<PAGE> 1
FRUIT OF THE LOOM, INC.
-----------------
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
-----------------
FRUIT OF THE LOOM, LTD.
PROSPECTUS FOR
67,592,824 CLASS A ORDINARY
SHARES OF FRUIT OF THE LOOM, LTD.
This Proxy Statement/Prospectus ("Proxy Statement/ Prospectus") is being
furnished to stockholders of Fruit of the Loom, Inc., a Delaware corporation
("FTL-Delaware"), in connection with the solicitation of proxies by the Board of
Directors of FTL-Delaware for use at the special meeting of FTL-Delaware
stockholders (the "Special Meeting") to be held at the Metropolitan Club, 66th
Floor, Sears Tower, 233 South Wacker Drive, Chicago, Illinois on November 12,
1998 at 10:00 a.m., Chicago time (or at any adjournments or postponements
thereof). This Proxy Statement/Prospectus relates to the proposed reorganization
(the "Reorganization") pursuant to which Fruit of the Loom, Ltd., a Cayman
Islands company ("FTL-Cayman") and a wholly-owned subsidiary of FTL-Delaware,
will become the parent holding company of FTL-Delaware through the merger (the
"Merger") of FTL Merger Corp. ("Sub"), a Delaware corporation and a newly
formed, wholly-owned subsidiary of FTL-Cayman, with and into FTL-Delaware. The
Reorganization will be effected pursuant to the Agreement and Plan of Merger,
dated as of February 10, 1998 (the "Merger Agreement"), among FTL-Delaware,
FTL-Cayman and Sub. Upon consummation of the Merger, each outstanding share of
Class A common stock, par value $.01 per share ("FTL-Delaware Class A Stock"),
of FTL-Delaware (other than those shares held by FTL-Delaware in its treasury)
will be automatically converted into one Class A ordinary share, par value $.01
per share ("FTL-Cayman Class A Shares"), of FTL-Cayman, and each outstanding
share of Class B common stock, par value $.01 per share ("FTL-Delaware Class B
Stock"), of FTL-Delaware will be automatically converted into one share of
exchangeable participating preferred stock, par value $.01 per share
("FTL-Delaware Preferred Stock"), of FTL-Delaware. The holders of FTL-Delaware
Class B Stock will also own, in the aggregate, four (4) Class B redeemable
ordinary shares, par value $.01 per share (the "FTL-Cayman Class B Shares"), of
FTL-Cayman.
See "Description of Authorized Shares of FTL-Cayman," "Description of
FTL-Delaware Preferred Stock" and "Comparison of Rights of Stockholders."
FTL-Delaware Common Stock is currently listed on the New York Stock
Exchange (the "NYSE") under the symbol "FTL" and, immediately following the
Reorganization, the FTL-Cayman Class A Shares will be listed on the NYSE under
the same symbol. The last reported sale price for the FTL-Delaware Class A Stock
on the NYSE Composite Transactions Tape on September 15, 1998 was $16.00.
Currently, there is no established public trading market for the FTL-Cayman
Class A Shares.
This Proxy Statement/Prospectus and the form of proxy are first being
mailed to the stockholders of FTL-Delaware on or about October 14, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS SEPTEMBER 16, 1998.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 4
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS.................. 5
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN
PERSONS................................................... 6
SUMMARY OF SECURITIES TO BE RECEIVED IN CONNECTION WITH THE
REORGANIZATION............................................ 7
SUMMARY..................................................... 9
Special Meeting........................................... 9
FTL-Delaware.............................................. 9
FTL-Cayman................................................ 10
The Reorganization........................................ 10
Recommendation of the Board of Directors.................. 14
Vote Required for Adoption................................ 14
Comparison of Rights of Stockholders...................... 15
Tax Considerations........................................ 15
Rights of Dissenting Stockholders......................... 15
Accounting Treatment of the Reorganization................ 15
Stock Exchange Listing.................................... 15
Selected Historical Financial Data........................ 16
Summary Pro Forma Financial Information................... 18
THE SPECIAL MEETING......................................... 19
Special Meeting........................................... 19
Record Date............................................... 19
Vote Required for Adoption................................ 19
Proxies................................................... 20
Solicitation of Proxies................................... 20
Proposals of Stockholders................................. 21
FTL-DELAWARE AND FTL-CAYMAN................................. 21
THE REORGANIZATION.......................................... 22
General................................................... 22
Special Committee/Fairness Opinion........................ 22
Background and Reasons for the Reorganization............. 23
The Merger Agreement...................................... 27
Conditions to Consummation of the Reorganization.......... 29
Effective Time............................................ 29
Rights of Dissenting Stockholders......................... 29
Exchange of Share Certificates............................ 29
Stock Compensation Plans.................................. 30
Shareholder Rights Plan................................... 30
Stock Exchange Listing.................................... 30
Accounting Treatment of the Reorganization................ 30
Transfer of Assets........................................ 30
CERTAIN TAX CONSIDERATIONS.................................. 31
United States Federal Income Tax Consequences............. 31
Cayman Islands Tax Consequences........................... 34
DESCRIPTION OF AUTHORIZED SHARES OF FTL-CAYMAN.............. 35
Ordinary Shares; General.................................. 35
Voting.................................................... 35
Dividend Rights........................................... 36
Liquidation of FTL-Cayman................................. 36
Redemption................................................ 36
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Restrictions on Transfer.................................. 37
Preference Shares......................................... 37
DESCRIPTION OF FTL-DELAWARE PREFERRED STOCK................. 37
General................................................... 37
Dividends................................................. 37
Liquidation of FTL-Delaware............................... 38
Voting Rights............................................. 38
Optional Redemption....................................... 39
Exchange Rights........................................... 39
Conversion Rights......................................... 39
COMPARISON OF RIGHTS OF STOCKHOLDERS........................ 39
Stockholder Approval of Business Combinations............. 40
Absence of Required Vote for Certain Mergers.............. 40
Appraisal Rights.......................................... 41
Stockholder Consent to Action Without Meeting............. 41
Special Meetings of Stockholders.......................... 42
Distributions and Dividends; Repurchases and
Redemptions............................................ 42
Preferred Stock Purchase Rights........................... 43
Inspection of Books and Records........................... 43
Amendment of Charter...................................... 43
Amendment of Bylaws....................................... 43
Indemnification of Directors and Officers................. 44
Limited Liability of Directors............................ 44
Stockholders' Suits....................................... 44
THIRD PARTY CONSENTS........................................ 45
MANAGEMENT OF FTL-CAYMAN.................................... 45
Committees of the Board of Directors...................... 46
Executive Compensation.................................... 46
LEGAL MATTERS............................................... 46
EXPERTS..................................................... 47
INDEX TO FINANCIAL STATEMENTS............................... F-1
INDEX TO PRO FORMA FINANCIAL STATEMENTS..................... P-1
AGREEMENT AND PLAN OF MERGER......................... Annex I
OPINION OF LEHMAN BROTHERS INC....................... Annex II
CERTIFICATE OF AMENDMENT............................. Annex III
CERTIFICATE OF DESIGNATIONS.......................... Annex IV
</TABLE>
3
<PAGE> 4
AVAILABLE INFORMATION
FTL-Cayman has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"). This Proxy
Statement/Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted as permitted by the rules and regulations of
the Commission. For further information, reference is hereby made to the
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission, reference
is made to the copy so filed, and each such statement shall be deemed qualified
in its entirety by such reference.
FTL-Delaware is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other information
with the Commission. The reports, proxy and information statements, and other
information filed by FTL-Delaware with the Commission, can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material also can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
FTL-Delaware Class A Stock is listed on the New York Stock Exchange, and reports
and other information concerning FTL-Delaware may be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Certain
other securities of FTL-Delaware are listed on the American Stock Exchange, and
reports and other information concerning FTL-Delaware may also be inspected at
the offices of the American Stock Exchange, 86 Trinity Place, New York, New York
10006. Copies of reports, proxy and information statements and other information
regarding registrants that file electronically (including FTL-Delaware) are
available on the Commission's Web Site at http://www.sec.gov.
Upon completion of the Reorganization, the FTL-Cayman Class A Shares will
be listed on the NYSE. At the time of such listing, the FTL-Delaware Class A
Stock will be delisted and will no longer be registered pursuant to Section 12
of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
FTL-Delaware hereby incorporates by reference in this Proxy
Statement/Prospectus the following documents previously filed by FTL-Delaware
with the Commission pursuant to the Exchange Act: (i) FTL-Delaware's Annual
Report on Form 10-K for the year ended December 31, 1997 as amended on Form
10-K/A dated August 7, 1998, (ii) FTL-Delaware's Quarterly Reports on Form 10-Q
for the quarter ended March 28, 1998, as amended on Form 10-Q/A dated August 7,
1998 and for the quarter ended June 27, 1998 and (iii) FTL-Delaware's Current
Reports on Form 8-K dated February 11, 1998, February 12, 1998 and July 24, 1998
and on Form 8-K/A dated February 23, 1998.
Each document filed by FTL-Delaware pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the termination of the offering of the
securities pursuant hereto shall be deemed to be incorporated by reference in
this Proxy Statement/Prospectus and to be a part of this Proxy
Statement/Prospectus from the date of filing of such document. Any statement
contained in this Proxy Statement/ Prospectus or in a document incorporated or
deemed to be incorporated by reference in this Proxy Statement/Prospectus shall
be deemed to be modified or superseded for purposes of the Registration
Statement and this Proxy Statement/Prospectus to the extent that a statement
contained in this
4
<PAGE> 5
Proxy Statement/Prospectus or in any subsequently filed document that also is or
is deemed to be incorporated by reference in this Proxy Statement/Prospectus
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Proxy Statement/
Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THE INCORPORATED
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE THEREIN) WILL BE FURNISHED UPON REQUEST
WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED. WRITTEN OR TELEPHONE REQUESTS SHOULD BE DIRECTED TO FRUIT OF THE
LOOM, INC., 5000 SEARS TOWER, 233 SOUTH WACKER DRIVE, CHICAGO, ILLINOIS 60606,
ATTENTION: SECRETARY (TELEPHONE (312) 876-1724).
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
FTL-CAYMAN IS PROHIBITED FROM MAKING ANY INVITATION TO THE PUBLIC IN THE CAYMAN
ISLANDS TO SUBSCRIBE FOR ANY OF ITS SHARES.
Neither delivery of this Proxy Statement/Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of FTL-Delaware and FTL-Cayman since the date of
this Proxy Statement/Prospectus.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains, and the documents incorporated by
reference herein contain or will contain certain statements which describe
FTL-Delaware's beliefs concerning future business conditions and the outlook for
FTL-Delaware and FTL-Cayman, based on currently available information. Wherever
possible, FTL-Delaware has identified these "forward-looking" statements by
words such as "anticipates," "believes," "estimates," "expects" and similar
expressions. These forward-looking statements are subject to risks and
uncertainties which could cause FTL-Delaware's and FTL-Cayman's actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements. These risks and uncertainties include, but are not
limited to, the following: financial strength of the retail industry
(particularly the mass merchant channel), the level of consumer spending for
apparel, the demand for FTL-Delaware's and FTL-Cayman's activewear screenprint
products, the competitive pricing environment within the basic apparel segment
of the apparel industry, FTL-Delaware's and FTL-Cayman's ability to develop,
market and sell new products, FTL-Delaware's and FTL-Cayman's effective income
tax rate, FTL-Delaware's ability to successfully move labor-intensive segments
of the manufacturing process outside of the United States, the success of
planned advertising, marketing and promotional campaigns, international
activities, and the resolution of legal proceedings and other contingent
liabilities. FTL-Delaware and FTL-Cayman assume no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
5
<PAGE> 6
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
FTL-Cayman is a Cayman Islands company, certain of its officers and
directors may be residents of various jurisdictions outside the United States
and its Cayman Islands counsel, Truman Bodden & Company, are residents of the
Cayman Islands. All or a substantial portion of the assets of FTL-Cayman and of
such persons may be located outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon such persons or to enforce in United States courts judgments obtained
against such persons. FTL-Cayman has irrevocably agreed that it may be served
with process with respect to actions based on offers and sales of securities
made hereby in the United States by serving John J. Ray III, c/o Fruit of the
Loom, Inc., 5000 Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606,
its United States agent appointed for that purpose. FTL-Cayman has been advised
by its Cayman Islands counsel, Truman Bodden & Company, that there is doubt as
to whether Cayman Islands courts would enforce judgments of United States courts
obtained in (a) actions against such persons or FTL-Cayman that are predicated
upon the civil liability provisions of the Securities Act or (b) original
actions brought in the Cayman Islands against FTL-Cayman or such persons
predicated upon the Securities Act. There is no treaty in effect between the
United States and the Cayman Islands providing for such enforcement, and there
are grounds upon which Cayman Islands courts may not enforce judgments of United
States courts. Certain remedies available under the United States federal
securities laws may not be allowed in Cayman Islands courts as contrary to that
nation's policy.
6
<PAGE> 7
SUMMARY OF SECURITIES TO BE RECEIVED
IN CONNECTION WITH THE REORGANIZATION
THE FOLLOWING IS A SUMMARY OF THE SECURITIES TO BE RECEIVED IN THE
REORGANIZATION BY HOLDERS OF FTL-DELAWARE CLASS A STOCK. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. UNLESS OTHERWISE DEFINED
HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY HAVE THE RESPECTIVE MEANINGS
ASCRIBED TO THEM ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS ARE
URGED TO READ CAREFULLY THIS PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO
IN THEIR ENTIRETY.
SECURITY RECEIVED
IN EXCHANGE FOR
FTL-DELAWARE CLASS A
STOCK IN THE MERGER........... Each share of FTL-Delaware Class A Stock will
be automatically converted into one FTL-Cayman
Class A Share. The stockholders of FTL-Delaware
currently have preferred stock purchase rights
issued pursuant to a shareholder rights plan,
which rights will not be issued in connection
with the FTL-Cayman Class A Shares.
TAX CONSEQUENCES.............. The receipt of FTL-Cayman Class A Shares in
exchange for shares of FTL-Delaware Class A
Stock will be a taxable transaction to the
stockholder in which gain, if any (but not
loss), will be recognized. See "Certain Tax
Considerations."
DIVIDENDS..................... Holders of FTL-Cayman Class A Shares will be
entitled to participate pari passu, on a share
for share basis, with the holders of any other
class of ordinary shares outstanding, including
the four (4) FTL-Cayman Class B Shares, with
respect to any dividends declared by the board
of directors of FTL-Cayman. Holders of
FTL-Cayman Class A Shares will not be entitled
to a cash dividend preference of $1.00 per
share that is currently available to the
holders of FTL-Delaware Class A Stock prior to
the payment of dividends to the holders of
FTL-Delaware Class B Stock. The board of
directors of FTL-Delaware has determined that
the $1.00 preference available to the holders
of FTL-Delaware Class A Stock is not necessary
following the Reorganization since the current
holders of FTL-Delaware Class B Stock will not
be entitled to participate in the dividends, if
any, paid by FTL-Cayman, except on the very
limited basis of their four (4) FTL-Cayman
Class B Shares.
REDEMPTION.................... The FTL-Cayman Class A Shares will not be
subject to redemption.
LIQUIDATION................... Upon the liquidation of FTL-Cayman, holders of
FTL-Cayman Class A Shares will participate in
the assets of FTL-Cayman available for
distribution pari passu, on a share for share
basis, with the holders of any other class of
ordinary shares outstanding, including the four
(4) FTL-Cayman Class B Shares.
7
<PAGE> 8
VOTING RIGHTS................. One vote per FTL-Cayman Class A Share with
respect to matters submitted to the
shareholders of FTL-Cayman, voting together as
a single class with the holders of any other
class of ordinary shares, with the FTL-Cayman
Class B Shares being entitled to a number of
votes equal to the aggregate number of votes
held by the holders of FTL-Delaware Class B
Stock on the date the Merger is consummated
(which based on current ownership is 28,421,380
votes or approximately 30% of the aggregate
voting power); provided, however, that the
holders of the FTL-Cayman Class A Shares will
have the right to vote as a separate class to
elect 25% of the Board of Directors of
FTL-Cayman for so long as any FTL-Cayman Class
B Shares are outstanding. See "Description of
Authorized Shares of FTL-Cayman--Redemption."
STOCK EXCHANGE LISTING........ The FTL-Cayman Class A Shares will be listed on
the NYSE under the symbol "FTL."
8
<PAGE> 9
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING
THE ANNEXES, AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. CERTAIN
CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS.
SPECIAL MEETING
Time, Date, Place And Purpose
A Special Meeting of the FTL-Delaware stockholders will be held at 10:00
a.m., Chicago time, on November 12, 1998, at the Metropolitan Club, 66th Floor,
Sears Tower, 233 South Wacker Drive, Chicago, Illinois (or any adjournments or
postponements thereof) to consider and vote on (i) the proposal to authorize the
Reorganization (including the Merger Agreement), (ii) the proposal to amend
FTL-Delaware's Certificate of incorporation to permit the merger to be
effectuated in accordance with its terms notwithstanding the different treatment
of Class A and Class B Common Stock (the "Charter Amendment") and (iii) any
other matters that may properly come before such meeting. The presence, in
person or by proxy, of stockholders holding a majority of the outstanding shares
of FTL-Delaware entitled to vote at the Special Meeting will constitute a
quorum. See "The Special Meeting."
Record Date
Only FTL-Delaware stockholders of record at the close of business on
September 15, 1998, as shown on FTL-Delaware's records, will be entitled to
vote, or to grant proxies to vote, at the Special Meeting. See "The Special
Meeting--Record Date."
FTL-DELAWARE
FTL-Delaware is a marketing oriented, vertically integrated international
basic apparel company, emphasizing branded products for consumers ranging from
infants to senior citizens. FTL-Delaware is one of the largest producers of
men's and boy's underwear, activewear for the imprinted market, casualwear,
jeanswear, women's and girl's underwear and infants and toddlers apparel,
selling products principally under the FRUIT OF THE LOOM(R), BVD(R), SCREEN
STARS(R), BEST(TM), MUNSINGWEAR(R), WILSON(R), GITANO(R) and CUMBERLAND BAY(TM)
brand names. FTL-Delaware also designs, manufacturers and markets sports
licensed apparel bearing the names, tradenames and logos of the National
Football League, the National Basketball Association, Major League Baseball and
the National Hockey League, professional sports teams and many colleges and
universities, as well as the likenesses of certain popular professional
athletes, under the PRO PLAYER(R) and FANS GEAR(R) brands.
FTL-Delaware is a fully integrated manufacturer, performing most of its own
spinning, knitting, cloth finishing, cutting, sewing and packaging. Based on
FTL-Delaware's selling price points for its various products and its operating
margins, management believes that FTL-Delaware is a low cost producer in the
markets it serves. Management considers FTL-Delaware's primary strengths to be
its excellent brand recognition, cost effective production, and strong
relationships with mass merchandisers and discount chains.
Management believes that many domestic apparel manufacturers continue to
move sewing operations offshore to reduce costs and compete with enhanced import
competition that is resulting from the General Agreement on Tariffs and Trade.
To maintain FTL-Delaware's position as a low cost manufacturer, FTL-Delaware is
increasing the percentage of garments sewn in the Caribbean, Central America and
Mexico. FTL-Delaware believes that its domestic knitting, bleaching and dyeing
operations continue to provide it with a competitive advantage. Thus,
FTL-Delaware's strategy is to
9
<PAGE> 10
combine low cost textile manufacturing in the United States with sewing offshore
so that FTL-Delaware can continue to offer value to its customers.
FTL-Delaware was incorporated in 1985 under the laws of the State of
Delaware. Its principal executive offices are located at 5000 Sears Tower, 233
South Wacker Drive, Chicago, Illinois 60606, and its telephone number is (312)
876-1724. Unless the context indicated otherwise, references to FTL-Delaware
mean Fruit of the Loom, Inc. and its subsidiaries. See "FTL-Delaware and FTL-
Cayman."
FTL-CAYMAN
FTL-Cayman is a Cayman Islands company registered and incorporated under
the laws of the Cayman Islands on January 23, 1998, which was formed to become
the parent holding company of FTL-Delaware. All of the shares of FTL-Cayman are
currently held by FTL-Delaware. Immediately prior to and in connection with the
Reorganization, William Farley and his affiliates (collectively "Farley"), the
holders of the FTL-Delaware Class B Stock, will purchase four (4) FTL-Cayman
Class B Shares from FTL-Cayman. The shares of FTL-Cayman owned by FTL-Delaware
will be repurchased by FTL-Cayman and cancelled pursuant to the terms of the
Merger. After the consummation of the Reorganization, FTL-Delaware will become a
subsidiary of FTL-Cayman, and FTL-Cayman will continue to conduct the businesses
(through direct or indirect subsidiaries, including FTL-Delaware) in which
FTL-Delaware is now engaged. FTL-Cayman's principal offices are located at P.O.
Box 31311 SMB, Safehaven Corporate Center, Grand Cayman, Cayman Islands, BWI.
FTL-Cayman's telephone number is (345) 949-6690. FTL-Cayman has a newly formed,
wholly-owned Delaware subsidiary, Sub, organized specifically to effect the
Reorganization. See "FTL-Delaware and FTL-Cayman."
THE REORGANIZATION
General
The Board of Directors of FTL-Delaware has unanimously approved, and
recommends that the stockholders of FTL-Delaware adopt, a proposed corporate
reorganization pursuant to which FTL-Cayman, a Cayman Islands company, will
become the parent holding company of FTL-Delaware. It is proposed that the
Reorganization be effected pursuant to the Merger Agreement, a copy of which is
attached hereto as Annex I and the terms of which are incorporated herein by
reference. After the consummation of the Reorganization, FTL-Cayman will
continue to conduct the businesses (through direct or indirect subsidiaries,
including FTL-Delaware) in which FTL-Delaware is now engaged and substantially
all of the businesses and subsidiaries of FTL-Delaware located outside of the
United States will be transferred to FTL-Cayman (or direct or indirect foreign
subsidiaries of FTL-Cayman), other than certain interests of FTL-Delaware in
Canada, Germany, Italy and Mexico, along with the beneficial ownership of
certain trademarks. The relative voting rights of FTL-Delaware stockholders as
shareholders of FTL-Cayman will not change as a result of the Reorganization. A
holder of FTL-Delaware Class A Stock will, after the Reorganization, continue to
own, as a holder of FTL-Cayman Class A Shares, an interest in a parent holding
company with subsidiaries that in the aggregate are engaged in the same
businesses as FTL-Delaware and its subsidiaries were engaged in before the
Reorganization. See "The Reorganization," "Description of Authorized Shares of
FTL-Cayman--Voting," "Comparison of Rights of Stockholders" and the Pro Forma
Condensed Consolidated Financial Statements, included elsewhere herein.
Reasons for the Reorganization
The Board of Directors of FTL-Delaware believes that the use of a Cayman
Islands holding company for FTL-Delaware and its subsidiaries will allow
FTL-Delaware to organize its worldwide business activities to avail itself of
certain business, tax and financing advantages that are not available in the
United States. In particular, the Board of Directors of FTL-Delaware is
recommending the Reorganization for the following reasons: (a) the use of a
Cayman Islands parent
10
<PAGE> 11
corporation is expected to reduce corporate income taxes because, unlike the
United States which imposes corporate income tax on the worldwide income of
United States corporations, the Cayman Islands generally imposes no corporate
income taxes on foreign income. Income taxes are anticipated to be reduced to
the extent operations are conducted after the Reorganization by FTL-Cayman or
its foreign subsidiaries; (b) the Reorganization may, in certain circumstances,
have a favorable effect on FTL-Cayman's ability to sell assets or raise
additional capital in the future; and (c) an offshore holding company structure
in the form proposed by the Reorganization may provide a more favorable
corporate structure for expansion of its current business and future
acquisitions and diversification opportunities. No assurances can be given,
however, that the anticipated benefits of the Reorganization will be realized.
See "The Reorganization--Background and Reasons for the Reorganization."
Special Committee/FTL-Delaware Preferred Stock/FTL-Cayman Class B Shares
A Special Committee of the Board of Directors of FTL-Delaware (the "Special
Committee") was appointed by the Board to analyze the Reorganization, including
its structure, and to develop, and in the case of Farley, negotiate, the terms
of the securities to be offered to the FTL-Delaware Class A stockholders and
Farley, as FTL-Delaware Class B stockholders, in the Reorganization. The Special
Committee was aware that Farley's tax basis in the FTL-Delaware Class B Stock is
low as compared to its present market value such that, if the transaction were
currently taxable to Farley, a substantial portion of the FTL-Delaware Class B
Stock would have to be sold by Farley in order to pay the tax. The Special
Committee and the Board concluded that the Reorganization would be in the best
interests of the FTL-Delaware stockholders, but that it would be difficult to
accomplish unless the transaction were structured in such a way that Farley's
taxable gain could be deferred. Accordingly, the Special Committee determined to
offer securities to Farley in exchange for the FTL-Delaware Class B Stock, the
receipt of which is not intended to be currently taxable. Although the exchange
of FTL-Delaware Class A Stock for FTL-Cayman Class A Shares is a taxable
transaction, based on a preliminary review of FTL-Delaware's current list of
stockholders, it is believed that the large majority of stockholders will not
pay tax in connection with the Reorganization because they either are tax-exempt
entities or otherwise have a tax basis in their FTL-Delaware Class A Stock such
that they will not be required to pay taxes in connection with the
Reorganization.
The FTL-Delaware Preferred Stock to be issued to Farley in exchange for
their FTL-Delaware Class B Stock, in the aggregate, will (i) have a liquidation
value equal to the fair market value of the FTL-Delaware Class B Stock based
upon the average closing price of the FTL-Delaware Class A Stock on the NYSE for
the 20 trading days prior to the consummation of the Reorganization (the "Stated
Value"), (ii) be entitled to receive cumulative cash dividends of 4.5% per annum
of the Stated Value, payable quarterly, (iii) be exchangeable at the option of
the holder, in whole or from time to time in part, at any time for 5,413,704
FTL-Cayman Class A Shares, (iv) be convertible at the option of the holder, in
whole or from time to time in part, at any time for 5,413,704 shares of FTL-
Delaware common stock, (v) participate with the holders of FTL-Delaware common
stock in all dividends and liquidation payments in addition to its preference
payments on an as converted basis, (vi) be redeemable by FTL-Delaware, at its
option, after three years (the "No-Call Period") at a redemption price equal to
the then fair market value of the FTL-Delaware Preferred Stock as determined by
a nationally recognized investment banking firm, and (vii) have the right to
vote on all matters put to a vote of the holders of FTL-Delaware common stock,
voting together with such holders as a single class, and be entitled to the
number of votes which such holder would have on an as converted basis. See
"Description of FTL-Delaware Preferred Stock."
The four (4) FTL-Cayman Class B Shares which will be purchased by Farley
immediately prior to the Reorganization have been designed to maintain the
relative voting rights that currently exist between the FTL-Delaware Class A
Stock and Class B Stock. The four (4) FTL-Cayman Class B Shares will (i)
participate pari passu, on a share for share basis, with the holders of any
other class of ordinary shares outstanding (including the FTL-Cayman Class A
Shares) upon the liquidation of FTL-Cayman and with respect to any dividends
declared by the Board of Directors of FTL-Cayman,
11
<PAGE> 12
(ii) vote together with the FTL-Cayman Class A Shares on all matters (other then
as required by Cayman Islands law with respect to certain extraordinary
transactions) having that number of votes which is equal to the aggregate number
of votes held by the FTL-Delaware Class B Stock (i.e., an aggregate of
approximately 30% of the aggregate voting power), (iii) be redeemable
proportionately upon the exchange, transfer to a non-affiliate of Farley or
redemption of the FTL-Delaware Preferred Stock, and (iv) not be transferable
except to affiliates of Farley. See "Description of Authorized Shares of
FTL-Cayman" and "Description of FTL-Delaware Preferred Stock."
The Special Committee, which was comprised of Sir Brian Wolfson, Chairman,
Omar Z. Al Askari and A. Lorne Weil, three independent members of the Board, has
recommended the consummation of the Reorganization and determined that it is
fair to the FTL-Delaware Class A stockholders. The Special Committee retained
Lehman Brothers Inc. ("Lehman Brothers") as its financial adviser, and Lehman
Brothers has rendered an opinion to the Board of Directors stating that, from a
financial point of view, the consideration to be offered to the holders of the
FTL-Delaware Class A Stock in the Reorganization is fair to such holders, a copy
of which is attached hereto as Annex II. See "The Reorganization--Special
Committee/Fairness Opinion."
Farley will receive a preferred dividend from FTL-Delaware following the
Reorganization. In consideration thereof, Farley has agreed and the
Reorganization has been structured to eliminate the conversion ratio of one
share of FTL-Delaware Class A Stock for each share of FTL-Delaware Class B Stock
converted by Farley, and instead provides for the exchange ratio of .9524 FTL-
Cayman Class A Shares for each share of FTL-Delaware Preferred Stock exchanged
by Farley.
The Merger
The Reorganization will be accomplished through the merger of Sub with and
into FTL-Delaware, which will be the surviving corporation in the Merger, at
which time (i) each outstanding share of FTL-Delaware Class A Stock (other than
shares of FTL-Delaware Class A Stock held by FTL-Delaware in its treasury) will
be automatically converted into one FTL-Cayman Class A Share, (ii) each
outstanding share of FTL-Delaware Class B Stock will be automatically converted
into one share of FTL-Delaware Preferred Stock, and (iii) all of the shares of
FTL-Cayman owned by FTL-Delaware will be repurchased by FTL-Cayman and cancelled
and the $100 subscription price paid for such shares will be returned to
FTL-Delaware. The holders of the FTL-Delaware Class B Stock will also own four
(4) FTL-Cayman Class B Shares which they will have acquired immediately prior to
the Reorganization. See "The Reorganization--The Merger Agreement," "Description
of Authorized Shares of FTL-Cayman" and "Description of FTL-Delaware Preferred
Stock."
Certificate of Amendment
FTL-Delaware's Certificate of Incorporation provides that in a merger
transaction the FTL-Delaware Class A Stock and Class B Stock must be treated
alike. Since their treatment in the Reorganization will be different, the
Charter Amendment is proposed to provide that such provision may be waived by
separate class vote of the Class A Stock and Class B Stock. The vote to amend
the Certificate of Incorporation is independent of the vote to approve the
Reorganization. The Reorganization, however, cannot be effectuated in accordance
with its terms unless the Charter Amendment is approved. The Charter Amendment
would become effective immediately prior to the Merger. See "The
Reorganization-Certificate of Amendment."
