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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
[Fee Required]
For the fiscal year ended September 27, 1997
--------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
[No Fee Required]
For the transition period from _____________________ to ______________________
Commission File Number 0-23161
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TROPICAL SPORTSWEAR INT'L CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 59-3424305
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
4902 W. Waters Avenue Tampa, FL 33634-1302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 249-4900
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share
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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. [X]
As of December 1, 1997 there were 7,600,000 shares of Common Stock outstanding.
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the last sale price reported on the Nasdaq National Market
as of December 1, 1997, was approximately $53,038,000.
DOCUMENT INCORPORATED BY REFERENCE:
-----------------------------------
Document Form 10-K Reference
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Proxy Statement, dated January 2, 1998 Part III, Items 10-13
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TROPICAL SPORTSWEAR INT'L CORPORATION
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE NO.
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<S> <C> <C>
Item 1 Business 3
Item 2 Properties 15
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 15
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 16
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial Condition and Results 17
of Operations
Item 8 Financial Statements and Supplementary Data 21
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial 21
Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant 22
Item 11 Executive Compensation 22
Item 12 Security Ownership of Certain Beneficial Owners and Management 22
Item 13 Certain Relationships and Related Transactions 22
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
</TABLE>
The statements contained in this report on Form 10-K that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes, beliefs,
intentions, or strategies regarding the future. Forward looking statements
include statements regarding, among other things: (i) the Company's backlog and
sales; (ii) potential acquisitions by the Company; (iii) the Company's financing
plans; (iv) trends affecting the Company's financial condition or results of
operations; (v) the Company's growth strategy, operating strategy and financing
strategy; (vi) the declaration and payment of dividends; (vii) regulatory
matters affecting the Company; and (viii) the outcome of certain litigation
involving the Company. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward looking statements as a result of various
factors. All forward looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward looking statement. Among the factors
that could cause actual results to differ materially are the factors detailed in
Items 1 through 3 and 7 of this report and the risks discussed in the "Risk
Factors" section included in the Company's registration Statement on Form S-1
(Reg. No. 333-33729). Prospective investors should also consult the risk factors
listed from time to time in the Company's Reports on Form 10-Q, 8-K, 10-K and
Annual Reports to Shareholders.
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PART I
ITEM 1. BUSINESS
General
The Company produces high quality casual and dress men's apparel and
provides major apparel retailers with comprehensive brand management programs.
The Company's programs currently feature pants, shorts and denim jeans that are
marketed under Company brands, private brands and licensed brand names. The
Company distinguishes itself from traditional private label manufacturers by
providing apparel retailers with customer, product and market analysis, apparel
design, production, merchandising, and inventory forecasting. The Company
markets its apparel through all major retail distribution channels, including
department and specialty stores, national chains, catalog retailers, discount
and mass merchants and wholesale clubs. The Company's mission is to provide
total customer satisfaction through a combination of quality, value and
technology. Management believes that the Company provides its customers with
high quality apparel and services supported by a commitment to advanced
information, design and production technologies, and unique merchandising and
operating strategies.
The Company's apparel line focuses on basic, recurring styles that the
Company believes are less susceptible to fashion obsolescence and less seasonal
in nature than fashion styles. All of the Company's products are derived from
six production platforms, or "chassis," each of which incorporates basic
features requiring distinct manufacturing processes, such as inclusion of an
elastic waistband, a jeansband or button-flap pockets. The six basic chassis are
modified to produce separate styles through variations in cut, fabric and
finish. This process enables the Company to achieve both manufacturing
simplicity and efficiencies while producing a wide variety of products through
distinctions in color and style. All products receive customer-specific labeling
and packaging upon receipt of confirmation of a customer order. As a result, a
common SKU (i.e. style, color, and size), differentiated only by labeling and
packaging, can be sold by both a high-end department store and a mass merchant
at different retail price points. This merchandising strategy offers
quick-response execution of customer orders without the associated risk of
carrying customer-specific inventories. In Fiscal 1997, fifteen styles marketed
under approximately 80 labels accounted for over 90% of the Company's net sales.
These labels include Company brands such as Bay to Bay(R) and Banana Joe(TM),
private brands such as Flyers(TM) and Flying A(R) and licensed brand names such
as Bill Blass(R) and Generra(R).
The Company manages the manufacture of substantially all of its
products utilizing its approximately 300,000 square foot state-of-the-art fabric
cutting, product labeling and distribution facilities located in Tampa, Florida,
and independent garment assembly contractors located primarily in the Dominican
Republic. The Company also sources certain finished garments from independent
manufacturers located in Mexico, the Pacific Rim and the Middle East. The
Company believes that its commitment to the use of independent contractors in
the Dominican Republic anticipated the trend in the industry toward the use of
the Caribbean and Mexico for production. The Company believes the establishment
of its name and reputation in this area gives it a distinct competitive
advantage.
The Company utilizes advanced technology in all aspects of its
business, including apparel design, materials sourcing, production planning and
logistics, customer order entry and sales demand forecasting. The Company's
dedication to technology produces greater efficiencies throughout the production
process and results in high-quality products, low-cost production and enhanced
customer order execution. The Company typically designs its apparel lines and
customer programs by tracking its customers' store-level POS system data and
responding to retail demand and trends on a per SKU basis. Apparel products are
developed using a computer-aided-design ("CAD") system integrated with fabric
cutting to maximize product quality and materials yield. Management believes
that the Company's 92% average fabric utilization rate is among the highest in
the apparel industry. The Company employs stringent quality control procedures
throughout its operations, from raw materials production at supplier mills
through finished goods shipping. In Fiscal 1997, the return rate for quality
defects was less than one percent, evidencing the impact of the Company's
quality control procedures.
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Accurate and timely order execution is achieved through electronic data
interchange ("EDI") order entry and quick replenishment of core SKUs. In Fiscal
1997, substantially all orders were placed via EDI. Orders generally are shipped
to the retailer within three working days of receipt of shipping instructions.
The Company's systems enable it to further assist the retailer by tracking
point-of-sale activity by SKU and forecasting consumer demand and seasonal
inventory requirements on a daily basis.
Industry
According to The NPD Group, Inc., a retail industry research firm, the
U.S. apparel industry totaled approximately $174.9 billion in retail sales in
1996. The industry grew approximately 2.3% and 5.8% in 1995 and 1996,
respectively. In 1996, the men's bottoms (i.e., pants and shorts) business
represented approximately 7.5% of the total apparel market. The men's bottoms
segment tends to be relatively less cyclical than the apparel industry at large.
In 1995 and 1996 retail sales of men's bottoms grew approximately 6.0% and 9.1%,
respectively. In Fiscal 1995, Fiscal 1996 and Fiscal 1997, the Company's net
sales grew 9.7%, 6.6% and 29.3% respectively, over comparable prior periods.
Trend Toward High Quality Private Brand Apparel. The Company believes
that there is an increased trend toward high quality, private brand apparel.
Private brand apparel bears the retailer's own name or a proprietary brand name
exclusive to the retailer. Producers are able to sell these garments at lower
wholesale prices due to certain economies, including lower advertising and
promotional costs, lack of brand name license fees and royalties, and the
absence of "markdown" and other risks and expenses inherent in the brand-name
apparel industry. As a result of the lower wholesale prices, private brand
apparel generally provides higher margins for the retailer than brand name or
designer products. Sales of private brand apparel represented 41.0% of total
sales of men's apparel in 1996, up from 39.3% in 1995 and 37.0% in 1994. The
Company believes that this shift is due primarily to the education of consumers
and retailers as to the benefits of private brand products. The Company believes
consumers increasingly regard private brand products as less expensive than
brand name products, but of equal or better quality. This increase in consumer
demand for private brand garments, coupled with retailers' demands for higher
margins, has resulted in retailers allocating more space to private brand
products.
Trend Toward Casual Dress. The Company believes that there is a growing
trend in the United States toward casual dress, as reflected in the
implementation of policies such as "casual Fridays." In addition, the Company
believes that the number of people who work at home is increasing substantially
and that outside of the workplace, people's social activities are focusing on a
more casual lifestyle.
Expansion of Caribbean and Mexican Production. Until recently, apparel
was produced predominantly domestically or in the Pacific Rim countries. Since
the passage of Section 807 of the Harmonized Tariff Schedule of the United
States (now found under tariff subheading 9802.00.80, but herein referred to as
"Section 807"), American apparel companies have increasingly utilized production
facilities located in the Caribbean Basin, including the Dominican Republic. The
Company believes that the Dominican Republic offers certain competitive
advantages, including favorable pricing and better quality production, a
long-standing and relatively stable production network, and much shorter
transportation periods as compared to goods assembled in the Pacific Rim. Under
Section 807, customs duties on apparel products assembled in the Caribbean Basin
may be offset by the costs incurred in the production of components in the
United States (plus freight and insurance). More recently, the North American
Free Trade Agreement ("NAFTA"), effective 1994, has permitted Mexican
manufacturers to ship finished apparel products into the United States duty-free
or at reduced duties. According to Sandler & Travis Trade Advisory Services,
Inc., 1996 marked the first year in which apparel products exported to the
United States from Mexico exceeded products exported from any other country,
including China.
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Business Strategy
The Company seeks to become "The Leader in Private Brand"(TM) by being
the leading marketer of private brand sportswear in its product categories
across all retail channels. The key elements of the Company's business strategy
are as follows:
Focus on Private Brand Programs for Major Retailers. The apparel market
is highly competitive, with a trend toward greater emphasis on private brand
programs to improve retail margins. See "Business--Industry." Retailers are
increasingly finding it advantageous to outsource many aspects of their private
brand programs. The Company believes it has positioned itself to take advantage
of these trends by offering retailers customized comprehensive private brand
programs encompassing: (i) merchandise planning and support; (ii) consistently
high quality products; (iii) value-added services, such as custom labeling and
packaging design, just-in-time electronic order execution, and retail
profitability analysis; and (iv) access to state-of-the-art sales forecasting
and inventory management systems. In addition, the Company will continue to
promote these capabilities to increase sales of Company brands and licensed
brand name apparel offered to multiple retail accounts.
Commitment to Superior Quality Operations. The Company adheres to
strict quality standards in every aspect of its operations, from sourcing of raw
materials to providing continuing service following shipment to its customers.
Product content and construction specifications, including the generous use of
fabric to produce a fuller, more comfortable fit, are designed to minimize
costly customer returns. The Company believes that its use of advanced
technology and standard operating procedures results in the production of high
quality products for its customers.
Application of Advanced Technology. The Company employs advanced
technology in every aspect of its operations. A CAD system is used to develop
products and program fabric cutting to ensure color consistency and maximize
material yield. The Company employs air table handling systems and the latest
generation Gerber cutters in the cutting process to improve efficiency and
significantly enhance output volumes. In addition, the Company's EDI system
significantly enhances customer order execution and point-of-sale merchandise
tracking. Sales forecasting, production planning and logistics and inventory
management are performed on a proprietary system. The Company's production
system is integrated with its customers' systems and enables the Company to
track store level retail sell-through trends by SKU. See "Business--Operations."
Adherence to Standard Operating Procedures. Management has instituted
comprehensive operating procedures for each stage of operations, from customer
planning and marketing strategies through apparel design, materials costing,
production planning and logistics, manufacturing, customer order execution,
point of sale analysis and accounting and financial reporting. These procedures
integrate each operating function to eliminate inefficiencies and maximize
productivity. The Company's detailed operating procedures and extensive
information systems enable management to monitor the performance of most
operations on a daily basis, with daily exception reporting to identify and
resolve deviations from forecast results.
Focus on Core Production Chassis. The Company designs a core line of
products suitable for marketing through virtually every apparel retail channel,
differentiated among channels and customers only through customer-specific
labeling, packaging and other brand identification techniques. The core line is
developed from six standardized production chassis that enable the Company to
maximize manufacturing productivity and product quality and minimize unit
production costs and inventory risk. In Fiscal 1997, products derived from each
of the Company's six production chassis were sold to customers in multiple
distribution channels under approximately 80 different labels and point-of-sale
packaging concepts.
Maintain Low-Cost Production. The Company is committed to
cost-sensitive, cost-controlled operations. To minimize unit production costs
and mitigate inventory risks, the Company is organized to effect the shortest
possible production cycle from receipt of raw materials through shipping of a
customer order. The Company's unique chassis production strategy and focus on
core product lines enable it to
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concentrate materials purchases, minimize materials inventories, dedicate
assembly operations to individual styles and execute cost-effective production
runs per style. The Company contracts for garment assembly on a standard
cost-per-unit-produced basis with independent manufacturers that adhere to the
Company's strict quality specifications and standard operating procedures. In
Fiscal 1997, the Company's production cycle averaged 38 days and average
inventory turnover was approximately five times.
Commitment to Total Customer Satisfaction. The Company's key customer
service capabilities include designing the customer's product line composition
by SKU; developing brand, packaging and point-of-sale merchandising programs;
determining the per store sales plan by SKU; and automatically replenishing
store inventory and recommending changes to pricing and planned sales volumes
based on store-level retail trends. These capabilities, leveraging the
chassis-based product strategy, offer quick-response execution of customer
orders without the cost and risk of carrying customer-specific inventories.
Minimize Inventory Risk. Management regards inventory as a liability
rather than an asset. The Company minimizes its inventory risks by (i) producing
a focused line of core products that can be labeled and packaged upon receipt of
a customer order confirmation, (ii) minimizing the production cycle and
maximizing production flexibility, and (iii) tracking consumer demand trends by
SKU on a per store basis. Management uses detailed cost specifications to
monitor unit production cost variances.
Growth Strategy
Internal Growth. The Company intends to grow internally through
increased sales of core products to current customers, sales to new customers
and expansion into complementary apparel product lines. For Fiscal 1997, the
Company reported net sales of $151.7 million and operating income of $16.6
million, representing five-year compound annual growth rates of 17.8% and 36.8%,
respectively.
Greater Penetration of Existing Accounts. The Company believes it has a
significant opportunity to increase sales to existing customers. The
Company believes that a majority of its customers are seeking to maintain a
balance between brand name apparel items and private label items,
recognizing that brand name items draw customer traffic and private label
products provide a low-cost, high-quality alternative to brand name
apparel. The Company believes that it can increase sales to existing
customers by (i) offering a broader selection of men's casual, dress and
denim pants, shorts and shirts, and (ii) increasing sales of specific
proprietary or retailer-owned labels for customers seeking to build the
breadth of their own private label lines. Management believes that its
customers place a high degree of value on the Company's quality standards
as well as the Company's commitment to its customer's inventory management
and forecasting.
New Account Growth. The Company currently sells to approximately 75
national and regional retailers in North America, and believes that there
is significant opportunity to selectively increase its customer base. The
Company continually evaluates potential customers based on the customer's
(i) commitment to retailing high quality apparel, (ii) utilization of
electronic commerce that will allow the Company's technological advantages
to be realized, and (iii) potential sales volume of core products. The
Company believes that retailers increasingly are adding private-brand
programs and seeking vendor-managed inventory programs. The Company
believes that its primary overseas competitors are unable to match the
Company's ability to provide and test samples, respond via EDI, track unit
production and shipment and monitor SKU sell through.
New Product Introductions. While the Company is committed to providing
its customers with a stable "core" product line, management does invest
significant resources to remain current with the latest colors, fabrics and
finishes. Management is continuously developing test products based on its
research, and believes that its efforts to remain current are extremely
important to building trust between the retailer and the retailer's
customers. All new product lines are produced using the Company's "chassis"
production concept and are designed to be complementary to existing product
lines. In Fiscal 1995, the Company introduced dress pants, which in Fiscal
1997 represented
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approximately 8.6% of the Company's total revenues and were sold to
approximately 25.9% of the Company's active customer base. Product lines
introduced in Fiscal 1997 include men's casual shirts, which the Company
believes are an attractive complement to its men's pants and shorts lines.
Similarly, the Company has introduced a line of coordinated men's shirts,
pants and shorts under a Company owned label, "Banana Joe." The management
team has significant previous experience running businesses in these
complementary product lines.
Growth Through Acquisitions. A key element of the Company's growth
strategy is to: (i) acquire established brands to expand the distribution of the
Company's core products to existing and new customers; (ii) acquire
complementary new product lines, such as men's shirts, suitable for the
Company's brands and/or customer base; or (iii) enter into newly targeted areas
of the apparel market, such as women's sportswear, through acquisition of
targeted companies. The Company expects to expand into categories of the apparel
market in which it can exploit its business strategies. The Company continually
monitors acquisition opportunities, but currently has no arrangements or
understandings with respect to any acquisitions.
Products
The Company produces a core line of high quality men's casual and dress pants,
shorts and denim jeans. Most of the Company's apparel line focuses on basic,
recurring styles that the Company believes are less susceptible to fashion
obsolescence and less seasonal in nature than fashion styles. Key fabrics
include 100% cotton and synthetic blends utilizing rayon, wool and polyester.
Key fabric constructions include twill, denim, corduroy and wrinkle-free
fabrication. The table below sets forth sales mix, expressed as a percentage of
net sales, and retail price points per product category:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Current Retail
1997 1996 1995 Price Range
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<S> <C> <C> <C> <C>
Casual Pants 53.9% 56.8% 48.5% $17.99 - $39.99
Dress Pants 8.6 1.7 0.9 24.99 - 39.99
Denim Jeans 5.4 7.1 7.8 16.99 - 24.99
Shorts (including denim) 32.1 34.4 42.8 11.99 - 24.99
----- ----- -----
100.0% 100.0% 100.0%
</TABLE>
The Company's design staff examines domestic and international trends
in the apparel industry as well as industries completely outside the sphere of
clothing manufacture, including the automobile, grocery and home furnishings
industries, to determine trends in styling, color, consumer preferences and
lifestyle. Virtually all of the Company's products are designed by its in-house
staff utilizing CAD technology, which enables the Company to produce computer
simulated samples that display how a particular style will look in a given color
and fabric. The Company can quickly generate samples and alter the simulated
samples in response to customer input. The use of CAD technology minimizes the
time and costs associated with producing actual sewn samples prior to customer
approval and allows the Company to create custom designed products meeting the
specific needs of a customer. The Company's product content and construction
specifications require the use of matched finish thread throughout the garment,
surge seaming of all pockets, rigorous attention to seam construction, color
matching of all components and the generous use of fabric to produce a fuller,
more comfortable fit and minimize costly customer returns.
Customers and Customer Service
The Company markets its products across all major apparel retail
channels to approximately 75 finer department and specialty stores, catalog
retailers, discount merchants and wholesale clubs. The Company's products are
sold at over 6,000 outlets throughout the United States, Canada, Mexico and
Central America. Sales to the Company's five largest customers represented
approximately 71.6% and 72.6% of net sales during Fiscal 1997 and Fiscal 1996,
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respectively. Sales to Wal-Mart (including Sam's Club, the nation's largest
chain of wholesale clubs), Price/Costco and Phillips-Van Heusen accounted for
approximately 28.7%, 18.8%, and 11.0% respectively, of net sales during Fiscal
1997 and 26.0%, 16.6% and 13.8%, respectively, of net sales during of Fiscal
1996. The Company also sells its products to other major retailers, including
Dayton Hudson, Federated Department Stores, JC Penney, May Co. and Nordstrom.
Net sales to the Company's ten largest customers increased at a compound annual
rate of 18.1% from Fiscal 1994 to Fiscal 1997.
Set forth below are comparative sales mix data, expressed as a
percentage of net sales, by marketing channel:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
Channel 1997 1996 1995
- ----------------------------------------- ------ -------- ------
<S> <C> <C> <C>
Wholesale club 46.1% 42.3% 29.8%
Discount and mass merchant 21.1 21.4 31.3
National chain 12.3 14.5 20.9
Department store 10.9 14.4 8.8
Specialty store 5.4 4.7 4.9
Catalog 0.2 1.1 2.5
Other 4.0 1.6 1.8
----- ----- -----
100.0% 100.0% 100.0%
</TABLE>
The Company offers its customers comprehensive brand management
programs, which provide: (i) merchandise planning and support; (ii) consistently
high quality products; (iii) value-added services, such as custom labeling and
packaging design, just-in-time electronic order execution, and retail
profitability analysis; and (iv) access to state-of-the-art sales forecasting
and inventory management systems. In addition, the Company will continue to
promote these capabilities to increase sales of Company brands and licensed
brand name apparel offered to multiple retail accounts. The Company believes
that close collaboration with its customers provides the Company's employees the
opportunity to better understand the fashion, fabric and pricing strategies of
the customer and leads to the generation of products that are more consistent
with each customer's expectations. At the same time, the customer is given the
opportunity, at minimal expense and risk, to benefit from the Company's
substantial expertise in designing, packaging and labeling high quality products
with a brand name look, but at a private label price.
Product Labeling and Packaging
The Company differentiates its products through customized labeling,
point-of-sale packaging and other brand identification techniques. For most of
its customers, the Company manages the design and production of labeling and
packaging materials. Management regularly analyzes consumer product labeling and
packaging and consumer targeting trends evident in other retailing formats,
including the automobile, grocery and home furnishings industries. The Company
can ship products directly to its customers' retail stores in floor-ready form
and offers innovative packaging and display techniques, such as the "Big Pack."
A "Big Pack" is a specially designed cardboard carton used to ship pants and
shorts directly to Sam's Club stores. Upon delivery, it opens into a floor-ready
display.
For Fiscal 1997, the Company sold products bearing approximately 80
different labels to over 75 different customers. Of the $151.7 million in net
sales for this period, 43.5% represented sales of private brands unique to a
single retail customer and 56.5% represented sales of Company brands and
licensed brand name apparel to multiple customers. Of the approximately 80
labels and brands active during this period, approximately 30 are controlled by
the Company and approximately 50 are controlled by retailers.
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Marketing and Sales
The Company's products are sold by eleven sales representatives located
in California, Florida, Illinois, Kansas, Massachusetts, Ohio, New York,
Pennsylvania and Texas, each of whom has over eight years of experience in the
apparel industry. One of such sales representatives is devoted exclusively to
the sale and marketing of the Company's recently introduced Banana Joe(R) line
of men's sportswear coordinates. The Company also maintains a sales and
marketing support staff of six in Tampa dedicated to analyzing sales and
marketing data.
The Company offers each of its existing and prospective customers a
marketing plan tailored to the customer's market niche. Using its marketing data
and industry experience, the Company is able to create for each existing and
prospective customer and each particular product a market plan that outlines
optimum volume, timing and pricing strategies, markdown and sell-through trends
and profit margins.
The Company operates an EDI system, whereby the Company can accept EDI
orders 24 hours a day and typically ship orders within three working days. In
Fiscal 1997, substantially all orders were placed via EDI.
Operations
The Company principally cuts its fabric at its Tampa facility for
offshore finishing and assembly. The Company also imports finished goods,
principally denim jeans and shorts from Mexico, the Pacific Rim and the Middle
East. The Company believes that the use of numerous independent international
suppliers to assemble components cut at the Company's facilities enables it to
provide customers with high quality goods at significantly lower prices than if
it operated its own assembly facilities. In Fiscal 1997, products originating
from the Company's Tampa cutting facility and imported finished goods
represented approximately 83.4% and 16.6%, respectively, of the products sourced
by the Company.
Overview. The Company inventories, spreads, marks and cuts virtually
all of the fabric used in the manufacture of its products at its own facility in
Tampa, Florida. The components are then assembled outside the United States,
principally in the Dominican Republic, and shipped back to the Company's Tampa
facilities for labeling, packaging and distribution. In Fiscal 1997, the
production cycle from receipt of raw materials through the availability for
shipping of finished goods averaged 38 days, including raw materials inventory,
transit and assembly. The Company customarily prepares, packs and ships customer
orders within three working days of receipt of shipping instructions.
Raw Materials Sourcing. The Company purchases raw materials, including
fabrics, thread, trim and labeling and packaging materials, from domestic
sources based on quality, pricing and availability. Prior to shipment, the
Company undertakes a quality audit at its major suppliers to assure that quality
standards are met. An additional quality audit is performed upon receipt of all
raw materials. The Company maintains a laboratory at its Tampa, Florida facility
in order to test the quality of raw materials. The Company has no long-term
agreements with any of its suppliers. The Company projects raw material
requirements through a series of planning sessions taking into account orders
received and future projections by style and color. This data is then translated
to the raw material components needed by production time frame in order to meet
customers' requirements.
Cutting. The Company believes that its domestic cutting facility
provides it with substantial advantages over many of its competitors. Since
1989, the Company has invested in state-of-the-art computerized equipment for
spreading, marking and cutting fabric. The Company's CAD system positions all
component parts of a single garment in close proximity on the same bolt of
fabric to ensure color consistency. This process also enables the Company to
utilize approximately 92% of the fabric. The Company also has invested in
air-table fabric handling equipment that eases the movement of fabric on the
cutting table by the use of forced air through a grid of air ducts on the table
surface. The use of such air-table fabric handling equipment reduces by more
than one-half the number of workers required to handle a bolt of fabric in the
cutting process. In addition, the Company uses two Gerber-brand computerized
cutting systems, which include state-of-the-art submerged electrical and vacuum
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components. The use of such cutting systems significantly enhances the Company's
fabric cutting capacity. Quality audits in the cutting facility are performed
during various stages, from spreading of fabric through preparation for shipment
to independent manufacturers for assembly.
Assembly. After the component parts are marked and cut, they are
shipped by common carrier to independent foreign manufacturers, principally in
the Dominican Republic, for assembly and finishing. The Company currently uses
approximately 15 manufacturers in the Dominican Republic that specialize in
assembling products on one or more chassis and adhere to the Company's specific
operating procedures. The Company has used these manufacturers for an average of
more than three years and enjoys, in effect, exclusive relations with 10 of
them. Several of the Company's independent manufacturers utilize various
equipment, including wrinkle-free processing ovens, owned by the Company. The
Company is among relatively few U.S. apparel companies to use the Dominican
Republic as its principal production base for assembling component parts. The
Company believes that the Dominican Republic offers the Company certain
competitive advantages, including favorable pricing and better quality
production, a long-standing and relatively stable production network, and much
shorter transportation periods than goods assembled in the Pacific Rim. In
addition, U.S. customs duties programs, such as Section 807, facilitate assembly
in the Caribbean Basin by completely eliminating or substantially reducing the
customs duties on the import of assembled U.S. components.
There are no material formal arrangements between the Company and any
of its contractors, but the Company believes that its relations with its
contractors are generally good. The Company is able to shift its sources of
supply depending upon production and delivery requirements and cost, while at
the same time reducing the need for significant capital expenditures,
work-in-process inventory and a large production work force. The Company
arranges for the assembly or production of its products primarily based on
orders received. The Company has traditionally received a significant portion of
its customers' orders prior to placement of its initial manufacturing orders.
Many of these customer orders may change with respect to colors, sizes,
allotments or assortments prior to the delivery date. The Company utilizes such
orders and its experience to estimate production requirements in order to secure
necessary assembly or manufacturing capacity. The Company inspects prototypes of
each product before production runs are commenced. The Company also performs
random in-line quality control checks during and after assembly before the
garments leave the contractor. The Company currently has 14 full-time quality
control personnel on-site in the Dominican Republic.
Labeling, Packaging and Shipping. Upon confirmation of a customer
order, the Company picks the appropriate items from its common inventory.
Thereafter, the appropriate tags and labels, such as pocket flashers, jokers,
woven labels, hang tags and leg tape, are sewn on or applied. The product is
then packaged (e.g., placed on hangers or put in plastic packaging) and prepared
for shipment in accordance with the customer's specifications. The Company
generally ships orders within three days of receipt. Orders are shipped F.O.B.
Tampa by customer or common carrier directly to the customer's individual stores
or to its centralized distribution center. The customer pays the applicable
freight charges. Final quality inspections occur when the finished garments are
returned to the Company's Tampa facilities for labeling and packaging. The
Company currently has 24 full-time quality control personnel employed in its
Tampa facilities. As a result of its extensive quality control program, less
than one percent of the products shipped by the Company during Fiscal 1997 were
returned by its customers due to defects.
Imports and Import Regulations
The Company presently imports garments under three separate scenarios
having distinct customs and trade consequences: (i) imports of finished goods
(mostly from the Pacific Rim and the Middle East); (ii) imports from the
Caribbean Basin and Central America; and (iii) imports from Mexico.
For direct importations (mostly from the Pacific Rim and the Middle
East), imported garments are normally taxed at most favored nation ("MFN")
tariffs and are subject to a series of bilateral quotas that regulate the number
of garments that may be imported annually into the United States. The tariffs
for most of the countries from which the Company currently imports or intends to
import have been set by
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<PAGE> 11
international negotiations under the auspices of the World Trade Organization
("WTO"). These tariffs generally range between 17% and 35%, depending upon the
nature of the garment (e.g., shirt, pant), its construction and its chief weight
by fiber. The principal sourcing alternatives that do not enjoy MFN rates in the
Far East are Vietnam and Laos.
In addition to these tariff rates, merchandise from virtually all the
countries from which the Company imports is also subject to bilateral quota
restraints, pursuant to U.S. domestic law or the multi-lateral Agreement on
Textile and Clothing, which is under the auspices of the WTO. Most bilateral
quotas are negotiated on a calendar year basis. After the United States and a
particular country agree to a particular level of exports in a particular quota
category (for instance, cotton men's bottoms (category 347)), the country that
receives the quota has the right to determine the method by which such quota is
assigned to its manufacturers. Some jurisdictions, such as Hong Kong, have a
free market under which quotas are bought and sold. Most countries, however,
assign it to the factories that actually produce the garments. Shipments which
are exported to the United States must, in addition to the usual commercial
documentation, have appropriate and official textile visas, in either an
electronic or paper format, which confirm their quota status. This documentation
must be filed prior to the admission and clearance of the merchandise into the
United States. Accordingly, the Company usually demands that this paperwork be
submitted prior to payment.
The Company also imports garments from countries in the Caribbean Basin
and Central America, most notably the Dominican Republic. Although much
merchandise imported from these jurisdictions is subject to the identical tariff
and quota consequences described above for Far Eastern importations, there are
special circumstances which provide a unique tariff and quota preference for
some merchandise sourced from the Caribbean Basin or Central America. The
principal tariff advantage is the so-called "807" program. Under this program,
merchandise produced under tariff subheading 9802.00.80, HTS, is admitted into
the United States with a substantial tariff reduction. Specifically, this tariff
provision provides a reduction in duty based on the value of exported
U.S. components assembled into a product in a foreign jurisdiction which is
subsequently reimported into the United States. In essence, the duty reduction
is equal to the value of U.S. components incorporated into these assembled goods
plus southbound international freight and insurance. For apparel products, such
U.S. components normally consist of cut-to-shape U.S. fabric parts, finishing
and trim (buttons, thread, etc.). In addition, if the fabric which is cut to
create the cut component parts is also knitted, woven or formed in the United
States, there is a special quota provision which provides for more liberalized
access to the U.S. marketplace. This special quota provision is applicable only
to certain Caribbean Basin, Central American and northern Latin American
countries which have signed special agreements with the United States. Under the
terms of these agreements, such products, known in the trade as "807A" or
"Super 807" or "Guaranteed Access Level" products, are controlled through a much
more liberal quota system. Accordingly, a country such as the Dominican Republic
would have a regular quota for men's cotton bottoms produced through a normal
cut, make and trim operation or through the traditional 807 process; at the same
time, it would have a much bigger and, therefore, more liberal quota for
merchandise produced from U.S. cloth under this Super 807 or 807A program. The
Company produces significant garments under one or both of these particular
programs. In those circumstances where garments qualify for both preferences,
"807" and "807A," the merchandise is accorded both substantial and significant
quota and tariff advantage over Pacific Rim, Middle Eastern or non-qualifying
Western hemisphere goods.
