the time of his death if his estate elects to sell such shares. The Company would have the right to purchase such shares on the same terms and conditions as the estate proposes to sell such shares. At January 1, 2000, Escapade SA, the Company's 80% owned French subsidiary, had a $489 note payable to its 20% shareholder. This note was subsequently repaid in January 2000. (13) SEGMENT REPORTING SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the manner in which public enterprises report information about operating segments, their products and the geographic areas where they operate. The Company manufactures and markets comfort footwear for at-and-around- the-home and supplies thermal retention technology products. The Company considers its "Barry Comfort" at-and-around-the-home comfort footwear group in North America and Europe, and the thermal retention technology products group, "Thermal", as its three operating segments. The accounting policies of the operating segments are substantially similar to those described in note 1, except that the disaggregated financial information has been prepared using certain management reports, which by their very nature require estimates. In addition, certain items from these management reports have not been allocated among operating segments. Some of the more significant items include: a) costs of certain administrative functions, b) current and deferred income tax expense (benefit) and deferred tax assets (liabilities), and c) in some years, certain operating provisions. Revenues, and net property, plant and equipment, have been allocated to geographic areas based upon the location of the Company's operating unit. 30 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued REVENUES
2000 1999 1998 -------- -------- -------- (in thousands) United States/North America $137,743 $128,462 $139,861 France 10,406 7,677 3,946 United Kingdom 1,286 3,953 5,597 -------- -------- -------- $149,435 $140,092 $149,404 ======== ======== ========
NET PROPERTY, PLANT AND EQUIPMENT
2000 1999 1998 -------- -------- -------- (in thousands) United States $ 7,469 $ 9,399 $ 9,068 Mexico 3,509 3,478 3,487 Other 763 1,531 320 -------- -------- -------- $11,741 $14,408 $ 12,875 ======== ======== ========
REVENUES BY PRODUCT LINE
2000 1999 1998 -------- -------- -------- (in thousands) At-and-around-the-home footwear $136,728 $130,557 $137,518 Thermal retention technology products 12,707 9,535 11,886 -------- -------- -------- $149,435 $140,092 $149,404 ======== ======== ========
In 2000, 1999 and 1998, one Barry Comfort customer accounted for approximately 21%, 23% and 22% of the Company's net sales, respectively. OTHER SEGMENT INFORMATION
BARRY COMFORT ------------------------- INTER- 2000 NORTH SEGMENT (in thousands) AMERICA EUROPE THERMAL ELIMINATIONS TOTAL -------------- --------- --------- --------- ------------ --------- Net sales $ 125,036 $ 11,692 $ 12,707 $ -- $ 149,435 Depreciation and amortization 1,650 249 210 -- 2,109 Interest income 331 -- 44 (135) 240 Interest expense 1,972 70 135 (135) 2,042 Litigation proceeds, net of expense incurred -- -- 4,476 -- 4,476 Pre tax earnings (loss) (4,440) (1,498) 5,706 -- (232) Additions to property, plant, and equipment 400 201 52 -- 653 Total assets devoted $ 76,041 $ 8,930 $ 4,711 $ (133) $ 89,549 ========= ========= ========= ========= =========
Barry Comfort ------------------------- Inter- 1999 North Segment (in thousands) America Europe Thermal Eliminations Total -------------- --------- --------- --------- ------------ --------- Net sales $ 118,927 $ 11,630 $ 9,535 $ -- $ 140,092 Depreciation and amortization 1,681 176 386 -- 2,243 Interest income 684 27 -- (344) 367 Interest expense 2,010 48 304 (344) 2,018 Pre tax earnings (loss) (5,278) (2,268) (11,837) -- (19,383) Additions to property, plant, and equipment 3,063 220 98 -- 3,381 Total assets devoted $ 85,072 $ 12,341 $ 3,497 $ (7,746) $ 93,164 ========= ========= ========= ========= =========
