<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Fruit of the Loom, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[FRUIT OF THE LOOM LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 18, 1998
To the Stockholders of
FRUIT OF THE LOOM, INC.:
The Annual Meeting of Stockholders of Fruit of the Loom, Inc. will be held
at 10:00 a.m., Chicago time, on Friday, December 18, 1998 at The Standard Club,
320 South Plymouth Court, Chicago, Illinois, for the following purposes:
(1) To elect seven directors, two directors to be elected by the
holders of Class A Common Stock and five directors to be elected by the
holders of Class A Common Stock and the holders of Class B Common Stock,
voting together as a single class; and
(2) 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 November 2, 1998
as the record date for determining stockholders entitled to notice of, and to
vote at, the Annual Meeting.
By order of the Board of Directors,
/s/ JOHN J. RAY III
JOHN J. RAY III
Vice President and Secretary
November 25, 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> 3
FRUIT OF THE LOOM, INC.
5000 SEARS TOWER
233 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 876-1724
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of Fruit of
the Loom, Inc. (the "Company") for use at the Company's Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10:00 a.m., Chicago time, on
Friday, December 18, 1998 at The Standard Club, 320 South Plymouth Court,
Chicago, Illinois, and at any adjournment thereof. This Proxy Statement and the
accompanying proxy card are being sent to stockholders on or about November 25,
1998.
On November 12, 1998, at a special meeting of stockholders, 85% of the
Company's stockholders voted in favor of its reorganization (the "Cayman
Reorganization") into a subsidiary of a Cayman Islands holding company ("Fruit
of the Loom -- Cayman"). Pursuant to the Cayman Reorganization, each outstanding
share of Class A common stock of the Company ("Class A Common Stock") will
convert into one Class A ordinary share of Fruit of the Loom -- Cayman and each
outstanding share of Class B common stock of the Company ("Class B Common
Stock") will convert into one share of exchangeable participating preferred
stock of the Company. The Cayman Reorganization is expected to be consummated
after satisfaction of certain obligations to repurchase 7 7/8% senior notes of
the Company.
VOTING SECURITIES; PROXIES
The shares represented by your proxy will be voted, and such vote will be
in accordance with the instructions noted on your proxy card. You have the power
to revoke your proxy at any time before it is voted by delivering written notice
to the Secretary of the Company. In addition, stockholders attending the Annual
Meeting may revoke their proxies at that time and vote in person at the Annual
Meeting.
The Company has two classes of capital stock outstanding, Class A Common
Stock and Class B Common Stock. Each share of Class B Common Stock is
convertible at any time into one share of Class A Common Stock. Except as
otherwise provided by law or the Company's Certificate of Incorporation, the
holders of Class A Common Stock and the holders of Class B Common Stock vote
together as a single class, with each share of Class A Common Stock having one
vote and each share of Class B Common Stock having five votes. At the close of
business on November 2, 1998, the record date for the Annual Meeting, there were
66,415,163 shares of Class A Common Stock and 5,684,276 shares of Class B Common
Stock outstanding, all of which are entitled to vote at the Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides that holders of Class A
Common Stock, voting as a separate class, are entitled to elect that number of
directors constituting at least 25% of the entire board. The holders of Class A
Common Stock and the holders of Class B Common Stock, voting together as a
single class, with each share of Class A Common Stock having one vote and each
share of Class B Common Stock having five votes, are entitled to elect the
remaining directors. Seven directors will be elected at the Annual Meeting, two
of whom will be elected by the holders of Class A Common Stock, voting as a
separate class, and five of whom will be elected by the holders of Class A
Common Stock and Class B Common Stock, voting together as a single class.
Directors
<PAGE> 4
hold office until the next annual meeting of stockholders or until their
successors have been duly elected and qualified.
If no direction to the contrary is given, all proxies received by the Board
of Directors of the Company (the "Board of Directors" or "Board") from holders
of Class A Common Stock will be voted for the election of the persons shown
below as the nominees of the Board of Directors. The Board of Directors has been
advised that the holders of all shares of Class B Common Stock outstanding
intend to vote all such shares for the election of the persons shown below as
the nominees for election by the holders of Class A Common Stock and Class B
Common Stock, voting together as a single class. It is expected that all of the
nominees will be able to stand for election and be able to serve if elected. In
the event that a vacancy in the slate of nominees should occur before the
meeting, proxies will be voted for another person nominated by the Board of
Directors.
INFORMATION AS TO NOMINEES
The following tables set forth information as to the nominees for election
as directors:
NOMINEES FOR ELECTION BY HOLDERS OF CLASS A COMMON STOCK
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION(S) WITH THE COMPANY AND PRINCIPAL OCCUPATION
--------------- --- -----------------------------------------------------
<S> <C> <C>
Omar Z. Al Askari(1)................... 48 Director; President and Chief Executive Officer of
United Technical Services; Chief Executive Officer of
United Eastern Investment Corp.; and Chairman of the
Board of Plaid Clothing Group Inc.;
Mark H. McCormack...................... 68 Director; President and Chief Executive Officer of
International Management Company, Inc. ("IMG")
</TABLE>
NOMINEES FOR ELECTION BY HOLDERS OF CLASS A COMMON STOCK AND
HOLDERS OF CLASS B COMMON STOCK
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE POSITION(S) WITH THE COMPANY AND PRINCIPAL OCCUPATION
--------------- --- -----------------------------------------------------
<S> <C> <C>
William Farley(3)...................... 56 Director; Chairman of the Board and Chief Executive
Officer of the Company
Dennis S. Bookshester(1)(2)(3)......... 59 Director; Chairman of Cutanix Corporation
Henry A. Johnson....................... 79 Director; President of Henry A. Johnson & Associates
A. Lorne Weil(2)....................... 52 Director; Chairman of the Board and Chief Executive
Officer of Autotote Corporation
Sir Brian Wolfson(1)(2)(3)............. 63 Director; Chairman of the Board and Chief Executive
Officer of Global Health Alternatives, Inc.
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Executive Committee
William Farley. Mr. Farley, age 56, has been Chairman of the Board and
Chief Executive Officer of the Company since May 1985. In February 1998, Mr.
Farley was appointed to the positions of President and Chief Operating Officer.
For more than five years, Mr. Farley has also been Chairman and Chief Executive
Officer of Farley Industries, Inc. ("FII"). He has held substantially similar
positions with Farley Inc. for more than the past five years. Mr. Farley has
also been Chairman of the Board of Acme Boot Company, Inc. ("Acme Boot") for
more than the past five years.
Omar Z. Al Askari. Mr. Al Askari, age 48, has been a director of the
Company since October 1993. Since 1980, Mr. Al Askari has served as President
and Chief Executive Officer of
2
<PAGE> 5
United Technical Services, which sells and services engineered products for the
oil field and construction industries in the United Arab Emirates. He also
serves as Chief Executive Officer of United Eastern Investment Corp., which
holds investments in privately held companies in the United States and the
United Kingdom. Mr. Al Askari was Chairman of the Board of Plaid Clothing Group,
Inc., a men's tailored clothing business, from October 1991 until December 1996.
Plaid Clothing Group, Inc. voluntarily filed for protection from creditors under
Chapter 11 of the Federal Bankruptcy Code in July 1995.
Dennis S. Bookshester. Mr. Bookshester, age 59, has been a director of the
Company since May 1992. Mr. Bookshester served as a director of Farley Inc. from
February 1997 until June of 1998. Mr. Bookshester currently serves as Chairman
of Cutanix Corporation. He is also a director of Arthur Treachers, Evans Inc.,
Playboy Enterprises, Inc. and Sundance Homes, Inc.