The Company also imports finished goods from Mexico under the North
American Free Trade Agreement, commonly known as NAFTA. Under NAFTA, merchandise
which qualifies is accorded reduced or duty-free access, depending upon the type
of merchandise selected. The key requirement for NAFTA qualification for such
garments is that the yarn, cloth, cut, sew and finish of the garments all take
place within North America. This is commonly known as the "yarn-forward rule."
Merchandise produced pursuant to these rules enters the United States at a
preferential or at a zero rate and is not subject to any quota.
In addition to the regular NAFTA program, certain imports made by the
Company are also subject to a tariff preference which was created and enacted as
part of the NAFTA-enabling legislation. This tariff provision, subheading
9802.00.90, HTS, provides for immediate duty-free and quota-free entry
11
<PAGE> 12
into the United States from Mexico of garments made from components which are
cut to shape in the United States from U.S. knit, woven or formed cloth. This
duty-free, quota-free entry would be available for pant products sourced from
U.S. components cut from U.S. knitted/woven fabric. This merchandise, therefore,
has an even more favorable treatment than merchandise being imported from the
Caribbean Basin. The Company currently imports a limited amount of such
merchandise from Mexico.
Finally, non-NAFTA qualifying goods may be imported from Mexico. Such
merchandise could be imported at reduced duty rates under the 807 (9802.00.80)
program (cut in the U.S.), or special tariff rate quotas called "TPLs."
Otherwise, it is subject to full duty. Such merchandise may also be subject to
Mexican quotas which are effective for some products until 2004.
Personnel
At November 29, 1997, the Company had 634 employees, including 20 in
the Dominican Republic. Of the total, approximately 108 hold executive and
administrative positions, approximately 14 are engaged in design and
merchandising, approximately 328 are engaged in production (e.g., marking,
cutting and labeling), approximately 18 are engaged in sales, approximately 118
are engaged in distribution and approximately 48 are engaged in quality control.
None of the Company's employees is subject to a collective bargaining agreement,
and the Company considers its relations with its employees to be generally good.
The Company is committed to developing and maintaining a well-trained
workforce. The Company provides or pays for in excess of 20,000 hours of
continuing education annually for its employees on subjects ranging from
computers to foreign languages. The Company is equally committed to the
well-being of its employees. The Company offers its full-time employees and
their families a comprehensive benefits package that includes a 401(k) plan, a
choice of group health insurance plans, term life insurance (with an option to
purchase additional coverage), a choice of dental plans, and a vision plan. The
Company also offers tuition reimbursement for business-related courses and pays
a retirement bonus to persons employed by the Company for twenty-five years or
more. The Company maintains a recreation area and health club facilities for the
use and enjoyment of its employees and their families. The Company also enjoys
long-standing relationships with certain of its independent assembly contractors
in the Dominican Republic and has contributed financial resources to improving
conditions for their employees.
Management Information Systems
The Company believes that advanced information processing is important
to maintain its competitive position. Consequently, the Company continues to
upgrade its management information systems in order to maintain better control
of its inventory and to provide management with information that is both more
current and more accurate than was available previously. The Company's
management information systems provide, among other things, comprehensive order
processing, production, accounting and management information for the marketing,
manufacturing, importing and distribution functions of the Company's business.
The Company has purchased and implemented a software program that enables the
Company to track, among other things, orders, manufacturing schedules, inventory
and unit sales of its products. In addition, to support the Company's flexible
inventory replenishment program, the Company has an EDI system through which
customer inventories can be tracked and orders automatically placed by the
retailer with the Company. (See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources)
Competition
The apparel industry is highly competitive and the Company competes
with numerous apparel manufacturers, including brand name and private label
producers, and retailers which have established, or
12
<PAGE> 13
may establish, internal product development and sourcing capabilities. The
Company's products also compete with a substantial number of designer and
non-designer product lines. Many of the Company's competitors and potential
competitors have greater financial, manufacturing and distribution resources
than the Company. The Company believes that it competes favorably on the basis
of quality and value of its programs and products, price, the production
flexibility that it enjoys as a result of its cutting and labeling capabilities
and its sourcing network, and the long-term customer relationships it has
developed. Nevertheless, any increased competition from manufacturers or
retailers, or any increased success by existing competition, could result in
reductions in unit sales or prices, or both, which could have a material adverse
effect on the Company's business and results of operations.
Trademarks and Licenses
The Company holds or has applied for over 75 U.S. trademark
registrations covering its various brand names. The Company believes that its
Flyers(TM), Flying A(R) and Bay to Bay(R) trademarks are material to its
business. The word marks Flying A(R) and Bay to Bay(R) are registered with the
United States Patent and Trademark Office. These registrations expire in 2005
and 2001, respectively, and are subject to renewal. There are applications
pending with the United States Patent and Trademark Office for trademarks which
include the Flyers(TM) and Flying A(R) names. Two of these applications have
been opposed. Pursuant to separate license agreements, the Company has the
exclusive rights to use (i) the Bill Blass(R) trademark with respect to casual
pants and shorts, jeans and pre-hemmed dress pants distributed or sold in the
United States, Mexico and Canada and (ii) the Generra(R) trademark with respect
to the design, manufacture and wholesale in the United States and Canada of
men's casual pants, shorts and dress slacks (excluding open bottom construction)
and men's jean-constructed bottoms made of denim or heavy weight fabrics
(excluding open bottom construction). These licenses expire in 2000 and 1999,
respectively. The license agreement with respect to the Generra(R) trademark is
subject to two renewal options that expire September 30, 2002 and 2005,
respectively. The Company believes that it has the exclusive use of all of its
owned and licensed trademarks.
Credit Facilities
The Company needs significant working capital to purchase inventory and
finance accounts receivable and, consistent with industry practice, is often
required to post letters of credit when placing an order with certain
international manufacturers. Currently, a substantial portion of the Company's
working capital requirements are met through a $48 million credit agreement with
a bank (the "Credit Agreement"), which expires on October 31, 1998. The Company
utilized the proceeds from its recent public offering to reduce the outstanding
indebtedness under the Credit Agreement.
Factoring of Accounts Receivable
Historically, the Company has sold substantially all of its trade
accounts receivable to a factor which assumes virtually all of the credit risk
with respect to collection of such accounts. The factor pays the Company the
receivable amount upon the earlier of (i) receipt by the factor of payment from
the Company's customer or (ii) 120 days past the due date for such payment. The
factor approves the credit of the Company's customers prior to sale. If the
factor disapproves or limits a sale to a customer and the Company decides to
proceed with the sale, the Company bears some credit risk. The factoring
agreement expires on September 30, 1998, at which time the Company intends to
renew or replace it.
Seasonality
Historically, the Company's business has been seasonal, with slightly
higher sales and income in the second and fourth fiscal quarters, just prior to
and during the two peak retail selling seasons for spring and fall merchandise.
In addition, certain of the Company's products, such as shorts and corduroy
pants, tend to be seasonal in nature. In the event such products represent a
greater percentage of the Company's sales in the future, the seasonality of the
Company's sales may be increased.
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<PAGE> 14
Backlog
At September 27, 1997, the Company had unfilled customer orders of
approximately $135.8 million. All of such orders are scheduled for shipment in
Fiscal 1998. At September 28, 1996, the Company had unfilled customer orders of
approximately $117.9 million. Fulfillment of orders is affected by a number of
factors, including revisions in the scheduling of manufacture and shipment of
the product which, in some instances, depends on the demands of the retail
consumer. Accordingly, a comparison of unfilled orders from period to period is
not necessarily meaningful, and the level of unfilled orders at any given time
may not be indicative of eventual actual shipments.
Reorganization
The Company was founded in 1927 under the name Tropical Garment
Manufacturing Company. In 1989, the Company was acquired by William W. Compton,
Michael Kagan and a predecessor in interest to Accel, S.A. de C.V., a Mexican
Corporation ("Accel"), and Shakale Internacional, S.A., a corporation organized
under the laws of Costa Rica ("Shakale"), through the purchase of the Company's
outstanding capital stock by Tropical Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Apparel International Group, Inc., a
Delaware corporation. On August 22, 1997, Apparel International Group, Inc. was
merged into Tropical Sportswear Int'l Corporation, a Florida corporation
incorporated on January 27, 1997. On October 23, 1997, the Company and Tropical
Acquisition Corporation were merged into Tropical Sportswear Int'l Corporation,
which became the Company.
Executive Officers of the Registrant
The following table provides the names and ages of the Company's
executive officers, and the positions and offices currently held by each of
them:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
William W. Compton 53 Chairman of the Board, Chief Executive Officer and Director
Richard J. Domino 48 President
Michael Kagan 58 Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
</TABLE>
William W. Compton has served as Chairman of the Board, Chief Executive
Officer and a Director of the Company since November 1989. He also served as
President of the Company from November 1989 to November 1994. Mr. Compton has
over 28 years of experience in the apparel industry. Prior to joining the
Company, he served as President and Chief Operating Officer of Munsingwear,
Inc., an apparel manufacturer and marketer, President/Executive Vice President
of Corporate Marketing for five apparel divisions of McGregor/Faberge
Corporation and President, U.S.A. and a director of Farah Manufacturing
Corporation, a men's apparel manufacturer. Mr. Compton currently serves on the
Board of Directors of the Brigham Young University Marriott School of
Management.
Richard J. Domino joined the Company in 1988 and has served as
President of the Company since November 1994. Mr. Domino served as Senior Vice
President of Sales and Marketing from January 1994 to October 1994 and Vice
President of Sales from December 1989 to December 1993. He has over 23 years
experience in apparel-related sales and marketing. Before joining the Company,
Mr. Domino was employed by Thompson Sportswear, Inc., a men's apparel
manufacturer and marketer, as its Sales Manager for the Northwest Territory, and
by Haggar Corp., a men's apparel manufacturer and marketer, as its New Jersey
Salesman.
Michael Kagan has served as Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and a Director of the Company since November 1989.
Mr. Kagan has more than 30 years experience in the apparel industry. Prior to
joining the Company, Mr. Kagan served as Senior Vice
14
<PAGE> 15
President of Finance for Munsingwear, Inc. and as Executive Vice President and
Chief Operating Officer of Flexnit Company, Inc., a manufacturer of women's
intimate apparel.
ITEM 2. PROPERTIES
The Company's corporate headquarters, cutting and warehouse facilities
are situated on over 18 acres in Tampa, Florida and are owned by the Company.
The Company has recently completed an approximately 110,000 square foot
state-of-the-art cutting facility to provide an environment that will increase
efficiencies and accommodate the Company's increasing volume. The new facility
is located adjacent to the Company's administration and distribution facility
(approximately 190,000 square feet). During Fiscal 1997, the Company's cutting,
and labeling, packaging and shipping facilities operated at approximately 65% of
capacity. During Fiscal 1998, the Company anticipates spending approximately
$410,000 to add a third Gerber cutter and up to $5.0 million to upgrade its
existing computer system. The Company's facilities are subject to a mortgage
securing the Loan Agreement, which had an outstanding balance of $9.8 million at
September 27, 1997. The Company also leases approximately 4,000 square feet of
showroom offices in New York City. This lease expires in April 2004. The Company
believes that its existing facilities are adequate to meet its current and
foreseeable needs. The Company also believes its existing facilities are well
maintained and in good operating condition. (See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources)
ITEM 3. LEGAL PROCEEDINGS
On March 21, 1997, Levi Strauss & Co. brought suit against the
Company in U.S. District Court for the Northern District of California. The
complaint alleges, among other things, that the Company's Flyers(TM) trademark
and certain trade dress used in the labeling and packaging of the Company's
Flyers(TM) and Bay to Bay(R) products infringe upon certain of plaintiff's
proprietary trademark and trade dress rights in violation of the federal
Lanham Act and California law. The complaint seeks injunctive relief, as well
as treble damages and attorneys' fees. The Company has also received notice
that plaintiff intends to seek to amend its complaint to allege that certain
trade dress used in the labeling and packaging of the Company's licensed Bill
Blass(R) brand dress slack also infringes upon certain of plaintiff's
proprietary trade dress rights. Although the outcome of the litigation cannot
be determined at this time and the Company would consider reasonable settlement
opportunities, the Company currently intends to vigorously defend against such
allegations. Nevertheless, in an attempt to limit the Company's liability, if
any, with respect to such alleged infringement, the Company has unilaterally
altered the trademark and trade dress which are currently the subject of this
litigation.
On July 3, 1997, Out-of-Mexico Apparel, Ltd. brought suit against the
Company in California Superior Court for, among other things, breach of
contract, breach of an implied covenant of good faith and fair dealing, and
violation of the California Unfair Business Practices Act. The complaint alleges
that the Company entered into contracts for the manufacture of apparel with
certain manufacturers in contravention of a customer non-disclosure and
non-circumvention agreement between Out-of-Mexico Apparel, Ltd. and the Company.
The complaint seeks compensatory damages and prejudgment interest, punitive
damages and the costs of suit. Although the outcome of the litigation cannot be
determined at this time and the Company would consider reasonable settlement
opportunities, the Company intends to vigorously defend against such
allegations.
The Company is not involved in any other legal proceedings which the
Company believes could reasonably be expected to have a material adverse effect
on the Company's business or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on The Nasdaq Stock Market's
National Market System under the symbol "TSIC" since its initial public offering
on October 28, 1997. The initial public offering price of the Common Stock was
$12.00 per share. Prior to such time, there was no established public trading
market for the Company's Common Stock. At December 8, 1997 there were
approximately 1,500 beneficial holders of the Company's Common Stock.
The transfer agent for the Common Stock is Firstar Trust Company,
Milwaukee, Wisconsin
The Company has not declared or paid any cash dividends on the Common
Stock since 1989. The Company currently anticipates that all of its earnings
will be retained for development and expansion of the Company's business and
does not anticipate declaring or paying any cash dividends in the foreseeable
future. Moreover, the Credit Agreement contains a covenant expressly prohibiting
the payment of any cash dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data (in thousands, except share and
per share data) are derived from the consolidated financial statements of the
Company for each of the five years in the period ended September 27, 1997. These
consolidated financial statements have been audited and reported upon by Ernst &
Young LLP, independent certified public accountants.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1, OCTOBER 2,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $ 151,692 $ 117,355 $ 110,064 $ 100,359 $ 74,271
Gross profit 36,055 26,223 22,206 24,682 16,545
Selling, general and
administrative expenses 19,443 15,189 15,060 14,291 11,071
Operating income 16,612 11,034 7,146 10,391 5,474
Interest expense 2,899 2,498 3,160 2,115 1,644
Income before income taxes 13,176 7,916 2,985 8,591 2,314
Net income 8,269 5,171 2,160 4,978 1,368
Net income per common share 1.37 .86 .36 .83 .23
Weighted average number of
shares used in the
calculation(1) 6,015,000 6,015,000 6,015,000 6,015,000 6,015,000
<CAPTION>
AT
--------------------------------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30, OCTOBER 1, OCTOBER 2,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $30,234 $25,483 $31,655 $23,600 $ 4,714
Total assets 69,658 63,415 55,237 52,023 41,522
Long-term debt, including
current maturities 24,055 24,162 27,175 20,973 1,677
Shareholders' equity 26,651 18,382 13,211 11,051 6,073
</TABLE>
(1) Computed on the basis described in Notes to Consolidated Financial
Statements
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company manages the production of substantially all of its products
utilizing Company-owned facilities in Tampa, Florida and independent assembly
manufacturers located in the Dominican Republic and Mexico. The Company also
sources a limited volume of finished goods from independent suppliers. For goods
assembled by independent manufacturers, the Company purchases and inventories
all of its raw materials and cuts its fabric in the Tampa cutting facility based
on customer orders. The Company ships cut fabric parts and other product
components via common carrier to the independent manufacturers, who assemble
components into finished garments (except for labeling and packaging) and
perform certain finishing processes. The Company pays its independent
manufacturers based on a specified unit price for actual first-quality units
produced. Accordingly, a substantial portion of the Company's production labor
and overhead is variable. The Company has no material contractual arrangements
with its manufacturers. The Company ships assembled goods from the Dominican
Republic and Mexico to its Tampa distribution center via common carrier. Upon
receipt of a customer order confirmation, the Company attaches designated labels
and point-of-sale packaging and ships orders to customers.
The apparel retail market experienced a down cycle during Fiscal 1995
and early Fiscal 1996, with a recovery beginning in the second quarter of Fiscal
1996. The Company observed this weakening apparel market and, as a result, began
to reduce its inventories. In Fiscal 1995 and the first quarter of Fiscal 1996,
the Company experienced significant order cancellations. In an effort to control
the cost of rising inventories and in anticipation of a continued weak retail
market, the Company offered products at amounts below normal selling prices and,
in some cases, below cost. In addition, the Company recorded markdown reserves
for remaining excess inventory. The weak retail market resulted in only small
sales increases from Fiscal 1995 to Fiscal 1996. In addition, the Company's
gross margin weakened in Fiscal 1995 but improved slightly in Fiscal 1996. The
Company believes that historical market conditions resumed in 1997.
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Company's
consolidated financial statements and notes thereto.
RESULTS OF OPERATION
The following table sets forth, for the periods indicated, selected
items in the Company's consolidated statements of operations expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 76.2 77.7 79.8
----- ----- -----
Gross profit 23.8 22.3 20.2
Selling, general and
administrative expenses 12.8 12.9 13.7
----- ----- -----
Operating income 11.0 9.4 6.5
Interest expense 1.9 2.1 2.9
Factoring expense 0.3 0.3 0.6
Other expense, net 0.1 0.3 0.3
----- ----- -----
Income before income taxes 8.7 6.7 2.7
Provision for income taxes 3.2 2.3 .7
----- ----- -----
Net income 5.5% 4.4% 2.0%
===== ===== =====
</TABLE>
17
<PAGE> 18
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales. Net sales for Fiscal 1997 were $151.7 million as compared to
$117.4 million for Fiscal 1996, an increase of $34.3 million, or 29.3%. This
increase was attributable to a 27% increase in the number of units shipped and a
2% increase in the average selling price per unit. These increases were
primarily the result of increased market penetration and brand acceptance.
Gross Profit. Gross profit for Fiscal 1997 was $36.1 million, or 23.8%
of net sales, as compared with $26.2 million, or 22.3% of net sales, for Fiscal
1996. The increase in gross profit percentage resulted primarily from a
significant reduction in the level of markdowns. During the first several weeks
of Fiscal 1996, a significant number of orders were canceled due to the soft
retail market experienced by most major retailers. In an effort to control the
cost of rising inventories and in anticipation of a continued weak retail
market, the Company sold products below its normal selling prices and in some
cases below its cost. Also, the Company recorded additional markdown allowances
for any remaining excess inventory. During the latter part of Fiscal 1996, the
retail market strengthened and the level of markdowns decreased significantly.
This trend continued during Fiscal 1997 and the gross profit percentage returned
to historical levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Fiscal 1997 were $19.4 million, or 12.8% of net
sales, as compared to $15.2 million, or 12.9% of net sales, for Fiscal 1996. The
increase in selling, general and administrative expenses was principally due to
the overall increase in the level of operations of the Company. The principal
components of the increase included $590,000 in distribution center labor,
$370,000 in depreciation and occupancy costs related to the Company's new
distribution center, $520,000 in commissions and selling costs, $450,000 in
information technology costs, $515,000 in merchandising costs, $330,000 in
certain legal expenses, and $330,000 in bad debts related to a customer
bankruptcy.
Interest Expense. Interest expense for Fiscal 1997 was $2.9 million as
compared to $2.5 million for Fiscal 1996. The increase in interest expense was
the result of higher average outstanding borrowings, offset in part by a lower
average interest rate due to a re-negotiation of the Credit Agreement in
November 1996.
Factoring Expense. Factoring expense was $0.5 million for Fiscal 1997
and $0.4 million for Fiscal 1996, or .3% of sales for both years.
Income Taxes. The Company's effective income tax rate for Fiscal 1997
was 37.2% as compared with 34.7% in the comparable period in Fiscal 1996. The
increase in the effective rate for Fiscal 1997 was primarily due to the Company
receiving in Fiscal 1996 a benefit for previously unrecognized losses of an
international subsidiary, which was closed in Fiscal 1995.
Net Income. As a result of the above factors, net income for Fiscal
1997 was $8.3 million, or 5.5% of net sales, as compared to $5.2 million, or
4.4% of net sales, for Fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales for Fiscal 1996 were $117.4 million as compared to
net sales of $110.1 million for Fiscal 1995, an increase of $7.3 million, or
6.6%. The increase was primarily the result of a 5.8% increase in the average
selling price per unit. The provision for returns and allowances was $3.0
million in Fiscal 1996, which was consistent with the $3.1 million for Fiscal
1995. During the last three quarters of Fiscal 1996, the retail market
strengthened and the Company was able to significantly reduce the level of
markdown and close out sales experienced during Fiscal 1995 and the first
quarter of Fiscal 1996.
18
<PAGE> 19
Gross Profit. Gross profit for Fiscal 1996 was $26.2 million, or 22.3%
of net sales, as compared to $22.2 million, or 20.2% of net sales, during Fiscal
1995. The increase in gross profit percentage was primarily attributable to an
increase in the average selling price per unit without a corresponding increase
in the average cost per unit. As a result of a progressive weakening of the
retail market in 1995, the Company sold selected products at selling prices
below normal sales prices. These markdowns were concentrated in the first
quarter of Fiscal 1996 when a significant number of orders was canceled. In
limited cases, to control the costs of rising inventories, the Company sold
products at prices that were below its costs. Also, the Company recorded
additional markdown allowances for any remaining excess inventory. The provision
recorded by the Company for such losses increased from $468,000 in Fiscal 1995
to $798,000 in Fiscal 1996. In addition, during Fiscal 1995, the Company
incurred increased labor expense, including significant overtime, due to a shift
toward smaller individual orders from customers. During the latter part of
Fiscal 1996, order sizes returned to historical levels, which increased the
average order size and led to a favorable impact on gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Fiscal 1996 were $15.2 million, or 12.9% of net
sales, as compared to $15.1 million, or 13.7% of net sales, for Fiscal 1995.
Selling, general and administrative expenses as a percentage of net sales
decreased slightly due to the Company's ability to leverage certain fixed
overhead costs against the increased level of sales.
Interest Expense. Interest expense for Fiscal 1996 was $2.5 million as
compared to $3.2 million for Fiscal 1995. The decrease was due principally to
lower average outstanding borrowings resulting from the reduction of working
capital requirements, caused primarily by the reduction in average inventory
levels throughout the year.
Factoring Expense. Factoring expense for Fiscal 1996 was $0.4 million,
or 0.3% of net sales, as compared to $0.7 million, or 0.6% of net sales, for
Fiscal 1995. The decrease was primarily the result of a more favorable factoring
arrangement entered into in October 1995.
Income Taxes. The Company's effective income tax rate for Fiscal 1996
was 34.7% as compared with 27.6% for Fiscal 1995. The lower effective rate
during Fiscal 1995 was primarily the result of the Company receiving the benefit
of previously unrecognized losses of an international subsidiary. The company
decided to cease the operation of this subsidiary in September 1995. Prior to
this decision, these losses were not deductible for U.S. income tax purposes.
Net Income. As a result of the above factors, net income for Fiscal
1996 was $5.2 million, or 4.4% of net sales, as compared to $2.2 million, or
2.0% of net sales, for Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements have been the funding of the
growth in operations and capital expenditures. The Company has historically
financed its growth in sales and the resulting increase in inventory and
receivables through a combination of operating cash flow and borrowings under
its Credit Agreement.
During Fiscal 1997, the Company generated $7.0 million of cash from
operations. This was primarily the result of net income of $8.3 million and a
decrease in inventories of $1.9 million, offset by an increase in accounts
receivable of $5.1 million and a decrease in accounts payable of $1.1 million.
The increase in accounts receivable was primarily the result of a 17% increase
in net sales in the fourth quarter of Fiscal 1997 as compared to the fourth
quarter of Fiscal 1996. The decreases in accounts payable and inventories were
primarily due to a seasonal reduction in production activity.
The Company's Credit Agreement consists of a $40 million revolving
credit line (the "Facility"), a $3 million term note and a $5 million equipment
loan facility. The amount available for borrowing under the Facility is
determined pursuant to a formula based upon the levels of qualifying accounts
19
<PAGE> 20
receivable and eligible inventory, subject to the $40 million maximum ($5.5
million of which can be utilized for the issuance of letters of credit). As of
September 27, 1997, $12.1 million and $2.4 million were outstanding under the
Facility and the equipment loan facility, respectively. The term note had no
outstanding balance. As of September 27, 1997, the Company had approximately
$17.1 million and $2.0 million available for additional borrowings under the
Facility and the equipment loan facility, respectively. No additional borrowings
are available under the term note. The Credit Agreement expires on October 31,
1998.
The Company has historically financed its capital expenditures through
a combination of operating cash flow and long-term borrowings. Capital
expenditures were $5.2 million and $10.1 million for Fiscal 1997 and Fiscal
1996, respectively. During Fiscal 1996 the Company spent $6.2 million to acquire
the building and land in Tampa, Florida which houses the distribution and
administration functions as well as additional adjacent property for the purpose
of constructing an approximately 110,000 square foot cutting facility. During
Fiscal 1997, the cutting facility was completed at a cost of $5.4 million. The
resulting consolidated administration, distribution and cutting facilities are
expected to increase efficiencies and accommodate anticipated increases in
volume. The building and land acquisitions and construction of the new cutting
facility were financed primarily through a new construction loan (the "Loan
Agreement"). During Fiscal 1997, the Company converted borrowings under the Loan
Agreement to a ten-year term loan, having a 19-year amortization period. As of
September 27, 1997 and September 28, 1996 outstanding borrowings under the Loan
Agreement amounted to $9.8 million and $6.3 million, respectively.
During Fiscal 1998, the Company anticipates spending approximately
$410,000 to add a third Gerber cutter and up to $5.0 million to upgrade or
replace certain of its existing computer systems, computer hardware and
software, and for consulting and training relating to the new systems. The new
or upgraded systems will, among other things, address problems associated with
the fact that certain of the Company's existing systems were designed and
developed without considering the impact of the upcoming change in the century
and, thus, use only two digits to identify the year in the date field (the
so-called "Year 2000 Problem"). Although the Company does not intend to cease
operations of its existing systems until the new or upgraded systems are
functional, if the Company were to encounter unforseen difficulties or delays
in implementing these new or upgraded computer systems, such difficulties or
delays could have a material adverse affect on the Company's business and
results of operations.
The Company's credit agreements contain significant financial and
operating covenants, including requirements that the Company maintain minimum
net worth levels and certain financial ratios, prohibitions on the ability of
the Company to incur certain additional indebtedness or to pay dividends, and
restrictions on its ability to make capital expenditures. The Company is
currently in compliance with all covenants under its credit agreements.
Pursuant to a factoring agreement (the "Factoring Agreement"), the
Company factors substantially all of its accounts receivable. The Factoring
Agreement provides that the factor will pay the Company an amount equal to the
gross amount of the Company's accounts receivable from customers reduced by
certain offsets, including among other things, discounts, returns and a
commission payable by the Company to the factor. The commission equals 0.30% of
the gross amount factored. For Fiscal 1997 and Fiscal 1996, the Company paid
commissions to the factor aggregating $505,000 and $373,000, respectively. The
factor subjects all sales to its credit review process and assumes 99.85% of the
credit risk for amounts factored pursuant to the Factoring Agreement. In Fiscal
1997, additional credit risk was assumed by the Company for a specific customer
under a separate letter agreement with the factor. This agreement expired during
Fiscal 1997. Funds are transferred to reduce outstanding borrowings under the
Credit Agreement once payment is received from the factor. The factor pays the
Company the receivable amount upon the earlier of (i) receipt by the factor of
payment from the Company's customer or (ii) 120 days past the due date for such
payment. The Factoring Agreement expires on September 30, 1998.
At September 27, 1997 and at September 28, 1996, the Company had
working capital of $30.2 million and $25.5 million, respectively. The increase
in working capital was due primarily to a $5.1 million increase in accounts
20
<PAGE> 21
receivable, a $1.1 million reduction in accounts payable and a $1.3 million
reduction in current installments of long-term debt and obligations under
capital lease, offset, in part, by a $1.9 million reduction in inventories. The
Company expects its working capital needs will continue to fluctuate based on
seasonal increases in sales and accounts receivable and seasonal decreases in
trade accounts payable.
The Company received $17.9 million in proceeds from its initial public
offering in October 1997. Of the proceeds, $3.9 million was used to redeem the
Company's preferred stock, $10.6 million was used to reduce amounts outstanding
under the Facility and the remainder was invested for use in operations.
The Company believes that the combination of existing working capital,
funds anticipated to be generated from operating activities and the borrowing
availability under the current and anticipated credit agreements will be
sufficient to fund both its short-term and long-term capital and liquidity
needs.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share.
The overall objective of Statement 128 is to simplify the calculation of
earnings per share ("EPS") and achieve comparability with the recently issued
International Accounting Standard No. 33, Earnings Per Share. Statement 128 is
effective for both interim and annual financial statements for periods ending
after December 15, 1997. Earlier application is not permitted. The new standard,
which will be implemented by the Company in the first thirteen weeks of Fiscal
1998, is not expected to have a significant impact on the Company's EPS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in pages 24
through 39 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this Item, with respect to Directors,
will be contained in, and is incorporated by reference to, the proxy statement
for the Company's 1998 Annual Meeting of Shareholders, which will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A on or about
December 29, 1997. The information called for by this Item, with respect to
Executive Officers, is set forth in Item 1 of this report under the caption
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this Item will be contained in, and is
incorporated by reference to, the proxy statement for the Company's 1998 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A on or about December 29, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this Item will be contained in, and is
incorporated by reference to, the proxy statement for the Company's 1998 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A on or about December 29, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this Item will be contained in, and is
incorporated by reference to, the proxy statement for the Company's 1998 Annual
Meeting of Shareholders, which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A on or about December 29, 1997.
22
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(A) 2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
(A) 3. EXHIBITS
The Index to Exhibits attached hereto lists the exhibits that are
filed as part of this report.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the
fourth quarter of the fiscal year covered by this report.
23
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
THE BOARD OF DIRECTORS
TROPICAL SPORTSWEAR INT'L CORPORATION
We have audited the accompanying consolidated balance sheets of
Tropical Sportswear Int'l Corporation as of September 27, 1997 and September 28,
1996, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended September 27,
1997. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Tropical Sportswear Int'l Corporation at September 27, 1997 and September 28,
1996, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended September 27, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
TAMPA, FLORIDA
November 5, 1997
24
<PAGE> 25
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 116 $ 261
Accounts receivable 24,981 20,197
Inventories 21,351 23,282
Deferred income taxes 1,495 1,816
Prepaid income taxes -- 269
Prepaid expenses 812 163
------- -------
Total current assets 48,755 45,988
Property and equipment 25,245 20,145
Less accumulated depreciation and amortization 4,962 3,475
------- -------
20,283 16,670
Other assets 227 350
Excess of cost over fair value of net assets of acquired
subsidiary less accumulated amortization of
$82 at September 1997 and $68 at September 1996 393 407
------- -------
Total assets $69,658 $63,415
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $12,828 $13,949
Accrued expenses 2,322 1,581
Accrued incentive compensation 1,934 2,365
Income taxes payable 102 --
Current installments of long-term debt 801 2,155
Current installments of obligations under capital leases 534 455
------- -------
Total current liabilities 18,521 20,505
Long-term debt 23,442 23,676
Obligations under capital leases 613 486
Deferred income taxes 431 366
Commitments and contingencies
Shareholders' equity:
Preferred stock, $100 par value; 10,000,000 shares
authorized; 38,630 shares issued and outstanding 3,863 3,863
Common stock, $.01 par value; 50,000,000 shares
authorized; 6,000,000 shares issued and outstanding 60 60
Retained earnings 22,728 14,459
------- -------
Total shareholders' equity 26,651 18,382
------- -------
Total liabilities and shareholders' equity $69,658 $63,415
======= =======
</TABLE>
See accompanying notes.