Effective Time
If the Merger Agreement is adopted by the stockholders of FTL-Delaware and
not terminated by the Board of Directors of FTL-Delaware, and the Charter
Amendment is approved by the stockholders of FTL-Delaware, the Reorganization
will become effective (the "Effective Time") at the close of business on the
date that an appropriate certificate of merger is filed with the Delaware
Secretary of State as required by Delaware law or at such later time as is
specified in such certificate of merger. FTL-Delaware anticipates that the
Reorganization will become effective promptly following the Special Meeting,
subject to the receipt of all necessary third-party consents and compliance with
the provisions of the indenture governing FTL-Delaware's 7 7/8% Senior Notes due
October 15, 1999.
12
<PAGE> 13
See "Third-Party Consents." It is possible that because of the requirement to
obtain such consents and the provisions of such indenture, the Merger could be
delayed for several months following the Special Meeting or be terminated by the
Board of Directors of FTL-Delaware. See "The Reorganization--Effective Time" and
"Third-Party Consents."
Dividends
Holders of FTL-Cayman Class A Shares will be entitled to participate pari
passu, on a share for share basis, with the holders of any other class of
ordinary shares outstanding, including the four (4) FTL-Cayman Class B Shares,
with respect to any dividends declared by the Board of Directors of FTL-Cayman.
At the time of the Reorganization, FTL-Cayman and FTL-Delaware will be parties
to certain loan agreements and indentures which contain covenants that will
restrict their ability to pay dividends. FTL-Cayman and FTL-Delaware currently
intend to retain earnings for use in their respective businesses and the
financing of their respective capital requirements, except for the payment of
regular quarterly dividends on the FTL-Delaware Preferred Stock. The payment of
any future cash dividends on the FTL-Cayman Class A Shares is necessarily
dependent upon the earnings and financial needs of FTL-Cayman, along with
applicable legal and contractual restrictions. See "Description of Authorized
Shares of FTL-Cayman--Dividend Rights" and "Description of FTL-Delaware
Preferred Stock."
Liquidation
Upon the liquidation of FTL-Cayman the holders of FTL-Cayman Class A Shares
will participate in the assets of FTL-Cayman available for distribution pari
passu, on a share for share basis, with the holders of any other class of
ordinary shares outstanding (including the four (4) FTL-Cayman Class B Shares).
Upon the liquidation of FTL-Delaware, the holders of FTL-Delaware Preferred
Stock are entitled to receive an aggregate liquidation preference equal to the
Stated Value plus accrued and unpaid dividends, and share thereafter in any
other distribution of assets by FTL-Delaware with the holders of the common
stock of FTL-Delaware, on an as converted basis in accordance with the terms of
conversion described herein.
Voting Rights
Each FTL-Cayman Class A Share will be entitled to one vote in the affairs
of FTL-Cayman, voting together as a single class with the holders of FTL-Cayman
Class B Shares. The FTL-Cayman Class B Shares will be entitled to a number of
votes equal to the aggregate number of votes held by the holders of FTL-Delaware
Class B Stock on the date the Merger is consummated (which based on current
ownership is 28,421,380 votes or approximately 30% of the aggregate voting
power). In addition, the holders of the FTL-Cayman Class A Shares will have a
separate class vote to elect 25% of the Board of Directors of FTL-Cayman for so
long as any FTL-Cayman Class B Shares are outstanding. See "Description of
Authorized Shares of FTL-Cayman--Voting and Other Rights."
Conflicts of Interest
Mr. William Farley is a director of FTL-Delaware and has voted in favor of
the Reorganization, although he may be deemed to have certain conflicts of
interest. As described in this Proxy Statement/Prospectus, the Reorganization
has been structured with respect to Farley with the intention that it will not
be currently taxable to them, and they will receive FTL-Delaware Preferred Stock
in the Merger, rather than FTL-Cayman Class A Shares. See "The
Reorganization--Special Committee/Fairness Opinion" and "Description of
FTL-Delaware Preferred Stock."
Possible Adverse Consequences
Holders of FTL-Delaware Class A Stock should consider that the receipt of
FTL-Cayman Class A Shares in exchange for shares of FTL-Delaware Class A Stock
will be a taxable transaction to such holders in which gain, if any (but not
loss), will be recognized. See "Certain Tax Considerations."
In addition, holders of FTL-Delaware Class A Stock should be aware that as
holders of FTL-Cayman Class A Shares they will not be entitled to a cash
dividend preference of $1.00 per share
13
<PAGE> 14
that is currently available to the holders of FTL-Delaware Class A Stock prior
to the payment of dividends to the holders of FTL-Delaware Class B Stock. The
Board of Directors of FTL-Delaware has determined that the $1.00 preference
available to the holders of FTL-Delaware Class A Stock is not necessary
following the Reorganization since the current holders of FTL-Delaware Class B
Stock will not be entitled to participate in the dividends, if any, paid by
FTL-Cayman, except on the very limited basis of their four (4) FTL-Cayman Class
B Shares. Further, Farley will receive shares of FTL-Delaware Preferred Stock
rather than FTL-Cayman Class A Shares pursuant to the Reorganization. See
"Description of FTL-Delaware Preferred Stock."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF FTL-DELAWARE HAS UNANIMOUSLY APPROVED THE
PROPOSED REORGANIZATION AND THE RELATED MERGER AGREEMENT AND AMENDMENT TO THE
CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE REORGANIZATION, INCLUDING THE MERGER AGREEMENT AND SUCH
AMENDMENT.
VOTE REQUIRED FOR ADOPTION
Approval of the Reorganization and the Charter Amendment requires the
affirmative vote of (i) the holders of a majority of the FTL-Delaware Class A
Stock and Class B Stock voting together as a single class, (ii) the holders of a
majority of the outstanding FTL-Delaware Class A Stock, and (iii) the holders of
a majority of the outstanding FTL-Delaware Class B Stock. Abstentions and broker
"non-votes" will be treated as votes against the proposal to approve the
Reorganization. As of the record date described above, there were 66,409,477
shares of FTL-Delaware Class A Stock and 5,684,276 shares of FTL-Delaware Class
B Stock outstanding and entitled to vote, with the Class B Stock entitled to
five votes per share. In addition, as of the record date, the directors and
executive officers of FTL-Delaware and affiliates of such persons directly
owned, in the aggregate, approximately 1,453,636 shares of FTL-Delaware Class A
Stock (approximately 2.2% of the outstanding Class A Stock), and Farley owned
all of the FTL-Delaware Class B Stock, and they have indicated their intention
to vote such shares in favor of the proposal to approve the Reorganization and
the proposal to amend the Certificate of Incorporation. See "The Special
Meeting--Vote Required for Adoption."
Proxies
Each FTL-Delaware Class A stockholder as of the record date will receive a
Proxy Card (the "Proxy Card"). A FTL-Delaware Class A stockholder may grant a
proxy to vote for or against, or to abstain from voting on, the proposal to
approve the Reorganization by marking the Proxy Card appropriately, executing it
in the space provided, and, in the case of holders of FTL-Delaware Class A Stock
appearing on the stock records of FTL-Delaware, returning it to FTL-Delaware.
FTL-Delaware stockholders who hold their FTL-Delaware Class A Stock in the name
of a bank, broker or other nominee should follow the instructions provided by
their bank, broker or nominee on voting their shares. To be effective, a Proxy
Card must be received at or prior to the Special Meeting. Shares of FTL-Delaware
Class A Stock represented by a properly executed Proxy Card will be voted, and
when a choice is specified on the Proxy Card, such shares will be voted in
accordance with the specification indicated on such Proxy Card. Shares of
FTL-Delaware Class A Stock represented by a properly executed Proxy Card in
which no specification is made will be voted FOR the proposal to approve the
Reorganization and FOR the proposal to approve the Charter Amendment.
If any other matters are properly presented at the Special Meeting for
consideration, including consideration of a motion to adjourn the Special
Meeting to another time and/or place (including adjournments for the purpose of
soliciting additional proxies), the persons named in the Proxy Card and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment. See "The Special Meeting--Proxies."
14
<PAGE> 15
Revocation
In the case of holders of FTL-Delaware Class A Stock appearing on the stock
records of FTL-Delaware, a Proxy Card may be revoked at any time prior to its
exercise by (a) giving written notice of such revocation to FTL-Delaware, (b)
appearing and voting in person at the Special Meeting, or (c) properly
completing and executing a later-dated proxy and delivering it to FTL-Delaware
at or before the Special Meeting. Presence without voting at the Special Meeting
will not automatically revoke a proxy, and any revocation during the meeting
will not affect votes previously taken. FTL-Delaware stockholders who hold their
FTL-Delaware Class A Stock in the name of a bank, broker or other nominee should
follow the instructions provided by their bank, broker or nominee in revoking
their previously voted shares. See "The Special Meeting--Proxies--Revocation."
COMPARISON OF RIGHTS OF STOCKHOLDERS
The principal attributes of the FTL-Delaware Class A Stock and the
FTL-Cayman Class A Shares will be similar. However, there are certain
differences between the rights of stockholders under Delaware law and Cayman
Islands law. In addition, there are differences between FTL-Delaware's
Certificate of Incorporation and Bylaws and FTL-Cayman's Memorandum of
Association and Articles of Association. See "Comparison of Rights of
Stockholders."
TAX CONSIDERATIONS
In the opinion of Weil, Gotshal & Manges LLP, special United States counsel
to FTL-Delaware, the following are the material United States federal income tax
consequences of the Reorganization applicable to holders of FTL-Delaware Class A
Stock. This opinion is not intended to be nor should it be construed to be,
advice to any particular stockholder of FTL-Delaware. A more detailed discussion
of counsel's opinion as to certain tax consequences of the Reorganization is set
out under "Certain Tax Considerations."
The opinion contained in this Proxy Statement/Prospectus is based on the
law in effect as of the date of this Proxy Statement/Prospectus. STOCKHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE REORGANIZATION.
THE RECEIPT OF FTL-CAYMAN CLASS A SHARES BY U.S. STOCKHOLDERS IN EXCHANGE
FOR FTL-DELAWARE CLASS A STOCK WILL BE A TAXABLE TRANSACTION TO STOCKHOLDERS
THAT HAVE GAIN ON THEIR FTL-DELAWARE CLASS A STOCK. Stockholders will recognize
gain, if any (but not loss), in an amount equal to the excess of the fair market
value of the FTL-Cayman Class A Shares received in the Reorganization over their
tax basis in the FTL-Delaware Class A Stock exchanged therefor. Stockholders
realizing a loss on the exchange will have a basis in the FTL-Cayman Class A
Shares equal to the basis in their FTL-Delaware Class A Stock exchanged
therefor.
RIGHTS OF DISSENTING STOCKHOLDERS
Under applicable Delaware law, the holders of FTL-Delaware Class A Stock
will not have dissenters' appraisal rights in connection with the
Reorganization.
ACCOUNTING TREATMENT OF THE REORGANIZATION
The Reorganization will be accounted for at the historical cost basis of
the combining companies. See "The Reorganization--Accounting Treatment of the
Reorganization."
STOCK EXCHANGE LISTING
There is currently no established public trading market for the FTL-Cayman
Class A Shares. Immediately following the Reorganization, the FTL-Cayman Class A
Shares will be listed on the NYSE under the symbol "FTL," the same symbol under
which the FTL-Delaware Class A Stock is currently listed. See "The
Reorganization--Stock Exchange Listing."
15
<PAGE> 16
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data presented below for the six month
periods ended June 27, 1998 and June 30, 1997 and each of the years in the
five-year period ended December 31, 1997, are derived from the consolidated
financial statements of FTL-Delaware and its subsidiaries. The consolidated
financial statements as of and for the five years ended December 31, 1997 were
audited by Ernst & Young LLP, independent auditors. The consolidated financial
statements as of June 27, 1998 and June 30, 1997, December 31, 1997 and 1996,
and for each of the years in the three year period ended December 31, 1997, and
the reports of such auditors on such year-end statements, are included in
FTL-Delaware's Quarterly Report on Form 10-Q for the quarter ended June 27, 1998
(the "10-Q") and are included in FTL-Delaware's Annual Report on Form 10-K for
the year ended December 31, 1997 as amended on Form 10-K/A dated August 7, 1998
(the "10-K"), respectively, and are incorporated by reference herein. The
information as of June 27, 1998 and June 30, 1997 and for the six month periods
then ended is unaudited, but includes all adjustments of a normal recurring
nature which FTL-Delaware considers necessary for a fair presentation of the
financial position and results of operations at those dates and for those
periods. The results of operations for the six months ended June 27, 1998, are
not necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------- YEAR ENDED DECEMBER 31,
JUNE 27, JUNE 30, ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA(1)(2):
Net sales........................ $1,085.2 $1,141.7 $2,139.9 $2,447.4 $2,403.1 $2,297.8 $1,884.4
Gross earnings................... 354.3 309.0 495.5 (4) 722.9 516.6 (9) 683.2 644.3
Operating earnings (loss)........ 160.7 104.7 (287.7)(5) 318.2 (108.9)(10) 271.7(12) 378.4
Interest expense................. 51.5 40.0 84.7 103.6 116.9 95.4 72.7
Earnings (loss) from continuing
operations before income tax
expense (benefit),
extraordinary items and
cumulative effect of change in
accounting principles.......... 108.9 58.7 (451.7)(6) 178.2(7) (247.5)(11) 170.2 364.0
Earnings (loss) from continuing
operations before extraordinary
items and cumulative effect of
change in accounting
principles..................... 96.5 42.6 (385.4) 146.6(8) (227.8) 84.2 210.8(13)
Earnings (loss) per common share
from continuing operations
before extraordinary items and
cumulative effect of change in
accounting principles(3):
Basic.......................... 1.34 .56 (5.18) 1.92 (3.00) 1.11 2.78
Diluted........................ 1.33 .55 (5.18) 1.90 (3.00) 1.11 2.77
Average common shares
outstanding:
Basic.......................... 71.9 75.8 74.4 76.4 75.9 75.8 75.7
Diluted........................ 72.5 76.9 74.4 77.1 75.9 76.1 76.2
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 27, JUNE 30, ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)(2):
Total assets..................... $2,586.5 $2,810.7 $2,483.1 $2,593.4 $2,973.1 $3,217.9 $2,751.7
Long-term debt, excluding current
maturities..................... 1,343.8 1,155.4 1,192.8 867.4 1,427.2 1,440.2 1,194.0
Other noncurrent liabilities..... 334.5 259.1 343.0 271.2 292.9 222.3 191.5
Common stockholders' equity...... 512.9 999.5 422.1 1,093.8 929.2 1,159.9 1,057.2
</TABLE>
- ---------------
(1) This information should be read in conjunction with "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
contained in the 10-K, and the Financial Statements and Supplementary Data
contained therein.
16
<PAGE> 17
(2) During the fourth quarter of 1997, FTL-Delaware changed its method of
determining the cost of inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. All previously reported
results have been restated to reflect the retroactive application of this
accounting change. The change increased (decreased) previously reported
results as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------
1997 1996 1995 1994 1993
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross earnings........................................... (2.8) (7.1) (0.8) 36.7 (3.1)
Earnings (loss) from continuing operations before
extraordinary items and cumulative effect of change in
accounting principles.................................. (1.8) (4.6) (0.5) 23.9 (2.0)
Earnings (loss) per common shares from continuing
operations before extraordinary items and cumulative
effect of change in accounting principles
Basic.................................................. (0.02) (0.06) (0.01) 0.31 (0.03)
Diluted................................................ (0.02) (0.06) (0.01) 0.32 (0.02)
</TABLE>
The accounting change increased the net loss for 1997 by $27.8 or $.37 per
share.
(3) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards ("FAS") 128,
"Earnings Per Share". For further discussion of earnings per share and the
impact of FAS 128, see "Earnings Per Share" in the Notes to Consolidated
Financial Statements in FTL-Delaware's 10-K.
(4) Includes pretax charges of $49.8 related to inventory valuation write
downs.
(5) Includes pretax charges of $409.3 related to costs associated with the
closing or disposal of a number of domestic manufacturing and distribution
facilities and attendant personnel reductions, impairment write downs of a
number of domestic and foreign manufacturing and distribution facilities,
inventory valuation write downs, and a pretax charge of $22.0 relating to a
compensation agreement at Pro Player.
(6) Includes pretax charges of $32.4 principally from retained liabilities
related to former subsidiaries and $32.0 related to FTL-Delaware's
evaluation of its exposure under the guarantee of the debt of Acme Boot
Company, Inc. ("Acme Boot"), an affiliate.
(7) Includes a pretax charge of $35.0 related to FTL-Delaware's evaluation of
its exposure under the guarantee of the debt of Acme Boot.
(8) Includes $24.1 related to reversal of excess income tax liabilities for tax
years through December 31, 1991, all of which closed for federal income tax
purposes effective December 31, 1996.
(9) Includes pretax charges of $146.7 related to costs associated with the
closing or disposal of a number of domestic manufacturing facilities and
attendant personnel reductions and charges related to inventory write downs
and valuations and foreign operations.
(10) Includes pretax charges of approximately $158.5 related principally to the
write-off of Salem and Gitano goodwill and $193.7 related to costs
associated with the closing or disposal of a number of domestic
manufacturing facilities and attendant personnel reductions and charges
related to inventory write downs and valuations and foreign operations.
(11) Includes pretax charges of approximately $20.7 related to certain
obligations and other matters related to former subsidiaries and certain
fees related to the modification of certain agreements.
(12) Includes pretax charges of approximately $40.0 to write inventories down to
net realizable value and a pretax charge of $18.0 related to the write-off
of Artex Manufacturing Co. Inc. intangibles.
(13) Includes a pretax gain of $67.3 from FTL-Delaware's investment in Acme
Boot.
17
<PAGE> 18
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following summary pro forma financial information of FTL-Cayman gives
effect to (i) the acquisition of FTL-Delaware in connection with the proposed
Reorganization, whereby FTL-Cayman will become the parent holding company of
FTL-Delaware, and (ii) subsequent to the Reorganization, the transfer to
FTL-Cayman of substantially all of the businesses or subsidiaries of
FTL-Delaware located outside of the United States, other than certain interests
of FTL-Delaware in Canada, Germany, Italy and Mexico. The following summary pro
forma financial information of FTL-Cayman should be read in conjunction with the
Pro Forma Condensed Consolidated Financial Statements included elsewhere herein
and the separate historical financial statements of FTL-Delaware and notes
thereto incorporated by reference in this Proxy Statement/Prospectus. The
summary pro forma financial data of FTL-Cayman are not necessarily indicative of
the operating results that would have been achieved had the transfers described
above been effected during the periods presented or the results that may be
obtained in the future.
FTL-CAYMAN
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 27, 1998 DEC. 31, 1997
------------- -------------
<S> <C> <C>
Operations Statement Data (1):
Net sales................................................... $1,085,200 $2,139,900
Earnings (loss) from continuing operations before income
taxes and minority interest............................... 108,900 (451,700)
Earnings (loss) from continuing operations.................. 94,500 (389,500)
Earnings (loss) from continuing operations per common
share..................................................... 1.43 (5.67)
Earnings (loss) from continuing operations per common
share -- assuming dilution................................ 1.34 (5.67)
Average common shares outstanding
Basic..................................................... 66,216 68,716
Diluted................................................... 72,229 68,716
</TABLE>
<TABLE>
<CAPTION>
JUNE 27, 1998
-------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Balance Sheet Data :
Working capital........................................ $ 782,900 $ -- $ 782,900
Total Assets........................................... 2,586,500 -- 2,586,500
Long-term debt, excluding current maturities........... 1,343,800 -- 1,343,800
Preferred stock of FTL-Delaware (minority interest).... -- 90,900 90,900
Total stockholders' equity............................. 512,900 (90,900) 422,000
========== ========= ==========
</TABLE>
- -------------------------
(1) Following the Reorganization, FTL-Delaware intends to transfer substantially
all its businesses or subsidiaries located outside the United States, other
than certain interests of FTL-Delaware in Canada, Germany, Italy and Mexico,
to FTL-Cayman (or direct or indirect foreign subsidiaries of FTL-Cayman),
along with the beneficial ownership of certain trademarks.
18
<PAGE> 19
THE SPECIAL MEETING
SPECIAL MEETING
A Special Meeting of the FTL-Delaware stockholders will be held at 10:00
a.m., Chicago time, on November 12, 1998, at the Metropolitan Club, 66th Floor,
Sears Tower, 233 South Wacker Drive, Chicago, Illinois (or any adjournments or
postponements thereof) to consider and vote on (i) the proposal to authorize the
Reorganization (including the Merger Agreement), (ii) the proposal to authorize
the Charter Amendment and (iii) any other matters that may properly come before
such meeting. The presence, in person or by proxy, of stockholders holding a
majority of the outstanding shares of FTL-Delaware entitled to vote at the
Special Meeting will constitute a quorum.
Management of FTL-Delaware knows of no matters other than as described in
the accompanying Notice of Special Meeting which are likely to be brought before
the Special Meeting. However, if any other matters, not now known, properly come
before such meeting, the persons named in the enclosed proxy will vote the proxy
in accordance with their best judgment on such matters.
THE BOARD OF DIRECTORS OF FTL-DELAWARE HAS UNANIMOUSLY APPROVED THE
PROPOSED REORGANIZATION AND THE MERGER AGREEMENT AND AMENDMENT TO THE
CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE REORGANIZATION, INCLUDING THE MERGER AGREEMENT AND SUCH
AMENDMENT.
Mr. William Farley, who is a member of the Board of Directors and who has
voted in favor of the Reorganization, may be deemed to have a conflict of
interest in that the FTL-Delaware Class A Stock and Class B Stock will be
treated differently in the Reorganization.
RECORD DATE
Only FTL-Delaware stockholders of record at the close of business on
September 15, 1998, as shown on FTL-Delaware's records, will be entitled to
vote, or to grant proxies to vote, at the Special Meeting.
The vote of any FTL-Delaware stockholder who is represented at the Special
Meeting by proxy will be cast as specified in the Proxy Card or, if no vote is
specified in the Proxy Card, such vote will be cast FOR the proposal to approve
the Reorganization and FOR the proposal to approve the Charter Amendment. Any
FTL-Delaware stockholder of record who is present at the Special Meeting in
person will be entitled to vote at the meeting regardless of whether such
stockholder has previously granted a proxy with respect thereto.
VOTE REQUIRED FOR ADOPTION
Approval of the Reorganization and the Charter Amendment requires the
affirmative vote of (i) the holders of a majority of the FTL-Delaware Class A
Stock and Class B Stock voting together as a single class, (ii) the holders of a
majority of the outstanding FTL-Delaware Class A Stock, and (iii) the holders of
a majority of the outstanding FTL-Delaware Class B Stock. Abstentions and broker
"non-votes" will be treated as votes against the proposal to approve the
Reorganization and the proposal to approve the Charter Amendment. As of the
record date described above, there were 66,409,477 shares of FTL-Delaware Class
A Stock and 5,684,276 shares of FTL-Delaware Class B Stock outstanding and
entitled to vote, with the Class B Stock entitled to five votes per share. In
addition, as of the record date, the directors and executive officers of
FTL-Delaware and affiliates of such persons directly owned, in the aggregate,
approximately 1,453,636 shares of FTL-Delaware Class A Stock (approximately 2.2%
of the outstanding Class A Stock), and Farley owned all of the Class B Stock,
and they have indicated their intention to vote such shares in favor of the
proposal to approve the Reorganization and the proposal to approve the Charter
Amendment.
19
<PAGE> 20
PROXIES
General
Each FTL-Delaware stockholder as of the record date will receive a Proxy
Card. A stockholder of FTL-Delaware may grant a proxy to vote for or against, or
to abstain from voting on, the proposal to approve the Reorganization and the
proposal to approve the Charter Amendment by marking his/her Proxy Card
appropriately, executing it in the space provided, and, in the case of holders
of FTL-Delaware Class A Stock appearing on the stock records of FTL-Delaware,
returning it to FTL-Delaware. FTL-Delaware stockholders who hold their
FTL-Delaware Class A Stock in the name of a bank, broker or other nominee should
follow the instructions provided by their bank, broker or nominee on voting
their shares.
To be effective, a Proxy Card must be received prior to the Special
Meeting. Shares of FTL-Delaware Class A Stock represented by a properly executed
Proxy Card will be voted, and where a choice is specified on the Proxy Card,
such shares will be voted in accordance with the specification indicated on such
Proxy Card. Shares of FTL-Delaware Class A Stock represented by a properly
executed Proxy Card in which no specification is made will be voted FOR the
proposal to approve the Reorganization and FOR the proposal to approve the
Charter Amendment.
If any other matters are properly presented at the Special Meeting for
consideration, including consideration of a motion to adjourn the meeting to
another time and/or place (including adjournments for the purpose of soliciting
additional proxies), the persons named in the Proxy Card and acting thereunder
will have the discretion to vote on such matters in accordance with their best
judgment.
Revocation
In the case of holders of FTL-Delaware Class A Stock appearing on the stock
records of FTL-Delaware, a Proxy Card may be revoked at any time prior to its
exercise by (a) giving written notice of such revocation to FTL-Delaware, (b)
appearing and voting in person at the Special Meeting, or (c) properly
completing and executing a later-dated proxy and delivering it to FTL-Delaware
at or before the Special Meeting. Presence without voting at the Special Meeting
will not automatically revoke a proxy, and any revocation during the meeting
will not affect votes previously taken. FTL-Delaware stockholders who hold their
FTL-Delaware Class A Stock in the name of a bank, broker or other nominee should
follow the instructions provided by their bank, broker or nominee in revoking
their previously voted shares.
Validity
All questions as to the validity, form, eligibility (including time of
receipt), and acceptance of Proxy Cards will be determined by the inspectors of
election. Any such determination will be final and binding. The Board of
Directors of FTL-Delaware will have the right to waive any irregularities or
conditions as to the manner of voting. FTL-Delaware may accept proxies by any
reasonable form of communication so long as it can reasonably be assured that
the communication is authorized by the FTL-Delaware Class A stockholder.
SOLICITATION OF PROXIES
The accompanying proxy is being solicited on behalf of the Board of
Directors of FTL-Delaware. The expenses of preparing, printing and mailing the
proxy and the materials used in the solicitation thereof will be borne by
FTL-Delaware.
Georgeson & Co. has been retained by FTL-Delaware to aid in the
solicitation of proxies, for a fee of $11,000 and the reimbursement of
out-of-pocket expenses. Proxies may also be solicited by personal interview,
telephone and telegram by directors, officers and employees of FTL-Delaware who
will not receive additional compensation for such services. Arrangements also
may be made
20
<PAGE> 21
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of FTL-Delaware
Class A Stock held by such persons, and FTL-Delaware will reimburse them for
reasonable expenses incurred by them in connection therewith.
PROPOSALS OF STOCKHOLDERS
Any stockholder who desired to present proposals to FTL-Delaware's (or, if
the Reorganization is consummated, FTL-Cayman's) 1998 Annual Meeting of
Stockholders and to have such proposals set forth in the proxy statement mailed
in conjunction with such Annual Meeting was required to have submitted such
proposals to FTL-Delaware by December 8, 1997. All stockholder proposals are
required to comply with Rule 14a-8 promulgated by the Commission pursuant to the
Exchange Act. The only stockholder proposal received by FTL-Delaware requests
that the Board of Directors redeem the preferred stock purchase rights issued to
stockholders of FTL-Delaware pursuant to the Rights Agreement, dated as of March
8, 1996 (the "Shareholder Rights Plan") between FTL-Delaware and ChaseMellon
Shareholder Services, Inc. The stockholder proposal will be moot if the
Reorganization is consummated because FTL-Cayman will not have a preferred stock
purchase rights plan. See "The Reorganization--Shareholder Rights Plan"
FTL-DELAWARE AND FTL-CAYMAN
FTL-Delaware is a marketing oriented, vertically integrated international
basic apparel company, emphasizing branded products for consumers ranging from
infants to senior citizens. FTL-Delaware is one of the largest producers of
men's and boy's underwear, activewear for the imprinted market, casualwear,
jeanswear, women's and girls underwear and infants and toddlers apparel, selling
products principally under the FRUIT OF THE LOOM(R), BVD(R), SCREEN STARS(R),
BEST(TM), MUNSINGWEAR(R), WILSON(R), GITANO(R) and CUMBERLAND BAY(TM) brand
names. FTL-Delaware also designs, manufacturers and markets sports licensed
apparel bearing the names, tradenames and logos of the National Football League,
the National Basketball Association, Major League Baseball and the National
Hockey League, professional sports teams and many colleges and universities, as
well as the likenesses of certain popular professional athletes, under the PRO
PLAYER(R) and FANS GEAR(R) brands.
FTL-Delaware is a fully integrated manufacturer, performing most of its own
spinning, knitting, cloth finishing, cutting, sewing and packaging. Based on
FTL-Delaware's selling price points for its various products and its operating
margins, management believes that FTL-Delaware is a low cost producer in the
markets it serves. Management considers FTL-Delaware's primary strengths to be
its excellent brand recognition, cost effective production, and strong
relationships with mass merchandisers and discount chains.
Management believes that many domestic apparel manufacturers continue to
move sewing operations offshore to reduce costs and compete with enhanced import
competition that is resulting from the General Agreement on Tariffs and Trade.
To maintain FTL-Delaware's position as a low cost manufacturer, FTL-Delaware is
increasing the percentage of garments sewn in the Caribbean, Central America and
Mexico. FTL-Delaware believes that its domestic knitting, bleaching and dyeing
operations continue to provide it with a competitive advantage. Thus,
FTL-Delaware's strategy is to combine low cost textile manufacturing in the
United States with sewing offshore so that FTL-Delaware can continue to offer
value to its customers.
FTL-Delaware was incorporated in 1985 under the laws of the State of
Delaware. Its principal executive offices are located at 5000 Sears Tower, 233
South Wacker Drive, Chicago, Illinois 60606, and its telephone number is (312)
876-1724. Unless the context indicated otherwise, references to FTL-Delaware
mean Fruit of the Loom, Inc. and its subsidiaries.
