SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended November 5, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 1-5400
FARAH INCORPORATED
(Exact name of registrant as specified in its charter)
Texas 74-1061146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8889 Gateway West, El Paso, Texas 79925-6584
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (915) 593-4444
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, No par value New York Stock Exchange
5% Convertible Subordinated Debentures
due February 1, 1994 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of January 19, 1994, there were outstanding 8,076,468 shares
of the registrant's common stock, no par value, which is the only
class of common or voting stock of the registrant. As of that date,
the aggregate market value of the shares of common stock held by
non-affiliates of the registrant (based on the closing price for
the common stock on the New York Stock Exchange on January 19, 1994)
was $70,331,910.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference
into the indicated part or parts of this report:
Annual Report to Shareholders for fiscal year ended
November 5, 1993
- Parts I and II (attached as Exhibit 13 hereto).
Proxy Statement dated January 28, 1994 - Part III.
THE EXHIBIT INDEX IS ON PAGE 17 OF FORM 10-K ("THIS REPORT")
<PAGE>
PART I
Item 1. BUSINESS
Scope of Business -
Farah Incorporated (formerly Farah
Manufacturing Company, Inc.) was incorporated as
a Texas corporation in 1947. Farah Incorporated
and its subsidiaries (collectively, the "Company")
are engaged in the production and sale of multiple
apparel lines for men, young men and boys.
Farah U.S.A., Inc. ("Farah U.S.A.") is the
Company's largest operating subsidiary. Its
products are sold throughout the United States.
The largest area of sales volume for Farah U.S.A.
is Men's apparel ("Men's"), with Boys' apparel
("Boys'") and Young Men's apparel ("Young Men's")
being the next most significant, in that order.
The major apparel items included in Farah U.S.A.'s
lines are dress and casual slacks, sport coats and
suit separates. The products are manufactured in
a variety of fabrics, styles, colors and sizes.
The Company believes that Farah U.S.A. is among
the largest United States sources of Men's and
Boys' slacks. Farah U.S.A. sales are made
primarily through an employee sales force.
Farah U.S.A. sells most of its products under
the Farah, Farah Clothing Company and Savane
labels. PROCESS 2000 is a trademark used to
signify easy care fabrics, and is widely used on
a number of Savane products. Farah U.S.A. also
has an exclusive license agreement to manufacture
and sell men's slacks, trousers, blazers, sport
coats and shorts in the United States, its
territories and possessions and Canada under the
John Henry label. The Company believes all of
the above trademarks to be important and material.
Farah U.S.A. owns the Farah, Farah Clothing
Company, Savane and Process 2000 trademarks. The
John Henry trademark is under license from Zodiac
International Trading Corporation and is renewable
through May 31, 2038. Farah U.S.A. sells its
products primarily to major department stores and
specialty retailers.
Farah International, Inc. ("Farah
International") products are sold primarily
through individual subsidiaries in the United
Kingdom, Ireland, Australia and New Zealand.
Farah International's largest subsidiary, Farah
Manufacturing (U.K.) Limited ("Farah U.K."), is
a wholesale apparel supplier in the United
Kingdom. It also operates retail outlets in
customer stores. Sales in the U.K. are primarily
men's slacks, and to a lesser extent shirts,
<PAGE>
knitwear and sweaters. Farah Australia is the
Company's other significant international
subsidiary which sells its products in Australia.
Sales in Australia are primarily men's slacks.
The Company also sells products in New Zealand
and certain European countries. Farah
International sales are made primarily through
employee sales forces, supplemented to a lesser
degree by foreign distributors. Farah
International sales are made primarily under the
Farah label which the Company considers to be
important and material. Additional information
on foreign operations is presented in Note 9 to
the consolidated financial statements, which is
incorporated by reference.
Value Slacks, Inc. ("Value Slacks") is the
Company's factory outlet division which is used
primarily to sell excess or slow moving Farah
U.S.A. product. Value Slacks also sells shirts
and other apparel accessory items sourced from
third party vendors. As of November 5, 1993,
Value Slacks operated 20 U.S. stores and 11 Puerto
Rican stores.
The Company's apparel is primarily marketed for
the Spring and Fall retail selling seasons each
year, with interim lines introduced periodically
to complement the two primary lines. In past
years, sales volume for the first quarter was
generally the lowest of the year with each quarter
getting progressively larger. However, with the
introduction of more year-round basic products,
the seasonality has been diminished somewhat. The
Company anticipates that its first quarter will
remain its lowest sales volume quarter. Farah
U.S.A. closes some of its factories in the first
quarter for approximately two weeks at Christmas
time. This, combined with lower first quarter
sales volumes, normally results in the first
quarter being the lowest quarter in terms of
profitability. The remaining three quarters are
expected to be comparable in terms of sales and
profitability, with the fourth quarter being
somewhat higher than the second and third.
<PAGE>
Production -
Farah U.S.A. and Farah International sourced
approximately 67% and 94%, respectively, of their
1993 production from their own manufacturing
facilities and the remainder from outside
contractors. In response to increased sales,
Farah U.S.A. has increased the use of outside
production contractors. Additional needs in 1994
are anticipated to be satisfied through increased
efficiencies in owned facilities and use of
outside contractors. Farah U.S.A. considers its
contractors to be an important component of its
product sourcing strategy. In an effort to
minimize the risk that would result from the
failure of any one contractor, Farah U.S.A. uses
a number of different contractors in different
countries for production.
Raw materials used in manufacturing operations
consist mainly of fabrics made from cottons,
wools, synthetics and blends of synthetics with
cotton and wool. These fabrics are purchased
principally from major textile producers located
in the United States. In addition, the Company
purchases such items as thread, zippers and trim
from a large number of other suppliers. Five
vendors supplied approximately 73% and 52% of
Farah U.S.A.'s and Farah International's fabric
and trim requirements, respectively, during the
fiscal year ended November 5, 1993. The Company
has no long-term contracts with any of its
suppliers, nor does it anticipate shortages of raw
materials in 1994. In order to be responsive to
customer's "Quick Response" needs (see "Backlog"
for more discussion), the Company maintains base
stocks of certain raw materials and finished
goods. However, most inventory is produced in
response to indications of demand provided by
customers.
Competition -
The apparel industry is highly competitive and
includes a number of concerns (domestic and
foreign) which have financial resources greater
than those of the Company. Farah U.S.A.'s primary
branded competitors are Haggar Corp. and Levi
Strauss & Co. The Company believes that these
competitors may have greater financial resources
than those of the Company. In addition, there are
a number of other competitors, including
customer's private label products.
<PAGE>
The primary competitive factors in the apparel
industry are styling, quality, price, customer
service and brand recognition. The Company
believes it is a significant supplier because of
its volume, recent product innovations, and
quality.
Competitors of Farah U.K. are primarily its
customer's private label products. The primary
competitors of Farah Australia are other branded
resources. The same competitive factors affecting
Farah U.S.A. also affect Farah International.
The Company's primary market is department
stores. During fiscal year 1993, The May
Department Stores Company, an unrelated company,
accounted for approximately 12.4% of the Company's
consolidated revenues.
Backlog -
Many of Farah U.S.A.'s major customers
participate in an inventory replenishment concept
referred to as "Quick Response". Essentially,
Quick Response means that the Company will
maintain enough shelf stock of certain key items
to meet the customer's needs on short notice. As
a result, customers tend to place orders closer
to delivery dates than has been the historic case
in the apparel industry. In addition, because of
the trend toward Quick Response, orders which are
received are not necessarily firm commitments.
Therefore, the Company does not consider customer
orders to be "backlog" or necessarily an
indication of future sales.
Inventory Management -
As discussed above, the retail industry is
requiring its manufacturing sources to maintain
inventory for Quick Response purposes. As a
result, Farah U.S.A. has maintained higher
inventory levels during 1993 than was necessary
historically. This, in turn, has resulted in
higher borrowings by Farah U.S.A. to finance such
inventories.
Other Matters -
In the fiscal years ended November 5, 1993,
November 6, 1992 and October 31, 1991 the Company
spent approximately $744,000, $530,000 and
$530,000, respectively, on activities relating to
the development of new products and the
improvement of existing products.
As of November 5, 1993, the Company employed
approximately 5,300 people.
<PAGE>
Item 2. PROPERTIES
The following table reflects the Company's significant real properties:
APPROXIMATE TYPE OF
LOCATION SQUARE FEET PROPERTY
Owned:
El Paso, Texas (1) 116,000 Garment manufacturing plant
Chihuahua, Mexico 54,000 Garment manufacturing plant
San Jose, Costa Rica 168,000 Two garment manufacturing plants
Galway & Kiltimagh,
Ireland 59,000 Two garment manufacturing plants
Leased (2)(3):
El Paso, Texas (4) 1,033,000 Garment manufacturing plant,
warehouse and office facility
Piedras Negras, Mexico 98,000 Four garment manufacturing
plants
Ballyhaunis, Ireland 24,000 Garment manufacturing plant
Sydney, Australia 15,000 Office/Warehouse
Suva, Fiji 24,000 50% owned joint venture for
garment manufacturing
Witham, United Kingdom 57,000 Office/Warehouse
Auckland, New Zealand 6,000 Office/Warehouse
Various retail locations
in the United States
and Puerto Rico 118,000 Retail stores
<PAGE>
(1) Building is under lien (see Note 3 to the
consolidated financial statements, included in the
Company's 1993 Annual Report to Shareholders).
Underlying land is leased through February 2002.
(2) Leased properties are occupied under
non-cancellable leases which expire at various
dates through 2016.
(3) See Note 8 to the consolidated financial
statements included in the Company's 1993 Annual
Report to Shareholders, for discussion of leases.
(4) Originally owned by the Company and sold
and leased back in 1988. Initial lease term is ten
years ending in 1998.
The Company's garment manufacturing plants and offices
are of steel and masonry construction. All facilities
are kept in good condition. The Company considers both
its domestic and international facilities to be suitable
and adequate for current operations. During 1993, all
properties were fully utilized. Farah U.S.A. has sub-leased
approximately 45% of the El Paso, Texas building through
May 31, 1998. Including such sub-lease, all of the El Paso,
Texas building is fully utilized. In increased sales,
Farah U.S.A. has increased the use of outside production
contractors. Additional needs in 1994 are anticipated to be
satisfied through increased efficiencies in owned facilities
and use of outside contractors.
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company is a defendant in several legal
actions. In the opinion of management, based upon
the advice of the respective attorneys handling
such actions, the aggregate of expected fees,
expenses, possible settlements and liability is
not material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required under this item is set
forth under the caption "Common Stock" on page 29
of the Company's Annual Report to Shareholders for
the fiscal year ended November 5, 1993 and is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
The information required under this item is set
forth under the caption "Selected Financial Data"
on page 39 of the Company's Annual Report to
Shareholders for the fiscal year ended November
5, 1993 and is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required under this Item is set
forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results
of Operations" on pages 30 to 38 of the Company's
Annual Report to Shareholders for the fiscal year
ended November 5, 1993 and is incorporated herein
by reference.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The following consolidated financial statements
of Farah Incorporated and Subsidiaries included
in the Company's Annual Report to Shareholders for
fiscal year ended November 5, 1993 on page 28 and
12 through 27 are incorporated herein by
reference:
Quarterly Data (Unaudited) - Supplementary Data
for fiscal years 1993 and 1992
Consolidated Statements of Operations - Years
ended November 5, 1993, November 6, 1992
and October 31, 1991
Consolidated Balance Sheets - November 5, 1993
and November 6, 1992
Consolidated Statements of Shareholders' Equity
- Years ended November 5, 1993,
November 6, 1992 and October 31, 1991
Consolidated Statements of Cash Flows - Years
ended November 5, 1993, November 6, 1992
and October 31, 1991
Notes to Consolidated Financial Statements -
November 5, 1993, November 6, 1992 and October
31, 1991
Report of Independent Public Accountants
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required under this item is set
forth under the caption "Directors and Executive
Officers" on pages 4 and 5 of the Company's Proxy
Statement prepared in connection with its 1994
Annual Meeting of Shareholders and is incorporated
herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information required under this item is set forth
under the caption "Compensation of Executive Officers"
on pages 7 through 10 of the Company's Proxy Statement
prepared in connection with its 1994 Annual Meeting of
Shareholders and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required under this item is set
forth under the caption "Ownership of Common
Stock" on pages 2 and 3 of the Company's Proxy
Statement prepared in connection with its 1994
Annual Meeting of Shareholders and is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Information required under this item is set forth
under the captions "Certain Matters Involving
Directors and Shareholders" and "Compensation of
Directors" on pages 6 and 7 and 10 and 11,
respectively, of the Company's Proxy Statement
prepared in connection with its 1994 Annual
Meeting of Shareholders and is incorporated herein
by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The consolidated financial statements and
notes together with the Report of Independent
Public Accountants and Selected Financial
Highlights as included in the Company's Annual
Report to Shareholders for fiscal year ended
November 5, 1993 filed with this Annual Report on
Form 10-K are incorporated herein by reference
(only the financial statements listed below, which
are included in the Annual Report to Shareholders
for the fiscal year ended November 5, 1993, are
filed herewith and the remainder of the Annual
Report to Shareholders for the fiscal year ended
November 5, 1993 is furnished to the Commission
for its information):
Consolidated Statements of Operations - Years
ended November 5, 1993, November 6, 1992
and October 31, 1991
Consolidated Balance Sheets - November 5, 1993
and November 6, 1992
Consolidated Statements of Shareholders' Equity
- Years ended November 5, 1993, November 6,
1992 and October 31, 1991
Consolidated Statements of Cash Flows - Years
ended November 5, 1993, November 6, 1992 and
October 31, 1991
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Quarterly Data (unaudited) - Supplementary Data
for fiscal years 1993 and 1992
Selected Financial Data for fiscal years ended
1989 to 1993
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
last quarter of the period for which this report
is filed.
(c) Exhibits.
3 Articles of Incorporation and Bylaws.
* 3.1Restated Articles of Incorporation
dated March 29, 1988 (filed as Exhibit
3.1 to Form 10-K as of October 31,
1988).
3.2 Bylaws of Farah Incorporated Amended and
Restated as of September 1, 1993.
<PAGE>
4 Instruments defining the Rights of
Security Holders, including Indentures.
*4.1 Indenture, dated as of February 1,
1969 (filed as Exhibit 2.4 to Form 10-
K as of October 31, 1980).
Pursuant to subsection (b)(4)(iii) of Item
601 of Regulation S-K, Registrant hereby
agrees to furnish to the Commission upon
request copies of other instruments
defining rights of holders of long-term
debt, none of which instruments authorizes
indebtedness in an amount in excess of 10%
on consolidated assets.
10 Material Contracts.
* 10.1 Employment Agreement dated March
1, 1993, (filed as Exhibit 10.4-
22 to Form 10-Q as of May 7,
1993).
* 10.2 Employment Agreement dated March
1, 1993 (filed as Exhibit 10.4-
23 to Form 10-Q as of May 7,
1993).
10.3 Amended and Restated Employment Agreement
dated September 30, 1993.
10.4 Amended and Restated Employment Agreement
dated September 30, 1993.
10.5 Amended and Restated Employment Agreement
dated September 30, 1993.
* 10.6 Net Lease, dated as of May 16,
1988, between Farah U.S.A., Inc.
and Far Pass Realty Associates,
Ltd. (filed as Exhibit 5 to Form
8-K dated May 25, 1988).
* 10.7 Guarantee of Lease by Farah
Incorporated (filed as Exhibit 6
to Form 8-K dated May 25, 1988).
* 10.8 Pledge Agreement by Farah U.S.A.,
Inc. to Far Pass Realty
Associates, Ltd. (filed as
Exhibit 7 to Form 8-K dated May
25, 1988).
<PAGE>
* 10.9 Amended and Restated Farah
Manufacturing Company, Inc. 1986
Stock Option Plan, and Form of
Stock Option Agreement (filed as
Exhibit 4 (a) to the Company's
Registration Statement on Form S-
8, Registration No. 2-75949).
* 10.10 Farah Manufacturing Company, Inc.
Executive Stock Option Plan, as
amended, and form of Stock Option
Agreement (filed as Exhibit 10.29
to Form 10-K as of October 31,
1988).
* 10.11 Amended and Restated Farah
Manufacturing Company, Inc. 1981
Stock Option Plan, and form of
Stock Option Agreement (filed as
Exhibit 28.2 to the Company's
Registration Statement on Form S-
8, Registration No. 33-11930).
* 10.12 Farah Incorporated 1988 Non-
Employee Directors Stock Option
Plan and form of Stock Option
Agreement (filed as Exhibit 10.31
to Form 10-K as of October 31,
1988).
* 10.13 Accounts Financing Agreement
(Security Agreement), dated
August 2, 1990 between Farah
U.S.A., Inc. ("Farah U.S.A.") and
Congress Financial Corporation
(Southwest) ("Congress") (filed
as Exhibit 10.53 to Form 10-Q as
of July 31, 1990).
* 10.14 Covenant Supplement to Accounts
Financing Agreement (Security
Agreement) dated August 2, 1990,
between Farah U.S.A. and Congress
(filed as Exhibit 10.54 to Form
10-Q as of July 31, 1990).
* 10.15 Inventory and Equipment Security
Agreement Supplement to Accounts
Financing Agreement (Security
Agreement) dated August 2, 1990,
between Farah U.S.A. and Congress
(filed as Exhibit 10.56 to Form
10-Q as of July 31, 1990).
<PAGE>
*10.16 Trade Financing Agreement
Supplement to Accounts Financing
Agreement (Security Agreement)
dated August 2, 1990, between
Farah U.S.A. and Congress (filed
as Exhibit 10.57 to Form 10-Q as
of July 31, 1990).
* 10.17 Form of Pledge and Security
Agreement, dated August 2, 1990
(filed as Exhibit 10.58 to Form
10-K as of October 31, 1990).
* 10.18 Collateral Assignment of License,
dated August 2, 1990, by Farah
U.S.A. in favor of Congress
(filed as Exhibit 10.60 to Form
10-Q as of July 31, 1990).
* 10.19 Estoppel and Consent Agreement,
dated August 2, 1990 by Farah
Incorporated ("Farah") (filed as
Exhibit 10.61 to Form 10-Q as of
July 31, 1990).
* 10.20 Deed of Trust and Security
Agreement, dated July 30, 1990,
by Farah U.S.A. and Farah in
favor of Congress (filed as
Exhibit 10.63 to Form 10-Q as of
July 31, 1990).
* 10.21 Form of Guarantee and Waiver,
dated August 2, 1990 (filed as
Exhibit 10.64 to Form 10-K as of
October 31, 1990).
* 10.22 Collateral Assignment of
Agreements, dated August 2, 1990,
by Farah in favor of Congress
(filed as Exhibit 10.68 to Form
10-Q as of July 31, 1990).
* 10.23 Collateral Assignment of Agreements,
dated August 2, 1990, by Farah
Manufacturing Company of New Mexico,
Inc. in favor of Congress (filed as
Exhibit 10.69 to Form 10-Q as of July
31, 1990).
<PAGE>
* 10.24 Subordination Agreement, dated
August 2, 1990, by Farah U.S.A.
and Farah (filed as Exhibit 10.70
to Form 10-Q as of July 31,
1990).
* 10.25 Form of Pledge and Security
Agreement, dated August 2, 1990
(filed as Exhibit 10.71 to Form
10-K as of October 31, 1990).
* 10.26 Trademark Collateral Assignment
and Security Agreement, dated
August 2, 1990, by Farah in favor
of Congress (filed as Exhibit
10.75 to Form 10-Q as of July 31,
1990).
* 10.27 Patent Collateral Assignment and
Security Agreement, dated August
2, 1990, by Farah in favor of
Congress (filed as Exhibit 10.76
to Form 10-Q as of July 31,
1990).
* 10.28 General Security Agreement, dated
August 2, 1990, by Farah in favor
of Congress (filed as Exhibit
10.77 to Form 10-Q as of July 31,
1990).
* 10.29 Form of General Security
Agreement, dated August 2, 1990
(filed as Exhibit 10.78 to Form
10-K as of October 31, 1990).
* 10.30 Amendment No. 1, dated November
5, 1990, to Financing Agreements
dated August 2, 1990 (filed as
Exhibit 10.98 to Form 10-K as of
October 31, 1990).
* 10.31 Amendment No. 2 dated February
11, 1991, to Financing Agreements
dated August 2, 1990 (filed as
Exhibit 10.103 to Form 10-Q as of
January 31, 1991).
<PAGE>
* 10.32 Sublease between Farah U.S.A.,
Inc. and The Tonka Corporation,
dated January 6, 1992 (filed as
Exhibit 10.107 to Form 10-K as of
October 31, 1991).