25
<PAGE> 26
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Net sales $ 151,692 $ 17,355 $ 110,064
Cost of goods sold 115,637 91,132 87,858
---------- ---------- ----------
Gross profit 36,055 26,223 22,206
Selling, general and administrative expenses 19,443 15,189 15,060
---------- ---------- ----------
Operating income 16,612 11,034 7,146
Other expense:
Interest 2,899 2,498 3,160
Factoring 505 373 708
Other, net 32 247 293
---------- ---------- ----------
3,436 3,118 4,161
---------- ---------- ----------
Income before income taxes 13,176 7,916 2,985
Provision for income taxes 4,907 2,745 825
---------- ---------- ----------
Net income $ 8,269 $ 5,171 $ 2,160
========== ========== ==========
Net income per common share $ 1.37 $ 0.86 $0.36
========== ========== ==========
Weighted average number of shares
used in the calculation 6,015,000 6,015,000 6,015,000
</TABLE>
See accompanying notes.
26
<PAGE> 27
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ------------ RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------- ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1994 39 $ 3,863 6,000 $ 60 $ 7,128 $ 11,051
Net income -- -- -- -- 2,160 2,160
-------- ------- ----- ----- --------- --------
Balance at September 30, 1995 39 3,863 6,000 60 9,288 13,211
Net income -- -- -- -- 5,171 5,171
-------- ------- ----- ----- --------- --------
Balance at September 28, 1996 39 3,863 6,000 60 14,459 18,382
Net income -- -- -- -- 8,269 8,269
-------- ------- ----- ----- --------- --------
Balance at September 27, 1997 39 $ 3,863 6,000 $ 60 $ 22,728 $ 26,651
======== ======= ===== ===== ========= ========
</TABLE>
See accompanying notes.
27
<PAGE> 28
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,269 $ 5,171 $ 2,160
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
(Gain) loss on disposal of property and equipment (6) 152 215
Depreciation and amortization 2,121 1,431 1,226
Provision for doubtful accounts 331 -- --
Deferred income taxes 386 (204) 327
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (5,115) 704 (3,396)
Inventories 1,931 (848) 1,060
Prepaid income taxes 269 898 (1,167)
Prepaid expenses and other assets (526) (119) 94
Increase (decrease) in liabilities:
Accounts payable (1,121) 3,863 (4,476)
Accrued expenses 741 (73) 689
Accrued incentive compensation (431) 1,576 (758)
Income taxes payable 102 -- (732)
-------- --------- ---------
Net cash provided (used) by operating activities 6,951 12,551 (4,758)
INVESTING ACTIVITIES
Capital expenditures (5,162) (10,119) (1,467)
Proceeds from sale of property and equipment 78 234 39
-------- --------- --------
Net cash used by investing activities (5,084) (9,885) (1,428)
FINANCING ACTIVITIES
Proceeds of long-term debt 4,676 7,330 803
Principal payments of long-term debt (3,253) (1,628) (1,750)
Principal payments of capital leases (424) (500) (540)
Net proceeds from (repayment of) long-
term revolving credit line borrowings (3,011) (7,675) 7,333
-------- ---------- --------
Net cash provided (used) by financing activities (2,012) (2,473) 5,846
--------- ---------- --------
Net increase (decrease) in cash (145) 193 (340)
Cash at beginning of year 261 68 408
-------- --------- --------
Cash at end of year $ 116 $ 261 $ 68
======== ========= ========
</TABLE>
See accompanying notes.
28
<PAGE> 29
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED SEPTEMBER 27, 1997
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tropical
Sportswear Int'l Corporation (the Company) and its wholly-owned subsidiary,
Apparel Network Corporation (see Note 14). All significant intercompany balances
and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
The Company's principal line of business is the marketing, design, manufacture
and distribution of men's casual pants and shorts. The principal markets for the
Company include major retailers within the United States. The Company
subcontracts the assembly of substantially all of its products with independent
manufacturers in the Dominican Republic and Mexico and, at any point in time, a
majority of the Company's work-in-process inventory is located in those
countries.
ACCOUNTING PERIOD
The Company operates on a 52/53 week annual accounting period ending on the
Saturday nearest September 30th. Each of the years ended September 27, 1997,
September 28, 1996, and September 30, 1995 contains 52 weeks.
NET INCOME PER SHARE
Net income per common share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding. In accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
equivalent shares issued by the Company at prices below the public offering
price during the period beginning one year prior to the filing date of the
initial public offering have been included in the calculation as if they were
outstanding for all periods prior to the offering.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (Statement 128). The
overall objective of Statement 128 is to simplify the calculation of earnings
per share (EPS) and achieve comparability with the recently issued International
Accounting Standard No. 33, Earnings Per Share. Statement 128 is effective for
both interim and annual financial statements for periods ending after
December 15, 1997. Earlier application is not permitted. Adoption of the new
standard will have no material impact on the Company's EPS for the periods
presented herein.
REVENUE RECOGNITION
Based on its terms of F.O.B. shipping point, the Company records sales upon the
shipment of finished product to the customer.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. The Company records provisions for markdowns and
losses on excess and slow-moving inventory to the extent the cost of inventory
exceeds estimated net realizable value.
29
<PAGE> 30
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company primarily uses
straight-line depreciation methods over periods that approximate the assets'
estimated useful lives.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF ACQUIRED SUBSIDIARY
The excess of cost over fair value of net assets of the acquired subsidiary is
amortized on the straight-line basis over a period of 40 years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from the estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable, accounts
payable, long-term debt and obligations under capital leases. The carrying
amount of these financial instruments approximate their fair value.
STATEMENT OF CASH FLOWS
Supplemental cash flow information:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Cash paid for:
Interest $2,937 $2,439 $3,160
Income taxes 4,150 2,051 2,373
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
Capital lease obligations of $630 and $349 were incurred when the
Company entered into leases for new equipment in the years ended
September 27, 1997 and September 30, 1995 respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of (SFAS 121). This pronouncement requires impairment losses to be
recorded on long-lived assets used in operations when impairment indicators are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The Company adopted the
provisions of SFAS 121 during Fiscal 1996 with no impact on the financial
statements.
30
<PAGE> 31
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
-------------------------------
<S> <C> <C>
Receivable from factor $24,631 $19,627
Receivable from trade accounts 997 1,094
Reserve for returns and allowances and bad debts (647) (524)
------- -------
$24,981 $20,197
======= =======
</TABLE>
On October 1, 1995, the Company entered into a factoring agreement whereby
substantially all of the Company's trade receivables are assigned on an ongoing
basis, without recourse, except for credit losses on the first .15% of amounts
factored. The factoring agreement is with a national company which, in
management's opinion, is highly creditworthy. The purchase price of each
receivable is the net face amount, less a factoring discount of .30%. Prior to
October 1, 1995, the Company factored its trade receivables without recourse and
under this agreement, the purchase price of each receivable was the net face
amount less a factoring discount of .65%.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
-------------------------------
<S> <C> <C>
Raw materials $ 2,255 $ 2,399
Work in process 5,617 5,946
Finished goods 13,479 14,937
------- -------
$21,351 $23,282
======= =======
</TABLE>
The Company has made provisions for inventory loss of approximately $2,200,
$2,200 and $1,780 at September 27, 1997, September 28, 1996 and September 30,
1995, respectively, to reflect a write down of excess and slow-moving inventory
to net realizable value.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28, LIFE
1997 1996 (YEARS)
------------------------------- -------
<S> <C> <C> <C>
Land $3,976 $ 3,976 --
Land improvements 1,581 6 15
Building and improvements 9,317 6,243 39.5
Machinery and equipment 10,313 7,824 3-7
Leasehold improvement 58 64 15-39.5
Construction in progress -- 2,032 --
------- -------
$25,245 $20,145
======= =======
</TABLE>
During the years ended September 27, 1997 and September 28, 1996, the Company
capitalized $72 and $71 of interest expense, respectively.
31
<PAGE> 32
5. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
---------------------------------
<S> <C> <C>
Note payable to former owners $ -- $ 1,827
Revolving credit line 12,135 15,147
Equipment loan facility 2,354 1,557
Term note -- 1,000
Construction and term loan 9,754 6,292
Other notes payable -- 8
------- -------
24,243 25,831
Less current maturities 801 2,155
------- -------
$23,442 $23,676
======= =======
</TABLE>
The note payable to former owners (the Acquisition Note) was issued on July 8,
1994 in conjunction with the settlement of the final purchase price to be paid
for the Company. The Acquisition Note bears no interest and is, therefore,
recorded at its net present value using a discount rate of 9%. The outstanding
face value amounted to $2,000 as of September 28, 1996. The Acquisition Note was
repaid on January 31, 1997.
On September 28, 1994, the Company entered into a secured revolving credit and
term loan agreement (the Credit Agreement). The Credit Agreement, as amended,
consists of a $40,000 revolving credit line ($5,500 of which can be utilized for
letters of credit), a $3,000 term note and a $5,000 equipment loan facility. The
Credit Agreement expires on October 31, 1998, at which time any outstanding
balances become due. Borrowings under the revolving credit line are limited to
the lesser of $40,000 or qualifying accounts receivable and eligible inventory.
Available borrowings under the revolving credit line were approximately $17,056
and $7,233 at September 27, 1997 and September 28, 1996, respectively. The
revolving credit line bears interest at a variable rate of prime or LIBOR plus
an applicable margin (8.70% and 8.75% at September 27, 1997 and September 28,
1996, respectively).
The equipment loan facility is payable in monthly installments of $31 and bears
interest at a variable rate of prime or LIBOR plus an applicable margin (8.46%
and 8.41% at September 27, 1997 and September 28, 1996, respectively). Available
borrowings under the equipment loan facility were approximately $1,990 and
$3,400 at September 27, 1997 and September 28, 1996, respectively.
The term note is payable in monthly installments of $83 and bears interest at
prime plus an applicable margin (10.25% and 11.0% at September 27, 1997 and
September 28, 1996, respectively). No additional borrowings are available under
the term note.
On May 7, 1996, the Company entered into a construction and term loan agreement
(the Loan Agreement). The Loan Agreement consists of a $9,600 construction loan,
which is secured by a mortgage. The construction loan was utilized to purchase
the Company's previously leased operating facility and to finance the
construction of a new adjacent cutting facility. Interest is payable monthly at
prime plus an applicable margin (8.75% at September 28, 1996). On July 18, 1997,
the construction loan was converted to a $9,800 term loan which will mature on
May 7, 2006. Principal and interest at 8.88% are due monthly based on a 19-year
amortization.
The Company's debt agreements contain certain covenants, the most restrictive of
which are as follows: (i) maintenance of consolidated net worth at specified
levels, (ii) achievement of specified adjusted net earnings from operations,
(iii) maintenance of debt service coverage ratio at specified levels, (iv)
limitations on annual capital expenditures, (v) limitations on liens, and
(vi) prohibition of the payment of dividends. The Company is in compliance with
all such covenants. The Credit Agreement is secured by substantially all of the
assets of the Company.
32
<PAGE> 33
5. DEBT, CONTINUED
The scheduled maturities of long-term debt as of September 27, 1997 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ------
<S> <C>
1998 $801
1999 14,105
2000 236
2001 261
2002 286
Thereafter 8,554
</TABLE>
6. LEASES
The Company leases administrative facilities and certain equipment under
non-cancelable leases. Future minimum lease payments under operating leases and
the present value of future minimum capital lease payments as of September 27,
1997 are:
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
----------- ------ ------
<S> <C> <C>
1998 $ 308 $ 601
1999 239 375
2000 231 132
2001 192 132
2002 144 66
Thereafter 207 --
------ ------
Total minimum lease payments $1,321 1,306
======
Less amount representing interest 159
------
Present value of minimum capital lease payments 1,147
Less current installments 534
------
$ 613
======
</TABLE>
The following summarizes the Company's assets under capital leases:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Machinery and equipment $2,893 $2,253
Accumulated amortization 1,588 1,242
</TABLE>
Amortization of assets under capital leases has been included in depreciation.
Total rental expense for operating leases for the years ended September 27,
1997, September 28, 1996, and September 30, 1995 was approximately $465, $859,
and $982, respectively.
7. CLOSURE OF INTERNATIONAL SUBSIDIARY
In September 1995, a decision was made to close the Company's international
subsidiary, Confecciones Siglo, S.A., and, at September 30, 1995, the Company
had accrued $500 for costs associated with the closing. These costs included
employee severance, relocation of certain equipment and estimated losses on
disposals of property and equipment. During Fiscal 1996, the assets of the
subsidiary were liquidated.
33
<PAGE> 34
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $4,143 $2,713 $375
State 378 236 123
------ ------ ----
4,521 2,949 498
Deferred expense (benefit):
Federal 365 (188) 309
State 21 (16) 18
------ ------ ----
386 (204) 327
------ ------ ----
$4,907 $2,745 $825
====== ====== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
A reconciliation of the difference between the effective income tax rate and the
statutory federal tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Income tax expense at federal statutory
rate (34.0%) $4,480 $2,691 $1,015
State income taxes, net of federal benefit 348 144 90
Losses of international subsidiary -- (162) (312)
Amortization of goodwill 4 48 4
Other items 75 24 28
------ ------ ------
$4,907 $2,745 $ 825
====== ====== ======
</TABLE>
In Fiscal 1996 and 1995, as a result of closing the Company's international
subsidiary, the Company recorded tax benefits for losses of the international
subsidiary which were previously not deductible for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
-------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory related $ 962 $1,060
Accounts receivable related 233 185
Various accrued expenses 351 599
Deferred tax liabilities:
Depreciation (431) (366)
Other items (51) (28)
------ ------
Net deferred tax asset $1,064 $1,450
====== ======
Classified as follows:
Current asset $1,495 $1,816
Non-current liability (431) (366)
------ ------
$1,064 $1,450
====== ======
</TABLE>
34
<PAGE> 35
9. SIGNIFICANT CUSTOMERS
In Fiscal 1997, three customers accounted for 29%, 19% and 11% of sales. In
fiscal 1996, three customers accounted for approximately 26%, 17% and 14% of
sales. In Fiscal 1995, four customers accounted for approximately 18%, 15%, 15%
and 14% of sales.
10. COMMITMENTS AND CONTINGENCIES
As of September 27, 1997 and September 28, 1996, the Company had approximately
$1,004 and $4,704, respectively, of outstanding letters of credit with various
expiration dates through January 1998.
On March 21, 1997, Levi Strauss & Co. brought suit against the Company in U.S.
District Court for the Northern District of California. The complaint alleges,
among other things, that the Company's Flyers(TM) trademark and certain trade
dress used in the labeling and packaging of the Company's Flyers(TM) and Bay to
Bay(R) products infringe upon certain of plaintiff's proprietary trademark and
trade dress rights in violation of the federal Lanham Act and California law.
The complaint seeks injunctive relief, as well as treble damages and attorneys'
fees. The Company has also received notice that the plaintiff intends to seek to
amend its complaint to allege that certain trade dress used in the labeling and
packaging of the Company's licensed Bill Blass(R) brand dress slack also
infringes upon certain of plaintiff's proprietary trade dress rights. Although
the outcome of the litigation cannot be determined at this time and the Company
would consider reasonable settlement opportunities, the Company currently
intends to vigorously defend against such allegations. Nevertheless, in an
attempt to limit the Company's liability, if any, with respect to such alleged
infringement, the Company has unilaterally altered the trademark and trade dress
which are currently the subject of this litigation.
On July 3, 1997, Out-of-Mexico Apparel, Ltd. brought suit against the Company in
California Superior Court for, among other things, breach of contract, breach of
an implied covenant of good faith and fair dealing, and violation of the
California Unfair Business Practices Act. The complaint alleges that the Company
entered into contracts for the manufacture of apparel with certain manufacturers
in contravention of a customer non-disclosure and non-circumvention agreement
between Out-of-Mexico Apparel, Ltd. and the Company. The complaint seeks
compensatory damages and prejudgment interest, punitive damages and the costs of
suit. Although the outcome of the litigation cannot be determined at this time,
the Company intends to vigorously defend against such allegations.
The Company has not recorded any amounts related to the above two matters. The
Company is not involved in any other legal proceedings which the Company
believes could reasonably be expected to have a material adverse effect on the
Company's business, financial position or results of operations.
11. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) profit sharing plan under which all
employees are eligible to participate. Employee contributions are voluntary and
subject to Internal Revenue Service limitations. The Company matches, based on
annually determined factors, employee contributions provided the employee
completes 1,000 hours of service annually and is employed as of December 31 of
each plan year. For the years ended September 27, 1997, September 28, 1996, and
September 30, 1995, the Company charged to expense $114, $112, and $86,
respectively, related to this plan.
35
<PAGE> 36
12. STOCK OPTION PLANS
The Board of Directors has adopted two stock option plans, which became
effective on October 28, 1997. The Employee Stock Option Plan (the Employee
Plan) and the Non-Employee Director Stock Option Plan (the Director Plan)
reserve 700,000 shares of common stock for future issuance under the plans. The
per share exercise price of each stock option granted under the plans will be
equal to the quoted fair market value of the stock on the date of grant. Under
the Employee Plan, on October 28, 1997, the effective date of the initial public
offering, the Board granted options to purchase 300,000 shares of common stock
of the Company to key employees. Under the Director Plan, on October 28, 1997,
the Board also granted options to purchase 60,000 shares of common stock of the
Company to non-employee directors.
In December 1996 and January 1997, The Board of Directors granted to key members
of management, non-qualified options to purchase 60,000 shares of common stock
of the Company at an exercise price of $10.50 per share, its estimated fair
value at the date of grant.
All options granted have 10 year terms and vest and become fully exercisable at
the end of three years of continued employment.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123
(Statement 123), "Accounting for Stock Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for Fiscal
1997: risk-free interest rate of 5.7%; a dividend yield of 0%; volatility factor
of the expected market price of the Company's common stock of .31; and a
weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information for Fiscal 1997 is (in thousands except for earnings per share
information):
<TABLE>
<S> <C>
Pro forma net income $8,230
Pro forma earnings per share $1.37
</TABLE>
36
<PAGE> 37
12. STOCK OPTION PLANS, CONTINUED
A summary of the Company's Stock Option activity, and related information for
the year ended September 27, 1997 follows:
<TABLE>
<CAPTION>
Options Weighted Average
(000) Exercise Price
------------------------------------
<S> <C> <C>
Outstanding-beginning of year -- n/a
Granted 60 $10.50
Exercised -- n/a
Canceled/expired -- n/a
-----
Outstanding-end of year 60 $10.50
=====
Exercisable at end of year -- n/a
Weighted-average fair value of
options granted during the year $3.95
</TABLE>
Exercise price for options outstanding as of September 27, 1997 was $10.50. The
weighted-average remaining contractual life of those options is 9 years.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended September 27, 1997 and September 28, 1996:
<TABLE>
<CAPTION>
NET GROSS NET NET INCOME (LOSS) PER
SALES PROFIT INCOME COMMON SHARE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal year ended September 27, 1997
First Quarter $30,727 $ 6,745 $ 919 $0.15
Second Quarter 40,632 10,024 2,573 0.43
Third Quarter 44,249 10,512 2,675 0.45
Fourth Quarter 36,084 8,774 2,102 0.35
Fiscal year ended September 28, 1996
First Quarter $20,396 3,141 (481) $(0.08)
Second Quarter 32,389 7,491 1,792 0.30
Third Quarter 33,808 7,994 2,216 0.37
Fourth Quarter 30,762 7,597 1,644 0.27
</TABLE>
37
<PAGE> 38
14. SUBSEQUENT EVENTS
An initial public offering (the Offering) of the Company's common stock was
completed on October 28, 1997 in which the company raised approximately
$17,300,000 (net of offering costs). In connection with the Offering, the Board
formed a new corporation, Tropical Sportswear Int'l Corporation (the Company).
Outstanding common and preferred stock of the predecessor company, Apparel
International Group, Inc. (AIG), was exchanged for an equal amount of common and
preferred stock of the Company. Immediately preceding the closing of the
Offering, the subsidiaries of AIG, Tropical Acquisition Corporation and Tropical
Sportswear International Corporation, were merged into the Company.
The preferred stock of AIG had a par value of $100 per share. These shares were
exchanged for a special class of preferred stock which has a $.01 par value and
a $100 per share liquidation preference. These shares were redeemed upon the
closing of the Offering.
Effective October 23, 1997, the Board of Directors approved a change in the
Company's capital stock to authorize 50,000,000 shares of $.01 par value common
stock and 10,000,000 shares of $.01 par value preferred stock. At this time, the
Board also authorized a 6,000-for-1 stock split for holders of its common stock.
The accompanying consolidated financial statements have been restated to reflect
this change in capitalization.
38
<PAGE> 39
TROPICAL SPORTSWEAR INT'L CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Reserve for returns and allowances and bad debts:
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
of Period Expenses Accounts Deductions Of Period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended:
September 30, 1995 $916 $3,061 --- $3,495 $482
==== ====== === ====== ====
September 28, 1996 $482 $3,022 --- $2,980 $524
==== ====== === ====== ====
September 27, 1997 $524 $2,457 --- $2,334 $647
==== ====== === ====== ====
</TABLE>
Reserve for Excess and Slow-Moving Inventory:
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
of Period Expenses Accounts Deductions Of Period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended:
September 30, 1995 $1,941 $468 --- $629 $1,780
====== ==== === ==== ======
September 28, 1996 $1,780 $798 --- $378 $2,200
====== ==== === ==== ======
September 27, 1997 $2,200 $756 --- $756 $2,200
====== ==== === ==== ======
</TABLE>
39
<PAGE> 40
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, in the City of Tampa,
and State of Florida, on this 23rd day of December, 1997.
TROPICAL SPORTSWEAR INT'L CORPORATION
(Registrant)
By: /s/ William W. Compton
--------------------------------------------
William W. Compton
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Each person whose
signature appears below constitutes and appoints William W. Compton and Michael
Kagan and each of them individually, his true and lawful attorney-in-fact and
agent, with full power of substitution and revocation, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this report and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them , full power and
authority to do and perform each and every act and this requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William W. Compton Chairman of the Board December 23, 1997
- -------------------------------------- Chief Executive Officer
William W. Compton and Director
/s/ Richard J. Domino President December 23, 1997
- --------------------------------------
Richard J. Domino
/s/ Michael Kagan Executive Vice President, December 23, 1997
- -------------------------------------- Chief Financial Officer,
Michael Kagan Treasurer, Secretary and Director
/s/ Jesus Alvarez-Morodo Director December 23, 1997
- --------------------------------------
Jesus Alvarez-Morodo
Director December 23, 1997
- --------------------------------------
Eloy S. Vallina-Laguera
/s/ Leslie J. Gillock Director December 23, 1997
- --------------------------------------
Leslie J. Gillock
/s/ Donald H. Livingstone Director December 23, 1997
- --------------------------------------
Donald H. Livingstone
/s/ Leon H. Reinhart Director December 23, 1997
- --------------------------------------
Leon H. Reinhart
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
2.1--- Agreement and Plan of Merger by Tropical Sportswear Int'l Corporation, as the Surviving Corporation,
and Apparel International Group, Inc., as the Merging Corporation. (filed herewith)
2.2--- Agreement and Plan of Merger by Tropical Sportswear Int'l Corporation, as the Surviving Corporation,
and Tropical Acquisition Corporation and Tropical Sportswear International Corporation, as the
Merging Corporations. (filed herewith)
3.1--- Amended and Restated Articles of Incorporation of Tropical Sportswear Int'l Corporation. (1)
3.2--- Amended and Restated Bylaws of Tropical Sportswear Int'l Corporation. (1)
4.1--- Specimen certificate for the Common Stock of Tropical Sportswear Int'l Corporation. (2)
4.2--- Shareholders' Agreement by and among Tropical Sportswear Int'l Corporation, William W. Compton, the
Compton Family Limited Partnership, Michael Kagan, the Kagan Family Limited Partnership, Shakale
Internacional, S.A., and Accel, S.A. de C.V. (2)
10.1--- Loan and Security Agreement, dated September 28, 1994, by and between Tropical Sportswear Int'l
Corporation and Fleet Capital Corporation (formerly Barclays Business Credit, Inc.) (1)
10.2--- Construction and Term Loan Agreement, dated as of May 7, 1996, by
and between Tropical Sportswear Int'l Corporation and SouthTrust
Bank of Alabama, National Association, as amended.(1)
10.3--- Retail - Domestic Collection Factoring Agreement, dated October 1, 1995, by and between Heller
Financial, Inc. and Tropical Sportswear Int'l Corporation.(1)
10.4--- Employment Agreement between William W. Compton and Tropical Sportswear Int'l Corporation. (filed herewith)
10.5--- Employment Agreement between Michael Kagan and Tropical Sportswear Int'l Corporation. (filed herewith)
10.6--- Employment Agreement between Richard J. Domino and Tropical Sportswear Int'l Corporation. (filed herewith)
10.7--- Tropical Sportswear Int'l Corporation Employee Stock Option Plan.(1)
10.8--- Tropical Sportswear Int'l Corporation on-Employee Director Stock Option Plan.(1)
10.9--- 1996 Apparel International Group, Inc. Stock Option Plan.(1)
11.1--- Statement re: computation of per share earnings. (filed herewith)
21.1--- List of subsidiaries of Tropical Sportswear Int'l Corporation.(2)
24.1--- Power of Attorney relating to subsequent amendments (included on the signature page of this 10-K).
27.1--- Financial Data Schedule for the year ended September 28, 1996. (filed for SEC purposes only) (1)
27.2--- Financial Data Schedule for the year ended September 27, 1997. (filed for SEC purposes only) (filed herewith)
</TABLE>
(1) Filed with Registration Statement (Form S-1) on August 15, 1997,
Registration No. 333-33729 and incorporated herein by reference.
(2) Filed with Amendment #1 to Registration Statement (Form S-1) on October
2, 1997, Registration No. 333-33729 and incorporated herein by reference.
41
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as
of the 15th day of August, 1997, by Tropical Sportswear Int'l
Corporation, a Florida corporation (the "Surviving Corporation"), and Apparel
International Group, Inc., a Delaware corporation (the "Merging Corporation")
(The Merging Corporation and the Surviving Corporation are sometimes
collectively referred to herein as the "Constituent Corporations").
RECITALS
The Merging Corporation is a Delaware corporation having (i)
one thousand (1,000) authorized shares of common stock, par value $1.00 per
share ("Merging Corporation Common Stock"), of which one thousand (1,000) shares
are issued and outstanding as of the date hereof, and (ii) forty-nine thousand
nine hundred and ninety (49,990) authorized shares of preferred stock, par value
$100.00 per share ("Merging Corporation Preferred Stock"), of which thirty-eight
thousand six hundred and thirty (38,630) shares are issued and outstanding as of
the date hereof.
The Surviving Corporation is a Florida corporation having (i)
one thousand and fifty (1,050) authorized shares of common stock, par value $.01
per share ("Surviving Corporation Common Stock"), of which one hundred (100)
shares are issued and outstanding as of the date hereof, and (ii) forty-nine
thousand nine hundred and ninety (49,990) authorized shares of Preferred Stock,
par value $.01 per share ("Surviving Corporation Preferred Stock"), of which no
shares are issued and outstanding as of the date hereof.
The Merging Corporation holds one hundred percent (100%) of
the issued and outstanding stock of the Surviving Corporation
The Merging Corporation and the Surviving Corporation have
determined it to be desirable for the Merging Corporation to merge with and into
the Surviving Corporation pursuant to the applicable provisions of the Delaware
General Corporation Law (the "Delaware Law") and the Florida Business
Corporation Act (the "Florida Act"), on the terms hereinafter set forth, and the
Boards of Directors of the Merging and Surviving Corporations have each approved
this Agreement and Plan of Merger and authorized the execution and delivery
hereof.
PLAN OF MERGER
In consideration of the premises and the agreements herein
contained, and in accordance with the Delaware Law and the Florida Act, the
parties hereto adopt and make this Agreement and Plan of Merger and prescribe
the terms and conditions of such Merger and the manner of carrying the same into
effect, which shall be as follows:
<PAGE> 2
1. On the date of the filing of Articles of Merger with the
Secretary of State of the State of Florida (the "Effective Time"), the Merging
Corporation shall be merged with and into the Surviving Corporation (the
"Merger"). The terms and conditions of the Merger and the mode of carrying the
same into effect are set forth in this Agreement and Plan of Merger.
2. At the Effective Time, all of the issued and outstanding
shares of Surviving Corporation Common Stock immediately prior to the Effective
Time shall no longer be issued or outstanding and shall automatically be
cancelled and retired, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto.
3. (a) At the Effective Time, all of the issued and
outstanding shares of Merging Corporation Common Stock, and all shares of
Merging Corporation Common Stock and stock held in the treasury of the Merging
Corporation (if any), immediately prior to the Effective Time shall
automatically be cancelled and deemed to have been converted into an equal
number of shares of Surviving Corporation Common Stock. Accordingly, each holder
of shares of Merging Corporation Common Stock which are issued and outstanding
immediately prior to the Effective Time shall be issued an equal number of
shares of Surviving Corporation Common Stock.
(b) At the Effective Time, all of the issued and
outstanding shares of Merging Corporation Preferred Stock, and all shares of
Merging Corporation Preferred Stock held in the treasury of the Merging
Corporation (if any), immediately prior to the Effective Time shall
automatically be cancelled and deemed to have been converted into an equal
number of shares of Surviving Corporation Preferred Stock. Accordingly, each
holder of shares of Merging Corporation Preferred Stock which are issued and
outstanding immediately prior to the Effective Time shall be issued an equal
number of shares of Surviving Corporation Preferred Stock.
(c) Holders of shares of Merging Corporation Common
and/or Preferred Stock shall be issued certificates for Surviving Corporation
Common and/or Preferred Stock, as the case may be, upon their surrender of their
certificates for shares in the Merging Corporation.
4. The Surviving Corporation shall assume all duties and
obligations of the Merging Corporation under its 1996 Stock Option Plan so that
options to purchase shares of Merging Corporation Common Stock under the Merging
Corporation's 1996 Stock Option Plan shall be converted to options to purchase
an equal number of shares of Surviving Corporation Common Stock upon the
identical terms and conditions.
5. At the Effective Time, the Merging Corporation shall be
merged into the Surviving Corporation, which shall continue its corporate
existence under the laws of the State of Florida. The separate existence and
corporate organization of the Merging Corporation shall cease at the Effective
Time, and the Surviving Corporation shall possess all of the rights,
-2-
<PAGE> 3
privileges, immunities and franchisees, of a public as well as of a private
nature, of each of the Constituent Corporations; and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest, of or belonging to or due to each of the Constituent Corporations,
shall be taken and deemed to be transferred to and vested in the Surviving
Corporation without further act or deed; and the title to any real estate, or
any interest therein, vested in either of the Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger. The Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of each of the Constituent Corporations, and any claims existing
or action or proceeding pending by or against the Constituent Corporations may
be prosecuted to judgment as if the Merger had not taken place. Neither the
rights of creditors nor any liens upon the property of either Constituent
Corporation shall be impaired by the Merger.
6. The officers and directors of the Surviving Corporation at
the Effective Time shall be and continue to be the officers and directors of the
Surviving Corporation thereafter, until their successors are duly appointed or
elected.
7. The Articles of Incorporation and Bylaws of the Surviving
Corporation in effect immediately prior to the Effective Time shall remain in
effect as the Articles of Incorporation and Bylaws of the Surviving Corporation
thereafter, unaffected by the Merger.