Henry A. Johnson. Mr. Johnson, age 79, has been a director of the Company
since July 1988. For more than the past five years, Mr. Johnson has been
President of Henry A. Johnson & Associates, a management consulting firm.
Mark H. McCormack. Mr. McCormack, age 68, has been a director of the
Company since September 1997. Mr. McCormack has been President and Chief
Executive Officer of IMG for more than the past five years. IMG is an athlete
representation firm and promotional manager and owner of worldwide sporting and
classical music events and through its affiliated companies produces televised
sports programming and distributes sports television rights. Mr. McCormack is
also a Director of Gulfstream Aerospace and Planet Hollywood.
A. Lorne Weil. Mr. Weil, age 52, has been a director of the Company since
October 1991. Since 1990, Mr. Weil has been Chairman of the Board and Chief
Executive Officer of Autotote Corporation, a manufacturer of products for the
gaming industry. He is also a director of General Growth Properties, Inc.
Sir Brian Wolfson. Sir Brian Wolfson, age 63, has been a director of the
Company since May 1992. Sir Brian currently serves as Chairman and Chief
Executive Officer of Global Health Alternatives, Inc.. He was Executive Chairman
of Wembley plc., a company engaged in the sports and entertainment industry,
from January 1986 until September 1995. He is also a director of Autotote
Corporation and Playboy Enterprises, Inc.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL OF THE
NOMINEES FOR ELECTION AS DIRECTORS.
BOARD MEETINGS AND COMMITTEES
The Board of Directors has an Audit Committee, a Compensation Committee and
an Executive Committee. The Board does not have a standing nominating committee.
The Audit Committee oversees the establishment and review of the Company's
internal accounting controls, determines the Company's audit policies, reviews
audit reports and recommendations made by the Company's internal auditing staff
and its independent auditors, meets with the Company's independent auditors,
oversees the Company's independent auditors and recommends the engagement of the
Company's independent auditors.
The Compensation Committee establishes, implements and monitors the
Company's strategy, policies and plans for the compensation and benefits of all
executive officers of the Company. The Compensation Committee administers the
Fruit of the Loom, Inc. 1987 Stock Option Plan, the Fruit of the Loom, Inc.
Executive Incentive Compensation Plan (the "1994 Plan"), the Fruit of the Loom,
Inc. 1995 Executive Incentive Compensation Plan (the "1995 EICP") and the Fruit
of the Loom, Inc. 1996 Incentive Compensation Plan. The Compensation Committee,
among other things, determines the persons to whom stock options, stock
appreciation rights and long-term incentives are granted and the price and/or
terms of such options, rights and incentives.
3
<PAGE> 6
The Executive Committee may exercise the powers of the Board of Directors
(other than certain powers specifically reserved to the full Board of Directors)
in the management of the business and affairs of the Company in the intervals
between meetings of the full Board of Directors.
In 1997, Messrs. Al Askari and Bookshester served on the Audit Committee;
Messrs. Bookshester, Weil and Wolfson served as members of the Compensation
Committee; and Messrs. Bookshester and Farley served as members of the Executive
Committee.
During 1997, the Board of Directors held five meetings, the Audit Committee
met seven times and the Compensation Committee met four times. There were no
meetings of the Executive Committee during 1997. During 1997, each of the
incumbent directors attended greater than 75% of all meetings of the Board of
Directors and all meetings of any Board committees on which he served.
COMPENSATION OF DIRECTORS
Each director who is not also an employee of the Company receives an annual
cash retainer of $41,000 and receives $1,000 for each meeting of the Board of
Directors that he attends and $1,000 for each committee meeting that he attends.
Non-employee directors may elect to forego all or a portion of their annual cash
retainers for a specified period in exchange for option grants. Effective
February 13, 1997, certain non-employee directors elected to forego one-half of
their annual cash retainers for a four-year period and, in exchange, each
received a ten-year non-qualified option grant effective February 13, 1997 to
purchase 10,000 shares of Class A Common Stock at $41.00 per share. Such options
vest monthly at the rate of 2.083% per month commencing April 1, 1998. Under the
Fruit of the Loom, Inc. 1995 Non-Employee Director Stock Plan (the "1995
Directors Plan") each new non-employee director receives an initial grant of
2,500 restricted stock units ("Restricted Stock Units") to be settled by
delivery of shares of Class A Common Stock or an amount of cash equal to the
closing price as of the settlement date. Each continuing director receives an
annual grant of 1,850 Restricted Stock Units. Restricted Stock Units vest after
a two-year service period.
The Company provides no retirement benefits to non-employee directors.
Directors who are also employees of the Company receive no additional
compensation from the Company for services rendered in their capacity as
directors.
* * *
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Class A Common Stock
and Class B Common Stock, the percentage of each class and the percentage of
total voting power of the Company beneficially owned as of November 2, 1998 by
(i) each director of the Company, (ii) the Named Officers appearing in the table
below (as defined on page 8), (iii) all directors and current executive officers
as a group, and (iv) to the knowledge of the Board of Directors, each person
owning more than 5% of a class of the Company's voting securities. Except as
otherwise indicated, each beneficial owner has sole voting and investment power.
This table reflects shares issuable upon the exercise of options which are
exercisable within 60 days of November 2, 1998.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
----------------------- --------------------------------------
PERCENT OF
PERCENT PERCENT TOTAL VOTING
NUMBER OF CLASS NUMBER OF CLASS POWER(1)
------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Farley Inc...................... 0 -- 3,176,764(2) 55.9% 16.5%
5000 Sears Tower
233 South Wacker Dr
Chicago, IL 60606
FMR Corp........................ 7,130,525(3) 10.5% -- -- 7.4%
82 Devonshire Street
Boston, MA 02109
Goldman, Sachs & Co............. 6,849,421(4) 10.1% -- -- 7.1%
85 Broad Street
New York, NY 10004
Franklin Resources, Inc......... 5,112,221(5) 7.5% -- -- 5.3%
777 Mariners Island Blvd
San Mateo, CA 94404
William Farley.................. 1,341,847(6) 2.0% 5,684,276(7) 100% 30.9%
5000 Sears Tower
233 South Wacker Dr
Chicago, IL 60606
Omar Z. Al Askari............... 22,433(8) * -- -- *
Dennis S. Bookshester........... 22,933(9) * -- -- *
Henry A. Johnson................ 15,350(10) * -- -- *
Mark McCormack.................. 0 * -- -- *
A. Lorne Weil................... 20,933(11) * -- -- *
Sir Brian Wolfson............... 15,350(12) * -- -- *
Brian J. Hanigan................ 19,709(13) * -- -- *
G.W. Newton..................... 8,245(14) * -- -- *
John J. Ray III................. 0 * -- -- *
John W. Salisbury, Jr........... 31,320(15) * -- -- *
Felix Sulzberger................ 25,000(16) * -- -- *
Edgar Turner.................... 0 * -- -- *
Vincent Tyra.................... 14,251(17) * -- -- *
All directors and executive )
officers as a group........... 1,537,371(18 2.3% 5,684,276 100% 31.1%
(14 persons)
</TABLE>
- ---------------
* Less than 1%
5
<PAGE> 8
(Footnotes on following page)
(Footnotes from preceding page)
(1) Each share of Class A Common Stock has one vote and each share of Class B
Common Stock has five votes. This column shows the combined voting power of
all Class A Common Stock and Class B Common Stock beneficially owned by
each of the listed persons. The percentages shown assume no conversion of
Class B Common Stock into Class A Common Stock. On November 2, 1998, there
were 66,415,163 shares of Class A Common Stock and 5,684,276 shares of
Class B Common Stock outstanding.