21
<PAGE> 22
FTL-Cayman is a Cayman Islands company registered and incorporated under
the laws of the Cayman Islands on January 23, 1998, which was formed to become
the parent holding company of FTL-Delaware. All of the shares of FTL-Cayman are
currently held by FTL-Delaware. Immediately prior to and in connection with the
Reorganization, Farley will purchase four (4) FTL-Cayman Class B Shares from
FTL-Cayman. The shares of FTL-Cayman owned by FTL-Delaware will be repurchased
by FTL-Cayman and cancelled pursuant to the terms of the Merger. After the
consummation of the Reorganization, FTL-Delaware will become a subsidiary of
FTL-Cayman, and FTL-Cayman will continue to conduct the businesses (through
direct or indirect subsidiaries, including FTL-Delaware) in which FTL-Delaware
is now engaged. FTL-Cayman's principal offices are located at P.O. Box 31311
SMB, Safehaven Corporate Center, Grand Cayman, Cayman Islands, BWI. FTL-Cayman's
telephone number is (345) 949-6690. FTL-Cayman has a newly formed, wholly-owned
Delaware subsidiary, Sub, organized specifically to effect the Reorganization.
Neither FTL-Cayman nor Sub has any significant assets or capitalization nor
has engaged in any business or prior activities other than in connection with
the Reorganization.
THE REORGANIZATION
GENERAL
The Board of Directors of FTL-Delaware has unanimously approved, and
recommends that the stockholders of FTL-Delaware adopt, a proposed corporate
reorganization pursuant to which FTL-Cayman, a Cayman Islands company, will
become the parent holding company of FTL-Delaware. It is proposed that the
Reorganization be effected pursuant to the Merger Agreement, a copy of which is
attached hereto as Annex I and the terms of which are incorporated herein by
reference. After the consummation of the Reorganization, FTL-Cayman will
continue to conduct the businesses (through direct or indirect subsidiaries,
including FTL-Delaware) in which FTL-Delaware is now engaged and substantially
all of the businesses and subsidiaries of FTL-Delaware located outside of the
United States will be transferred to FTL-Cayman (or direct or indirect foreign
subsidiaries of FTL-Cayman), other than certain interests of FTL-Delaware in
Canada, Germany, Italy, and Mexico, along with the beneficial ownership of
certain trademarks. A holder of FTL-Delaware Class A Stock, after the
Reorganization, will continue to own as a holder of FTL-Cayman Class A Shares,
an interest in a parent holding company with subsidiaries that in the aggregate
are engaged in the same businesses as FTL-Delaware and its subsidiaries were
engaged in before the Reorganization. The relative voting rights of FTL-Delaware
stockholders as shareholders of FTL-Cayman will not change as a result of the
Reorganization. See "--Transfer of Assets," "Description of Authorized Shares of
FTL-Cayman--Voting" and "Comparison of Rights of Stockholders."
SPECIAL COMMITTEE/FAIRNESS OPINION
A Special Committee of the Board of Directors of FTL-Delaware was appointed
by the Board to analyze the Reorganization, including its structure, and to
develop, and in the case of Farley, negotiate, the terms of the securities to be
offered to the FTL-Delaware Class A stockholders and Farley, as FTL-Delaware
Class B stockholders, in the Reorganization. The Special Committee was aware
that Farley's tax basis in the FTL-Delaware Class B Stock is low as compared to
its present market value such that, if the transaction were currently taxable to
Farley, a substantial portion of the FTL-Delaware Class B Stock would have to be
sold by Farley in order to pay the tax. The Special Committee and the Board
concluded that the Reorganization would be in the best interests of the
FTL-Delaware stockholders, but that it would be difficult to accomplish unless
the transaction were structured in such a way that Farley's taxable gain could
be deferred. Accordingly, the Special Committee determined to offer securities
to Farley in exchange for their FTL-Delaware Class B Stock, the receipt of which
is not intended to be currently taxable. Although the exchange of FTL-Delaware
Class A Stock for FTL-Cayman Class A Shares is a taxable transaction, based on a
22
<PAGE> 23
preliminary review of FTL-Delaware's current list of stockholders, it is
believed that the large majority of stockholders will not pay tax in connection
with the Reorganization because they either are tax-exempt entities or otherwise
have a tax basis in their FTL-Delaware Class A Stock such that they will not be
required to pay taxes in connection with the Reorganization. The Board of
Directors, having concluded that the Reorganization would be in the best
interests of the FTL-Delaware stockholders, notwithstanding such tax
consequences, accepted the determination of the Special Committee to approve the
Reorganization and to offer securities to Farley in exchange for their FTL-
Delaware Class B Stock, the receipt of which is not intended to be currently
taxable.
Farley will receive a preferred dividend from FTL-Delaware following the
Reorganization. All decisions with respect to the payment of dividends, other
than such preferred dividend, and as to the redemption of the FTL-Delaware
Preferred Stock, will be required to be made by a committee of FTL-Delaware
directors who are not affiliates of Farley. In consideration of the preferred
dividend from FTL-Delaware, Farley has agreed and the Reorganization has been
structured to eliminate the conversion ratio of one share of FTL-Delaware Class
A Stock for each share of FTL-Delaware Class B Stock converted by Farley, and
instead provides for the exchange ratio of .9524 FTL-Cayman Class A Shares for
each share of FTL-Delaware Preferred Stock exchanged by Farley.
The Special Committee was comprised of Sir Brian Wolfson, Chairman, Omar Z.
Al Askari and A. Lorne Weil, three independent members of the Board. The Special
Committee retained Lehman Brothers as its financial advisor. The Special
Committee, with the assistance of its financial advisor and Weil, Gotshal &
Manges LLP, its legal advisor, negotiated the structure of the Reorganization
and the terms of the FTL-Delaware Preferred Stock and the FTL-Cayman Class B
Shares with Farley and Morgan Stanley Dean Witter & Co., Farley's financial
advisor, and McDermott, Will & Emery, Farley's legal advisor.
At a meeting of the Special Committee held on February 10, 1998, the
Special Committee, after consultation with Lehman Brothers and its legal counsel
and its receipt of Lehman Brothers' opinion that, from a financial point of
view, the consideration to be offered to the holders of the FTL-Delaware Class A
Stock in the Reorganization is fair to such holders, a copy of which is attached
hereto as Annex II, unanimously determined that the Reorganization was fair to
and in the best interests of the FTL-Delaware Class A stockholders and
recommended that the Board of Directors of FTL-Delaware approve the
Reorganization and the transactions contemplated thereby.
The members of the Special Committee (as well as the other directors of
FTL-Delaware) are indemnified by FTL-Delaware under FTL-Delaware's Restated
Certificate of Incorporation and By-Laws and the applicable provisions of
Delaware law with respect to their actions in connection with the
Reorganization.
BACKGROUND AND REASONS FOR THE REORGANIZATION
International activities of FTL-Delaware and its subsidiaries are a
significant part of FTL-Delaware's business activities. As part of its growth
strategy, FTL-Delaware has globally expanded the marketing and manufacturing of
its apparel to target markets outside of the United States. In addition, to
reduce costs and improve production efficiencies, FTL-Delaware has moved certain
of its manufacturing operations outside of the United States. A substantial
portion of FTL-Delaware's income is now, and even without the Reorganization
would be expected to continue to be, derived from activities outside of the
United States. For these reasons, the Board of Directors of FTL-Delaware
determined that it would be appropriate to consider a reorganization of the
company so as to create a more tax efficient worldwide structure.
The Board of Directors of FTL-Delaware believes that the use of a Cayman
Islands holding company for FTL-Delaware and its subsidiaries will allow
FTL-Delaware to organize its worldwide business activities to avail itself of
certain business, tax and financing advantages that would not be available to it
if the parent holding company of the businesses of FTL-Delaware were to remain a
U.S. corporation. Accordingly, the Board of Directors of FTL-Delaware believes
the Reorganization
23
<PAGE> 24
should have a favorable impact on the conduct of FTL-Delaware's and FTL-Cayman's
future business operations. The Board of Directors does not believe that any
alternative structure would provide the same advantages and, therefore, did not
consider any alternatives to the Reorganization. In particular, the Board of
Directors of FTL-Delaware is recommending the Reorganization for the following
reasons:
(a) The Board believes that the use of a Cayman Islands parent
corporation is expected to reduce corporate income taxes because, unlike
the United States which imposes corporate income tax on the worldwide
income of United States corporations, the Cayman Islands generally imposes
no corporate income taxes on foreign income. Income taxes are therefore
anticipated to be reduced to the extent operations are conducted after the
Reorganization by FTL-Cayman or its foreign subsidiaries.
(b) The Board believes that the change of domicile may have a
favorable effect on its ability to sell assets or raise additional capital
in the future. The Internal Revenue Code of 1986, as amended (the "Code"),
currently provides for the payment of certain estate taxes in respect of
the value of shares in a U.S. corporation owned by a non-U.S. investor. In
addition, distributions with respect to stock in a U.S. corporation to
non-resident aliens could be subject to certain withholding taxes under the
Code. The Code currently does not generally provide for estate or
withholding taxes on distributions for non-resident aliens in respect of
stock of a non-U.S. corporation.
(c) The Board believes that an offshore holding company structure in
the form proposed by the Reorganization may provide a more favorable
corporate structure for expansion of its current business and future
acquisitions and diversification opportunities. FTL-Delaware currently has
no plans for specific acquisitions or to diversify its business from the
business it is currently conducting.
In determining to recommend the Reorganization, the Special Committee and the
Board consulted with FTL-Delaware's management and its financial and legal
advisors.
Financial Advisors
On September 19, 1997, the Special Committee retained Lehman Brothers as
its financial advisor in connection with the proposed Reorganization. In
connection with such retention Lehman Brothers assisted the Special Committee in
analyzing the Reorganization, including its structure, and in its negotiations
with Farley as to the terms of the securities to be issued to Farley.
On February 10, 1998, Lehman Brothers delivered its written opinion to the
Board of Directors of FTL-Delaware (the "Board") stating that, as of such date,
from a financial point of view, the consideration to be offered to the holders
of the FTL-Delaware Class A Stock in the Reorganization (the "FTL-Delaware Class
A Consideration") is fair to such holders.
The full text of the written opinion of Lehman Brothers is attached as
Annex II hereto and is incorporated herein by reference. FTL-Delaware
stockholders may read the opinion in its entirety for a summary of assumptions
made, matters considered and limitations on the review undertaken by Lehman
Brothers in rendering its opinion. The summary of the opinion of Lehman Brothers
set forth in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
No limitations were imposed by FTL-Delaware on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion, except that FTL-Delaware did not authorize Lehman
Brothers to solicit, and Lehman Brothers did not solicit, any indications of
interest from any third party with respect to a purchase of all or part of
FTL-Delaware's business. In arriving at its opinion, Lehman Brothers did not
ascribe a specific range of values to FTL-Delaware or FTL-Cayman, but made its
determination as to the fairness, from a financial point of view, of the
FTL-Delaware Class A Consideration to the holders of
24
<PAGE> 25
FTL-Delaware Class A Stock on the basis of the financial and comparative
analyses summarized below. The opinion is for the use and benefit of the Board
and is not intended to be and does not constitute a recommendation to any
stockholder of FTL-Delaware as to how such stockholder should vote with respect
to the Reorganization. Lehman Brothers was not requested to opine as to, and the
opinion does not in any manner address, FTL-Delaware's underlying business
decision to proceed with or effect the Reorganization. In addition, in rendering
its opinion, Lehman Brothers was not able to calculate, and therefore did not
consider, the tax consequences of the Reorganization to any individual
stockholder of FTL-Delaware.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i) the
Merger Agreement and the specific terms of the Reorganization, (ii) the Proxy
Statement/Prospectus relating to the Reorganization and annual, quarterly and
current reports filed with the Commission by FTL-Delaware under the Exchange Act
and third party published equity research reports with respect to FTL-Delaware,
(iii) financial and operating information with respect to the business,
operations and prospects of FTL-Delaware and FTL-Cayman furnished to it by
FTL-Delaware, (iv) a trading history of FTL-Delaware's common stock from
December 1992 to the present and a comparison of that trading history with those
of other companies that it deemed relevant, (v) a comparison of the historical
financial results and present financial condition of FTL-Delaware with those of
other companies that it deemed relevant, (vi) the terms of the FTL-Delaware
Preferred Stock and a comparison of such terms with those of other securities
that Lehman Brothers deemed relevant, (vii) information from FTL-Delaware and
advice from its legal and tax advisors regarding the tax consequences of the
Reorganization to the holders of FTL-Delaware Class A Stock and holders of
FTL-Delaware Class B Stock, and (viii) the potential pro forma impact of the
Reorganization on FTL-Delaware. In addition, Lehman Brothers discussed with
management of FTL-Delaware the business, operations, assets, financial
conditions and prospects of FTL-Delaware and FTL-Cayman.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of management of FTL-Delaware
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of FTL-Delaware and FTL-Cayman, upon advice of the management of FTL-Delaware,
Lehman Brothers assumed that such projections were reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of FTL-Delaware as to the future financial performance of
FTL-Delaware and FTL-Cayman and that FTL-Delaware and FTL-Cayman would perform
substantially in accordance with such projections. In arriving at its opinion,
Lehman Brothers did not conduct a physical inspection of the properties and
facilities of FTL-Delaware or FTL-Cayman and did not make or obtain any
evaluations or appraisals of the assets or liabilities of FTL-Delaware or
FTL-Cayman. Lehman Brothers' opinion necessarily is based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of its opinion.
In connection with the preparation and delivery of its opinion, Lehman
Brothers performed a variety of financial and comparative analyses, as
summarized below. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial and
comparative analysis and the application of those methods to the particular
circumstances, and therefore such an opinion is not readily susceptible to
summary description. Furthermore, in arriving at its opinion, Lehman Brothers
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Lehman Brothers believes that its
analyses must be considered as a whole and that considering any portion of such
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the process underlying its opinion. In its
analysis, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
25
<PAGE> 26
which are beyond the control of FTL-Delaware. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold. Lehman Brothers expressed no opinion as to the price at which
FTL-Cayman Class A Shares actually will trade following consummation of the
Reorganization and its opinion should not be viewed as providing any assurances
that the market value of the FTL-Cayman Class A Shares to be held by holders of
FTL-Delaware Class A Stock at any time after consummation of the Reorganization
will be in excess of the market value of the FTL-Delaware Class A Stock
previously owned by such holders.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. Using publicly
available information, Lehman Brothers compared selected financial data of
FTL-Delaware with similar data for fifteen companies engaged in businesses
considered by Lehman Brothers to be comparable to FTL-Delaware. Specifically,
Lehman Brothers included in its review Farah Inc.; Hartmarx Corporation Jones
Apparel Group; Kellwood Co.; Liz Claiborne, Inc.; Nautica Enterprises, Inc.;
OshKosh B'Gosh, Inc.; Oxford Industries, Inc.; Phillips-Van Heusen Corporation;
Russell Corporation; St. John Knits, Inc.; Tommy Hilfiger Corporation; Tultex
Corporation; V.F. Corporation; and The Warnaco Group, Inc. (the "Comparable
Companies"). The median multiples for the Comparable Companies for the price to
estimated 1997 and 1998 earnings per share ("EPS") were 18.5x and 15.0x,
respectively. The range of multiples was from 10.6x to 46.9x and 8.6x to 21.5x,
respectively. These compared to public market trading multiples of 41.5x and
14.5x for FTL-Delaware. Lehman Brothers also calculated the median multiples for
the Comparable Companies for the equity market value plus net indebtedness,
preferred stock and minority interests ("Enterprise Value") to latest twelve
months ("LTM") revenues, earnings before interest, taxes, depreciation,
amortization and extraordinary items ("EBITDA"), and earnings before interest,
taxes, and extraordinary items ("EBIT"). The median multiples for the Comparable
Companies were 1.06x, 8.5x, and 10.9x, respectively, and the range of multiples
was from 0.40x to 2.61x, 6.5x to 12.7x, and 8.1x to 18.7x, respectively. These
compared to public market trading multiples of 1.32x, 8.3x, and 14.7x,
respectively, for FTL-Delaware. Lehman Brothers noted that FTL-Delaware's
multiple of 1998 net income was below that of the Comparable Companies. The
ratios for the Comparable Companies and FTL-Delaware are based on the most
recent publicly available financial statements for each company and the most
recent EPS estimates for 1997 and 1998 published by the Institutional Broker
Estimate System ("IBES"), a service company widely used by the investment
community to gather earnings estimates from various research analysts.
Because of the inherent differences between the business, operations and
prospects of FTL-Delaware and the businesses, operations and prospects of the
Comparable Companies, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, and
accordingly also made qualitative judgments concerning differences between the
financial and operating characteristics and prospects of FTL-Delaware and the
Comparable Companies which would affect the public trading values of
FTL-Delaware and such Comparable Companies.
DISCOUNTED CASH FLOW ANALYSIS. Using long-term financial projections for
FTL-Delaware and FTL-Cayman that FTL-Delaware management prepared, Lehman
Brothers conducted an analysis of the cash flow impact the Reorganization would
have on FTL-Delaware. If the parent holding company of the businesses of
FTL-Delaware were to remain a U.S.-incorporated company, Lehman Brothers noted
that management believes that FTL-Delaware would be required to repatriate much
of its future earnings from its Cayman operations unless significant operating
investments could be made at its Cayman operations, and thus would be required
to pay U.S. income taxes on these repatriated earnings. However, under the
proposed Reorganization, this repatriation and the resulting requirement to pay
U.S. income taxes on these earnings would be significantly reduced or
eliminated, creating significant incremental cash flow. Lehman Brothers
conducted a five year
26
<PAGE> 27
discounted cash flow analysis of the incremental earnings created as a result of
the Reorganization utilizing annual discount rates of 10.0% to 11.0% and
perpetual growth rates of these incremental earnings of 4.0% to 5.0%. The range
of discount rates selected was based upon the following factors: (i) the
interest rate environment at the time of the opinion, (ii) the risk associated
with an investment in the stock of similar companies, (iii) the expected
probability of achieving projected results, (iv) the weighted average costs of
capital of FTL-Delaware and other similar companies, and (v) Lehman Brothers'
experience in securities valuation generally. The range of perpetual growth
rates was based upon the above factors as well as the expected sustainable
growth prospects beyond the projection period. Lehman Brothers calculated that
the Reorganization would significantly increase the discounted cash flow value
of FTL-Delaware.
PRO FORMA NET INCOME ANALYSIS. Using financial projections for FTL-Delaware
and FTL-Cayman prepared by FTL-Delaware management, Lehman Brothers also
conducted a pro forma analysis on the impact of the Reorganization on
FTL-Cayman's projected net income and compared it to the projected net income of
FTL-Delaware. Due to the tax savings and incremental earnings and cash flow
generated by the Reorganization, Lehman Brothers noted that FTL-Cayman's net
income would increase materially relative to FTL-Delaware's net income during
the projection period.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. The Special Committee selected
Lehman Brothers to act as its financial advisor because of its experience,
reputation and familiarity with the industry in general and because its
investment banking professionals have substantial experience in transactions
similar to the Reorganization.
As compensation for its services in connection with the Reorganization,
FTL-Delaware has agreed to pay Lehman Brothers a fee of $2,000,000, of which
$250,000 was payable upon its retention and $750,000 was payable upon delivery
of its opinion, with the balance contingent upon consummation of the
Reorganization. FTL-Delaware also has agreed to reimburse Lehman Brothers for
reasonable expenses incurred by Lehman Brothers in performing its services,
including the reasonable fees and expenses of its legal counsel, and to
indemnify Lehman Brothers and related persons against certain liabilities that
might arise out of Lehman Brothers' engagement. Lehman Brothers actively trades
in the equity and debt securities of FTL-Delaware for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
THE BOARD OF DIRECTORS OF FTL-DELAWARE HAS UNANIMOUSLY APPROVED THE
PROPOSED REORGANIZATION AND THE RELATED MERGER AGREEMENT AND AMENDMENT TO THE
CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE REORGANIZATION, INCLUDING THE MERGER AGREEMENT AND SUCH
AMENDMENT.
Mr. William Farley, who is a member of the Board of Directors and who has
voted in favor of the Reorganization, may be deemed to have a conflict of
interest in that the FTL-Delaware Class A Stock and Class B Stock will be
treated differently in the Reorganization.
THE MERGER AGREEMENT
General
It is proposed that the Reorganization be effected pursuant to the Merger
Agreement. Pursuant to the Merger Agreement:
(i) Sub will be merged with and into FTL-Delaware, with FTL-Delaware
being the surviving corporation.
27
<PAGE> 28
(ii) Each outstanding share of FTL-Delaware Class A Stock (other than
shares of FTL-Delaware Class A Stock held by FTL-Delaware in its treasury)
will be automatically converted into one FTL-Cayman Class A Share and each
outstanding share of FTL-Delaware Class B Stock will be automatically
converted into one share of FTL-Delaware Preferred Stock.
(iii) The outstanding shares of common stock of Sub will be
automatically converted into that number of shares of common stock of
FTL-Delaware which is equal to the number of shares of FTL-Delaware Class A
Stock outstanding on the date of the Merger.
(iv) All of the shares of FTL-Cayman owned by FTL-Delaware will be
repurchased by FTL-Cayman and cancelled and the $100 subscription price
paid for such shares will be returned to FTL-Delaware.
As a result of the foregoing, upon effectiveness of the Merger, FTL-Delaware, as
the surviving corporation in the Merger, will become a subsidiary of FTL-Cayman,
and all the Class A Shares of FTL-Cayman outstanding immediately after the
Merger will be owned by former holders of FTL-Delaware Class A Stock. The four
(4) FTL-Cayman Class B Shares which will be acquired by the holders of the
FTL-Delaware Class B Stock (i.e., Farley) immediately prior to the
Reorganization will remain outstanding and be held by Farley.
The certificate of incorporation of FTL-Delaware shall be the Certificate
of Incorporation of the surviving corporation of the Merger and will be amended
and restated as set forth in Exhibit A to the Merger Agreement.
Certificate of Amendment/Amended and Restated Certificate of Incorporation
FTL-Delaware's Certificate of Incorporation presently provides that in a
merger transaction the FTL-Delaware Class A Stock and Class B Stock must be
treated alike. Since their treatment in the Reorganization will be different, as
part of the Reorganization and prior to the filing of the Certificate of Merger,
it is proposed to amend such provision to provide that it may be waived by
separate class vote of the FTL-Delaware Class A Stock and Class B Stock. If
approved, the Charter Amendment would become effective prior to the Merger. The
form of the Charter Amendment is attached hereto as Annex III.
A vote in favor of the Reorganization shall be deemed to include approval
of the Merger to be effectuated in accordance with its terms notwithstanding the
different treatment of FTL-Delaware Class A and Class B Common Stock.
As part of the filing of a certificate of merger to effectuate the Merger,
FTL-Delaware will file an Amended and Restated Certificate of Incorporation
which will authorize a single class of shares of common stock and a single class
of shares of preferred stock. The Amended and Restated Certificate of
Incorporation of FTL-Delaware which will be in effect following the Merger is
included as Exhibit A to the Merger Agreement.
Amendment or Termination
FTL-Delaware, FTL-Cayman and Sub, by action of their respective Boards of
Directors, may amend, modify or supplement the Merger Agreement at any time
before or after its adoption by the stockholders of FTL-Delaware; provided,
however, that after such approval, no amendment, modification or supplement may
be made or effected that by law requires further approval by such stockholders
without the further approval of such stockholders.
The Merger Agreement provides that it may be terminated, and the
Reorganization abandoned, at any time, whether before or after stockholder
approval of the Merger Agreement is obtained, by action of the Board of
Directors of FTL-Delaware.
28
<PAGE> 29
CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
The Reorganization will not be consummated unless each of the Charter
Amendment and the Reorganization is approved by the requisite vote of
stockholders of FTL-Delaware.
FTL-Delaware and its subsidiaries are currently party to several debt and
other agreements that require the consent of third parties prior to
implementation of the Reorganization. Obtaining such third party consents is a
condition of the Reorganization. Although it is anticipated that such consents
will be obtained, no assurances can be given when or if FTL-Delaware will be
able to obtain the necessary waivers or consents needed to proceed with the
Reorganization. Farley will also have to obtain the consent of certain pledgees
of FTL-Delaware Class B Stock in order to exchange such stock for FTL-Delaware
Preferred Stock. In connection with the Reorganization it is anticipated that
FTL-Cayman will issue guarantees of certain of FTL-Delaware's debt obligations.
In addition, the indenture governing FTL-Delaware's 7 7/8% Senior Notes due
October 15, 1999 currently requires FTL-Delaware, upon the consummation of the
Merger, to make an offer to purchase the Notes at 101% of the principal amount
thereof plus accrued and unpaid interest. While several options are currently
being considered with respect to such requirement, the Reorganization will not
be consummated unless and until FTL-Delaware is able to do so in compliance with
the provisions of the indenture. See "Third-Party Consents."
EFFECTIVE TIME
If the Reorganization is approved by the stockholders of FTL-Delaware and
not terminated by the Board of Directors of FTL-Delaware, the Reorganization
will become effective (the "Effective Time") at the close of business on the
date that an appropriate certificate of merger is filed with the Delaware
Secretary of State as required by Delaware law or at such later time as is
specified in such certificate of merger. FTL-Delaware anticipates that the
Reorganization will become effective promptly following the Special Meeting,
subject to the receipt of all necessary third-party consents and compliance with
the provisions of the indenture governing FTL-Delaware's 7 7/8% Senior Notes due
1999. See "Third-Party Consents." It is possible that because of the requirement
to obtain such consents and the provisions of such indenture, the Merger could
be delayed for several months following the Special Meeting or be terminated by
the Board of Directors of FTL-Delaware..
Immediately following the Effective Time of the Reorganization, FTL-Cayman
will have the same subsidiaries and affiliates and the same directors and
executive officers as FTL-Delaware had immediately prior to such date.
RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Section 262 of the DGCL, the holders of FTL-Delaware Class A
Stock do not have "dissenters appraisal rights" in connection with the
Reorganization because, among other reasons, such shares are listed on a
national securities exchange.
EXCHANGE OF SHARE CERTIFICATES
As of the Effective Time of the Reorganization, the holders of FTL-Delaware
Class A Stock prior to the Effective Time will automatically become the owners
of FTL-Cayman Class A Shares and, as of the Effective Time, will cease to be
owners of FTL-Delaware Class A Stock. Stock certificates representing
FTL-Delaware Class A Stock will, at the Effective Time, automatically represent
FTL-Cayman Class A Shares. Holders of FTL-Delaware Class A Stock will not be
required to exchange their stock certificates as a result of the Reorganization.
Should a stockholder desire to sell some or all of his FTL-Cayman Class A Shares
after the Effective Time, delivery of the stock certificate or certificates
which previously represented shares of FTL-Delaware Class A Stock will be
sufficient.
Following the Reorganization, certificates bearing the name of FTL-Cayman
will be issued in the normal course upon surrender of outstanding FTL-Delaware
Class A Stock certificates for transfer
29
<PAGE> 30
or exchange. If any stockholder surrenders a certificate representing shares of
FTL-Delaware Class A Stock for exchange or transfer and the new certificate to
be issued is to be issued in a name other than that appearing on the surrendered
certificate theretofore representing the FTL-Delaware Class A Stock, it will be
a condition to such exchange or transfer that the surrendered certificate be
properly endorsed and otherwise be in proper form for transfer and that the
person requesting such exchange or transfer either (i) pay FTL-Cayman or its
agents any taxes or other governmental charges required by reason of the
issuance of a certificate registered in a name other than that appearing on the
surrendered certificate or (ii) establish to the satisfaction of FTL-Cayman or
its agents that such taxes or other governmental charges have been paid.
STOCK COMPENSATION PLANS
If the Reorganization is consummated, FTL-Delaware's stock option plans
will be amended to provide that FTL-Cayman Class A Shares will thereafter be
issued by FTL-Cayman upon exercise of any options issued thereunder. Other
employee benefit plans of FTL-Delaware will be similarly revised or amended, as
necessary.
Stockholder approval of the Reorganization will also constitute stockholder
approval of amendments to the stock option plans and other employee benefit
plans providing for future use of FTL-Cayman Class A Shares in lieu of
FTL-Delaware Class A Stock thereunder.
SHAREHOLDER RIGHTS PLAN
Under the Shareholder Rights Plan, preferred stock purchase rights were
issued to stockholders of FTL-Delaware at the rate of one right for each share
of FTL-Delaware Class A Stock and each share of FTL-Delaware Class B Stock. In
connection with the Reorganization, the Shareholder Rights Plan will be amended
to provide that the existing rights will expire immediately prior to the
Effective Time. FTL-Cayman does not presently intend to adopt a plan similar to
the Shareholder Rights Plan. See "Comparison of Rights of
Stockholders--Preferred Stock Purchase Rights."
STOCK EXCHANGE LISTING
There is currently no established public trading market for the FTL-Cayman
Class A Shares. Immediately following the Reorganization, the FTL-Cayman Class A
Shares will be listed on the NYSE under the symbol "FTL," the same symbol under
which the FTL-Delaware Class A Stock is currently listed.
ACCOUNTING TREATMENT OF THE REORGANIZATION
The Reorganization will be accounted for at the historical cost basis of
the combining companies.
TRANSFER OF ASSETS
Following the Reorganization, FTL-Delaware intends to transfer, directly or
indirectly, to FTL-Cayman, or direct or indirect foreign subsidiaries of
FTL-Cayman, substantially all of its businesses and subsidiaries located outside
of the United States, other than certain interests of FTL-Delaware in Canada,
Germany, Italy and Mexico, and the beneficial ownership of certain trademarks.
Such actions will not require the approval of the stockholders of FTL-Delaware.
Prior to the transfer of the businesses and subsidiaries located outside of
the United States by FTL-Delaware, FTL-Delaware and FTL-Cayman will obtain a
valuation of the businesses, subsidiaries and trademarks to be transferred.
FTL-Cayman, or a subsidiary of FTL-Cayman, will pay to FTL-Delaware in cash,
license royalties and/or notes the fair value of the businesses, subsidiaries
and trademarks to be transferred based on such valuations.