* 10.33 Farah Incorporated 1991 Stock
Option and Restricted Stock Plan
dated October 15, 1991 (filed as
Exhibit 10.108 to Form 10-K as of
October 31, 1991).
* 10.34 Amendment No. 3 dated January 29,
1992, to Financing Agreements
dated August 2, 1990 (filed as
Exhibit 10.112 to Form 10-Q as of
February 7, 1992).
* 10.35 Amendment No. 4 dated June 25,
1992, to Accounts Financing
Agreement dated August 2, 1990
between Congress Financial
Corporation (Southwest) and Farah
U.S.A., Inc. (filed as Exhibit
10.118 to Form 10-Q as of August
7, 1992).
* 10.36 Amendment No. 5 dated August 31,
1992, to Accounts Financing
Agreement dated August 2, 1990
between Congress Financial
Corporation (Southwest) and Farah
U.S.A., Inc. (filed as Exhibit
10.119 to Form 10-Q as of August
7, 1992).
* 10.37 Amendment No. 6 dated September
4, 1992, to Accounts Financing
Agreement dated August 2, 1990
between Congress Financial
Corporation (Southwest) and Farah
U.S.A., Inc. (filed as Exhibit
10.120 to Form 10-Q as of August
7, 1992).
* 10.38 Amendment No. 7 dated September
16, 1992, to Accounts Financing
Agreement dated August 2, 1990
between Congress Financial
Corporation (Southwest) and Farah
U.S.A., Inc. (filed as Exhibit
10.121 to Form 10-Q as of August
7, 1992).
<PAGE>
* 10.39 Stock Purchase Agreement dated
August 4, 1992, between Farah
Incorporated and Marciano
Investments, Inc. (filed as
Exhibit 10.122 to Form 10-Q as of
August 7, 1992).
* 10.40 Letter Agreement dated October 28,
1992, amending the Accounts Financing
Agreement dated August 2, 1990 between
Farah U.S.A., Inc. and Congress
Financial Corporation (Southwest),
(filed as Exhibit 10.125 to Form 10-K
as of November 6, 1992).
* 10.41 Amended and Restated Farah Savings and
Retirement Plan, as of January 1,
1991, (filed as Exhibit 10.125 to Form
10-K as of November 6, 1992).
* 10.42 Amended and Restated Stock Purchase
Agreement dated March 12, 1993
(amending and restating the stock
purchase agreement dated February 23,
1993) between Farah Incorporated, the
Georges Marciano Trust and the Paul
Marciano Trust, (filed as Exhibit
10.128 to Form 10-Q as of May 7,
1993).
* 10.43 Amendment No. 8 to Financing
Agreements as of May 7, 1993 between
Farah U.S.A., Inc. and Congress
Financial Corporation (Southwest),
(filed as Exhibit 10.129 to Form 10-Q
as of May 7, 1993).
* 10.44 Amendment No. 9 dated July 16, 1993 to
Accounts Financing Agreement dated
August 2, 1990 between Congress
Financial Corporation (Southwest) and
Farah U.S.A., Inc., (filed as Exhibit
10.130 to Form 10-Q as of August 6,
1993).
* 10.45 Consulting Agreement dated June 15,
1993, (filed as Exhibit 10.131 to Form
10-Q as of August 6, 1993).
* 10.46 Deferred Compensation Agreement dated
July 30, 1993, (filed as Exhibit
10.132 to Form 10-Q as of August 6,
1993).
<PAGE>
* 10.47 Deferred Compensation Agreement dated
July 30, 1993, (filed as Exhibit
10.133 to Form 10-Q as of August 6,
1993).
10.48 Deferred Compensation Agreement dated
July 30, 1993.
10.49 Amendment No. 10 dated November 5,
1993 to Accounts Financing Agreement
dated August 2, 1990 between Congress
Financial Corporation (Southwest) and
Farah U.S.A., Inc.
*Incorporated herein by reference.
22 Subsidiaries of Farah Incorporated
24 Consent of Independent Public Accountants
(d) The following consolidated financial
statement schedules are included in the
Annual Report on Form 10-K along with the
Report of Independent Public Accountants
on supporting schedules:
Page
Report of Independent Public Accountants on
Supporting Schedules 14
II- Amounts receivable from related parties,
underwriters, promoters and employees other
than related parties - Years ended November 5,
1993, November 6, 1992 and October 31, 1991 15
X- Supplementary Income Statement Information -
Years ended November 5, 1993, November 6, 1992
and October 31, 1991 16
All other schedules are omitted because they are not
applicable, not required under the instructions, or
the information is reflected in the consolidated
financial statements or notes thereto.
For the purposes of complying with the
amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act
of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be
incorporated by reference into registrant's
Registration Statements on Form S-8 Nos. 33-46661
(filed March 24, 1992), 33-11930 (filed February
12, 1987) and 2-75949 (filed February 4, 1982):
<PAGE>
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling
persons of the registrant pursuant to the
foregoing provisions, or otherwise the registrant
has been advised that in the opinion of the
Securities and Exchange Commission such
indemnification is against public policy as
expressed in the Securities Act of 1933 and is,
therefore, unenforceable, in the event that a
claim for indemnification against such liabilities
(other than the payment by the registrant of
expenses incurred or paid by a director, officer
or controlling person of the registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director, officer
or controlling person in connection with the
securities being registered, the registrant will,
unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the
question whether such indemnification by it is
against public policy as expressed in the Act and
will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto
duly authorized.
FARAH INCORPORATED
(Registrant)
/s/ James C. Swaim
James C. Swaim
Principal Financial Officer
Principal Accounting Officer
Dated: January 28, 1994
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the
Registrant and in the capacities indicated on
January 28, 1994.
/s/ Richard C. Allender
Richard C. Allender
President and Chief Executive Officer, Director
/s/ Christopher L. Carameros
Christopher L. Carameros
Director
/s/ Sylvan Landau
Sylvan Landau
Director
/s/ Edward J. Monahan
Edward J. Monahan
Director
/s/ Timothy B. Page
Timothy B. Page
Director
/s/ Byron H. Rubin
Byron H. Rubin
Director
<PAGE>
/s/ James C. Swaim
James C. Swaim
Executive Vice President, Chief Financial Officer
and Director
/s/ Thomas G. Wyman
Thomas G. Wyman
Director
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
SUPPORTING SCHEDULES
To the Shareholders of Farah Incorporated:
We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements
included in Farah Incorporated's annual report to shareholders
incorporated by reference in this Form 10-K, and have issued
our report thereon dated December 15, 1993. Our audits were
made for the purpose of forming an opinion on those statements
taken as a whole. Schedules II and X are the responsibility
of the company's management and are presented for purposes
of complying with the Securities and Exchange Commission's
rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Dallas, Texas
December 15, 1993
<PAGE>
Schedule II
FARAH INCORPORATED AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
YEARS ENDED NOVEMBER 5, 1993, NOVEMBER 6, 1992 AND
OCTOBER 31, 1991
PART ONE OF SCHEDULE II TABLE:
Balance at
Year beginning
ended Name of debtor of period
10/31/91 William F. Farah $ 100,708
11/6/92 - -
11/5/93 - -
PART TWO OF SCHEDULE II TABLE:
Deducted
Year Amounts Amounts
ended Additions Collectedwritten off
10/31/91 - 100,708 -
11/6/92 - - -
11/5/93 - - -
PART THREE OF SCHEDULE II TABLE:
Balance at end of period
Year Not
ended Current Current
10/31/91 - -
11/6/92 - -
11/5/93 - -
<PAGE>
Schedule X
FARAH INCORPORATED AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For years ended November 5, 1993, November 6, 1992 and October 31, 1991
November 5, November 6, October 31,
1993 1992 1991
(thousands of dollars)
Amortization of intangible
assets $ 200 489 592
Taxes other than income
taxes and payroll taxes $ 843 934 1,096
Advertising $ 11,230 6,825 4,719
Neither royalties nor repairs and maintenance exceeded 1% of revenues in
fiscal 1993.
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
FORM 10-K INDEX TO ATTACHED EXHIBITS
(All Exhibits listed are on pages 17 through 113)
Page
Numbers
Exhibit 3.2 Bylaws of Farah Incorporated Amended 18
and Restated as of September 1, 1993.
Exhibit 10.3 Amended and Restated Employment Agreement 38
dated September 30, 1993.
Exhibit 10.4 Amended and Restated Employment Agreement 47
dated September 30, 1993.
Exhibit 10.5 Amended and Restated Employment Agreement 54
dated September 30, 1993.
Exhibit 10.48 Deferred Compensation Agreement dated 62
July 30, 1993.
Exhibit 10.49 Amendment No. 10 dated November 5, 1993 64
to Accounts Financing Agreement dated
August 2, 1990 between Congress Financial
Corporation (Southwest) and Farah U.S.A., Inc.
Exhibit 13 Annual Report to Shareholders for Fiscal 83
Year 1993.
Exhibit 22 Subsidiaries of Farah Incorporated. 112
Exhibit 24 Consent of Independent Public Accountants. 113
<PAGE>
EXHIBIT 3.2
Bylaws of Farah Incorporated Amended and Restated
as of September 1, 1993.
<PAGE>
BYLAWS
OF
FARAH INCORPORATED
ARTICLE I.
OFFICES
1. GENERAL OFFICES. The principal office of
the Corporation in the State of Texas shall be
located in the City of El Paso, County of El Paso.
The Corporation may have such other offices,
either within or without the State of Texas, as
the Board of Directors may determine or as the
affairs of the Corporation may require from time
to time.
2. REGISTERED OFFICE AND REGISTERED AGENT.
The Corporation shall have and continuously
maintain in the State of Texas a registered
office, and a registered agent, whose office is
identical with such registered office, as required
by laws of the State of Texas. The registered
office may be, but need not be, identical with the
principal office in the State of Texas, and the
registered agent and/or the address of the regist-
ered office may be changed from time to time by
the Board of Directors.
ARTICLE II
SHAREHOLDERS
1. ANNUAL MEETING. The annual meeting of the
Shareholders shall be held annually on such date
and at such time and place as shall be designated
from time to time by the Board of Directors, for
the purpose of electing Directors and for the
transaction of such other business as may properly
come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday in the
State of Texas, such meeting shall be held on the
next succeeding business day.
2. SPECIAL MEETING. Special meetings of the
Shareholders, for any purpose or purposes, unless
otherwise prescribed by statute or by the Articles
of Incorporation of the Corporation, or by these
Bylaws, may be called by the Chairman, the Chief
Executive Officer, the President, the Board of
Directors or the holders of not less than ten
percent (10%) of all the outstanding shares of the
Corporation entitled to vote at the meeting.
<PAGE>
3. RECORD DATE, TIME AND PLACE OF MEETING.
Meetings of Shareholders for any purpose may be
held at such time and place within or without the
State of Texas, as shall be stated in the notice
of the meeting. The Board of Directors shall
designate the record date, the time and the place
of meeting; provided, that if no designation is
made, the place of meeting shall be the principal
office of the Corporation in the State of Texas;
provided, further, that if the meeting is a
special meeting called at the request of holders
of not less than 10% of all of the outstanding
shares of the Corporation entitled to vote at the
meeting, the time of such meeting shall be within
a reasonable period of time, not to exceed 30
days, from the date for such meeting requested by
such holders or, if no time is specified in such
request or if the time specified is within 90 days
of the date the request is delivered to the
Company, within 120 days of the date that the
request is delivered to the Secretary of the
Corporation.
4. NOTICE OF MEETING. Written or printed
notice stating the place, day and hour of the
meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is
called, shall be delivered not less than ten (10)
nor more than fifty (50) days before the date of
the meeting, either personally or by mail, by or
at the direction of the President, the Secretary,
or the officer or person calling the meeting, to
each Shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the
United States mail addressed to the Shareholder
at his address as it appears on the stock transfer
books of the Corporation, with postage thereon
prepaid.
5. VOTING LIST. The officer or agent having
charge of the Corporation's stock transfer books
shall make, at least ten (10) days before each
meeting of Shareholders, a complete list of the
Shareholders entitled to vote at such meeting,
arranged in alphabetical order, with the address
of and number of voting shares held by each. For
a period of ten (10) days prior to such meeting,
such list shall be kept on file at the registered
office of the Corporation and shall be subject to
inspection by any Shareholder at any time during
usual business hours. Such list shall be produced
and kept open at the time and place of the meeting
and shall be subject to the inspection of any
<PAGE>
shareholder during the whole time of the meeting.
The original stock transfer books shall be prima
facie evidence as to who are the Shareholders
entitled to examine such list or transfer books
or to vote at any meeting of Shareholders.
Notwithstanding the foregoing, failure to comply
with the requirements of this Article II-5 shall
not affect the validity of any action taken at
such meeting.
6. QUORUM OF SHAREHOLDERS AND MAJORITY VOTE.
The holders of a majority of the shares of the
Corporation entitled to vote, represented in
person or by proxy, shall constitute a quorum at
a meeting of Shareholders. With respect to any
matter other than the election of Directors, the
vote of the holders of a majority of the shares
entitled to vote and voted for or against that
matter at a meeting at which a quorum is present
shall be the act of the Shareholders' meeting,
unless the vote of a greater number is required
by law, the Articles of Incorporation or these
Bylaws. If a quorum is not present or represented
at any meeting of Shareholders, the Shareholders
entitled to vote thereat, present in person or
represented by proxy, shall have the power to
adjourn the meeting from time to time without
notice other than announcement at the meeting,
until a quorum shall be present or represented.
At an adjourned meeting at which a quorum is
present or represented, any business may be
transacted which might have been transacted at the
meeting as originally notified. The Shareholders
present at a duly constituted meeting may continue
to transact business until adjournment, despite
the withdrawal of enough Shareholders to leave
less than a quorum.
7. VOTING OF SHARES.
(a) Each outstanding share, regardless of
class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of Shareh-
olders, except to the extent that the Articles of
Incorporation provide for more or less than one
vote per share or limit or deny voting rights to
the holders of the shares of any class or series
to the extent permitted by the Texas Business
Corporation Act.
(b) Treasury shares, shares of the Cor-
poration's stock owned by another corporation the
majority of the voting stock of which is owned or
controlled by this Corporation, and shares of its
<PAGE>
own stock held by this Corporation in a fiduciary
capacity shall not be voted, directly or indirect-
ly, at any meeting, and shall not be counted in
determining the total number of outstanding shares
at any given time.
(c) A Shareholder may vote either in
person or by proxy executed in writing by the
Shareholder. A telegram, telex, cablegram or
similar transmission by the shareholder, or a
photographic, photostatic, facsimile, or similar
reproduction of a writing executed by the shareho-
lder, shall be treated as an execution in writing
for purposes of this section. No proxy shall be
valid after eleven (11) months from the date of
its execution unless otherwise provided in the
proxy. A proxy shall be revocable unless the
proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an
interest.
(d) At each election for Directors every
Shareholder entitled to vote at such election
shall have the right to vote, in person or by
proxy, the number of shares owned by him for as
many persons as there are Directors to be elected
and for whose election he has a right to vote.
(e) Shares standing in the name of another
corporation, domestic or foreign, may be voted by
such officer, agent, or proxy as the bylaws of
such corporation may authorize or, as the board
of directors of such corporation may authorize or,
as the board of directors of such corporation may
determine.
(f) Shares held by an administrator,
executor, guardian, or conservator may be voted
by him so long as such shares forming part of an
estate are in the possession and forming a part
of the estate being served by him, either in
person or by proxy, without a transfer of such
shares into his name. Shares standing in the name
of a trustee may be voted by him, either in person
or by proxy, but no trustee shall be entitled to
vote shares held by him without a transfer of such
shares into his name as trustee.
(g) Shares standing in the name of a
receiver may be voted by such receiver, and shares
held by or under the control of a receiver may be
voted by such receiver without the transfer
thereof into his name if authority so to do be
contained in an appropriate order of the court by
which such receiver was appointed.
<PAGE>
(h) A Shareholder whose shares are pledged
shall be entitled to vote such shares until the
shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
8. METHOD OF VOTING. Voting on any question
or in any election may be by voice or show of
hands unless the presiding officer shall order or
any Shareholder shall demand that voting be by
written ballot.
9. PROCEDURE. The minutes of the proceedings
of the Shareholders shall be placed in the minute
book of the Corporation.
10. ACTION WITHOUT MEETING. Any action
required by statute to be taken at a meeting of
the Shareholders, or any action which may be taken
at a meeting of the Shareholders, may be taken
without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all
of the Shareholders entitled to vote with respect
to the subject matter thereof, and such consent
shall have the same force and effect as a un-
animous vote of the Shareholders, and may be
stated as such in any articles or documents filed
with the Secretary of State. The signed consent
or a signed copy will be placed in the minute
book, with other minutes of the Shareholders'
proceedings.
11. SHAREHOLDERS. The Chairman of the meeting
of Shareholders shall determine the order of
business at all meetings of Shareholders and
appropriate rules of procedure at such meetings.
The rules of procedure may include, but shall not
be limited to, appropriate rules regarding the
conduct of the meeting of Shareholders, the
persons who are eligible to address the meeting
of Shareholders, the number of times any person
may be permitted to address the meeting of Shareh-
olders, the duration of time permitted to any
person to address the meeting of Shareholders.
The order of business to be followed at any
meeting, other than a special meeting, and the
rules of procedure at which a quorum is present
may be changed by a majority of the votes cast at
such meeting by the Shareholders present in person
or represented by proxy and entitled to vote at
the meeting. With respect to special meetings, only
business within the purpose or purposes described
in the notice of the special meeting may be
conducted at a special meeting of the Shareholders.
<PAGE>
ARTICLE III
DIRECTORS
1. MANAGEMENT. The business and affairs of
the Corporation shall be managed by the Board of
Directors. The Board of Directors may exercise
all powers of the Corporation and do all lawful
acts and things as are not by statute or by the
Articles of Incorporation or by these Bylaws
directed or required to be exercised or done by
the Shareholders.
2. NUMBER; QUALIFICATION; ELECTION; AND TERM
OF OFFICE. The number of Directors constituting
the entire Board of Directors shall be determined
from time to time by resolution duly adopted by
the Board. None of the members of the Board of
Directors need be Shareholders of the Corporation
or residents of the State of Texas. The directors
shall be elected at the annual meeting of the
shareholders. Each director elected shall hold
office until his or her successor shall be elected
and qualified or his or her earlier death,
retirement, resignation or removal.
3. CHANGE IN NUMBER. In the event of any
increase or decease in the authorized number of
Directors, each Director then serving as such
shall nevertheless continue as a Director until
the expiration of his current term, or his prior
death, retirement, resignation, or removal.
4. VACANCIES. Any vacancy occurring in the
Board of Directors may be filled by the
affirmative vote of a majority of the Directors
remaining after such vacancy occurs. A Director
elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office. A
Directorship to be filled by reason of an increase
in the number of Directors may be filled by the
Board of Directors for a term of office continuing
only until the next election of one or more
directors by the Shareholders; provided that the
Board of Directors may not fill more than two such
Directorships during the period between any two
successive Annual Meetings of Shareholders. Any
vacancy occurring in the Board of Directors or any
Directorship to be filled by reason of an increase
in the number of Directors may be filled by
election at an Annual or special meeting of Share-
holders called for that purpose.
5. ELECTION OF DIRECTORS. Directors shall be
elected by plurality vote. Cumulative voting
shall not be permitted.
<PAGE>
6. QUORUM OF DIRECTORS. A majority of the
number of Directors shall constitute a quorum for
the transaction of business. The act of the
majority of the Directors present at a meeting at
which a quorum is present shall be the act of the
Board of Directors unless otherwise specifically
required by law or the Articles of Incorporation
or these Bylaws. Directors present at a duly
constituted meeting may continue to transact
business until adjournment, despite the withdrawal
of enough Directors to leave less than a quorum.
7. PLACE OF MEETING. Meetings of the Board
of Directors, regular or special, may be held
either within or without the State of Texas.
8. FIRST MEETINGS. The first meeting of each
newly elected Board shall be held without further
notice immediately following the annual meeting
of Shareholders, and at the same place, unless by
unanimous consent the Directors then elected and
serving change such time or place.
9. REGULAR MEETINGS. Regular meetings of the
Board of Directors may be held without notice at
such time and place as shall from time to time be
determined by resolution of the Board.
10. SPECIAL MEETINGS. Special meetings of the
Board of Directors may be called by or at the
request of the Chairman of the Board, the Chief
Executive Officer, the President or any two
Directors. Notice of the call of a special
meeting shall be given to each of the Directors
either by mail, telegram, written message or
orally not later than noon, El Paso time, on the
day prior to the meeting. Notices for the purpose
of a special meeting of the Board of Directors
shall be deemed to have been given by mail, when
deposited in the United States mail, by telegram
at the time of the filing, by messenger at the
time of delivery and by telephone at the time of
the call. Attendance of a Director at a meeting
shall constitute a waiver of notice of such
meeting, except where a Director attends a meeting
for the express purpose of objecting to the
transaction of any business on the ground that the
meeting is not lawfully called or convened.