8. If, at any time, the Surviving Corporation shall consider
or be advised that any further assignments or assurances in law or any things
are necessary or desirable to vest in the Surviving Corporation, according to
the terms hereof, the title to any property or rights of the Merging
Corporation, the proper officers and directors of the Merging Corporation shall
and will execute and make all such proper assignments and assurances in law and
do all things necessary or proper to vest title in such property or rights in
the Surviving Corporation and otherwise to carry out the purposes of this
Agreement and Plan of Merger.
9. This Agreement and Plan of Merger shall be submitted to the
shareholders of each of the parties hereto in accordance with the applicable
provisions of law, and the consummation of this Agreement and Plan of Merger and
the Merger herein provided for are conditioned upon the approval hereof by the
shareholders of the respective parties as provided by law.
10. This Agreement and Plan of Merger and the Merger herein
contemplated may be abandoned upon the mutual agreement of the parties at any
time prior to the Effective Time. This Agreement and Plan of Merger may be
amended, modified or supplemented at any time (before or after shareholder
approval) prior to the Effective Time of the Merger with the mutual consent of
the Boards of Directors of the Merging Corporation and the Surviving
Corporation; provided, however, that this Agreement and Plan of Merger may not
be amended,
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<PAGE> 4
modified or supplemented after it has been approved by the shareholders in any
manner which, in the judgment of the Board of Directors of the Surviving
Corporation, would have a material adverse effect on the rights of such
shareholders or in any manner not permitted under applicable law.
IN WITNESS WHEREOF, the parties have caused this Agreement and
Plan of Merger to be executed by their duly authorized officers, all as of the
day and year first above written.
TROPICAL SPORTSWEAR INT'L CORPORATION
By: /s/ William W. Compton
---------------------------------
William W. Compton,
Chief Executive Officer
Attest: /s/ Michael Kagan
-----------------------------
Michael Kagan, Secretary
APPAREL INTERNATIONAL GROUP, INC.
By: /s/ William W. Compton
---------------------------------
William W. Compton
Chief Executive Officer
Attest: /s/ Michael Kagan
-----------------------------
Michael Kagan, Secretary
-4-
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as
of the 23rd day of October, 1997, by Tropical Sportswear Int'l
Corporation, a Florida corporation (the "Surviving Corporation"), Tropical
Acquisition Corporation, a Delaware corporation ("TAC"), and Tropical Sportswear
International Corporation, a Florida corporation ("TSI") (TAC and TSI sometimes
referred to collectively as the "Merging Corporations", and the Merging
Corporations and the Surviving Corporation sometimes referred to collectively as
the "Constituent Corporations").
RECITALS
The Surviving Corporation is a Florida corporation having (i)
one thousand and fifty (1,050) authorized shares of Common Stock, par value $.01
per share, of which one thousand (1,000) shares are issued and outstanding as of
the date hereof, and (ii) forty-nine thousand nine hundred and ninety (49,990)
authorized shares of Preferred Stock, par value $.01 per share, of which
thirty-eight thousand six hundred and thirty (38,630) shares are issued and
outstanding as of the date hereof.
TAC is a Delaware corporation having one thousand (1,000)
authorized shares of Common Stock, par value $1.00 per share, of which one
thousand (1,000) shares are issued and outstanding as of the date hereof.
TSI is a Florida corporation having (i) ten thousand (10,000)
authorized shares of Common Stock, par value $10.00 per share, of which five
thousand (5,000) shares are issued and outstanding as of the date hereof, and
(ii) twenty thousand (20,000) authorized shares of Preferred Stock, par value
$100.00 per share, of which twenty thousand (20,000) shares are issued and
outstanding as of the date hereof.
The Surviving Corporation holds one hundred percent (100%) of
the issued and outstanding common stock of TAC, and TAC holds one hundred
percent (100%) of the issued and outstanding common and preferred stock of TSI.
The Merging Corporations and the Surviving Corporation have
determined it to be desirable for the Merging Corporations to merge with and
into the Surviving Corporation pursuant to the applicable provisions of the
Delaware General Corporation Law (the "Delaware Law") and the Florida Business
Corporation Act (the "Florida Act"), on the terms hereinafter set forth, and the
Boards of Directors of the Merging and Surviving Corporations have each approved
this Agreement and Plan of Merger, and authorized the execution and delivery
hereof.
<PAGE> 2
PLAN OF MERGER
In consideration of the premises and the agreements herein
contained, and in accordance with the Delaware Law and the Florida Act, the
parties hereto adopt and make this Agreement and Plan of Merger and prescribe
the terms and conditions of such Merger and the manner of carrying the same into
effect, which shall be as follows:
1. On the date of the filing of Articles of Merger with the
Secretary of State of the State of Florida (the "Effective Time"), the Merging
Corporations shall be merged with and into the Surviving Corporation (the
"Merger"). The terms and conditions of the Merger and the mode of carrying the
same into effect are set forth in this Agreement and Plan of Merger.
2. At the Effective Time, (a) all of the issued and
outstanding shares of common stock of TAC, (b) all of the issued and outstanding
shares of common and preferred stock of TSI, and (c) all shares of common and
preferred stock held in the treasury of either Merging Corporation (if any),
immediately prior to the Effective Time shall no longer be issued or outstanding
and shall automatically be cancelled and retired, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto. No shares of capital stock of the Surviving Corporation or
other consideration shall be issued in connection with the Merger.
3. At the Effective Time, the Merging Corporations shall be
merged into the Surviving Corporation, which shall continue its corporate
existence under the laws of the State of Florida. The separate existence and
corporate organization of the Merging Corporations shall cease at the Effective
Time, and the Surviving Corporation shall possess all of the rights, privileges,
immunities and franchises, of a public as well as of a private nature, of each
of the Constituent Corporations; and all property, real, personal and mixed, and
all debts due on whatever account, and all other choses in action, and all and
every other interest, of or belonging to or due to each of the Constituent
Corporations, shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed; and the title to any real
estate, or any interest therein, vested in either of the Constituent
Corporations shall not revert or be in any way impaired by reason of the Merger.
The Surviving Corporation shall thenceforth be responsible and liable for all
the liabilities and obligations of each of the Constituent Corporations, and any
claims existing or action or proceeding pending by or against the Constituent
Corporations may be prosecuted to judgment as if the Merger had not taken place.
Neither the rights of creditors nor any liens upon the property of any
Constituent Corporation shall be impaired by the Merger.
4. The officers and directors of the Surviving Corporation at
the Effective Time shall be and continue to be the officers and directors of the
Surviving Corporation thereafter, until their successors are duly appointed or
elected.
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<PAGE> 3
5. At the Effective Time, the Articles of Incorporation of the
Surviving Corporation shall be amended and restated in their entirety in the
form attached hereto as Exhibit A. The Articles of Incorporation of the
Surviving Corporation, as so amended and restated, shall remain in effect as the
Amended and Restated Articles of Incorporation of the Surviving Corporation
after the Merger.
6. At the Effective Time, the Bylaws of the Surviving
Corporation shall be amended and restated in their entirety, and the Bylaws of
the Surviving Corporation, as so amended and restated, shall remain in effect as
the Amended and Restated Bylaws of the Surviving Corporation after the Merger.
7. At the Effective Time, each share of Surviving Corporation
Common Stock issued and outstanding immediately prior to the Effective Time
shall automatically be cancelled and deemed to have been converted into Six
Thousand (6,000) shares of Surviving Corporation Common Stock (the "Stock").
Certificate representing such increased number of shares shall be issued to the
holders of such shares, in accordance with the foregoing sentence, upon the
surrender of their stock certificates.
8. If, at any time, the Surviving Corporation shall consider
or be advised that any further assignments or assurances in law or any things
are necessary or desirable to vest in the Surviving Corporation, according to
the terms hereof, the title to any property or rights of the Merging
Corporations, the proper officers and directors of the Merging Corporations
shall and will execute and make all such proper assignments and assurances in
law and do all things necessary or proper to vest title in such property or
rights in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement and Plan of Merger.
9. This Agreement and Plan of Merger shall be submitted to the
shareholders of each of the parties hereto in accordance with the applicable
provisions of law, and the consummation of this Agreement and Plan of Merger and
the Merger herein provided for are conditioned upon the approval hereof by the
shareholders of the respective parties as provided by law.
10. This Agreement and Plan of Merger and the Merger herein
contemplated may be abandoned upon the mutual agreement of the parties at any
time prior to the Effective Time. This Agreement and Plan of Merger may be
amended, modified or supplemented at any time (before or after shareholder
approval) prior to the Effective Time of the Merger with the mutual consent of
the Boards of Directors of the Merging Corporations and the Surviving
Corporation; provided, however, that this Agreement and Plan of Merger may not
be amended, modified or supplemented after it has been approved by the
shareholders in any manner which, in the judgment of the Board of Directors of
the Surviving Corporation, would have a material adverse effect on the rights of
such shareholders or in any manner not permitted under applicable law.
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<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement and
Plan of Merger to be executed by their duly authorized officers, all as of the
day and year first above written.
TROPICAL SPORTSWEAR INT'L CORPORATION
By: /s/ William W. Compton
----------------------------------
William W. Compton
Chief Executive Officer
Attest: /s/ Michael Kagan
------------------------------
Michael Kagan, Secretary
TROPICAL ACQUISITION CORPORATION
By: /s/ William W. Compton
----------------------------------
William W. Compton
Chief Executive Officer
Attest: /s/ Michael Kagan
------------------------------
Michael Kagan, Secretary
TROPICAL SPORTSWEAR
INTERNATIONAL CORPORATION
By: /s/ William W. Compton
----------------------------------
William W. Compton
Chief Executive Officer
Attest: /s/ Michael Kagan
------------------------------
Michael Kagan, Secretary
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
, October 1997, to become effective as of the Effective Date (as herein
defined) by and between TROPICAL SPORTSWEAR INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and WILLIAM W. COMPTON (the "Employee").
RECITALS:
In entering into this Agreement, the Company desires to provide the
Employee with substantial incentives to serve the Company without distraction or
concern over minimum compensation, benefits or tenure, to develop and implement
the Company's business plan and to manage the Company's future growth and
development and to maximize the returns to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. Certain Definitions. As used herein, the following terms have the
meanings assigned to them below:
"Acquiring Person (Type A)" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are the
Beneficial Owner(s) of a minimum of twenty five (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person; provided,
however, that a Person shall not be or become an Acquiring Person if such
Person, together with its Affiliates and Associates, shall become the Beneficial
Owner of a minimum of twenty five percent (25%) or more of the shares of Common
Stock then outstanding solely as a result of a reduction in the number of shares
of Common Stock outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become the Beneficial Owner of
additional shares of Common Stock constituting one percent (1%) or more of the
then outstanding shares of Common Stock or any other Person (or Persons) who is
(or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of Common
Stock shall become an Affiliate or Associate of such Person, unless, in either
such case, such Person, together with all Affiliates and Associates of such
Person, is not then the Beneficial Owner of a minimum of twenty five percent
(25%) or more of the shares of Common Stock then outstanding.
"Acquiring Person (Type B)" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are the
Beneficial Owner(s) of a minimum of thirty three and one half percent (33.5%) or
more of the shares of Common Stock then outstanding, but does not include any
Exempt Person; provided, however, that a Person shall not be or become an
Acquiring Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of a minimum of thirty
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<PAGE> 2
three and one half percent (33.5%) or more of the shares of Common Stock then
outstanding solely as a result of a reduction in the number of shares of Common
Stock outstanding due to the repurchase of Common Stock by the Company, unless
and until such time as such Person or any Affiliate or Associate of such Person
shall purchase or otherwise become the Beneficial Owner of additional shares of
Common Stock constituting one percent (1%) or more of the then outstanding
shares of Common Stock or any other Person (or Persons) who is (or collectively
are) the Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall become an
Affiliate or Associate of such Person, unless, in either such case, such Person,
together with all Affiliates and Associates of such Person, is not then the
Beneficial Owner of a minimum of thirty three and one half percent (33.5%) or
more of the shares of Common Stock then outstanding. If a Person becomes an
Acquiring Person (Type B) he shall not also be considered an Acquiring Person
(Type A).
"Active Status" means the Employee's Employment status from
the Effective Date to the Termination Date.
"Affiliate" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"Annual Cash Bonus" is the cash bonus calculated pursuant to
the methodology set forth in paragraph 4.B. and paid to Employee annually during
the term of this Agreement.
"Annual Cash Compensation" of the Employee for any
Compensation Year means the sum of the Base Salary and Annual Cash Bonus earned
by the Employee during that Compensation Year, including all amounts deferred at
the election of the Employee pursuant to a Compensation Plan intended to qualify
as a plan under Section 401(k) of the Code or otherwise. If salary or bonus is
paid in whole or in part in property other than cash (such as Common Stock) the
amount so paid shall be the fair market value thereof on the date of payment.
"Average Annual Bonus" is the average (mean) of the annual
bonuses earned by Employee during the three year period ending on or preceding
the Termination Date (including any Compensation Years that end on or precede
the Effective Date). If, for purposes of a termination payment, the annual bonus
for the most recent year cannot be calculated because necessary information is
not yet available, the annual bonus for the preceding year will be counted twice
instead. If any annual bonus was to be paid in whole or in part in property
other than cash (such as Common Stock) the amount so earned and included for
purposes of this calculation shall be the fair market value thereof on the date
for the determination of such fair market value that is specified in the
agreement that such payment be so paid, and if no such date is therein specified
for such determination, then on the date of such agreement, and , if there is no
such agreement, then on the date of payment.
"Average Annual Compensation" means the sum of the Employee's
Average Base Salary and the Average Annual Bonus.
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<PAGE> 3
"Average Base Salary" is the average (mean) of the base
salaries earned by the Employee during the three year period ending on or
preceding the Termination Date (including any Compensation Years that precede or
end on the Effective Date). If any base salary was to be paid in whole or in
part in property other than cash (such as Common Stock) the amount so earned and
included for purpose of this calculation shall be the fair market value thereof
on the date for determination of such fair market value that is specified in the
agreement that such payment be so paid, and if no such date is therein specified
for such determination then on the date of such agreement, and if there is no
such agreement, then on the date of payment.
"Associate" means, with reference to any Person,
(a) any corporation, firm, partnership, association,
unincorporated organization or other entity (other than the Company or a
subsidiary of the Company) of which that Person is an officer or general partner
(or officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 15% or more of any class of its equity
securities,
(b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person serves as
trustee or in a similar fiduciary capacity and
(c) any relative or spouse of that Person, or any
relative of that spouse, who has the same home as that Person.
"Base Salary" means the guaranteed minimum annual salary
payable by the Company to the Employee pursuant to Section 4(A).
"Beneficial Owner" a specified Person is deemed the
"Beneficial Owner" of, and is deemed to "beneficially own," any securities.
(a) of which that Person or any of that Person's
Associates or controlled Affiliates, directly or indirectly, is the "beneficial
owner" (as determined pursuant to Exchange Act Rule 13d-3) or otherwise has the
right to vote or dispose of, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any
security under this subparagraph (a) as a result of an agreement, arrangement or
understanding to vote that security if that agreement, arrangement or
understanding: 1) arises solely from a revocable proxy or consent given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange Act (that is, the
exclusions in these subparagraphs (a) and (b) give effect to the exemption for a
proxy or consent solicitation in Exchange Act rule 14a-2(b) (2); and (2) is not
then reportable by such Person on Exchange Act Schedule 13D (or any comparable
or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the right or obligation to
acquire (provided that right or obligation is exercisable or effective
immediately or only after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or understanding (whether or not in
writing) or on the exercise of conversion rights,
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<PAGE> 4
exchange rights, other rights, warrants or options, with an exercise price equal
to or below the public trading price at the time of calculation; provided,
however, that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a tender or exchange offer
made by that Person or any of that Person's Affiliates or Associates until those
tendered securities are accepted for purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or Associate thereof) with
which the specified Person or any of the specified Person's Affiliates or
Associates has any agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, or holding with the right to vote or of
voting (except pursuant to a revocable proxy or consent as described in the
provisio to subparagraph (a) of this definition) or disposing of any voting
securities of the Company or (2) any group (as that term is used in Exchange Act
Rule 13d-5(b)) of which that specified Person is a member; provided, however,
that nothing in this definition shall cause a Person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to "beneficially
own," any securities acquired through such a Person's participation in good
faith in a firm commitment underwriting until the expiration of forty (40) days
after the date of that acquisition and the security has been placed in an
investment account. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent, making a request or demand
relating to corporate action (including, without limitation, calling a
stockholder meeting) or otherwise giving an authorization (within the meaning of
Section 14(a) of the Exchange Act) in respect of such security.
"Board" means herein the entire Board of Directors of the
Company, except when less than the entire Board is specified herein.
"Business Reason" for the Company's termination of the
Employee's Employment means any reason other than Cause.
"Business Reason Termination Payment During Initial Term"
means at any time during the Initial Term (which begins on the Effective Date
and ends on the fifth anniversary thereof) an amount equal to the Employee's
Average Annual Compensation calculated as of the Termination Date multiplied by
the greater of 2 or the remaining number of years (rounded to the nearest 1/12th
of a year) in such five year Initial Term. For example, if the Company were to
terminate the Employee for a Business Reason two and seven-twelfths (2 7/12)
years from the Effective Date, the Employee would be entitled to an amount equal
to two and five twelfths (2 5/12) times the Employee's Average Annual
Compensation on such Termination Date. If the Company were to terminate the
Employee for a Business Reason four and six-twelfths (4 6/12) years from the
Effective Date, the Employee would be entitled to an amount equal to two times
the Employee's Average Annual Compensation on such Termination Date.
"Business Reason Termination Payment During Renewal Term"
means at any time after the Initial Term and during any Renewal Term an amount
equal to two (2) times the Employee's then Average Annual Compensation
calculated as of the Termination Date.
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<PAGE> 5
"Cause" for the Company's termination of the Employee's
Employment means:
(a) the Employee's final conviction of a felony, as
evidenced by a binding and final judgment, order or decree of a court of
competent jurisdiction, which in the opinion of the Required Board Majority
(excluding Employee) substantially impairs the Employee's ability to perform his
duties and obligations to the Company; or
(b) a determination by the Required Board Majority
(excluding Employee) that the Employee has continued to engage in conduct which
has caused or is reasonably likely to cause, demonstrable and serious injury to
the Company after having been given written notice of such determination by the
Required Board Majority and a reasonable opportunity to cure, which curative
period shall not be less than ninety (90) days: or
(c) the Required Board Majority's determination
(excluding Employee) of Employee's continuing failure to substantially perform
his duties and responsibilities in accordance with the provisions of this
Agreement (except by reason of the Employee's incapacity due to physical or
mental illness or injury) for a period of ninety (90) days (the "Grace Period")
after the Required Board Majority (excluding Employee) has delivered to the
Employee a written demand for substantial performance hereunder which
specifically identifies the provision of this Agreement which the Required Board
Majority contends that Employee has continually failed to substantially perform,
the bases for the Required Board Majority's determination that the Employee has
continually failed to substantially perform his duties and responsibilities
under such provision and the specific nature of the corrective action that the
Required Board Majority proposes that Employee take during the Grace Period;
provided, that for purposes of this clause (c), the Company shall not have Cause
to give such notice or thereafter terminate the Employee's Employment if such
act or omission was taken or omitted to be taken by an officer or employee of
the Company other than Employee or the act or omission was taken or omitted by
Employee with the concurrence of a majority of the Board or the act or omission
was taken or omitted by the Employee in good faith with a reasonable belief that
the act or omission was authorized by a majority of the Board or otherwise in
the interest of the Company. If, during such Grace Period, Employee takes the
corrective action specified by the Required Board Majority Termination for cause
under this provision shall require the approval of the Required Board Majority
(excluding Employee).
"Change of Control (Type A)" means the occurrence of any of
the following events that occurs after the Closing Date:
(a) any Person becomes an Acquiring Person (Type A);
(b) a merger of the Company with or into, or a sale
by the Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any Person, other
than any Exempt Person, together with all Affiliates and Associates of such
Person, shall be the Beneficial Owner of twenty five percent (25%), but no more
than thirty three and one half percent (33.5%) or more of the total voting power
of the then outstanding Voting
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<PAGE> 6
Shares of the Person surviving that transaction (in the case of a merger or
consolidation) or the Person acquiring those properties and assets substantially
as an entirety.
"Change of Control (Type B)" means the occurrence of any of
the following events that occurs after the Closing Date:
(a) any Person becomes an Acquiring Person (Type B);
(b) a merger of the Company with or into, or a sale
by the Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any Person, other
than any Exempt Person, together with all Affiliates and Associates of such
Person, other than Exempt Persons, shall be the Beneficial Owner of more than
thirty three and one half percent (33.5%) or more of the total voting power of
the then outstanding Voting Shares of the Person surviving that transaction (in
the case of a merger or consolidation) or the Person acquiring those properties
and assets substantially as an entirety.
"Change of Control (Type A) Payment Upon Voluntary Termination
By Employee" means that if within 365 days after a Change of Control (Type A)
the Employee gives Notice of Termination of this Agreement, the Employee shall
be paid an amount equal to the Employee's Average Base Salary calculated as of
the Termination Date multiplied by two (2.0).
"Change of Control (Type B) Payment Upon Voluntary Termination
By Employee" means that if within 365 days after a Change of Control (Type B)
the Employee terminates this Agreement, the Employee shall be paid an amount
equal to the sum of the Employee's Average Base Salary calculated as of the
Termination Date multiplied by two (2.0) plus the Employee's Average Annual
Bonus calculated as of the Termination Date multiplied by two (2.0).
"Closing Date" means the completion of the closing of the sale
of shares of the Common Stock to the underwriters in the Company's initial
public offering.
"Code" means the Internal Revenue Code of 1986.
"Common Stock" means the common stock or any other voting
securities of the Company.
"Company" means
(a) Tropical Sportswear International Corporation, a
Florida corporation, and any successor thereto;
(b) any Person that assumes the obligations of "the
Company" hereunder, by operation of law, pursuant to Section 7(I) or otherwise,
including but not limited to Tropical Sportswear International Corporation, a
Florida corporation.
"Compensation Plan" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the Company
or
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<PAGE> 7
any subsidiary of the Company, or to which the Company or any subsidiary of the
Company contributes, on behalf of any Executive Officer or any member of the
family of any Executive Officer,
(a) including
(i) any "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) or other "employee benefit plan" (as defined
in Section 3(3) of ERISA),
(ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan intended to
be qualified under Section 401 (a) of the Code or whose benefits are limited by
the Code or ERISA,
(iii) any "employee welfare plan" (as
defined in Section 3(l) of ERISA),
(iv) any arrangement, plan, policy, practice
or program providing for severance pay, deferred compensation or insurance
benefit,
(v) any Incentive Plan and
(vi) any arrangement, plan, policy, practice
or program
(A) authorizing and providing for
the payment or reimbursement of expenses attributable to first-class air travel
and first-class hotel occupancy while on travel or
(B) providing for the payment of
business luncheon and country club dues, long-distance charges, mobile phone
monthly air time or other recurring monthly charges or any other fringe benefit,
allowance or accommodation of employment, but
(b) excluding any compensation arrangement, plan,
policy, practice or program to the extent it provides for annual Base Salary or
Annual Cash Bonus.
"Compensation Year" means the fiscal year of the Company.
"Confidential Information" means, with respect to the Company
or any subsidiary of the Company, all trade secrets and other confidential,
non-public/proprietary information of that Person, including information derived
from reports, investigations, research, work in progress, codes, marketing and
sale programs, customer lists, records of customer service requirements, capital
expenditure projects, cost summaries, pricing formulae, contract analyses,
financial information, projections, confidential filings with any governmental
authority and all other confidential, nonpublic concepts, methods of doing
business, materials or information prepared or performed for, by or on behalf of
that Person.
"CPI" means for any period the Consumer Price Index for All
Urban Consumers--All Items Index for Tampa, Florida (or any substantially
similar index
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<PAGE> 8
published for the same area), as published by the United States Department of
Labor, Bureau of Labor Statistics (or its successor) for that period.
"Disability" of the Employee means the Employee has been
determined (which determination shall be final and binding on all Persons,
absent manifest error), as a result of a physical or mental illness or personal
injury he has incurred (including illness or injury resulting from any substance
abuse), by a Qualified Physician (who may be the doctor treating or otherwise
acting as the Employee's doctor in connection with the illness or injury in
question) selected by the Employee with the consent of the Company, or by the
Company at its expense and with the consent of the Employee (which consent shall
not be unreasonably withheld in either case), to be unable to perform, at the
time of that determination and, in all reasonable medical likelihood,
indefinitely thereafter, the normal duties then most recently assigned, under
and in accordance with the terms hereof, to the Employee while on Active Status;
provided that, the determination whether the Employee has incurred a Disability
shall be made by a majority of three (3) Qualified Physicians,
(a) one (1) of whom shall be selected by the
Employee,
(b) one (1) of whom shall be selected by the Company
and
(c) the remaining one (1) of whom shall be selected
by the Qualified Physicians selected by the Employee and the Company pursuant to
clauses (a) and (b) of this proviso and the fees and expenses of whom will be
shared and paid in equal amounts by the Employee and the Company if:
(1) (A) the Company has reasonably withheld
its consent to the Qualified Physician, if any, selected by the Employee or
(B) the Employee has reasonably
withheld his consent to the Qualified Physician, if any, selected by the Company
and
(2) the Qualified Physicians selected by the
Employee and the Company disagree as to whether the Employee has incurred a
Disability. For purposes of this definition, if the Employee is unable by reason
of illness or injury to give an informed consent to the performance of the
treatment of that illness or injury, a Qualified Physician selected by any
Person who is authorized by applicable law to give that consent will be deemed
to have been selected by the Employee.
"Effective Date" means the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"Employment" means the employment of the Employee by the
Company or a subsidiary of the Company hereunder.
"Exchange Act" means the Securities Exchange Act of 1934.
"Executive Officer" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief financial
officer, the president, any
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<PAGE> 9
'executive or senior vice president or the general counsel of the Company.
"Exempt Person" means
(a) (1) the Company, any subsidiary of the Company,
any employee benefit plan of the Company or of any subsidiary of the Company,
and
(2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such plan or for
the purpose of funding any such plan or funding other employee benefits for
employees of the Company or any subsidiary of the Company and
(b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule 1 3d-5(b)) of
which the Employee or any Affiliate or Associate of the Employee is a member.
(c) Michael Kagan, any Affiliate or Associate of
Michael Kagan or any group (as that term is used in Exchange Act Rule 1 3d-5(b))
of which Michael Kagan or any Affiliate or Associate of Michael Kagan is a
member.
(d) Accel, S.A. de C.V., any Affiliate or Associate
of said Accel or any group (as that term is used in said rule) of which said
Accel or any Affiliate or Associate of said Accel is a member.
(e) Shakale Internacional S.A., any Affiliate of
Associate of said Shakale or any group (as that term is used in said rule) of
which said Shakale or any Affiliate or Associate of said Shakale is a member.
"Good Reason" for the Employee's termination of his Employment
means any of the following that occurs before the Employee gives a Notice of
Termination for Good Reason and which has not been cured by the Company
reasonably promptly after receipt of such notice of Good Reason from the
Employee; provided that any such cure that occurs after ninety (90) days of such
notice shall not be considered reasonably prompt and any such cure that occurs
within 90 days of such notice shall be considered reasonably prompt and provided
further that if such cure occurs Employee shall not be required to give a
subsequent notice if the same or a substantially similar Good Reason again
occurs within one year of the occurrence giving rise to such cure:
(a) any violation or breach of any provision hereof
in any material respect by the Company including but not limited to failure of
the Company to comply with the provisions of paragraphs 4,5, and 6 of this
Agreement in any material respect
(b) either
(1) a failure of the Company to continue in
effect for Employee any Compensation Plan in which the
Employee was participating as of the Termination Date or
(2) the taking of any action by the Company
which would materially and adversely affect the Employee's
participation in or materially
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<PAGE> 10
reduce the Employee's benefits under, any such Compensation
Plan in effect as of the date of such action,
without, in each such case, providing a substantially equivalent substitute
reasonably acceptable to Employee; or
(c) the assignment to the Employee of duties
inconsistent in any material respect with the Employee's then current positions
(including status, offices, titles and reporting requirements), authority,
duties or responsibilities or any other action by the Company which results in a
material diminution in those positions, authority, duties or responsibilities or
the taking of any action that is the equivalent of a constructive discharge.
(d) the failure of the shareholders to elect Employee
as a member of the board of directors at any time during the Initial Term or any
Renewal Term of this Agreement.
(e) the failure of the Board to elect the Employee as
Chairman of the Board and Chief Executive Officer, without his express consent,
at any time during the Initial Term or any Renewal Term of this Agreement.
"Good Reason Payment During Initial Term" means the amount
calculated as of the Termination Date by multiplying the greater of 2 or the
number of years (rounded to the nearest 1/12th of a year) remaining in the
Initial Term (which begins on the Effective Date and ends on the fifth
anniversary thereof) by the Employee's Average Annual Compensation calculated as
of the Termination Date. For example, if the Employee terminates for Good Reason
two and seven-twelfths (2 7/12) years from the Effective Date, the Employee
would be entitled to an amount equal to two and five-twelfths (2-5/12) years
times the Employee's then Average Annual Compensation. If the Employee
terminates for Good Reason four and seven-twelfths (4-7/12) years from the
Effective Date, the Employee would be entitled to an amount equal to two times
the Employee's then Average Annual Compensation.
"Good Reason Payment During Renewal Term" means at any time
after the Initial Term during the Renewal Term an amount equal to two (2) times
the Employee's then Average Annual Compensation, calculated as of the
Termination Date, whether the termination is during the last two years of the
Initial Term or during any Renewal Term.
"Incentive Plan" means any compensation arrangement, plan,
policy, practice or program, other than the Annual Cash Bonus provision of this
agreement set forth in paragraph 4 B, established, maintained or sponsored by
the Company or any subsidiary of the Company, or to which the Company or any
subsidiary of the Company contributes, on behalf of any Executive Officer and
which provides for awards of securities or the phantom equivalent of securities,
including any stock option, stock appreciation right and restricted stock plan,
but excluding any plan intended to qualify as a plan under any one or more of
Sections 401 (a), 401(k) or 423 of the Code.
"Initial Term" means the first full five year term of this
Agreement commencing with the Effective Date and ending five (5) years from the
Effective Date
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<PAGE> 11
(notwithstanding the fact that the Renewal Term commences three years from the
Effective Date).
"Nonterminating Party" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"Notice of Termination" to or from the Employee means a
written notice that:
(a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's Employment, and if the Termination Date is other
than the date of receipt of the notice,
(b) sets forth that Termination Date.
"Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status, limited
liability company, business trust, unincorporated organization or association,
mutual company, joint stock company, joint venture, estate, trust, union or
employee organization or governmental authority.
"Publicly Traded" with respect to shares of stock of a company
means traded on a national securities exchange or listed for quotation on
NASDAQ.
"Qualified Physician" means, in the case of any determination
whether the Employee has sustained a Disability, a physician
(a) holding an M.D. degree from a medical school
located in the United States,
(b) specializing and board certified in the treatment
of the injury or illness that has or may have caused that Disability and
(c) having admission privileges to one or more
hospitals located in Florida or in the state in which the Employee then is
domiciled.
"Renewal Term" means the automatic and continually renewing
term of two (2) years, commencing three (3) years from the Effective Date
(during the Initial Term) and renewing each day thereafter for an additional day
without any further action by the Company or the Employee, it being the
intention of the parties that from the Effective Date there shall be a five (5)
year duration of the Initial Term and from the third anniversary of the
Effective Date there shall be a continuously remaining Renewal Term of two (2)
years duration of the Employee's Employment, subject to the termination
provisions hereof.