30
<PAGE> 31
CERTAIN TAX CONSIDERATIONS
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Set forth below is the opinion of Weil, Gotshal & Manges LLP, special
United States counsel to FTL-Delaware, with respect to the material United
States federal income tax consequences of the Reorganization applicable to
holders of FTL-Delaware Class A Stock. The opinion contained in this Proxy
Statement/Prospectus is based on the law in effect as of the date of this Proxy
Statement/Prospectus. The opinion does not address the tax treatment of the
Reorganization under applicable state, local, foreign or other tax laws and
generally does not take account of rules that may apply to holders that are
subject to special treatment, including, without limitation, (i) insurance
companies, dealers in securities, certain retirement plans, financial
institutions, tax exempt organizations, holders of securities held as part of a
"straddle", "hedge" or "conversion transaction" with other investments and
taxpayers whose functional currency is not the United States dollar or (ii)
stockholders owning directly, indirectly or by attribution, 10% or more of
FTL-Delaware Class A Stock or FTL-Cayman Class A Shares or (iii) stockholders
who acquired shares pursuant to the exercise of an employee stock option or
otherwise as compensation or (iv) certain expatriates or former long-term
residents of the United States. Stockholders are urged to consult their own tax
advisors as to the particular tax consequences to them of the Reorganization.
For purposes of this discussion, a "U.S. Holder" is any stockholder that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. A Non-U.S. Holder
is any stockholder other than a U.S. Holder. The opinion below assumes that the
FTL-Delaware Class A Stock exchanged in the Reorganization is held as a capital
asset.
The Reorganization
Receipt of FTL-Cayman Class A Shares
Pursuant to Section 367(a) of the Code, and Treasury Regulations
promulgated thereunder, U.S. Holders exchanging their FTL-Delaware Class A Stock
for FTL-Cayman Class A Shares will recognize gain, if any (but not loss) on the
transaction. A U.S. Holder's gain will equal the excess of the fair market value
of the FTL-Cayman Class A Shares received by the holder pursuant to the
Reorganization over the holder's aggregate adjusted basis in the FTL-Delaware
Class A Stock exchanged therefor. Any such gain will be capital gain and, based
on recently enacted legislation, will be long-term capital gain if the
FTL-Delaware Class A Stock is held more than one year at the time of the
exchange. The basis of the FTL-Cayman Class A Shares will be equal to their fair
market value on the date of the Reorganization (except in the case of holders
realizing a loss on the exchange whose basis will be the same as the basis of
their FTL-Delaware Class A Stock exchanged therefor) and the holding period of
the FTL-Cayman Class A Shares will commence on the day after the date of the
Reorganization (except in the case of holders realizing a loss on the exchange
whose holding period will include the period such holders held their
FTL-Delaware Class A Stock).
Form 926 Reporting Requirements
Pursuant to Section 6038B of the Code, a U.S. Holder is required to file an
information return on IRS Form 926 along with certain additional information
which must be attached thereto. Form 926 and its required attachments must be
filed with such holder's U.S. federal income tax return for the taxable year
that includes the Reorganization. The information which must be included with
Form 926 is described in temporary Treasury Regulation Section 1.6038B-1T.
FTL-Delaware intends to provide such information to each U.S. Holder so as
to enable each such holder to timely file Form 926.
31
<PAGE> 32
A U.S. Holder's failure to provide the information required by Section
6038B of the Code will result in, among other things, such holder being subject
to a penalty equal to 25 percent of the amount of gain realized by the holder
pursuant to the Reorganization.
United States Federal Income Taxation of Dividends
For U.S. federal income tax purposes, the gross amount of dividends paid by
FTL-Cayman to U.S. Holders will be treated as foreign source dividend income to
the extent paid out of FTL-Cayman's current or accumulated earnings and profits.
These dividends will not be eligible for the dividends received deduction
generally allowed to U.S. corporate shareholders on dividends from U.S. domestic
corporations. To the extent that an amount received by a U.S. Holder exceeds
such U.S. Holder's allocable share of FTL-Cayman's current and accumulated
earnings and profits, such excess will be applied first to reduce such U.S.
Holder's tax basis in its shares and then, to the extent in excess of such U.S.
Holder's tax basis, such excess will constitute gain from a deemed sale or
exchange of such shares. For U.S. foreign tax credit purposes, dividends on the
shares will generally constitute "passive income", or, in the case of certain
U.S. Holders, "financial services income."
Classification of FTL-Cayman As a Controlled Foreign Corporation
Under Section 951(a) of the Code, each "United States shareholder" of a
"controlled foreign corporation" ("CFC") must include in its gross income for
U.S. federal income tax purposes its pro rata share of the CFC's "subpart F
income," even if the subpart F income is not distributed. In addition, gain on
the sale of stock in a CFC realized by a United States shareholder is treated as
ordinary dividend income to the extent of its pro rata share of the CFC's
accumulated undistributed earnings and profits. Section 951(b) of the Code
defines a United States shareholder ("U.S. Shareholder") as any U.S.
corporation, citizen, resident or other U.S. person who owns (directly or
through certain deemed ownership rules) 10% or more of the total combined voting
power of all classes of stock of a foreign corporation. In general, a foreign
corporation is treated as a CFC only if such U.S. Shareholders collectively own
more than 50% of the total combined voting power or total value of the
corporation's stock. Under these rules FTL-Cayman does not expect to be a CFC.
While it is possible that FTL-Cayman could in the future be treated as a CFC, so
long as a shareholder of FTL-Cayman is not a U.S. Shareholder, FTL-Cayman's
status as a CFC should have no adverse effect on such shareholder.
Passive Foreign Investment Companies
Sections 1291 through 1298 of the Code contain special rules applicable
with respect to foreign corporations that are "passive foreign investment
companies" ("PFICs"). FTL-Cayman will be a PFIC if 75% or more of its gross
income (including the pro rata share of the gross income of any company (United
States or foreign) in which FTL-Cayman is considered to own 25% or more of the
shares by value) in a taxable year is passive income. Alternatively, FTL-Cayman
will be considered to be a PFIC if at least 50% of the assets (averaged over the
year) of FTL-Cayman (including the pro rata share of the assets of any company
of which FTL-Cayman is considered to own 25% or more of the shares by value) in
a taxable year are held for the production of, or produce, passive income. If
FTL-Cayman becomes a PFIC, each shareholder who is a U.S. person, in the absence
of an election by such shareholder to treat FTL-Cayman as a "qualified electing
fund" (a "QEF" election), as discussed below, would, upon certain distributions
by FTL-Cayman and upon disposition of the FTL-Cayman shares at a gain, be liable
to pay tax at the highest tax rate on ordinary income in effect for each period
to which the income is allocated plus interest on the tax, as if the
distribution or gain had been recognized ratably over the taxpayer's holding
period for the FTL-Cayman Class A Shares while FTL-Cayman was a PFIC.
Additionally, were FTL-Cayman to become a PFIC, U.S. Holders who acquire
FTL-Cayman Class A Shares from decedents would be denied the normally available
step-up of the income tax basis for such FTL-Cayman Class A Shares to fair
32
<PAGE> 33
market value at the date of death and, instead, would have a tax basis equal to
the decedent's basis, if lower.
If a U.S. Holder has made a QEF election for all taxable years that such
holder held the FTL-Cayman Class A Shares and FTL-Cayman was a PFIC,
distributions and gain will not be taxed as if recognized ratably over the
taxpayer's holding period or subject to an interest charge, gain on the sales of
FTL-Cayman Class A Shares will be characterized as capital gain and the denial
of basis step-up at death described above would not apply. Instead, a
stockholder of a qualified electing fund is required for each taxable year to
include in income a pro rata share of the ordinary earnings of the qualified
electing fund as ordinary income and a pro rata share of the net capital gain of
the qualified electing fund as long-term capital gain, subject to a separate
election to defer payment of taxes, which deferral is subject to an interest
charge. FTL-Cayman, at the request of a shareholder electing to have FTL-Cayman
treated as a QEF, will comply with the applicable information reporting
requirements.
For taxable years beginning after 1997, a U.S. Holder of certain publicly
traded PFIC stock could elect to mark the stock to market annually, recognizing
as ordinary income or loss each year an amount equal to the difference as of the
close of the taxable year between the holder's fair market value of the PFIC
stock and the adjusted basis in the PFIC stock. Losses would be allowed only to
the extent of net mark-to-market gain previously included by the U.S. Holder
under the election for prior taxable years. If the mark-to-market election were
made, then the rules set forth above would not apply for periods covered by the
election.
FTL-Cayman believes that it will not be a PFIC. However, the tests for
determining PFIC status are applied annually and it is difficult to accurately
predict future income and assets, which are relevant to this determination.
Accordingly, there can be no assurance that FTL-Cayman will not become a PFIC.
U.S. Holders who hold FTL-Cayman Class A Shares during a period when FTL-Cayman
is a PFIC will be subject to the foregoing rules, even if FTL-Cayman ceases to
be a PFIC, subject to certain exceptions for U.S. Holders who made a QEF
election.
FTL-Cayman can give no assurance that it will have timely knowledge of any
future status as a PFIC. In this regard, FTL-Cayman does not assume any
obligation to make timely disclosure with respect to such status.
United States Taxation of Non-U.S. Holders
Subject to certain exceptions, Non-U.S. Holders will be subject to U.S.
federal income tax on gain realized, if any, on the exchange of FTL-Delaware
Class A Stock for FTL-Cayman Class A Shares only if such gain is effectively
connected with the conduct of a trade or business or, in the case of a resident
of a country which has a treaty with the United States, such item is
attributable to a permanent establishment (or in the case of an individual, a
fixed place of business) in the United States or, in the case of a Non-U.S.
Holder that is an individual who holds the FTL-Delaware Class A Stock as a
capital asset, such holder is present in the United States for 183 or more days
in the taxable year and certain other conditions apply.
Subject to certain exceptions, Non-U.S. Holders will be subject to U.S.
federal income tax on dividend distributions with respect to, and gain realized
from the sale or exchange of, FTL-Cayman Class A Shares only if such dividends
or gains are effectively connected with the conduct of a trade or business or,
in the case of a resident of a country which has a treaty with the United
States, such item is attributable to a permanent establishment (or in the case
of an individual, a fixed place of business) within the United States or in the
case of gains realized by Non-U.S. Holders that are individuals, such holders
are present in the United States for 183 days or more during the taxable year of
the sale and certain other conditions exist. Except as discussed below with
respect to backup withholding, dividends paid by FTL-Cayman will not be subject
to U.S. withholding tax. Nonresident alien individuals will not be subject to
U.S. estate tax with respect to shares of FTL-Cayman.
33
<PAGE> 34
Backup Withholding and Information Reporting
The exchange of FTL-Delaware Class A Stock for FTL-Cayman Class A Shares
should not be subject to information reporting or backup withholding because
such exchange will not be for cash.
In addition, U.S. Holders generally will be subject to information
reporting requirements and may be subject to backup withholding with respect to
dividends paid on, or cash proceeds of a sale or exchange of, the FTL-Cayman
Class A Shares. Non-U.S. Holders will not be subject to information reporting or
backup withholding with respect to dividends paid on, or cash proceeds of a sale
or exchange of, the FTL-Cayman Class A Shares, unless payment is made through a
paying agent (or office) in the United States. Non-U.S. Holders generally will
be subject to information reporting and backup withholding at 31% with respect
to any such payment within the United States, unless the Holder provides a
taxpayer identification number, certifies to its foreign status, or otherwise
establishes an exemption.
The amount of any backup withholding from a payment to a holder is allowed
as a credit against such holder's federal income tax liability and may entitle
such holder to a refund, provided that the required information is furnished to
the IRS.
Post-Reorganization Taxation of FTL-Cayman and FTL-Delaware
All of FTL-Delaware's foreign subsidiaries are presently CFCs. As discussed
above, under subpart F of the Code, a CFC is a foreign corporation that is owned
(directly, indirectly or by attribution) more than fifty percent (50%), by vote
or by value, by U.S. Shareholders. In the event that a foreign corporation is a
CFC, a U.S. Shareholder of the CFC must include in income in its taxable year in
which or with which the taxable year of the CFC ends, the total of, among other
things, (i) its pro rata share of the CFC's subpart F income for such taxable
year and (ii) its pro rata share of the CFC's increase in earnings invested in
United States property for such year. Thus, immediately prior to the
Reorganization, FTL-Delaware (or one or more of its domestic subsidiaries) is,
and has been, subject to the deemed income inclusion provisions described above
as the only United States shareholder of FTL-Delaware's foreign subsidiaries.
After the Reorganization, FTL-Delaware will continue to be subject to the deemed
inclusion provisions with respect to any foreign subsidiaries that continue to
be owned by FTL-Delaware, and FTL-Cayman will not be subject to any deemed
income inclusion with respect to its other direct or indirect subsidiaries.
CAYMAN ISLANDS TAX CONSEQUENCES
Set forth below is the opinion of Truman Bodden & Company, special Cayman
Islands counsel to FTL-Cayman, with respect to the material Cayman Islands tax
consequences arising from the Reorganization.
At the present time there is no Cayman Islands income or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by a Cayman Islands company or its shareholders.
FTL-Cayman has applied for and expects to receive an undertaking from the
Governor in Council of the Cayman Islands under the Tax Concessions Law
(Revised) that, for a 20 year period from the date of the grant of the
undertaking in the event that any legislation is enacted in the Cayman Islands
imposing tax computed on profits or income, or computed on any capital assets,
gain or appreciation, or any tax in the nature of estate duty or inheritance
tax, such tax shall not be applicable to FTL-Cayman or to any of its operations
or to the shares, debentures or other obligations of FTL-Cayman except insofar
as such tax applies to persons ordinarily resident in the Cayman Islands and
holding such shares, debentures or other obligations of FTL-Cayman or any land
leased or let to FTL-Cayman. Therefore, there will be no Cayman Islands tax
consequences with respect to the Reorganization or with respect to subsequent
distributions in respect of the FTL-Cayman Class A Shares. FTL-Cayman has
received an opinion of Truman Bodden & Company as to such Cayman Islands tax
consequences.
34
<PAGE> 35
DESCRIPTION OF AUTHORIZED SHARES OF FTL-CAYMAN
The following statements with respect to FTL-Cayman's share capital are
subject to the detailed provisions of FTL-Cayman's Amended and Restated Articles
of Association (the "Articles of Association") and its Amended and Restated
Memorandum of Association (the "Memorandum of Association") as they will be in
effect on the date of the Merger. These statements do not purport to be complete
and, while FTL-Cayman believes the descriptions of the material provisions of
the Articles of Association and Memorandum of Association contained in this
Proxy Statement/Prospectus are accurate statements with respect to such material
provisions, such statements are subject to the detailed provisions in the
Articles of Association and Memorandum of Association, to which reference is
hereby made for a full description of such provisions.
ORDINARY SHARES; GENERAL
The Memorandum of Association provides that the authorized share capital of
FTL-Cayman is divided into 200,000,000 Class A Shares, 100 Class B Shares and
35,000,000 preference shares.
VOTING
The holders of FTL-Cayman Class A Shares will be entitled to one vote per
share. The voting rights of the four (4) FTL-Cayman Class B Shares to be issued
to Farley will be equal to the aggregate number of votes held by the holders of
FTL-Delaware Class B Stock on the date the Merger is consummated (which based on
current ownership is 28,421,380 votes or approximately 30% of the aggregate
voting power). All actions submitted to a vote of shareholders shall be voted on
by the holders of FTL-Cayman Class A Shares and FTL-Cayman Class B Shares,
voting together as a single class, except as otherwise set forth below or as
provided by law. The four (4) FTL-Cayman Class B Shares which will be purchased
by Farley immediately prior to the Reorganization have been designed to maintain
the relative voting rights that currently exist between the FTL-Delaware Class A
Stock and Class B Stock.
With respect to the election of directors, holders of FTL-Cayman Class A
Shares, voting as a separate class, will be entitled to elect 25% of the total
number of directors constituting the entire Board of Directors of FTL-Cayman
(the "Class A Directors") for so long as any FTL-Cayman Class B Shares are
outstanding, and, if not a whole number, then the holders of the FTL-Cayman
Class A Shares are entitled to elect the nearest higher whole number of
directors that is at least 25% of the total number of directors.
There are no limitations on the right of nonresident shareholders to hold
or vote their FTL-Cayman Class A Shares imposed by Cayman Islands law or
FTL-Cayman's Articles of Association; provided, however, that, except as
otherwise required by Cayman Islands law, FTL-Cayman shall not be bound to
recognize any equitable, contingent, future or partial interest in any share
except the absolute right in the registered holder. The rights attached to any
separate class of shares (unless otherwise provided by the terms of the shares
of that class) may be varied only with the consent in writing of the holders of
a majority of the shares of that class or by a Special Resolution (as defined
below) passed at a separate general meeting of holders of the shares of that
class. The necessary quorum for such a meeting shall be holders of at least a
majority of the shares of that class and any holder of shares of the class
present in person or by proxy may demand a vote and, on such vote, shall have
one vote for each share of the class of which he is the holder. No additional
FTL-Cayman Class B Shares may be issued without the consent in writing of the
holders of a majority of the then issued FTL-Cayman Class B Shares or by a
Special Resolution of such shareholders. The rights attached to any class of
shares, other than the FTL-Cayman Class B Shares, shall not be deemed to be
varied by the issuance of additional shares that rank pari passu with such
shares.
35
<PAGE> 36
DIVIDEND RIGHTS
Holders of FTL-Cayman Class A Shares will be entitled to participate pari
passu, on a share for share basis, with the holders of any other class of
ordinary shares outstanding, including the FTL-Cayman Class B Shares, with
respect to any dividends declared by the Board of Directors of FTL-Cayman. At
the time of the Reorganization, FTL-Cayman and FTL-Delaware will be party to
certain loan agreements and indentures which contain covenants that will
restrict their ability to pay dividends. FTL-Cayman and FTL-Delaware currently
intend to retain earnings for use in their respective businesses and the
financing of their respective capital requirements (except for the payment of
regular quarterly dividends on the FTL-Delaware Preferred Stock as discussed
below). The payment of any future cash dividends on the FTL-Cayman Class A
Shares is necessarily dependent upon the earnings and financial needs of
FTL-Cayman, along with applicable legal and contractual restrictions.
Holders of FTL-Cayman Class A Shares will not be entitled to a cash
dividend preference of $1.00 per share that is currently available to the
holders of FTL-Delaware Class A Stock prior to the payment of dividends to the
holders of FTL-Delaware Class B Stock. The Board has determined that the $1.00
preference available to the holders of FTL-Delaware Class A Stock is not
necessary following the Reorganization since the current holders of FTL-Delaware
Class B Stock will not be entitled to participate in the dividends of
FTL-Cayman, except on the very limited basis of their four (4) FTL-Cayman Class
B Shares.
LIQUIDATION OF FTL-CAYMAN
Upon the liquidation of FTL-Cayman, subject to the rights of any holders of
FTL-Cayman preference shares, the holders of FTL-Cayman Class A Shares will
participate in the assets of FTL-Cayman available for distribution pari passu,
on a share for share basis, with the holders of any other class of ordinary
shares outstanding (including the FTL-Cayman Class B Shares). If FTL-Cayman
shall be wound up, the liquidator, by a Special Resolution and any other
approvals required by Cayman Islands law, may divide among the holders of
FTL-Cayman Class A Shares and FTL-Cayman Class B Shares in kind the whole or any
part of the assets of FTL-Cayman (whether they shall consist of property of the
same kind or not) and may for such purpose set such value as the liquidator
deems fair upon any property to be so divided and the liquidator may determine
how such division shall be carried out as between the holders of the FTL-Cayman
Class A Shares and FTL-Cayman Class B Shares. The liquidator following a Special
Resolution of shareholders may transfer all or any part of the assets of
FTL-Cayman in trust for the benefit of shareholders as the liquidator, with such
approval, shall determine.
A Special Resolution is a resolution passed by two-thirds of such
shareholders as, being entitled to do so, vote in person or, where proxies are
allowed, by proxy at a general meeting of which notice specifying the intention
to propose such resolution has been duly given or which has been approved in
writing by all shareholders of a company entitled to vote at a general meeting
of the company.
REDEMPTION
The FTL-Cayman Class A Shares will not be subject to redemption either by
FTL-Cayman or the holder thereof.
The FTL-Cayman Class B Shares to be held by Farley will be redeemed by
FTL-Cayman in the following instances:
(i) upon exchange by Farley of any FTL-Delaware Preferred Stock held
by Farley for FTL-Cayman Class A Shares pursuant to the terms thereof,
FTL-Cayman shall redeem a proportionate number of whole or fractional
FTL-Cayman Class B Shares equal to the percentage of outstanding shares of
FTL-Delaware Preferred Stock so exchanged by Farley at a redemption
36
<PAGE> 37
price per FTL-Cayman Class B Share equal to the closing price on the NYSE
of an FTL-Cayman Class A Share on the last trading day prior to the
redemption date (the "Redemption Price").
(ii) upon redemption of all of the FTL-Delaware Preferred Stock held
by Farley by FTL-Delaware pursuant to the terms thereof, FTL-Cayman shall
redeem all of the FTL-Cayman Class B Shares at a price equal to the
Redemption Price.
(iii) upon transfer by Farley to a non-affiliate of Farley of any
shares of FTL-Delaware Preferred Stock or FTL-Delaware common stock
received upon conversion thereof, a proportionate number of whole or
fractional FTL-Cayman Class B Shares equal to the percentage of outstanding
shares of FTL-Delaware Preferred Stock and/or such FTL-Delaware common
stock which are transferred by Farley shall be redeemed by FTL-Cayman at a
price equal to the Redemption Price.
RESTRICTIONS ON TRANSFER
The FTL-Cayman Class B Shares will not be transferrable by the holders
thereof except to affiliates of Farley. The FTL-Cayman Class A Shares contain no
restrictions on transfer.
PREFERENCE SHARES
Under the Memorandum of Association and the Articles of Association,
FTL-Cayman will have the authority to issue 35,000,000 preference shares. There
are currently no preference shares outstanding, and FTL-Cayman will not issue
any preference shares in connection with the Reorganization. Under the Articles
of Association, subject to the special rights attaching to any class of shares
of FTL-Cayman not being varied, the Board of Directors of FTL-Cayman may
establish one or more classes or series of preference shares having the number
of shares, designations, relative voting rights, dividend rates, liquidation and
other rights, preferences and limitations that the Board of Directors fixes
without any shareholder approval.
DESCRIPTION OF FTL-DELAWARE PREFERRED STOCK
GENERAL
Under its Certificate of Incorporation, FTL-Delaware has authority to issue
35,000,000 shares of preferred stock. The Board of Directors of FTL-Delaware can
periodically issue any number of series of preferred stock with any rights and
preferences that it so determines by Board action. In connection with the
Reorganization, a Certificate of Designations (the "Certificate of
Designations") will be filed with the Secretary of State of the State of
Delaware setting forth the terms of the FTL-Delaware Preferred Stock. The form
of Certificate of Designations is attached as Annex IV hereto.
The following description of certain provisions of the FTL-Delaware
Preferred Stock is intended as a summary only and does not purport to be
complete. While FTL-Delaware believes the descriptions of the material
provisions of the Certificate of Designations are accurate statements with
respect to such material provisions, such statements are subject to the detailed
provisions in the Certificate of Designations and are qualified in their
entirety by reference to the complete text of the Certificate of Designations.
DIVIDENDS
Holders of FTL-Delaware Preferred Stock shall be entitled to receive
cumulative preferred cash dividends of 4.5% per annum of the liquidation
preference of such FTL-Delaware Preferred Stock (the "Preferred Stock
Dividend"). The Preferred Stock Dividend shall be paid to the holders of FTL-
Delaware Preferred Stock on a quarterly basis. In addition to the Preferred
Stock Dividend, holders of FTL-Delaware Preferred Stock will be entitled to
participate with the holders of the common stock
37
<PAGE> 38
of FTL-Delaware following the Reorganization with respect to all other dividends
declared by the Board of Directors of FTL-Delaware on an as converted basis in
accordance with the terms of conversion described below.
The certificate of incorporation of FTL-Delaware will provide that
dividends, other than the Preferred Stock Dividend, may be declared only by a
committee of the Board of Directors of FTL-Delaware, consisting entirely of
directors who are not affiliates of Farley or employees of FTL-Delaware or its
affiliates.
Under Delaware law, FTL-Delaware may declare and pay dividends on its
shares of capital stock out of its surplus and, if there is no surplus, out of
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. The payment of any future cash dividends is necessarily
dependent upon the earnings and financial needs of FTL-Delaware, along with
applicable legal and contractual restrictions.
LIQUIDATION OF FTL-DELAWARE
In case of the voluntary or involuntary liquidation, dissolution, or
winding up of FTL-Delaware, holders of FTL-Delaware Preferred Stock are entitled
to receive an aggregate liquidation preference equal to the average closing
price of the FTL-Delaware Class A Stock on the NYSE for the 20 trading days
prior to the Effective Time multiplied by the number of outstanding shares of
FTL-Delaware Class B Stock on such date (the "FTL-Delaware Liquidation
Preference"), plus all accrued and unpaid dividends. See "The
Reorganization--Background and Reasons for the Reorganization; Financial
Advisors." The FTL-Delaware Liquidation Preference was originally to be
determined based on the closing price of the FTL-Delaware Class A Stock on the
NYSE for the 20 trading days prior to the date of the Special Meeting, but
because of the uncertainty with respect to FTL-Delaware's 7 7/8% Senior Notes
due October 15, 1999, the Board of Directors, with the recommendation of the
Special Committee, has determined to change the time period for the
determination of the FTL-Delaware Liquidation Preference to the 20 trading days
prior to the Effective Time. See "Third Party Consents." Lehman Brothers has
confirmed to the Board of Directors that its opinion, as of the date it was
delivered, would not have been affected by such change. See "The
Reorganization--Background and Reasons for the Reorganization; Financial
Advisors."
The holders of FTL-Delaware Preferred Stock shall also be entitled to
participate with the holders of the common stock of FTL-Delaware following the
Reorganization with respect to all liquidation proceeds on an as converted basis
in accordance with the terms of conversion described below.
Holders of FTL-Delaware Preferred Stock are entitled to the FTL-Delaware
Liquidation Preference before any payment or distribution is made to the holders
of any series or class of FTL-Delaware's stock which ranks junior as to
liquidation rights to the FTL-Delaware Preferred Stock including the common
stock of FTL-Delaware, but the holders of the shares of the FTL-Delaware
Preferred Stock will not be entitled to receive the FTL-Delaware Liquidation
Preference until the liquidation price of any other series or class of
FTL-Delaware's stock hereafter issued which ranks senior as to liquidation
rights to the FTL-Delaware Preferred Stock has been paid in full.
VOTING RIGHTS
The holders of the FTL-Delaware Preferred Stock shall be entitled to vote
on all matters put to a vote of the holders of FTL-Delaware common stock, voting
together with such holders as a single class, and will be entitled to the number
of votes which such holder would have on an as converted basis, provided,
however, that if dividends on the FTL-Delaware Preferred Stock are in arrears
for six or more quarters, then the holders of the FTL-Delaware Preferred Stock
shall have the right, voting separately as a class, to elect one additional
member to the Board of Directors of FTL-Delaware (the "Preferred Stock
Director"). The Preferred Stock Director shall be the sole member
38
<PAGE> 39
of a special committee of the Board of Directors of FTL-Delaware, the only
purpose of which will be to declare dividends on the FTL-Delaware Preferred
Stock. The special committee, however, will not be permitted to declare
dividends on the FTL-Delaware Preferred Stock if such a payment would be or
cause a default or an event of default under any debt agreement of FTL-Delaware
or any of its affiliates.
OPTIONAL REDEMPTION
FTL-Delaware will not be permitted to redeem the FTL-Delaware Preferred
Stock until the third anniversary of the date of original issuance of the
FTL-Delaware Preferred Stock. Thereafter, the FTL-Delaware Preferred Stock will
be subject to redemption, at the option of FTL-Delaware, in whole, at any time,
upon not less than 30 days' or more than 60 days' prior written notice to the
holders of the FTL-Delaware Preferred Stock, at a price equal to the then fair
market value of the FTL-Delaware Preferred Stock as determined by a nationally
recognized investment banking firm.
The certificate of incorporation of FTL-Delaware will provide that all
decisions with respect to the redemption of the FTL-Delaware Preferred Stock
shall be made by a committee of the Board of Directors of FTL-Delaware,
consisting entirely of directors who are not affiliates of Farley or employees
of FTL-Delaware or its affiliates.
EXCHANGE RIGHTS
A holder of FTL-Delaware Preferred Stock will have the right at any time,
at the holder's option, to exchange with FTL-Delaware, in whole or from time to
time in part, FTL-Delaware Preferred Stock for FTL-Cayman Class A Shares at the
exchange rate of .9524 FTL-Cayman Class A Shares for each share of FTL-Delaware
Preferred Stock, subject to adjustment (except that in the event that such
FTL-Delaware Preferred Stock is called for redemption such right terminates on
the date determined by FTL-Delaware, which will be no earlier than the close of
business on the fifth business day immediately preceding the specified
redemption date).
The exchange ratio has been determined taking into account the current
number of shares of FTL-Delaware Class A Stock that would be received upon
conversion of the outstanding FTL-Delaware Class B Stock, less a discount to
compensate the holders of FTL-Cayman Class A Shares for the Preferred Stock
Dividends payable to Farley. See "The Reorganization--Special Committee/Fairness
Opinion and Background and Reasons for the Reorganization; Financial Advisors."
CONVERSION RIGHTS
A holder of FTL-Delaware Preferred Stock will have the right at any time,
at the holder's option, to convert, in whole or from time to time in part,
FTL-Delaware Preferred Stock into FTL-Delaware common stock at the conversion
rate of .9524 shares of FTL-Delaware common stock for each share of FTL-Delaware
Preferred Stock, subject to adjustment (except that in the event that such
FTL-Delaware Preferred Stock is called for redemption such right terminates on
the date determined by FTL-Delaware, which will be no earlier than the close of
business on the fifth business day immediately preceding the specified
redemption date).
COMPARISON OF RIGHTS OF STOCKHOLDERS
The rights of stockholders of FTL-Delaware are governed by Delaware law and
FTL-Delaware's Certificate of Incorporation and By-Laws. After the
Reorganization, the holders of FTL-Delaware Class A Stock will become holders of
FTL-Cayman Class A Shares, and their rights will be governed by the Companies
Law (1995 Revision) of the Cayman Islands (the "Companies Law"), FTL-Cayman's
Articles of Association and FTL-Cayman's Memorandum of Association.