11. NO STATEMENT OR PURPOSE OF MEETING
REQUIRED. Neither the business to be transacted
at, nor the purpose of, any regular or special
meeting of the Board of Directors need be
specified in the notice or waiver of notice of
such meeting.
<PAGE>
12. COMPENSATION. By resolution of the Board
of Directors, the Directors may be paid their
expenses, if any, of attendance at such meeting
of the Board of Directors, and may be paid a fixed
sum for attendance at each meeting of the Board
of Directors and/or a stated salary as Director.
No such payment shall preclude any Director from
serving the Corporation in any other capacity and
receiving compensation therefor. Members of the
Executive Committee or of special or standing
committees may, by resolution of the Board of
Directors, be allowed like compensation for
attending committee meetings. By resolution of
the Board of Directors, Directors may also be
entitled to a stated salary and their expenses in
connection with special assignments of behalf of
the Corporation.
13. PROCEDURE. The Board of Directors shall
keep regular minutes of its proceedings which
shall be placed in the minute book of the
Corporation.
14. ACTION WITHOUT MEETING. Any action
required or permitted to be taken at a meeting of
the Board of Directors or any committee may be
taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by
all the members of the Board of Directors or
committee, as the case may be. Such consent shall
have the same force and effect as a unanimous vote
at a meeting, and may be stated as such in any
document or instrument filed with the Secretary
of State. The signed consent or a signed copy
will be placed in the minute book with other
minutes of the Directors' proceedings.
15. PRESUMPTION OF ASSENT. A Director of the
Corporation who is present at a meeting of the
Board of Directors at which action on any
corporate matter is taken shall be presumed to
have assented to the action taken unless his
dissent shall be entered in the minutes of the
meeting or unless he shall file his written
dissent to such action with the person acting as
secretary of the meeting before the adjournment
thereof or shall forward such dissent by
registered mail to the Secretary of the
Corporation immediately after the adjournment of
the meeting. Such right to dissent shall not
apply to a Director who voted in favor of such
action.
<PAGE>
16. CHAIRMAN OF THE BOARD. The Board of
Directors shall elect a Chairman of the Board.
The Chairman of the Board shall preside at all
meetings of the Shareholders and the Board of
Directors, and shall perform such duties and have
such powers as the Board of Directors may from
time to time prescribe. The Chairman of the Board
shall serve until his successor is elected and
qualified, but he may be removed at any time, with
or without cause, by the affirmative vote of a
majority of the Board of Directors.
ARTICLE IV
COMMITTEES
1. DESIGNATION. The Board of Directors may,
by resolution adopted by a majority of the whole
Board, designate from among its members an
Executive Committee and one or more other
Committees, each of which shall have and may
exercise all of the authority set forth in such
resolution.
2. NUMBER; QUALIFICATION; TERM. Each
Committee shall consist of one or more Directors
and shall serve at the pleasure of the Board of
Directors.
3. AUTHORITY. The Executive Committee, to the
extent provided in such resolution, shall have and
may exercise all of the authority of the Board of
Directors in the management of the business and
affairs of the Corporation, including authority
over the use of the corporate seal. However,
neither the Executive Committee nor any other
Committee shall have the authority of the Board
in reference to:
(a) amending the Articles of Incorporation;
(b) approving a plan of merger or
consolidation;
(c) recommending to the Shareholders the sale,
lease or exchange of all or substantially all of
the property and assets of the Corporation
otherwise than in the usual and regular course of
its business;
<PAGE>
(d) recommending to the Shareholders a
voluntary dissolution of the Corporation or a
revocation thereof;
(e) amending, altering, or repealing these
Bylaws or adopting new Bylaws;
(f) filling vacancies in or removing members
of the Board of Directors or of any committee
appointed by the Board of Directors;
(g) filling any Directorship to be filled by
reason of an increase in the number of Directors;
(h) electing or removing officers or members
of any such committee;
(i) fixing the compensation of any member of
such committee;
(j) altering or repealing any resolution of
the Board of Directors which by its terms provides
that it shall not be so amendable or repealable;
(k) declaring a dividend; or
(l) authorizing the issuance of shares of the
Corporation.
4. CHANGE IN NUMBER. The number of members
of any Committee may be increased or decreased
from time to time by resolution adopted by a
majority of the whole Board of Directors.
5. REMOVAL. Any member of a Committee may be
removed by the Board of Directors by the
affirmative vote of a majority of the whole Board,
with or without cause.
6. VACANCIES. A vacancy occurring in any
Committee (by death, resignation, removal, or
otherwise) may be filled by the Board of Directors
in the manner provided for original designation.
7. MEETINGS. Time, place and notice (if any)
of Committee meetings shall be determined by each
Committee.
<PAGE>
8. QUORUM; MAJORITY VOTE. At meetings of a
Committee, a majority of the number of members
designated by the Board of Directors shall
constitute a quorum for the transaction of
business. The act of a majority of the members
present at any meeting at which a quorum is
present shall be the act of such Committee, except
as otherwise specifically provided by statute, the
Articles of Incorporation, or these Bylaws. If
a quorum is not present at a meeting of any
Committee, the members present may adjourn the
meeting from time to time, without notice other
than an announcement at the meeting, until a
quorum is present.
9. PROCEDURE. Each Committee shall keep
regular minutes of its proceedings and report the
same to the Board of Directors at the next meeting
thereof. The minutes of the proceedings of the
Executive Committee shall be placed in the minute
book of the Corporation.
10. ACTION WITHOUT MEETING. Any action
required or permitted to be taken at a meeting of
any Committee may be taken without a meeting if
a consent in writing, setting forth the action so
taken, is signed by all the members of the
Committee. Such consent shall have the same force
and effect as a unanimous vote at a meeting. The
signed consent, or a signed copy, shall be placed
in the minute book.
11. RESPONSIBILITY. The designation of any
Committee and the delegation of authority to it
shall not operate to relieve the Board of
Directors, or any member thereof, of any respon-
sibility imposed upon it or him by law.
<PAGE>
ARTICLE V
TELEPHONE MEETINGS - SHAREHOLDERS, BOARD OF
DIRECTORS OR MEMBERS OF ANY COMMITTEE
1. TELEPHONE, ETC. MEETINGS. Subject to the
provisions required or permitted by law for notice
of meetings, unless otherwise restricted by the
Articles of Incorporation or these Bylaws,
Shareholders, members of the Board of Directors,
or members of any committee designated by such
Board, may participate in and hold a meeting of
such Shareholders, Board or committee by means of
conference telephone or similar communications
equipment by means of which all persons
participating in the meeting can hear each other,
and participation in a meeting pursuant to this
Section shall constitute presence in person at
such meeting, except where a person participates
in the meeting for the express purpose of
objecting to the transaction of any business on
the ground that the meeting is not lawfully called
or convened.
ARTICLE VI
OFFICERS
1. NUMBER. The Board of Directors, as soon
as may be practicable after the annual election
of Directors or upon any vacancies in office,
shall elect a Chief Executive Officer, a
President, one or more Vice Presidents, a
Secretary and a Treasurer, and from time to time
may elect or appoint such other officers,
including Executive Vice Presidents, as it may
determine. Any two or more offices may be held
by the same person.
2. ELECTION AND TERM OF OFFICE. The officers
of the Corporation shall be elected or appointed
by the Board of Directors at any meeting and shall
hold office for such term as the Board of
Directors may from time to time determine. No
officer need be a Shareholder, a Director or a
resident of Texas. Each officer shall hold office
until his death or until he shall resign or shall
have been removed in the manner hereinafter
provided, or until his successor shall have been
fully elected and shall have qualified.
<PAGE>
3. REMOVAL. Any officer or agent or member
of any committee elected or appointed by the Board
of Directors may be removed by the Board of
Directors whenever in its judgment the best
interests of the Corporation would be served
thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent or
member of a committee shall not of itself create
contract rights.
4. VACANCIES. Any vacancy occurring in any
office of the Corporation, or any committee
appointed by the Board (by death, resignation,
removal or otherwise) may be filled by the Board
of Directors.
5. AUTHORITY. Officers and agents of the
Corporation, as between themselves and the
Corporation, shall have such authority and perform
such duties in the management of the Corporation
as are provided in these Bylaws, or as may be
determined by resolution of the Board of Directors
not inconsistent with these Bylaws.
6. COMPENSATION. The compensation of
officers, agents and committee members shall be
fixed from time to time by the Board of Directors
in such amounts as the Directors shall determine.
No officer or committee member shall be prevented
from receiving such compensation because he is
also a Director of the Corporation.
7. CHIEF EXECUTIVE OFFICER. The Chief
Executive Officer shall report to the Board of
Directors and shall perform such duties and have
such powers as the Board of Directors may from
time to time prescribe. The Chief Executive
Officer shall have general and active management
of the business of the Corporation and shall see
that all orders and resolutions of the Board of
Directors are carried into effect. He shall
execute bonds, mortgages and other contracts
requiring a seal, under the seal of the
Corporation, except where required or permitted
by law to be otherwise signed and executed and
except where the signing and execution thereof
shall be expressly delegated by the Board of
Directors to some other officer or agent of the
Corporation.
<PAGE>
8. PRESIDENT. The President shall report to
the Chief Executive Officer and shall perform such
duties and have such powers as the Chief Executive
Officer may from time to time prescribe. He shall
execute bonds, mortgages and other contracts
requiring a seal, under the seal of the
Corporation, except where required or permitted
by law to be otherwise signed and executed and
except where the signing and execution thereof
shall be expressly delegated by the Chief
Executive Officer to some other officer or agent
of the Corporation.
9. VICE PRESIDENT. In the absence of the
President or in the event of his death, inability,
or refusal to act, the Vice President (or in the
event there be more than one Vice President, the
Vice Presidents in the order designated, or in the
absence of any designation, then in the order of
their election) shall perform the duties of the
President, and when so acting, shall have all the
powers of and be subject to all the restrictions
upon the President. The Vice Presidents shall
perform such other duties as from time to time
may be assigned to them by the President or by the
Board of Directors.
10. SECRETARY. The Secretary shall:
(a) Keep the minutes of meetings of the
Shareholders and Board of Directors in one or more
books provided for that purpose.
(b) See that all notices are duly given in
accordance with the provisions of these Bylaws or
as required by law.
(c) Keep in safe custody the seal of the
Corporation and, when authorized by the Board of
Directors or the Executive Committee, affix it to
any instrument requiring it. When so affixed, it
shall be attested by his signature or by the
signature of the Treasurer or an Assistant
Secretary.
(d) Keep a register of the post office address
of each Shareholder which shall be furnished to
the Secretary by such Shareholder.
(e) Sign with the Chief Executive Officer or
President certificates for shares of the
Corporation, the issue of which shall have been
authorized by resolution of the Board of Direc-
tors.
<PAGE>
(f) Have general charge of the corporate
records and the stock transfer books of the
Corporation.
(g) In general, perform all duties incident
to the office of the Secretary and such other
duties as from time to time may be assigned to him
by the Chief Executive Officer, the President or
by the Board of Directors.
11. ASSISTANT SECRETARY. The Assistant
Secretaries in the order of their seniority,
unless otherwise determined by the Board of
Directors, shall, in the absence or disability of
the Secretary, perform the duties and have the
authority and exercise the powers of the
Secretary. They shall perform such other duties
and have such other powers as the Board of
Directors may from time to time prescribe or as
the Chief Executive Officer or the President may
from time to time delegate.
12. TREASURER. If required by the Board of
Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and
with such surety or sureties as the Board of
Directors may determine. He shall:
(a) Have charge and custody and be responsible
for all funds and securities of the Corporation;
receive and give receipts for monies due and
payable to the Corporation from any source
whatsoever, and deposit all such monies in the
name of the Corporation in such banks, trust
companies, or other depositories as shall be
selected by the Board of Directors.
(b) In general, perform all of the duties
incident to the office of Treasurer and such other
duties as from time to time may be assigned to him
by the Chief Executive Officer, the President or
by the Board of Directors.
13. ASSISTANT TREASURER. The Assistant
Treasurers in the order of their seniority, unless
otherwise determined by the Board of Directors,
shall, in the absence or disability of the
Treasurer, perform the duties and have the
authority and exercise the powers of the
Treasurer. They shall perform such other duties
and have such other powers as the Board of
Directors may from time to time prescribe or the
<PAGE>
Chief Executive Officer or the President may from
time to time delegate. The Assistant Treasurers
shall, if required by the Board of Directors, give
bond for the faithful discharge of their duties
in such sums and with such sureties as the Board
of Directors shall determine.
14. SECURITIES OF OTHER CORPORATIONS.
Securities of other corporations held by the
Corporation may be voted by any officer designated
by the Board and, in the absence of any such
designation, by the Chief Executive Officer, the
President, any Vice President, the Secretary or
the Treasurer. The Board may require any officer,
agent or employee to give security for the
faithful performance of his duties.
ARTICLE VII
CERTIFICATES AND SHAREHOLDERS
1. CERTIFICATES. Certificates in the form
determined by the Board of Directors shall be
delivered representing all shares to which
Shareholders are entitled. Certificates shall be
consecutively numbered and shall be entered in the
books of the Corporation as they are issued.
Certificates shall be signed by the Chief
Executive Officer, the President or a Vice
President and the Secretary or Assistant Secretary
or such other officer or officers as the Board of
Directors shall designate, and may be sealed with
the seal of the Corporation or facsimile thereof.
If a certificate is countersigned by a transfer
agent or an assistant transfer agent or registered
by a registrar (either of which is other than the
Corporation or any employee of the Corporation),
the signature of any officer may be facsimile.
In case any officer who has signed or whose
facsimile signature has been placed upon any
certificate shall have ceased to be such officer
before such certificate is issued, it may be
issued with the same effect as if he were such
officer at the date of its issuance.
2. ISSUANCE. Shares may be issued for such
consideration (not less than par value) and to
such persons as the Board of Directors may
determine from time to time. Shares may not be
issued until the full amount of the consideration,
fixed as provided by law, has been paid. Treasury
shares may be disposed of for such consideration
as may be fixed from time to time by the Board of
Directors.
<PAGE>
3. PAYMENT FOR SHARES.
(a) Kind. The consideration for the issuance
of shares shall consist of money paid, labor done
(including services actually performed for the
Corporation) or property (tangible or intangible)
actually received. Neither promissory notes nor
the promise of future services shall constitute
payment for shares.
(b) Valuation. In the absence of fraud in the
transaction, the judgement of the Board of
Directors as to the value of consideration
received shall be conclusive.
(c) Effect. When consideration, fixed as
provided by law, has been paid, the shares shall
be deemed to have been issued and shall be
considered fully paid and nonassessable.
(d) Allocation of Consideration. The
consideration received for shares shall be
allocated by the Board of Directors, in accordance
with law, between stated capital and capital
surplus accounts.
4. LOST, STOLEN OR DESTROYED CERTIFICATES.
The Corporation shall issue a new certificate in
place of any certificate for shares previously
issued if the registered owner of the certificate:
(a) Claim. Makes proof in affidavit form that
it has been lost, destroyed or wrongfully taken;
and
(b) Time Request. Requests the issuance of
a new certificate before the Corporation has
notice that the certificate has been acquired by
a purchaser for value in good faith and without
notice of an adverse claim; and
(c) Bond. Gives a bond in such form, and with
such surety or sureties, with fixed or open
penalty, as the Corporation may direct, to
indemnify the Corporation (and its transfer agent
and registrar, if any) against any claim that may
be made on account of the alleged loss,
destruction or theft of the certificate; and
<PAGE>
(d) Other Requirements. Satisfies any other
reasonable requirements imposed by the
Corporation.
When a certificate has been lost, apparently
destroyed or wrongfully taken, and the holder of
record fails to notify the Corporation within a
reasonable time after he has notice of it, and the
Corporation registers a transfer of the shares
represented by the certificate before receiving
such notification, the holder of record is
precluded from making any claim against the
Corporation for the transfer or for a new
certificate.
5. REGISTRATION OF TRANSFER. Subject to
restrictions on transfer, the Corporation shall
register the transfer of a certificate for shares
presented to it for transfer if:
(a) Endorsement. The certificate is properly
endorsed by the registered owner or by his duly
authorized attorney; and
(b) Guarantee and Effectiveness of Signature.
The signature of such person has been guaranteed
by a national banking association or member of the
New York Stock Exchange, and reasonable assurance
is given that such endorsements are effective; and
(c) Adverse Claim. The Corporation has no
notice of an adverse claim or has discharged any
duty to inquire into such a claim; and
(d) Collection of Taxes. Any applicable law
relating to the collection of taxes has been
complied with.
6. REGISTERED OWNER. Prior to due presentment
for registration of transfer of a certificate for
shares, the Corporation may treat the registered
owner as the person exclusively entitled to vote,
to receive notices and otherwise to exercise all
the rights and powers of a Shareholder.
<PAGE>
7. PRE-EMPTIVE RIGHTS. No Shareholder or
other person shall have any pre-emptive right
whatsoever.
ARTICLE VIII
NOTICE
1. METHOD. Whenever by statue, the Articles
of Incorporation, these Bylaws, or otherwise,
notice is required to be given to a Director,
committee member, or Shareholder, and no provision
is made as to how the notice shall be given, it
shall not be construed to mean personal notice,
but any such notice may be given: (a) in writing,
by mail, postage prepaid, addressed to the
Director, committee member, or Shareholder at the
address appearing on the books of the Corporation;
or (b) in any other method permitted by law. Any
notice required or permitted to be given by mail
shall be deemed given at the time when the same
is deposited in the United States mail.
2. WAIVER. Whenever, by statute or the
Articles of Incorporation or these Bylaws, notice
is required to be given to a Shareholder,
committee member, or Director, a waiver thereof
in writing signed by the person or persons
entitled to such notice, whether before or after
the time stated in such notice, shall be
equivalent to the giving of such notice.
Attendance at a meeting shall constitute a waiver
of notice of such meeting, except where a person
attends for the express purpose of objecting to
the transaction of any business on the ground that
the meeting is not lawfully called or convened.
ARTICLE IX
DIVIDENDS AND RESERVES
1. DECLARATION AND PAYMENT OF DIVIDENDS.
Dividends on the outstanding shares of the
Corporation, subject to the provisions of the
Articles of Incorporation, if any, may be declared
by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may
be paid in cash, in property, or in its own
shares, subject to the provisions of the Articles
of Incorporation.
<PAGE>
2. CONTINGENT RESERVES. Before payment of any
dividend, there may be set aside out of any funds
of the Corporation available for dividends such
sum or sums as the Directors may from time to time
in their absolute discretion think proper as a
reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or
maintaining any property of the Corporation, or
for such other purposes as the Directors shall
think conducive to the interest of the
Corporation, and the Directors may modify or
abolish any such reserve in the manner in which
it was created.
ARTICLE X
CONTRACTS, CHECKS AND DEPOSITS
1. CONTRACTS. The Board of Directors may
authorize any officer or officers, agent or
agents, to enter into any contract or execute and
deliver any instrument in the name of and on
behalf of the Corporation, and such authority may
be in general or confined to specific instances.
2. SALE OF REAL ESTATE. No real estate owned
by the Corporation shall be sold by management
until the Board of Directors has approved or
ratified the terms and conditions of such real
estate sale.
3. CHECKS, DRAFTS, ETC. All checks, drafts,
or other orders for the payment of money, notes
or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such
officer or officers, agent or agents, of the
Corporation and in such manner as shall from time
to time be determined by resolution of the Board
of Directors.
4. DEPOSITS. All funds of the Corporation not
otherwise employed shall be deposited from time
to time to the credit of the Corporation in such
banks, trust companies, or other depositories as
the Board of Directors may select.
<PAGE>
ARTICLE XI
MISCELLANEOUS
1. RECORD DATES AND CLOSING OF TRANSFER BOOKS.
For the purpose of determining Shareholders
entitled to notice of or to vote at any meeting
of Shareholders or any adjournment thereof, or
entitled to receive payment of any dividend, or
in order to make a determination of Shareholders
for any other proper purpose, the Board of
Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated
period but not to exceed, in any case, fifty (50)
days. If the stock transfer books shall be closed
for the purpose of determining Shareholders
entitled to notice of or to vote at a meeting of
Shareholders, such books shall be closed for at
least ten (10) days immediately preceding such
meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance
a date as the record date for any such
determination of Shareholders, such date in any
case to be not more than fifty (50) days and, in
case of a meeting of Shareholders, not less than
ten (10) days prior to the date on which the
particular action requiring such determination of
Shareholders is to be taken. If the stock
transfer books are not closed and no record date
is fixed for the determination of Shareholders
entitled to notice of or to vote at a meeting of
Shareholders, or Shareholders entitled to receive
payment of a dividend, the date on which the
notice of the meeting is mailed or the date on
which the resolution of the Board of Directors
declaring such dividend is adopted, as the case
may be, shall be the record date for such
determination of Shareholders.