"Required Board Majority" means at any time at least a
sixty-six percent (66%) majority of the members of the Board voting at that
time.
"Securities Act" means the Securities Act of 1933.
"Terminating Party" means the Employee or the Company, as the
case
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<PAGE> 12
may be, who or which terminates the Employee's Employment by means of a Notice
of Termination.
"Termination Date" means:
(a) if the Employee's Employment is terminated by
reason of the Employee's death during the term of this Agreement or retirement
at the age of 65, the date of that death or retirement;
(b) if the Employee's Employment is terminated by
reason of the Employee's giving a Notice of Termination following a Change of
Control pursuant to Section 5(B)(i)(b) or (c), sixty (60) days from the Notice
of Termination; provided that the Termination Date shall be no earlier than 275
days after the Change of Control and further provided that the Notice of
Termination shall be no later than 365 days after the Change of Control.
(c) if the Employee's Employment is terminated by
reason of the Employee's giving a Notice of Termination without Good Reason
pursuant to Section 5(B)(i)(d), the Termination Date shall be a date, designated
by the Company, not sooner than the third business day after the Company
receives the applicable Notice of Termination nor later than sixtieth (60th)
day.
(d) if the Employee's Employment is terminated by
reason of the Employee's disability the Termination Date shall be as specified
in Section 5(c).
(e) if the Employee's Employment is terminated by
Employee for any other reason, the elapse of the sixtieth (60th) day after the
Company receives the Notice of Termination;
(f) If the Employee's Employment is terminated by the
Company for Cause, three business days from the date the Employee receives the
Company's Notice of Termination for Cause;
(g) if the Employee's Employment is terminated by the
Company for any other reason, the Termination Date shall be a date designated by
the Company, not sooner than the third business day after the Employee received
the applicable Notice of Termination nor later than the sixtieth (60th) day.
"Type I Cause" means Cause of the type referred to in clause
(a) of the definition of Cause herein.
"Type II Cause" means Cause of the type referred to in clause
(b) or (c) of the definition of Cause herein.
"Voting" shall include, in respect of a security, voting,
granting a proxy, acting by consent, making a request or demand relating to
corporate action (including calling a stockholder meeting) or otherwise giving
an authorization (within the meaning of Section 14 (a) of the Exchange Act) in
respect of such security.
"Voting Shares" means:
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<PAGE> 13
(a) in the case of any corporation, stock of that
corporation of the class or classes having general voting power under ordinary
circumstances to elect a majority of that corporation's board of directors; and
(b) in the case of any other entity, equity interests
of the class or classes having general voting power under ordinary circumstances
equivalent to the Voting Shares of a corporation.
B. Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein to any statute defined or referred to herein, including the Code, ERISA
and the Exchange Act, shall be deemed references to that statute or any
successor statute, as the same may have been or may be amended or supplemented
from time to time, and any rules or regulations promulgated thereunder.
(ii) When used in this Agreement, the words "herein," "hereof"
and "hereunder" and words of similar import shall refer to this Agreement as a
whole and not to any provision of this Agreement, and the word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) The word "including" (and, with correlative meaning, the
word "include") means including, without limiting the generality of any
description preceding such word, and the words "shall" and "will" are used
interchangeably and have the same meaning.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set forth,
and beginning as of the Effective Date, the Company will employ the Employee as
Chairman of the Board and Chief Executive Officer of Company and the Employee
will serve in the Company's employ in that position. The Employee shall perform
such duties, and have such powers, authority, functions, duties and
responsibilities for the Company and corporations Affiliated with the Company as
are commensurate and consistent with the employment as Chairman of the Board and
Chief Executive Officer of the Company. The Employee also shall have such
additional powers, authority, functions, duties and responsibilities as may be
assigned to him by the Board (excluding the voting participation of Employee);
provided that, without the Employee's written consent, such additional powers,
authority, functions, duties and responsibilities shall not be inconsistent or
interfere with, or detract from, those herein vested in, or otherwise then being
performed for the Company by, the Employee.
B. The Employee shall not, at any time during the Employment, engage in
any other activities unless these activities do not interfere materially with
the Employee's duties and responsibilities for the Company at that time, except
that the Employee shall be entitled, subject to the provisions of Section 7,
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<PAGE> 14
(a) to continue with such activities as the Employee has
carried on prior to the Effective Date, including making and managing his
personal investments and participating in other business, church or civic
activities provided that such activities do not include a Beneficial Ownership
interest in a competitor, supplier or customer of the Company other than an
investment in a Publicly Traded company of which Employee is not an employee,
officer, director or partner that does not exceed 5% of the outstanding voting
shares of voting stock.
(b) to serve on civic boards, non-profit boards, charitable
boards or committees and trade associations or similar boards of committees.
(c) to serve on for-profit business boards of directors if
Employer's consent shall have been obtained, which consent shall not
unreasonably be withheld.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the Initial Term of the
Employee's Employment shall be for a period of five (5) years commencing on the
Effective Date. The Renewal Term shall commence three (3) years from the
Effective Date and renew each day thereafter for an additional day without any
further action by the Company or the Employee, it being the intention of the
parties that from the Effective Date there shall be a five (5) year duration and
from the third anniversary of the Effective Date there shall be a continuously
remaining term of two (2) years duration of the Employee's Employment. Subject
to the provisions of Section 5, Employee shall be employed hereunder for the
Initial Term and the Renewal Term. In the event that Employee's Employment
hereunder shall not have otherwise been terminated, such Employment shall
terminate at the end of the Compensation Year in which Employee reaches age 65.
4. COMPENSATION
A. Base Salary. A Base Salary shall be payable to the Employee by the
Company as a guaranteed minimum annual amount hereunder for each Compensation
Year during the period from the Effective Date to the Termination Date. That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less frequently than semi-monthly),
shall be payable initially at the annual rate of $390,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the greater of the same percentage increase (if any) in the
CPI for the twelve (12) month period immediately preceding such anniversary or
such amount that the majority of the Board (for this purpose excluding Employee)
shall determine.
(ii) if the Employee is required by reason of his Employment
to relocate from a state without a personal income tax at the time of his
relocation to a state having a personal income tax, the Base Salary and Annual
Cash Bonus in effect at the time of such relocation, shall immediately be
increased by the amount equal to the Base Salary and Annual Cash Bonus
immediately prior to this increase multiplied by seventy percent (70%) of the
highest personal income tax rate of such state; for
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<PAGE> 15
example, if the Employee relocates from a state without a personal income tax to
a state having a personal income tax and the highest rate of that tax is six
percent (6%) when the Base Salary is $400,000 and the Annual Cash Bonus is
$440,000, then the Base Salary will be increased by $16,400 (computed at 70% x
6% x $400,000) and the Annual Cash Bonus will be increased by $18,480 (computed
at 70% x 6% x$440,000).
B. Annual Cash Bonus. The Annual Cash Bonus shall be calculated as of
the end of the Compensation Year. (The first such calculation will be made as of
September 30, 1997, the first fiscal year end of the Company after the Effective
Date.) The Annual Cash Bonus shall be paid to the Employee within one hundred
and eighty (180) days of the beginning of each Compensation Year. The Employee's
target Annual Cash Bonus shall be fifty-five percent (55%) of Base Salary.
However, Employee may earn an actual Annual Cash Bonus of between fifty percent
(50%) and two hundred percent (200%) of the target Annual Cash Bonus. If the
Company does not meet the threshold level of performance, the Annual Cash Bonus
will be zero percent (O%) of Base Salary. At the minimum performance threshold,
the Annual Cash Bonus will be fifty percent (50%) of the target Annual Cash
Bonus. If the Company reaches or exceeds the maximum level of performance,
Employee's Annual Cash Bonus will be two-hundred percent (200%) of the target
Annual Cash Bonus (said 200% times the aforesaid 55% resulting in a capping of
the Annual Cash Bonus at 110% of Base Salary.
For purposes of determining the Employee's Annual Cash Bonus, the Company's
average Return on Total Capital Employed (ROCE), as determined over a four year
period, will be calculated and then compared against an average target ROCE as
calculated for a select group of companies over the same period. The select
group of companies shall be those listed on Exhibit B; provided, however that
if the parties agree that one or more of the selected companies becomes
unrepresentative or otherwise unsuitable or unavailable for comparison, the
parties shall select a reasonable substitute. If the parties are unable to agree
upon a reasonable substitute they shall agree on a third party such as a
disinterested and nationally recognized accounting firm that shall make the
recommendation which shall be binding. The average target ROCE for the select
group of twenty (20) publicly traded apparel companies, excluding the Company,
for which financial data are readily available will be calculated by determining
the ROCE each year for each company in the select group and then determining the
average ROCE for each company over the four year period. Next, the companies are
ranked based upon the four year average ROCE for each company. The seventy-fifth
percentile of the four year average ROCE of the select group is the average ROCE
for a company on the list which, excluding the Company, results in five
companies from the select group being above and fifteen companies for the select
group being below the Company's average ROCE. That average ROCE (i.e. the
seventy-fifth percentile) then becomes the target ROCE ("TROCE") for purposes of
comparing the Company's average ROCE.
A four year average ROCE for the Company is then calculated in the same fashion
that the average ROCE is calculated for the select group of companies. If the
four year average ROCE for the Company is equal to or greater than eighty-five
percent (85%) of the TROCE, Employee's Annual Cash Bonus is fifty percent (50%)
of the target Annual Cash Bonus. If the four year average ROCE for the Company
is at least one-hundred
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<PAGE> 16
and thirty percent (130%) of the TROCE, Employee's Annual Cash Bonus is
two-hundred percent (200%) of the target Annual Cash Bonus. If the four year
average ROCE for the Company is between eighty-five percent (85%) of the TROCE
and one-hundred and thirty percent (130%) of the TROCE, the Annual Cash Bonus
will be determined by straight line interpolation (as more particularly
described in the formula attached as Exhibit A and incorporated herein by
reference. Exhibit B attached hereto and incorporated by reference is an example
of the foregoing methodology, correctly applied. The seventy-fifth percentile of
the average ROCE's is 16.58. This is the TROCE. The Company's average ROCE is
20.16% or 122% of the TROCE. Accordingly, the Employee's Annual Cash Bonus is
94.66% of Base Salary.
ROCE is defined as net income plus tax adjusted interest expense divided by
beginning shareholder equity plus average total debt. The average total debt
will be calculated on an annual basis and will reflect all interest bearing
liabilities, including off balance sheet items. Net income will be final net
income as reported under GAAP and will not exclude any unusual or extraordinary
items such as gains or losses recognized from the sale of assets, write downs,
etc. The interest expense will include all interest paid by the Company and will
be adjusted to reflect the Company's tax rate for the performance year.
C. Other Compensation. To the extent authorized by a majority of the
Board (excluding Employee) the Employee shall also be entitled to participate in
any additional Compensation Plans from time to time in effect during the term of
this Agreement, regardless of whether the Employee is an Executive Officer. All
awards to the Employee under all Incentive Plans shall take into account the
Employee's positions with and duties and responsibilities to the Company and its
subsidiaries.
D. Limitations on Payments. Notwithstanding any other provision of
this Agreement, if any portion of any payment under this Agreement, or under any
other agreement with or plan of the Company or its affiliates (in the aggregate
"Total Payments"), would constitute an "excess parachute payment," then the
Total Payments to be made to the Employee shall be reduced such that the value
of the aggregate Total Payments that the Employee is entitled to receive shall
be One Dollar ($1) less than the maximum amount which the Employee may receive
without becoming subject to the tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or which the Company may pay
without loss of deduction under Section 280G(a) of the Code. For purposes of
this Agreement, the terms "excess parachute payment" and "parachute payments"
shall have the meaning assigned to them in Section 280G of the Code, and such
"parachute payments" shall be valued as provided therein. Present value for
purposes of this Agreement shall be calculated in accordance with Section
1274(b) (2) of the Code. Within fifteen (15) days following the Date of
Termination or notice by the Company to the Employee of its belief that there is
a payment or benefit due the Employee which will result in an excess parachute
payment as defined in Section 280G of the Code, the Employee and the Company, at
the Company's expense, shall obtain the opinion (which need not be unqualified)
of nationally recognized tax counsel selected by the Company's independent
auditors and acceptable to the Employee in his sole discretion (which may be
regular outside counsel to the Company), which opinion sets forth (i) the amount
of the Base Period Income, (ii) the amount and
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<PAGE> 17
present value of Total Payments and (iii) the amount and present value of any
excess parachute payments determined without regard to the limitations of this
paragraph. As used in this Agreement, the term "Base Period Income" means an
amount equal to the Employee's "annualized includible compensation for the base
period" as defined in Section 280G(d) (1) of the Code. For purposes of such
opinion, the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d) (3) and (4) of the Code, which determination
shall be evidenced in a certificate of such auditors addressed to the Company
and the Employee. If such opinion determines that there would be an excess
parachute payment, any payment or benefit determined by such counsel to be
includible in Total Payments shall be reduced or eliminated as specified by the
Employee in writing delivered to the Company within five (5) days of his receipt
of such opinion or, if the Employee fails to so notify the Company, then as the
Company shall reasonably determine, so that under the bases of calculations set
forth in such opinion there will be excess parachute payment. If such legal
counsel so requests in connection with the opinion required by this paragraph,
the Employee and the Company shall obtain at the Company's expense, and the
legal counsel may rely on in providing the opinion, the advice of a firm of
recognized executive compensation to be received by the Employee. If the
provisions of Sections 280G and 4999 of the Code are repealed without
succession, then this paragraph shall be of no further force or effect.
5. TERMINATION, DISABILITY AND DEATH
A. Termination of Employment by the Company.
(i) The Company shall be entitled, if acting at the direction
of the Required Board Majority, to terminate the Employee's Employment
(a) at any time for Type I or Type II Cause, or
(b) at any time after December 31,1998 for any
Business Reason.
The Company's termination of the Employee's Employment for Cause will be
effective on the date the Company delivers a Notice of Termination for Cause to
the Employee pursuant to this Section, while the Company's termination of the
Employee's Employment for a Business Reason will be effective not less than
three (3) business days and not more than sixty (60) days from the date the
Company delivers a Notice of Termination for a Business Reason to the Employee
pursuant to this Section 5(A)(i). Between the time that the Company delivers a
Notice of Termination for a Business Reason and the effective date of such
termination, Employee shall continue to receive all of the payments and
consideration provided for in the Agreement.
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee, without right of set off,
except for liquidated sums, or counterclaim, his Base Salary to and including
the Termination Date and the amount of all compensation previously deferred by
the Employee (together with any accrued
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<PAGE> 18
interest or earnings thereon), in each case to the extent not theretofore paid,
and, when that payment is made, the Company shall, notwithstanding Section 3,
have no further or other obligations hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason at any time during the first three years of the Initial Term
(which commences on the Effective Date and ends five years from the Effective
Date), the Company shall promptly thereafter, and in any event within five (5)
business days of the Termination Date, pay the Employee, without right of set
off, except for liquidated sums, or counterclaim, his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee, if any, (together with any accrued interest or
earnings thereon) together with the Business Reason Termination Payment During
Initial Term, in each case to the extent not theretofore paid, and when all such
payments are made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iv) If the Company terminates the Employee's Employment for a
Business Reason after the Initial Term and during the Renewal Term, including
during the portion of the Initial Term that is after the first three years of
such Initial Term, the Company shall promptly thereafter, and in any event
within five (5) business days of the Termination Date, pay the Employee, without
right of set off, except for liquidated sums, or counterclaim, his Base Salary
to and including the Termination Date and the amount of all compensation
previously deferred by the Employee, if any, (together with any accrued interest
or earnings thereon) together with the Business Reason Termination Payment
During Renewal Term, in each case to the extent not theretofore paid, and, when
all such payments are made, the Company shall, notwithstanding Section 3, have
no further or other obligations hereunder to the Employee.
B. Termination of Employment by the Employee.
(i) The Employee shall be entitled to terminate the Employment
(a) For Good Reason. Subject to the provision for cure
described in the definition of the term "Good Reason", the Employee shall be
entitled to terminate his Employment for a Good Reason at any time within one
hundred eighty (180) days after the facts or circumstances constituting that
Good Reason first exist and are known to the Employee, provided that at least
ninety (90) days prior to such Termination the Employee has notified Employer
that Employee believes that Good Reason exists and sets forth in reasonable
detail the basis therefor and, at the time of any Notice of Termination therefor
Good Reason continues to exist. Such termination for Good Reason shall be
effective on the applicable Termination Date. In the event that the Employee
terminates his Employment for Good Reason during the Initial Term, the Employee,
without right of set off, except for liquidated sums, or counterclaim, upon the
Date of Termination. In the event that the Employee terminates his Employment
for Good Reason during any Renewal Term, including any portion of the Initial
Term that is after the first three years of such term, the Good Reason Payment
During Renewal Term shall become due and payable to the Employee, without right
of set off, except for liquidated sums, or counterclaim, upon the Date of
Termination.
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(b) Change of Control (Type A). The Employee shall be entitled
to terminate the Employment as a result of Change of Control (Type A), by reason
of the Employee's giving a Notice of Termination following a Change of Control
(Type A) at any time within three hundred sixty-five (365) days after that
Change of Control (Type A) occurs. Such termination shall be effective on the
applicable Termination Date. If the Employee terminates his Employment by reason
of a Change of Control (Type A), except as provided in subparagraph (iv), the
Company shall pay to the Employee in a cash lump sum within five (5) business
days after the Termination Date the amount equal to the sum of
(i) the portion of the Base Salary to and including
the Termination Date which has not yet been paid,
(ii) all compensation previously deferred by the
Employee, if any, (together with any accrued interest and earnings thereon),
(iii) any accrued but unpaid vacation pay,
(iv) any Annual Cash Bonus earned but not yet paid
for fiscal years ending prior to the Termination Date (such Annual Bonus to be
paid as soon as practicable after the information required to calculate such
Annual Bonus is available to the Company in no event later than sixty (60) days
after the required information is available to the Company) and
(v) the Change of Control Payment (Type A) Upon
Voluntary Termination By Employee calculated as of the Termination Date.
(c) Change of Control (Type B). The Employee shall be entitled
to terminate the Employment as a result of Change of Control (Type B), by reason
of the Employee's giving a Notice of Termination following a Change of Control
(Type B) at any time within three hundred sixty-five (365) days after that
Change of Control (Type B) occurs. Such termination shall be effective on the
applicable Termination Date. If the Employee terminates his Employment by reason
of a Change of Control (Type B), except as provided in subparagraph (iv), the
Company shall pay to the Employee in a cash lump sum within five (5) business
days after the Termination Date the amount equal to the sum of
(i) the portion of the Base Salary to and including
the Termination Date which has not yet been paid,
(ii) all compensation previously deferred by the
Employee, if any, (together with any accrued interest and earnings thereon),
(iii) any accrued but unpaid vacation pay;
(iv) any Annual Cash Bonus earned but not yet paid
for fiscal years ending prior to the Termination Date (such Annual Bonus to be
paid as soon as practicable after the information required to calculate such
Annual Bonus is available to the Company in no event later than nine (9) months
after the Termination Date) and
-19-
<PAGE> 20
(v) the Change of Control Payment (Type B) Upon
Voluntary Termination By Employee calculated as of the Termination Date.
(d) Without Good Reason. The Employee's termination
of his Employment without Good Reason and other than for Disability will be
effective on the applicable Termination Date. If the Employee terminates his
Employment Without Good Reason and other than for Disability, the Company shall
pay to the Employee, in a cash lump sum within five (5) business days after the
Termination Date, the amount equal to the sum of
(i) the portion of the Base Salary to and including
the Termination Date which has not yet been paid,
(ii) all compensation previously deferred by the
Employee, if any, (together with any accrued interest and earnings thereon)
which has not yet been paid, and
(iii) any accrued but unpaid vacation pay.
C. Termination by Reason of Disability. During the term of this
Agreement and the period following Termination of this Agreement (for any cause
whatsoever other than Type I cause), (the "policy period") the Company shall
maintain, at its expense and at the current expense level, the individual,
long-term non-cancelable guaranteed renewal individual disability plan now in
place, until such time, not to exceed three (3) years, as Employee has commenced
to have earned annual income in excess of 50% of his most recent Base Salary. In
the event the Employee retires while in the employ of the Company, the Company
shall maintain at its expense but at the current level of premium payments, the
individual, long-term non-cancelable guaranteed renewal individual disability
plan more particularly described in Exhibit D for a period of three (3) years
from the date of retirement. If after retirement, the policy premium exceeds the
level of the premium on the retirement date the Employee shall pay the
difference. If the Employee incurs any Disability during the policy period,
either the Employee or the Company may terminate the Employee's Employment. If
the Employee's Employment is terminated by reason of the Employee's disability
and Notice of Termination of such, the Termination Date shall be the date set in
such notice. If the Employee's Employment is terminated by reason of the
Employee's disability, the Employee shall not be subject to the Non-Compete
paragraph 7(b), but shall be remain subject to the paragraph 7(a) and 7(c).
D. Termination of Employment by Death. Upon the death of the Employee,
the Employment will be terminated on the applicable Termination Date. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of
(i) the portion of the Base Salary through the end of the
month in which
-20-
<PAGE> 21
the Termination Date occurs which has not yet been paid,
(ii) all compensation previously deferred by the Employee, if
any, (together with any accrued interest or earnings thereon) which has not yet
been paid, and
(iii) any accrued but unpaid vacation pay.
E. Return of Property. On termination of the Employee's Employment,
however brought about, the Employee (or his representatives) shall promptly
deliver and return to the Company all the Company's property that is in the
possession or under the control of the Employee.
F. Stock Options. Notwithstanding any provision of this Agreement to
the contrary:
(i) except in the case of a termination of the Employee's
Employment for Cause, as described in sub paragraphs (a) and (b) of the Cause
definition, all stock options previously granted to the Employee under Incentive
Plans that have not been exercised and are outstanding as of the time
immediately prior to the Termination Date shall, notwithstanding any contrary
provision of any applicable Incentive Plan, remain outstanding (and continue to
become exercisable pursuant to their respective terms) until exercised or the
expiration of their term, whichever is earlier; and
(ii) in the case of a termination of the Employee's Employment
for Cause, as described in sub paragraphs (a) and (b) of the Cause definition,
all stock options previously granted to Employee under Incentive Plans that have
not been exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier.
Notwithstanding any provision of this Agreement to the contrary, for purposes of
all Incentive Plans, the term "Cause" shall mean Cause (subparagraphs (a) and
(b)) as defined herein.
6. OTHER EMPLOYEE RIGHTS
A. Paid Vacation; Holidays. The Employee shall be entitled to not less
than six (6) weeks of annual vacation and all legal holidays during which times
his applicable compensation shall be paid in full.
B. Fringe Benefits. During the term of this agreement, the Employee is
entitled to the same level of fringe benefits previously and currently provided
to Employee by the Company including but not limited to a company car for
business and personal use, health insurance, dental insurance, disability
insurance, and life insurance; provided further that the Company shall increase
the life insurance benefit to Employee's specified beneficiary to $2.5 million.
C. Business Expenses. The Employee is authorized to incur, and will be
-21-
<PAGE> 22
entitled to receive prompt reimbursement for, all reasonable expenses incurred
by the Employee in performing his duties and carrying out his responsibilities
hereunder, including first class air fare and hotels, business meal,
entertainment and travel expenses, provided that the Employee complies with the
applicable policies, practices and procedures of the Company relating to the
submission of expense reports, receipts or similar documentation of those
expenses. The Company shall either pay directly or promptly reimburse the
Employee for such expenses not more than twenty (20) days after the submission
to the Company by the Employee from time to time of an itemized accounting of
such expenditures for which direct payment or reimbursement is sought. Unpaid
reimbursements after such 20-day period shall accrue interest in accordance with
Section 7(K).
D. Support. During the Employment, the Employee shall be provided by
the Company with office space, furnishings, and facilities, reserved parking,
secretarial and administrative assistance, supplies and other support equipment
(including a computer, facsimile machine and photocopier).
E. No Forced Relocation. The Employee shall not be required to move
Employee's principal place of residence from the central Florida area or to
perform regular duties that could reasonably be expected to require either such
move against his wish or to spend amounts of time each week outside the central
Florida area which are unreasonable in relation to the duties and
responsibilities of the Employee hereunder , and the Company agrees that, if it
requests the Employee to make such a move and the Employee declines that
request,
(i) that declination shall not constitute any basis for a
determination that Type II Cause exists unless the business of Employer is
materially put at risk by such refusal as determined by the Required Majority
Board and
(ii) no animosity or prejudice will be held against Employee.
7. GENERAL PROVISIONS
A. Confidentiality. The Employee shall not divulge or communicate to
any person (except in performing his duties under this agreement) or use for his
own purpose Confidential Information which is not generally known to the public
and shall use his best efforts to prevent the publication or disclosure by and
other person of any such Confidential Information. Information shall be deemed
not to be Confidential Information if it has become known to the public
generally through no act or fault of the Employee. All documents and objects
made, complied, received or held or used by Employee in connection with the
business of the Company during the employment shall be and remain the Company's
property.
B. Non-Competition. The Employee agrees that, except as otherwise
provided herein, during the Employment and for a period of two years after the
applicable Termination Date Employee will not directly or indirectly, whether or
not for compensation and whether or not as an employee, be engaged in or have
any impermissible financial interest in any business that is engaged in the
merchandising, manufacturing, distribution or marketing of men's casual pants,
shorts and jeans (a
-22-
<PAGE> 23
"competing business"). For purpose of this Agreement, the Employee shall not be
deemed to be engaged in a competing business if Employee is employed by a
division or subsidiary or similar business unit of a company or other business
entity that would otherwise be deemed a competing business so long as the
division, subsidiary or similar business unit by which the Employee is employed
is accounted for as a separate profit center and does not engage in a competing
business, and Employee's ownership interest, if any, is not an impermissable
financial interest. For purposes of this Agreement, the Employee shall be deemed
to be engaged in a competing business if Employee is an employee, officer,
director, partner or consultant of such competing business or has an
impermissible financial interest therein. For purposes of this Agreement, the
Employee shall be deemed to have an impermissible financial interest in
competing business if Employee is a partner or shareholder directly or
indirectly, therein, except as provided hereafter. Employee shall not be deemed
to have an impermissible financial interest in any competing publicly traded or
privately held business so long as Employee owns less than five percent (5%) of
any class of securities of such publicly traded or privately held company and is
not an officer, director, partner, employee or consultant thereto, except as to
holding an office or being an employee, as otherwise provided in the "employed
by a division . . ." sentence above.
C. Non-Solicitation. The Employee agrees that during the Employment and
for a period of two (2) years after the Date of Termination, Employee shall not
employ any person who was employed by the Company or any of its controlled
Affiliates on the Termination Date, or induce such Person to accept employment
other than with the Company or its subsidiaries.
D. The Employee recognizes that a breach of his obligations under this
paragraphs (A) through (C) above would cause irreparable harm to the Company
and, provided that as a pre-condition the Company has previously tendered all
sums that are due and payable to the Employee under the terms of this Agreement,
the Company shall be entitled to preliminary and permanent injunctions enjoining
violations as a non-exclusive remedy.
E. Severability. If any one or more of the provisions of this Agreement
shall, for any reason, be held or found by final judgment of a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
(i) such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement,
(ii) this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein (except that
this clause (ii) shall not prohibit any modification allowed under Section 7(B))
and
(iii) if the effect of a holding or finding that any such
provision is invalid, illegal or unenforceable is to modify to the Employee's
detriment, reduce or eliminate any compensation, reimbursement, payment,
allowance or other benefit to the Employee intended by the Company and Employee
in entering into this Agreement, the Company shall, within thirty (30) days
after the date of such finding or holding,
-23-
<PAGE> 24
negotiate and expeditiously enter into an agreement with the Employee which
contains alternative provisions (reasonably acceptable to the Employee and the
Company) that will restore to the Employee (to the extent lawfully permissible)
substantially the same economic, substantive and income tax benefits and legal
rights the Employee would have enjoyed had such provision been upheld as legal,
valid and enforceable; and
(iv) if any provision of this Agreement or portion hereof is
so broad, in scope or duration, as to be unenforceable, such provision or
portions thereof shall be interpreted to be only so broad as to be legal, valid
and enforceable.
F. Nonexclusivity of Rights. Nothing herein shall prevent or
limit the Employee's continuing or future participation in any Compensation Plan
or, subject to Section 9(N), limit or otherwise affect such rights as the
Employee may have under any other contract or agreement with the Company. Vested
benefits and other amounts to which the Employee is or becomes entitled to
receive under any Compensation Plan on or after the Termination Date shall be
payable in accordance with that Compensation Plan, except as expressly modified
hereby.
G. Full Settlement. The Company's obligations to make the payments
provided for in, and otherwise to perform its undertakings in, this Agreement
shall not be affected by any right of set-off (other than as to liquidated
amounts), counterclaim, recoupment, defense or other action, claim or right the
Company may have against the Employee or others. Except as stated in Section
5(c), in no event shall the Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee under any provision hereof, and those amounts shall not be reduced,
regardless of whether the Employee obtains other employment or becomes
self-employed.
H. Judicial Review. Any determination as to the existence of Cause by
the Board or Required Board Majority is reviewable by the trier of fact to
determine whether such determination was made in good faith versus bad faith and
whether such determination was reasonable versus arbitrary or capricious.
I. Successors.
(i) This Agreement is personal to the Employee and, without the prior
written consent of the Company, is not assignable or delegable by the Employee
otherwise than by transfer of rights by will or the laws of descent and
distribution.
(ii) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns and this Agreement shall inure to the
benefit and be enforceable by the Employee's legal representatives acting in
their capacities as such pursuant to applicable law.
(iii) The Company shall require any successor (direct or indirect and
whether by purchase, merger, consolidation, share exchange or otherwise) to the
business, properties and assets of the Company substantially as an entirety
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent the Company would have been required to perform it had no
such succession taken place.
-24-
<PAGE> 25
J. Amendments; Waivers. This Agreement may not be amended or modified
except by a written agreement executed and delivered by the parties hereto or
their respective successors or legal representatives acting in their capacities
as such pursuant to applicable law.
K. Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery or by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
appropriate Person at the address of such Person get forth below (or at such
other address as such Person may designate by written notice to each other party
in accordance herewith):
(i) if to the Employee, addressed as follows:
William W. Compton
7225 N. Mobley Road
Odessa, FL 33556
; and
(ii) if to the Company, addressed as follows:
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, FL 33634
Attn: Michael Kagan
In the case of any Notice of Termination or of Good
Reason, with copies to each member of the Board
L. No Waiver. The failure of the Company or the Employee to insist on
strict compliance with any provision of, or to assert any right under, this
Agreement (including the right of the Employee or the right of the Company to
terminate the Employment for Good Reason or by reason of a Change of Control
pursuant to Section, 5(B) (i)) shall not be deemed a waiver of that provision or
of any other provision of or right under this Agreement.
M. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida, without reference to any
principles of conflicts of laws.
N. Jurisdiction and Venue. The Company and the Employee irrevocably
consents with respect to any action, suit or other legal proceeding pertaining
directly to this Agreement or to the interpretation or enforcement of any of the
Company's or the Employee's right hereunder to service of process in the State
of Florida and hereby waives any right to contest or oppose receipt of such
service of process in Florida provided such Person actually received such
process by mail or electronic communication. The Company and the Employee
revocably
(i) agrees that any such action, suit or other legal
proceeding may be brought in Hillsborough County, Florida; and
-25-
<PAGE> 26
(ii) consents to the jurisdiction of any appropriate court in
such county in any such action, suit or other legal proceeding and
(iii) waives any objection it may have to the laying of venue
of any such action, suit or other legal proceeding in any of such courts and
(iv) WAIVES ANY RIGHT TO TRIAL BY JURY.