(2) Includes 3,176,764 shares of Class B Common Stock owned by Farley Inc. Mr.
Farley owns 100% of the stock of Farley Inc.
(3) As reported on a Schedule 13G filed by FMR Corp., Edward C. Johnson 3d,
Abigail P. Johnson and Fidelity Management & Research Company on August 10,
1998. According to such Schedule 13G, FMR Corp., Edward C. Johnson 3d,
Abigail P. Johnson and Fidelity Management & Research Company have sole
power and dispositive power over 7,130,525, 7,130,525, 0, and 0 shares,
respectively.
(4) As reported on a Schedule 13G filed by Goldman, Sachs & Co. and The Goldman
Sachs Group, L.P. on April 10, 1998. According to such Schedule 13G,
Goldman, Sachs & Co. and The Goldman Sachs Group, L.P. each have shared
voting power over 6,441,221 shares and shared dispositive power over
6,849,421 shares.
(5) As reported on a Schedule 13G filed by Franklin Resources, Inc., Charles B.
Johnson, Rupert H. Johnson, Jr. and Templeton Global Advisors Limited on
February 3, 1998. According to such Schedule 13G, Templeton Global Advisors
Limited, Templeton Investment Counsel, Inc. and Templeton Management
Limited have sole power to vote over 4,205,368, 511,853 and 342,400 shares,
respectively and sole dispositive power over 4,205,308, 564,453 and
342,400, respectively.
(6) Excludes 5,684,276 shares of Class A Common Stock issuable upon conversion
of shares of Class B Common Stock. Includes 1,341,847 shares of Class A
Common Stock currently issuable upon exercise of options granted to Mr.
Farley under the Company's stock option plans. Excludes 995,864 shares of
Class A Common Stock held by a master trust, which includes the assets of
the pension plans of substantially all affiliated companies managed by Mr.
Farley, the voting of which shares is controlled or managed by Mr. Farley
in his capacity as the investment committee with respect to such trust. Mr.
Farley disclaims beneficial ownership of the shares held in the master
trust.
(7) See Footnote 2.
(8) Includes 5,000 shares of Class A Common Stock held by United Technical
Services 1,000 shares of Class A Common Stock held by United Eastern
Investment Corp. (both companies are controlled by Mr. Al Askari). Includes
16,433 shares of Class A Common Stock currently issuable upon the exercise
of options granted to Mr. Al Askari by the Company.
(9) Includes 4,000 shares held as custodian for a minor child, 1,000 of which
are owned by the Dennis S. Bookshester Revocable Trust dated 2/17/89.
Includes 18,933 shares of Class A Common Stock currently issuable upon the
exercise of options granted to Mr. Bookshester by the Company.
(10) Includes 1,000 shares owned by Mr. Johnson's spouse, the beneficial
ownership of which is disclaimed by Mr. Johnson. Includes 14,350 shares of
Class A Common Stock currently issuable upon the exercise of options
granted to Mr. Johnson by the Company.
(11) Includes 18,933 shares of Class A Common Stock currently issuable upon the
exercise of options granted to Mr. Weil by the Company.
(12) Includes 14,350 shares of Class A Common Stock currently issuable upon the
exercise of options granted to Sir Brian Wolfson by the Company.
6
<PAGE> 9
(13) Includes 19,709 shares of Class A Common Stock currently issuable upon the
exercise of options granted to him by the Company.
(14) Includes 7,204 shares of Class A Common Stock currently issuable upon the
exercise of options granted to him by the Company. Includes 1,041 shares of
Class A Common Stock from the 1989 Stock Grant plan, granted in 1994, 1995,
1996 and 1997.
(15) Includes 25,000 shares of Class A Common Stock currently issuable upon the
exercise of options granted to him by the Company. Includes 820 shares of
Class A Common Stock from the 1989 Stock Grant plan, granted in 1998.
(16) Includes 25,000 shares of Class A Common Stock currently issuable upon the
exercise of options granted to him by the Company.
(17) Includes 11,666 shares of Class A Common Stock currently issuable upon the
exercise of options granted to him by the Company. Includes 585 shares from
the 1989 Stock Grant plan, granted in 1998.
(18) Includes 1,513,425 shares of Class A Common Stock currently issuable upon
the exercise of options granted by the Company and 1,000 shares of Class A
Common Stock owned by the spouse of a director, beneficial ownership of
which is disclaimed by such director.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Act"), requires the Company's officers, directors and persons who beneficially
own greater than 10% of a registered class of the Company's equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC"). Based solely on a review of the forms it has
received and on representations from certain reporting persons that no such
forms were required for them, the Company believes that during 1997 all Section
16(a) filing requirements applicable to its officers, directors and 10%
beneficial owners were complied with by such persons.
EXECUTIVE COMPENSATION
INTRODUCTION
Certain of the Company's executive officers, other than Messrs. Farley and
Hansen, were employed by FII through March 31, 1996 and received their salaries,
other cash compensation and benefits from FII. FII is wholly owned and
controlled by Mr. Farley. Until December 31, 1995, FII provided general
management, investment banking, financing and other services, including the
services of certain of the Company's executive officers, to the Company and
other companies owned and controlled by Mr. Farley.
As a part of the 1995 and 1996 restructuring of its corporate operations,
the Company decided to integrate certain functions historically performed by FII
personnel into its Bowling Green operations. In connection with this effort, the
Board of Directors determined that the functions previously performed by FII
should be assumed directly by the Company. Effective January 1, 1996, the
Company severed its relationship with FII and directly employed certain persons
previously employed by FII. However, from January 1, 1996 until March 31, 1996,
the Company's executive officers, other than Messrs. Farley and Hansen,
continued to receive their salaries, other compensation and benefits from FII.
Since April 1 1996, all of the Company's executive officers have received their
salaries, other compensation and benefits directly from the Company. Certain
officers of the Company, including certain Named Officers, continue to perform
services for other companies owned and controlled by Mr. Farley.
The Compensation Committee of the Board of Directors (the "Compensation
Committee") establishes, implements and monitors the Company's strategy,
policies and plans for the compensation and benefits of all executive officers
of the Company.
7
<PAGE> 10
The following table provides information concerning the annual and
long-term compensation amounts for the fiscal years ended December 31, 1997,
1996 and 1995 of those persons who were at December 31, 1997 (i) the Chief
Executive Officer and (ii) the four other most highly compensated executive
officers of the Company (collectively, with the Chief Executive Officer, the
"Named Officers"). No other individuals are required to be included in the
table.