2. FISCAL YEAR. The fiscal year of the
Corporation shall be twelve months ending October
31, or such other period as may be fixed by the
Board of Directors.
<PAGE>
3. SEAL. The corporate seal shall be in such
form as may be determined by the Board of
Directors. Said seal may be used by causing it
or facsimile thereof to be impressed or affixed
or reproduced or otherwise.
4. BOOKS AND RECORDS. The Corporation will
keep correct and complete books and records of
account and minutes of the proceedings of its
Shareholders and Board of Directors and keep at
its registered office or principal place of
business, or at the office of its transfer agent
or registrar, a record of its Shareholders, giving
the names and addresses of all Shareholders and
the number and class of the shares held by each.
Any books, records and minutes may be in written
form or in any other form capable of being
converted into written form within a reasonable
time.
5. INDEMNIFICATION. The Corporation shall,
to the extent required by the Texas Business
Corporation Act, indemnify any and all persons
whom it shall be required to indemnify under said
act. In addition, when authorized in a manner
permitted by the Texas Business Corporation Act,
the Corporation may, to the fullest extent
permitted by said Act, indemnify and advance
expenses to any and all persons who it shall have
power to indemnify and advance expenses to under
said Act.
The Corporation may purchase and maintain
insurance on behalf of any person who is or was
a Director, officer, employee or agent of the
Corporation, or who is or was serving at the
request of the Corporation as a Director, officer,
partner, venturer, proprietor, trustee, employee,
agent or similar functionary of another foreign
or domestic corporation, partnership, joint
venture, sole proprietorship, trust, other enter-
prise, or employee benefit plan, against any
liability asserted against him and incurred by him
in such a capacity or arising out of his status as
such a person, whether or not the Corporation
would have the power to indemnify him against that
liability under the Texas Business Corporation
Act.
<PAGE>
6. INTERESTED DIRECTORS AND OFFICERS. No
contract or other transaction between the
Corporation and any of its Directors or officers
(or any corporation or firm in which any of them
are directors or officers or have a financial
interest) shall be void or voidable solely because
of any such relationship or because of the
presence or participation of such Director or
officer at the meeting of the Board of Directors
or Committee authorizing such contract or
transaction, solely because his or her or their
votes are counted for such purpose, if;
(a) The material facts of the relationship or
interest and as to the contract or transaction are
disclosed or are known to the Board of Directors
or the Committee, and the Board or Committee in
good faith authorizes the contract or transaction
by the affirmative vote of a majority of the
disinterested Directors, even though the
disinterested Directors be less than a quorum; or
(b) The material facts as to the relationship
or interest and as to the contract or transaction
are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or
transaction is specifically approved in good faith
by vote of the shareholders; or
(c) The contract or transaction is fair as to
the Corporation as of the time it is authorized,
approved, or ratified by the Board of Directors,
a Committee thereof, or the shareholders.
Common or interested Directors may be counted in
determining the presence of a quorum at a meeting
of the Board of Directors or of a Committee which
authorizes the contract or transaction.
This provision shall not be construed to
invalidate a contract or transaction which would
be valid in the absence of this provision.
7. RESIGNATION. Any Director, officer or
agent may resign by giving written notice to the
President or to the Secretary. Such resignation
shall take effect at the time specified therein
or immediately if no time is specified therein.
Unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make
it effective.
<PAGE>
8. INVALID PROVISIONS. If any part of these
Bylaws shall be held invalid or inoperative for
any reason, the remaining parts, so far as
possible and reasonable, shall be valid and
operative.
9. TABLE OF CONTENTS; HEADINGS. The Table of
Contents and headings used in these Bylaws have
been inserted for administrative convenience only
and do not constitute matter to be construed in
an interpretation.
10. AMENDMENT OF BYLAWS. The power to alter,
amend, or repeal these Bylaws or adopt new bylaws,
subject to repeal or change by action of the
Shareholders, shall be vested in the Board of
Directors.
/s/ Jack R. Green
Secretary
<PAGE>
EXHIBIT 10.3
Amended and Restated Employment Agreement dated
September 30, 1993.
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement
entered into by and between Farah Incorporated (the
"Company") and Richard C. Allender (the "Executive").
In consideration of the following and mutual
covenants and agreements hereinafter set forth, the
Company and the Executive do hereby agree as follows:
1. Employment.
(a) The Company hereby employs the Executive and
the Executive hereby agrees to serve as an employee of
the Company or one or more of its subsidiaries on the
terms and conditions set forth herein.
(b) The employment term shall commence on the date
hereof and shall end on March 1, 1996, unless mutually
extended in writing by both parties within ninety (90)
days prior to the expiration of such term or unless
terminated under the provisions of Section 4 hereunder.
(c) The Executive shall serve as President and
Chief Executive Officer of the Company or such other
offices as the Board of the Company or its subsidiaries
(the "Boards") shall assign and shall perform such
duties and responsibilities as may from time to time
be prescribed by the Boards, provided that such duties
and responsibilities are consistent with the
Executive's position. The Executive shall perform and
discharge faithfully, diligently and to the best of his
ability such duties and responsibilities and shall
devote all of his working time and efforts to the
business and affairs of the Company and its
subsidiaries.
(d) In connection with his employment, the
Executive shall be based at the Company's El Paso
office, or such other location as may be agreeable to
both the Company and the Executive.
2. Compensation.
(a) The Company and/or its subsidiaries shall pay
to the Executive a minimum annual salary of $275,000,
or such additional amounts as the Boards may approve
(the "Base Salary"), payable in monthly installments
on the last day of each month throughout the term of
such employment, subject to Section 4 hereof. The
Board, upon review of the Executive's performance
and/or the profitability of the Company and its
subsidiaries, may pay the Executive a bonus, as the
Boards in their sole discretion may determine to be
appropriate.
<PAGE>
(b) The Company and/or its subsidiaries shall
pay to the Executive such amounts as may be established
under any cash or equity incentive plans approved by
the Boards, based upon profit performance or stock
values.
(c) During the term of his employment hereunder,
the Executive shall be entitled to participate in or
receive benefits under the Company's employee benefit
plans and arrangements which are available to senior
executive officers of the Company or its subsidiaries.
Nothing paid to the Executive under any such plans or
arrangements shall be deemed to be in lieu of
compensation to the Executive hereunder.
3. Unauthorized Disclosure and Activity.
(a) While employed by the Company and for a period
of three (3) years after termination of employment, the
Executive shall not, without a written consent of the
Board or a person duly authorized thereby, disclose to
any person, other than a person to whom disclosure is
reasonably necessary or appropriate in connection with
the performance by the Executive of his duties as an
executive officer of the Company or its subsidiaries,
any material confidential information obtained by him
while in the employ of the Company or its subsidiaries
with respect to any of the products, improvements,
license agreements, formulas, designs, methods of
manufacture, vendors or customers, the disclosure of
which he knows or in the exercise of reasonable care
should know, would be damaging to the Company or its
subsidiaries; provided, however, that confidential
information shall not include any information known
generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any
information not otherwise considered by the Boards to
be confidential. The Executive shall not disclose any
confidential information of the type described above,
except as may be required by law in connection with any
judicial or administrative proceeding or inquiry.
(b) In addition, the Executive shall not either
during the term of this Agreement or within one (1)
year following termination of employment from any
cause, solicit any employee of the Company or its
subsidiaries to terminate his relationship with the
Company or its subsidiaries or to influence an employee
to seek employment with any competitor of the Company
or its subsidiaries.
<PAGE>
In the event of violation of any of the foregoing,
the Company or its subsidiaries may seek such redress
in law or in equity to which it may be entitled; and
Executive agrees that no bond shall be required to
obtain any injunctive relief; and shall pay and
indemnify the Company or its subsidiaries for any
costs and/or reasonable attorney's fees if they are
successful in such action.
4. Termination.
(a) The Executive's employment hereunder shall
terminate upon his death.
(b) The Company may terminate the Executive's
employment hereunder by giving written Notice of
Termination to the Executive in the event of the
Executive's incapacity due to physical or mental
illness which prevents the proper performance of his
duties set forth herein or established pursuant hereto
for a substantial portion of any three (3) month period
of the Executive's term of employment hereunder.
(c) The Company may terminate the Executive's
employment hereunder for Cause by giving written Notice
of Termination to the Executive. For the purpose of
this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon the
Executive's (i) willful failure to materially perform
and discharge his duties and responsibilities hereunder
or any breach by the Executive of the provisions of
Section 3 herein, or (ii) misconduct that is materially
injurious to the Company or its subsidiaries, or (iii)
conviction of a felony involving the personal
dishonesty of the Executive or moral turpitude.
(d) Any termination by the Company pursuant to the
subsections (b) or (c) above shall be communicated by
written Notice of Termination to the Executive. For
purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific
termination provision of this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for such
termination. The date of termination specified in the
Notice of Termination shall not be earlier than the
date such Notice is delivered or mailed to the
Executive.
(e) If the Executive's employment shall be
terminated by reason of death, his estate shall be paid
all sums otherwise payable to the Executive through the
end of the month in which his death occurred, and all
<PAGE>
bonus or other incentive benefits accrued or accruable
to the Executive through the end of the month in which
his death occurred and the Company and its subsidiaries
shall have no further obligations to the Executive
under this Agreement. If the Executive's employment
is terminated by reason of incapacity, the Executive
or person charged with legal responsibility for the
Executive's estate shall be paid all sums otherwise
payable to the Executive, including all bonus or other
benefits accrued or accruable to the Executive through
the date of termination specified in the Notice of
Termination, together with an amount equal to the
annual Base Salary, to be payable in monthly
installments for eighteen (18) months, and the Company
or its subsidiaries shall have no further obligations
to the Executive under this Agreement. If the
Executive's employment shall be terminated for Cause,
the Company or its subsidiaries shall pay the
Executive his Base Salary through the date of
termination specified in the Notice of Termination, and
the Company and its subsidiaries shall have no further
obligations to the Executive under this Agreement.
(f) In the event of a change in control of the
Company, the Executive may terminate his employment (i)
at any time during the term of this Agreement, for Good
Reason, by giving written notice to the Company which
shall set forth in reasonable detail the facts and
circumstances constituting Good Reason, or (ii) on or
after the date of the change in control of the Company,
in his sole discretion, by providing written notice
thereof to the Company. The date of termination
specified in the notice shall be no earlier than the
date 60 days after the date such notice is delivered
or mailed to the Company. For purposes of this
Agreement:
(i) A "change in control" of the Company shall
mean a change in control of a nature that would be
required to be reported (assuming each such event has
not been "previously reported") in response to Item
l(a) of the current Report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange
Act"), provided that, without limitation, such a
change in control shall be deemed to have occurred at
such time as (A) any "person", as such term is used in
Section l5(d) of the Exchange Act, other than the
Company, a wholly-owned subsidiary of the Company or
any employee benefit plan of the Company, or its
subsidiaries, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 30% (the "Relevant Percentage") or
more of the combined voting power of the Company's
<PAGE>
common stock; provided, however, the Relevant
Percentage shall be 40% solely in respect of any
acquisitions of common stock by Marciano Investments,
Inc., of any of its affiliates, or (B) individuals who
constitute the Board of Directors of the Company on the
date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof,
provided that any person becoming a director
subsequent to the date hereof whose election or
nomination for election by the Company's shareholders
was approved by a vote of at least three quarters of
the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy
statement of the Company in which such person is named
as a nominee for director without objection to such
nomination) shall be, for purposes of this clause (i),
considered as though such person were a member of the
Incumbent Board. Notwithstanding anything in the
foregoing to the contrary, no change in control shall
be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results
in the Executive, or a group of persons which includes
the Executive, acquiring, directly or indirectly, 30%
or more of the combined voting power of the Company's
common stock.
(ii) "Good Reason" shall mean (A) a
substantial adverse change in the Executive's status
or position(s) as an executive officer of the Company
or its subsidiaries as in effect immediately prior
to the change in control, including, without
limitation, any adverse change in the Executive's
status or position(s) as a result of a material
diminution in duties or responsibilities or the
assignment to the Executive of any duties or
responsibilities which, in the Executive's reasonable
judgment, are inconsistent with such status or
position(s) or any removal of the Executive from or any
failure to reappoint or reelect the Executive to such
position(s) (except in connection with the termination
of the Executive's employment for Cause or
incapability, as a result of Executive's death, or by
Executive other than for Good Reason); (B) a reduction
by the Company or its subsidiaries in the Executive's
Base Salary as in effect immediately prior to the
change in control; or (C) the Executive's office is
moved, without his mutual consent, from the city where
the Executive's office is located immediately prior to
the change in control, except for required travel on
the Company's and it subsidiaries' business to an
extent substantially consistent with the business
travel obligations which the Executive undertook on
behalf of the Company or its subsidiaries prior to the
change in control.
<PAGE>
(g) If the Executive's employment is terminated (i)
by the Company other than as specified in subsections
4(b) or 4(c) above (or other than by reason of the
Executive's death), or (ii) by the Executive as
specified in subsection 4(f)(i) above, the Company and
its subsidiaries shall continue to pay monthly, Base
Salary to Executive for 36 months after such
termination. If the Executive's employment is
terminated by the Executive as specified in subsection
4(f)(ii) above, the Company and its subsidiaries shall
continue to pay monthly, Base Salary to Executive for
18 months after such termination. In addition, the
Company shall maintain in full force and effect for the
Executive's benefit, for the same period for which
severance payments are being made after such
termination, all health insurance, long-term
disability, life insurance and accidental death and
disability benefits (collectively, the "Benefits") in
which the Executive was entitled to participate
immediately prior to such termination; provided that
such continued participation is possible under the
general terms and provisions of such programs, plans
and arrangements providing for the Benefits; provided
further that if the Executive's participation in any
such plan, program or arrangement is barred, or any
such plan, program or arrangement is discontinued or
the Benefits thereunder materially reduced, the Company
and its subsidiaries shall arrange to provide the
Executive with Benefits substantially similar to those
which the Executive was entitled to receive under such
plans, programs and arrangements immediately prior to
the date of the change in control. The Company shall
also make available to the Executive federal group
health plan continuation coverage for the period
following the period in which Benefits are provided
during the severance period.
5. Stock Options Upon Termination. To the extent
the Executive is an Optionee (as defined under the
Company's 1991 Stock Option and Restricted Stock Plan
(the "Plan")), if the Executive's employment is
terminated without cause, the Executive may elect to
extend the period in which he may exercise his options
under the Plan to one (1) year after his termination;
provided, however, that if such options are exercised
after a period of ninety (90) days after his
employment is terminated, such options will become
Nonstatutory Options (as defined in the Plan).
<PAGE>
6. Limitation on Payments.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that Arthur Andersen &
Co. (the "Auditors") determine that any payment or
distribution by the Company to or for the benefit of
the Executive, whether paid or payable (or distributed
or distributable) pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be
nondeductible by the Company for federal income tax
purposes because of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the
aggregate present value of the amounts payable or
distributable to or for the benefit of the Executive
pursuant to this Agreement (the "Agreement Payments")
shall be reduced (but not below zero) to the Reduced
Amount. For purposes of this Section 6, the "Reduced
Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of
Agreement Payments without causing any Payment to be
nondeductible by the Company because of Section 280G
of the Code.
(b) If the Auditors determine that any Payment
would be nondeductible by the Company because of
Section 280G of the Code, then the Company shall
promptly give the Executive notice to that effect and
a copy of the detailed calculation thereof and of the
Reduced Amount, and the Executive may then elect, in
his sole discretion, which and how much of the
Agreement Payments shall be eliminated or reduced (as
long as after such election the aggregate present
value of the Agreement Payments equals the Reduced
Amount) and shall advise the Company in writing of this
election within ten days of his receipt of notice. If
no such election is made by the Executive within such
ten-day period, then the Company may elect which and
how much of the Agreement Payments shall be eliminated
or reduced (as long as after such election the
aggregate present value of the Agreement Payments
equals the Reduced Amount) and shall notify the
Executive promptly of such election. For purposes of
this Section 6, present value shall be determined in
accordance with Section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Section
6 shall be binding upon the Company and the Executive
and shall be made within sixty days of the Executive's
termination of employment. As promptly as practicable
following such determinations and the elections
hereunder, the Company shall pay to or distribute to
or for the benefit of the Executive such amounts as are
then due to him under this Agreement and shall promptly
pay to or distribute for the benefit of the Executive
in the future such amounts as become due to him under
this Agreement.
<PAGE>
(c) As a result of the uncertainty in the
application of Section 280G of the Code at the time of
the initial determination by the Auditors hereunder,
it is possible that Agreement Payments will have been
made by the Company which should not have been made (an
"Overpayment") or that additional Agreement Payments
which will not have been made by the Company could have
been made (an "Underpayment"), consistent in each case
with the calculation of the Reduced Amount hereunder.
In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue
Service against the Company or the Executive which the
Auditors believe has a high probability of success,
determine that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan
to the Executive which he shall repay to the Company,
together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code;
provided, however, that no amount shall be payable by
the Executive to the Company if and to the extent that
such payment would not reduce the amount which is
subject to taxation under Section 4999 of the Code.
In the event that the Auditors, based upon controlling
precedent, determine that an Underpayment has occurred,
such Underpayment shall promptly be paid by the Company
to or for the benefit of the Executive, together with
interest at the applicable federal rate provided for
in Section 7872(f)(2)(A) of the Code.
7. Notices. For the purpose of this Agreement,
notices and all other communications to either party
hereunder provided for in the Agreement shall be in
writing and shall be deemed to have been duly given
when delivered in person or mailed by first-class mail
or airmail, postage prepaid, addressed:
in the case of the Company, to:
Farah Incorporated
8889 Gateway West
El Paso, Texas 79925
P.O. Box 9519
El Paso, Texas 79985
Attention: Corporate Secretary
in the case of the Executive, to:
Richard C. Allender
900 Broadmoor
El Paso, Texas 79912
or to such other address as either party shall
designate by giving written notice of such change to
the other party.
<PAGE>
8. Miscellaneous. No provision of this Agreement
may be modified, waived or discharged unless such
waiver, modification or discharge is approved by the
Board of Directors of the Company and agreed to in
writing signed by the Executive and such officer as may
be specifically authorized by the Board of Directors
of the Company. No waiver by either party hereto of
any breach of this Agreement shall be deemed a waiver
of similar or dissimilar provisions or conditions of
this Agreement. No agreements or representations, oral
or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party
which are not set forth expressly in this Agreement.
9. Validity. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under
any present or future law, such provision shall be
fully severable, this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof, the
remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its
severance herefrom, and in lieu of such illegal,
invalid or unenforceable provision, there shall be
added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar to
the terms and intent of such illegal, invalid or
unenforceable provision as may be possible.
10. Survival. The provisions of this Agreement
shall not survive the termination of the Executive's
employment hereunder, except that the provisions of
Sections 3, 4 and 6 hereof shall survive such
termination and shall be binding upon the Executive's
personal or legal representative, executors,
administrators, successors, heirs, distributees,
devisees and legatees and except that the provisions
of Sections 4, 5 and 6 hereof shall survive such
termination and shall be binding upon the Company and
its subsidiaries.
11. Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
12. Entire Agreement. This Agreement constitutes
the full agreement and understanding of the parties
hereto regarding the employment of the Executive with
the Company and its subsidiaries and all prior
agreements or understandings are merged herein. This
Agreement amends and restates that certain Employment
Agreement by and between the Company and the Executive
dated as of March 1, 1993.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement effective as of this 30th day of
September, 1993.
FARAH INCORPORATED
By: /s/ James C. Swaim
Title: Chief Financial Officer
/s/ Richard Allender
Richard C. Allender, Executive
<PAGE>
EXHIBIT 10.4
Amended and Restated Employment Agreement
dated September 30, 1993.
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement
entered into by and between Farah Incorporated (the
"Company") and James C. Swaim (the "Executive").
In consideration of the following and mutual
covenants and agreements hereinafter set forth, the
Company and the Executive do hereby agree as follows:
1. Employment.
(a) The Company hereby employs the Executive and
the Executive hereby agrees to serve as an employee of
the Company or one or more of its subsidiaries on the
terms and conditions set forth herein.
(b) The employment term shall commence on the date
hereof and shall end on March 1, 1996, unless mutually
extended in writing by both parties within ninety (90)
days prior to the expiration of such term or unless
terminated under the provisions of Section 4 hereunder.