The principal attributes of the FTL-Delaware Class A Stock and the
FTL-Cayman Class A Shares will be similar; however, there are certain
differences between the rights of stockholders
39
<PAGE> 40
under Delaware law and Cayman Islands law, which is modeled after that of
England and Wales. In addition, there are certain differences between
FTL-Delaware's Certificate of Incorporation and By-laws and FTL-Cayman's
Articles of Association and Memorandum of Association.
The following discussion is a summary of all material changes in the rights
of stockholders resulting from the Reorganization described in this Proxy
Statement/Prospectus. This summary does not purport to be complete or to cover
all of the respects in which Cayman Islands law may differ from laws generally
applicable to Delaware corporations and their stockholders and, while FTL-Cayman
and FTL-Delaware believe that this summary is accurate, this summary is subject
to the complete text of the relevant provisions of the Companies Law, the
Delaware General Corporation Law ("DGCL"), FTL-Delaware's Certificate of
Incorporation and By-Laws and FTL-Cayman's Articles of Association and
Memorandum of Association.
STOCKHOLDER APPROVAL OF BUSINESS COMBINATIONS
Under the DGCL, there is no statutory restriction on a Delaware
corporation's ability to acquire the business of another corporation. However, a
merger or consolidation, sale, lease, exchange or other disposition of all or
substantially all of the property of the corporation (a "Disposition") not in
the usual and regular course of the corporation's business, or a dissolution of
the corporation, is required under the DGCL to be approved by the holders of a
majority of the shares entitled to vote thereon unless the charter provides
otherwise. In addition, under the DGCL, class voting rights exist with respect
to amendments to the charter that adversely affect the terms of the shares of a
class. See "Amendment of Charter" below. Such class voting rights do not exist
as to other extraordinary matters, unless the charter provides otherwise. The
Certificate of Incorporation of FTL-Delaware does not provide otherwise.
FTL-Cayman may acquire the assets and business of another company and carry
on that business when it is within the purposes of its Memorandum of
Association. A Cayman Islands company may not "merge" with another company.
However, under the Companies Law, FTL-Cayman may (a) consolidate or amalgamate
with another company or (b) reorganize or reconstruct itself pursuant to a plan
approved by:
(i) for each class of shares issued, a majority in the number of the
holders of the shares of that class present in person or by
proxy at a general meeting of that class, provided that such
shares represent at least 75% of the nominal value of the shares
of such class held by such shareholders present in person or by
proxy at such general meeting; and
(ii) the Cayman Islands court, who may, but need not, grant its
approval.
In certain circumstances the Cayman Islands court has refused to grant approval
even if the requisite majority of shareholders approve.
Farley will enter into an agreement with FTL-Cayman that will provide that
in any shareholder vote to consider a consolidation or amalgamation, if the
number of votes cast in favor of such transaction by the FTL-Cayman Class A
Shares and the FTL-Cayman Class B Shares voting together as a single class in a
deemed vote of the two classes, constitutes a majority of the votes cast, and if
the separate vote of the Class A Shares is in favor of such transaction, Farley
will vote in favor of such transaction in the separate class vote of the
FTL-Cayman Class B Shares.
ABSENCE OF REQUIRED VOTE FOR CERTAIN MERGERS
Under the DGCL, no vote of the stockholders of a corporation surviving a
merger is required to approve a merger if (i) the agreement of merger does not
amend the charter of such corporation, (ii) each share of stock of such
corporation outstanding immediately before the merger is to be an identical
outstanding or treasury share of the surviving corporation thereafter and (iii)
the number
40
<PAGE> 41
of shares of common stock of such corporation to be issued in the merger, if
any, does not exceed 20 percent of the number of shares outstanding immediately
before the merger.
There is no equivalent provision in the Companies Law and therefore the
shareholders of the surviving company in such a situation would be entitled to
vote on the merger as described above. See "Stockholder Approval of Business
Combinations" above.
APPRAISAL RIGHTS
Under the DGCL, a stockholder of a corporation does not have appraisal
rights in connection with a merger or consolidation or, in the case of a
disposition, if (i) the shares of such corporation are listed on a national
securities exchange or held of record by more than 2,000 stockholders, as is
presently the case with FTL-Delaware, or (ii) such corporation will be the
surviving corporation of the merger and no vote of the stockholders of the
surviving corporation is required to approve such merger, provided, however,
that a stockholder is entitled to appraisal rights in the case of a merger or
consolidation if such stockholder is required by the terms of an agreement of
merger or consolidation to accept in exchange for the shares of such stockholder
anything other than (a) shares of stock of the corporation surviving or
resulting from such merger or consolidation, (b) shares of any other corporation
that on the effective date of the merger on consolidation will be either listed
on a national securities exchange or held of record by more than 2,000
stockholders, (c) cash in lieu of fractional shares of the corporation described
in the foregoing clauses (a) and (b), or (d) any combination of the foregoing.
FTL-Delaware's Class A Stock is presently listed on the NYSE and FTL-Cayman's
Class A Shares will be listed or authorized for listing upon official notice of
issuance by the NYSE.
The Companies Law does not provide for appraisal rights. However, in the
case of a court sanctioned reorganization of a Cayman Islands company as
described in "Stockholder Approval of Business Combinations" above, a dissenting
shareholder has the right to express to the court such shareholder's view that
the transaction sought to be approved would not provide the shareholders with
the fair value of their shares. The court of the Cayman Islands has the
discretion to make such order as it may decide, however, (i) FTL-Cayman believes
the court ordinarily would not disapprove the transaction on that ground absent
other evidence of fraud or bad faith, and (ii) if the transaction were approved
and consummated, the dissenting shareholder would have no rights comparable to
the appraisal rights (as here defined, rights to receive payments in cash for
the judicially determined value of their shares) available to dissenting
stockholders of Delaware corporations.
In addition, the Companies Law provides that where an offer is made by a
company for shares of a Cayman Islands company and, within four months of the
offer, the holders of not less than 90 percent of the shares which are the
subject of the offer accept, the offeror may by notice require the dissenting
shareholders to transfer their shares on the terms of the offer. Within one
month of such notice, a dissenting shareholder may apply to the court objecting
to the transfer. The burden is on the dissenting shareholders to show that the
court should exercise its discretion to prevent the requirement of such
transfer. The court of the Cayman Islands has absolute discretion to make such
order as it may decide. FTL-Cayman, however, believes it is unlikely to prevent
the requirement of such transfer unless there is evidence of fraud or bad faith
or collusion as between the offeror and the holders of the shares who have
accepted the offer as a means of unfairly forcing out minority stockholders or
where it is affirmatively established that notwithstanding the views of a very
large majority of the shareholders the transaction is unfair.
STOCKHOLDER CONSENT TO ACTION WITHOUT MEETING
Under the DGCL, unless otherwise provided in the charter, any action that
can be taken at a meeting of the stockholders may be taken without a meeting if
written consent thereto is signed by the holders of outstanding stock having the
minimum number of votes necessary to authorize or take such action at a meeting
of the stockholders. FTL-Delaware's Certificate of Incorporation
41
<PAGE> 42
provides that whenever the vote of stockholders or any class or classes of
stockholders at a meeting thereof is required or permitted to be taken for or in
connection with any corporate action, the meeting and vote of the stockholders
or such class or classes of stockholders may be dispensed with upon the written
consent of the stockholders having not less than such minimum percentage of the
total number of votes as may otherwise have been required for such action.
The Companies Law and the Articles of Association provide that shareholders
may take action requiring an ordinary or a Special Resolution without a meeting
only by unanimous written consent.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, a special meeting of stockholders may be called only by the
Board of Directors or by persons authorized in the charter or the bylaws. The
Bylaws of FTL-Delaware provide for the call of a special meeting of stockholders
only by the Chairman of the Board, the President, a majority of the Board of
Directors or stockholders representing a majority in amount of capital stock of
FTL-Delaware.
Under the Articles of Association, an extraordinary meeting may be called
only by the Board of Directors or by the Chairman of the Board of Directors or
the President of FTL-Cayman. The Board of Directors, upon the request in writing
of one or more shareholders holding in the aggregate not less than one-half of
the paid-up share capital of FTL-Cayman on the date of such request carrying the
right to vote at general meetings, shall convene an extraordinary general
meeting, failing which those making such request or any of them or any other
member or members holding in the aggregate not less than one-half of the paid-up
share capital of FTL-Cayman on the date of the request carrying the right to
vote at general meetings, may convene an extraordinary general meeting.
DISTRIBUTIONS AND DIVIDENDS; REPURCHASES AND REDEMPTIONS
The Certificate of Incorporation of FTL-Delaware currently provides that
the holders of FTL-Delaware Class A Stock shall be entitled to receive, on a
cumulative basis, the first $1.00 per share of cash dividends declared by the
Board of Directors before FTL-Delaware shall declare, pay or set apart for
payment any cash dividends on FTL-Cayman Class B Shares.
The Articles of Association do not provide the holders of FTL-Cayman Class
A Shares with any similar preference with respect to dividends. The Board has
determined that the $1.00 preference available to the holders of FTL-Delaware
Class A Stock is not necessary following the Reorganization since the current
holders of FTL-Delaware Class B Stock will not be entitled to participate in the
dividends of FTL-Cayman, except on the very limited basis of their four (4)
FTL-Cayman Class B Shares. With respect to the outstanding shares of common
stock of FTL-Delaware after the Reorganization (all of which initially will be
held by FTL-Cayman), dividends will only be paid thereon after the holders of
FTL-Delaware Preferred Stock have been paid all Preferred Stock Dividends and
thereafter the holders of FTL-Delaware Preferred Stock will be entitled to
participate on an as converted basis with the holder of the FTL-Delaware common
stock on all dividends declared by the Board of Directors of FTL-Delaware.
Under the DGCL, a corporation may pay dividends out of surplus and, if
there is no surplus, out of net profits for the current and/or the preceding
fiscal year, unless the net assets of the corporation are less than the capital
represented by issued and outstanding stock having a preference on asset
distributions. Surplus is defined in the DGCL as the excess of the net assets
over capital, as such capital may be adjusted by the board. A Delaware
corporation may purchase or redeem shares of any class except when its capital
is impaired or would be impaired by such purchase or redemption. A corporation
may, however, purchase or redeem out of capital shares that are entitled upon
any distribution of its assets to a preference over another class or series of
its stock if such shares are to be retired and the capital reduced.
42
<PAGE> 43
Under the Companies Law, the directors may pay to the shareholders such
dividends as appear to the directors to be justified by the profits of
FTL-Cayman or out of the "share premium account" (similar to the concept of
additional paid in capital) if FTL-Cayman has the ability to pay its debts as
they become due.
PREFERRED STOCK PURCHASE RIGHTS
In February 1996 the Board of Directors of FTL-Delaware adopted the
Shareholder Rights Plan pursuant to which preferred stock purchase rights were
distributed for each outstanding share of FTL-Delaware Class A Stock and each
outstanding share of FTL-Delaware Class B Stock. The Shareholder Rights Plan was
designed to (i) protect against attempts to acquire FTL-Delaware for an
inadequate or unfair price, (ii) deter abusive tactics which induce stockholders
to tender shares prior to realizing the full value or total potential of their
investment in FTL-Delaware and (iii) create an incentive for a potential
acquirer to negotiate the price and terms of an acquisition transaction in good
faith with the Board so that stockholders are treated equally. The Shareholder
Rights Plan therefore may have certain anti-takeover effects.
FTL-Cayman does not presently intend to adopt a plan similar to the
Shareholder Rights Plan. In addition, in connection with the Reorganization, the
Shareholder Rights Plan will be amended by the Board of Directors of
FTL-Delaware to provide that the existing preferred stock purchase rights will
expire immediately prior to the Merger without FTL-Delaware paying a redemption
price for such rights.
INSPECTION OF BOOKS AND RECORDS
Under the DGCL, any stockholder may inspect the corporation's books and
records for a proper purpose.
Shareholders of a Cayman Islands company have no general rights to inspect
or obtain copies of the list of shareholders or corporate records of a company
(other than the register of mortgages and charges).
AMENDMENT OF CHARTER
Under the DGCL, the certificate of incorporation may be amended if (i) the
board of directors sets forth the proposed amendment in a resolution, declares
the advisability of the amendment and directs that it be submitted to a vote at
the meeting of stockholders and (ii) the holders of at least a majority of
shares of stock entitled to vote thereon approve the amendment, unless the
charter requires the vote of a greater number of shares. If the holders of the
outstanding shares of a class are entitled to vote as a class upon a proposed
amendment, the holders of a majority of the outstanding shares of such class
must also vote in favor of the amendment.
Under the Companies Law, the Memorandum of Association may only be amended
by a Special Resolution of the shareholders.
AMENDMENT OF BYLAWS
Under the DGCL, the board of directors may amend bylaws if so authorized in
the charter. The stockholders of a Delaware corporation also have the power to
amend bylaws. The Certificate of Incorporation of FTL-Delaware authorizes the
Board of Directors to make, alter, amend or repeal the bylaws.
Under the Companies Law, the Articles of Association may only be amended by
a Special Resolution of the shareholders.
43
<PAGE> 44
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Companies Law and the DGCL have different provisions and limitations
regarding indemnification by a corporation of its officers, directors, employees
and agents. If the Reorganization is approved, the Companies Law indemnification
provisions will not apply to any act or omission that occurs before the
Effective Time. The following is a summary comparison of Companies Law and DGCL
indemnification provisions.
Under the DGCL, indemnification rights are expressly non-exclusive. A
corporation is permitted to provide indemnification or advancement of expenses,
by bylaw provision, agreement or otherwise, against judgments, fines, expenses
and amounts paid in settlement actually and reasonably incurred by the person in
connection with such proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation.
The Certificate of Incorporation of FTL-Delaware makes indemnification
mandatory on the part of FTL-Delaware to the fullest extent permitted by law.
Cayman Islands law does not limit the extent to which a company's Articles
of Association may provide for the indemnification of officers and directors,
except to the extent that such provision may be held by the Cayman Islands
courts to be contrary to public policy (for instance, for purporting to provide
indemnification against the consequences of committing a crime). In addition, an
officer or director may not be indemnified for his own dishonesty or wilful
neglect or default.
The Articles of Association of FTL-Cayman will contain provisions providing
for the indemnity by FTL-Cayman of an officer, director, employee or agent of
FTL-Cayman to the same extent as permitted under the Certificate of
Incorporation of FTL-Delaware.
LIMITED LIABILITY OF DIRECTORS
Section 102(b)(7) ("Section 102") of the DGCL permits the adoption of a
charter provision limiting or eliminating the monetary liability of a director
to a corporation or its stockholders by reason of a director's breach of the
fiduciary duty of care. Section 102 does not permit any limitation of the
liability of a director for (i) breaching the duty of loyalty to the corporation
or its stockholders, (ii) failing to act in good faith, (iii) engaging in
intentional misconduct or a known violation of law, (iv) obtaining an improper
personal benefit from the corporation or (v) paying a dividend or approving a
stock repurchase that was illegal under the DGCL. The Certificate of
Incorporation of FTL-Delaware eliminates the monetary liability of a director to
the fullest extent permitted by the DGCL.
There is no equivalent provision under the Companies Law. However, the
Articles of Association of FTL-Cayman will state that the directors of
FTL-Cayman shall have no personal liability to FTL-Cayman or its shareholders
for monetary damages for breach of fiduciary or other duties as a director,
except (i) for any breach of a director's duty of loyalty to FTL-Cayman or its
shareholders, (ii) for acts or omissions not in good faith which involve
intentional misconduct or a knowing violation of law, or (iii) for any
transaction from which a director derived an improper personal benefit.
STOCKHOLDERS' SUITS
Section 327 of the DGCL requires only that the stockholder bringing a
derivative suit must have been a stockholder at the time of the wrong complained
of or that the stock devolved to him by operation of law from a person who was
such a stockholder. In addition, the stockholder must remain a stockholder
throughout the litigation.
The Cayman Islands courts have recognized derivative suits by shareholders;
however, the consideration of such suits has been limited. In this regard, the
Cayman Islands courts ordinarily would be expected to follow English precedent,
which would permit a minority stockholder to
44
<PAGE> 45
commence an action against or a derivative action in the name of the company to
remedy a wrong done to the company only where (i) the act complained of is
alleged to be beyond the corporate power of the company or illegal, (ii) the act
complained of is alleged to constitute a fraud against the minority perpetrated
by those in control of the company, (iii) the act requires approval by a greater
percentage of the company's shareholders than actually approved it or (iv) there
is a an absolute necessity to waive the general rule that a stockholder may not
bring such an action in order that there not be a denial of justice or a
violation of the company's memorandum of association.
THIRD-PARTY CONSENTS
FTL-Delaware and its subsidiaries are currently party to several debt and
other agreements that require the consent of third parties prior to the
Reorganization. Obtaining such third-party consents is a condition to
consummation of the Reorganization. In connection with the Reorganization it is
anticipated that FTL-Cayman will issue guarantees of certain of FTL-Delaware's
debt obligations.
In addition, Farley, pursuant to agreements with certain third parties have
pledged certain of their FTL-Delaware Class B Stock as security for obligations
owed to those third parties. In connection with the Reorganization, Farley is
required to obtain the consent of such third parties in order to exchange
FTL-Delaware Preferred Stock for the FTL-Delaware Class B Stock currently
pledged to those third parties.
Although it is anticipated that such consents will be obtained, no
assurances can be given as to when or if FTL-Delaware or Farley will be able to
obtain the necessary waivers or consents needed to proceed with the
Reorganization.
The terms of the indenture governing the 7 7/8% Senior Notes Due October
15, 1999 of FTL-Delaware (the "7 7/8 Senior Notes") currently requires
FTL-Delaware, upon the consummation of the Merger, to make an offer to the
holders of all outstanding 7 7/8 Senior Notes to purchase the holder's 7 7/8
Senior Notes at a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest. If all holders of the 7 7/8 Senior Notes accept
such a purchase offer, the aggregate purchase price would be $252,500,000 plus
accrued and unpaid interest. FTL-Delaware is currently considering several
options with respect to such requirement, including raising the necessary funds
for such purchase offer from public and/or private sources, utilizing
anticipated operating cash flow or, in the alternative, seeking the consent of
the requisite holders of the 7 7/8 Senior Notes to eliminate the requirement for
such repurchase offer to be made. No assurances can be given, however, when or
if FTL-Delaware will be able to raise the necessary funds, generate the
anticipated operating cash flow or obtain the necessary consents. Further, if
the 7 7/8 Senior Notes, which mature on October 15, 1999, remain outstanding
following the consummation of the Merger, FTL-Delaware may also seek an
amendment to the indenture so as to permit the payment of dividends on the
FTL-Delaware Preferred Stock. FTL-Delaware will not proceed with the
Reorganization unless and until it is able to do so in compliance with the
provisions of the indenture governing the 7 7/8 Senior Notes.
MANAGEMENT OF FTL-CAYMAN
The Board of Directors of FTL-Cayman, upon the effectiveness of the
Reorganization, is to consist of those persons who, at the Effective Time, are
serving as directors of FTL-Delaware, each to have the term of office for which
he or she was elected or appointed. FTL-Cayman's executive officers are now, and
upon the effectiveness of the Reorganization are expected to be, the same as
those persons who are presently employed as executive officers of FTL-Delaware.
The executive officers of FTL-Delaware as of August 13, 1998 were as follows:
William Farley. Mr. Farley, age 55, has been Chairman of the Board and
Chief Executive Officer of FTL-Delaware since May 1985. In February 1998, Mr.
Farley was appointed to the additional positions of President and Chief
Operating Officer. Mr. Farley has also been Chairman and a
45
<PAGE> 46
director of Acme Boot Company, Inc. for more than the past five years. For more
than the past five years, Mr. Farley has also been Chairman and Chief Executive
Officer of Farley Industries, Inc.
G. William Newton. Mr. Newton, age 45, has served as Senior Vice President
- -Finance of FTL-Delaware since August 1994 and as acting Chief Financial Officer
since August 1998. From before 1993 until April 1994, Mr. Newton was Vice
President and Chief Financial Officer of Allegro MicroSystems, a manufacturer of
semiconductors.
John W. Salisbury, Jr. Mr. Salisbury, age 50, has served as President -
Packaged Goods of FTL-Delaware since September 1997. From 1994 to 1996, Mr.
Salisbury was President and Chief Executive Officer of the Aris Isotoner
Division of Sara Lee Corporation, a consumer products company. Prior thereto,
Mr. Salisbury served as Vice President and General Manager of the Vanity Fair
Division of VF Corporation (1993 - 1994), an apparel company.
Felix Sulzberger. Mr. Sulzberger, age 47, has served as President -
European Operations of FTL-Delaware since December 1997. Prior to December 1997,
Mr. Sulzberger served as General Manager of Levi Strauss and Co., an apparel
company.
Vincent J. Tyra. Mr. Tyra, age 32, has served as President - Activewear of
FTL-Delaware since April 1998 and since September 1997 as Executive Vice
President - Activewear. Prior thereto, Mr. Tyra was Executive Vice President of
T-Shirts & More, a wholesale distributor of activewear.
Edgar F. Turner. Mr. Turner, age 55, has served as Executive Vice President
of Operations of FTL-Delaware since March 1998. Mr. Turner was Senior Vice
President of Operations and Senior Vice President of Manufacturing for Warnaco -
Intimate Apparel Worldwide, an apparel company, from 1992 to 1998.
Brian J. Hanigan. Mr. Hanigan, age 39, was appointed Vice President and
Treasurer of FTL-Delaware in February 1997. Mr. Hanigan was Assistant Treasurer
of FTL-Delaware from before 1993 until February 1997.
John J. Ray III. Mr. Ray, age 39, was appointed Vice President and
Assistant Secretary of FTL-Delaware in February 1998. From before 1993 until
January 1998, Mr. Ray was Vice President and General Counsel of various
operating groups of Waste Management, Inc. and its affiliates, providers of
waste management and environmental services.
COMMITTEES OF THE BOARD OF DIRECTORS
FTL-Cayman will establish committees of the Board of Directors which will
have identical members and functions as the committees of the Board of Directors
of FTL-Delaware immediately prior to the Merger.
EXECUTIVE COMPENSATION
FTL-Cayman has not paid compensation to any person before the date of this
Proxy Statement/Prospectus and is not expected to do so prior to the Effective
Time.
LEGAL MATTERS
Certain legal matters in connection with the FTL-Cayman Class A Shares have
been passed upon for FTL-Cayman by its Cayman Islands counsel, Truman Bodden &
Company, Cayman Islands. Truman Bodden & Company has also rendered an opinion
regarding the Cayman Islands tax consequences of the Reorganization referred to
in "Certain Tax Considerations." Weil, Gotshal & Manges LLP, New York, New York,
has rendered an opinion regarding the United States federal income tax
consequences of the Reorganization referred to in "Certain Tax Considerations."
46
<PAGE> 47
EXPERTS
The consolidated financial statements and schedule of FTL-Delaware
appearing in FTL-Delaware's Annual Report on Form 10-K, as amended on Form
10-K/A, for the year ended December 31, 1997 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon (which contains
explanatory paragraphs with respect to accounting changes in 1997 and 1995
mentioned in the notes to consolidated financial statements) included therein
and incorporated herein by reference. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The balance sheet of FTL-Cayman as of January 31, 1998 included in this
Proxy Statement/ Prospectus has been audited by Ernst & Young LLP as set forth
in their report thereon which has been included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
47
<PAGE> 48
FRUIT OF THE LOOM, LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Fruit of the Loom, Ltd.
Report of Independent Auditors............................ F-2
Balance Sheet as of January 31, 1998...................... F-3
Notes to Balance Sheet January 31, 1998................... F-4
Balance Sheet as of June 27, 1998 (Unaudited)............. F-6
Note to Balance Sheet June 27, 1998 (Unaudited)........... F-7
</TABLE>
F-1
<PAGE> 49
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and
Shareholder of Fruit of the Loom, Ltd.
We have audited the accompanying balance sheet of Fruit of the Loom, Ltd.
as of January 31, 1998. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Fruit of the Loom, Ltd. at January
31, 1998 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 9, 1998
F-2
<PAGE> 50
FRUIT OF THE LOOM, LTD.
BALANCE SHEET
JANUARY 31, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<S> <C>
Shareholder's equity
Ordinary Shares, par value $.01, authorized 100 shares;
issued 4.................................................. $ 100
Subscription receivable..................................... (100)
-----
Total shareholder's equity............................. $ --
=====
</TABLE>
See accompanying notes.
F-3
<PAGE> 51
FRUIT OF THE LOOM, LTD.
NOTES TO BALANCE SHEET
JANUARY 31, 1998
1. GENERAL
Fruit of the Loom, Ltd. (FTL-Cayman) was incorporated on January 23, 1998
under the laws of the Cayman Islands. FTL-Cayman was formed to become the
holding company of Fruit of the Loom, Inc., a Delaware corporation
(FTL-Delaware), if the Board of Directors of FTL-Delaware and the stockholders
of FTL-Delaware approve such transaction. FTL-Delaware is a marketing oriented,
vertically integrated international basic apparel company, emphasizing branded
products for consumers ranging from infants to senior citizens.
FTL-Cayman had no operations from the date of incorporation on January 23,
1998 to January 31, 1998.
The Company operates on a 52 or 53 week year ending on the Saturday nearest
December 31.
2. FTL-DELAWARE PREFERRED STOCK/FTL-CAYMAN CLASS B SHARES
The FTL-Delaware Preferred Stock to be issued to Farley in exchange for
their FTL-Delaware Class B Stock, in the aggregate, will (i) have a liquidation
value equal to the fair market value of the FTL-Delaware Class B Stock based
upon the average closing price of the FTL-Delaware Class A Stock on the New York
Stock Exchange for the 20 trading days prior to the Effective Time, (ii) be
entitled to receive cumulative cash dividends of 4.5% per annum of the
liquidation value, payable quarterly, (iii) be exchangeable at the option of the
holder, in whole or from time to time in part, at any time for 5,413,000
FTL-Cayman Class A Shares, (iv) be convertible at the option of the holder, in
whole or from time to time in part, at any time for 5,413,000 shares of
FTL-Delaware common stock, (v) participate with the holders of FTL-Delaware
common stock in all dividends and liquidation payments in addition to its
preference payments on an as converted basis, (vi) be redeemable by
FTL-Delaware, at its option, after three years at a redemption price equal to
the then fair market value of the FTL-Delaware Preferred Stock as determined by
a nationally recognized investment banking firm, and (vii) have the right to
vote on all matters put to a vote of the holders of FTL-Delaware common stock,
voting together with such holders as a single class, and be entitled to the
number of votes which such holder would have on an as converted basis.
The Four (4) FTL-Cayman Class B Shares which will be purchased by Farley
immediately prior to the Reorganization have been designed to maintain the
relative voting rights that currently exist between the FTL-Delaware Class A
Stock and Class B Stock. The four (4) FTL-Cayman Class B Shares will (i)
participate pari passu, on a share for share basis, with the holders of any
other class of ordinary shares outstanding (including the FTL-Cayman Class A
Shares) upon the liquidation of FTL-Cayman and with respect to any dividends
declared by the Board of Directors of FTL-Cayman, (ii) vote together with the
FTL-Cayman Class A Shares on all matters (other then as required by Cayman
Islands law with respect to certain extraordinary transactions) having that
number of votes which is equal to the aggregate number of votes held by the
FTL-Delaware Class B Stock (i.e., an aggregate of approximately 30% of the
aggregate voting power), (iii) be redeemable proportionately upon the exchange,
transfer to a non-affiliate of Farley or redemption of the FTL-Delaware
Preferred Stock, and (iv) not be transferable except to affiliates of Farley.
3. ORDINARY SHARES
The authorized share capital of FTL-Cayman will be divided into 200,000,000
Class A Shares, 100 Class B Shares and 35,000,000 preference shares. The holders
of FTL-Cayman Class A Shares will be entitled to one vote per share. The voting
rights of the four FTL-Cayman Class B Shares to be issued to Farley will be
equal to the aggregate number of votes held by the holders of FTL-Delaware
F-4
<PAGE> 52
Class B Stock on the date the Merger is consummated. All actions submitted to a
vote of shareholders shall be voted on by the holders of FTL-Cayman Class A
Shares and FTL-Cayman Class B Shares, voting together as a single class, except
as otherwise set forth below or as provided by law.
With respect to the election of directors, holders of FTL-Cayman Class A
Shares, voting as a separate class, will be entitled to elect 25% of the total
number of directors constituting the entire Board of Directors of FTL-Cayman for
so long as any FTL-Cayman Class B Shares are outstanding.
Holders of FTL-Cayman Class A Shares will be entitled to participate pari
passu, on a share for share basis, with the holders of any other class of
ordinary shares outstanding, including the FTL-Cayman Class B Shares, with
respect to any dividends declared by the Board of Directors of FTL-Cayman. At
the time of the Reorganization, FTL-Cayman and FTL-Delaware will be party to
certain loan agreements and indentures which contain covenants that will
restrict their ability to pay dividends.
F-5
<PAGE> 53
FRUIT OF THE LOOM, LTD.
BALANCE SHEET (UNAUDITED)
JUNE 27, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<S> <C>
Shareholder's equity
Ordinary Shares, par value $.01, authorized 100 shares;
issued 4.................................................. $ 100
Subscription receivable..................................... (100)
-----
Total shareholder's equity............................. $ --
=====
</TABLE>
See accompanying note.
F-6
<PAGE> 54
FRUIT OF THE LOOM, LTD.
NOTE TO BALANCE SHEET (UNAUDITED)
JUNE 27, 1998
1. GENERAL
Fruit of the Loom, Ltd. (FTL-Cayman) was incorporated on January 23, 1998
under the laws of the Cayman Islands. FTL-Cayman was formed to become the
holding company of Fruit of the Loom, Inc., a Delaware corporation
(FTL-Delaware), if the Board of Directors of FTL-Delaware and the stockholders
of FTL-Delaware approve such transaction. FTL-Delaware is a marketing oriented,
vertically integrated international basic apparel company, emphasizing branded
products for consumers ranging from infants to senior citizens.
FTL-Cayman had no operations from the date of incorporation on January 23,
1998 through June 27, 1998.
The Company operates on a 52 or 53 week year ending on the Saturday nearest
December 31. All quarterly periods are prepared on a 4-4-5 accounting cycle with
each quarter ending on the Saturday nearest the calendar quarter end.
F-7
<PAGE> 55
FRUIT OF THE LOOM, LTD.