For each Named Officer other than Messrs. Farley and Hansen, the cash
compensation figures in the table for 1996 and 1995 represent the total cash
compensation paid by FII to such Named Officers who were employees of FII in
1995 and the total compensation paid by the Company and FII to such Named
Officers who were employees of the Company in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------
-------------------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP
NAME AND SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (# SHARES) ($) COMPENSATION
- ------------------ ---- -------- ---------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William Farley............... 1997 $ 0(1) $ 0 $145,591(2) $ 0 940,000 $ 0 $19,377(3)
Chairman of the Board and 1996 950,000 1,900,000 152,786 5,757,000 605,800 2,317,163 30,057
Chief Executive Officer 1995 950,000 0 137,584 0 995,230 0 28,509
Richard C. Lappin,........... 1997 834,769 0 31,860(5) 0 293,500 0 7,917(3)
President and 1996 775,000 976,500 230,926 3,287,550 231,600 834,300 41,000
Chief Operating Officer (4) 1995 643,750 0 19,303 0 220,813 0 18,450
Larry K. Switzer,............ 1997 599,615 0 28,107(7) 0 176,000 0 4,130(3)
Senior Executive Vice 1996 500,000 585,000 35,513 1,969,500 134,000 605,325 14,743
President and Chief
Financial 1995 379,167 0 13,395 0 135,267 0 9,154
Officer (6)
Bernhard Hansen.............. 1997 400,000 0 75,764(9) 0 0 0 0
President, Europe (8) 1996 400,000 324,000 99,218 181,800 39,100 0 98,036
Burgess D. Ridge............. 1997 270,000 0 76,765(11) 0 12,500 0 16,942(12)
Senior Vice President- 1996 270,000 218,700 77,066 734,585 54,900 207,038 1,277
Administration and 1995 248,784 70,000 11,493 0 12,000 0 2,043
Secretary (10)
</TABLE>
- ---------------
(1) Mr. Farley elected to forego salary in 1997 in consideration of the grant
of options under the terms of the Executive Equity Investment Program. See
"Option Grants in 1997".
(2) Includes $70,923 of tax reimbursements, $31,353 of estate planning fees and
other perquisites.
(3) Represents split dollar life insurance premiums paid by the Company for the
benefit of Messrs. Farley, Lappin and Switzer.
(4) Mr. Lappin ceased to be an officer of the Company in February 1998.
(5) Represents tax reimbursements to Mr. Lappin.
(6) Mr. Switzer ceased to be an officer of the Company in August 1998.
(7) Represents tax reimbursements to Mr. Switzer.
(8) Mr. Hansen ceased to be an officer of the Company in January 1998.
(9) Represents housing expense paid by the Company.
(10) Mr. Ridge ceased to be an officer of the Company in May 1998.
(11) Includes payments of $43,374 and $23,896 for tax reimbursements and
relocation expenses, respectively, and other payments.
(12) Represents payments to Mr. Ridge of $14,582 for the purchase of an annuity
and $2,360 for the purchase of a term life insurance policy.
8
<PAGE> 11
OPTION GRANTS IN 1997
The following table sets forth certain information concerning stock options
granted during 1997 by the Company to the Named Officers. The hypothetical grant
date present values shown in the last column below for stock options granted in
1997 are presented pursuant to the rules of the SEC and are calculated under the
Modified Black-Scholes Option Pricing Model for pricing options. The Company is
not aware of any model or formula that will determine with reasonable accuracy
present values for stock options. The actual pre-tax amount, if any, realized
upon the exercise of any stock option will depend upon the excess, if any, of
the market price of the Class A Common Stock over the exercise price per share
of the stock option at the time the stock option is exercised. There is no
assurance that the hypothetical present values of the stock options reflected in
this table will be realized. The Company did not grant any stock appreciation
rights in 1997.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED GRANT DATE
OPTIONS TO EMPLOYEES IN EXERCISE OR BASE PRESENT VALUE(4)
NAME GRANTED(#) FISCAL YEAR(3) PRICE ($/SHARE) EXPIRATION DATE ($)
---- ---------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
William Farley....... 940,000(1) 45.0% $41.00 2/13/2007 $16,186,800
Richard C. Lappin.... 293,500(1) 14.1% $41.00 2/13/2007 $ 5,054,070
Larry K. Switzer..... 176,000(1) 8.4% $41.00 2/13/2007 $ 3,030,720
Bernhard Hansen...... 0 0.0% -- --
Burgess D. Ridge..... 12,500(2) 0.6% $41.00 2/13/2007 $ 215,250
</TABLE>
- ---------------
(1) These options to purchase Class A Common Stock were granted under the 1995
EICP and become exercisable in four equal annual installments beginning on
February 13, 1998. The grants were made in accordance with the terms of the
Executive Equity Investment Program under which Mr. Farley elected to
forego receipt of his then current base salary for 1997, 1998 and 1999 and
Messrs. Farley, Lappin and Switzer elected to forego their regular annual
stock option grants for those years.
(2) These options were granted under the 1995 EICP and become exercisable in
three annual installments beginning on February 13, 1998.
(3) During 1997, options to purchase a total of 2,086,800 shares were granted to
employees of the Company.
(4) The hypothetical grant date present values are calculated under the Modified
Black-Scholes Option Pricing Model, which is a mathematical formula used to
value options traded on stock exchanges. This formula considers a number of
factors in hypothesizing an option's present value. The factors used to
value the Company's 1997 option grants include Class A Common Stock
expected volatility rate (32.3%), risk free rate of return (6.18%),
projected dividend yield (0%), projected time of exercise (7 years) and
projected risk of forfeiture rate for vesting period (5% per annum).
9
<PAGE> 12
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND 1997 FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning the number
and value of stock options held by the Named Officers at December 31, 1997. None
of the Named Officers received any Company stock appreciation rights in 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE
OPTION/SARS AT MONEY OPTIONS/SARS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
SHARES --------------------------- ---------------------------
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William Farley........ -- -- 784,161 2,146,869(2) $4,585,046 $2,386,141
Richard C. Lappin..... -- -- 218,632 489,281 1,113,777 302,250
Larry K. Switzer...... -- -- 93,019 371,529 380,780 484,541
Bernhard Hansen....... 20,149 $371,911 7,117 20,150 56,046 56,046
Burgess D. Ridge...... 26,645 646,586 42,828 61,445 193,158 97,217
</TABLE>
- ---------------
(1) Values are calculated by subtracting the exercise price from the closing
price of Class A Common Stock on the New York Stock Exchange on December
31, 1997, which was $25.625.
(2) Pursuant to its terms, an option granted to Mr. Farley covering of 500,000
of these shares was cancelled as of January 30, 1998.
PENSION PLANS
Since April 1, 1996, all of the Company's executive officers, except
Bernhard Hansen, have been covered by the qualified pension plan for the
Company's operating company employees (the "Pension Plan") and the nonqualified
excess benefit plan which covers certain employees of the Company (the
"Supplemental Benefit Plan," together with the Pension Plan referred to as the
"FOL Plan"). Prior to April 1, 1996, all executive officers of the Company who
were employees of FII, including Messrs. Lappin and Switzer, were covered by the
salaried portion of the Retirement Program of Farley Inc. (the "RPFI"). All
benefits under the RPFI were frozen as of March 31, 1996. The frozen annual
benefits for Messrs. Lappin and Switzer are $14,000 and $4,000, respectively.
The pension benefit payable to Messrs. Lappin and Switzer will equal the greater
of the following benefits: 1) the FOL Plan formula based on service from the
date of hire at FII less the frozen benefit under the RPFI; or 2) the FOL Plan
formula based on service after March 31, 1996.
The Pension Plan covers all employees of the Company and its participating
subsidiaries after the completion of one year of service and the attainment of
age 21.
10
<PAGE> 13
The following table indicates the approximate amounts of annual retirement
income that would be payable under the FOL Plan to the Company's operating
company employees based on various assumptions as to compensation and years of
service for certain employees, assuming benefits are computed under a straight
life annuity formula. These amounts do not assume any offsets under the RPFI.