O. Headings. The headings of Sections and subsections hereof are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
P. Interest. If any amounts required to be paid or reimbursed to the
Employee hereunder are not so paid or reimbursed at the times provided herein
(including amounts required to be paid by the Company pursuant to Sections 6 and
10, those amounts shall accrue interest compounded daily at the annual
percentage rate which is one and one half percentage points (1.5%) above the
interest rate announced by NationsBank, Tampa, Florida (or its successor) from
time to time, as its Base Rate (or prime lending rate), from the date those
amounts were required to have been paid or reimbursed to the Employee until
those amounts are finally and fully paid or reimbursed; provided, however, that
in no event shall the amount of interest contracted for, charged or received
hereunder exceed the maximum non-usurious amount of interest allowed by
applicable law.
Q. Publicity. The Company agrees with the Employee that, except to the
extent required by law or legal process (including reporting and public
disclosure contemplated under the Exchange Act and the Securities Act) and any
other law giving any Person a private right of action or suit, neither the
Company nor the Employee will not make or publish, without the prior written
consent of the other, any written or oral statement concerning the terms of the
Employee's employment relationship with the Company and will not, if a Notice of
Termination is given by either the Company or the Employee for any reason,
publish or cause to be published any statement concerning the Company's
relationship with the Employee or the Employee's relationship with the Company,
including Employee's work-related performance or the reasons or basis for the
giving of that Notice of Termination.
R. Tax Withholding. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all Federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
S. Entire Agreement. The Company and the Employee agree that this
Agreement supersedes all prior written and oral agreements between them with
respect to the employment of the Employee by the Company, but has no effect on
any Compensation Plan in which the Employee was participate prior to the
Effective Date.
T. Effective Date. This Agreement shall be effective on the Closing
Date.
8. LITIGATION COSTS In the event of litigation over the terms or breach of this
Agreement, the prevailing party shall be entitled to recover litigation costs
and attorneys fees from the non-prevailing party.
-26-
<PAGE> 27
9. INDEMNIFICATION
The Employee shall be indemnified by the Company to the maximum extent
permitted by the law of Florida, the state of the Company's incorporation, and
the law of the state of incorporation of any subsidiary of the Company of which
the Employee is a director or an officer or employee, as the same may be in
effect from time to time.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year indicated above.
TROPICAL SPORTSWEAR INTERNATIONAL CORPORATION
By:/s/ Michael Kagan
-------------------------------------
Its: Executive Vice President
------------------------------------
EMPLOYEE
/s/ William W. Compton
----------------------------------------
William W. Compton
Employee's Permanent Address:
7225 N. Mobley Road
Odessa, FL 33556
-27-
<PAGE> 28
EXHIBIT A
INCENTIVE CALCULATION FOR BILL COMPTON 2/4/97
for the FYE 9/95
<TABLE>
<CAPTION>
Target
Award
ROCE ROCE Incentive Bonus
Value Performance Opportunity Percentage
----- ----------- ----------- ----------
<S> <C> <C> <C> <C>
130% 21.55% 200.00% 110.00%
129% 21.39% 196.67% 108.17%
128% 21.22% 193.33% 106.33%
127% 21.06% 190.00% 104.50%
126% 20.89% 186.67% 102.67%
125% 20.73% 183.33% 100.83%
124% 20.56% 180.00% 99.00%
123% 20.39% 176.67% 97.17%
122% 20.23% 173.33% 95.33%
- --------------------------------------------------------------------------------------------------------------
121.59% 20.16% 171.97% 94.59%
- --------------------------------------------------------------------------------------------------------------
121% 20.06% 170.00% 93.50%
120% 19.90% 166.67% 91.67%
119% 19.73% 163.33% 89.83%
118% 19.56% 160.00% 88.00%
117% 19.40% 156.67% 86.17%
116% 19.23% 153.33% 84.33%
115% 19.07% 150.00% 82.50%
114% 18.90% 146.67% 80.67%
113% 18.74% 143.33% 78.83%
112% 18.57% 140.00% 77.00%
111% 18.40% 136.67% 75.17%
110% 18.24% 133.33% 73.33%
109% 18.07% 130.00% 71.50%
108% 17.91% 126.67% 69.67%
107% 17.74% 123.33% 67.83%
106% 17.57% 120.00% 66.00%
105% 17.41% 116.67% 64.17%
104% 17.24% 113.33% 62.33%
103% 17.08% 110.00% 60.50%
102% 16.91% 106.67% 58.67%
101% 16.75% 103.33% 56.83%
100% 16.58% 100.00% 55.00%
</TABLE>
Note: 100% = 75th percentile
Bill Compton bonus is $320,000 X 94.59% = $302,673
Page 1
<PAGE> 29
EXHIBIT B
RETURN ON CAPITAL EMPLOYED
<TABLE>
<CAPTION>
(1992-
1995)
FYE AVERAGE
PERCENTILE COMPANY MONTH 1992 1993 1994 1995 ROCE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 100 Marisa Christina Inc 3 Dec 218.29% 95.69% 70.07% 29.34% 103.35%
-----------------------------------------------------------------------------------------------------------------------------
2 95 Tommy Hilfiger Mar 46.64% 63.30% 32.30% 23.23% 41.37%
-----------------------------------------------------------------------------------------------------------------------------
3 90 Nautica Feb 17.84% 20.94% 28.58% 20.96% 22.08%
-----------------------------------------------------------------------------------------------------------------------------
4 85 Supreme International Jan N/A 25.13% 25.51% 12.92% 21.19%
-----------------------------------------------------------------------------------------------------------------------------
TSI SEPT 34.20% 11.86% 21.87% 12.71% 20.16%
-----------------------------------------------------------------------------------------------------------------------------
5 80 Donnkenny Inc 1 Nov 28.04% 21.13% 15.32% 7.35% 17.96%
-----------------------------------------------------------------------------------------------------------------------------
6 75 Ashworth Inc Oct 27.42% 17.72% 16.53% 4.65% 16.58%
-----------------------------------------------------------------------------------------------------------------------------
7 70 Tandy Brands June 20.32% 19.70% 16.63% 3.28% 14.98%
-----------------------------------------------------------------------------------------------------------------------------
8 65 Haggar Corp Sept 12.34% 16.40% 18.29% 6.25% 13.32%
-----------------------------------------------------------------------------------------------------------------------------
9 60 Garan Inc Sept 18.95% 18.73% 9.65% 5.72% 13.26%
-----------------------------------------------------------------------------------------------------------------------------
10 55 First Years Dec 10.56% 4.10% 14.91% 14.90% 11.12%
-----------------------------------------------------------------------------------------------------------------------------
11 50 Hampshire Group Dec 13.79% 10.77% 25.87% 18.76% 11.91%
-----------------------------------------------------------------------------------------------------------------------------
12 45 Kleinert's Inc Nov 4.14% 8.39% 16.05% 14.92% 10.88%
-----------------------------------------------------------------------------------------------------------------------------
13 40 Quiksilver Oct 1.15% 10.45% 15.37% 15.92% 10.72%
-----------------------------------------------------------------------------------------------------------------------------
14 35 Chic by HIS inc Nov 4.60% 10.31% 8.67% 1.95% 6.38%
-----------------------------------------------------------------------------------------------------------------------------
15 30 Osh Kosh B'Gosh Dec 8.98% 2.68% 4.39% 7.48% 5.88%
-----------------------------------------------------------------------------------------------------------------------------
16 25 Biscayne Apparel Inc Dec -1.10% 17.86% 8.77% -6.66% 4.72%
-----------------------------------------------------------------------------------------------------------------------------
17 20 Danskin Inc 1 Mar 24.87% 9.47% -8.82% -9.27% 4.06%
-----------------------------------------------------------------------------------------------------------------------------
18 15 Hampton Industries Dec 3.58% -0.86% 3.68% 0.72% 1.78%
-----------------------------------------------------------------------------------------------------------------------------
19 10 Farah Inc Oct -12.21% 2.39% 16.68% -7.54% -0.17%
-----------------------------------------------------------------------------------------------------------------------------
20 5 Jalate Ltd 2 Dec N/A N/A N/A -28.01% -28.01%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnote 1. Danskin & Donnkenny 1992 results based on ending debt only -
beginning debt not available
2. Jalate: IPO 1994. 1992 and 1993 not available
3. Marisa Christina able to obtain all information - company went
public in 1994
Page 1
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
, October 1997, to become effective as of the Effective Date (as herein defined)
by and between TROPICAL SPORTSWEAR INTERNATIONAL CORPORATION, a Florida
corporation (the "Company"), and MICHAEL KAGAN (the "Employee").
RECITALS:
In entering into this Agreement, the Company desires to provide the
Employee with substantial incentives to serve the Company without distraction or
concern over minimum compensation, benefits or tenure, to develop and implement
the Company's business plan and to manage the Company's future growth and
development and to maximize the returns to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. CERTAIN DEFINITIONS
A. Certain Definitions. As used herein, the following terms have the
meanings assigned to them below:
"Acquiring Person(Type A)" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are the
Beneficial Owner(s) of a minimum of twenty five (25%) or more of the shares of
Common Stock then outstanding, but does not include any Exempt Person; provided,
however, that a Person shall not be or become an Acquiring Person if such
Person, together with its Affiliates and Associates, shall become the Beneficial
Owner of a minimum of twenty five percent (25%) or more of the shares of Common
Stock then outstanding solely as a result of a reduction in the number of shares
of Common Stock outstanding due to the repurchase of Common Stock by the
Company, unless and until such time as such Person or any Affiliate or Associate
of such Person shall purchase or otherwise become the Beneficial Owner of
additional shares of Common Stock constituting one percent (1%) or more of the
then outstanding shares of Common Stock or any other Person (or Persons) who is
(or collectively are) the Beneficial Owner of shares of Common Stock
constituting one percent (1%) or more of the then outstanding shares of Common
Stock shall become an Affiliate or Associate of such Person, unless, in either
such case, such Person, together with all Affiliates and Associates of such
Person, is not then the Beneficial Owner of a minimum of twenty five percent
(25%) or more of the shares of Common Stock then outstanding.
"Acquiring Person (Type B)" means any Person who or which,
together with all Affiliates and Associates of such Person, is or are the
Beneficial Owner(s) of a minimum of thirty three and one half percent (33.5%) or
more of the shares of Common Stock then outstanding, but does not include any
Exempt Person; provided, however, that a Person shall not be or become an
Acquiring Person if such Person, together with its Affiliates and Associates,
shall become the Beneficial Owner of a minimum of thirty
-1-
<PAGE> 2
three and one half percent (33.5%) or more of the shares of Common Stock then
outstanding solely as a result of a reduction in the number of shares of Common
Stock outstanding due to the repurchase of Common Stock by the Company, unless
and until such time as such Person or any Affiliate or Associate of such Person
shall purchase or otherwise become the Beneficial Owner of additional shares of
Common Stock constituting one percent (1%) or more of the then outstanding
shares of Common Stock or any other Person (or Persons) who is (or collectively
are) the Beneficial Owner of shares of Common Stock constituting one percent
(1%) or more of the then outstanding shares of Common Stock shall become an
Affiliate or Associate of such Person, unless, in either such case, such Person,
together with all Affiliates and Associates of such Person, is not then the
Beneficial Owner of a minimum of thirty three and one half percent (33.5%) or
more of the shares of Common Stock then outstanding. If a Person becomes an
Acquiring Person (Type B) he shall not also be considered an Acquiring Person
(Type A).
"Active Status" means the Employee's Employment status from
the Effective Date to the Termination Date.
"Affiliate" has the meaning ascribed to that term in Exchange
Act Rule 12b-2.
"Annual Cash Bonus" is the cash bonus calculated pursuant to
the methodology set forth in paragraph 4.B. and paid to Employee annually during
the term of this Agreement.
"Annual Cash Compensation" of the Employee for any
Compensation Year means the sum of the Base Salary and Annual Cash Bonus earned
by the Employee during that Compensation Year, including all amounts deferred at
the election of the Employee pursuant to a Compensation Plan intended to qualify
as a plan under Section 401(k) of the Code or otherwise. If salary or bonus is
paid in whole or in part in property other than cash (such as Common Stock) the
amount so paid shall be the fair market value thereof on the date of payment.
"Average Annual Bonus" is the average (mean) of the annual
bonuses earned by Employee during the three year period ending on or preceding
the Termination Date (including any Compensation Years that end on or precede
the Effective Date). If, for purposes of a termination payment, the annual bonus
for the most recent year cannot be calculated because necessary information is
not yet available, the annual bonus for the preceding year will be counted twice
instead. If any annual bonus was to be paid in whole or in part in property
other than cash (such as Common Stock) the amount so earned and included for
purposes of this calculation shall be the fair market value thereof on the date
for the determination of such fair market value that is specified in the
agreement that such payment be so paid, and if no such date is therein specified
for such determination, then on the date of such agreement, and , if there is no
such agreement, then on the date of payment.
"Average Annual Compensation" means the sum of the Employee's
Average Base Salary and the Average Annual Bonus.
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<PAGE> 3
"Average Base Salary" is the average (mean) of the base
salaries earned by the Employee during the three year period ending on or
preceding the Termination Date (including any Compensation Years that precede or
end on the Effective Date). If any base salary was to be paid in whole or in
part in property other than cash (such as Common Stock) the amount so earned and
included for purpose of this calculation shall be the fair market value thereof
on the date for determination of such fair market value that is specified in the
agreement that such payment be so paid, and if no such date is therein specified
for such determination then on the date of such agreement, and if there is no
such agreement, then on the date of payment.
"Associate" means, with reference to any Person,
(a) any corporation, firm, partnership, association,
unincorporated organization or other entity (other than the Company or a
subsidiary of the Company) of which that Person is an officer or general partner
(or officer or general partner of a general partner) or is, directly or
indirectly, the Beneficial Owner of 15% or more of any class of its equity
securities,
(b) any trust or other estate in which that Person
has a substantial beneficial interest or for or of which that Person serves as
trustee or in a similar fiduciary capacity and
(c) any relative or spouse of that Person, or any
relative of that spouse, who has the same home as that Person.
"Base Salary" means the guaranteed minimum annual salary
payable by the Company to the Employee pursuant to Section 4(A).
"Beneficial Owner" a specified Person is deemed the
"Beneficial Owner" of, and is deemed to "beneficially own," any securities.
(a) of which that Person or any of that Person's
Associates or controlled Affiliates, directly or indirectly, is the "beneficial
owner" (as determined pursuant to Exchange Act Rule 13d-3) or otherwise has the
right to vote or dispose of, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially own," any
security under this subparagraph (a) as a result of an agreement, arrangement or
understanding to vote that security if that agreement, arrangement or
understanding: 1) arises solely from a revocable proxy or consent given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Exchange Act (that is, the
exclusions in these subparagraphs (a) and (b) give effect to the exemption for a
proxy or consent solicitation in Exchange Act rule 14a-2(b) (2); and (2) is not
then reportable by such Person on Exchange Act Schedule 13D (or any comparable
or successor report);
(b) which that Person or any of that Person's
Affiliates or Associates, directly or indirectly, has the right or obligation to
acquire (provided that right or obligation is exercisable or effective
immediately or only after the passage of time or the occurrence of an event)
pursuant to any agreement, arrangement or
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<PAGE> 4
understanding (whether or not in writing) or on the exercise of conversion
rights, exchange rights, other rights, warrants or options, with an exercise
price equal to or below the public trading price at the time of calculation;
provided, however, that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," securities tendered pursuant to a tender or exchange
offer made by that Person or any of that Person's Affiliates or Associates until
those tendered securities are accepted for purchase or exchange; or
(c) which are beneficially owned, directly or
indirectly, by (1) any other Person (or any Affiliate or Associate thereof) with
which the specified Person or any of the specified Person's Affiliates or
Associates has any agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, or holding with the right to vote or of
voting (except pursuant to a revocable proxy or consent as described in the
provision to subparagraph (a) of this definition) or disposing of any voting
securities of the Company or (2) any group (as that term is used in Exchange Act
Rule 13d-5(b)) of which that specified Person is a member; provided, however,
that nothing in this definition shall cause a Person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to "beneficially
own," any securities acquired through such a Person's participation in good
faith in a firm commitment underwriting until the expiration of forty (40) days
after the date of that acquisition and the security has been placed in an
investment account. For purposes of this Agreement, "voting" a security shall
include voting, granting a proxy, acting by consent, making a request or demand
relating to corporate action (including, without limitation, calling a
stockholder meeting) or otherwise giving an authorization (within the meaning of
Section 14(a) of the Exchange Act) in respect of such security.
"Board" means herein the entire Board of Directors of the
Company, except when less than the entire Board is specified herein.
"Business Reason" for the Company's termination of the
Employee's Employment means any reason other than Cause.
"Business Reason Termination Payment During Initial Term"
means at any time during the Initial Term (which begins on the Effective Date
and ends on the fifth anniversary thereof) an amount equal to the Employee's
Average Annual Compensation calculated as of the Termination Date multiplied by
the greater of 2 or the remaining number of years (rounded to the nearest 1/12th
of a year) in such five year Initial Term. For example, if the Company were to
terminate the Employee for a Business Reason two and seven-twelfths (2 7/12)
years from the Effective Date, the Employee would be entitled to an amount equal
to two and five twelfths (2 5/12) times the Employee's Average Annual
Compensation on such Termination Date. If the Company were to terminate the
Employee for a Business Reason four and six-twelfths (4 6/12) years from the
Effective Date, the Employee would be entitled to an amount equal to two times
the Employee's Average Annual Compensation on such Termination Date.
"Business Reason Termination Payment During Renewal Term"
means at any time after the Initial Term and during any Renewal Term an amount
equal to two (2) times the Employee's then Average Annual Compensation
calculated as of the
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<PAGE> 5
Termination Date.
"Cause" for the Company's termination of the Employee's
Employment means:
(a) the Employee's final conviction of a felony, as
evidenced by a binding and final judgment, order or decree of a court of
competent jurisdiction, which in the opinion of the Required Board Majority
(excluding Employee) substantially impairs the Employee's ability to perform his
duties and obligations to the Company; or
(b) a determination by the Required Board Majority
(excluding Employee) that the Employee has continued to engage in conduct which
has caused or is reasonably likely to cause, demonstrable and serious injury to
the Company after having been given written notice of such determination by the
Required Board Majority and a reasonable opportunity to cure, which curative
period shall not be less than ninety (90) days: or
( c) the Required Board Majority's determination
(excluding Employee) of Employee's continuing failure to substantially perform
his duties and responsibilities in accordance with the provisions of this
Agreement (except by reason of the Employee's incapacity due to physical or
mental illness or injury) for a period of ninety (90) days (the "Grace Period")
after the Required Board Majority (excluding Employee) has delivered to the
Employee a written demand for substantial performance hereunder which
specifically identifies the provision of this Agreement which the Required Board
Majority contends that Employee has continually failed to substantially perform,
the bases for the Required Board Majority's determination that the Employee has
continually failed to substantially perform his duties and responsibilities
under such provision and the specific nature of the corrective action that the
Required Board Majority proposes that Employee take during the Grace Period;
provided, that for purposes of this clause (c), the Company shall not have Cause
to give such notice or thereafter terminate the Employee's Employment if such
act or omission was taken or omitted to be taken by an officer or employee of
the Company other than Employee or the act or omission was taken or omitted by
Employee with the concurrence of a majority of the Board or the act or omission
was taken or omitted by the Employee in good faith with a reasonable belief that
the act or omission was authorized by a majority of the Board or otherwise in
the interest of the Company. If, during such Grace Period, Employee takes the
corrective action specified by the Required Board Majority Termination for cause
under this provision shall require the approval of the Required Board Majority
(excluding Employee).
"Change of Control (Type A)" means the occurrence of any of
the following events that occurs after the Closing Date:
(a) any Person becomes an Acquiring Person (Type A);
(b) a merger of the Company with or into, or a sale
by the Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any Person, other
than any Exempt Person, together with all Affiliates and Associates of such
Person, shall be the
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<PAGE> 6
Beneficial Owner of twenty five percent (25%), but no more than thirty three and
one half percent (33.5%) or more of the total voting power of the then
outstanding Voting Shares of the Person surviving that transaction (in the case
of a merger or consolidation) or the Person acquiring those properties and
assets substantially as an entirety.
"Change of Control (Type B)" means the occurrence of any of
the following events that occurs after the Closing Date:
(a) any Person becomes an Acquiring Person (Type B);
(b) a merger of the Company with or into, or a sale
by the Company of its properties and assets substantially as an entirety to,
another Person occurs and, immediately after that occurrence, any Person, other
than any Exempt Person, together with all Affiliates and Associates of such
Person, other than Exempt Persons, shall be the Beneficial Owner of more than
thirty three and one half percent (33.5%) or more of the total voting power of
the then outstanding Voting Shares of the Person surviving that transaction (in
the case of a merger or consolidation) or the Person acquiring those properties
and assets substantially as an entirety.
"Change of Control (Type A) Payment Upon Voluntary Termination
By Employee" means that if within 365 days after a Change of Control (Type A)
the Employee gives Notice of Termination of this Agreement, the Employee shall
be paid an amount equal to the Employee's Average Base Salary calculated as of
the Termination Date multiplied by two (2.0).
"Change of Control (Type B) Payment Upon Voluntary Termination
By Employee" means that if within 365 days after a Change of Control (Type B)
the Employee terminates this Agreement, the Employee shall be paid an amount
equal to the sum of the Employee's Average Base Salary calculated as of the
Termination Date multiplied by two (2.0) plus the Employee's Average Annual
Bonus calculated as of the Termination Date multiplied by two (2.0).
"Closing Date" means the completion of the closing of the sale
of shares of the Common Stock to the underwriters in the Company's initial
public offering.
"Code" means the Internal Revenue Code of 1986.
"Common Stock" means the common stock or any other voting
securities of the Company.
"Company" means
(a) Tropical Sportswear International Corporation, a
Florida corporation, and any successor thereto;
(b) any Person that assumes the obligations of "the
Company" hereunder, by operation of law, pursuant to Section 7(I) or otherwise,
including but not limited to Tropical Sportswear International Corporation, a
Florida corporation.
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<PAGE> 7
"Compensation Plan" means any compensation arrangement, plan,
policy, practice or program established, maintained or sponsored by the Company
or any subsidiary of the Company, or to which the Company or any subsidiary of
the Company contributes, on behalf of any Executive Officer or any member of the
family of any Executive Officer,
(a) including
(i) any "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) or other "employee benefit plan" (as defined
in Section 3(3) of ERISA),
(ii) any other retirement and savings plan,
including any supplemental benefit arrangement relating to any plan intended to
be qualified under Section 401 (a) of the Code or whose benefits are limited by
the Code or ERISA,
(iii) any "employee welfare plan" (as
defined in Section 3(l) of ERISA),
(iv) any arrangement, plan, policy, practice
or program providing for severance pay, deferred compensation or insurance
benefit,
(v) any Incentive Plan and
(vi) any arrangement, plan, policy, practice
or program
(A) authorizing and providing for
the payment or reimbursement of expenses attributable to first-class air travel
and first-class hotel occupancy while on travel or
(B) providing for the payment of
business luncheon and country club dues, long-distance charges, mobile phone
monthly air time or other recurring monthly charges or any other fringe benefit,
allowance or accommodation of employment, but
(b) excluding any compensation arrangement, plan,
policy, practice or program to the extent it provides for annual Base Salary or
Annual Cash Bonus.
"Compensation Year" means the fiscal year of the Company.
"Confidential Information" means, with respect to the Company
or any subsidiary of the Company, all trade secrets and other confidential,
non-public/proprietary information of that Person, including information derived
from reports, investigations, research, work in progress, codes, marketing and
sale programs, customer lists, records of customer service requirements, capital
expenditure projects, cost summaries, pricing formulae, contract analyses,
financial information, projections, confidential filings with any governmental
authority and all other confidential, nonpublic concepts, methods of doing
business, materials or information prepared or performed for, by or on behalf of
that Person.
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<PAGE> 8
"CPI" means for any period the Consumer Price Index for All
Urban Consumers--All Items Index for Tampa, Florida (or any substantially
similar index published for the same area), as published by the United States
Department of Labor, Bureau of Labor Statistics (or its successor) for that
period.
"Disability" of the Employee means the Employee has been
determined (which determination shall be final and binding on all Persons,
absent manifest error), as a result of a physical or mental illness or personal
injury he has incurred (including illness or injury resulting from any substance
abuse), by a Qualified Physician (who may be the doctor treating or otherwise
acting as the Employee's doctor in connection with the illness or injury in
question) selected by the Employee with the consent of the Company, or by the
Company at its expense and with the consent of the Employee (which consent shall
not be unreasonably withheld in either case), to be unable to perform, at the
time of that determination and, in all reasonable medical likelihood,
indefinitely thereafter, the normal duties then most recently assigned, under
and in accordance with the terms hereof, to the Employee while on Active Status;
provided that, the determination whether the Employee has incurred a Disability
shall be made by a majority of three (3) Qualified Physicians,
(a) one (1) of whom shall be selected by the
Employee,
(b) one (1) of whom shall be selected by the Company
and
(c) the remaining one (1) of whom shall be selected
by the Qualified Physicians selected by the Employee and the Company pursuant to
clauses (a) and (b) of this proviso and the fees and expenses of whom will be
shared and paid in equal amounts by the Employee and the Company if:
(1) (A) the Company has reasonably withheld
its consent to the Qualified Physician, if any, selected by the Employee or
(B) the Employee has reasonably withheld
his consent to the Qualified Physician, if any, selected by the Company and
(2) the Qualified Physicians selected by the
Employee and the Company disagree as to whether the Employee has incurred a
Disability. For purposes of this definition, if the Employee is unable by reason
of illness or injury to give an informed consent to the performance of the
treatment of that illness or injury, a Qualified Physician selected by any
Person who is authorized by applicable law to give that consent will be deemed
to have been selected by the Employee.
"Effective Date" means the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"Employment" means the employment of the Employee by the
Company or a subsidiary of the Company hereunder.
"Exchange Act" means the Securities Exchange Act of 1934.
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<PAGE> 9
"Executive Officer" means any of the chairman of the board,
the chief executive officer, the chief operating officer, the chief financial
officer, the president, any executive or senior vice president or the general
counsel of the Company.
"Exempt Person" means
(a) (1) the Company, any subsidiary of the Company,
any employee benefit plan of the Company or of any subsidiary of the Company,
and
(2) any Person organized, appointed or
established by the Company for or pursuant to the terms of any such plan or for
the purpose of funding any such plan or funding other employee benefits for
employees of the Company or any subsidiary of the Company and
(b) the Employee, any Affiliate or Associate of the
Employee or any group (as that term is used in Exchange Act Rule 1 3d-5(b)) of
which the Employee or any Affiliate or Associate of the Employee is a member.
(c) William W. Compton, any Affiliate or Associate of
William W. Compton or any group (as that term is used in Exchange Act Rule 1
3d-5(b)) of which William W. Compton or any Affiliate or Associate of William W.
Compton is a member.
(d) Accel, S.A. de C.V., any Affiliate or Associate
of said Accel or any group (as that term is used in said rule) of which said
Accel or any Affiliate or Associate of said Accel is a member.
(e) Shakale Internacional S.A., any Affiliate of
Associate of said Shakale or any group (as that term is used in said rule) of
which said Shakale or any Affiliate or Associate of said Shakale is a member.
"Good Reason" for the Employee's termination of his Employment
means any of the following that occurs before the Employee gives a Notice of
Termination for Good Reason and which has not been cured by the Company
reasonably promptly after receipt of such notice of Good Reason from the
Employee; provided that any such cure that occurs after ninety (90) days of such
notice shall not be considered reasonably prompt and any such cure that occurs
within 90 days of such notice shall be considered reasonably prompt and provided
further that if such cure occurs Employee shall not be required to give a
subsequent notice if the same or a substantially similar Good Reason again
occurs within one year of the occurrence giving rise to such cure:
(a) any violation or breach of any provision hereof
in any material respect by the Company including but not limited to failure of
the Company to comply with the provisions of paragraphs 4,5, and 6 of this
Agreement in any material respect
(b) either
(1) a failure of the Company to continue in
effect for Employee any Compensation Plan in which the Employee was
participating as of the Termination Date or
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<PAGE> 10
(2) the taking of any action by the Company
which would materially and adversely affect the Employee's participation in or
materially reduce the Employee's benefits under, any such Compensation Plan in
effect as of the date of such action,
without, in each such case, providing a substantially equivalent substitute
reasonably acceptable to Employee; or
(c) the assignment to the Employee of duties
inconsistent in any material respect with the Employee's then current positions
(including status, offices, titles and reporting requirements), authority,
duties or responsibilities or any other action by the Company which results in a
material diminution in those positions, authority, duties or responsibilities or
the taking of any action that is the equivalent of a constructive discharge.
(d) the failure of the shareholders to elect Employee as a
member of the board of directors at any time during the Initial Term or any
Renewal Term of this Agreement.
(e) the failure of the Board to elect the Employee as Vice
Chairman of the Board, Chief Financial Officer, Executive Vice President and
Secretary, without his express consent, at any time during the Initial Term or
any Renewal Term of this Agreement.
"Good Reason Payment During Initial Term" means the amount
calculated as of the Termination Date by multiplying the greater of 2 or the
number of years (rounded to the nearest 1/12th of a year) remaining in the
Initial Term (which begins on the Effective Date and ends on the fifth
anniversary thereof) by the Employee's Average Annual Compensation calculated as
of the Termination Date. For example, if the Employee terminates for Good Reason
two and seven -twelfths (2 7/12) years from the Effective Date, the Employee
would be entitled to an amount equal to two and five-twelfths (2-5/12) years
times the Employee's then Average Annual Compensation. If the Employee
terminates for Good Reason four and seven-twelfths (4-7/12) years from the
Effective Date, the Employee would be entitled to an amount equal to two times
the Employee's then Average Annual Compensation.
"Good Reason Payment During Renewal Term" means at any time
after the Initial Term during the Renewal Term an amount equal to two (2) times
the Employee's then Average Annual Compensation, calculated as of the
Termination Date, whether the termination is during the last two years of the
Initial Term or during any Renewal Term.
"Incentive Plan" means any compensation arrangement, plan,
policy, practice or program, other than the Annual Cash Bonus provision of this
agreement set forth in paragraph 4 B, established, maintained or sponsored by
the Company or any subsidiary of the Company, or to which the Company or any
subsidiary of the Company contributes, on behalf of any Executive Officer and
which provides for awards of securities or the phantom equivalent of securities,
including any stock option, stock appreciation right and restricted stock plan,
but excluding any plan intended to qualify
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<PAGE> 11
as a plan under any one or more of
Sections 401 (a), 401(k) or 423 of the Code.
"Initial Term" means the first full five year term of this
Agreement commencing with the Effective Date and ending five (5) years from the
Effective Date (notwithstanding the fact that the Renewal Term commences three
years from the Effective Date).
"Nonterminating Party" means the Employee or the Company, as
the case may be, to which the Terminating Party delivers a Notice of
Termination.
"Notice of Termination" to or from the Employee means a
written notice that:
(a) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's Employment, and if the Termination Date is other
than the date of receipt of the notice,
(b) sets forth that Termination Date.
"Person" means any natural person, sole proprietorship,
corporation, partnership of any kind having a separate legal status, limited
liability company, business trust, unincorporated organization or association,
mutual company, joint stock company, joint venture, estate, trust, union or
employee organization or governmental authority.
"Publicly Traded" with respect to shares of stock of a company
means traded on a national securities exchange or listed for quotation on
NASDAQ.
"Qualified Physician" means, in the case of any determination
whether the Employee has sustained a Disability, a physician
(a) holding an M.D. degree from a medical school
located in the United States,
(b) specializing and board certified in the treatment
of the injury or illness that has or may have caused that Disability and
(c) having admission privileges to one or more
hospitals located in Florida or in the state in which the Employee then is
domiciled.