INDEX TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<S> <C>
Basis of Presentation....................................... P-2
Pro Forma Condensed Consolidated Balance Sheet--
June 27, 1998............................................. P-3
Pro Forma Condensed Consolidated Statement of Operations--
Six months ended June 27, 1998............................ P-4
Pro Forma Condensed Consolidated Statement of Operations--
Year ended December 31, 1997.............................. P-5
Notes to Pro Forma Condensed Consolidated Financial
Statements................................................ P-6
</TABLE>
P-1
<PAGE> 56
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(NOT COVERED BY INDEPENDENT ACCOUNTANTS' REPORT)
BASIS OF PRESENTATION
The accompanying unaudited Pro Forma Condensed Consolidated financial
statements of Fruit of the Loom, Ltd. ("FTL-Cayman"), a Cayman Islands company,
gives effect to (i) the acquisition of Fruit of the Loom, Inc. ("FTL-Delaware")
in connection with the proposed Reorganization, whereby FTL-Cayman will become
the parent holding company of FTL-Delaware, and (ii) subsequent to the
Reorganization, the transfer to FTL-Cayman (or direct or indirect foreign
subsidiaries of FTL-Cayman) of substantially all of the businesses or
subsidiaries of FTL-Delaware located outside the United States, other than
certain interests of FTL-Delaware in Canada, Germany, Italy and Mexico, along
with the beneficial ownership of certain trademarks. The unaudited Pro Forma
Condensed Consolidated Balance Sheet adjusts the June 27, 1998 consolidated
condensed balance sheet as though such transactions occurred on June 27, 1998.
The Pro Forma Condensed Consolidated Statements of Operations adjusts the
historical unaudited condensed consolidated statement of operations for the six
months ended June 27, 1998 and the year ended December 31, 1997 as though such
transactions occurred on January 1, 1997. The Reorganization will be accounted
for at the historical cost basis of the combining companies. The FTL-Delaware
historical condensed consolidated balance sheet at June 27, 1998 and the
historical unaudited condensed statement of operations for the six months then
ended are derived from the FTL-Delaware Quarterly Report on Form 10-Q for the
quarter ended June 27, 1998, incorporated herein by reference. The FTL-Delaware
historical consolidated condensed statement of operations for the year ended
December 31, 1997 are derived from FTL-Delaware's Amended Annual Report on Form
10-K/A for the year ended December 31, 1997, incorporated herein by reference.
Upon consummation of the Merger, each outstanding share of Class A common
stock, par value $.01 per share ("FTL-Delaware Class A Stock"), of FTL-Delaware
(other than those shares held by FTL-Delaware in its treasury) will be
automatically converted into one Class A ordinary share, par value of $.01
("FTL-Cayman Class A Shares"), of FTL-Cayman, and each outstanding share of
Class B common stock, par value $.01 per share ("FTL-Delaware Class B Stock"),
of FTL-Delaware will be automatically converted into one share of exchangeable
participating preferred stock, par value $.01 per share ("FTL-Delaware Preferred
Stock"), of FTL-Delaware. The holders of FTL-Delaware Class B Stock will also
own, in the aggregate, four Class B redeemable ordinary shares, par value $.01
per share (the "FTL-Cayman Class B Shares"), of FTL-Cayman.
The pro forma condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the related notes
included in FTL-Delaware's Amended Annual Report on Form 10-K/A for the year
ended December 31, 1997 incorporated herein by reference. The pro forma
financial information is not indicative of FTL-Cayman's financial position that
might have occurred had such transaction actually occurred on the date indicated
above.
P-2
<PAGE> 57
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 27, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FRUIT OF THE PRO FORMA
FTL-CAYMAN 1 LOOM, INC.2(A) ADJUSTMENTS PRO FORMA
------------ -------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents..................... $ 8,000 $ $ 8,000
Notes and accounts receivable (less
allowance for possible losses of
$11,800)............................... 134,200 134,200
Inventories
Finished goods......................... 607,900 607,900
Work in process........................ 235,300 235,300
Materials and supplies................. 69,800 69,800
---------- ---------- ---------- ----------
Total inventories................... 913,000 913,000
Due from receivable financing
subsidiary............................. 59,300 59,300
Other.................................... 63,700 63,700
---------- ---------- ---------- ----------
Total current assets.............. 1,178,200 1,178,200
---------- ---------- ---------- ----------
Property, Plant and Equipment.............. 1,183,800 1,183,800
Less accumulated depreciation............ 734,900 734,900
---------- ---------- ---------- ----------
Net property, plant, and
equipment....................... 448,900 448,900
---------- ---------- ---------- ----------
Other Assets
Goodwill (less accumulated amortization
of $324,700)........................... 699,600 699,600
Net deferred income taxes................ 31,200 31,200
Other.................................... 228,600 228,600
---------- ---------- ---------- ----------
Total other assets................ 959,400 959,400
---------- ---------- ---------- ----------
$2,586,500 $ $2,586,500
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long term debt..... $ 21,600 $ $ 21,600
Trade accounts payable................... 98,900 98,900
Acme Boot guarantee...................... 60,600 60,600
Other accounts payable and accrued
expenses............................... 214,200 214,200
---------- ---------- ---------- ----------
Total current liabilities......... 395,300 395,300
---------- ---------- ---------- ----------
Noncurrent Liabilities
Long-term debt........................... 1,343,800 1,343,800
Other.................................... 334,500 334,500
---------- ---------- ---------- ----------
Total noncurrent liabilities...... 1,678,300 1,678,300
---------- ---------- ---------- ----------
Minority interest in subsidiary.......... 90,900 2(d) 90,900
---------- ---------- ---------- ----------
Common Stockholders' Equity
Common stock and capital in excess
of par value
Common A............................... 321,900 321,900
Common B............................... 3,700 (3,700) 2(d) --
Retained earnings........................ 237,200 (87,200) 2(d) 150,000
Currency translation, pension and
investment adjustments................. (49,900) (49,900)
---------- ---------- ----------
Total common stockholders'
equity.......................... 512,900 (90,900) 422,000
---------- ---------- ---------- ----------
$2,586,500 $ $2,586,500
========== ========== ========== ==========
</TABLE>
See accompanying notes.
P-3
<PAGE> 58
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 27, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRUIT OF THE PRO FORMA
FTL - CAYMAN 1 LOOM, INC. 2(A) ADJUSTMENTS 2(B) PRO FORMA
-------------- --------------- ---------------- ---------
<S> <C> <C> <C> <C>
Net sales........................ $ $1,085,200 $ $1,085,200
Cost of sales.................... 730,900 730,900
---------- ---------- ------- ----------
Gross earnings................. 354,300 354,300
Selling, general and
administrative expenses........ 180,300 180,300
Goodwill amortization............ 13,300 13,300
---------- ---------- ------- ----------
Operating earnings............. 160,700 160,700
Interest expense................. (51,500) (51,500)
Other expense--net............... (300) (300)
---------- ---------- ------- ----------
Earnings before income tax
expense and minority interest
in consolidated subsidiaries... 108,900 108,900
Income tax expense............... 12,400 12,400
Minority interest in net earnings
of subsidiaries................ 2,000 2(c) 2,000
---------- ---------- ------- ----------
Net earnings................... $ $ 96,500 $(2,000) $ 94,500
========== ========== ======= ==========
Earnings per common share --
Basic.......................... $ 1.34 $ 1.43
========== ==========
Earnings per common share --
Diluted........................ $ 1.33 $ 1.34
========== ==========
Average common shares
outstanding:
Basic.......................... 71,900 (5,684) 2(c) 66,216
========== ======= ==========
(5,684) 2(c)
Diluted........................ 72,500 5,413 2(e) 72,229
========== ======= ==========
</TABLE>
See accompanying notes.
P-4
<PAGE> 59
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRUIT OF THE PRO FORMA
FTL - CAYMAN 1 LOOM, INC. 2(A) ADJUSTMENTS 2(B) PRO FORMA
-------------- --------------- ---------------- ---------
<S> <C> <C> <C> <C>
Net sales........................ $ $2,139,900 $ $2,139,900
Cost of sales.................... 1,644,400 1,644,400
---------- ---------- ------- ----------
Gross earnings................. 495,500 495,500
Selling, general and
administrative expenses........ 751,800 751,800
Goodwill amortization............ 26,800 26,800
Impairment write down of
goodwill....................... 4,600 4,600
---------- ---------- ------- ----------
Operating loss................. (287,700) (287,700)
Interest expense................. (84,700) (84,700)
Other expense--net............... (79,300) 3 (79,300)
---------- ---------- ------- ----------
Loss from continuing operations
before income tax benefit and
minority interest in
consolidated subsidiaries...... (451,700) (451,700)
Income tax benefit............... (66,300) (66,300)
Minority interest in net earnings
of subsidiaries................ 0 4,100 2(c) 4,100
---------- ---------- ------- ----------
Loss from continuing
operations.................. $ $ (385,400) $(4,100) $ (389,500)
========== ========== ======= ==========
Loss per common share --
continuing operations.......... $ (5.18) $ (5.67)
========== ==========
Loss per common share --
continuing operations --
assuming dilution.............. $ (5.18) $ (5.67)
========== ==========
Average common shares
outstanding:
Basic.......................... 74,400 (5,684) 2(c) 68,716
========== ======= ==========
Diluted........................ 74,400 (5,684) 2(c) 68,716
========== ======= ==========
</TABLE>
See accompanying notes.
P-5
<PAGE> 60
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
1. FORMATION OF FTL-CAYMAN
FTL-Cayman was incorporated on January 23, 1998 to become the parent
holding company of FTL-Delaware. The balances of FTL-Cayman reported in the
unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 27, 1998
reflect the initial capitalization of FTL-Cayman.
2. PLAN OF REORGANIZATION
Pro forma adjustments are made to reflect:
(a) the unaudited Pro Forma Condensed Consolidated Balance Sheet
adjusts the June 27, 1998 condensed consolidated balance sheet as if the
acquisition occurred on June 27, 1998. The Pro Forma Condensed Consolidated
Statements of Operations adjust the condensed consolidated statement of
operations for the six months ended June 27, 1998 and the year ended
December 31, 1997 as if the acquisition occurred on January 1, 1997. The
Reorganization will be accounted for at the historical cost basis of the
combining companies.
(b) the Pro Forma Condensed Consolidated financial statements have
been prepared based on a 4.5% cumulative cash dividend, 3-year No-Call
Period and an exchange ratio of .9524 FTL-Cayman Class A Shares for each
share of FTL-Delaware Preferred Stock.
Footnotes (c) through (e) assume a liquidation preference of $90,900
calculated based upon FTL-Delaware's closing stock price of $16 on September 15,
1998. The actual liquidation preference may differ and will be based on the
average closing price of the FTL-Delaware Class A Stock on the NYSE for the 20
trading days prior to the date of the Special Meeting of the FTL-Delaware
stockholders to approve the reorganization.
(c) payment of 4.5% cumulative cash dividend on an assumed liquidation
preference of $90,900.
<TABLE>
<CAPTION>
6/27/98 12/31/97
------- --------
<S> <C> <C>
FTL-Delaware loss from continuing operations(1)............. $(26,200) $(454,100)
Dividends................................................... 2,000 4,100
-------- ---------
Loss attributable to Common and Preferred Stockholders...... $(28,200) $(458,200)
======== =========
Dividends................................................... $ 2,000 $ 4,100
Interest of Preferred Stockholders in loss attributable to
Common and Preferred Stockholders(2)...................... 0 0
-------- ---------
Total interest of Preferred Stockholders.................. $ 2,000 $ 4,100
======== =========
</TABLE>
- ---------------
(1) FTL-Delaware pro-forma loss shown above differ from amounts in the
historical financial statements. The FTL-Delaware pro-forma loss
reflects the transfer of substantially all of the businesses or
subsidiaries of FTL-Delaware located outside the United States to
FTL-Cayman, other than certain interests of FTL-Delaware in Canada,
Germany, Italy and Mexico, along with the beneficial ownership of
certain trademarks. The earnings of the interests of FTL-Delaware which
will be transferred to FTL-Cayman and which have been excluded from
FTL-Delaware's loss from continuing operations aggregated $122,700 for
the six months ended June 27, 1998 and $68,700 for the year ended
December 31, 1997.
(2) Preferred stockholders have a fixed dividend of 4.5% of the assumed
liquidation preference of $90,900 which equals $4,100 on an annual
basis. In addition, preferred stockholders participate in 7.9% of
FTL-Delaware's earnings after provision for the fixed preferred
P-6
<PAGE> 61
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
stock dividend. Participation in earnings (7.9%) is determined as the
ratio of preferred shares outstanding (5,684,000) to the total of
preferred and common outstanding shares (71,900,000). Preferred
Stockholder participation in losses is limited to the Preferred
Stockholder's prior participation in earnings. As FTL-Delaware had pro
forma losses in the six months ended June 27, 1998 and the year ended
December 31, 1997, the minority interest participation is limited to
the fixed preferred dividend of $2,000 and $4,100 in the six months
ended June 27, 1998 and the year ended December 31, 1997, respectively.
(d) exchange of FTL-Delaware Class B Stock for FTL-Delaware Preferred
Stock. Minority interest in FTL-Delaware is based upon an assumed
liquidation preference of $90,900.
(e) As the preferred stock is convertible into FTL-Cayman common
stock, conversion into 5,413,000 shares (based on the conversion ratio of
.9524) would be assumed for earnings per share purposes, if dilutive. For
the year ended December 31, 1997, assumption of exchange of FTL-Delaware
Preferred Stock into FTL-Cayman Class A Shares would be anti-dilutive.
3. OTHER EXPENSE -- NET
Includes pre-tax charges of $32,000 for the year-ended December 31, 1997
related to FTL-Delaware's evaluation of its exposure under the guarantee of the
debt of Acme Boot, an affiliate.
4. FTL-DELAWARE PREFERRED STOCK/FTL-CAYMAN CLASS B SHARES
The FTL-Delaware Preferred Stock to be issued to Farley in exchange for
their FTL-Delaware Class B Stock, in the aggregate, will (i) have a liquidation
value equal to the fair market value of the FTL-Delaware Class B Stock based
upon the average closing price of the FTL-Delaware Class A Stock on the New York
Stock Exchange for the 20 trading days prior to the Effective Time, (ii) be
entitled to receive cumulative cash dividends of 4.5% per annum of the
liquidation value, payable quarterly, (iii) be exchangeable at the option of the
holder, in whole or from time to time in part, at any time for 5,413,000
FTL-Cayman Class A Shares, (iv) be convertible at the option of the holder, in
whole or from time to time in part, at any time for 5,413,000 shares of
FTL-Delaware common stock, (v) participate with the holders of FTL-Delaware
common stock in all dividends and liquidation payments in addition to its
preference payments on an as converted basis, (vi) be redeemable by
FTL-Delaware, at its option, after three years at a redemption price equal to
the then fair market value of the FTL-Delaware Preferred Stock as determined by
a nationally recognized investment banking firm, and (vii) have the right to
vote on all matters put to a vote of the holders of FTL-Delaware common stock,
voting together with such holders as a single class, and be entitled to the
number of votes which such holder would have on an as converted basis.
The four (4) FTL-Cayman Class B Shares which will be purchased by Farley
immediately prior to the Reorganization have been designed to maintain the
relative voting rights that currently exist between the FTL-Delaware Class A
Stock and Class B Stock. The four (4) FTL-Cayman Class B Shares will (i)
participate pari passu, on a share for share basis, with the holders of any
other class of ordinary shares outstanding (including the FTL-Cayman Class A
Shares) upon the liquidation of FTL-Cayman and with respect to any dividends
declared by the Board of Directors of FTL-Cayman, (ii) vote together with the
FTL-Cayman Class A Shares on all matters (other then as required by Cayman
Islands law with respect to certain extraordinary transactions) having that
number of votes which is equal to the aggregate number of votes held by the
FTL-Delaware Class B Stock (i.e., an
P-7
<PAGE> 62
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
aggregate of approximately 30% of the aggregate voting power), (iii) be
redeemable proportionately upon the exchange, transfer to a non-affiliate of
Farley or redemption of the FTL-Delaware Preferred Stock, and (iv) not be
transferable except to affiliates of Farley.
5. ORDINARY SHARES
The authorized share capital of FTL-Cayman will be divided into 200,000,000
Class A Shares, 100 Class B Shares and 35,000,000 preference shares. The holders
of FTL-Cayman Class A Shares will be entitled to one vote per share. The voting
rights of the four FTL-Cayman Class B Shares to be issued to Farley will be
equal to the aggregate number of votes held by the holders of FTL-Delaware Class
B Stock on the date the Merger is consummated. All actions submitted to a vote
of shareholders shall be voted on by the holders of FTL-Cayman Class A Shares
and FTL-Cayman Class B Shares, voting together as a single class, except as
otherwise set forth herein or as provided by law.
With respect to the election of directors, holders of FTL-Cayman Class A
Shares, voting as a separate class, will be entitled to elect 25% of the total
number of directors constituting the entire Board of Directors of FTL-Cayman for
so long as any FTL-Cayman Class B Shares are outstanding.
Holders of FTL-Cayman Class A Shares will be entitled to participate pari
passu, on a share for share basis, with the holders of any other class of
ordinary shares outstanding, including the FTL-Cayman Class B Shares, with
respect to any dividends declared by the Board of Directors of FTL-Cayman. At
the time of the Reorganization, FTL-Cayman and FTL-Delaware will be party to
certain loan agreements and indentures which contain covenants that will
restrict their ability to pay dividends.
P-8
<PAGE> 63
ANNEX I
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 10, 1998 among FRUIT OF
THE LOOM, INC., a Delaware corporation ("FTL-Delaware"), FRUIT OF THE LOOM,
LTD., a Cayman Islands company ("FTL-Cayman"), and FTL MERGER CORP., a Delaware
corporation and a wholly-owned subsidiary of FTL-Cayman ("Sub").
WHEREAS, the respective Boards of Directors of FTL-Delaware, FTL-Cayman and
Sub have determined that it is in the best interests of their respective
stockholders to reorganize (the "Reorganization") so that FTL-Cayman becomes the
parent holding company for FTL-Delaware;
WHEREAS, the respective Boards of Directors of FTL-Delaware, Sub and
FTL-Cayman have approved the merger of Sub with and into FTL-Delaware (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement, whereby each outstanding share of class A common stock, par value
$0.01 per share ("FTL-Delaware Class A Stock"), of FTL-Delaware (other than
those shares held by FTL-Delaware in its treasury), will be automatically
converted into one class A ordinary share, par value $.01 per share ("FTL-Cayman
Class A Share"), of FTL-Cayman; and each outstanding share of class B common
stock, par value $0.01 per share ("FTL-Delaware Class B Stock" and collectively
with the FTL-Delaware Class A Common Stock, the "FTL-Delaware Common Stock"), of
FTL-Delaware (other than those shares held by FTL-Delaware in its treasury),
will be automatically converted into one share of exchangeable participating
preferred stock, par value $0.01 per share ("FTL-Delaware Preferred Stock"), of
FTL-Delaware.
WHEREAS, the Merger requires the affirmative vote of (i) the holders of a
majority of the FTL-Delaware Class A Stock and Class B Stock voting together as
a single class, (ii) the holders of a majority of the outstanding FTL-Delaware
Class A Stock, and (iii) the holders of a majority of the outstanding
FTL-Delaware Class B Stock (the "FTL-Delaware Stockholder Approval");
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
MERGER
1.1 MERGER
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), Sub shall be merged with and into FTL-Delaware at the Effective Time of
the Merger (as defined in Section 1.2). Following the Effective Time of the
Merger, the separate corporate existence of Sub shall cease and FTL-Delaware
shall continue as the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of Sub in accordance
with the DGCL.
1.2 EFFECTIVE TIME
Subject to the provisions of this Agreement, as soon as practicable
following the satisfaction or waiver of the conditions set forth in Section 5.1,
the parties shall file a certificate of merger or other appropriate documents
(in any case, the "Certificate of Merger") executed in accordance with the
relevant provisions of the DGCL and shall make all other filings or recordings
required under the DGCL. The Merger shall become effective at the close of
business on the date that an appropriate Certificate of Merger is duly filed
with the Secretary of State of the State of Delaware, or at such later time as
Sub and FTL-Delaware shall agree should be specified in the Certificate of
Merger (the time the Merger becomes effective being hereinafter referred to as
the "Effective Time of the Merger").
I-1
<PAGE> 64
1.3 EFFECTS OF THE MERGER
The Merger shall have the effects set forth in Section 259 of the DGCL.
ARTICLE II
NAME, CERTIFICATE OF INCORPORATION,
BY-LAWS, DIRECTORS AND OFFICERS OF
THE SURVIVING CORPORATION
2.1 NAME OF SURVIVING CORPORATION
The name of the surviving corporation shall be "Fruit of the Loom, Inc.".
2.2 CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of FTL-Delaware shall be the Certificate
of Incorporation of the Surviving Corporation after the Effective Time of the
Merger until amended thereafter as provided therein or by law except that the
Certificate of Incorporation of FTL-Delaware shall be amended in its entirety by
virtue of the Merger to read in full as set forth in Exhibit A hereto.
2.3 BY-LAWS
The by-laws of FTL-Delaware as in effect at the Effective Time of the
Merger shall be the by-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
2.4 DIRECTORS
The directors of FTL-Delaware at the Effective Time of the Merger shall be
the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
2.5 OFFICERS
The officers of FTL-Delaware at the Effective Time of the Merger shall be
the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE III
CONVERSION, ELECTION AND EXCHANGE OF STOCK
3.1 CONVERSION
At the Effective Time of the Merger, by virtue of the Merger and without
any action on the part of the holder of any shares:
(a) Common Stock of Sub. The issued and outstanding shares of common
stock of Sub shall be converted into and become that number of shares of
fully paid and nonassessable shares of FTL-Delaware Common Stock, par value
$.01 per share, which is equal to the number of shares of FTL-Delaware
Class A Stock outstanding at the Effective Time of the Merger.
(b) Cancellation of FTL-Delaware-Owned Stock. Each outstanding share
of FTL-Delaware Common Stock that is owned by FTL-Delaware prior to the
Effective Time of the Merger shall automatically be cancelled and retired
and shall cease to exist, and no consideration shall be delivered or
deliverable in exchange for such shares of FTL-Delaware Common Stock.
I-2
<PAGE> 65
(c) Conversion of FTL-Delaware Common Stock. (i) Each issued and
outstanding share of FTL-Delaware Class A Common Stock (other than shares
to be cancelled in accordance with Section 3.1(b)) shall be automatically
converted into and shall become one validly issued, fully paid and
non-assessable FTL-Cayman Class A Share and (ii) each issued and
outstanding share of FTL-Delaware Class B Common Stock shall be
automatically converted into and shall become one validly issued, fully
paid and non-assessable share of FTL-Delaware Preferred Stock. Prior to the
Effective Time of the Merger, FTL-Cayman will amend and restate its
Articles of Association and Memorandum of Association substantially in
accordance with the terms set forth on Schedule I hereto and FTL-Delaware
will file with the Secretary of State of the State of Delaware a
Certificate of Designations for the FTL-Delaware Preferred Stock
substantially in accordance with the terms set forth on Schedule II hereto.
(d) Cancellation of FTL-Cayman Shares Owned by FTL- Delaware. Each
issued share of FTL-Cayman that is owned by FTL-Delaware prior to the
Effective Time of the Merger shall automatically be repurchased by
FTL-Cayman and cancelled and retired and shall cease to exist, and the $100
subscription price paid by FTL-Delaware for such shares will be returned to
FTL-Delaware.
(e) Stock Option Plans. FTL-Cayman shall assume all the rights and
obligations of FTL-Delaware under the 1996 Incentive Compensation Plan, the
Amended and Restated 1995 Executive Incentive Compensation Plan, the 1995
Non-Employee Directors' Stock Plan, the 1992 Executive Stock Option Plan,
the 1994 Executive Incentive Compensation Plan, the 1992 Directors' Stock
Option Plan, and The Supplemental Executive Retirement Plan as Amended and
Restated, as each such plan has been or may be amended to the Effective
Time of the Merger (collectively, the "Plans"). The outstanding options
assumed by FTL-Cayman shall be exercisable upon the same terms and
conditions as under the Plans and the agreements relating thereto
immediately prior to the Effective Time of the Merger, except that upon the
exercise of such options, FTL-Cayman Class A Shares shall be issuable in
lieu of shares of FTL-Delaware Class A Stock. The number FTL-Cayman Class A
Shares issuable upon the exercise of an option immediately prior to the
Effective Time of the Merger and the option price of each such option shall
be the same number of shares and price as in effect immediately prior to
the Effective Time of the Merger. All options issued pursuant to the Plans
after the Effective Time of the Merger shall entitle the holder thereof to
purchase FTL-Cayman Class A Shares in accordance with the terms of the
Plans.
3.3 EXCHANGE OF STOCK
(a) Exchange Procedures for FTL-Delaware Class A Stock. Following the
Effective Time of the Merger, each holder of an outstanding certificate or
certificates theretofore representing shares of FTL-Delaware Class A Stock
may, but shall not be required to, surrender the same to FTL-Cayman for
cancellation or transfer, and each such holder or transferee will be
entitled to receive certificates representing the same number of FTL-Cayman
Class A Shares as the shares of FTL-Delaware Class A Stock previously
represented by the stock certificates surrendered. If any certificate
representing FTL-Cayman Class A Shares is to be issued in a name other than
that in which the certificate theretofore representing FTL-Delaware Class A
Stock surrendered is registered, it shall be a condition to such issuance
that the certificate surrendered shall be properly endorsed and otherwise
in proper form for transfer and that the person requesting such issuance
shall either: (i) pay FTL-Cayman or its agents any taxes or other
governmental charges required by reason of the issuance of certificates
representing FTL-Cayman Class A Shares in a name other than that of the
registered holder of the certificate so surrendered; or (ii) establish to
the satisfaction of FTL-Cayman or its agents that such taxes or
governmental charges have been paid. Until so surrendered or presented for
transfer each outstanding certificate which, prior to the Effective Time of
the Merger, represented FTL-Delaware Class A Stock shall be deemed and
treated for all corporate purposes to
I-3
<PAGE> 66
represent the ownership of the same number of FTL-Cayman Class A Shares as
though such surrender or transfer and exchange had taken place.
(b) No Further Ownership Rights in FTL-Delaware Class A Stock. All
FTL-Cayman Class A Shares issued upon the surrender for exchange of
certificates in accordance with the terms of this Article III shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of FTL-Delaware Class A Stock theretofore
represented by such certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time of the Merger
which may have been declared or made by FTL-Delaware on such shares of
FTL-Delaware Class A Stock in accordance with the terms of this Agreement
or prior to the date of this Agreement and which remain unpaid at the
Effective Time of the Merger, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of FTL-Delaware Class A Stock which were outstanding immediately
prior to the Effective Time of the Merger. If, after the Effective Time of
the Merger, certificates are presented to the Surviving Corporation they
shall be cancelled and exchanged as provided in this Article III, except as
otherwise provided by law.
(c) Exchange Procedures for FTL-Delaware Class B Stock. Following the
Effective Time of the Merger, each holder of an outstanding certificate or
certificates theretofore representing shares of FTL-Delaware Class B Stock
may, but shall not be required to, surrender the same to FTL-Delaware for
cancellation or transfer, and each such holder or transferee will be
entitled to receive certificates representing one share of FTL-Delaware
Preferred Stock for every share of FTL-Delaware Class B Stock surrendered.
If any certificate representing FTL-Delaware Preferred Stock is to be
issued in a name other than that in which the certificate theretofore
representing FTL-Delaware Class B Stock surrendered is registered, it shall
be a condition to such issuance that the certificate surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the
person requesting such issuance shall either: (i) pay FTL-Delaware or its
agents any taxes or other governmental charges required by reason of the
issuance of certificates representing FTL-Delaware Preferred Stock in a
name other than that of the registered holder of the certificate so
surrendered; or (ii) establish to the satisfaction of FTL-Delaware or its
agents that such taxes or governmental charges have been paid. Until so
surrendered or presented for transfer each outstanding certificate which,
prior to the Effective Time of the Merger, represented FTL-Delaware Class B
Stock shall be deemed and treated for all corporate purposes to represent
the ownership of FTL-Delaware Preferred Stock in such amount and as though
such surrender or transfer and exchange had taken place.
(d) No Further Ownership Rights in FTL-Delaware Class B Stock. All
FTL-Delaware Preferred Stock issued upon the surrender for exchange of
certificates in accordance with the terms of this Article III shall be
deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the shares of FTL-Delaware Class B Stock theretofore
represented by such certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time of the Merger
which may have been declared or made by FTL-Delaware on such shares of
FTL-Delaware Class B Stock in accordance with the terms of this Agreement
or prior to the date of this Agreement and which remain unpaid at the
Effective Time of the Merger, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of FTL-Delaware Class B Stock which were outstanding immediately
prior to the Effective Time of the Merger. If, after the Effective Time of
the Merger, certificates are presented to the Surviving Corporation they
shall be cancelled and exchanged as provided in this Article III, except as
otherwise provided by law.
I-4
<PAGE> 67
ARTICLE IV
EMPLOYEE BENEFIT AND COMPENSATION PLANS
At the Effective Time of the Merger, each employee benefit plan and
incentive compensation plan to which FTL-Delaware is then a party shall be
assumed by, and continue to be the plan of, the Surviving Corporation. To the
extent any employee benefit or incentive compensation plan of FTL-Delaware
provides for the issuance or purchase of, or otherwise relates to, FTL-Delaware
Class A Common Stock after the Effective Time of the Merger, such plan shall be
deemed to be assumed by FTL-Cayman and provide for the issuance or purchase of,
or otherwise relate to, FTL-Cayman Class A Shares.
ARTICLE V
CONDITIONS PRECEDENT
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
The respective obligation of each party to effect the Merger is subject to
the satisfaction or waiver of the following conditions:
(a) Stockholder Approval. The FTL-Delaware Stockholder Approval shall
have been obtained.
(b) Form S-4. The registration statement on Form S-4 filed with the
Securities and Exchange Commission by FTL-Cayman in connection with the
issuance of the FTL-Cayman Class A Shares in the Merger shall have become
effective under the Securities Act of 1933, as amended, and shall not be
the subject of any stop order or proceedings seeking a stop order.
(c) Third Party Consents. All requisite third party consents shall
have been obtained.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 TERMINATION
This Agreement may be terminated at any time prior to the Effective Time of
the Merger, whether before or after approval by the stockholders of FTL-Delaware
of matters presented in connection with the Merger, by action of the Board of
Directors of FTL-Delaware.