(c) The Executive shall serve as Executive Vice
President, Chief Financial Officer, and Treasurer of
the Company or such other offices as the Board of the
Company or its subsidiaries (the "Boards") shall assign
and shall perform such duties and responsibilities as
may from time to time be prescribed by the Boards,
provided that such other duties and responsibilities
are consistent with the Executive's position. The
Executive shall perform and discharge faithfully,
diligently and to the best of his ability such duties
and responsibilities and shall devote all of his
working time and efforts to the business and affairs
of the Company and its subsidiaries.
(d) In connection with his employment, the
Executive shall be based at the Company's El Paso
office, or such other location as may be agreeable to
both the Company and the Executive.
2. Compensation.
(a) The Company and/or its subsidiaries shall pay
to the Executive a minimum annual salary of $165,000,
or such additional amounts as the Boards may approve
(the "Base Salary"), payable in monthly installments
on the last day of each month throughout the term of
such employment, subject to Section 4 hereof. The
Board, upon review of the Executive's performance
and/or the profitability of the Company and its
subsidiaries, may pay the Executive a bonus, as the
Boards in their sole discretion may determine to be
appropriate.
<PAGE>
(b) The Company and/or its subsidiaries shall
pay to the Executive such amounts as may be established
under any cash or equity incentive plans approved by
the Boards, based upon profit performance or stock
values.
(c) During the term of his employment hereunder,
the Executive shall be entitled to participate in or
receive benefits under the Company's employee benefit
plans and arrangements which are available to senior
executive officers of the Company or its subsidiaries.
Nothing paid to the Executive under any such plans or
arrangements shall be deemed to be in lieu of
compensation to the Executive hereunder.
3. Unauthorized Disclosure and Activity.
(a) While employed by the Company and for a period
of three (3) years after termination of employment, the
Executive shall not, without a written consent of the
Board or a person duly authorized thereby, disclose to
any person, other than a person to whom disclosure is
reasonably necessary or appropriate in connection with
the performance by the Executive of his duties as an
executive officer of the Company or its subsidiaries,
any material confidential information obtained by him
while in the employ of the Company or its subsidiaries
with respect to any of the products, improvements,
license agreements, formulas, designs, methods of
manufacture, vendors or customers, the disclosure of
which he knows or in the exercise of reasonable care
should know, would be damaging to the Company or its
subsidiaries; provided, however, that confidential
information shall not include any information known
generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any
information not otherwise considered by the Boards to
be confidential. The Executive shall not disclose any
confidential information of the type described above,
except as may be required by law in connection with any
judicial or administrative proceeding or inquiry.
(b) In addition, the Executive shall not either
during the term of this Agreement or within one (1)
year following termination of employment from any
cause, solicit any employee of the Company or its
subsidiaries to terminate his relationship with the
Company or its subsidiaries or to influence an employee
to seek employment with any competitor of the Company
or its subsidiaries.
<PAGE>
In the event of violation of any of the foregoing,
the company or its subsidiaries may seek such redress
in law or in equity to which it may be entitled; and
Executive agrees that no bond shall be required to
obtain any injunctive relief; and shall pay and
indemnify the Company or its subsidiaries for any costs
and/or reasonable attorney's fees if they are
successful in such action.
4. Termination.
(a) The Executive's employment hereunder shall
terminate upon his death.
(b) The Company may terminate the Executive's
employment hereunder by giving written Notice of
Termination to the Executive in the event of the
Executive's incapacity due to physical or mental
illness which prevents the proper performance of his
duties set forth herein or established pursuant hereto
for a substantial portion of any three (3) month period
of the Executive's term of employment hereunder.
(c) The Company may terminate the Executive's
employment hereunder for Cause by giving written Notice
of Termination to the Executive. For the purpose of
this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon the
Executive's (i) willful failure to materially perform
and discharge his duties and responsibilities hereunder
or any breach by the Executive of the provisions of
Section 3 herein, or (ii) misconduct that is materially
injurious to the Company or its subsidiaries, or (iii)
conviction of a felony involving the personal
dishonesty of the Executive or moral turpitude.
(d) Any termination by the Company pursuant to the
subsections (b) or (c) above shall be communicated by
written Notice of Termination to the Executive. For
purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific
termination provision of this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for such
termination. The date of termination specified in the
Notice of Termination shall not be earlier than the
date such Notice is delivered or mailed to the
Executive.
<PAGE>
(e) If the Executive's employment shall be
terminated by reason of death, his estate shall be paid
all sums otherwise payable to the Executive through the
end of the month in which his death occurred, and all
bonus or other incentive benefits accrued or accruable
to the Executive through the end of the month in which
his death occurred and the Company and its subsidiaries
shall have no further obligations to the Executive
under this Agreement. If the Executive's employment
is terminated by reason of incapacity, the Executive
or person charged with legal responsibility for the
Executive's estate shall be paid all sums otherwise
payable to the Executive, including all bonus or other
benefits accrued or accruable to the Executive through
the date of termination specified in the Notice of
Termination, together with an amount equal to the
annual base salary, to be payable in monthly
installments for twelve (12) months, and the Company
or its subsidiaries shall have no further obligations
to the Executive under this Agreement. If the
Executive's employment shall be terminated for Cause,
the Company or its subsidiaries shall pay the
Executive his Base Salary through the date of
termination specified in the Notice of Termination, and
the Company and its subsidiaries shall have no further
obligations to the Executive under this Agreement.
(f) In the event of a change in control of the
Company, the Executive may terminate his employment
during the term of this Agreement, for Good Reason, by
giving written notice to the Company which shall set
forth in reasonable detail the facts and circumstances
constituting Good Reason. The date of termination
specified in the notice shall be no earlier than the
date such notice is delivered or mailed to the Company.
For purposes of this Agreement:
(i) A "change in control" of the Company shall
mean a change in control of a nature that would be
required to be reported (assuming each such event has
not been "previously reported") in response to Item
l(a) of the current Report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange
Act"), provided that, without limitation, such a change
in control shall be deemed to have occurred at such
time as (A) any "person", as such term is used in
Section 14(d) of the Exchange Act, other than the
Company, a wholly-owned subsidiary of the Company or
any employee benefit plan of the Company, or its
subsidiaries, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly
<PAGE>
or indirectly, of 30% (the "Relevant Percentage") or
more of the combined voting power of the Company's
common stock; provided, however, the Relevant
Percentage shall be 40% solely in respect of any
acquisitions of common stock by Marciano Investments,
Inc., of any of its affiliates, or (B) individuals who
constitute the Board of Directors of the Company on the
date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof,
provided that any person becoming a director
subsequent to the date hereof whose election or
nomination for election by the Company's shareholders
was approved by a vote of at least three quarters of
the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy
statement of the Company in which such person is named
as a nominee for the director without objection to
such nomination) shall be, for purposes of this clause
(i), considered as though such person were a member of
the Incumbent Board. Notwithstanding anything in the
foregoing to the contrary, no change in control shall
be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results
in the Executive, or a group of persons which includes
the Executive, acquiring, directly or indirectly, 30%
or more of the combined voting power of the Company's
common stock.
(ii) "Good Reason" shall mean (A) a substantial
adverse change in the Executive's status or position(s)
as an executive officer of the Company or its
subsidiaries as in effect immediately prior to the
change in control, including, without limitation, any
adverse change in the Executive's status or
position(s) as a result of a material diminution in
duties or responsibilities or the assignment to the
Executive of any duties or responsibilities which,
in the Executive's reasonable judgment, are
inconsistent with such status or position(s) or any
removal of the Executive from or any failure to
reappoint or reelect the Executive to such position(s)
(except in connection with the termination of the
Executive's employment for Cause or incapability, as
a result of Executive's death, or by Executive other
than for Good Reason); (B) a reduction by the Company
or its subsidiaries in the Executive's Base Salary as
in effect immediately prior to the change in control;
or (C) the Executive' s office is moved, without his
mutual consent, from the city where the Executive's
office is located immediately prior to the change in
control, except for required travel on the Company's
and it subsidiaries' business to an extent
substantially consistent with the business travel
obligations which the Executive undertook on behalf of
the Company or its subsidiaries prior to the change in
control.
<PAGE>
(g) If the Executive's employment is terminated (i)
by the Company other than as specified in subsections
4(b) or 4(c) above (or other than by reason of the
Executive's death), or (ii) by the Executive as
specified in subsection 4(f) above, the Company and its
subsidiaries shall continue to pay monthly, Base Salary
to Executive for 24 months from termination, and the
Company and its subsidiaries shall have no further
obligations to the Executive under this Agreement. In
addition, the Company shall maintain in full force and
effect for the Executive's benefit, for the same
period for which severance payments are being made
after such termination, all health insurance, long-term
disability, life insurance and accidental death and
disability benefits (collectively, the "Benefits") in
which the Executive was entitled to participate
immediately prior to the date of the change in control;
provided that such continued participation is possible
under the general terms and provisions of such
programs, plans and arrangements providing for the
Benefits; provided further that if the Executive's
participation in any such plan, program or arrangement
is barred, or any such plan, program or arrangement
is discontinued or the Benefits thereunder materially
reduced, the Company and its subsidiaries shall
arrange to provide the Executive with Benefits
substantially similar to those which the Executive was
entitled to receive under such plans, programs and
arrangements immediately prior to the date of the
change in control. The Company shall also make
available to the Executive federal group health plan
continuation coverage for the period following the
period in which Benefits are provided during the
severance period.
5. Stock Options Upon Termination. To the
extent the Executive is an Optionee (as defined under
the Company's 1991 Stock Option and Restricted Stock
Plan (the "Plan")), if the Executive's employment is
terminated without cause, the Executive may elect to
extend the period in which he may exercise his options
under the Plan to one (1) year after his termination;
provided, however, that if such options are exercised
after a period of ninety (90) days after his
employment is terminated, such options will become
Nonstatutory Options (as defined in the Plan).
6. Notices. For the purpose of this Agreement,
notices and all other communications to either party
hereunder provided for in the Agreement shall be in
writing and shall be deemed to have been duly given
when delivered in person or mailed by first-class
mail or airmail, postage prepaid, addressed:
in the case of the Company, to:
Farah Incorporated
8889 Gateway West
El Paso, Texas 79925
<PAGE>
P.O. Box 9519
El Paso, Texas 79985
Attention: Corporate Secretary
in the case of the Executive, to:
James C. Swaim
6313 Camino Fuente
El Paso, Texas 79912
or to such other address as either party shall
designate by giving written notice of such change to
the other party.
7. Miscellaneous. No provision of this Agreement
may be modified, waived or discharged unless such
waiver, modification or discharge is approved by the
Board of Directors of the Company and agreed to in
writing signed by the Executive and such officer as
may be specifically authorized by the Board of
Directors of the Company. No waiver by either party
hereto of any breach of this Agreement shall be deemed
a waiver of similar or dissimilar provisions or
conditions of this Agreement. No agreements or
representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been
made by either party which are not set forth expressly
in this Agreement.
8. Validity. The invalidity or unenforceability
of any provision or provisions of this Agreement shall
not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in
full force and effect.
9. Survival. The provision of this Agreement
shall not survive the termination of the Executive's
employment hereunder, except that the provisions of
Sections 3 and 4 hereof shall survive such termination
and shall be binding upon the Executive's personal or
legal representative, executors, administrators,
successors, heirs, distributees, devisees and legatees
and except that the provisions of such Section 4 hereof
relating to payments and termination of the Executive's
employment hereunder shall survive such termination
and shall be binding upon the Company and its
subsidiaries.
10. Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
<PAGE>
11. Entire Agreement. This Agreement constitutes
the full agreement and understanding of the parties
hereto regarding the employment of the Executive with
the Company and its subsidiaries and all prior
agreements or understandings are merged herein. This
Agreement amends and restates that certain Employment
Agreement by and between the Company and the Executive
dated as of March 1, 1993.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement effective as of this 30th day of
September, 1993.
FARAH INCORPORATED
By: /s/ Richard C. Allender
Title: President and Chief Executive Officer
/s/ James C. Swaim
James C. Swaim, Executive
<PAGE>
EXHIBIT 10.5
Amended and Restated Employment Agreement
dated September 30, 1993.
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement
entered into by and between Farah Incorporated (the
"Company") and Michael R. Mitchell (the "Executive").
In consideration of the following and mutual
covenants and agreements hereinafter set forth, the
Company and the Executive do hereby agree as follows:
1. Employment.
(a) The Company hereby employs the Executive and
the Executive hereby agrees to serve as an employee of
the Company or one or more of its subsidiaries on the
terms and conditions set forth herein.
(b) The employment term shall commence on the date
hereof and shall end on March 1, 1996, unless mutually
extended in writing by both parties within ninety (90)
days prior to the expiration of such term or unless
terminated under the provisions of Section 4 hereunder.
(c) The Executive shall serve as Executive Vice
President, of Farah U.S.A., Inc. or such other offices
as the Board of the Company or its subsidiaries (the
"Boards") shall assign and shall perform such duties
and responsibilities as may from time to time be
prescribed by the Boards, provided that such other
duties and responsibilities are consistent with the
Executive's position. The Executive shall perform
and discharge faithfully, diligently and to the best
of his ability such duties and responsibilities and
shall devote all of his working time and efforts to
the business and affairs of the Company and its
subsidiaries.
(d) In connection with his employment, the
Executive shall be based at the Company's El Paso
office, or such other location as may be agreeable to
both the Company and the Executive.
2. Compensation.
(a) The Company and/or its subsidiaries shall pay
to the Executive a minimum annual salary of $175,000,
or such additional amounts as the Boards may approve
(the "Base Salary"), payable in monthly installments
on the last day of each month throughout the term of
such employment, subject to Section 4 hereof. The
Board, upon review of the Executive's performance
and/or the profitability of the Company and its
subsidiaries, may pay the Executive a bonus, as the
Boards in their sole discretion may determine to be
appropriate.
<PAGE>
(b) The Company and/or its subsidiaries shall
pay to the Executive such amounts as may be established
under any cash or equity incentive plans approved by
the Boards, based upon profit performance or stock
values.
(c) During the term of his employment hereunder,
the Executive shall be entitled to participate in or
receive benefits under the Company's employee benefit
plans and arrangements which are available to senior
executive officers of the Company or its subsidiaries.
Nothing paid to the Executive under any such plans or
arrangements shall be deemed to be in lieu of
compensation to the Executive hereunder.
3. Unauthorized Disclosure and Activity.
(a) While employed by the Company and for a period
of three (3) years after termination of employment, the
Executive shall not, without a written consent of the
Board or a person duly authorized thereby, disclose to
any person, other than a person to whom disclosure is
reasonably necessary or appropriate in connection with
the performance by the Executive of his duties as an
executive officer of the Company or its subsidiaries,
any material confidential information obtained by him
while in the employ of the Company or its subsidiaries
with respect to any of the products, improvements,
license agreements, formulas, designs, methods of
manufacture, vendors or customers, the disclosure of
which he knows or in the exercise of reasonable care
should know, would be damaging to the Company or its
subsidiaries; provided, however, that confidential
information shall not include any information known
generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any
information not otherwise considered by the Boards to
be confidential. The Executive shall not disclose any
confidential information of the type described above,
except as may be required by law in connection with any
judicial or administrative proceeding or inquiry.
(b) In addition, the Executive shall not either
during the term of this Agreement or within one (1)
year following termination of employment from any
cause, solicit any employee of the Company or its
subsidiaries to terminate his relationship with the
Company or its subsidiaries or to influence an employee
to seek employment with any competitor of the Company
or its subsidiaries.
<PAGE>
In the event of violation of any of the foregoing,
the company or its subsidiaries may seek such redress
in law or in equity to which it may be entitled; and
Executive agrees that no bond shall be required to
obtain any injunctive relief; and shall pay and
indemnify the Company or its subsidiaries for any costs
and/or reasonable attorney's fees if they are
successful in such action.
4. Termination.
(a) The Executive's employment hereunder shall
terminate upon his death.
(b) The Company may terminate the Executive's
employment hereunder by giving written Notice of
Termination to the Executive in the event of the
Executive's incapacity due to physical or mental
illness which prevents the proper performance of his
duties set forth herein or established pursuant hereto
for a substantial portion of any three (3) month period
of the Executive's term of employment hereunder.
(c) The Company may terminate the Executive's
employment hereunder for Cause by giving written Notice
of Termination to the Executive. For the purpose of
this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon the
Executive's (i) willful failure to materially perform
and discharge his duties and responsibilities hereunder
or any breach by the Executive of the provisions of
Section 3 herein, or (ii) misconduct that is materially
injurious to the Company or its subsidiaries, or (iii)
conviction of a felony involving the personal
dishonesty of the Executive or moral turpitude.
(d) Any termination by the Company pursuant to the
subsections (b) or (c) above shall be communicated by
written Notice of Termination to the Executive. For
purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific
termination provision of this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for such
termination. The date of termination specified in the
Notice of Termination shall not be earlier than the
date such Notice is delivered or mailed to the
Executive.
(e) If the Executive's employment shall be
terminated by reason of death, his estate shall be paid
all sums otherwise payable to the Executive through the
end of the month in which his death occurred, and all
bonus or other incentive benefits accrued or accruable
to the Executive through the end of the month in which
<PAGE>
his death occurred and the Company and its subsidiaries
shall have no further obligations to the Executive
under this Agreement. If the Executive's employment
is terminated by reason of incapacity, the Executive
or person charged with legal responsibility for the
Executive's estate shall be paid all sums otherwise
payable to the Executive, including all bonus or other
benefits accrued or accruable to the Executive through
the date of termination specified in the Notice of
Termination, together with an amount equal to the
annual base salary, to be payable in monthly
installments for twelve (12) months, and the Company
or its subsidiaries shall have no further obligations
to the Executive under this Agreement. If the
Executive's employment shall be terminated for Cause,
the Company or its subsidiaries shall pay the
Executive his Base Salary through the date of
termination specified in the Notice of Termination, and
the Company and its subsidiaries shall have no further
obligations to the Executive under this Agreement.
(f) In the event of a change in control of the
Company, the Executive may terminate his employment
during the term of this Agreement, for Good Reason, by
giving written notice to the Company which shall set
forth in reasonable detail the facts and circumstances
constituting Good Reason. The date of termination
specified in the notice shall be no earlier than the
date such notice is delivered or mailed to the Company.
For purposes of this Agreement:
(i) A "change in control" of the Company shall
mean a change in control of a nature that would be
required to be reported (assuming each such event has
not been "previously reported") in response to Item
l(a) of the current Report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange
Act"), provided that, without limitation, such a change
in control shall be deemed to have occurred at such
time as (A) any "person", as such term is used in
Section 14(d) of the Exchange Act, other than the
Company, a wholly-owned subsidiary of the Company or
any employee benefit plan of the Company, or its
subsidiaries, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 30% (the "Relevant Percentage") or
more of the combined voting power of the Company's
common stock; provided, however, the Relevant
Percentage shall be 40% solely in respect of any
acquisitions of common stock by Marciano Investments,
Inc., of any of its affiliates, or (B) individuals who
constitute the Board of Directors of the Company on the
date hereof (the "Incumbent Board") cease for any
<PAGE>
reason to constitute at least a majority thereof,
provided that any person becoming a director
subsequent to the date hereof whose election or
nomination for election by the Company's shareholders
was approved by a vote of at least three quarters of
the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy
statement of the Company in which such person is named
as a nominee for the director without objection to
such nomination) shall be, for purposes of this clause
(i), considered as though such person were a member of
the Incumbent Board. Notwithstanding anything in the
foregoing to the contrary, no change in control shall
be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results
in the Executive, or a group of persons which includes
the Executive, acquiring, directly or indirectly, 30%
or more of the combined voting power of the Company's
common stock.
(ii) "Good Reason" shall mean (A) a substantial
adverse change in the Executive's status or position(s)
as an executive officer of the Company or its
subsidiaries as in effect immediately prior to the
change in control, including, without limitation, any
adverse change in the Executive's status or
position(s) as a result of a material diminution in
duties or responsibilities or the assignment to the
Executive of any duties or responsibilities which,
in the Executive's reasonable judgment, are
inconsistent with such status or position(s) or any
removal of the Executive from or any failure to
reappoint or reelect the Executive to such position(s)
(except in connection with the termination of the
Executive's employment for Cause or incapability, as
a result of Executive's death, or by Executive other
than for Good Reason); (B) a reduction by the Company
or its subsidiaries in the Executive's Base Salary as
in effect immediately prior to the change in control;
or (C) the Executive' s office is moved, without his
mutual consent, from the city where the Executive's
office is located immediately prior to the change in
control, except for required travel on the Company's
and it subsidiaries' business to an extent
substantially consistent with the business travel
obligations which the Executive undertook on behalf of
the Company or its subsidiaries prior to the change in
control.