There is no social security or other offset deducted from the amounts shown.
PENSION PLAN TABLE (1) (2)
<TABLE>
<CAPTION>
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 300,000...................... $ 81,544 $108,725 $135,907 $146,100 $156,293
400,000...................... 110,000 146,725 183,407 197,162 210,918
500,000...................... 138,044 184,725 230,907 248,225 265,543
600,000...................... 167,044 222,725 278,407 299,287 320,168
700,000...................... 195,544 260,725 325,907 350,350 374,793
800,000...................... 224,044 298,725 373,407 401,412 429,418
900,000...................... 252,544 336,725 420,907 452,475 484,043
1,000,000...................... 281,044 374,725 468,407 503,537 538,668
1,100,000...................... 309,544 412,725 515,907 554,600 593,293
1,200,000...................... 338,044 450,725 563,407 605,662 647,918
</TABLE>
- ---------------
(1) Assumes individual retires at age 65 on December 31, 1997 with indicated
years of service and further assumes covered compensation as it was
determined in 1997, which was $29,304, as updated each year by the Internal
Revenue Service for annual covered compensation. The annual covered
compensation for 1998 will increase to $31,128.
(2) Maximum pension limits for 1995, 1996, 1997 and 1998 under Section 415 of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), were $120,000, $120,000, $125,000 and $130,000 respectively.
Amounts in excess of these limits are paid under the Supplemental Benefit
Plan.
Contributions to the Pension Plan, which are made by the Company and its
participating subsidiaries, are computed on an actuarial basis and, as such,
individual employee payments (or accruals) cannot be calculated. Compensation
covered by the Pension Plan generally consists of all compensation paid to a
participant for personal services rendered as an employee of the Company or a
participating subsidiary, but excludes bonuses, deferred compensation and
payments under certain benefit programs. Compensation used to determine benefits
for each of the Named Officers for 1997 equals the respective amounts shown in
the Salary column of the Summary Compensation Table. The Pension Plan provides
that participants' benefits fully vest after five years of service or the
attainment of age 65.
The Pension Plan retirement benefits are computed at the rate of 1% of a
participant's final average base compensation (the average of the highest five
consecutive full plan years of base compensation during the last ten plan years
of service) plus either .75%, .70% or .65% (depending on the participant's
social security retirement age) of the participant's final average base
compensation in excess of the average social security wage base for the 35-year
period preceding the participant's social security retirement age. The resulting
sum is multiplied by the participant's years of service up to 25 years and is
then increased by 1.5% for each year of service over 25 years.
Under Section 401(a)(17) of the Internal Revenue Code, a participant's
compensation under a qualified retirement plan was limited to a maximum annual
amount of $160,000 for 1997. For 1998, this amount remains at $160,000.
Amendments made to Sections 401(a)(5) and 401(l) of the Internal Revenue Code by
the Omnibus Budget Reconciliation Act of 1993 reduced the amount of permitted
disparity between benefits provided under a qualified pension plan with respect
to a
11
<PAGE> 14
participant's compensation up to the average social security wage base and the
benefits provided with respect to compensation above the average social security
wage base. For officers of the Company, any reduction in benefits under the
Pension Plan caused by these limitations will be made up dollar-for-dollar by
benefits under the Supplemental Benefit Plan. Non-officer participants in the
Pension Plan will receive benefits under the Supplemental Benefit Plan in an
amount equal to the reduction in benefits under the Pension Plan attributable to
the Internal Revenue Code Section 401(a)(17) limitation on compensation and the
Internal Revenue Code Section 415 limitation on annual pension benefits.
The estimated number of years of service credited for Messrs. Farley,
Lappin, Switzer and Ridge under the FOL Plan is 15, 8, 4, and 7 years,
respectively. Years of service for Messrs. Farley, Lappin, Switzer and Ridge
include their years of service with FII.
The Company established the Fruit of the Loom, Inc. Supplemental Executive
Retirement Plan (the "FOL SERP") on January 1, 1995 for certain officers,
including Messrs. Farley, Lappin, Switzer and Ridge. Prior to April 1, 1996,
Messrs. Lappin, Switzer and Ridge participated in the Farley Industries, Inc.
Supplemental Executive Retirement Plan (the "FII SERP"). All benefits under the
FII SERP were frozen as of March 31, 1996.
The FOL SERP and the FII SERP provide for retirement benefits equal to the
excess of (a) over (b), where (a) equals the product of 1.9% of the
participant's final average SERP compensation (the average of the highest five
consecutive full plan years of base compensation plus short-term bonuses during
the last ten plan years of service, without applying the dollar limitation of
Section 401(a)(17) of the Internal Revenue Code) and the number, not in excess
of 25, of the Participant's Benefit Accrual Years of Service (defined as the sum
of (1) the number of years of service after December 31, 1994 that would be
credited to the participant under the Pension Plan and (2) the number of
additional years of service credited to the participant by the Compensation
Committee), increased by 1.5% for each Benefit Accrual Year of Service in excess
of 25; and (b) equals the participant's primary social security benefit. The FOL
SERP benefit is offset by a portion of the benefit paid under the FOL Plan and,
in the case of Messrs. Lappin, Switzer, and Ridge, the FOL SERP is offset by the
amount of their frozen FII SERP benefits. The frozen FII SERP benefits for
Messrs. Lappin, Switzer and Ridge are $105,333, $13,250 and $5,757,
respectively.
The estimated annual benefits payable under the FOL SERP upon retirement at
normal retirement age, assuming pay increases of 5% per year, for Messrs.
Farley, Lappin, Switzer and Ridge are $849,033, $651,800, $535,163 and $70,426,
respectively.
Additional Benefit Accrual Years of Service were given to selected
participants in the FOL SERP and the FII SERP. The estimated number of Benefit
Accrual Years of Service at December 31, 1997 credited for Messrs. Farley,
Lappin, Switzer and Ridge are 18, 11, 6, and 6 years, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Agreement") with
Mr. Farley. The Agreement generally provides for payment of an annual base
salary that will be reviewed each year and may not be decreased from the amount
in effect in the previous year. The Agreement also gives Mr. Farley the right to
continue to participate in employee benefit programs at not less than 1995
levels, including life insurance equal to ten times annual salary, and imposes
on Mr. Farley certain post-termination non-competition and confidentiality
obligations. The Agreement requires him to devote substantial time to the
Company's business, consistent with his duties, but permits him to devote time
to other business interests as well.
The Agreement provides for certain payments and benefits upon termination
of employment in addition to those previously accrued. If employment terminates
due to normal retirement, approved early retirement, death or disability, Mr.