6.2 EFFECT OF TERMINATION
In the event of termination of this Agreement as provided in Section 6.1,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of FTL-Delaware, Sub or FTL-Cayman, other
than the provisions of this Section 6.2 and Article VII.
6.3 AMENDMENT
This Agreement may be amended by the parties at any time before or after
any required approval of matters presented in connection with the Merger by the
stockholders of FTL-Delaware provided, however, that after any such approval,
there shall be made no amendment that by law requires further approval by such
stockholders without the further approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties.
I-5
<PAGE> 68
6.4 WAIVER
At any time prior to the Effective Time of the Merger, the parties may
waive compliance by the other parties with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party of this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
6.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER
A termination of this Agreement pursuant to Section 6.1, an amendment of
this Agreement pursuant to Section 6.3 or a waiver pursuant to Section 6.4
shall, in order to be effective, require in the case of FTL-Delaware, Sub or
FTL-Cayman, action by its Board of Directors or the duly authorized designee of
its Board of Directors.
ARTICLE VII
GENERAL PROVISIONS
7.1 NOTICES
All notices, requests, claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to FTL-Delaware,
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attn: Larry K. Switzer
(b) if to FTL-Cayman,
Fruit of the Loom, Ltd.
P.O. Box 31311 SMB
Safehaven Corporate Center
Grand Cayman, Cayman Islands, BWI
Attn: John L. Clark
(c) if to Sub,
c/o Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attn: Larry K. Switzer
7.2 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES
This Agreement (including the documents and instruments referred to herein)
(a) constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) except for the provisions of Article
III, are not intended to confer upon any person other than the parties any
rights or remedies.
I-6
<PAGE> 69
7.3 GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
IN WITNESS WHEREOF, FTL-Delaware, Sub and FTL-Cayman have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
Fruit of the Loom, Inc.
By: /s/ LARRY K. SWITZER
-----------------------------------
Name: Larry K. Switzer
Title: Senior Executive Vice
President and Chief
Financial Officer
Fruit of the Loom, Ltd.
By: /s/ LARRY K. SWITZER
-----------------------------------
Name: Larry K. Switzer
Title: Senior Executive Vice
President and Chief
Financial Officer
FTL Merger Corp.
By: /s/ LARRY K. SWITZER
-----------------------------------
Name: Larry K. Switzer
Title: Vice President and
Chief Financial Officer
I-7
<PAGE> 70
EXHIBIT A
AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
OF FRUIT OF THE LOOM, INC.
ARTICLE I
The name of the corporation is Fruit of the Loom, Inc.
ARTICLE II
The address of its registered office in the State of Delaware is 1013
Centre Road, City of Wilmington, County of New Castle. The name of its
registered agent is United States Corporation Company.
ARTICLE III
The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
The amount of total authorized capital stock of the corporation is
81,000,000 shares which are divided into two classes as follows:
A Class of 6,000,000 shares of Preferred Stock having a par value of
$0.01 each (the "Preferred Stock").
A Class of 75,000,000 shares of Common Stock having a par value of
$0.01 each (the "Common Stock").
The designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof, of each of such classes of stock, and the express grant of authority
to the Board of Directors to fix by resolution the designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, in respect of each series
of the Preferred Stock, are as follows:
PART A
PREFERRED STOCK
The Board of Directors is expressly authorized, from time to time, (1) to
fix the number of shares of one or more series of the Preferred Stock; (2) to
determine the designation of any such shares; (3) to determine or alter, without
limitation or restrictions, the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of the Preferred Stock;
and (4) within the limits or restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series of Preferred Stock, to increase or decrease (but not
below the number of shares then outstanding) the number of shares of any such
series subsequent to the issue of shares of that series.
I-8
<PAGE> 71
PART B
COMMON STOCK
Except as otherwise provided by law, the shares of Common Stock of the
Corporation may be issued by the Corporation from time to time in such amounts,
for such consideration, and for such corporate purposes as the Board of
Directors may from time to time determine.
Subject to the provisions of applicable law or of the By-laws with respect
to the closing of the transfer books or the fixing of a record date for the
determination of stockholders entitled to vote, and except as otherwise provided
by law or by the resolution or resolutions providing for the issue of any series
of Preferred Stock, the holders of outstanding shares of Common Stock shall
exclusively possess the voting power for the election of directors and for all
other purposes, each holder of record of shares of Common Stock being entitled
to one vote for each share of Common Stock standing in his name on the books of
the Corporation.
PART C
GENERAL PROVISIONS
(a) Quorum at Stockholders' Meetings. Except as otherwise provided by law
or this Amended and Restated Certificate of Incorporation, at any meeting of
stockholders, the presence in person or by proxy of the holders of record of
outstanding shares of stock of the corporation entitled to vote a majority of
the votes entitled to be voted at such meeting shall constitute a quorum for all
purposes.
(b) No Preemptive Rights, Etc. No holder of shares of stock of the
corporation of any class shall have any preemptive rights and no stockholder
shall have any other preferential or right of first refusal to purchase or
subscribe for any shares of stock, whether now or hereafter authorized, of the
corporation of any class, or any obligations convertible into, or any options or
warrants to purchase, any share of stock, whether now or hereafter authorized,
of the corporation of any class, other than such, if any, as the Board of
Directors may from time to time determine, and at such price as the Board of
Directors may from time to time fix; and any share of stock or any obligations,
options or warrants which the Board of Directors may determine to offer for
subscription to holders of any shares of stock of the corporation may, as the
Board of Directors shall determine, be offered to holders of the shares of stock
of the corporation of any class or classes or series, and if offered to holders
of shares of stock of more than one class or series, in such proportion as
between such classes and series as the Board of Directors may determine.
(c) Consents in Lieu of Voting. Whenever the vote of stockholders or any
class or classes of stockholders at a meeting thereof is required or permitted
to be taken for or in connection with any corporation action, the meeting and
vote of the stockholders or such class or classes of stockholders may be
dispensed with upon the written consent of the stockholders having not less than
such minimum percentage of the total number of votes as may otherwise have been
required for such action. A notice of the obtaining of any consent provided for
in this paragraph (c) hall be mailed by the corporation, promptly after such
consent is obtained, to the stockholders at their respective addresses then
appearing on the records of the corporation.
ARTICLE V
(a) Non-Affiliate Directors. So long as any Cumulative Exchangeable
Preferred Stock is outstanding, the Board of Directors of the Corporation shall
consist of one or more directors who are not affiliates of William F. Farley or
Farley, Inc. and who are not employed by the corporation or any of its
affiliates.
(b) Decisions made by Committee. All decisions with respect to the payment
of dividends on the Common Stock and all decisions with respect to the
redemption of Cumulative Exchangeable
I-9
<PAGE> 72
Preferred Stock shall be made by a committee of the Board of Directors
consisting entirely of directors who are not affiliates of William F. Farley or
Farley, Inc. and who are not employed by the corporation or any of its
affiliates.
ARTICLE VI
Any and all right, title and claim in or to any dividends declared by the
corporation which are unclaimed by the stockholder entitled thereto for a period
of six years after the close of business on the payment date, shall be and is
deemed to be extinguished and abandoned, and such unclaimed dividends in the
possession of the corporation, its transfer agents or other agents or
depositories shall at such time become the absolute property of the corporation,
free and clear of any and all claims of any persons whatsoever.
ARTICLE VII
In furtherance and not in limitation of the power conferred by statute, the
Board of Directors is expressly authorized to make, alter, amend or repeal the
bylaws of the corporation.
ARTICLE VIII
A director of the corporation shall not in the absence of fraud be
disqualified by his office from dealing or contracting with the corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the corporation be liable to account to the corporation for any
profit realized by him from or through any transaction or contract of the
corporation by reason of the fact that he, or any firm of which he is a member
or any corporation of which he is an officer, director or stockholder, was
interested in such transaction or contract if such transaction or contract has
been authorized, approved or ratified in the manner provided in the General
Corporation Law of the State of Delaware for authorization, approval or
ratification of transactions or contracts between the corporation and one or
more of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest.
ARTICLE IX
Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
I-10
<PAGE> 73
ARTICLE X
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for a breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, as the same exists or hereafter may be amended, or (iv) for
any transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware hereafter is amended to
authorize the further elimination or limitation of the personal liability of
directors, then the personal liability of a director of the corporation, in
addition to the limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by the amended General Corporation Law
of the State of Delaware. Any repeal or modification of this Article IX by the
stockholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
corporation existing at the time of such repeal or modification.
ARTICLE XI
Elections of directors need not be by written ballot unless the bylaws of
the corporation so provide.
ARTICLE XII
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE XIII
The duty of the corporation to indemnify its directors and officers and the
power of the corporation to indemnify its agents and employees shall be as
provided in this Article XIII.
1. RIGHT TO INDEMNIFICATION.
Each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (2) of this Article XIII, the corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person
I-11
<PAGE> 74
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the corporation.
The right to indemnification conferred in this Article XIII shall be a
contract right and shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the General Corporation Law of the
State of Delaware requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article XII or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
2. RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under paragraph (1) of this Article XIII is not paid in full by
the corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the General
Corporation Law of the State of Delaware for the corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
3. NON-EXCLUSIVITY OF RIGHTS.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article XIII shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this Amended and Restated
Certificate of Incorporation, by-law or agreement of the corporation or vote of
stockholders or Board of Directors or otherwise.
4. INSURANCE.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
General Corporation Law of the State of Delaware.
I-12
<PAGE> 75
ANNEX II
LEHMAN BROTHERS
February 10, 1998
Board of Directors
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, IL 60606
Members of the Board:
We understand that a U.S. subsidiary ("Sub") of Fruit of the Loom, Ltd.
("FTL Cayman"), a Cayman Islands company which is a subsidiary of Fruit of the
Loom, Inc., a Delaware corporation ("FTL Delaware" or the "Company"), intends to
merge with FTL Delaware, with FTL Delaware being the surviving corporation (the
"Reorganization"). Pursuant to such merger, all of the outstanding common stock
of FTL Delaware will be owned by FTL Cayman . Upon the effectiveness of the
Reorganization, (i) each outstanding share of Class A Common Stock, par value
$.01 per share, of FTL Delaware (each, a "Class A Delaware Share") will be
converted automatically into one Class A ordinary share, par value $.01 per
share, of FTL Cayman (each, a "Class A Cayman Share") and (ii) each outstanding
share of Class B Common Stock, par value $.01 per share of FTL, Delaware (each,
a "Class B Delaware Share") will be converted automatically into one share of
exchangeable participating preferred stock of FTL Delaware (the "FTL Delaware
Preferred Stock"). In addition, William F. Farley and Farley, Inc.
(collectively, "Farley") will own four (4) Class B redeemable shares of
FTL-Cayman (each, a "Class B Cayman Share"), which will entitle Farley to the
same voting rights to which Farley currently is entitled as a result of its
holding of Class B Delaware Shares. The terms and conditions of the
Reorganization are set forth in more detail in the Agreement and Plan of Merger
among FTL Delaware, FTL Cayman and Sub (the "Agreement").
We have been requested by the Board of Directors of FTL-Delaware to render
our opinion as to the fairness, from a financial point of view, to the holders
of the Class A Delaware Shares of the consideration to be offered to such
holders in the Reorganization. We have not been requested to opine as to, and
our opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Reorganization. In addition, in rendering
our opinion, we were not able to calculate, and therefore did not consider, the
tax consequences of the Reorganization to any individual stockholder of the
Company.
In arriving at our opinion, we reviewed and analyzed: (i) the Agreement and
the specific terms of the Reorganization, (ii) the proxy statement/prospectus
relating to the Reorganization and such other publicly available information
concerning FTL Delaware that we believe to be relevant to our analysis, (iii)
financial and operating information with respect to the business, operations and
prospects of FTL Delaware and FTL Cayman furnished to us by FTL Delaware, (iv) a
trading history of FTL Delaware's common stock from December 1992 to the present
and a comparison of that trading history with those of other companies that we
deemed relevant, (v) a comparison of the historical financial results and
present financial condition of FTL Delaware with those of other companies that
we deemed relevant, (vi) the terms of the FTL Delaware Preferred Stock and a
II-1
<PAGE> 76
comparison of such terms with those of other securities that we deemed relevant,
(vii) information from the Company and advice from its legal and tax advisors
regarding the tax consequences of the Reorganization to the holders of Class A
Delaware Shares and Class B Delaware Shares, and (viii) the potential pro forma
impact of the Reorganization on FTL Delaware. In addition, we have had
discussions with the management of FTL Delaware concerning the business,
operations, assets, financial condition and prospects of FTL Delaware and FTL
Cayman and have undertaken such other studies, analyses and investigations as we
deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of FTL Delaware that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of FTL
Delaware and FTL Cayman, upon advice of FTL Delaware we have assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of FTL Delaware as
to the future financial performance of FTL Delaware and FTL Cayman and that FTL
Delaware and FTL Cayman will perform substantially in accordance with such
projections. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of FTL Delaware or FTL Cayman and
have not made or obtained any evaluations or appraisals of the assets or
liabilities of FTL Delaware or FTL Cayman. In addition, you have not authorized
us to solicit, and we have not solicited, any indications of interest from any
third party with respect to the purchase of all or a part of the business of FTL
Delaware or FTL Cayman. Our opinion necessarily is based upon market, economic
and other conditions as they exist on, and can be evaluated as of, the date of
this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the holders of the Class A Delaware Shares in the Reorganization is
fair to such holders.
We express no opinion as to the price at which Class A Cayman Shares
actually will trade following consummation of the Reorganization and our opinion
should not be viewed as providing any assurances that the market value of the
Class A Cayman Shares to be held by holders of the Class A Delaware Shares at
any time after consummation of the Reorganization will be in excess of the
market value of the Class A Delaware Shares previously owned by such holders.
We have acted as financial advisor to FTL Delaware in connection with the
Reorganization and will receive a fee for our services, a portion of which is
contingent upon the consummation of the Reorganization. In addition, FTL
Delaware has agreed to indemnify us for certain liabilities that may arise out
of the rendering of this opinion. In the ordinary course of our business, we
actively trade in the debt and equity securities of FTL Delaware for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of FTL
Delaware and is rendered to the Board of Directors in connection with its
consideration of the Reorganization. This opinion is not intended to be and does
not constitute a recommendation to any stockholder of FTL Delaware as to how the
stockholders of FTL Delaware should vote with respect to the Reorganization.
Very truly yours,
LEHMAN BROTHERS
II-2
<PAGE> 77
ANNEX III
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
FRUIT OF THE LOOM, INC.,
A DELAWARE CORPORATION
THE UNDERSIGNED, , being the
of Fruit of the Loom, Inc., hereby certifies that:
FIRST: The name of the Corporation is Fruit of the Loom, Inc. (the
"Corporation").
SECOND: The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on March 28, 1985 under the name
Factani Corporation. The Restated Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on July 20, 1992.
THIRD: Article 4, Part B, Section 6 of said Certificate of Incorporation is
hereby amended to read in its entirety as follows:
"6. Reclassification, Etc.
Neither the Class A Common Stock nor the Class B Common Stock may be
subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other class of Common Stock is subdivided,
consolidated, reclassified or otherwise changed in the same proportion and
in the same manner, or unless otherwise consented to by the holders of a
majority of each class of Common Stock."
FOURTH: A resolution setting forth the foregoing proposed amendment has
been adopted by the Board of Directors of the Corporation in accordance with the
provisions of Subchapter VIII, Section 242 of the General Corporation Law of the
State of Delaware.
FIFTH: The foregoing amendment of the Certificate of Incorporation has been
duly adopted by the necessary stockholders in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, I have signed this Certificate of Amendment this
day of , 1998.
--------------------------------------
Name:
Title:
III-1
<PAGE> 78
ANNEX IV
FRUIT OF THE LOOM, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF CUMULATIVE
EXCHANGEABLE PARTICIPATING PREFERRED STOCK AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
-------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE
-------------------------
Fruit of the Loom, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, hereby
certifies that pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors, at a meeting
held on February 10, 1998, adopted the following resolution, which resolution
remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Company is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation, to fix
by resolution or resolutions the designation of each series of Preferred Stock
(the "Preferred Stock") and the powers, preferences and relative participating,
optional or other special rights and qualifications, limitations or restrictions
thereof, including, without limiting the generality of the foregoing, such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other subjects or matters as may be fixed by resolution or resolutions of the
Board of Directors under the General Corporation Law of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the Company,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of preferred stock to be designated the Cumulative Exchangeable
Participating Preferred Stock of the Company and the number of shares
constituting such series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such series
of Preferred Stock on the terms and with the provisions herein set forth:
TERMS, PREFERENCES, RIGHTS AND LIMITATIONS
of
Cumulative Exchangeable Participating Preferred Stock
of
Fruit of the Loom, Inc.
The relative rights, preferences, powers, qualifications, limitations and
restrictions granted to or imposed upon the Cumulative Exchangeable
Participating Preferred Stock or the holders thereof are as follows:
1. Definitions. For purposes of this Designation, the following definitions
shall apply:
"Average Market Price" per FTL-Cayman Class A Share at any date of
determination shall mean the average of the daily closing prices for the ten
consecutive Trading Days ending on the third Business Day preceding such date of
determination, appropriately adjusted to take into account the actual
occurrence, during the period following the first of such ten consecutive
Trading Days and ending on the Business Day immediately preceding the date of
determination, of any event of a type described in subparagraph 6(b).
"Board" shall mean the Board of Directors of the Company.
IV-1
<PAGE> 79
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the State of Illinois are authorized or obligated
by law or executive order to close.
"Common Stock" shall mean the common stock, par value $.01 per share, of
the Company.
"Company" shall mean Fruit of the Loom, Inc.
"Conversion Rate" shall initially mean .9524 shares of Common Stock for
each share of Cumulative Exchangeable Participating Preferred Stock converted,
subject to adjustment as set forth in subparagraph 7(b).
"Cumulative Exchangeable Participating Preferred Stock" shall refer to
shares of Cumulative Exchangeable Participating Preferred Stock, par value $.01
per share, of the Company.
"Dividend Period" shall mean the period from the Original Issue Date to but
excluding the first Dividend Payment Date and, thereafter, each quarterly period
from and including a Dividend Payment Date to but excluding the next Dividend
Payment Date.
"Dividend Rate" shall mean 4.5% per annum, calculated on the basis of a 360
day year, based on the actual number of days elapsed.
"Exchange Rate" shall initially mean .9524 FTL-Cayman Class A Shares for
each share of Cumulative Exchangeable Participating Preferred Stock exchanged,
subject to adjustment as set forth in subparagraph 6(b).
"Fair Market Value" shall mean the fair saleable value of the Cumulative
Exchangeable Participating Preferred Stock in an arms-length transaction between
a willing buyer and a willing seller with neither being under any compulsion to
buy or sell, as determined by a nationally recognized investment banking firm
selected by the Company.
"FTL-Cayman" shall mean Fruit of the Loom, Ltd., a Cayman Islands company.
"FTL-Cayman Class A Shares" shall mean the Class A Ordinary Shares, par
value $.01 per share, of FTL-Cayman.
"Liquidation Preference" shall mean $ (1) per share.
"Original Issue Date" shall mean the date of the original issuance of
shares of Cumulative Exchangeable Participating Preferred Stock.
"Record Date" for the dividends payable on any Dividend Payment Date shall
mean the 15th day of the month immediately preceding the month during which such
Dividend Payment Date shall occur, as and if designated by the Board of
Directors of the Company.
"Redemption Date" shall mean the date on which the shares of Cumulative
Exchangeable Participating Preferred Stock are redeemed by the Company.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, or any successor statute, and the rules and regulations
promulgated thereunder.
"Trading Day" shall mean so long as the FTL-Cayman Class A Shares are
listed or admitted to trading on the New York Stock Exchange, a day on which the
New York Stock Exchange is open for the transaction of business, or, if the
FTL-Cayman Class A Shares are not listed or admitted to trading on the New York
Stock Exchange, a day on which the securities exchange on which the FTL-Cayman
Class A Shares are listed and which has been designated by the Board of
Directors is
- ---------------
1 To be determined based on the average closing price of the Class A common
stock of the Company on the New York Stock Exchange for the 20 trading days
prior to the filing of a Certificate of Merger in connection with the merger
of a subsidiary of FTL-Cayman with and into the Company.
IV-2
<PAGE> 80
open for the transaction of business, or, if the FTL-Cayman Class A Shares are
not listed or admitted for trading on any securities exchange, a day on which
the New York Stock Exchange is open for the transaction of business.
"Wholly Owned Subsidiary" means (i) a corporation all of the capital stock
of which, having voting power under ordinary circumstances to elect directors,
is at the time, directly or indirectly, owned by the Company and/or one or more
Wholly Owned Subsidiaries and (ii) any other entity (other than a corporation)
in which the Company and/or one or more Wholly Owned Subsidiaries, directly or
indirectly, has the power to elect or direct the election of all of the members
of the governing body of such entity.
2. Designation: Number of Shares. The designation of the Preferred Stock
authorized by this resolution shall be "Cumulative Exchangeable Participating
Preferred Stock" and the number of shares of Cumulative Exchangeable
Participating Preferred Stock authorized hereby shall be 5,684,276 shares.
3. Dividends.
(a) So long as any shares of Cumulative Exchangeable Participating
Preferred Stock shall be outstanding, the holders of such Cumulative
Exchangeable Participating Preferred Stock shall be entitled to receive out of
any funds legally available therefor, cumulative preferential dividends in cash,
at the Dividend Rate on the Liquidation Preference hereunder, payable quarterly
in arrears on the first Business Day of each January, April, July and October
(each such date being called a "Dividend Payment Date"). In the event that
sufficient funds for any such dividend shall not at any time be otherwise
legally available, the Company shall use its best efforts to cause such
availability to come into existence. Dividends on the Cumulative Exchangeable
Participating Preferred Stock shall be cumulative from the Original Issue Date
(whether or not declared and whether or not in any dividend period or dividend
periods there shall be net profits or net assets of the Company legally
available for the payment of those dividends). Each dividend on the shares of
Cumulative Exchangeable Participating Preferred Stock shall be payable to
holders of record as they appear on the stock register of the Company on the
Record Date for such dividend. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the
Cumulative Exchangeable Participating Preferred Stock which may be in arrears.
(b) So long as any shares of Cumulative Exchangeable Participating
Preferred Stock shall remain outstanding, the Company may not declare or pay any
dividend, make a distribution, or purchase, acquire, redeem, pay monies to the
holders of, or set aside or make monies available for a sinking fund for the
purchase or redemption of, any shares of common stock or any share of any other
class or series of the Company's preferred stock ranking junior to the
Cumulative Exchangeable Participating Preferred Stock with respect to the
payment of dividends or the distribution of assets on liquidation, dissolution
or winding up of the Company unless all dividends in respect of the Cumulative
Exchangeable Participating Preferred Stock for all past dividend periods have
been paid and such dividends for the current dividend period have been paid or
declared and duly provided for.
(c) In addition to the cumulative preferential dividends provided for
above, holders of Cumulative Exchangeable Participating Preferred Stock shall be
entitled to participate with the common stock on any additional dividends
declared by the Board of Directors of the Company on an as converted basis.
4. Liquidation Rights of Cumulative Exchangeable Participating Preferred
Stock.
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Cumulative
Exchangeable Participating Preferred Stock then outstanding shall be entitled to
be paid out of the assets of the Company available for distribution to its
stockholders, whether such assets are capital, surplus or earnings, before any
payment or declaration and setting apart for payment of any amount shall be made
in respect of any shares of common stock or any share of any other class or
series of the Company's preferred stock ranking
IV-3
<PAGE> 81
junior to the Cumulative Exchangeable Participating Preferred Stock with respect
to the payment of dividends or distribution of assets on liquidation,
dissolution or winding up of the Company, an amount equal to the Liquidation
Preference plus all accumulated and unpaid dividends (including a prorated
quarterly dividend from the last Dividend Payment Date to the date of such
payment) in respect of any liquidation, dissolution or winding up consummated.
(b) If upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the assets to be distributed among the holders
of Cumulative Exchangeable Participating Preferred Stock shall be insufficient
to permit the payment to such stockholders of the full preferential amounts
aforesaid, then the entire assets of the Company to be distributed shall be
distributed ratably among the holders of Cumulative Exchangeable Participating
Preferred Stock, based on the full preferential amounts for the number of shares
of Cumulative Exchangeable Participating Preferred Stock held by each holder.
(c) In addition to the preferential amounts aforesaid, holders of
Cumulative Exchangeable Participating Preferred Stock shall be entitled to
participate with the common stock with respect to all additional liquidation
proceeds on an as converted basis.
(d) A consolidation or merger of the Company with or into any other
corporation or corporations in which the stockholders of the Company receive
solely capital stock of the acquiring corporation (or of the direct or indirect
parent corporation of the acquiring corporation), except for cash in lieu of
fractional shares, shall not be deemed to be a liquidation, dissolution, or
winding up of the Company as those terms are used in this paragraph 4.
5. Redemption of Cumulative Exchangeable Participating Preferred Stock.
(i) At any time on or after the third anniversary of the Original Issue
Date, the Company, at the option of the Board, may redeem, from any source of
funds legally available therefor, in whole, but not in part, in the manner
provided for below, all shares of Cumulative Exchangeable Participating
Preferred Stock at a redemption price equal to the then Fair Market Value (the
"Redemption Price").
(ii) At least thirty (30) days and not more than sixty (60) days prior to
the Redemption Date, written notice thereof (the "Redemption Notice") shall be
mailed, postage prepaid, to each holder of record of the Cumulative Exchangeable
Participating Preferred Stock at the last address as it shall appear in the
register of the Company. Prior to mailing the Redemption Notice, the Company
shall engage an investment banking firm to determine the Fair Market Value of
the Cumulative Exchangeable Participating Preferred Stock as of a date not more
than seventy-five (75) days prior to the Redemption Date. The Redemption Notice
shall state:
(A) that the Company intends to redeem all outstanding shares of
Cumulative Exchangeable Participating Preferred Stock;
(B) the Redemption Date and the Redemption Price;
(C) that dividends on the shares of Cumulative Exchangeable
Participating Preferred Stock to be redeemed shall cease to accrue on the
Redemption Date;
(D) the then current Exchange Rate and the place or places where
certificates for Cumulative Exchangeable Participating Preferred Stock may
be surrendered for exchange pursuant to paragraph (6), and shall further
state the date that the exchange privilege will terminate; and
(E) that the holder is to surrender to the Company, in the manner and
at the place designated, his certificate or certificates representing the
shares of Cumulative Exchangeable Participating Preferred Stock.
(iii) On or before the date fixed for redemption, each holder of Cumulative
Exchangeable Participating Preferred Stock shall surrender the certificate or
certificates representing such shares
IV-4
<PAGE> 82
of Cumulative Exchangeable Participating Preferred Stock to the Company, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price for such shares shall be payable in cash on the Redemption Date
to the person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be cancelled and retired.
(iv) Unless the Company defaults in the payment in full of the Redemption
Price, dividends on the Cumulative Exchangeable Participating Preferred Stock
shall cease to accumulate on the Redemption Date, and all rights of the holders
of such shares redeemed shall cease to have any further rights with respect
thereto on the Redemption Date, other than to receive the Redemption Price
without interest.
6. Exchange at Option of Holder.
(a) Subject to the provisions of this paragraph 6, shares (or fractions
thereof) of Cumulative Exchangeable Participating Preferred Stock are
exchangeable, in whole or from time to time in part, at the option of the
holders thereof, at any time from and after the Original Issue Date, unless
previously redeemed, into FTL-Cayman Class A Shares at the Exchange Rate. The
right to exchange shares of Cumulative Exchangeable Participating Preferred
Stock called for redemption shall terminate on a date to be determined by the
Board of Directors of the Company, which will be no earlier than the close of
business on the fifth Business Day immediately preceding the specified
Redemption Date.
An exchange of shares of Cumulative Exchangeable Participating Preferred
Stock at the option of the holder may be effected by delivering certificates
evidencing such shares, together with (i) written notice of exchange specifying
the number of shares of Cumulative Exchangeable Participating Preferred Stock to
be exchanged and specifying the name or names (with addresses) in which the
certificate or certificates representing the FTL-Cayman Class A Shares
deliverable on such exchange are to be registered and (ii) a proper assignment
to the Company (or in blank) of the certificate(s) for the shares of Cumulative
Exchangeable Participating Preferred Stock surrendered for exchange, to the
office or agency to be maintained by the Company for that purpose and otherwise
in accordance with exchange procedures established by the Company. Each notice
of exchange shall be irrevocable, and each exchange shall be deemed to have been
effected immediately prior to the close of business on the date (the "Exchange
Date") on which all of the requirements for such exchange shall have been
satisfied. The exchange shall be at the Exchange Rate in effect immediately
prior to the close of business on the Exchange Date.
As promptly as practicable after the surrender of certificates for shares
of Cumulative Exchangeable Participating Preferred Stock by a holder as
aforesaid, the Company, in accordance with the provisions of this paragraph 6,
shall deliver at said office or agency to such holder, or on his or her written
order, a certificate or certificates for the number of full FTL-Cayman Class A
Shares issuable upon exchange of such shares in accordance with the provision of
this paragraph 6, and any fractional interest shall be settled by the Company in
accordance with subparagraph (c) of this paragraph 6.
Upon any exchange of shares of Cumulative Exchangeable Participating
Preferred Stock pursuant to this paragraph 6, the Company shall make no payment
or allowance for unpaid dividends, whether or not in arrears, on exchanged
shares of Cumulative Exchangeable Participating Preferred Stock or for
previously declared dividends or distributions on the FTL-Cayman Class A Shares
issued upon such exchange, other than for previously declared but unpaid
dividends on the Cumulative Exchangeable Participating Preferred Stock.
If the shares of Cumulative Exchangeable Participating Preferred Stock
represented by a certificate surrendered for exchange are exchanged in part
only, the Company shall cause to be delivered to the holder, without charge
therefor, a new certificate or certificates representing in the aggregate the
number of unexchanged shares.
IV-5
<PAGE> 83
(b) Exchange Rate Adjustments. The Exchange Rate shall be subject to
adjustment from time to time as provided below in this subparagraph 6(b).