(g) If the Executive's employment is terminated
(i) by the Company other than as specified in
subsections 4(b) or 4(c) above (or other than by reason
of the Executive's death), or (ii) by the Executive as
specified in subsection 4(f) above, the Company and its
<PAGE>
subsidiaries shall continue to pay monthly, Base
Salary to Executive for 24 months from termination, and
the Company and its subsidiaries shall have no further
obligations to the Executive under this Agreement. In
addition, if the Executive's employment is terminated
after a change in control (i) by the Company other than
as specified in subsections 4(b) or 4(c) above (or
other than by reason of the Executive's death), or (ii)
by the Executive as specified in subsection 4(f) above,
the Company shall maintain in full force and effect for
the Executive's benefit, for the same period for which
severance payments are being made after such
termination, all health insurance, long-term
disability, life insurance and accidental death and
disability benefits (collectively, the "Benefits") in
which the Executive was entitled to participate
immediately prior to the date of the change in control;
provided that such continued participation is possible
under the general terms and provisions of such
programs, plans and arrangements providing for the
Benefits; provided further that if the Executive's
participation in any such plan, program or arrangement
is barred, or any such plan, program or arrangement is
discontinued or the Benefits thereunder materially
reduced, the Company and its subsidiaries shall arrange
to provide the Executive with Benefits substantially
similar to those which the Executive was entitled to
receive under such plans, programs and arrangements
immediately prior to the date of the change in control.
The Company shall also make available to the Executive
federal group health plan continuation coverage for the
period following the period in which Benefits are
provided during the severance period.
5. Stock Options Upon Termination. To the
extent the Executive is an Optionee (as defined under
the Company's 1991 Stock Option and Restricted Stock
Plan (the "Plan")), if the Executive's employment is
terminated without cause, the Executive may elect to
extend the period in which he may exercise his options
under the Plan to one (1) year after his termination;
provided, however, that if such options are exercised
after a period of ninety (90) days after his
employment is terminated, such options will become
Nonstatutory Options (as defined in the Plan).
6. Notices. For the purpose of this Agreement,
notices and all other communications to either party
hereunder provided for in the Agreement shall be in
writing and shall be deemed to have been duly given
when delivered in person or mailed by first-class
mail or airmail, postage prepaid, addressed:
in the case of the Company, to:
<PAGE>
Farah Incorporated
8889 Gateway West
El Paso, Texas 79925
P.O. Box 9519
El Paso, Texas 79985
Attention: Corporate Secretary
in the case of the Executive, to:
Michael R. Mitchell
738 Willow Glen
El Paso, Texas 79922
or to such other address as either party shall
designate by giving written notice of such change to
the other party.
7. Miscellaneous. No provision of this Agreement
may be modified, waived or discharged unless such
waiver, modification or discharge is approved by the
Board of Directors of the Company and agreed to in
writing signed by the Executive and such officer as
may be specifically authorized by the Board of
Directors of the Company. No waiver by either party
hereto of any breach of this Agreement shall be deemed
a waiver of similar or dissimilar provisions or
conditions of this Agreement. No agreements or
representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been
made by either party which are not set forth expressly
in this Agreement.
8. Validity. The invalidity or unenforceability
of any provision or provisions of this Agreement shall
not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in
full force and effect.
9. Survival. The provision of this Agreement
shall not survive the termination of the Executive's
employment hereunder, except that the provisions of
Sections 3 and 4 hereof shall survive such termination
and shall be binding upon the Executive's personal or
legal representative, executors, administrators,
successors, heirs, distributees, devisees and legatees
and except that the provisions of such Section 4 hereof
relating to payments and termination of the Executive's
employment hereunder shall survive such termination
and shall be binding upon the Company and its
subsidiaries.
<PAGE>
10. Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be
deemed to be an original but all of which together will
constitute one and the same instrument.
11. Entire Agreement. This Agreement constitutes
the full agreement and understanding of the parties
hereto regarding the employment of the Executive with
the Company and its subsidiaries and all prior
agreements or understandings are merged herein. This
Agreement amends and restates that certain Employment
Agreement by and between the Company and the Executive
dated as of March 1, 1993.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement effective as of this 30th day of
September, 1993.
FARAH INCORPORATED
By: /s/ Richard C. Allender
Title: President and Chief Executive Officer
/s/ Michael R. Mitchell
Michael R. Mitchell, Executive
<PAGE>
EXHIBIT 10.48
Deferred Compensation Agreement
dated July 30, 1993.
<PAGE>
DEFERRED COMPENSATION AGREEMENT
This Deferred Compensation Agreement ("Agreement)
is made between Michael R. Mitchell ("Employee") and
Farah U.S.A., Inc. ("Employer") on the following terms
and conditions:
1. Beginning August 1, 1994 and continuing through
December 31, 1993, Employee and Employer agree that
the Employee's monthly salary shall be reduced by
5% ("Deferred Income"), which must be at least five
percent (5%) of the Employee's monthly salary on the
date of this Agreement, and monthly payments of the
Employee's monthly salary shall be recalculated
accordingly.
2. Employer shall accrue an amount equal to the
Employee's total amount of Deferred Income during
1993 and shall credit that sum to a separate
memorandum account on its books ("Michael R.
Mitchell 1993 Deferral Account"). In addition,
Employer shall accrue on December 31, 1993 the
following and credit it to the Employee's Deferral
Account: (a) an amount in lieu of interest
calculated on the monthly Deferral Account balance
times the Farah U.S.A., Inc. weighted average
monthly interest rate on short-term borrowing during
the most recently completed fiscal year and (b) five
percent (5%) of the Employee's total salary during
the time period described in paragraph 1 above
("Matching Amount"), which amount shall become
vested January 1 following the year of deferral.
Thereafter, and until payment of the Deferral
Account balance as provided in paragraph 3, the
Deferral Account shall be credited on December 31
of each year with an amount in lieu of interest
calculated on the total Deferral Account balance
(including the Deferral Income, the vested Matching
Amount and previously credited sums in lieu of
interest) times the Farah U.S.A., Inc. weighted
average annual interest rate on short-term borrowing
during the most recently completed fiscal year. In
the event of a partial calendar year time period,
the amount in lieu of interest will be calculated
as previously described and prorated for the
appropriate time period using the short-term
borrowing rate during the prior fiscal year.
3. The total deferred compensation due to the Employee,
consisting of the total amounts credited to and
vested in the Deferral Account, shall be paid to the
Employee January 15, 1994. Should the Employee die
before receiving all amounts payable to him pursuant
to this Agreement, and at such time is an Employee
of the Employer, the remaining amounts shall be paid
<PAGE>
to his beneficiary(ies) as designated by the
Employer's group term life insurance plan. If not
employed by the Employer at the time of death, all
unpaid amounts in the Deferral Account shall be paid
to the estate of the Employee.
4. It is specifically agreed that the amounts credited
to Employee in the Deferral Account shall not be
held by Employer in a trust, escrow or similar
arrangement or other fiduciary capacity. The
Deferral Account shall not be subject in any manner
to attachment or other legal process for debts of
Employee or his successors or legal representatives
for any reason; and neither Employee, nor any legal
representative or successor shall have any right
against Employer with respect to any portion of the
Deferral Account, except as a general unsecured
creditor of the Employer. Neither Employee, his
successors or legal representatives shall have any
right to assign, transfer, pledge, hypothecate,
anticipate or otherwise alienate and payment of
deferred compensation to become due in the future
to such person, and any attempt to do so shall be
void and will not be recognized by the Employer.
5. Employee acknowledges that he has received a copy
of the 1993 Farah Incorporated Unfunded Deferred
Compensation Plan (the "Plan") and that he
understands the terms and conditions of the Plan.
6. Employee agrees that by executing this Agreement he
and his beneficiary(ies) and their successors or
legal representatives and any other person claiming
any amount pursuant to the Agreement are bound by
the terms of the Plan, pursuant to which this
Agreement is executed.
7. Employee agrees that his election to defer
compensation pursuant to the Agreement is
irrevocable and no sale, transfer, alienation,
assignment, pledge, encumbrance, garnishment,
collateralization, anticipation or attachment of any
benefits under the Plan shall be valid or
recognized.
<PAGE>
Executed this 30th day of July, 1993.
EMPLOYER
By: /s/ James C. Swaim
Chief Financial Officer
EMPLOYEE
/s/ Michael R. Mitchell
Michael R. Mitchell
<PAGE>
EXHIBIT 10.49
Amendment No. 10 dated November 5, 1993 to
Accounts Financing Agreement dated August 2, 1990
between Congress Financial Corporation (Southwest)
and Farah U.S.A., Inc.
<PAGE>
AMENDMENT NO. 10 TO FINANCING AGREEMENTS
FARAH U.S.A., INC.
8889 Gateway West
El Paso, Texas 79925
November 3, 1993
Congress Financial Corporation
(Southwest)
1201 Main Street
Dallas, Texas 75250
Gentlemen:
Congress Financial Corporation (Southwest)
("Lender") and Farah U.S.A., Inc. ("Farah USA") have
entered into financing arrangements pursuant to the
Accounts Financing Agreement [Security Agreement],
dated as of August 2, 1990, between Lender and Farah
USA and various supplements thereto, as amended
pursuant to Amendment No. 1 to Financing Agreements,
dated November 5, 1990, Amendment No. 2 to Financing
Agreements, dated February 11, 1991, Amendment No. 3
to Financing Agreements, dated January 29, 1992,
Amendment No. 4 to Financing Agreements dated June
25, 1992, Amendment No. 5 to Financing Agreements,
dated August 31, 1992, Amendment No. 6 to Financing
Agreements, dated September 4, 1992, Amendment No. 7
to Financing Agreements, dated September 16, 1992,
Amendment No. 8 to Financing Agreements, dated as of
May 7, 1993, Amendment No. 9 to Financing
Agreements, dated July 16, 1993, and as amended
pursuant to the letter agreement dated as of October
28, 1992 (collectively, as so amended and as amended
hereby, the "Accounts Agreement", and together with
all supplements thereto, including, but not limited
to, the Covenant Supplement to Accounts Financing
Agreement [Security Agreement] dated as of August 2,
1990, and all other agreements, documents and
instruments at any time executed and/or delivered in
connection with any of the foregoing or related
thereto, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed,
restated or replaced, collectively, the "Financing
Agreements"), which Financing Agreements include,
inter alia, the guarantees of all obligations of
Farah USA to Lender by each of Farah Incorporated,
Farah International, Inc., Farah Sales Corp., Farah
Manufacturing Company, Inc., Farah Manufacturing
Company of New Mexico, Inc., Farah Clothing Company,
Inc., FTX, Inc. and Radco Sportswear, Inc.
(individually and collectively, "Guarantors") and
Value Slacks, Inc. and Value Clothing Company, Inc.
(individually and collectively, the "Value Slacks
Companies").
<PAGE>
Farah USA, the Value Slacks Companies and
Guarantors have requested certain amendments to the
Financing Agreements and Lender is willing to agree
to such amendments subject to the terms and
conditions set forth herein. By this Agreement,
Lender, Farah USA, the Value Slacks Companies and
Guarantors desire and intend to evidence such
amendments.
In consideration of the foregoing and the
respective agreements and covenants contained
herein, the parties hereto agree as follows:
1. Definitions
(a) Amendments to Definitions.
(i) All references to the term
"Annual Rate" in the Financing Agreements shall be
deemed and each such reference is hereby amended to
mean a rate equal to two and one-quarter (2 1/4%)
percent per annum in excess of the Index Rate.
(ii) All references to the term
"Borrower" in the Financing Agreements shall be
deemed and each such reference is hereby amended to
mean Farah USA as such term is defined herein.
(iii) All references to the term
"Maximum Credit" in the Financing Agreements shall
be deemed and each such reference is hereby amended
to mean $40,000,000; provided, that, in the event
Lender shall at any time hereafter enter into
financing arrangements with Farah Manufacturing
(U.K.) Limited, such amount shall be reduced,
automatically and without further action by any
party hereto, as of any date by an amount equal to
the aggregate amount of the loans outstanding as of
such date made by Lender to such person. Nothing
contained herein shall be construed to require
Lender to enter into such financing arrangements or
constitute a commitment to lend to such person.
(iv) All references to the term
"Obligations" in the Financing Agreements shall be
deemed and each such reference is hereby amended to
include, in addition and not in limitation, any and
all loans, indebtedness, liabilities and obligations
of any kind owing by Value Clothing to Lender,
however evidenced, whether as principal, guarantor
or otherwise, whether arising under the Accounts
Agreement, this Amendment, or otherwise, whether now
existing or hereafter arising, whether direct or
indirect, absolute or contingent, joint or several,
due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, original,
renewed or extended, and whether arising directly or
<PAGE>
acquired from others (including, without limitation,
participations or interests of Lender in obligations
of Value Clothing to others) and including, without
limitation, Lender's charges, commissions, interest,
expenses, costs and attorneys' fees chargeable to
Value Clothing in connection with all of the
foregoing.
(v) All references to the term "Pre-Tax
Profits" in the Financing Agreements shall be deemed and each
such reference is hereby amended to mean as to any Person, with
respect to any period, the consolidated net income of such
Person and its Subsidiaries for such period (exclusive of
extraordinary gains), after deducting all charges which should
be deducted before arriving at consolidated net income for such
period, all in accordance with GAAP and before deducting the
Allowance for Taxes for such period. For the purposes of this
definition, (A) net income excludes any gain (but not loss)
realized upon the sale or other disposition of any assets that
are not sold in the ordinary course of business, or of any
capital stock of such Person or a Subsidiary of such Person
and (B) the term "Allowance for Taxes" shall mean an amount
equal to all taxes imposed on or measured by net income, whether
federal, state or local, and whether foreign or domestic, that
are paid or payable by any Person and its Subsidiaries in respect
of such period on a consolidated basis in accordance with GAAP.
(vi) All references to the term "Renewal Date"
in the Financing Agreements shall be deemed and each such
reference is hereby amended to mean: "November 3, 1995".
(b) Additional Definitions. As used herein, the
following terms shall have the respective meanings given to them
below and the Accounts Agreement (including all supplements
thereto) shall be deemed and is hereby amended to include, in
addition and not in limitation, each of the following
definitions:
(i) "Borrowers" shall mean, individually and
collectively, jointly and severally, Farah USA and Value Clothing
and their respective successors and assigns.
<PAGE>
(ii) "Eligible Inventory" shall mean Inventory
of Farah USA consisting of Finished Goods, Work-in-Process and
Raw Materials acceptable to Lender in all respects. General
criteria for Eligible Inventory may be established and revised
from time to time by Lender in its exclusive reasonable judgment.
In determining such acceptability Lender may, but need not, rely
on reports and schedules of Inventory furnished to Lender by
Farah USA, but reliance thereon by Lender from time to time shall
not be deemed to limit its right to revise standards of
eligibility at any time. In general, except in Lender's sole
discretion, Eligible Inventory shall not include (A) components
which are not to be incorporated into Finished Goods, (B) spare
parts, (C) packaging and shipping materials, (D) supplies used or
consumed in the business of Farah USA, (E) Inventory subject to a
security interest or lien in favor of any third party, (F) bill
and hold goods, (G) Inventory which is not subject to the
perfected security interest of Lender, (H) defective goods, (I)
obsolete, slow-moving and/or discontinued goods, (J) "seconds"
and (K) Inventory purchased on consignment.
(iii) "Farah USA" shall mean Farah U.S.A.,
Inc., a Texas corporation and its successors and assigns.
(iv) "Finished Goods" shall mean Inventory of
Farah USA consisting of first quality finished goods held for
resale to customers of Farah USA in the ordinary course of our
business.
(v) "Inventory Loan Letter" shall mean the
letter agreement, dated as of August 2, 1990, between Lender and
Farah USA with respect to loans based on Eligible Inventory by
Lender to Farah USA, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or
replaced.
(vi) "Raw Materials" shall mean Inventory of
Farah USA consisting of raw materials used by Farah USA to
produce Work-in-Process and/or Finished Goods (and including
piece goods, major trim and minor trim).
(vii) "Value" shall mean cost computed on a
first-in-first-out basis or market price, as determined by
Lender, whichever is lower.
(viii) "Value Clothing" shall mean Value
Clothing Company, Inc., a Texas corporation and wholly owned
subsidiary of Value Slacks, and its successors and assigns.
(ix) "Value Slacks" shall mean, Value Slacks,
Inc., a Texas corporation, and its successors and assigns.
(x) "Value Slacks Companies" shall mean
individually and collectively, Value Slacks and Value Clothing.
<PAGE>
(xi) "Value Slacks Eligible Inventory" shall
mean inventory of the Value Slacks Companies consisting of
finished goods which are located at the premises of the Value
Slacks Companies set forth on Exhibit A hereto (or the premises
of the Value Slacks Companies established in accordance with
Section 3(b) of the General Security Agreement, dated as of
August 2, 1990, by the Value Slacks Companies in favor of Lender,
as such Section is amended hereby) and acceptable to Lender in
all respects. General criteria for Value Slacks Eligible
Inventory may be established and revised from time to time by
Lender in its exclusive reasonable judgment. In determining such
acceptability Lender may, but need not, rely on reports and
schedules of Inventory furnished to Lender by either or both of
the Value Slacks Companies or Farah USA, but reliance thereon by
Lender from time to time shall not be deemed to limit its right
to revise standards of eligibility at any time. In general,
except in Lender's sole discretion, Value Slacks Eligible
Inventory shall not include (A) raw materials, (B) work-in-
process, (C) components which are not to be incorporated into
finished goods, (D) spare parts, (E) packaging and shipping
materials, (F) supplies used or consumed in the business of the
Value Slacks Companies, (G) Inventory subject to a security
interest or lien in favor of any third party, (H) bill and hold
goods, (I) Inventory which is not subject to the perfected
security interest of Lender and (J) Inventory purchased on
consignment.
(xii) "Value Slacks Puerto Rico Agreements" shall
mean, individually and collectively, the following (as the same
now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced): (A) the Factors Lien
Supplement to Security Agreement between Value Slacks and Lender,
(B) the Notice of Assignment of Accounts Receivable between Value
Slacks and Lender, (C) the Inventory Consignment by Value Slacks
in favor of Lender, (D) the Notice of Lien Pursuant to Act No. 86
between Value Slacks and Lender and (E) the Certificate of
Resolution by Value Slacks.
(xiii) "Work-in-Process" shall mean Inventory of
Farah USA which is in the process of being converted from Raw
Materials to Finished Goods.
(c) Interpretation. All capitalized terms used herein
shall have the meaning assigned thereto in the other Financing
Agreements, unless otherwise defined herein.
<PAGE>
2. Farah USA Loans.
(a) Notwithstanding anything to the contrary contained
in Section 2 of the Accounts Agreement or in the Inventory Loan
Letter (or any amendment with respect thereto entered into prior
to the date hereof), Lender shall, in its discretion, make loans
to Farah USA from time to time, at the request of Farah USA, of
up to:
(i) eighty-five (85%) percent of the Net Amount of
Eligible Accounts (or such greater or lesser
percentage thereof as Lender may determine from
time to time); plus
(ii) sixty (60%) percent of the Value of Eligible
Inventory consisting of Finished Goods (or such
greater or lesser percentage thereof as Lender may
determine from time to time); plus
(iii) ten (10%) percent of the Value of Eligible
Inventory consisting of Work-in-Process (or such
greater or lesser percentage thereof as Lender may
determine from time to time); plus
(iv) fifty (50%) percent of the Value of Eligible
Inventory consisting of Raw Materials (or such
greater or lesser percentage thereof as Lender may
determine from time to time).
(b) The terms, conditions, agreements and covenants
set forth in the Inventory Loan Letter (including any prior
amendments thereto) are amended and restated in their entirety by
the terms hereof, and as so amended and restated, replaced and
superseded by the terms, conditions, agreements and covenants set
forth herein; except that nothing herein or in the other
Financing Agreements shall impair or adversely affect the
continuation of the liability of Farah USA for any Obligations
arising prior to the date hereof. The amendment and restatement
contained herein shall not, in any manner, be construed to
constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, the Obligations of Farah USA
evidenced by or arising under the Inventory Loan Letter, and the
liens and security interests securing such Obligations, which
shall not in any manner be impaired, limited, terminated, waived
or released. The principal amount of the loans outstanding as of
the date hereof under the Inventory Loan Letter shall be
allocated to the loans hereunder in such manner and in such
amounts as Lender shall determine.
<PAGE>
3. Value Clothing Loans.
(a) Lender shall, in its discretion, make loans to
Value Clothing from time to time, at the request of Value
Clothing (or Value Slacks or Farah USA on behalf of Value
Clothing), of up to fifty (50%) percent of the Value of the Value
Slacks Eligible Inventory (or such greater or lesser percentage
thereof as Lender may determine from time to time).