Farley will receive: (i) in lieu of annual incentive compensation for that year,
an amount equal to the average annual incentive compensation paid in the three
12
<PAGE> 15
preceding years, prorated to reflect the part of the year completed before
termination, (ii) in settlement of outstanding long-term incentives such as
performance shares or units, cash calculated assuming maximum performance in
case of death or disability, or target performance in case of retirement,
prorated to reflect the part of the performance period completed before
termination and with vesting accelerated, and (iii) in case of disability,
continued participation in employee benefit plans until age 65. If employment is
terminated by the Company other than for cause or after a change in control or
by Mr. Farley for good reason, Mr. Farley will receive: (i) if such termination
precedes a change in control, an amount equal to his then-current annual salary
plus the average of the three highest annual incentive compensation awards paid
to him or the current maximum opportunity, if greater ("total cash"), multiplied
by the number of years of employment remaining under his Agreement and assuming
performance is the greater of actual performance to date or target performance,
plus the amount specified in clause (i) of the preceding sentence, (ii) if
termination follows a change in control, total cash multiplied by three and, in
lieu of annual incentive compensation for that year, an amount equal to the
average of the three highest annual incentive compensation awards paid or the
current maximum opportunity, if greater, without proration, and (iii) if such
termination follows a change in control, a lump-sum cash payment of the present
value of accrued benefits under any supplemental pension plan if such benefits
are not fully funded or secured, and continued participation in employee benefit
plans for three years. If payments following a change in control are subject to
the "golden parachute" excise tax, the Company will pay Mr. Farley an additional
"gross-up" amount so that his after-tax benefits are the same as if no excise
tax had applied. The Company must continue indemnification and officers' and
directors' liability insurance during Mr. Farley's employment and for up to six
years thereafter and reimburse Mr. Farley for expenses incurred in good faith in
enforcing the Agreement.
In connection with the termination of their employment with the Company,
each of Messrs. Switzer, Hansen and Ridge received the payments and benefits
provided under their employment agreements in the case of termination by the
Company other than for cause preceding a change in control.
13
<PAGE> 16
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee is composed entirely of outside independent
directors, none of whom is currently or was formerly an officer or employee of
the Company or any of its subsidiaries or affiliates.
The Compensation Committee is responsible for establishing, implementing
and monitoring the Company's strategy, policies and plans for the compensation
of all executive officers of the Company. The Company's strategy is (i) to
attract high-caliber management talent at both the entry and mid-career levels
to meet the organization's executive resource needs, (ii) to retain
top-performing executives at the corporate level and in each of the subsidiaries
and business units, (iii) to provide compensation opportunities that are fair
and competitive with those provided by comparable organizations, (iv) to
motivate and reward its executives based on corporate, subsidiary, business unit
and individual annual and long-term business performance, strategic progress and
the creation of stockholder value, (v) to create a mutuality of interest with
the Company's stockholders by linking a major portion of total compensation to
the business and stock performance of the Company, and (vi) to ensure that the
Company's compensation expenditures are cost and tax-effective and in compliance
with applicable regulatory requirements.
In accordance with the responsibilities delegated by, and subject to the
oversight of, the Board of Directors, at the beginning of each year the
Compensation Committee reviews the Company's overall corporate strategy and
objectives which are subject to approval by the Board of Directors. These form
the basis both for supporting corporate, subsidiary and business unit annual
performance goals which are subject to Compensation Committee review and
approval at the beginning of each year and for executive officer performance
initiatives. Based on this review, the Compensation Committee, in its sole
discretion, determines the Company's total compensation structure for the year,
including the elements and level of compensation opportunities and the variable
portion of "at risk" pay for performance and equity participation in light of
marketplace pay levels and practices. After year-end, results achieved and
strategic progress at the corporate, subsidiary, business unit and individual
levels are assessed by the Compensation Committee, relative to previously
approved goals and taking into consideration prevailing economic and business
conditions and opportunities, performance by comparable organizations and
stockholder value. No particular weightings are assigned by the Compensation
Committee to any such factors.
The Compensation Committee has been assisted in its review and evaluation
by executive compensation consultants retained by the Compensation Committee to
serve as outside experts in the discharge of its responsibilities. The
consultants provide advice to the Compensation Committee with respect to the
effectiveness, appropriateness and regulatory compliance status of the Company's
executive incentive plans and the competitiveness of compensation paid to
executive officers of the Company, including the Chief Executive Officer. In so
doing, the consultants review with the Compensation Committee survey data
regarding compensation practices and payments by comparable organizations and
the relationship of executive officer pay to performance and stockholder value.
The comparator organizations selected by the Compensation Committee for this
purpose include (i) seven major apparel companies, five of which are included in
the Value Line Apparel Industry Index appearing in the Performance Graph, and
(ii) 15 other major non-durable consumer products companies of comparable size
to the Company (i.e., companies in the same size range producing a broad range
of products for retail sale to the general public). The comparator groups are
regarded by the Company as the marketplace for critical management talent for
the Company.
Total compensation for target performance under the Company's compensation
program for executive officers in 1997 was generally positioned at average or
median up to the 90th percentile of the comparator groups, depending upon each
officer's position or level and the degree of difficulty and challenge
associated with the year's performance objectives. The Compensation Committee
14
<PAGE> 17
has balanced the program with a high proportion of compensation based on
variable performance incentives so that actual annual and long-term compensation
levels will vary from year to year below and above those of the comparator
groups directly with results achieved by the Company and the individual.
1997 COMPENSATION
The Company's 1997 compensation program at target performance for its
executive officers, including the Chief Executive Officer, was comprised of base
salary, annual cash incentives, stock options and performance units. In 1997,
all of the compensation of the Chief Executive Officer was variable, based on
annual business and long-term stock performance, and approximately 75% of the
total compensation at target performance of executive officers as a group was
variable based on the same factors.
BASE SALARY. Salaries are established, in consideration of the competitive
marketplace (as discussed above), at the level considered appropriate by the
Compensation Committee relative to the responsibilities, experience and
individual performance of each executive officer, in addition to overall
corporate financial circumstances. Base salaries are generally subject to annual
review for adjustment by the Compensation Committee. The minimum salary for Mr.
Farley is set at the December 1994 level under his employment agreement which is
described under "EXECUTIVE COMPENSATION--Employment Agreements" and which
provides for future review and possible upward adjustment by the Compensation
Committee. The Chief Executive Officer, whose salary has not been increased
since January 1995, elected to forego his then current salary in 1997, 1998 and
1999 and in lieu thereof, received stock options under the Executive Equity
Investment Program (the "Investment Program") described below. The salaries of
the Company's other executive officers rose in 1997 by an average of 11% from
1996 levels. Such increases were awarded by the Committee in recognition of
individual performance.
ANNUAL CASH INCENTIVES. Under the 1995 EICP, the Chief Executive Officer
and the other executive officers were eligible to receive cash incentive awards
based upon achievement of specified earnings levels in 1997. Upon achievement of
targeted levels of performance, the Chief Executive Officer was eligible to
receive a cash award equal to 100% of his 1997 base salary, and the other
executive officers were eligible to receive cash awards equal to specified
percentages up to 85% of their base salaries. Upon achievement of maximum
performance levels, the Chief Executive Officer was eligible to receive a cash
award of 200% of his base salary, and the other executive officers were eligible
to receive cash awards equal to specified percentages up to 153% of their base
salaries.
Due to the Company's worldwide restructuring of its manufacturing and
distribution operations in order to realize future cost and tax savings,
widespread price discounting and reduced shipments, the Company reported a net
loss in 1997. Therefore no annual cash incentives were awarded to executive
officers for 1997.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN. The 1995 EICP provides for the
grant of stock options, stock appreciation rights ("SARs"), restricted stock,
deferred stock, dividend equivalents, other stock-related awards and performance
or annual incentive awards that may be settled in cash, stock or other property
("Awards"). The Board of Directors believes that the 1995 EICP has enhanced the
Company's growth and success by providing an effective means to attract, retain
and reward executives and other key employees of high quality and by providing
the Compensation Committee, which administers the 1995 EICP, with the
flexibility to structure executive compensation so as to grant performance
incentives which motivate the Company's executives to expend their maximum
efforts in the creation of long-term stockholder value.