31 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued
Barry Comfort ------------------------- Inter- 1998 North Segment (in thousands) America Europe Thermal Eliminations Total -------------- --------- --------- --------- ------------ --------- Net sales $ 127,975 $ 9,543 $ 11,886 $ -- $149,404 Depreciation and amortization 2,100 53 260 -- 2,413 Interest income 621 20 -- (252) 389 Interest expense 1,996 -- 252 (252) 1,996 Pre tax earnings (loss) 15,526 (638) (137) -- 14,751 Additions to property, plant, and equipment 789 163 184 -- 1,136 Total assets devoted $ 95,449 $ 8,650 $ 11,686 $ (2,759) $113,026 ========= ========= ========= ========= =========
(14) RESTRUCTURING AND ASSET IMPAIRMENT CHARGES In December 1999, in connection with management's plan to reduce costs and improve operating efficiencies, the Company recorded a restructuring charge of $1,794 as a component of operating income. The restructuring charge primarily related to the elimination of 240 positions. The positions eliminated were primarily manufacturing and administrative positions. As a result, severance and employee benefit costs of $1,487 have been accrued at January 1, 2000. The principle actions in the restructuring plan involved the closure of a production facility in Shenzhen, China, a downsizing of a distribution center and office in San Antonio, Texas, a warehouse in Laredo, Texas, the transfer of redundant manufacturing operations to the Dominican Republic manufacturing facility, and consolidating the related support infrastructure. Additionally, the plan involved the shift of thermal comfort and self-care consumers' production to the Company's Mexican production facilities and to the corporate headquarters, respectively. In December 1999, the Company determined that based on the recoverability of the goodwill balance related to its acquisition of Vesture Corporation in 1994 that the remaining unamortized value could not be recovered through future operating cash flows. The Company's analysis resulted in a charge of $4.0 million to write down the carrying value of the Vesture acquisition goodwill to zero. After an income tax benefit of $670, these actions reduced fiscal year 1999 earnings by $5,244 or $0.55 per share.
Noncash As of Initial write-off Paid in January 1, (in thousands) charge in 1999 1999 2000 ------- --------- ------- ---------- Restructuring charges: Employee separations $1,487 $ -- $ -- $1,487 Other exit costs 94 -- -- 94 Noncancelable lease costs 213 -- -- 213 ------ ------ ------- ------ Restructuring costs 1,794 -- -- 1,794 ------ ------ ------- ------ Asset impairment 120 120 -- -- Goodwill write-down 4,000 4,000 -- -- ====== ====== ======= ====== Total restructuring and asset impairment costs $5,914 $4,120 $ -- $1,794 ====== ====== ======= ======
During 2000, the Company has undertaken additional actions to reduce costs and improve operating efficiencies. The Company has recognized $1,921 in restructuring and asset impairment charges in the 2000 year due primarily to these actions in 2000 as well as to other minor adjustments to existing restructuring accruals from actions initiated in 1999. Actions in 2000 have included: (i) Closure in July 2000 of a distribution warehouse in San Antonio and transfer of its functions to a smaller facility in Laredo, Texas, (ii) closure in December 2000 of a manufacturing facility in the Dominican Republic; and (iii) various staff reduction actions taken in December 2000 in the administrative functions within the Company. The actions taken in the year 2000 involved elimination of 225 positions. 32 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS R.G.BARRY CORPORATION AND SUBSIDIARIES continued After an income tax benefit of $711, these actions in 2000 reduced fiscal year 2000 earnings by $1,210 or $.13 per share.