(b) All loans shall be charged to a loan account in
the name of Value Clothing on Lender's books. Lender shall
render to Farah USA, as agent for the Value Slacks Companies,
each month a statement of its loan account which shall be
considered correct and deemed accepted by, and binding upon, the
Value Slacks Companies as an account stated, except to the extent
that Lender receives a written notice of any specific exceptions
by Value Clothing thereto within thirty (30) days after the date
of such statement.
(c) At Lender's option, all principal, interest, fees,
commissions, costs, expenses or other charges payable by Value
Clothing to Lender and any and all loans and advances by Lender
to Value Clothing may be charged directly to the account of Value
Clothing maintained by Lender.
(d) All loans by Lender to Value Clothing shall be
payable at the offices of Lender specified above or at such other
place as Lender may hereafter designate from time to time and at
its option and upon the request of Lender, Value Clothing shall
execute and deliver to Lender one or more promissory notes in
form and substance satisfactory to Lender to further evidence
such loans.
(e) Interest shall be payable by Value Clothing to
Lender on the last day of each month upon the closing daily
balances in its account for each day during such month at a rate
equal to the Annual Rate. The Annual Rate shall increase or
decrease by an amount equal to each increase or decrease,
respectively, in the Index Rate, effective on the first day of
the month after any change in the Index Rate based on the Index
Rate in effect on the last day of the month in which any such
change occurs. The Annual Rate in effect hereunder on the date
hereof, expressed in terms of simple interest is 8 1/4 (8 1/4%)
percent per annum. Interest shall be calculated on the basis of
a three hundred sixty (360) day year and shall be included in
each monthly statement of the loan account of Value Clothing.
Lender shall have the right, at its option, to charge all
interest to the loan account of Value Clothing on the first day
of each month, and such interest shall be deemed to be paid by
the first amounts subsequently credited thereto.
<PAGE>
(f) No agreements, conditions, provisions or
stipulations contained in this Amendment or in any of the other
Financing Agreements or the occurrence of an Event of Default or
the exercise by Lender of the right to accelerate the payment of
the maturity of principal and interest, or to exercise any option
whatsoever contained in this Amendment or in any of the other
Financing Agreements or the arising of any contingency whatsoever
shall entitle Lender to collect, in any event, interest exceeding
the Maximum Legal Rate, and in no event shall Value Clothing be
obligated to pay interest exceeding such Maximum Legal Rate, and
all agreements, conditions or stipulations, if any, which may in
any event or contingency whatsoever operate to bind, obligate or
compel Value Clothing to pay a rate of interest exceeding such
Maximum Legal Rate shall be without binding force or effect at
law or in equity, to the extent only of the excess of interest
over such maximum interest allowed by law. In the event any
interest is charged in excess of the Maximum Legal Rate (herein
referred to as the "Excess"), Value Clothing and Lender
acknowledge and stipulate that any such charge shall be the
result of an accidental and bona fide error, and such Excess
shall be, first, applied to reduce the principal of any
Obligations due, and, second, returned to Value Clothing, it
being the intention of the parties hereto not to enter at any
time into an usurious or otherwise illegal relationship. The
parties hereto recognize that with fluctuations in the Index Rate
such an unintentional result could inadvertently occur. By the
execution of this Amendment, Value Clothing covenants that (i)
the credit or return of any Excess shall constitute the
acceptance by Value Clothing of any such Excess, and (ii) Value
Clothing shall not seek or pursue any other remedy, legal or
equitable, against Lender based, in whole or in part, upon the
charging or receiving of any interest in excess of the Maximum
Legal Rate. For the purpose of determining whether or not any
Excess has been contracted for, charged or received by Lender,
all interest at any time contracted for, charged or received by
Lender in connection with the Obligations of Value Clothing shall
be amortized, prorated, allocated and spread in equal parts
during the entire term of the financing arrangements of Lender
with Value Clothing.
(g) If the applicable state or federal law is amended
in the future to allow a greater rate of interest to be charged
to Value Clothing under this Amendment than is presently allowed
by applicable state or federal law, then the limitation of
interest hereunder and under the Accounts Agreement shall be
increased to the maximum rate of interest allowed by applicable
state or federal law as amended, which increase shall be
effective hereunder on the effective date of such amendment, and
all interest charges owing to Lender by reason thereof shall be
payable upon demand.
<PAGE>
(h) Until the authority of the Value Slacks Companies
to do so is curtailed or terminated at any time by Lender, the
Value Slacks Companies shall, at their expense and on behalf of
Lender, collect, as the property of Lender and in trust for
Lender, all proceeds from the sale of the inventory of the Value
Slacks Companies, in whatever form, including, without
limitation, all cash, checks, credit or debit card transaction
records, and all forms of daily retail store receipts, as well as
all other proceeds of Collateral or any other cash proceeds. At
such time hereafter as Lender may request, the Value Slacks
Companies shall not commingle such collections with the Value
Slacks Companies' own funds. Upon Lender's request, the Value
Slacks Companies shall on the day received deposit all such
proceeds into deposit accounts subject to the provisions set
forth below for the collection and transfer of sales proceeds.
At such time as proceeds of Collateral of the Value Slacks
Companies are deposited into deposit accounts subject to the
provisions set forth below, such proceeds when received by Lender
at such place as Lender may designate from time to time shall be
credited to the loan account of Value Clothing after adding two
(2) business days for remittances by federal funds wire transfers
and five (5) business days for collection, clearance and transfer
of all other remittances, in each instance conditional upon final
payment to Lender.
(i) At such time as Lender may request, the Value
Slacks Companies shall, in a manner satisfactory to Lender from
time to time, enter into deposit account arrangements and
merchant payment arrangements with respect to credit and debit
card sales, such that all proceeds of the sale of the inventory
of the Value Slacks Companies of every form, including, without
limitation, cash, checks, credit or debit card receipts and
charge slips and other forms of daily store receipts, or amounts
payable upon letters of credit, bankers' acceptances and other
proceeds of such Collateral shall be deposited into a blocked
account under Lender's control or deposited into one of the
deposit accounts that is approved by Lender with respect to which
irrevocable instructions from the Value Slacks Companies have
been accepted by the depository bank to transfer all collected
funds to a blocked account under the control of Lender. In
connection therewith, the Value Slacks Companies shall execute
such instructions, blocked account and other agreements as
Lender, in its discretion, shall specify.
(j) The Value Slacks Companies shall immediately upon
obtaining knowledge thereof report to Lender all reclaimed,
repossessed or returned goods (other than returns in the ordinary
course of business of the Value Slacks Companies which shall only
be reported to Lender with such frequency and in such manner as
Lender may reasonably require). At Lender's request, any goods
reclaimed or repossessed by or returned to the Value Slacks
Companies will be set aside, marked with Lender's name and held
by the Value Slacks Companies for the account of Lender.
<PAGE>
4. Inventory Loan Sublimits. Notwithstanding anything to
the contrary contained herein or in any of the other Financing
Agreements, except in Lender's discretion, (a) the aggregate
unpaid principal amount of the loans outstanding at any time
based on the Eligible Inventory of Farah USA and the Eligible
Value Slacks Inventory, regardless of the amounts of such
Eligible Inventory or Value Slacks Eligible Inventory, shall not
exceed $20,000,000 and (b) the aggregate unpaid principal amount
of the loans outstanding at any time based on the Value of the
Eligible Value Slacks Inventory, regardless of the amounts of the
Eligible Value Slacks Inventory, shall not exceed $2,000,000.
<PAGE>
5. Maximum Credit.
(a) Except in Lender's discretion, the aggregate
unpaid principal amount of the loans by Lender to Borrowers
outstanding at any time plus all then outstanding Credits (and
all other commitments and obligations made or incurred by Lender
with respect to such Credits) shall not exceed the amount of the
Maximum Credit.
(b) Section 2.3 of the Accounts Agreement is hereby
deleted in its entirety and the following substituted therefor:
"Lender may, from time to time, permit the
outstanding amount of any components of the loans by
Lender to Borrowers and/or Credits, or the aggregate
amounts of such outstanding loans and Credits to exceed
the amounts available under the lending formulas
provided for herein or otherwise as to each of
Borrowers, the lending sublimit set forth in Section 4
of Amendment No. 10 to Financing Agreements, or the
Maximum Credit, as applicable; provided, that, should
Lender so permit in any one instance such event shall
not operate to limit, waive or otherwise affect any
rights of Lender on any future occasions. In such
event, and without limiting the right of Lender to
demand payment of the Obligations, or any portion
thereof, in accordance with any other terms of the
Accounts Agreement, Amendment No. 10 to Financing
Agreements or the other Financing Agreements, Borrowers
shall remain liable therefor and Borrowers shall, upon
demand by Lender, which may be made at any time and
from time to time, repay to Lender the entire amount of
any such excess(es) or in accordance with such other
terms as Lender may agree to in writing at the time."
6. Interest Rate. The first sentence of Section 3.1 of
the Accounts Agreement is hereby deleted in its entirety and the
following substituted therefor:
"3.1 Interest shall be payable by Borrowers to
Lender on the first day of each month upon the closing
daily balance in the loan account(s) of Borrowers for
each day during the immediately preceding month at a
rate equal to two and one-quarter percent (2 1/4%) per
annum in excess of the Index Rate (the "Annual Rate")."
<PAGE>
7. Unused Line Fee. Section 3.8 of the Accounts Agreement
is hereby deleted in its entirety and the following substituted
therefor:
"With respect to each month (or part thereof) that
the Accounts Agreement is in effect or so long as any
of the Obligations are outstanding, Borrowers shall pay
to Lender a fee at a rate equal to one-half of one
(1/2%) percent per annum calculated for such month and
payable monthly, in arrears, upon the excess, if any,
of: (i) $17,500,000 over (iii) the average of the daily
principal balances of the outstanding loans by Lender
to Borrowers and the Credits for such month (or part
thereof)."
8. Farah USA Financial Covenants.
(a) Section 2.1 of the Covenant Supplement to the
Accounts Agreement is hereby deleted in its entirety and the
following substituted therefor:
"2.1 Net Worth. Farah USA will, at all times,
maintain a Consolidated Tangible Net Worth of not less
than the following amounts during the fiscal years of
Farah USA indicated opposite such amounts:
Fiscal Years Amount
1993 $(27,500,000)
1994 (26,700,000)
1995 and at all
times thereafter (24,700,000)"
(b) Section 2.2 of the Covenant Supplement to the
Accounts Agreement is hereby deleted in its entirety and the
following substituted therefor:
"2.2 Working Capital. Farah USA will, at all
times, maintain a Consolidated Working Capital of not
less than the following amounts during the fiscal years
of Farah USA indicated opposite such amounts:
Fiscal Years Amounts
1993 $ 7,500,000
1994 and at all
times thereafter $10,000,000"
<PAGE>
(c) Section 2.3 of the Covenant Supplement to the
Accounts Agreement is hereby deleted in its entirety and the
following substituted therefor:
"2.3 Capital Expenditures. Borrower will not,
and will not permit any subsidiary to, in the aggregate
for all of them, directly or indirectly, expend or
commit to expend (through purchase, capital leases or
otherwise) fixed or capital assets, or incur
Indebtedness to finance the acquisition of fixed or
capital assets, on a non-cumulative basis (such that
expenditures not made or committed to be made in any
one fiscal year may not be made or permitted to be made
in any following fiscal year) in excess of $5,000,000
in any fiscal year."
(d) Section 2 of the Covenant Supplement to the
Accounts Agreement is hereby amended by adding a new Section 2.14
as follows:
"2.14 Pre-Tax Profits.
(a) Borrower shall have Pre-Tax Profits of not
less than the following amounts for the period from the
beginning of Borrower's then current fiscal year
through and including the fiscal quarters ending at the
date indicated opposite such amounts:
Quarter Ending Pre-Tax Profits
January 31, 1994 $ 925,000
April 30, 1994 2,550,000
July 31, 1994 3,500,000
October 31, 1994 4,550,000
January 1, 1995 1,100,000
April 30, 1995 2,800,000
July 31, 1995 4,000,000
October 31, 1995 5,300,000
(b) Borrower shall have Pre-Tax Profits of not
less than $750,000 for its fiscal quarter ending
October 31, 1993.
(c) Borrower shall have Pre-Tax Profits of not
less than $(2,300,000) for its fiscal year ending
October 31, 1993."
<PAGE>
9. Farah Incorporated Amendments.
(a) Section 3(g) of the General Security Agreement,
dated as of August 2, 1990, by Farah Incorporated in favor of
Lender (the "Farah Inc. Security Agreement") is hereby deleted in
its entirety and the following substituted therefor:
"(g) Guarantor will, at all times, maintain a
Consolidated Tangible Net Worth of not less than the
following amounts during the fiscal years of Guarantor
indicated opposite such amounts:
Fiscal Year Amount
1993 $36,000,000
1994 36,800,000
1995 and at all
times thereafter 38,800,000"
(b) Section 3(h) of the Farah Inc. Security Agreement
is hereby deleted in its entirety and the following substituted
therefor:
"(h) Guarantor will at all times, maintain a
Consolidated Working Capital of not less than
$22,500,000."
(c) Section 3(i) of the Farah Inc. Security Agreement
is hereby deleted in its entirety and the following substituted
therefor:
"(i) Guarantor will not, and will not permit any
subsidiary to, in the aggregate for all of them,
directly or indirectly, expend or commit to expend
(through purchase, capital leases or otherwise) fixed
or capital assets, or incur Indebtedness to finance the
acquisition of fixed or capital assets, on a non-
cumulative basis (such that expenditures not made or
committed to be made in any one fiscal year may not be
made or committed to be made in any following fiscal
year) in excess of $7,000,000 in the fiscal year of
Guarantor ending October 31, 1993 and $6,500,000 in any
fiscal year thereafter."
(d) Section 3(m)(x) of the Farah Inc. Security
Agreement is hereby deleted in its entirety and the following
substituted therefor:
<PAGE>
"(x) the guarantees by Guarantor of the
obligations of Value Slacks, Inc. pursuant to certain
real property leases; provided, that, (A) in no event
shall the aggregate liability of Guarantor thereunder
exceed $2,300,000; (B) Guarantor will not, and will not
permit Value Slacks, Inc. to, amend, modify, alter or
change the terms of such guarantees or leases in any
material respect so as to increase the liabilities of
Guarantor or Value Slacks, Inc. thereunder; and (C)
Guarantor will furnish to Lender all material notices,
demands or other materials concerning such guarantees
and leases, promptly after receipt thereof or
concurrently with the sending thereof, as the case may
be."
10. Value Slacks Inventory Locations. Section 3(b) of the
General Security Agreement, dated as of August 2, 1990, by the
Value Slacks Companies in favor of Lender is hereby deleted in
its entirety and the following substituted therefor:
"(b) The addresses of the principal places of
business and chief executive offices of Guarantors are
set forth on the signature page hereof, which addresses
are the mailing addresses for such principal places of
business and chief executive offices. The books and
records relating to the Collateral are located at such
addresses.
(i) The only locations of any Collateral are
those addresses listed on Exhibit A to Amendment No. 10
to Financing Agreements by and among Borrower,
Guarantors, certain of their affiliates and Lender and
those new locations which may hereafter be opened in
accordance with Section 3(b)(ii) hereof. Guarantors
will not remove any Collateral from such locations,
without Lender's prior written consent, except for
sales of Inventory in the ordinary course of
Guarantors' businesses and except to move Collateral
directly to any other location listed on Exhibit A or
to a new location opened in accordance with Section
3(b)(ii) hereof.
(ii) Each of Guarantors may open any new location
within the continental United States provided it (A)
gives Lender ten (10) days prior written notice of the
intended opening of any such new location and (B)
executes and delivers, or causes to be executed and
delivered, to Lender such agreements, documents, and
instruments as Lender may deem reasonably necessary or
<PAGE>
desirable to protect its interests in the Collateral to
be located in such location, including, without
limitation, UCC financing statements and agreements
from appropriate Persons acknowledging Lender's liens
on the Collateral to be located in such location,
waiving any lien or claim by such Person to the
Collateral and permitting Lender access to the premises
to exercise its rights and remedies and otherwise deal
with the Collateral, in each case in form and substance
satisfactory to Lender."
11. Term. Section 9.1 of the Accounts Agreement is hereby
deleted in its entirety and the following substituted therefor:
"9.1(a) This Agreement and the other Financing
Agreements shall continue in full force and effect for
a term ending on the Renewal Date and from year to year
thereafter, unless sooner terminated pursuant to the
terms hereof; provided, that, (i) Lender or both
Borrowers (but not either Borrower alone) may terminate
this Agreement and the other Financing Agreements
effective on the Renewal Date or on the anniversary of
the Renewal Date in any year by giving to the other
party at least sixty (60) days prior written notice and
(ii) both Borrowers (but not either Borrower alone) may
terminate this Agreement and the other Financing
Agreements other than on the Renewal Date or on the
anniversary of the Renewal Date in any year by giving
to Lender at least sixty (60) days prior written
notice, subject to the terms hereof (including, without
limitation, Section 9.1(c) below and the payment to
Lender of the early termination fee provided for in
Section 9.2 below). This Agreement and all other
Financing Agreements must be terminated simultaneously.
(b) In addition, Lender shall have the right to
terminate this Agreement and the other Financing
Agreements as to future loans and Credits and other
liabilities of Lender immediately at any time upon the
occurrence of an Event of Default or an act, condition
or event which with notice or passage of time or both
would constitute an Event of Default.
(c) Upon the effective date of termination or
non-renewal of the Financing Agreements, Borrowers
shall pay to Lender in full, all outstanding and unpaid
Obligations (including, but not limited to, the loans
and all interest, fees (including the early termination
fee provided herein, if applicable), charges, expenses
and other amounts provided for hereunder, under the
other Financing Agreements or otherwise) and shall
furnish cash collateral to Lender for all undrawn
amounts available pursuant to previously issued and
<PAGE>
outstanding Credit, by wire transfer in federal funds
to such bank account of Lender, as Lender may, in its
discretion, designate in writing to Borrowers for such
purpose. Interest shall be due until and including the
next business day, if the amounts so paid by Borrowers
to the bank account designated by Lender are received
in such bank account later than 12:00 noon, New York,
New York time.
(d) No termination of the Financing Agreements
shall relieve or discharge Borrowers of their duties,
obligations and covenants under the Financing
Agreements until all Obligations have been fully
indefeasibly discharged and paid, and Lender's
continuing security interests in the Collateral shall
remain in effect until all such Obligations have been
fully and indefeasibly discarded and paid."
12. Release of Pledge of Certain Mexican Stock. Subject to
the terms and conditions contained herein, effective as of
October 1, 1993, Lender shall release certain shares of the
capital stock of Dimmit Industries, S.A. de C.V. and Touche
Industries, S.A. de C.V. from the pledge and security interest
previously made by Farah USA to Lender pursuant to the Pledge and
Security Agreement, dated as of August 2, 1990, by Farah USA in
favor of Lender so that Lender shall have a pledge of, and
security interest in, only sixty-six (66%) percent of all of the
issued and outstanding shares of capital stock of each of Dimmit
Industries, S.A. de C.V. and Touche Industries, S.A. de C.V.
Such release shall be in accordance with the Amendment No. 1 to
Pledge and Security Agreement, dated of even date herewith,
between Farah USA and Lender. Notwithstanding anything to the
contrary contained therein or in any other agreement such release
shall only be effective upon the satisfaction of each of the
conditions precedent set forth in this Amendment.
13. Early Termination Fee. Section 9.2 of the Accounts
Agreement is hereby deleted in its entirety and the following
substituted therefor:
"9.2 If Lender terminates this Agreement or the
other Financing Agreements upon the occurrence of an
Event of Default or, at the request of Borrowers prior
to the Renewal Date, or prior to any subsequent
anniversary of the Renewal Date, in view of the
impracticality and extreme difficulty of ascertaining
actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits
as a result thereof, Borrowers hereby agree to pay to
Lender, upon the effective date of such termination, an
early termination fee in any amount equal to:
<PAGE>
(a) two (2%) percent of the Maximum Credit, if such
termination is effective on or prior to November 3,
1994; or
(b) one (1%) percent of the Maximum Credit, if such
termination is effective after November 3, 1994, but
prior to the Renewal Date or if such termination is
effective after the Renewal Date on a date other than
an anniversary of the Renewal Date.
Such early termination fee shall be presumed to be the
amount of damages sustained by said early termination
and Borrowers agree that it is reasonable under the
circumstances currently existing. The early
termination fee provided for in this Section 9.2 shall
be deemed included in the Obligations. The letter
agreement, dated July 16, 1993, by and among Lender,
Borrowers and certain of their affiliates with respect
to the early termination fee is hereby terminated and
of no further force and effect."