The Compensation Committee regularly makes stock option and performance
unit grants at the beginning of each fiscal year to the Company's executive
officers and other key employees throughout the Company. The size of performance
unit and stock option grants are determined on
15
<PAGE> 18
an individual, discretionary basis in consideration of prior year corporate
results and each recipient's performance, contributions and responsibilities,
without assigning specific weight to any factor. In addition, the Compensation
Committee considers long-term incentive and equity grant levels among the
comparator groups.
The Compensation Committee does not predesignate a specific size for
aggregate performance unit and stock option awards to executive officers as a
group. Neither does the Compensation Committee consider stock holdings, prior
option grants and other long-term awards or the appreciation thereon when making
future stock option and long-term award determinations, nor does the
Compensation Committee have a specific policy as to the portion of total
compensation to be represented by stock options and other long-term equity
awards.
Executive officers, including the Chief Executive Officer and other key
employees, received regular grants of performance units at target level under
the 1995 EICP to be earned, based upon 1997 earnings per share goals, with
two-year vesting on December 31, 1998. Each earned performance unit entitled the
participant to receive the value of one share of Class A Common Stock in cash
and/or stock as determined by the Compensation Committee. No performance units
were earned based on 1997 performance.
In February 1997, the Company adopted the Executive Equity Investment
Program (the "Investment Program"), which draws its shares from the 1995 EICP.
The Investment Program was implemented by the Compensation Committee in 1997 to
foster executive "at risk" investment in the Company, long-term equity ownership
and commitment to the future of the Company by permitting selected executives to
forego receipt of future compensation and/or regular annual stock option grants
for a specified period in exchange for a current grant of non-qualified options
with an exercise price equal to the fair market value of the Class A Common
Stock at the date of grant.
Messrs. Farley, Lappin and Switzer elected to participate in the Investment
Program and received a grant in February 1997 in lieu of future compensation.
Mr. Farley elected to forego receipt of his then current base salary for 1997,
1998 and 1999 and Messrs. Farley, Lappin and Switzer elected to forego their
regular annual stock option grants for these years. Other executive officers and
key employees received their regular stock option grants as scheduled.
TAX CONSIDERATIONS
As noted above, the Compensation Committee's executive compensation
strategy is designed to be cost and tax effective. Therefore, the Compensation
Committee's policy is to preserve corporate tax deductions, including the
deductibility of compensation paid to the Named Officers pursuant to Section
162(m) of the Internal Revenue Code, while maintaining the flexibility to
approve compensation arrangements which it deems to be in the best interests of
the Company and its stockholders, but which may not always qualify for full tax
deductibility.
* * *
MEMBERS OF THE COMPENSATION COMMITTEE
Dennis S. Bookshester, Chairman
A. Lorne Weil
Sir Brian G. Wolfson
16
<PAGE> 19
PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Class A Common Stock for the last five years with the cumulative total
return of the Standard & Poor's 500 Index and the Value Line Apparel Industry
Index ("Industry Index") over the same period (assuming the investment of $100
in the Class A Common Stock and in each index on December 31, 1992 and the
reinvestment of all dividends, if any).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
FRUIT OF THE LOOM, INC., STANDARD & POOR'S 500 INDEX AND
VALUE LINE APPAREL INDUSTRY INDEX
(PERFORMANCE RESULTS AS OF DECEMBER 31 OF EACH YEAR THROUGH DECEMBER 31, 1997)
PERFORMANCE RESULTS GRAPH
- ---------------
* Peer Group includes 16 companies in Value Line Apparel Industry Index
(including Fruit of the Loom, Inc.).
17
<PAGE> 20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1993 the Company guaranteed, on an unsecured basis, the repayment of
debt incurred by Acme Boot under Acme Boot's bank credit facility which was
secured by substantially all the assets of Acme Boot and its subsidiaries and
provided for up to $30,000,000 of loans and letters of credit. Farley Inc. owns
100% of the stock of Acme Boot.
Also, in April 1995, Acme Boot entered into an additional secured credit
facility with its bank which provided for up to $37,000,000 in borrowings. The
Company guaranteed, on an unsecured basis, repayment of debt incurred or created
under this new credit facility. In exchange for the additional guarantee, the
Company received $6,000,000 of initial liquidation preference of Acme Boot
Series C Redeemable Junior Preferred Stock.
As a result of the operating performance of Acme Boot and management's
assessment of existing facts and circumstances of Acme Boot's financial
condition, the Company provided a reserve of $35,000,000 at the end of 1996 for
loss on the Acme Boot debt guarantees and increased its reserve by $32,000,000
at the end of the third quarter of 1997 to fully reserve the Company's
$67,000,000 exposure under the Acme Boot guarantees.
In addition, through July, 1998, the Company loaned Acme Boot $9,000,000 to
provide Acme Boot with supplemental working capital. These loans were made in
the form of demand notes payable and were senior to all other outstanding
indebtedness of Acme Boot. These loans were repaid by Acme Boot upon the sale of
its business in the third quarter of 1998.
In June 1998, Acme Boot entered into agreements with unrelated parties for
the sale of certain assets and its business. Financing for the sale of the
business was completed in the third quarter of 1998, at which time the Company
satisfied the Acme Boot guarantees in full.
In November 1997, the Board of Directors, excluding Mr. Farley and other
employee Directors, upon recommendation of a Special Committee of the Board of
Directors, comprised of Messrs. Al Askari and Wolfson, guaranteed a bank loan to
Mr. Farley in the amount of $26,000,000. The proceeds of this loan were used by
Mr. Farley to purchase all of the Zero Coupon Convertible Subordinated
Debentures due 2012 of Farley Inc. held by non-affiliated third parties. In
consideration of the guarantee, which is scheduled to expire in November 2000,
Mr. Farley pays the Company an annual guarantee fee equal to 1 1/8% of the
outstanding principal balance of the loan. The loan is secured by a second lien
on 2,507,512 shares of Class B Common Stock of the Company held by Mr. Farley
and the assets held for the benefit of Mr. Farley under the Company's Senior
Executive Officer Deferred Compensation Trust. The loan matures on February 15,
1999. The Special Committee received an opinion from an independent financial
advisor that the terms of the transaction are commercially reasonable.
OTHER MATTERS
In March 1988, a class action suit entitled Endo, et al. v. Albertine, et
al. was filed in the United States District Court for the Northern District of
Illinois (the "District Court") against the Company, its then directors, certain
of its then executive officers, its then underwriters and the Company's current
independent auditors in connection with the Company's initial public offering of
Class A Common Stock and certain debt securities in March 1987. The suit
alleged, among other things, violations of Federal and state securities laws
against all of the defendants, as well as breaches of fiduciary duties by the
director and officer defendants, and seeks unspecified damages. The suit settled
in the fourth quarter 1997 by the Company's payment of $6.5 million, $1.5
million of which was reimbursed to the Company pursuant to its Directors and
Officers liability insurance.
On July 1, 1998, the New England Health Care Employees Pension Fund filed a
purported class action on behalf of all those who purchased Fruit of the Loom,
Inc. Class A Common Stock and
18
<PAGE> 21
publicly traded options between July 24, 1996, and September 5, 1997 (the "Class
Period") against the Company and William Farley, Bernhard Hansen, Richard C.
Lappin, G. William Newton, Burgess D. Ridge, Larry K. Switzer and John D.