"Renewal Term" means the automatic and continually renewing
term of two (2) years, commencing three (3) years from the Effective Date
(during the Initial Term) and renewing each day thereafter for an additional day
without any further action by the Company or the Employee, it being the
intention of the parties that from the Effective Date there shall be a five (5)
year duration of the Initial Term and from the third anniversary of the
Effective Date there shall be a continuously remaining Renewal Term of two (2)
years duration of the Employee's Employment, subject to the termination
provisions hereof.
"Required Board Majority" means at any time at least a
sixty-six percent
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<PAGE> 12
(66%) majority of the members of the Board voting at that
time.
"Securities Act" means the Securities Act of 1933.
"Terminating Party" means the Employee or the Company, as the
may be, who or which terminates the Employee's Employment by means of a Notice
of Termination.
"Termination Date" means:
(a) if the Employee's Employment is terminated by
reason of the Employee's death during the term of this Agreement or retirement
at the age of 65, the date of that death or retirement;
(b) if the 'Employee's Employment is terminated by
reason of the Employee's giving a Notice of Termination following a Change of
Control pursuant to Section 5(B)(i)(b) or (c), sixty (60) days from the Notice
of Termination; provided that the Termination Date shall be no earlier than 275
days after the Change of Control and further provided that the Notice of
Termination shall be no later than 365 days after the Change of Control.
(c) if the Employee's Employment is terminated by
reason of the Employee's giving a Notice of Termination without Good Reason
pursuant to Section 5(B)(i)(d), the Termination Date shall be a date, designated
by the Company, not sooner than the third business day after the Company
receives the applicable Notice of Termination nor later than sixtieth (60th)
day.
(d) if the Employee's Employment is terminated by
reason of the Employee's disability the Termination Date shall be as specified
in Section 5(c).
(e) if the Employee's Employment is terminated by
Employee for any other reason, the elapse of the sixtieth (60th) day after the
Company receives the Notice of Termination;
(f) If the Employee's Employment is terminated by the
Company for Cause, three business days from the date the Employee receives the
Company's Notice of Termination for Cause;
(g) if the Employee's Employment is terminated by the
Company for any other reason, the Termination Date shall be a date designated by
the Company, not sooner than the third business day after the Employee received
the applicable Notice of Termination nor later than the sixtieth (60th) day.
"Type I Cause" means Cause of the type referred to in clause
(a) of the definition of Cause herein.
"Type II Cause" means Cause of the type referred to in clause
(b) or (c) of the definition of Cause herein.
"Voting" shall include, in respect of a security, voting,
granting a proxy,
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<PAGE> 13
acting by consent, making a request or demand relating to corporate action
(including calling a stockholder meeting) or otherwise giving an authorization
(within the meaning of Section 14 (a) of the Exchange Act) in respect of such
security.
"Voting Shares" means:
(a) in the case of any corporation, stock of that
corporation of the class or classes having general voting power under ordinary
circumstances to elect a majority of that corporation's board of directors; and
(b) in the case of any other entity, equity interests
of the class or classes having general voting power under ordinary circumstances
equivalent to the Voting Shares of a corporation.
B. Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein to any statute defined or referred to herein, including the Code, ERISA
and the Exchange Act, shall be deemed references to that statute or any
successor statute, as the same may have been or may be amended or supplemented
from time to time, and any rules or regulations promulgated thereunder.
(ii) When used in this Agreement, the words "herein," "hereof"
and "hereunder" and words of similar import shall refer to this Agreement as a
whole and not to any provision of this Agreement, and the word "Section" refers
to a Section of this Agreement unless otherwise specified.
(iii) Whenever the context so requires, the singular number
includes the plural and vice versa, and a reference to one gender includes each
other gender and the neuter.
(iv) The word "including" (and, with correlative meaning, the
word "include") means including, without limiting the generality of any
description preceding such word, and the words "shall" and "will" are used
interchangeably and have the same meaning.
2. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set forth,
and beginning as of the Effective Date, the Company will employ the Employee as
Vice Chairman of the Board, Chief Financial Officer, Executive Vice President
and Secretary of Company and the Employee will serve in the Company's employ in
that position. The Employee shall perform such duties, and have such powers,
authority, functions, duties and responsibilities for the Company and
corporations Affiliated with the Company as are commensurate and consistent with
the employment as Vice Chairman of the Board, Chief Financial Officer, Executive
Vice President and Secretary of the Company. The Employee also shall have such
additional powers, authority, functions, duties and responsibilities as may be
assigned to him by the Board (excluding the voting participation of Employee);
provided that, without the Employee's written consent, such additional powers,
authority, functions, duties and responsibilities shall
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<PAGE> 14
not be inconsistent or interfere with, or detract from, those herein vested in,
or otherwise then being performed for the Company by, the Employee.
B. The Employee shall not, at any time during the Employment, engage in
any other activities unless these activities do not interfere materially with
the Employee's duties and responsibilities for the Company at that time, except
that the Employee shall be entitled, subject to the provisions of Section 7,
(a) to continue with such activities as the Employee has
carried on prior to the Effective Date, including making and managing his
personal investments and participating in other business, church or civic
activities provided that such activities do not include a Beneficial Ownership
interest in a competitor, supplier or customer of the Company other than an
investment in a Publicly Traded company of which Employee is not an employee,
officer, director or partner that does not exceed 5% of the outstanding voting
shares of voting stock.
(b) to serve on civic boards, non-profit boards, charitable
boards or committees and trade associations or similar boards of committees.
(c) to serve on for-profit business boards of directors if
Employer's consent shall have been obtained, which consent shall not
unreasonably be withheld.
3. TERM OF EMPLOYMENT
Subject to the provisions of Section 5, the Initial Term of the
Employee's Employment shall be for a period of five (5) years commencing on the
Effective Date. The Renewal Term shall commence three (3) years from the
Effective Date and renew each day thereafter for an additional day without any
further action by the Company or the Employee, it being the intention of the
parties that from the Effective Date there shall be a five (5) year duration and
from the third anniversary of the Effective Date there shall be a continuously
remaining term of two (2) years duration of the Employee's Employment. Subject
to the provisions of Section 5, Employee shall be employed hereunder for the
Initial Term and the Renewal Term. In the event that Employee's Employment
hereunder shall not have otherwise been terminated, such Employment shall
terminate at the end of the Compensation Year in which Employee reaches age 65.
4. COMPENSATION
A. Base Salary. A Base Salary shall be payable to the Employee by the
Company as a guaranteed minimum annual amount hereunder for each Compensation
Year during the period from the Effective Date to the Termination Date. That
Base Salary shall be payable in the intervals consistent with the Company's
normal payroll schedules (but in no event less frequently than semi-monthly),
shall be payable initially at the annual rate of $215,000 and shall be increased
(but not decreased or adjusted other than as provided in Section 5) as follows:
(i) on the first and each subsequent anniversary of the
Effective Date, by the greater of the same percentage increase (if any) in the
CPI for the twelve (12)
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<PAGE> 15
month period immediately preceding such anniversary or such amount that the
majority of the Board (for this purpose excluding Employee) shall determine.
(ii) if the Employee is required by reason of his Employment
to relocate from a state without a personal income tax at the time of his
relocation to a state having a personal income tax, the Base Salary and Annual
Cash Bonus in effect at the time of such relocation, shall immediately be
increased by the amount equal to the Base Salary and Annual Cash Bonus
immediately prior to this increase multiplied by seventy percent (70%) of the
highest personal income tax rate of such state; for example, if the Employee
relocates from a state without a personal income tax to a state having a
personal income tax and the highest rate of that tax is six percent (6%) when
the Base Salary is $400,000 and the Annual Cash Bonus is $440,000, then the Base
Salary will be increased by $16,400 (computed at 70% x 6% x $400,000) and the
Annual Cash Bonus will be increased by $18,480 (computed at 70% x 6% x$440,000).
B. Annual Cash Bonus. The Annual Cash Bonus shall be calculated as of
the end of the Compensation Year. (The first such calculation will be made as of
September 30, 1997, the first fiscal year end of the Company after the Effective
Date.) The Annual Cash Bonus shall be paid to the Employee within one hundred
and eighty (180) days of the beginning of each Compensation Year. The Employee's
target Annual Cash Bonus shall be forty percent (40%) of Base Salary. However,
Employee may earn an actual Annual Cash Bonus of between fifty percent (50%) and
two hundred percent (200%) of the target Annual Cash Bonus. If the Company does
not meet the threshold level of performance, the Annual Cash Bonus will be zero
percent (O%) of Base Salary. At the minimum performance threshold, the Annual
Cash Bonus will be fifty percent (50%) of the target Annual Cash Bonus. If the
Company reaches or exceeds the maximum level of performance, Employee's Annual
Cash Bonus will be two-hundred percent (200%) of the target Annual Cash Bonus
(said 200% times the aforesaid 40% resulting in a capping of the Annual Cash
Bonus at 80% of Base Salary.
For purposes of determining the Employee's Annual Cash Bonus, the Company's
average Return on Total Capital Employed (ROCE), as determined over a four year
period, will be calculated and then compared against an average target ROCE as
calculated for a select group of companies over the same period. The select
group of companies shall be those listed on Exhibit B; provided, however that
if the parties agree that one or more of the selected companies becomes
unrepresentative or otherwise unsuitable or unavailable for comparison, the
parties shall select a reasonable substitute. If the parties are unable to agree
upon a reasonable substitute they shall agree on a third party such as a
disinterested and nationally recognized accounting firm that shall make the
recommendation which shall be binding. The average target ROCE for the select
group of twenty (20) publicly traded apparel companies, excluding the Company,
for which financial data are readily available will be calculated by determining
the ROCE each year for each company in the select group and then determining the
average ROCE for each company over the four year period. Next, the companies are
ranked based upon the four year average ROCE for each company. The seventy-fifth
percentile of the four year average ROCE of the select group is the average ROCE
for a company on the list which, excluding the Company, results in five
companies from the select group being above and fifteen
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<PAGE> 16
companies for the select group being below the Company's average ROCE. That
average ROCE (i.e. the seventy-fifth percentile) then becomes the target ROCE
("TROCE") for purposes of comparing the Company's average ROCE.
A four year average ROCE for the Company is then calculated in the same fashion
that the average ROCE is calculated for the select group of companies. If the
four year average ROCE for the Company is equal to or greater than eighty-five
percent (85%) of the TROCE, Employee's Annual Cash Bonus is fifty percent (50%)
of the target Annual Cash Bonus. If the four year average ROCE for the Company
is at least one-hundred and thirty percent (130%) of the TROCE, Employee's
Annual Cash Bonus is two-hundred percent (200%) of the target Annual Cash Bonus.
If the four year average ROCE for the Company is between eighty-five percent
(85%) of the TROCE and one-hundred and thirty percent (130%) of the TROCE, the
Annual Cash Bonus will be determined by straight line interpolation (as more
particularly described in the formula attached as Exhibit A and incorporated
herein by reference. Exhibit B attached hereto and incorporated by reference is
an example of the foregoing methodology, correctly applied. The seventy-fifth
percentile of the average ROCE's is 16.58. This is the TROCE. The Company's
average ROCE is 20.16% or 122% of the TROCE. Accordingly, the Employee's Annual
Cash Bonus is 94.66% of Base Salary.
ROCE is defined as net income plus tax adjusted interest expense divided by
beginning shareholder equity plus average total debt. The average total debt
will be calculated on an annual basis and will reflect all interest bearing
liabilities, including off balance sheet items. Net income will be final net
income as reported under GAAP and will not exclude any unusual or extraordinary
items such as gains or losses recognized from the sale of assets, write downs,
etc. The interest expense will include all interest paid by the Company and will
be adjusted to reflect the Company's tax rate for the performance year.
C. Other Compensation. To the extent authorized by a majority of the
Board (excluding Employee) the Employee shall also be entitled to participate in
any additional Compensation Plans from time to time in effect during the term of
this Agreement, regardless of whether the Employee is an Executive Officer. All
awards to the Employee under all Incentive Plans shall take into account the
Employee's positions with and duties and responsibilities to the Company and its
subsidiaries.
D. Limitations on Payments . Notwithstanding any other provision of
this Agreement, if any portion of any payment under this Agreement, or under any
other agreement with or plan of the Company or its affiliates (in the aggregate
"Total Payments"), would constitute an "excess parachute payment," then the
Total Payments to be made to the Employee shall be reduced such that the value
of the aggregate Total Payments that the Employee is entitled to receive shall
be One Dollar ($1) less than the maximum amount which the Employee may receive
without becoming subject to the tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or which the Company may pay
without loss of deduction under Section 280G(a) of the Code. For purposes of
this Agreement, the terms "excess parachute payment" and "parachute payments"
shall have the meaning assigned to them in Section 280G of the Code, and such
"parachute payments" shall be valued as provided therein. Present value for
purposes of this Agreement shall be calculated in
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<PAGE> 17
accordance with Section 1274(b) (2) of the Code. Within fifteen (15) days
following the Date of Termination or notice by the Company to the Employee of
its belief that there is a payment or benefit due the Employee which will result
in an excess parachute payment as defined in Section 280G of the Code, the
Employee and the Company, at the Company's expense, shall obtain the opinion
(which need not be unqualified) of nationally recognized tax counsel selected by
the Company's independent auditors and acceptable to the Employee in his sole
discretion (which may be regular outside counsel to the Company), which opinion
sets forth (i) the amount of the Base Period Income, (ii) the amount and present
value of Total Payments and (iii) the amount and present value of any excess
parachute payments determined without regard to the limitations of this
paragraph. As used in this Agreement, the term "Base Period Income" means an
amount equal to the Employee's "annualized includible compensation for the base
period" as defined in Section 280G(d) (1) of the Code. For purposes of such
opinion, the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d) (3) and (4) of the Code, which determination
shall be evidenced in a certificate of such auditors addressed to the Company
and the Employee. If such opinion determines that there would be an excess
parachute payment, any payment or benefit determined by such counsel to be
includible in Total Payments shall be reduced or eliminated as specified by the
Employee in writing delivered to the Company within five (5) days of his receipt
of such opinion or, if the Employee fails to so notify the Company, then as the
Company shall reasonably determine, so that under the bases of calculations set
forth in such opinion there will be excess parachute payment. If such legal
counsel so requests in connection with the opinion required by this paragraph,
the Employee and the Company shall obtain at the Company's expense, and the
legal counsel may rely on in providing the opinion, the advice of a firm of
recognized executive compensation to be received by the Employee. If the
provisions of Sections 280G and 4999 of the Code are repealed without
succession, then this paragraph shall be of no further force or effect.
5. TERMINATION, DISABILITY AND DEATH
A. Termination of Employment by the Company.
(i) The Company shall be entitled, if acting at the direction
of the Required Board Majority, to terminate the Employee's Employment
(a) at any time for Type I or Type II Cause, or
(b) at any time after December 31,1998 for any
Business Reason.
The Company's termination of the Employee's Employment for Cause will be
effective on the date the Company delivers a Notice of Termination for Cause to
the Employee pursuant to this Section, while the Company's termination of the
Employee's Employment for a Business Reason will be effective not less than
three (3) business days and not more than sixty (60) days from the date the
Company delivers a Notice of Termination for a Business Reason to the Employee
pursuant to this Section 5(A)(i).
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<PAGE> 18
Between the time that the Company delivers a Notice of Termination for a
Business Reason and the effective date of such termination, Employee shall
continue to receive all of the payments and consideration provided for in the
Agreement.
(ii) If the Company terminates the Employee's Employment for
Cause, the Company promptly thereafter, and in any event within five (5)
business days thereafter, shall pay the Employee, without right of set off,
except for liquidated sums, or counterclaim, his Base Salary to and including
the Termination Date and the amount of all compensation previously deferred by
the Employee (together with any accrued interest or earnings thereon), in each
case to the extent not theretofore paid, and, when that payment is made, the
Company shall, notwithstanding Section 3, have no further or other obligations
hereunder to the Employee.
(iii) If the Company terminates the Employee's Employment for
a Business Reason at any time during the first three years of the Initial Term
(which commences on the Effective Date and ends five years from the Effective
Date), the Company shall promptly thereafter, and in any event within five (5)
business days of the Termination Date, pay the Employee, without right of set
off, except for liquidated sums, or counterclaim, his Base Salary to and
including the Termination Date and the amount of all compensation previously
deferred by the Employee, if any, (together with any accrued interest or
earnings thereon) together with the Business Reason Termination Payment During
Initial Term, in each case to the extent not theretofore paid, and when all such
payments are made, the Company shall, notwithstanding Section 3, have no further
or other obligations hereunder to the Employee.
(iv) If the Company terminates the Employee's Employment for a
Business Reason after the Initial Term and during the Renewal Term, including
during the portion of the Initial Term that is after the first three years of
such Initial Term, the Company shall promptly thereafter, and in any event
within five (5) business days of the Termination Date, pay the Employee, without
right of set off, except for liquidated sums, or counterclaim, his Base Salary
to and including the Termination Date and the amount of all compensation
previously deferred by the Employee, if any, (together with any accrued interest
or earnings thereon) together with the Business Reason Termination Payment
During Renewal Term, in each case to the extent not theretofore paid, and, when
all such payments are made, the Company shall, notwithstanding Section 3, have
no further or other obligations hereunder to the Employee.
B. Termination of Employment by the Employee.
(i) The Employee shall be entitled to terminate the Employment
(a) For Good Reason. Subject to the provision for
cure described in the definition of the term "Good Reason", the Employee shall
be entitled to terminate his Employment for a Good Reason at any time within one
hundred eighty (180) days after the facts or circumstances constituting that
Good Reason first exist and are known to the Employee, provided that at least
ninety (90) days prior to such Termination the Employee has notified Employer
that Employee believes that Good Reason exists and sets forth in reasonable
detail the basis therefor and, at the time of any Notice of Termination therefor
Good Reason continues to exist. Such termination for Good
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<PAGE> 19
Reason shall be effective on the applicable Termination Date. In the event that
the Employee terminates his Employment for Good Reason during the Initial Term,
the Employee, without right of set off, except for liquidated sums, or
counterclaim, upon the Date of Termination. In the event that the Employee
terminates his Employment for Good Reason during any Renewal Term, including any
portion of the Initial Term that is after the first three years of such term,
the Good Reason Payment During Renewal Term shall become due and payable to the
Employee, without right of set off, except for liquidated sums, or counterclaim,
upon the Date of Termination.
(b) Change of Control (Type A). The Employee shall be entitled
to terminate the Employment as a result of Change of Control (Type A), by reason
of the Employee's giving a Notice of Termination following a Change of Control
(Type A) at any time within three hundred sixty-five (365) days after that
Change of Control (Type A) occurs. Such termination shall be effective on the
applicable Termination Date. If the Employee terminates his Employment by reason
of a Change of Control (Type A), except as provided in subparagraph (iv), the
Company shall pay to the Employee in a cash lump sum within five (5) business
days after the Termination Date the amount equal to the sum of
(i) the portion of the Base Salary to and including
the Termination Date which has not yet been paid,
(ii) all compensation previously deferred by the
Employee, if any, (together with any accrued interest and earnings thereon),
(iii) any accrued but unpaid vacation pay,
(iv) any Annual Cash Bonus earned but not yet paid
for fiscal years ending prior to the Termination Date (such Annual Bonus to be
paid as soon as practicable after the information required to calculate such
Annual Bonus is available to the Company in no event later than sixty (60) days
after the required information is available to the Company) and
(v) the Change of Control Payment (Type A) Upon
Voluntary Termination By Employee calculated as of the Termination Date.
(c) Change of Control (Type B). The Employee shall be entitled
to terminate the Employment as a result of Change of Control (Type B), by reason
of the Employee's giving a Notice of Termination following a Change of Control
(Type B) at any time within three hundred sixty-five (365) days after that
Change of Control (Type B) occurs. Such termination shall be effective on the
applicable Termination Date. If the Employee terminates his Employment by reason
of a Change of Control (Type B), except as provided in subparagraph (iv), the
Company shall pay to the Employee in a cash lump sum within five (5) business
days after the Termination Date the amount equal to the sum of
(i) the portion of the Base Salary to and including
the Termination Date which has not yet been paid,
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<PAGE> 20
(ii) all compensation previously deferred by the
Employee, if any, (together with any accrued interest and earnings thereon),
(iii) any accrued but unpaid vacation pay;
(iv) any Annual Cash Bonus earned but not yet paid
for fiscal years ending prior to the Termination Date (such Annual Bonus to be
paid as soon as practicable after the information required to calculate such
Annual Bonus is available to the Company in no event later than nine (9) months
after the Termination Date) and
(v) the Change of Control Payment (Type B) Upon
Voluntary Termination By Employee calculated as of the Termination Date.
(d) Without Good Reason. The Employee's termination of his
Employment without Good Reason and other than for Disability will be effective
on the applicable Termination Date. If the Employee terminates his Employment
Without Good Reason and other than for Disability, the Company shall pay to the
Employee, in a cash lump sum within five (5) business days after the Termination
Date, the amount equal to the sum of
(i) the portion of the Base Salary to and including
the Termination Date which has not yet been paid,
(ii) all compensation previously deferred by the
Employee, if any, (together with any accrued interest and earnings thereon)
which has not yet been paid, and
(iii) any accrued but unpaid vacation pay.
C. Termination by Reason of Disability. During the term of this Agreement and
the period following Termination of this Agreement (for any cause whatsoever
other than Type I cause), (the "policy period") the Company shall maintain, at
its expense and at the current expense level, the individual, long-term
non-cancelable guaranteed renewal individual disability plan now in place, until
such time, not to exceed three (3) years, as Employee has commenced to have
earned annual income in excess of 50% of his most recent Base Salary. In the
event the Employee retires while in the employ of the Company, the Company shall
maintain at its expense but at the current level of premium payments, the
individual, long-term non-cancelable guaranteed renewal individual disability
plan more particularly described in Exhibit D for a period of three (3) years
from the date of retirement. If after retirement, the policy premium exceeds the
level of the premium on the retirement date the Employee shall pay the
difference. If the Employee incurs any Disability during the policy period,
either the Employee or the Company may terminate the Employee's Employment. If
the Employee's Employment is terminated by reason of the Employee's disability
and Notice of Termination of such, the Termination Date shall be the date set in
such notice. If the Employee's Employment is terminated by reason of the
Employee's disability, the Employee shall not be subject to the Non-Compete
paragraph 7(b), but shall be remain subject to the
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<PAGE> 21
paragraph 7(a) and 7(c).
D. Termination of Employment by Death. Upon the death of the Employee,
the Employment will be terminated on the applicable Termination Date. If the
Employee's Employment is terminated by reason of the Employee's death, the
Company shall pay to the Person the Employee has designated in a written notice
delivered to the Company as his beneficiary entitled to such payment, if any, or
to the Employee's estate, as applicable, in a cash lump sum within thirty (30)
days after the Termination Date, the amount equal to the sum of
(i) the portion of the Base Salary through the end of the
month in which the Termination Date occurs which has not yet been paid,
(ii) all compensation previously deferred by the Employee, if
any, (together with any accrued interest or earnings thereon) which has not yet
been paid, and
(iii) any accrued but unpaid vacation pay.
E. Return of Property. On termination of the Employee's Employment,
however brought about, the Employee (or his representatives) shall promptly
deliver and return to the Company all the Company's property that is in the
possession or under the control of the Employee.
F. Stock Options. Notwithstanding any provision of this Agreement to
the contrary:
(i) except in the case of a termination of the Employee's
Employment for Cause, as described in sub paragraphs (a) and (b) of the Cause
definition, all stock options previously granted to the Employee under Incentive
Plans that have not been exercised and are outstanding as of the time
immediately prior to the Termination Date shall, notwithstanding any contrary
provision of any applicable Incentive Plan, remain outstanding (and continue to
become exercisable pursuant to their respective terms) until exercised or the
expiration of their term, whichever is earlier; and
(ii) in the case of a termination of the Employee's Employment
for Cause, as described in sub paragraphs (a) and (b) of the Cause definition,
all stock options previously granted to Employee under Incentive Plans that have
not been exercised and are outstanding as of the time immediately prior to the
Termination Date shall, notwithstanding any contrary provision of any applicable
Incentive Plan, remain outstanding and continue to be exercisable until
exercised or the date that is ten (10) days after the Termination Date,
whichever is earlier.
Notwithstanding any provision of this Agreement to the contrary, for the
purposes of all Incentive Plans, the term "Cause" shall mean cause (subparagraph
(a) and (b)) as defined herein.
6. OTHER EMPLOYEE RIGHTS
A. Paid Vacation; Holidays. The Employee shall be entitled to not less
than
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<PAGE> 22
six (6) weeks of annual vacation and all legal holidays during which times his
applicable compensation shall be paid in full.
B. Fringe Benefits. During the term of this agreement, the Employee is
entitled to the same level of fringe benefits previously and currently provided
to Employee by the Company including but not limited to a company car for
business and personal use, health insurance, dental insurance, disability
insurance, and life insurance; provided further that the Company shall increase
the life insurance benefit to Employee's specified beneficiary to $2.5 million.
C. Business Expenses. The Employee is authorized to incur, and will be
entitled to receive prompt reimbursement for, all reasonable expenses incurred
by the Employee in performing his duties and carrying out his responsibilities
hereunder, including first class air fare and hotels, business meal,
entertainment and travel expenses, provided that the Employee complies with the
applicable policies, practices and procedures of the Company relating to the
submission of expense reports, receipts or similar documentation of those
expenses. The Company shall either pay directly or promptly reimburse the
Employee for such expenses not more than twenty (20) days after the submission
to the Company by the Employee from time to time of an itemized accounting of
such expenditures for which direct payment or reimbursement is sought. Unpaid
reimbursements after such 20-day period shall accrue interest in accordance with
Section 7(K).
D. Support. During the Employment, the Employee shall be provided by
the Company with office space, furnishings, and facilities, reserved parking,
secretarial and administrative assistance, supplies and other support equipment
(including a computer, facsimile machine and photocopier).
E. No Forced Relocation. The Employee shall not be required to move
Employee's principal place of residence from the central Florida area or to
perform regular duties that could reasonably be expected to require either such
move against his wish or to spend amounts of time each week outside the central
Florida area which are unreasonable in relation to the duties and
responsibilities of the Employee hereunder, and the Company agrees that, if it
requests the Employee to make such a move and the Employee declines that
request,
(i) that declination shall not constitute any basis for a
determination that Type II Cause exists unless the business of Employer is
materially put at risk by such refusal as determined by the Required Majority
Board and
(ii) no animosity or prejudice will be held against Employee.
7. GENERAL PROVISIONS
A. Confidentiality. The Employee shall not divulge or communicate to
any person (except in performing his duties under this agreement) or use for his
own purpose Confidential Information which is not generally known to the public
and shall use his best efforts to prevent the publication or disclosure by and
other person of any such Confidential Information. Information shall be deemed
not to be Confidential
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<PAGE> 23
Information if it has become known to the public generally through no act or
fault of the Employee. All documents and objects made, complied, received or
held or used by Employee in connection with the business of the Company during
the employment shall be and remain the Company's property.
B. Non-Competition. The Employee agrees that, except as otherwise
provided herein, during the Employment and for a period of two years after the
applicable Termination Date Employee will not directly or indirectly, whether or
not for compensation and whether or not as an employee, be engaged in or have
any impermissible financial interest in any business that is engaged in the
merchandising, manufacturing, distribution or marketing of men's casual pants,
shorts and jeans (a "competing business"). For purpose of this Agreement, the
Employee shall not be deemed to be engaged in a competing business if Employee
is employed by a division or subsidiary or similar business unit of a company or
other business entity that would otherwise be deemed a competing business so
long as the division, subsidiary or similar business unit by which the Employee
is employed is accounted for as a separate profit center and does not engage in
a competing business, and Employee's ownership interest, if any, is not an
impermissible financial interest. For purposes of this Agreement, the Employee
shall be deemed to be engaged in a competing business if Employee is an
employee, officer, director, partner or consultant of such competing business or
has an impermissible financial interest therein. For purposes of this Agreement,
the Employee shall be deemed to have an impermissible financial interest in
competing business if Employee is a partner or shareholder directly or
indirectly, therein, except as provided hereafter. Employee shall not be deemed
to have an impermissible financial interest in any competing publicly traded or
privately held business so long as Employee owns less than five percent (5%) of
any class of securities of such publicly traded or privately held company and is
not an officer, director, partner, employee or consultant thereto, except as to
holding an office or being an employee, as otherwise provided in the "employed
by a division . . ." sentence above.
C. Non-Solicitation. The Employee agrees that during the Employment and
for a period of two (2) years after the Date of Termination, Employee shall not
employ any person who was employed by the Company or any of its controlled
Affiliates on the Termination Date, or induce such Person to accept employment
other than with the Company or its subsidiaries.
D. The Employee recognizes that a breach of his obligations under this
paragraphs (A) through (C) above would cause irreparable harm to the Company
and, provided that as a pre-condition the Company has previously tendered all
sums that are due and payable to the Employee under the terms of this Agreement,
the Company shall be entitled to preliminary and permanent injunctions enjoining
violations as a non-exclusive remedy.
E. Severability. If any one or more of the provisions of this Agreement
shall, for any reason, be held or found by final judgment of a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
(i) such invalidity, illegality or unenforceability shall not
affect any other
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<PAGE> 24
provisions of this Agreement,
(ii) this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein (except that
this clause (ii) shall not prohibit any modification allowed under Section 7(B))
and
(iii) if the effect of a holding or finding that any such
provision is invalid, illegal or unenforceable is to modify to the Employee's
detriment, reduce or eliminate any compensation, reimbursement, payment,
allowance or other benefit to the Employee intended by the Company and Employee
in entering into this Agreement, the Company shall, within thirty (30) days
after the date of such finding or holding, negotiate and expeditiously enter
into an agreement with the Employee which contains alternative provisions
(reasonably acceptable to the Employee and the Company) that will restore to the
Employee (to the extent lawfully permissible) substantially the same economic,
substantive and income tax benefits and legal rights the Employee would have
enjoyed had such provision been upheld as legal, valid and enforceable; and
(iv) if any provision of this Agreement or portion hereof is
so broad, in scope or duration, as to be unenforceable, such provision or
portions thereof shall be interpreted to be only so broad as to be legal, valid
and enforceable.
F. Nonexclusivity of Rights. Nothing herein shall prevent or limit the
Employee's continuing or future participation in any Compensation Plan or,
subject to Section 9(N), limit or otherwise affect such rights as the Employee
may have under any other contract or agreement with the Company. Vested benefits
and other amounts to which the Employee is or becomes entitled to receive under
any Compensation Plan on or after the Termination Date shall be payable in
accordance with that Compensation Plan, except as expressly modified hereby.
G. Full Settlement. The Company's obligations to make the payments
provided for in, and otherwise to perform its undertakings in, this Agreement
shall not be affected by any right of set-off (other than as to liquidated
amounts), counterclaim, recoupment, defense or other action, claim or right the
Company may have against the Employee or others. Except as stated in Section
5(c), in no event shall the Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee under any provision hereof, and those amounts shall not be reduced,
regardless of whether the Employee obtains other employment or becomes
self-employed.
H. Judicial Review. Any determination as to the existence of Cause by
the Board or Required Board Majority is reviewable by the trier of fact to
determine whether such determination was made in good faith versus bad faith and
whether such determination was reasonable versus arbitrary or capricious.
I. Successors.
(i) This Agreement is personal to the Employee and, without
the prior written consent of the Company, is not assignable or delegable by the
Employee otherwise than by transfer of rights by will or the laws of descent and
distribution.
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<PAGE> 25
(ii) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns and this Agreement shall
inure to the benefit and be enforceable by the Employee's legal representatives
acting in their capacities as such pursuant to applicable law.