(i) If FTL-Cayman shall, after the Original Issue Date:
(A) pay a stock dividend on the outstanding FTL-Cayman Class A
Shares,
(B) subdivide or split the outstanding FTL-Cayman Class A Shares
into a greater number of shares,
(C) combine the outstanding FTL-Cayman Class A Shares into a
smaller number of shares, or
(D) issue by reclassification of its outstanding FTL-Cayman Class
A Shares any other ordinary or common shares,
then, in any such event, the Exchange Rate in effect immediately prior to
the opening of business on the record date for determination of
stockholders entitled to receive such dividend or the effective date of
such subdivision, split, combination or reclassification, as the case may
be, shall be adjusted so that the holder of shares of Cumulative
Exchangeable Participating Preferred Stock shall thereafter be entitled to
receive, upon exchange at the option of such holder, the number of
FTL-Cayman Class A Shares or other common shares of FTL-Cayman which such
holder would have owned or been entitled to receive immediately following
such action if such holder had exchanged his shares of Cumulative
Exchangeable Participating Preferred Stock immediately prior to the record
date for, or effective date of, as the case may be, such event. Such
adjustment shall be made successively whenever any event listed above shall
occur.
For a dividend or distribution, the adjustment shall become effective
at the opening of business on the Business Day next following the record
date for such dividend or distribution. For a subdivision, split,
combination or reclassification, the adjustment shall become effective
immediately after the effectiveness of such subdivision, split, combination
or reclassification.
(ii) If FTL-Cayman shall, after the Original Issue Date, issue rights,
warrants or options to all holders of its outstanding FTL-Cayman Class A
Shares entitling them (for a period not exceeding forty-five days from the
record date referred to below) to subscribe for or purchase FTL-Cayman
Class A Shares at a price per share less than the Average Market Price per
share of the FTL-Cayman Class A Shares (determined as of the record date
for the determination of stockholders entitled to receive such rights,
warrants or options), then, in any such event, the Exchange Rate shall be
adjusted by multiplying the Exchange Rate in effect immediately prior to
the opening of business on such record date by a fraction, of which the
numerator shall be the number of FTL-Cayman Class A Shares outstanding on
such record date plus the maximum number of additional FTL-Cayman Class A
Shares offered for subscription or purchase pursuant to such rights,
warrants or options, and of which the denominator shall be the number of
FTL-Cayman Class A Shares outstanding on such record date plus the maximum
number of additional FTL-Cayman Class A Shares which the aggregate offering
price of the maximum number of FTL-Cayman Class A Shares so offered for
subscription or purchase pursuant to such rights, warrants or options would
purchase at such Average Market Price (determined by multiplying such
maximum number of shares by the exercise price of such rights, warrants or
options (plus any other consideration received by FTL-Cayman upon the
issuance or exercise of such rights, warrants or options) and dividing the
product so obtained by such Average Market Price). Such adjustment shall
become effective at the opening of business on the Business Day next
following the record date for the determination of shareholders entitled to
receive such rights, warrants or options. To the extent that FTL-Cayman
Class A Shares are not delivered after the expiration of such rights,
warrants or options, the Exchange Rate shall be readjusted to the Exchange
Rate which would then be in effect had the adjustments made upon the record
date for the determination of shareholders entitled to receive such rights,
warrants or
IV-6
<PAGE> 84
options been made upon the basis of delivery of only the number of
FTL-Cayman Class A Shares actually delivered and the amount actually paid
therefor. Such adjustment shall be made successively whenever any such
rights, warrants or options are issued. In determining whether any rights,
warrants or options entitle the holders to subscribe for or purchase
FTL-Cayman Class A Shares at a price per share less than such Average
Market Price, there shall be taken into account any consideration received
by FTL-Cayman upon issuance and upon exercise of such rights, warrants or
options. The value of such consideration, if other than cash, shall be
determined by the Board of Directors, whose determination shall be
conclusive.
(iii) If FTL-Cayman shall, after the Original Issue Date, pay a
dividend or make a distribution to all holders of its outstanding
FTL-Cayman Class A Shares of evidences of its indebtedness or other assets
of FTL-Cayman, but excluding (x) any cash dividends or distributions and
(y) dividends or distributions referred to in subparagraph 6(b)(i) above,
or shall issue to all holders of its outstanding FTL-Cayman Class A Shares
rights, warrants or options to subscribe for or purchase any securities
(other than those referred to in subparagraph 6(b)(ii) above), then, in any
such event, the Exchange Rate shall be adjusted by multiplying the Exchange
Rate in effect immediately prior to the opening of business on the record
date for the determination of stockholders entitled to receive such
dividend or distribution or such rights, warrants or options by a fraction,
of which the numerator shall be the Average Market Price per share of the
FTL-Cayman Class A Shares (determined as of such record date), and of which
the denominator shall be such Average Market Price less the fair market
value (as determined by the Board of Directors, whose determination shall
be conclusive), as of such record date, of the portion of the capital
stock, assets or evidences of indebtedness to be so distributed, or of such
rights, warrants or options to be so issued, applicable to one FTL-Cayman
Class A Share. The adjustment pursuant to the foregoing provisions of this
subparagraph 6(b)(iii) shall be made successively whenever any dividend or
distribution or issuance of rights, warrants or options to which this
subparagraph 6(b)(iii) applies is made, and shall become effective at the
opening of business on the Business Day next following the record date for
the determination of shareholders entitled to receive such dividend or
distribution or such rights, warrants or options.
(iv) Any FTL-Cayman Class A Shares issuable in payment of a dividend
shall be deemed to have been issued immediately prior to the close of
business on the record date for such dividend for purposes of calculating
the number of outstanding FTL-Cayman Class A Shares under this subparagraph
6(b). FTL-Cayman Class A Shares owned by or held for the account of
FTL-Cayman or any of its Wholly Owned Subsidiaries shall not be deemed
outstanding for the purposes of this subparagraph 6(b).
(v) In any case in which this subparagraph 6(b) shall require that an
adjustment be made in the Exchange Rate, the Company may, in its sole
discretion, elect to defer the following until after the occurrence of the
event which requires such adjustment: (A) delivering to the holder of any
Cumulative Exchangeable Participating Preferred Stock surrendered for
exchange the additional FTL-Cayman Class A Shares issuable upon such
exchange over the FTL-Cayman Class A Shares issuable before giving effect
to such adjustment and (B) paying to such holder any amount in cash in lieu
of a fractional FTL-Cayman Class A Share.
(vi) All adjustments to the Exchange Rate shall be calculated to the
nearest 1/100th of a FTL-Cayman Class A Share. No adjustment in the
Exchange Rate shall be required unless such adjustment would require an
increase or decrease of at least one percent therein; provided, however,
that any adjustment which by reason of this subparagraph is not required to
be made shall be carried forward and taken into account in any subsequent
adjustment.
(c) Fractional Shares. No fractional shares or scrip representing fractions
of FTL-Cayman Class A Shares shall be issued upon exchange of the Cumulative
Exchangeable Participating Preferred Stock. Instead of any fractional interest
in a FTL-Cayman Class A Share which would
IV-7
<PAGE> 85
otherwise be deliverable upon the exchange of a share of Cumulative Exchangeable
Participating Preferred Stock, the Company shall pay to the holder of such share
an amount in cash (computed to the nearest cent) based upon the Average Market
Price of a FTL-Cayman Class A Share. If more than one share of Cumulative
Exchangeable Participating Preferred Stock shall be surrendered for exchange at
one time by the same holder, the number of full FTL-Cayman Class A Shares
issuable upon exchange thereof shall be computed on the basis of the aggregate
number of shares of Cumulative Exchangeable Participating Preferred Stock so
surrendered.
(d) Adjustment for Consolidation or Merger of FTL-Cayman. In case of any
consolidation, amalgamation, reconstruction or merger to which FTL-Cayman is a
party, or in the case of any sale or transfer to another corporation of the
property of FTL-Cayman as an entirety or substantially as an entirety, or in
case of any statutory exchange of securities with another corporation (other
than in connection with a merger or acquisition) (each of the foregoing being
referred to herein as a "Transaction"), in each case as a result of which
FTL-Cayman Class A Shares shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), proper
provision shall be made so that each share of Cumulative Exchangeable
Participating Preferred Stock shall, after consummation of such Transaction, be
subject to exchange at the option of the holder into the kind and amount of
stock, securities or other property receivable upon consummation of such
Transaction by a holder of the number of FTL-Cayman Class A Shares into which
such share of Cumulative Exchangeable Participating Preferred Stock might have
been exchanged immediately prior to consummation of such Transaction. The kind
and amount of stock or securities into which the shares of Cumulative
Exchangeable Participating Preferred Stock shall be exchangeable after
consummation of such Transaction shall be subject to adjustment, as nearly as
may be practicable, as described in subparagraph 6(b) following the date of
consummation of such Transaction.
(e) Notice of Adjustments. Whenever the Exchange Rate is adjusted as herein
provided, the Company shall forthwith compute the adjusted Exchange Rate in
accordance herewith and prepare a certificate signed by an officer of the
Company setting forth the adjusted Exchange Rate, the method of calculation
thereof in reasonable detail and the facts requiring such adjustment and upon
which such adjustment is based, which certificate shall be conclusive, final and
binding evidence of the correctness of the adjustment (absent manifest error),
and mail a copy of such certificate to the holders of the outstanding shares of
Cumulative Exchangeable Participating Preferred Stock.
7. Conversion at Option of Holder.
(a) Subject to the provisions of this paragraph 7, shares of Cumulative
Exchangeable Participating Preferred Stock are convertible, in whole or from
time to time in part, at the option of the holders thereof, at any time from and
after the Original Issue Date, unless previously redeemed, into Common Stock at
the Conversion Rate. The right to convert shares of Cumulative Exchangeable
Participating Preferred Stock called for redemption shall terminate on a date to
be determined by the Board of Directors of the Company, which will be no earlier
than the close of business on the fifth Business Day immediately preceding the
specified Redemption Date.
A conversion of shares of Cumulative Exchangeable Participating Preferred
Stock at the option of the holder may be effected by delivering certificates
evidencing such shares, together (i) with written notice of conversion
specifying the number of shares of Cumulative Exchangeable Participating
Preferred Stock to be converted and specifying the name or names (with
addresses) in which the certificate or certificates representing the
FTL-Delaware Common Stock deliverable on such conversion are to be registered
and (ii) a proper assignment to the Company (or in blank) of the certificate(s)
for the shares of Cumulative Exchangeable Participating Preferred Stock
surrendered for conversion, to the office or agency to be maintained by the
Company for that purpose and otherwise in accordance with conversion procedures
established by the Company. Each notice of conversion shall be irrevocable, and
each conversion shall be deemed to have been effected immediately prior to the
close of business on the date (the "Conversion Date") on which all of the
IV-8
<PAGE> 86
requirements for such conversion shall have been satisfied. The conversion shall
be at the Conversion Rate in effect immediately prior to the close of business
on the Conversion Date.
As promptly as practicable after the surrender of certificates for shares
of Cumulative Exchangeable Participating Preferred Stock by a holder as
aforesaid, the Company, in accordance with the provisions of this paragraph 7,
shall deliver at said office or agency to such holder, or on his or her written
order, a certificate or certificates for the number of full or fractional shares
of FTL-Delaware Common Stock issuable upon conversion of such shares in
accordance with the provision of this paragraph 7.
Upon any conversion of shares of Cumulative Exchangeable Participating
Preferred Stock pursuant to this paragraph 7, the Company shall make no payment
or allowance for unpaid dividends, whether or not in arrears, on converted
shares of Cumulative Exchangeable Participating Preferred Stock or for
previously declared dividends or distributions on the FTL-Delaware Common Stock
issued upon such conversion, other than for previously declared but unpaid
dividends on the Cumulative Exchangeable Participating Preferred Stock.
If the shares of Cumulative Exchangeable Participating Preferred Stock
represented by a certificate surrendered for conversion are converted in part
only, the Company shall cause to be delivered to the holder, without charge
therefor, a new certificate or certificates representing in the aggregate the
number of unconverted shares.
(b) Conversion Rate Adjustments. The Conversion Rate shall be subject to
adjustment from time to time as provided below in this subparagraph 7(b).
(i) If the Company shall, after the Original Issue Date:
(A) subdivide or split (other than pursuant to a dividend or
distribution in which holders of the Cumulative Exchangeable
Participating Preferred Stock participate pursuant to Section 3(c)
hereof) the outstanding FTL-Delaware Common Stock into a greater number
of shares,
(B) combine the outstanding FTL-Delaware Common Stock into a
smaller number of shares, or
(C) issue by reclassification of its outstanding FTL-Delaware
Common Stock any shares of its common stock,
then, in any such event, the Conversion Rate in effect immediately prior to
the opening of business on the effective date of such subdivision, split,
combination or reclassification, as the case may be, shall be adjusted so
that the holder of shares of Cumulative Exchangeable Participating
Preferred Stock shall thereafter be entitled to receive, upon conversion at
the option of such holder, the number of shares of FTL-Delaware Common
Stock or other common stock of the Company which such holder would have
owned or been entitled to receive immediately following such action if such
holder had converted his shares of Cumulative Exchangeable Participating
Preferred Stock immediately prior to the record date for, or effective date
of, as the case may be, such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
For a subdivision, split, combination or reclassification, the
adjustment shall become effective immediately after the effectiveness of
such subdivision, split, combination or reclassification.
(ii) In any case in which this subparagraph 7(b) shall require that an
adjustment be made in the Conversion Rate, the Company may, in its sole
discretion, elect to defer the following until after the occurrence of the
event which requires such adjustment: (A) issuing to the holder of any
Cumulative Exchangeable Participating Preferred Stock surrendered for
conversion the additional shares of FTL-Delaware Common Stock issuable upon
such conversion over the
IV-9
<PAGE> 87
shares of FTL-Delaware Common Stock issuable before giving effect to such
adjustment and (B) paying to such holder any amount in cash in lieu of a
fractional share of FTL-Delaware Common Stock.
(iii) All adjustments to the Conversion Rate shall be calculated to
the nearest 1/100th of a share of FTL-Delaware Common Stock. No adjustment
in the Conversion Rate shall be required unless such adjustment would
require an increase or decrease of at least one percent therein; provided,
however, that any adjustment which by reason of this subparagraph is not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
(c) Fractional Shares. Fractional shares representing fractions of
FTL-Delaware Common Stock shall be issuable upon conversion of the Cumulative
Exchangeable Participating Preferred Stock.
(d) Adjustment for Consolidation or Merger of the Company. In case of any
consolidation or merger to which the Company is a party, or in the case of any
sale or transfer to another corporation of the property of the Company as an
entirety or substantially as an entirety, or in case of any statutory conversion
of securities with another corporation (other than in connection with a merger
or acquisition) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which shares of FTL-Delaware Common
Stock shall be converted into the right to receive stock, securities or other
property (including cash or any combination thereof), proper provision shall be
made so that each share of Cumulative Exchangeable Participating Preferred Stock
shall, after consummation of such Transaction, be subject to conversion at the
option of the holder into the kind and amount of stock, securities or other
property receivable upon consummation of such Transaction by a holder of the
number of shares of FTL-Delaware Common Stock into which such share of
Cumulative Exchangeable Participating Preferred Stock might have been converted
immediately prior to consummation of such Transaction. The kind and amount of
stock or securities into which the shares of Cumulative Exchangeable
Participating Preferred Stock shall be convertible after consummation of such
Transaction shall be subject to adjustment, as nearly as may be practicable, as
described in subparagraph 7(b) following the date of consummation of such
Transaction.
(e) Notice of Adjustments. Whenever the Conversion Rate is adjusted as
herein provided, the Company shall forthwith compute the adjusted Conversion
Rate in accordance herewith and prepare a certificate signed by an officer of
the Company setting forth the adjusted Conversion Rate, the method of
calculation thereof in reasonable detail and the facts requiring such adjustment
and upon which such adjustment is based, which certificate shall be conclusive,
final and binding evidence of the correctness of the adjustment (absent manifest
error), and mail a copy of such certificate to the holders of the outstanding
shares of Cumulative Exchangeable Participating Preferred Stock.
8. Voting Rights.
(a) The holders of Cumulative Exchangeable Participating Preferred Stock,
except as otherwise provided hereunder or under Delaware law, shall be entitled
to vote on all matters put to a vote of the holders of Common Stock, voting
together with such holders as a single class, and will be entitled to the number
of votes which such holder would have had if such holder had converted his
shares of Cumulative Exchangeable Participating Preferred Stock into shares of
FTL-Delaware Common Stock, in accordance with paragraph 7, immediately prior to
the record date for the determination of stockholders entitled to vote thereon.
(b) So long as any shares of Cumulative Exchangeable Participating
Preferred Stock shall remain outstanding, the Company will not, without the
affirmative vote at a meeting or the written consent with or without a meeting
of the holders of at least a majority of the outstanding shares of Cumulative
Exchangeable Participating Preferred Stock, (i) amend, alter or repeal any of
the provisions of the Company's Certificate of Incorporation or By-Laws so as to
affect adversely the
IV-10
<PAGE> 88
preferences, special rights or powers of the Cumulative Exchangeable
Participating Preferred Stock or (ii) create any class or series of stock
ranking prior to the Cumulative Exchangeable Participating Preferred Stock
either as to dividends or upon liquidation.
(c) (i) If at any time accrued dividends payable on the shares of
Cumulative Exchangeable Participating Preferred Stock are in arrears and unpaid
in an aggregate amount equal to or exceeding the aggregate amount of dividends
payable thereon for six quarterly dividend periods, the holders of the shares of
Cumulative Exchangeable Participating Preferred Stock, voting separately as a
class, shall have the right to vote for the election of one additional director
(the "Preferred Stock Director") to the Board of Directors of the Company, such
director to be in addition to the number of directors constituting the Board of
Directors immediately prior to the accrual of such right. Such right of the
holders of shares of Cumulative Exchangeable Participating Preferred Stock to
vote for the election of the Preferred Stock Director shall, when vested,
continue until all dividends in arrears on the shares of Cumulative Exchangeable
Participating Preferred Stock shall have been paid in full, and when so paid,
such right shall cease, subject always to the same provisions for the vesting of
such right of the holders of the shares of Cumulative Exchangeable Participating
Preferred Stock to elect the Preferred Stock Director in the case of future
dividend defaults. The Preferred Stock Director shall be elected by a plurality
of the votes cast by the holders of Cumulative Exchangeable Participating
Preferred Stock.
(ii) The Preferred Stock Director shall be the sole member of a special
committee of the Board of Directors of the Company, the only purpose of which
will be to declare dividends on the Cumulative Exchangeable Participating
Preferred Stock. The special committee, will have full authority to declare such
dividends on behalf of the Board of Directors, provided, however, that the
special committee will not be permitted to declare dividends on the Cumulative
Exchangeable Participating Preferred Stock if such a payment would be or cause a
default or an event of default under any debt agreement of the Company or any of
its affiliates.
(iii) At any time when the holders of shares of the Cumulative Exchangeable
Participating Preferred Stock are entitled to elect the Preferred Stock
Director, the Company shall, upon the written request (a "Request") of the
holders of record of not less than 10% of the outstanding shares of Cumulative
Exchangeable Participating Preferred Stock entitled to vote for such Preferred
Stock Director, call a special meeting of holders of the Cumulative Exchangeable
Participating Preferred Stock for the election of the Preferred Stock Director.
Notice of the special meeting shall be given in accordance with the requirements
of Delaware law, and such meeting shall be held not more than 60 days after the
Company's receipt of the Request. The Preferred Stock Director shall be
nominated by the persons who submit the Request.
(iv) The term of office of the Preferred Stock Director shall terminate on
the earlier of (i) the next annual meeting of stockholders of the Company at
which a successor shall have been elected and qualified or (ii) the termination
of the right of the holders of shares of Cumulative Exchangeable Participating
Preferred Stock to vote for the Preferred Stock Director. If, prior to the end
of the term of the Preferred Stock Director elected as aforesaid, a vacancy in
the office of such director shall occur, the holders of the shares of Cumulative
Exchangeable Participating Preferred Stock may, at a special meeting of the
holders called as provided above, nominate and elect a successor to hold office
for the unexpired term of the Preferred Stock Director.
9. No Reissuance of Preferred Stock. No Cumulative Exchangeable
Participating Preferred Stock acquired by the Company by reason of redemption,
purchase, or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Company shall be
authorized to issue.
10. Notices. All notices to the Company permitted hereunder shall be
personally delivered or sent by first class mail, postage prepaid, addressed to
its principal office located at 5000 Sears Tower, 233 South Wacker Drive,
Chicago, Illinois 60606, Attention: Secretary, or to such other address at which
its principal office is located and as to which notice thereof is similarly
given to the
IV-11
<PAGE> 89
holders of the Cumulative Exchangeable Participating Preferred Stock at their
addresses appearing on the books of the Company.
IN WITNESS WHEREOF Fruit of the Loom, Inc., has caused this Certificate to
be signed by its President and Secretary respectively, on this day of
, 1998.
--------------------------------------
Name:
Title:
--------------------------------------
Name:
Title:
IV-12
<PAGE> 90
[FRUIT OF THE LOOM LOGO]
September 16, 1998
Dear Stockholder:
The Board of Directors of Fruit of the Loom, Inc. (the "Company") is
calling a Special Meeting of Stockholders to be held on November 12, 1998 at
10:00 a.m., Chicago time, at the Metropolitan Club, 66th Floor, Sears Tower, 233
South Wacker Drive, Chicago, Illinois, to consider the reorganization of the
Company. The Board of Directors is proposing that Fruit of the Loom, Ltd. ("FTL-
Cayman"), a Cayman Islands company, become the parent of the Company. As a
result of the reorganization, FTL-Cayman, directly or indirectly, will carry on
the operations currently conducted by the Company and will own all of the
outstanding capital stock of the Company, except for newly-issued shares of
exchangeable participating preferred stock of the Company to be held by the
undersigned, William Farley, and my affiliates (collectively "Farley").
Accompanying this letter is a Notice of Special Meeting of Stockholders
relating to the Special Meeting and a Proxy Statement/Prospectus describing in
more detail the reorganization and related matters.
The Board of Directors believes that the reorganization will enable the
Company to create better returns for its stockholders. The use of a Cayman
Islands holding company will allow the Company to organize its international
business activities so that it will be able to benefit from more favorable
business, tax and financing environments than would be available to us if our
parent company were to remain a United States corporation. The use of a Cayman
Islands parent corporation is expected to reduce corporate income taxes because
the Cayman Islands generally imposes no corporate income taxes on foreign
income. By contrast, the United States imposes corporate income tax on the
worldwide income of United States corporations. The United States imposes
significant costs for companies like Fruit of the Loom that conduct a
substantial portion of their operations outside the United States. These costs
are expected to be reduced to the extent that our operations are conducted after
the reorganization by FTL-Cayman or its foreign subsidiaries.
At the effective time of the reorganization the holders of the Company's
Class A Common Stock will become holders of FTL-Cayman's Class A ordinary
shares. The Class A ordinary shares will have substantially the same attributes
as the Company's Class A Common Stock and will be listed on the New York Stock
Exchange under the symbol "FTL." THE EXCHANGE OF CLASS A COMMON STOCK FOR CLASS
A ORDINARY SHARES WILL BE A TAXABLE TRANSACTION IN WHICH GAIN, IF ANY (BUT NOT
LOSS), WILL BE RECOGNIZED BY EXCHANGING STOCKHOLDERS. Farley, who holds all of
the outstanding Class B Common Stock of the Company, will exchange such shares
at the effective time of the reorganization for newly-issued exchangeable
participating preferred stock of the Company, which is exchangeable for
FTL-Cayman Class A ordinary shares and convertible into the common stock of the
Company. In connection with the reorganization, such Class B stockholders will
also own four (4) FTL-Cayman Class B redeemable ordinary shares with aggregate
voting rights comparable to the current voting rights of the Class B Common
Stock of the Company. The transaction has been structured with respect to such
holders of Class B Common Stock with the intention that it will not be currently
taxable to them.
While the Class A ordinary shares will have substantially the same
attributes as the Company's Class A Common Stock, there will be certain
differences, including those required by Cayman Islands law, which are more
fully discussed in the accompanying Proxy Statement/Prospectus.
<PAGE> 91
Holders of the Class A ordinary shares will not be entitled to a cash dividend
preference of $1.00 per share that is currently available to the holders of the
Company's Class A Common Stock prior to the payment of dividends to the holders
of the Company's Class B Common Stock. The Company's Board of Directors has
determined that this preference is not necessary following the reorganization
since the current holders of FTL-Delaware Class B Stock will not be entitled to
participate in the dividends, if any, paid by FTL-Cayman except on the very
limited basis of their four FTL-Cayman Class B redeemable ordinary shares.
The reorganization has been unanimously approved by the Board of Directors
of the Company, including the undersigned, William Farley, and a Special
Committee comprised of independent directors which was appointed to analyze the
terms and structure of the reorganization, and to develop, and in the case of
Farley, negotiate, the terms of the securities to be offered to the Class A
Common stockholders and Farley in the reorganization. The undersigned may be
deemed to have a conflict of interest given the different treatment of the Class
B Common Stock held by Farley. The Company has also received an opinion from
Lehman Brothers Inc. that, from a financial point of view, the consideration to
be offered to the Class A Common stockholders in the reorganization is fair to
such holders.
Please carefully read the accompanying Proxy Statement/Prospectus for
details of the reorganization and related information.
It is important that your shares be represented regardless of whether you
plan to be present at the Special Meeting. Approval of the reorganization
requires the affirmative vote of a majority of the outstanding shares of Class A
and Class B Common Stock voting together as a single class as well as the
affirmative vote of a majority of the outstanding shares of each class voting
separately. Farley has advised the Board that they intend to vote in favor of
the reorganization. Please complete, date and sign the enclosed proxy card and
mail it promptly in the enclosed postage-paid return envelope.
The Board of Directors of the Company unanimously recommends that
stockholders vote in favor of (i) the reorganization, which will be deemed to
constitute a vote in favor of the Agreement and Plan of Merger, which is
required to effectuate the reorganization and (ii) the amendment to
FTL-Delaware's Certificate of Incorporation to permit the merger to be
effectuated in accordance with its terms notwithstanding the different treatment
of Class A and Class B Common Stock.
Sincerely,
WILLIAM FARLEY
WILLIAM FARLEY
Chairman of the Board and Chief
Executive Officer
<PAGE> 92
[FRUIT OF THE LOOM LOGO]
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OF FRUIT OF THE LOOM, INC.
TO BE HELD ON NOVEMBER 12, 1998
------------------------
To the Stockholders of
FRUIT OF THE LOOM, INC.:
A Special Meeting of Stockholders of Fruit of the Loom, Inc.
("FTL-Delaware") will be held at 10:00 a.m., Chicago time, on Thursday, November
12, 1998 at the Metropolitan Club, 66th Floor, Sears Tower, 233 South Wacker
Drive, Chicago, Illinois, for the following purposes:
(1) To approve the proposed reorganization (the "Reorganization")
pursuant to which Fruit of the Loom, Ltd. ("FTL-Cayman"), a Cayman Islands
company, will become the parent holding company of FTL-Delaware through the
merger of a newly-formed Delaware subsidiary of FTL-Cayman with and into
FTL-Delaware, such approval being deemed to include approval of the
Agreement and Plan of Merger to effectuate such merger;
(2) To approve the amendment to FTL-Delaware's Certificate of
Incorporation to permit the merger to be effectuated in accordance with its
terms notwithstanding the different treatment of Class A and Class B Common
Stock; and
(3) To transact such other business as may properly be brought before
the meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on September 15,
1998 as the record date for determining stockholders entitled to notice of, and
to vote at, the Special Meeting.
By order of the Board of Directors,
JOHN J. RAY III
JOHN J. RAY III
Vice President and Assistant Secretary
September 16, 1998
ALL STOCKHOLDERS ARE URGED TO ATTEND THE MEETING IN PERSON OR BY PROXY.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE FURNISHED FOR THAT PURPOSE.
<PAGE> 93
FRUIT OF THE LOOM, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON NOVEMBER 12, 1998
The undersigned hereby appoints William Farley and John J. Ray III as
proxies, each with power to act without the other and with full power of
substitution, as Proxies to represent and to vote, as designated on the reverse
side, all stock of Fruit of the Loom, Inc. held of record by the undersigned at
the Special Meeting of Stockholders to be held at the Metropolitan Club, 66th
floor, Sears Tower, 233 South Wacker Drive, Chicago, Illinois on November 12,
1998 at 10:00 a.m., and at any adjournments thereof, upon the matters set forth
in the Notice of Special Meeting of Stockholders and Proxy
Statement/Prospectus, receipt of which is hereby acknowledged.
THE SHARES REPRESENTED BY THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED, AND WHEN A CHOICE IS SPECIFIED ON THIS PROXY, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO SPECIFIC DIRECTION
IS GIVEN, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED TO APPROVE THE
PROPOSED REORGANIZATION AND TO APPROVE THE CHARTER AMENDMENT (AS DESCRIBED ON
THE REVERSE SIDE) AND AT THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO
ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT
THEREOF.
(Continued, and to be signed and dated, on reverse side)
Please mark your vote
as indicated in this example [X]
The Board of Directors of Fruit of the Loom, Inc. unanimously recommends that
stockholders vote FOR the proposal to approve the Reorganization and the
Charter Amendment.
1. Approval of the reorganization (the "Reorganization") pursuant
to which Fruit of the Loom, Ltd. ("FTL-Cayman"), a Cayman Islands company, will
become the parent holding company of Fruit of the Loom, Inc. ("FTL-Delaware")
through the merger of a newly-formed Delaware subsidiary of FTL-Cayman with and
into FTL-Delaware, including approval of the Agreement and Plan of Merger to
effectuate such merger, as more fully described in the accompanying Proxy
Statement/Prospectus.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Approval of the amendment to FTL-Delaware's Certificate of
Incorporation to permit the merger to be effectuated in accordance with its
terms notwithstanding the different treatment of Class A and Class B Common
Stock, as more fully described in the accompanying Proxy Statement/Prospectus.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the proxies are authorized to vote upon
such other business as may properly be brought before the meeting and any
adjournment thereof.
Signature _______________ Signature ____________________ Date ___________, 1998
NOTE: please date your proxy and sign exactly as the name or names appear on
your stock certificate. All joint owners of stock should sign above. Sign your
full title when signing as an executor, administrator, personal representative,
trustee, etc. Please return your proxy in the enclosed postage paid envelope.