Accruals Accruals January 1, Charges in Non-cash Paid in December 30, (in thousands) 2000 2000 Adjustments write-offs 2000 2000 --------------- ---------- ----------- ---------- ------- ------------ Employee separations $1,487 $ 551 $ (279) $-- $1,232 $ 527 Other exit costs 94 -- (62) -- 32 -- Noncancelable leases 213 1,013 (5) -- 722 499 ------ ------ ------ ------ ------ ------ Total restructuring 1,794 1,564 (346) -- 1,986 1,026 ------ ------ ------ ------ ------ ------ Asset impairments -- 703 -- 703 -- -- ------ ------ ------ ------ ------ ------ Total $1,794 $2,267 $ (346) $ 703 $1,986 $1,026 ====== ====== ====== ====== ====== ======
(15) ACQUISITION OF ESCAPADE SA Effective July 22, 1999, the Company acquired 80% of the outstanding stock of Escapade SARL(Escapade), which owned 51% of Fargeot et Compagnie SA and Michel Fargeot SA (collectively known as Fargeot), all of Thiviers, France for $2,347 in cash. Fargeot manufactures and markets footwear. Simultaneous with the purchase of 80% of the stock by the Company, Escapade purchased the remaining 49% of Fargeot that it did not own for $2,296 in cash. The proceeds for the purchase of the 49% were funded through loans to Escapade from its two shareholders. The Escapade purchase agreement includes put and call options for the purchase of the remaining 20% of shares not owned by the Company. The 20% shareholder may put the shares to the Company at any time after July 22, 2004 for a period of five years at the price as determined by the purchase agreement. The Company may call the shares and purchase them at any time after July 22, 2000 for a period of nine years at the same basis. The acquisition was accounted for as a purchase, and accordingly, the financial statements include the results of operations for the Company's 80% equity ownership from the date of acquisition. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $2,710 is being amortized over 20 years. The acquisition of Fargeot did not result in a significant business combination within the definition provided by the Securities and Exchange Commission and therefore, pro forma financial information has not been presented. (16) LITIGATION SETTLEMENT During the first quarter of 2000, the Company settled its pending patent infringement litigation. As a part of the settlement the Company received a $5 million cash payment. Net of expenses incurred, the net pretax gain recognized by the Company was approximately $4.5 million. In addition, the Company entered into a licensing arrangement for approximately $1 million for the future use of the Company's thermal technology. (17) CONTINGENT LIABILITIES The Company has been named as defendant in various lawsuits arising from the ordinary course of business. In the opinion of management, the resolution of such matters is not expected to have a material adverse effect on the Company's financial position or results of operations. 33 27 INDEPENDENT AUDITORS' REPORT R.G.BARRY CORPORATION AND SUBSIDIARIES The Board of Directors and Shareholders R. G. Barry Corporation: We have audited the accompanying consolidated balance sheets of R.G. Barry Corporation and subsidiaries as of December 30, 2000 and January 1, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the fiscal years in the three-year period ended December 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of R.G. Barry Corporation and subsidiaries as of December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States of America. As discussed in note 2 to the financial statements, in 2000 the Company changed its method of inventory valuation from Last-In, First-Out (LIFO) to First-In, First-Out (FIFO). /s/ KPMG LLP Columbus, Ohio February 20, 2001 34 EX-18.1 15 l86966aex18-1.txt EXHIBIT 18.1 1 Exhibit 18.1 [KPMG LLP LETTERHEAD] February 20, 2001 Board of Directors R.G. Barry Corporation 13405 Yarmouth Road, NW Pickerington, OH 43147 FORM 10-K REPORT FOR THE YEAR ENDED DECEMBER 30, 2000 Gentlemen/Ladies: We have audited the consolidated balance sheets of R.G. Barry Corporation and subsidiaries (the "Company") as of December 30, 2000 and January 1, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 30, 2000, and have reported thereon under date of February 20, 2001. The aforementioned consolidated financial statements and our audit report thereon are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. As stated in Note 2 during fiscal year 2000, the Company changed its method of accounting for certain inventories from the LAST-IN, FIRST-OUT method (LIFO) to the FIRST-IN, FIRST-OUT method (FIFO) and states that the newly adopted accounting method is preferable in the circumstances because the accounting change more closely matches current costs and revenues in periods when costs of goods are declining. In accordance with your request, we have reviewed