(iii) The Company shall require any successor (direct or
indirect and whether by purchase, merger, consolidation, share exchange or
otherwise) to the business, properties and assets of the Company substantially
as an entirety expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would have been required to
perform it had no such succession taken place.
J. Amendments; Waivers. This Agreement may not be amended or modified
except by a written agreement executed and delivered by the parties hereto or
their respective successors or legal representatives acting in their capacities
as such pursuant to applicable law.
K. Notices. All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery or by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
appropriate Person at the address of such Person get forth below (or at such
other address as such Person may designate by written notice to each other party
in accordance herewith):
(i) if to the Employee, addressed as follows:
Michael Kagan
7706 Lake Cypress Drive
Odessa, FL 33556
; and
(ii) if to the Company, addressed as follows:
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, FL 33634
Attn: William W. Compton
In the case of any Notice of Termination or of Good
Reason, with copies to each member of the Board
L. No Waiver. The failure of the Company or the Employee to insist on
strict compliance with any provision of, or to assert any right under, this
Agreement (including the right of the Employee or the right of the Company to
terminate the Employment for Good Reason or by reason of a Change of Control
pursuant to Section, 5(B) (i)) shall not be deemed a waiver of that provision or
of any other provision of or right under this Agreement.
M. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida, without reference to any
principles of
-25-
<PAGE> 26
conflicts of laws.
N. Jurisdiction and Venue. The Company and the Employee irrevocably
consents with respect to any action, suit or other legal proceeding pertaining
directly to this Agreement or to the interpretation or enforcement of any of the
Company's or the Employee's right hereunder to service of process in the State
of Florida and hereby waives any right to contest or oppose receipt of such
service of process in Florida provided such Person actually received such
process by mail or electronic communication. The Company and the Employee
irrevocably
(i) agrees that any such action, suit or other legal
proceeding may be brought in Hillsborough County, Florida; and
(ii) consents to the jurisdiction of any appropriate court in
such county in any such action, suit or other legal proceeding and
(iii) waives any objection it may have to the laying of venue
of any such action, suit or other legal proceeding in any of such courts and
(iv) WAIVES ANY RIGHT TO TRIAL BY JURY.
O. Headings. The headings of Sections and subsections hereof are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
P. Interest. If any amounts required to be paid or reimbursed to the
Employee hereunder are not so paid or reimbursed at the times provided herein
(including amounts required to be paid by the Company pursuant to Sections 6 and
10, those amounts shall accrue interest compounded daily at the annual
percentage rate which is one and one half percentage points (1.5%) above the
interest rate announced by NationsBank, Tampa, Florida (or its successor) from
time to time, as its Base Rate (or prime lending rate), from the date those
amounts were required to have been paid or reimbursed to the Employee until
those amounts are finally and fully paid or reimbursed; provided, however, that
in no event shall the amount of interest contracted for, charged or received
hereunder exceed the maximum non-usurious amount of interest allowed by
applicable law.
Q. Publicity. The Company agrees with the Employee that, except to the
extent required by law or legal process (including reporting and public
disclosure contemplated under the Exchange Act and the Securities Act) and any
other law giving any Person a private right of action or suit, neither the
Company nor the Employee will not make or publish, without the prior written
consent of the other, any written or oral statement concerning the terms of the
Employee's employment relationship with the Company and will not, if a Notice of
Termination is given by either the Company or the Employee for any reason,
publish or cause to be published any statement concerning the Company's
relationship with the Employee or the Employee's relationship with the Company,
including Employee's work-related performance or the reasons or basis for the
giving of that Notice of Termination.
-26-
<PAGE> 27
R. Tax Withholding. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all Federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
S. Entire Agreement. The Company and the Employee agree that this
Agreement supersedes all prior written and oral agreements between them with
respect to the employment of the Employee by the Company, but has no effect on
any Compensation Plan in which the Employee was participate prior to the
Effective Date.
T. Effective Date. This Agreement shall be effective on the Closing
Date.
8. LITIGATION COSTS In the event of litigation over the terms or breach of this
Agreement, the prevailing party shall be entitled to recover litigation costs
and attorneys fees from the non-prevailing party.
9. INDEMNIFICATION
The Employee shall be indemnified by the Company to the maximum extent
permitted by the law of Florida, the state of the Company's incorporation, and
the law of the state of incorporation of any subsidiary of the Company of which
the Employee is a director or an officer or employee, as the same may be in
effect from time to time.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year indicated above.
TROPICAL SPORTSWEAR
INTERNATIONAL CORPORATION
By:/s/ William W. Compton
-------------------------------------
Its: Chief Executive Officer
------------------------------------
EMPLOYEE
/s/ Michael Kagan
----------------------------------------
Michael Kagan
Employee's Permanent Address:
7706 Lake Cypress Drive
Odessa, FL 33556
-27-
<PAGE> 28
EXHIBIT A
INCENTIVES
Incentive Calculation for Mike Kagan 2/4/97
for the FYE 9/95
<TABLE>
<CAPTION>
Target
Award
ROCE ROCE Incentive Bonus
Value Performance Opportunity Percentage
----- ----------- ----------- ----------
<S> <C> <C> <C> <C>
130% 21.55% 200.00% 80.00%
129% 21.39% 196.67% 78.67%
128% 21.22% 193.33% 77.33%
127% 21.06% 190.00% 76.00%
126% 20.89% 186.67% 74.67%
125% 20.73% 183.33% 73.33%
124% 20.56% 180.00% 72.00%
123% 20.39% 176.67% 70.67%
122% 20.23% 173.33% 69.33%
- ------------------------------------------------------------------------------------------------------------
121.59% 20.16% 171.97% 68.79%
- ------------------------------------------------------------------------------------------------------------
121% 20.06% 170.00% 68.00%
120% 19.90% 166.67% 66.67%
119% 19.73% 163.33% 65.33%
118% 19.56% 160.00% 64.00%
117% 19.40% 156.67% 62.67%
116% 19.23% 153.33% 61.33%
115% 19.07% 150.00% 60.00%
114% 18.90% 146.67% 58.67%
113% 18.74% 143.33% 57.33%
112% 18.57% 140.00% 56.00%
111% 18.40% 136.67% 54.67%
110% 18.24% 133.33% 53.33%
109% 18.07% 130.00% 52.00%
108% 17.91% 126.67% 50.67%
107% 17.74% 123.33% 49.33%
106% 17.57% 120.00% 48.00%
105% 17.41% 116.67% 46.67%
104% 17.24% 113.33% 45.33%
103% 17.08% 110.00% 44.00%
102% 16.91% 106.67% 42.67%
101% 16.75% 103.33% 41.33%
100% 16.58% 100.00% 40.00%
</TABLE>
Note: 100% = 75th percentile
Mike Kagan bonus is $192,000 X 68.79% = $132,076
Page 1
<PAGE> 29
EXHIBIT B
RETURN ON CAPITAL EMPLOYED
<TABLE>
<CAPTION>
(1992-
1995)
FYE AVERAGE
PERCENTILE COMPANY MONTH 1992 1993 1994 1995 ROCE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 100 Marisa Christina Inc 3 Dec 218.29% 95.69% 70.07% 29.34% 103.35%
-----------------------------------------------------------------------------------------------------------------------------
2 95 Tommy Hilfiger Mar 46.64% 63.30% 32.30% 23.23% 41.37%
-----------------------------------------------------------------------------------------------------------------------------
3 90 Nautica Feb 17.84% 20.94% 28.58% 20.96% 22.08%
-----------------------------------------------------------------------------------------------------------------------------
4 85 Supreme International Jan N/A 25.13% 25.51% 12.92% 21.19%
-----------------------------------------------------------------------------------------------------------------------------
TSI SEPT 34.20% 11.86% 21.87% 12.71% 20.16%
-----------------------------------------------------------------------------------------------------------------------------
5 80 Donnkenny Inc 1 Nov 28.04% 21.13% 15.32% 7.35% 17.96%
-----------------------------------------------------------------------------------------------------------------------------
6 75 Ashworth Inc Oct 27.42% 17.72% 16.53% 4.65% 16.58%
-----------------------------------------------------------------------------------------------------------------------------
7 70 Tandy Brands June 20.32% 19.70% 16.63% 3.28% 14.98%
-----------------------------------------------------------------------------------------------------------------------------
8 65 Haggar Corp Sept 12.34% 16.40% 18.29% 6.25% 13.32%
-----------------------------------------------------------------------------------------------------------------------------
9 60 Garan Inc Sept 18.95% 18.73% 9.65% 5.72% 13.26%
-----------------------------------------------------------------------------------------------------------------------------
10 55 First Years Dec 10.56% 4.10% 14.91% 14.90% 11.12%
-----------------------------------------------------------------------------------------------------------------------------
11 50 Hampshire Group Dec 13.79% 10.77% 25.87% 18.76% 11.91%
-----------------------------------------------------------------------------------------------------------------------------
12 45 Kleinert's Inc Nov 4.14% 8.39% 16.05% 14.92% 10.88%
-----------------------------------------------------------------------------------------------------------------------------
13 40 Quiksilver Oct 1.15% 10.45% 15.37% 15.92% 10.72%
-----------------------------------------------------------------------------------------------------------------------------
14 35 Chic by HIS inc Nov 4.60% 10.31% 8.67% 1.95% 6.38%
-----------------------------------------------------------------------------------------------------------------------------
15 30 Osh Kosh B'Gosh Dec 8.98% 2.68% 4.39% 7.48% 5.88%
-----------------------------------------------------------------------------------------------------------------------------
16 25 Biscayne Apparel Inc Dec -1.10% 17.86% 8.77% -6.66% 4.72%
-----------------------------------------------------------------------------------------------------------------------------
17 20 Danskin Inc 1 Mar 24.87% 9.47% -8.82% -9.27% 4.06%
-----------------------------------------------------------------------------------------------------------------------------
18 15 Hampton Industries Dec 3.58% -0.86% 3.68% 0.72% 1.78%
-----------------------------------------------------------------------------------------------------------------------------
19 10 Farah Inc Oct -12.21% 2.39% 16.68% -7.54% -0.17%
-----------------------------------------------------------------------------------------------------------------------------
20 5 Jalate Ltd 2 Dec N/A N/A N/A -28.01% -28.01%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnote 1. Danskin & Donnkenny 1992 results based on ending debt only -
beginning debt not available
2. Jalate: IPO 1994. 1992 and 1993 not available
3. Marisa Christina able to obtain all information - company went
public in 1994
Page 1
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of,
August 8, 1997, to become effective as of the Effective Date (as herein defined)
by and between TROPICAL SPORTSWEAR INT'L CORPORATION, a Florida corporation (the
"Company"), and RICHARD J. DOMINO (the "Employee").
RECITALS:
In entering into this Agreement, the Company desires to provide the
Employee with substantial incentives to serve the Company without distraction
or concern over minimum compensation, benefits or tenure, to develop and
implement the Company's business plan and to manage the Company's future growth
and development and to maximize the returns to the Company's stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
parties hereto agree with each other as follows:
1. EMPLOYMENT
A. On the terms and subject to the conditions hereinafter set
forth, and beginning as of the Effective Date, the Company will employ the
Employee as President of Company and the Employee will serve in the Company's
employ in that position. The Employee shall perform such duties, and have such
powers, authority, functions, duties and responsibilities for the Company and
corporations Affiliated with the Company as are commensurate and consistent
with the employment as President of the Company. The Employee also shall have
such additional powers, authority, functions, duties and responsibilities as
may be assigned to him by the Chief Executive Officer.
B. The Employee shall not, at any time during the Term of
Employment, engage in any other activities unless these activities do not
interfere materially with the Employee's duties and responsibilities for the
Company at that time.
2. EFFECTIVE DATE
The Effective Date means the closing date of the sales of shares of the
Common Stock to the underwriters in the Company's initial public offering.
<PAGE> 2
3. TERM OF EMPLOYMENT
The Initial Term of the Employee's Employment shall be for a period of
three (3) years commencing on the Effective Date. The Renewal Term shall
commence two (2) years from the Effective Date and renew each day thereafter for
an additional day without further action from the Company or the Employee, it
being the intention of the parties that from the Effective Date there shall be a
three (3) year duration and from the second (2nd) anniversary of the Effective
Date there shall be a continuously remaining term of one (1) year duration of
the Employee's Employment. In the event that Employee's Employment hereunder
shall not have otherwise been terminated, such Employment shall terminate at
the end of the Company's fiscal year in which the Employee reaches age
sixty-five (65).
4. COMPENSATION
A. BASE SALARY. A Base Salary shall be payable to the Employee by
the Company as a guaranteed minimum annual amount hereunder for each
Compensation Year during the period from the Effective Date to the Termination
Date. That Base Salary shall be payable in the intervals consistent with the
Company's normal payroll schedules (but in no event less frequently than
semi-monthly) and shall be payable initially at the annual rate of $225,000.00.
On the first and each subsequent anniversary of the Company's fiscal
year, the Base Salary shall be increased by the greater of the same percentage
increase (if any) in the CPI for the twelve (12) month period immediately
preceding such anniversary or such amount that the Board of Directors shall
determine. The first such increase will be made on September 30, 1997. "CPI"
means for any period the Consumer Price Index for All Urban Consumers-All Items
Index for Tampa, Florida (or any substantially similar index published for the
same area), as published by the United States Department of Labor, Bureau of
Labor Statistics (or its successor) for that period.
B. ANNUAL CASH BONUS. The Annual Cash Bonus shall be calculated
as of the end of the Company's fiscal year. (The first such calculation will be
made as of September 30, 1997, the first fiscal year end of the Company after
the Effective Date.) The Annual Cash Bonus shall be paid to the Employee within
one hundred and eighty (180) days of the beginning of each fiscal year. The
Employee's target Annual Cash Bonus shall be fifty percent (50%) of Base
Salary. However, Employee may earn an actual Annual Cash Bonus of between
fifty percent (50%) and two hundred percent (200%) of the target Annual
Cash Bonus. If the Company does not meet the threshold level of performance,
the Annual Cash Bonus will be zero percent (0%) of Base Salary. At the minimum
performance threshold, the Annual Cash Bonus will be fifty percent (50%) of the
target Annual Cash Bonus. If the Company reaches or exceeds the maximum level of
performance, Employee's
<PAGE> 3
Annual Cash Bonus will be two-hundred fifty percent (250%) of the target Annual
Cash Bonus (said 250%) times the aforesaid 40% resulting in a capping of the
Annual Cash Bonus at 100% of Base Salary.
For purposes of determining the Employee's Annual Cash Bonus, the
Company's average Return on Total Capital Employed (ROCE), as determined over
a four year period, will be calculated and then compared against an average
target ROCE as calculated for a select group of companies over the same period.
The select group of companies shall be those listed on Exhibit B; provided,
however that if the parties agree that one or more of the selected companies
becomes unrepresentative or otherwise unsuitable or unavailable for comparison,
the parties shall select a reasonable substitute. If the parties are unable to
agree upon a reasonable substitute they shall agree on a third party such as a
disinterested and nationally recognized accounting firm that shall make the
recommendation which shall be binding. The average target ROCE for the select
group of twenty (20) publicly traded apparel companies, excluding the Company,
for which financial data are readily available will be calculated by
determining the ROCE each year for each company in the select group and then
determining the average ROCE for each company over the four year period. Next,
the companies are ranked based upon the four year average ROCE for each
company. The seventy-fifth percentile of the four year average ROCE of the
select group is the average ROCE for a company on the list which, excluding the
Company, results in five companies from the select group being above and
fifteen companies for the select group being below the Company's average ROCE.
That average ROCE (i.e. the seventy-fifth percentile) then becomes the target
ROCE ("TROCE") for purposes of comparing the Company's average ROCE.
A four year average ROCE for the Company is then calculated in the same
fashion that the average ROCE is calculated for the select group of companies.
If the four year average ROCE for the Company is equal to or greater than
eighty-five percent (85%) of the TROCE, Employee's Annual Cash Bonus is fifty
percent (50%) of the target Annual Cash Bonus. If the four year average ROCE
for the Company is at least one-hundred and thirty percent (130%) of the TROCE,
Employee's Annual Cash Bonus is two-hundred fifty percent (250%) of the target
Annual Cash Bonus. If the four year average ROCE for the Company is between
eighty-five percent (85%) of the TROCE and one-hundred and thirty percent
(130%) of the TROCE, the Annual Cash Bonus will be determined by straight line
interpolation (as more particularly described in the formula attached as
Exhibit A and incorporated herein by reference). Exhibit A attached hereto and
incorporated by reference is an example of the foregoing methodology, correctly
applied. The seventy-fifth percentile of the average ROCE's is 16.58. This is
the TROCE. The Company's average ROCE is 20.16% or 122% of the TROCE.
Accordingly, the Employee's Annual Cash Bonus is 94.66% of Base Salary.
<PAGE> 4
ROCE is defined as net income plus tax adjusted interest expense divided by
beginning shareholder equity plus average total debt. The average total debt
will be calculated on an annual basis and will reflect all interest bearing
liabilities, including off balance sheet items. Net income will be final net
income as reported under GAAP and will not exclude any unusual or extraordinary
items such as gains or losses recognized from the sale of assets, write downs,
etc. The interest expense will include all interest paid by the Company and
will be adjusted to reflect the Company's tax rate for the performance year.
C. LIMITATIONS ON PAYMENTS. Notwithstanding any other provision of
this Agreement, if any portion of any payment under this Agreement, or under any
other agreement with or plan of the Company or its affiliates (in the aggregate
"Total Payments"), would constitute an "excess parachute payment," then the
Total Payments to be made to the Employee shall be reduced such that the value
of the aggregate Total Payments that the Employee is entitled to receive shall
be One Dollar ($1) less than the maximum amount which the Employee may receive
without becoming subject to the tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or which the Company may pay
without loss of deduction under Section 280G(a) of the Code. For purposes of
this Agreement, the terms "excess parachute payment" and "parachute payments"
shall have the meaning assigned to them in Section 280G of the Code, and such
"parachute payments" shall be valued as provided therein. Present value for
purposes of this Agreement shall be calculated in accordance with Section
1274(b)(2) of the Code. Within fifteen (15) days following the Date of
Termination or notice by the Company to the Employee of its belief that there is
a payment or benefit due the Employee which will result in an excess parachute
payment as defined in Section 280G of the Code, the Employee and the Company, at
the Company's expense, shall obtain the opinion (which need not be unqualified)
of nationally recognized tax counsel selected by the Company's independent
auditors and acceptable to the Employee in his sole discretion (which may be
regular outside counsel to the Company), which opinion sets forth (i) the amount
of the Base Period Income, (ii) the amount and present value of Total Payments
and (iii) the amount and present value of any excess parachute payments
determined without regard to the limitations of this paragraph. As used in this
Agreement, the term "Base Period Income" means an amount equal to the Employee's
"annualized includible compensation for the base period" as defined in Section
280G(d)(1) of the Code. For purposes of such opinion, the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of Sections 280(G)(d)(3)
and (4) of the Code, which determination shall be evidenced in a certificate of
such auditors addressed to the Company and the Employee. If such opinion
determines that there would be an excess parachute payment, any payment or
benefit determined by such counsel to be includible in Total Payments shall be
reduced or eliminated as specified by the Employee in writing delivered to the
Company within five (5) days of his receipt of such opinion or, if the Employee
fails to so notify the
<PAGE> 5
Company, then as the Company shall reasonably determine, so that under the
bases of calculations set forth in such opinion there will be excess parachute
payment. If such legal counsel so requests in connection with the opinion
required by this paragraph, the Employee and the Company shall obtain at the
Company's expense, and the legal counsel may rely on in providing the opinion,
the advice of a firm of recognized executive compensation to be received by the
Employee. If the provisions of Sections 280G and 4999 of the Code are repealed
without succession, then this paragraph shall be of no further force or effect.
5. TERMINATION
A. TERMINATION BY COMPANY WITH CAUSE. The Company may terminate
Employee at any time with notice for "cause." "Cause" shall mean and be
limited to
(1) any willful and persistent material breach by the
Employee of the performance of his duties pursuant to this Agreement which
continues after written notice from the Company;
(2) the Employee's conviction (which, through lapse of time
or otherwise is not subject to appeal) of any crime or offense involving money
or other property of the Company or others or which constitutes a felony in the
jurisdiction involved;
(3) any disclosure by the Employee to any person, firm or
corporation other than the Company and its directors, officers, and employees
of any material confidential information or trade secrets of the Company which
is materially detrimental to the interests of the Company and made outside the
scope of the Employee's duties to the Company;
(4) engaging by the Employee, without prior consent of the
Board of Directors of the Company, in any other business other than the business
of the Company which interferes in any material respect with the performance of
Employee's duties;
(5) fraud on the Company;
(6) material misrepresentation by the Employee to any
officer or director of the Company;
(7) theft of any property of the Company;
(8) chronic alcoholism;
<PAGE> 6
(9) or drug addiction.
"Cause" does not include substandard performance or nonperformance by the
Employee. If the employment of the Employee is terminated by the Company for
cause, the Employee will not be entitled to any severance or separation benefits
and Employee's salary, bonus, benefits and business expense reimbursements shall
cease as of the date of termination. All salary, bonuses on a prorata basis,
benefits and business expense reimbursements that are due to the Employee
hereunder and not paid up to the date of such termination shall be paid to the
Employee within forty-five (45) days of such termination.
B. TERMINATION BY THE COMPANY WITHOUT CAUSE. In the event the
Employee is terminated without cause by the Company, the Employee shall be
entitled to receive Annual Base Salary, at Employee's then present Annual Base
Salary rate, through the first to occur of (1) the date the Employee obtains
subsequent employment (whether self-employment or employment by a third party)
and (2) the remaining term under this Agreement; provided, however, that if the
Employee obtains employment (whether self-employment or employment by a third
party) prior to the expiration of the remaining term under the Agreement, the
Company shall pay to Employee the difference, if any, between (i) Employee's
Annual Base Salary rate at the time of termination by the Company without cause,
minus (ii) Employee's annual cash compensation rate from his new employment. All
such payments under the provision shall be made on a bi-weekly basis. In no
event shall the Company be obligated to make a lump-sum payment to Employee. The
Employee shall also be entitled to the medical benefits he was receiving on the
date of such termination for an additional twelve (12) months from the date of
termination; provided; however, such medical benefits shall cease immediately
upon the subsequent employment or self-employment of the Employee, whichever
first occurs. No other benefits other than those specified herein will be
available to the Employee if the Employee is terminated without cause by the
Company.
C. TERMINATION BY EMPLOYEE. In the event that the Employee's
employment with the Company hereunder is terminated other than by the Company
(e.g., death, disability or resignation) Employee shall not be entitled to any
severance or other separation benefits and Employee's salary, bonus and other
benefits shall cease as of termination.
D. NON-COMPETITION.
(1) The Employee shall not divulge or communicate to any
person (except in performing his duties under this
agreement) or use for his own purpose Confidential
Information which is not generally known to the public
and shall use his best efforts to prevent the
publication or disclosure by any other person of any
such Confidential Information. Information shall be
deemed not to be Confidential Information if it has
become known to the public generally through no act or
fault of the Employee. All documents and objects made,
complied, received or held or used by Employee in
connection with the business of the Company during the
employment shall be and remain the Company's property.
<PAGE> 7
(2) In the event that Employee terminates his employment with
Company or in the event that the Company terminates the Employee for cause, the
Employee agrees that, except as otherwise provided herein, during the Employment
and for a period of one year after the termination of such employee. Employee
will not directly or indirectly, whether or not for compensation and whether or
not as an employee, be engaged in or have any impermissible financial interest
in any business that is engaged in the merchandising, manufacturing,
distribution or marketing of men's casual pants, shorts and jeans (a "competing
business"). For purpose of this Agreement, the Employee shall not be deemed to
be engaged in a competing business if Employee is employed by a division or
subsidiary or similar business unit of a company or other business entity that
would otherwise be deemed a competing business so long as the division,
subsidiary or similar business unit by which the Employee is employed is
accounted for as a separate profit center and does not engage in a competing
business, and Employee's ownership interest, if any is not an impermissible
financial interest. For purposes of this Agreement, the Employee shall be deemed
to be engaged in a competing business if Employee is an employee, officer,
director, partner or consultant of such competing business or has an
impermissible financial interest therein. For purposes of this Agreement, the
Employee shall be deemed to have an impermissible financial interest in
competing business if Employee is a partner or shareholder directly or
indirectly, therein, except as provided hereinafter. Employee shall not be
deemed to have an impermissible financial interest in any competing publicly
traded or privately held business so long as Employee owns less than five
percent (5%) of any class of securities of such publicy-traded or privately
held company and is not an officer, director, partner, employee or consultant
thereto, except as to holding an office or being an employee, as otherwise
provided in the "employed by a division . . ." sentence above.
(3) The Employee recognizes that during the Employment and for a
period of two (2) years after the Date of Termination, Employee shall not employ
any person who was employed by the Company or any of its controlled Affiliates
on the Termination Date, or induce such Person to accept employment other than
with the Company or its subsidiaries.
<PAGE> 8
(4) The Employee recognizes that a breach of his
obligations under this paragraphs(1) through (3) above would cause irreparable
harm to the Company and, provided that as a pre-condition the Company has
previously tendered all sums that are due and payable to the Employee under the
terms of this Agreement, the Company shall be entitled to preliminary and
permanent injunctions enjoining violations as a non-exclusive remedy.
6. OTHER EMPLOYEE RIGHTS
A. PAID VACATION; HOLIDAYS. The Employee shall be entitled to not
less than four (4) weeks of annual vacation and all legal holidays during which
times his applicable compensation shall be paid in full.
B. FRINGE BENEFITS. During the term of this agreement, the
Employee is entitled to the same level of fringe benefits previously and
currently provided to Employee by the Company including but not limited to a
company car for business and personal use, health insurance, dental insurance,
disability insurance, and life insurance.
C. BUSINESS EXPENSES. The Employee is authorized to incur, and
will be entitled to receive prompt reimbursement for, all reasonable expenses
incurred by the Employee in performing his duties and carrying out his
responsibilities hereunder, including air fare and hotels, business meals,
entertainment and travel expenses, provided that the Employee complies with the
applicable policies, practices and procedures of the Company relating to the
submission of expense reports, receipts or similar documentation of those
expenses. The Company shall either pay directly or promptly reimburse the
Employee for such expenses not more than twenty (20) days after the submission
to the Company by the Employee from time to time of an itemized accounting of
such expenditures for which direct payment or reimbursement is sought.
7. GENERAL PROVISION
A. GOVERNING LAW. This Agreement shall be construed and regulated
under and by the laws of the State of Florida. Personal jurisdiction for any
proceeding brought pursuant to this Agreement shall be vested in the
appropriate County or Circuit Court of the Thirteenth Judicial Circuit in and
for Hillsborough County, Florida, or the Federal District Court of the Middle
District of Florida, Hillsborough County Division. Venue for any legal action
authorized hereunder shall be in Hillsborough County, Florida.
<PAGE> 9
B. SEVERABILITY. If any provision of this Agreement is deemed to
be unenforceable in accordance with its term, but would be considered
enforceable if the time period or geographic area of its effect is reduced,
then such provision shall be so reduced with the excessive aspects of the
offending provisions deemed severed and deleted from this Agreement with the
Agreement enforceable in full in accordance with its terms as so modified.
C. NOTICES. Whenever notice is required to be given hereunder,
written notice mailed or delivered to the Company at 4902 West Waters Avenue,
Tampa, Florida 33634 (if intended for the Company), or such other address as
the Company shall furnish in writing, shall constitute sufficient notice to the
Company; and written notice mailed or delivered to Employee at 12018 Brewster
Drive, Tampa, FL 33626, or such other place as may be designated by Employee in
writing, shall constitute sufficient notice to Employee. Where "the Company" or
"Employee" consists of more than one party, notice to one shall constitute
notice to all.
D. WAIVER OF MODIFICATION. No waiver or modification of this
Agreement or of any covenant, condition, or limitation herein contained shall
be valid unless in writing and duly executed by the party to be charged
therewith. Furthermore, no evidence of any waiver or modification shall be
offered or received in evidence in any proceeding, arbitration or litigation
between the parties arising out of or affecting this Agreement or the rights
or obligations of any party hereunder, unless such waiver or modification is in
writing and duly executed as aforesaid. The provisions of this paragraph may
not be waived except as herein set forth.
E. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter of this
Agreement, and supersedes any and all previous agreements, negotiations and
promises between the parties, whether written or oral, with respect to such
subject matter.
F. AMENDMENT. No amendment of any provision of this Agreement
shall be effective unless it is in writing and signed by the party against whom
it is sought to be enforced, and then such waiver or amendment shall be
effective only in the specific instance and for the specific purpose for which
it is given.
<PAGE> 10
G. ASSIGNMENTS. Employee may not directly or indirectly transfer
or assign any of its rights or obligations hereunder without prior written
consent of the Company, which consent may be given or withheld in the Company's
sole and exclusive discretion, and any such attempted assignment or transfer by
Employee without the Company's consent shall be void. Except as otherwise
provided herein, this Agreement shall bind and inure to the benefit of the
Company and its successors and assigns and Employee and its successors,
permitted assigns, heirs, devisees and legal representatives, as the case
may be.
H. SECTION HEADINGS. Section, subsection and similar headings
contained in this Agreement are for reference purposes only and shall not in
any way affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year indicated above.
TROPICAL SPORTSWEAR INT'L
CORPORATION
By:/s/ Michael Kagan
-----------------------------------
Its: Executive Vice President
----------------------------------
EMPLOYEE
/s/ Richard J. Domino
---------------------------------------
Richard J. Domino
Employee's Permanent Address:
12018 Brewster Drive
Tampa, FL 33626
<PAGE> 1
EXHIBIT 11.1
Statement re: Computation of Per Share Earnings
TROPICAL SPORTSWEAR INT'L CORPORATION
(In Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
PRIMARY INCOME PER SHARE:
Weighted average shares of
Common Stock Outstanding 6,000,000 6,000,000 6,000,000
Net effect of dilutive stock options
based on the treasury stock method 15,000 15,000 15,000
--------- --------- ---------
Total shares used in computation 6,015,000 6,015,000 6,015,000
--------- --------- ---------
Net income $8,269 $5,171 $2,160
--------- --------- ---------
Net income per share $1.37 $0.86 $0.36
--------- --------- ---------
FULLY DILUTED INCOME PER SHARE:
Weighted average shares of
Common Stock Outstanding 6,000,000 6,000,000 6,000,000
Net effect of dilutive stock options
based on the treasury stock method 15,000 15,000 15,000
--------- --------- ---------
Total shares used in computation 6,015,000 6,015,000 6,015,000
--------- --------- ---------
Net income $8,269 $5,171 $2,160
--------- --------- ---------
Net income per share $1.37 $0.86 $0.36
--------- --------- ---------
</TABLE>
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 27, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> SEP-29-1997
<CASH> 116
<SECURITIES> 0
<RECEIVABLES> 24,981
<ALLOWANCES> 647
<INVENTORY> 21,351
<CURRENT-ASSETS> 48,755
<PP&E> 25,245
<DEPRECIATION> 4,962
<TOTAL-ASSETS> 69,658
<CURRENT-LIABILITIES> 18,521
<BONDS> 25,390
0
3,863
<COMMON> 60
<OTHER-SE> 22,728
<TOTAL-LIABILITY-AND-EQUITY> 69,658
<SALES> 151,692
<TOTAL-REVENUES> 151,692
<CGS> 115,637
<TOTAL-COSTS> 115,637
<OTHER-EXPENSES> 22,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,899
<INCOME-PRETAX> 13,176
<INCOME-TAX> 4,907
<INCOME-CONTINUING> 8,269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,269
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