Wigodsky, each of whom is a current or former officer of the Company, in the
United States District Court for the Western District of Kentucky (the "New
England Action"). The plaintiff claims that the defendants engaged in conduct
violating Section 10(b) of the Securities Exchange Act of 1934 ("the Act"), and
that the Company and Mr. Farley are also liable under Section 20(a) of the Act.
According to the plaintiff, the Company, with the knowledge and assistance of
the individual defendants, made certain material misrepresentations and failed
to disclose certain material facts about the Company's condition and prospects
during the Class Period, causing the plaintiff and the class to buy Company
stock or options at artificially inflated prices. The plaintiff also alleges
that during the Class Period, the individual defendants sold stock of the
Company while possessing material non-public information. The plaintiff asks for
unspecified amounts as damages, interest and costs and ancillary relief. On
September 30, 1998, the defendants filed a motion to dismiss the action, which
is currently being briefed. All discovery is stayed pending resolution of the
motion.
On August 26, 1998, Carol Bradley filed a purported derivative action on
behalf of the Company, against William Farley, Richard C. Lappin, Omar Z. Al
Askari, Dennis S. Bookshester, Henry A. Johnson, Mark H. McCormack, Larry K.
Switzer, A. Lorne Weil and Sir Brian Wolfson, each of whom is a current or
former director of the Company, and the Company, as a nominal defendant, in the
Warren Circuit Court of the State of Kentucky. The plaintiff asserts various
common law claims against the individual defendants including, inter alia,
breach of fiduciary duty, waste of corporate assets, breach of contract and
constructive fraud claims. The plaintiff also asserts an insider trading claim
against defendants Farley, Lappin and Switzer. The claims asserted against the
individual defendants are based on the same alleged misrepresentations and
omissions which form the basis of the claims asserted by the plaintiff in the
New England Action as described above. The plaintiff seeks unspecified
compensatory and punitive damages, attorneys' fees and costs and ancillary
relief. On September 18, 1998, defendant Farley, with the consent of the
Company, removed this action from state court to the United States District
Court for the Western District of Kentucky. Those defendants subsequently filed
a motion to dismiss on the ground that the plaintiff failed to make an
appropriate demand on the Company prior to filing the action. That motion is
currently being briefed.
VOTE REQUIRED; QUORUM
Two directors of the Company will be elected by a plurality of the shares
of Class A Common Stock, voting as a separate class, present in person or
represented by proxy and entitled to vote at the Annual Meeting. Five directors
will be elected by the holders of a plurality of the voting power of the shares
of Class A Common Stock and Class B Common Stock, voting together as a single
class, present in person or represented by proxy and entitled to vote at the
Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether or
not a quorum is present. The holders of one-third of the shares entitled to vote
at the Annual Meeting, present in person or represented by proxy, shall
constitute a quorum. Abstentions and broker non-votes will be included in
determining the presence of a quorum. Abstentions will be considered present and
entitled to vote with respect to any proposal presented at the Annual Meeting or
any adjournment thereof. Broker non-votes with respect to any proposal will not
be considered present and entitled to vote with respect to such proposal.
Neither abstentions nor broker non-votes will have any effect on the voting on
the proposal to elect seven directors to the Company's Board of Directors.
19
<PAGE> 22
SOLICITATION
This solicitation is made by the Company, and the cost of this proxy
solicitation will be paid by the Company. The Company may use the services of
its directors, officers and employees (who will receive no additional
compensation) to solicit proxies personally or by telephone. The Company may
also request brokers, fiduciaries, custodians and nominees to send proxies,
proxy statements and other material to their principals at the Company's
expense. In addition, the Company has engaged Georgeson & Company, Inc. to
solicit proxies from brokers, banks, nominees and other institutional holders.
The Company will pay a fee of $7,000 to Georgeson for its services.
INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
selected Ernst & Young LLP to audit the financial statements of the Company and
its subsidiaries for the year ended December 31, 1998. A representative of Ernst
& Young LLP is expected to be present at the Annual Meeting with the opportunity
to make a statement, if such representative desires, and will be available to
respond to appropriate questions with respect to that firm's examination of the
Company's consolidated financial statements.
PROPOSALS OF SECURITY HOLDERS
Proposals of stockholders intended to be included in proxy materials for
presentation at the 1999 Annual Meeting of Stockholders of the Company (or,
after the Cayman Reorganization, Fruit of the Loom -- Cayman) must be received
by John J. Ray III, the Secretary of the Company (or Fruit of the
Loom -- Cayman, as the case may be), 5000 Sears Tower, 233 South Wacker Drive,
Chicago, Illinois 60606, by February 15, 1999. Additionally, the Company will
retain discretionary authority to vote on any stockholder proposal for which the
Company does not receive notice by February 15, 1999. The 1999 Annual Meeting of
Stockholders of the Company (or Fruit of the Loom--Cayman, as the case may be)
is expected to occur in May 1999.
OTHER BUSINESS
It is not anticipated that any matters will be presented to the
stockholders other than those listed in the accompanying Notice of Annual
Meeting of Stockholders and described in this Proxy Statement. However, if other
matters are brought before the meeting, it is intended that the persons named in
the accompanying proxy will vote as the Board of Directors directs.
20
<PAGE> 23
P PROXY SOLICITATION
R FRUIT OF THE LOOM, INC.
O PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
X FOR THE ANNUAL MEETING OF STOCKHOLDERS
Y TO BE HELD ON DECEMBER 18, 1998
The undersigned hereby appoints William Farley and John J. Ray III as
proxies, each with power of substitution, and hereby authorizes them to
represent the undersigned and to vote, as designated on the reverse side, all
the shares of CLASS A COMMON STOCK held of record by the undersigned on
November 2, 1998, at the Annual Meeting of Stockholders of Fruit of the Loom,
Inc. to be held on December 18, 1998, and at any adjournments thereof, upon the
matters set forth in the Notice of Annual Meeting of Stockholders and Proxy
Statement, receipt of which is hereby acknowledged.
(Continued and to be signed on reverse side.)
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<TABLE>
<S> <C>
The Board of Directors unanimously recommends that stockholders vote FOR all the Please mark your vote as
nominees listed below. indicated in this example./X/
1. ELECTION OF DIRECTORS - NOTE: Holders of Class A Common Stock vote in Sections A and B below. 2. In their discretion,
the proxies are
A. Directors elected by holders of Class A Common Stock voting authorized to vote
as a separate class: Omar Z. Al Askari FOR WITHHOLD FOR ALL upon such other
Mark H. McCormack / / / / business as may
properly be brought
(To withhold authority to vote for an individual nominee, write that before the meeting and
nominee's name on the space provided to the right) any adjournment thereof.
----------------------------
B. Directors elected by holders of Class A Common Stock and holders FOR WITHHOLD FOR ALL
of Class B Common Stock voting together as a single class: / / / /
William Farley, Henry A. Johnson, A. Lome Weil, Sir Brian Wilson
(To withhold authority to vote for an individual nominee, write that
nominee's name on the space provided to the right) ----------------------------
THIS PROXY, WHEN
PROPERLY EXECUTED,
WILL BE VOTED IN THE
MANNER DIRECTED
HEREIN BY THE
UNDERSIGNED
STOCKHOLDER. IF NO
DIRECTION IS MADE,
THE PROXY WILL BE
VOTED "FOR" ALL THE
NOMINEES LISTED ABOVE.
SIGNATURE _______________________________ SIGNATURE __________________________ DATE ______________________
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.
</TABLE>
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