and discussed with Company officials the circumstances and business judgment and planning upon which the decision to make this change in the method of accounting was based. With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability of one acceptable method of accounting over another acceptable method. However, for purposes of R.G. Barry Corporation's compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter. Based on our review and discussion, with reliance on management's business judgment and planning, we concur that the newly adopted method of accounting is preferable in the Company's circumstances. Very truly yours, /s/ KPMG LLP - ------------------------ KPMG LLP EX-21.1 16 l86966aex21-1.txt EXHIBIT 21.1 1 Exhibit 21.1 SUBSIDIARIES OF R. G. BARRY CORPORATION State or Other Jurisdiction of Incorporation or Name Organization - ---- --------------------------- R. G. Barry International, Inc. Ohio Barry de Mexico, S.A. de C.V. Mexico R.G.B., Inc. Ohio Barry de Acuna, S.A. de C.V. Mexico Barry de Zacatecas, S.A. de C.V. Mexico Vesture Corporation North Carolina ThermaStor Technologies, Ltd., LLC (1) Ohio R. G. Barry (Texas) LP (2) Texas Barry de la Republica Dominicana, Dominican Republic S.A. de C.V. R. G. Barry Holdings, Inc. Ohio R. G. Barry (France) Holdings, Inc. Ohio Escapade, S.A. (3) France Fargeot et Compagnie, S.A. (4) France Michel Fargeot, S.A. (5) France - ------------------- (1) Each of R. G. Barry Corporation and Vesture Corporation owns a 50% interest as a member. (2) R.G.B., Inc. holds 99% interest as limited partner and R. G. Barry Corporation holds 1% interest as general partner. (3) R. G. Barry Corporation holds 80% of outstanding stock. (4) Wholly-owned subsidiary of Escapade, S.A. (5) Wholly-owned subsidiary of Fargeot et Compagnie, S.A. EX-23.1 17 l86966aex23-1.txt EXHIBIT 23.1 1 Exhibit 23.1 [KPMG LLP LETTERHEAD] Two Nationwide Plaza Telephone 614 249 2300 Columbus, OH 43215 Fax 614 249 2348 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors R. G. Barry Corporation: We consent to incorporation by reference in Registration Statement Nos. 33-23567, 33-23568, 33-67594, 33-67596, 33-81820, 33-83252, 333-06875, 333-28671 and 333-81105 on Forms S-8 and S-3 of R.G. Barry Corporation of our reports dated February 20, 2001, relating to the consolidated balance sheets of R.G. Barry Corporation and subsidiaries as of December 30, 2000 and January 1, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows and related financial statement schedule for each of the fiscal years in the three-year period ended December 30, 2000, which reports appear in the 2000 annual report on Form 10-K of R.G. Barry Corporation. /s/ KPMG LLP Columbus, Ohio March 26, 2001 EX-24.1 18 l86966aex24-1.txt EXHIBIT 24.1 1 EXHIBIT 24.1 ------------ POWERS OF ATTORNEY 2 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day of March, 2001. /s/ Gordon Zacks --------------------------------------- Gordon Zacks 3 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day of March, 2001. /s/ William Lenich ----------------------------------- William Lenich 4 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day of March, 2001. /s/ Christian Galvis ------------------------------------- Christian Galvis 5 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day of March, 2001. /s/ Philip G. Barach ------------------------------------ Philip G. Barach 6 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day of March, 2001. /s/ Richard L. Burrell ------------------------------------ Richard L. Burrell 7 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of March, 2001. /s/ Roger E. Lautzenhiser ------------------------------------ Roger E. Lautzenhiser 8 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for her and in her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 21st day of March, 2001. /s/ Janice Page --------------------------------- Janice Page 9 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 21st day of March, 2001. /s/ Edward M. Stan ------------------------------------ Edward M. Stan 10 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day of March, 2001. /s/ Harvey Weinberg ------------------------------------ Harvey Weinberg 11 POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of R. G. Barry Corporation, an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 30, 2000, hereby constitutes and appoints Daniel D. Viren and Michael S. Krasnoff as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, and any and all exhibits, financial statements and schedules relating thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all things that each of said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day of March, 2001. /s/ Daniel D. Viren ---------------------------------- Daniel D. Viren -----END PRIVACY-ENHANCED MESSAGE-----