14. Representations, Warranties and Covenants. In addition
to the continuing representations, warranties and covenants
heretofore or hereafter made by Borrowers and Guarantors to
Lender pursuant to the Financing Agreements, each of Borrowers
and Guarantors hereby represents, warrants and covenants with and
to Lender as follows (which representations, warranties and
covenants are continuing and shall survive the execution and
delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
(a) No Event of Default exists on the date of this
Amendment (after giving effect to the amendments to the Financing
Agreements made by this Amendment).
(b) This Amendment has been duly executed and
delivered by Borrower and is in full force and effect as of the
date hereof, and the agreements and obligations of Borrowers and
Guarantors contained herein constitute legal, valid and binding
obligations of Borrowers and Guarantors enforceable against
Borrowers and Guarantors in accordance with their respective
terms.
15. Conditions Precedent. The effectiveness of the other
terms and conditions contained herein shall be subject to the
receipt by Lender of each of the following, in form and substance
satisfactory to Lender and its counsel:
(a) an absolute and unconditional guarantee of payment
of the Obligations of Value Clothing to Lender, each duly
authorized, executed and delivered by each of Farah USA, Value
Slacks and the Guarantors;
<PAGE>
(b) certified copies of directors' resolutions of
Farah USA, the Value Slacks Companies and the Guarantors
evidencing the authorization and approval of this Amendment, the
guarantees referred to above and as to Value Clothing, the new
borrowing arrangements to be provided by Lender to Value Clothing
hereunder;
(c) originals of the Value Slacks Puerto Rico
Agreements, duly authorized, executed and delivered by the Value
Slacks Companies and any other parties thereto;
(d) appropriate lien search results for all
jurisdictions in Puerto Rico in which assets of the Value Slacks
Companies are located, which results are in all respects
satisfactory to Lender;
(e) evidence that Lender has valid and perfected first
priority security interests in and liens upon all of the
inventory of the Value Slacks Companies in Puerto Rico;
(f) an opinion letter of counsel to Farah USA, the
Value Slacks Companies and Guarantors with respect to the matters
provided for in this Amendment (including an opinion letter of
counsel to the Value Slacks Companies in Puerto Rico) and such
related matters as Lender may reasonably request;
(g) the Limited Guarantee and Waiver by Farah (Far
East) Limited in favor of Lender with respect to the Obligations,
the Pledge and Security Agreement by Farah (Far East) Limited in
favor of Lender providing for the pledge by Farah (Far East)
Limited to Lender of sixty-six (66%) percent of all of the issued
and outstanding shares of capital stock of its wholly-owned
subsidiary, Corporacion Farah-Costa Rico, S.A., together with the
original stock certificates representing such shares properly
endorsed and assigned as may be required under any applicable law
and a stock power in blank with respect to such certificates, in
the case of each of the foregoing as duly authorized, executed
and delivered by the parties thereto;
(h) such agreements from participants as may be
required to effectuate the terms and provisions of this
Amendment; and
(i) an original of this Amendment, duly authorized,
executed and delivered by Farah USA, the Value Slacks Companies
and Guarantors.
<PAGE>
16. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT,
THE OTHER FINANCING AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL
OR ANY INSTRUMENT, DOCUMENT OR GUARANTY DELIVERED PURSUANT HERETO
OR TO ANY OF THE FOREGOING, OR THE VALIDITY, PROTECTION,
INTERPRETATION, ADMINISTRATION, COLLECTION OR ENFORCEMENT HEREOF
OR THEREOF OR PURSUANT TO THE OTHER FINANCING AGREEMENTS, OR ANY
OTHER CLAIM OR DISPUTE HOWSOEVER ARISING BETWEEN FARAH USA, THE
VALUE SLACKS COMPANIES AND GUARANTORS AND LENDER.
17. WAIVER OF COUNTERCLAIMS; JURISDICTION; SERVICE OF
PROCESS. EACH OF FARAH USA, THE VALUE SLACKS COMPANIES AND
GUARANTORS HEREBY WAIVES ALL RIGHTS OF SETOFF AND RIGHTS TO
IMPOSE COUNTERCLAIMS IN THE EVENT OF ANY LITIGATION WITH RESPECT
TO ANY MATTER CONNECTED WITH THIS AGREEMENT, THE OTHER FINANCING
AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL, OR ANY TRANSACTION
BETWEEN THE PARTIES HERETO, AND IRREVOCABLY CONSENTS AND SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE
STATE OF NEW YORK IN NEW YORK CITY AND THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE DISTRICT
COURT OF THE STATE OF TEXAS AND THE UNITED STATES DISTRICT FOR
THE NORTHERN DISTRICT OF TEXAS AND THE COURTS OF ANY STATE IN
WHICH ANY OF THE COLLATERAL IS LOCATED AND OF ANY FEDERAL COURT
LOCATED IN SUCH STATES IN CONNECTION WITH ANY ACTION, PROCEEDING
OR CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER
FINANCING AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL OR ANY
DOCUMENT, INSTRUMENT OR GUARANTY DELIVERED PURSUANT HERETO OR TO
ANY OF THE FOREGOING. IN ANY SUCH LITIGATION, EACH OF FARAH USA,
THE VALUE SLACKS COMPANIES AND GUARANTORS WAIVES PERSONAL SERVICE
OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND AGREES THAT THE
SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED AND BY TELECOPIER, DIRECTED TO IT AT ITS
CHIEF EXECUTIVE OFFICE SET FORTH IN THE ACCOUNTS AGREEMENT OR THE
OTHER FINANCING AGREEMENTS, OR DESIGNATED IN WRITING PURSUANT TO
THIS AGREEMENT, OR IN ANY OTHER MANNER PERMITTED BY THE RULES OF
SAID COURTS. WITHIN THIRTY (30) DAYS AFTER SERVICE, FARAH USA,
THE VALUE SLACKS COMPANIES AND GUARANTORS NAMED IN SUCH SUMMONS,
COMPLAINT OR OTHER PROCESS FAILING WHICH FARAH USA, THE VALUE
SLACKS COMPANIES AND GUARANTORS, AS THE CASE MAY BE, SHALL BE
DEEMED IN DEFAULT AND JUDGMENT MAY BE ENTERED BY LENDER AGAINST
SUCH BORROWERS OR GUARANTORS FOR THE AMOUNT OF THE CLAIM AND
OTHER RELIEF REQUESTED THEREIN.
FARAH U.S.A., INC.
By: /s/ James C. Swaim
Title: Treasurer
<PAGE>
ACKNOWLEDGED AND AGREED:
FARAH INCORPORATED FTX, INC.
FARAH INTERNATIONAL, INC.
VALUE SLACKS, INC. By: /s/ Thomas H. Ludwick
VALUE CLOTHING COMPANY, INC.
FARAH SALES CORP. Title: Treasurer
FARAH MANUFACTURING SERVICES, INC.
FARAH MANUFACTURING COMPANY, INC.
FARAH MANUFACTURING COMPANY
OF NEW MEXICO, INC.
FARAH CLOTHING COMPANY, INC.
RADCO SPORTSWEAR, INC.
By: /s/ James C. Swaim
Title: Treasurer
ACKNOWLEDGED AND AGREED:
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ Peter J. Levy
Title: Senior Vice President
<PAGE>
EXHIBIT 13
Annual Report to Shareholders for Fiscal Year 1993.
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended November 5, 1993, November 6, 1992 and October 31, 1991
(thousands of dollars except per share data)
PART ONE OF CONSOLIDATED STATEMENTS
OF OPERATIONS TABLE:
1993
Net sales $ 180,114
Cost of sales 127,020
Gross profit 53,094
Selling, general and administrative expenses 47,372
Factory conversion expense 4,000
Operating income (loss) 1,722
Other income (expense):
Interest expense (2,175)
Interest income 723
Foreign currency transaction gains (losses) (151)
Gain on sale of assets 320
Provision for Generra bankruptcy -
Other, net (3)
(1,286)
Income (loss) before income taxes 436
Provision for income taxes 304
Net income (loss) $ 132
Net income (loss) per share $ 0.02
Weighted average shares of common stock
(all periods) and common stock equivalents
(income periods only) outstanding 7,781,193
<PAGE>
PART TWO OF CONSOLIDATED STATEMENTS
OF OPERATIONS TABLE:
1992 1991
Net sales 151,990 151,202
Cost of sales 113,509 112,308
Gross profit 38,481 38,894
Selling, general and administrative expenses 41,915 41,687
Factory conversion expense - -
Operating income (loss) (3,434) (2,793)
Other income (expense):
Interest expense (2,056) (2,588)
Interest income 1,096 1,443
Foreign currency transaction
gains (losses) 1,460 (832)
Gain on sale of assets 9 127
Provision for Generra bankruptcy (6,146) -
Other, net (149) (559)
(5,786) (2,409)
Income (loss) before income taxes (9,220) (5,202)
Provision for income taxes 369 306
Net income (loss) (9,589) (5,508)
Net income (loss) per share (1.52) (0.93)
Weighted average shares of common stock
(all periods) and common stock equivalents
(income periods only) outstanding 6,308,392 5,926,885
See accompanying notes to consolidated financial statements.
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
November 5, 1993 and November 6, 1992 (thousands of dollars)
1993 1992
ASSETS
Current assets:
Cash $ 2,007 1,634
Trade receivables, net of allowance
of $805 in 1993 and $637 in 1992 32,458 25,200
Inventories:
Raw materials 10,628 9,430
Work in process 15,706 9,736
Finished goods 27,838 21,123
Total inventories 54,172 40,289
Other current assets 5,482 4,685
Total current assets 94,119 71,808
Notes receivable 6,267 7,025
Property, plant and equipment, net 14,426 10,376
Other non-current assets 4,079 3,928
$ 118,891 93,137
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 25,680 10,007
Current installments of long-term debt 4,509 286
Trade payables 20,324 14,588
Accrued compensation 3,630 2,801
Other current liabilities 7,203 7,301
Total current liabilities 61,346 34,983
Long-term debt, excluding current installments 1,179 4,452
Other non-current liabilities 3,627 3,346
Commitments and Contingencies (Note 8)
Deferred gain on sale of building 9,314 11,346
Shareholders' equity:
Common stock, no par value in 1993,
$4 par value in 1992, 20,000,000
shares; issued 8,007,900 in 1993
and 7,921,917 in 1992 44,369 31,688
Additional paid-in capital - 20,265
Cumulative foreign currency
translation adjustment (2,481) (1,892)
Minimum pension liability adjustment (2,050) (524)
Retained earnings 3,696 3,564
43,534 53,101
Less: Treasury stock, 36,275 shares in
1993 and 655,275 in 1992, at cost 109 14,091
Total shareholders' equity 43,425 39,010
$ 118,891 93,137
See accompanying notes to consolidated financial statements.
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
PART ONE OF SHAREHOLDERS' EQUITY TABLE:
Years Ended November 5, 1993, November 6, 1992 and October 31, 1991
(thousands of dollars except share data)
Common Stock
Shares Amount
Balance, October 31, 1990 6,819,942 $ 27,280
Net loss - -
Foreign currency translation
adjustment - -
Exercise of stock options 42,250 168
Shares returned to repay loan - -
Balance, October 31, 1991 6,862,192 27,448
Net loss - -
Foreign currency translation
adjustment - -
Minimum pension liability adjustment - -
Transfer of cumulative translation
adjustment to currency
transaction gain on closure
of Farah Japan - -
Exercise of stock options
and other 109,725 440
Sale of common stock 950,000 3,800
Balance, November 6, 1992 7,921,917 31,688
Net income - -
Foreign currency translation
adjustment - -
Minimum pension liabiliity adjustment - -
Exercise of stock options
and other 85,983 509
Sale of treasury shares - -
Reclassification upon change
to no par common stock - 12,172
Balance, November 5, 1993 8,007,900 $ 44,369
See accompanying notes to consolidated financial statements.
<PAGE>
PART TWO OF SHAREHOLDERS' EQUITY TABLE:
Years Ended November 5, 1993, November 6, 1992 and October 31, 1991
(thousands of dollars except share data)
Cumulative
Foreign
Additional Currency
Paid-in Translation
Capital Adjustment
Balance, October 31, 1990 $ 24,326 $ 1,292
Net loss - -
Foreign currency
translation
adjustment - (575)
Exercise of stock options 1 -
Shares returned to repay loan - -
Balance, October 31, 1991 24,327 717
Net loss - -
Foreign currency
translation
adjustment - (1,768)
Minimum pension liability
adjustment - -
Transfer of cumulative
translation
adjustment to currency
transaction gain on closure
of Farah Japan - (841)
Exercise of stock options
and other 15 -
Sale of common stock (4,077) -
Balance, November 6, 1992 20,265 (1,892)
Net income - -
Foreign currency
translation
adjustment - (589)
Minimum pension
liabiliity adjustment - -
Exercise of stock options
and other 24 -
Sale of treasury shares (8,117) -
Reclassification upon change
to no-par common stock (12,172) -
Balance, November 5, 1993 $ 0 $ (2,481)
<PAGE>
PART THREE OF SHAREHOLDERS' EQUITY TABLE:
Years Ended November 5, 1993, November 6, 1992 and October 31, 1991
(thousands of dollars except share data)
Minimum
Pension
Liability Retained
Adjustment Earnings
Balance, October 31, 1990 $ - $ 18,661
Net loss - (5,508)
Foreign currency translation
adjustment - -
Exercise of stock options - -
Shares returned to repay loan - -
Balance, October 31, 1991 - 13,153
Net loss - (9,589)
Foreign currency translation
adjustment
Minimum pension liability
adjustment (524) -
Transfer of cumulative
translation
adjustment to currency
transaction gain on closure
of Farah Japan - -
Exercise of stock options
and other - -
Sale of common stock - -
Balance, November 6, 1992 (524) 3,564
Net income - 132
Foreign currency translation
adjustment - -
Minimum pension liabiliity
adjustment (1,526) -
Exercise of stock options
and other - -
Sale of treasury shares - -
Reclassification upon change
to no-par common stock - -
Balance, November 5, 1993 $ (2,050) $ 3,696
<PAGE>
PART FOUR OF SHAREHOLDERS' EQUITY TABLE:
Years Ended November 5, 1993, November 6, 1992 and October 31, 1991
(thousands of dollars except share data)
Treasury Stock
Shares Amount
Balance, October 31, 1990 869,374 $ 19,692
Net loss - -
Foreign currency translation
adjustment - -
Exercise of stock options - -
Shares returned to repay loan 35,029 100
Balance, October 31, 1991 904,403 19,792
Net loss - -
Foreign currency translation
adjustment - -
Minimum pension liability adjustment - -
Transfer of cumulative translation
adjustment to currency
transaction gain on closure
of Farah Japan - -
Exercise of stock options
and other 872 6
Sale of common stock (250,000) (5,707)
Balance, November 6, 1992 655,275 14,091
Net income - -
Foreign currency translation
adjustment - -
Minimum pension liabiliity
adjustment - -
Exercise of stock options
and other - -
Sale of treasury shares (619,000) (13,982)
Reclassification upon change
to no-par common stock - -
Balance, November 5, 1993 36,275 $ 109
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended November 5, 1993, November 6, 1992 and October 31, 1991
(thousands of dollars)
1993 1992 1991
Cash flows from (used in) operating activities:
Net income (loss) $ 132 (9,589) (5,508)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,686 2,446 2,445
Amortization of deferred gain
on building sale (2,032) (2,032) (2,033)
Gain on sale of assets (320) (9) (127)
Provision for Generra bankruptcy - 6,146 -
Decrease (increase) in:
Trade receivables, net (7,258) 2,593 (319)
Inventories (13,883) 4,406 1,532
Income tax refunds and benefits - - 4,074
Other current assets (797) (165) 1,376
Increase (decrease) in:
Trade payables 5,736 2,131 280
Other (294) (1,117) (21)
Net cash from (used in)
operating activities (16,030) 4,810 1,699
Cash flows used in investing activities:
Purchases of property, plant and
equipment (6,803) (1,520) (1,811)
Proceeds from disposition of property,
plant and equipment 436 177 242
Net cash used in investing
activities (6,367) (1,343) (1,569)
Cash flows from (used in) financing activities:
Net increase (decrease) in short-term debt 15,673 (5,202) (2,508)
Proceeds from issuance of long-term debt 1,456 436 628
Repayment of long-term debt (487) (1,530) (1,804)
Proceeds from sale of common stock 5,881 5,879 169
Proceeds from collection of accrued
interest on
Generra note receivable - - 1,350
Other 836 (804) (86)
Net cash from (used in)
financing activities 23,359 (1,221) (2,251)
Foreign currency translation adjustment (589) (2,609) (575)
Net increase (decrease) in cash 373 (363) (2,696)
Cash, beginning of year 1,634 1,997 4,693
Cash, end of year $ 2,007 1,634 1,997
Supplemental cash flow disclosures:
Interest paid $ 3,636 2,036 2,600
Income taxes paid 878 1,043 265
See accompanying notes to consolidated financial statements.
<PAGE>
FARAH INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 5, 1993, November 6, 1992 and October 31,
1991
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include
the accounts of Farah Incorporated (the "Parent
Company") and its subsidiaries (the "Company").
All significant intercompany transactions have
been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform
with the 1993 presentation. The Parent Company's
assets consist of investments in and advances to
subsidiaries. The Parent Company does not have
any significant amount of separate debt, credit
facilities, or other liabilities, except for the
5% convertible subordinated debentures discussed
in Note 3.
Inventories
Inventories are stated at the lower of first-
in, first-out (FIFO) cost or market and include
purchased materials and manufacturing labor and
overhead. Market is based upon estimated selling
price less costs to sell.
Property, Plant and Equipment
Property, plant and equipment are recorded at
cost. Depreciation is provided by the straight-
line method over the estimated useful lives (Note
2) of the related classes of assets.
Maintenance and repairs are charged to expense
as incurred, and renewals and betterments are
capitalized. The cost and accumulated
depreciation of assets retired or otherwise
disposed are removed from the accounts and the
resulting gains and losses are included in income.
Gains on assets sold and leased back are
recognized over the initial lease terms, net of
any obligations required by the lease agreements.
See Note 8 for further discussion.
<PAGE>
Intangible Assets
At November 5, 1993 and November 6, 1992,
intangible assets were $1,610,000 and $1,664,000,
respectively, and consisted primarily of goodwill
and intangible pension assets. Intangible assets,
excluding intangible pension assets, are amortized
on a straight-line basis over their estimated
useful lives ranging from 2 to 30 years.
Amortization approximated $200,000 in 1993,
$489,000 in 1992 and $592,000 in 1991, including
amortization of debt issuance costs of
approximately $58,000, $361,000 and $454,000 in
1993, 1992 and 1991, respectively.
Revenue Recognition
Revenues are recognized upon shipment of
product.
Foreign Currencies
The Company translates its asset and liability
accounts at the exchange rate in effect at the end
of the fiscal year. Income and expense accounts
are translated at average rates. Net foreign
currency "translation" gains and losses are not
included in operations, but are reflected as a
separate item in the shareholders' equity section
of the Consolidated Balance Sheets. Foreign
currency "transaction" gains and losses are
included in the Consolidated Statements of
Operations. Also included in foreign currency
transaction gains and losses for 1992 is a gain
of $841,000 due to cumulative translation
adjustments transferred from equity to operations
upon the substantial liquidation of one of the
Company's foreign subsidiaries.
<PAGE>
Income Taxes
Income taxes are provided pursuant to the
provisions of Statement of Financial Accounting
Standards No. 96, "Accounting for Income Taxes"
(SFAS 96). Under this statement, deferred income
taxes reflect the impact of temporary differences
between the amount of assets and liabilities
recognized for financial reporting and tax
purposes. These deferred taxes are measured by
applying currently enacted tax laws. The Company
has not yet adopted the provisions of SFAS 109,
"Accounting for Income Taxes", which was issued
in February 1992. This statement will be adopted
in the first quarter of 1994. The Company does
not believe that the adoption of this statement
will have a material effect on the financial
statements.
Income (Loss) Per Share
Income per share is based on the weighted
average number of shares and common stock
equivalents outstanding (7,781,193 in 1993). Loss
per share is based on weighted average number of
shares outstanding (6,308,392 in 1992 and
5,926,885 in 1991). Stock options are included
as common stock equivalents under the treasury
stock method, where dilutive. Additional dilution
from the 5% convertible subordinated debentures
(Note 3), which are not common stock equivalents,
is not material.
Generra Bankruptcy
During the second half of 1992, a former
subsidiary of the Company, Generra Sportswear
Company, Inc., filed for protection under Chapter
11 of the federal bankruptcy laws. In conjunction
with a 1989 sale of Generra, the Company retained
a 5% ownership interest in Generra, as well as a
$5,000,000 note receivable. A $6,146,000
provision for the loss on this investment and note
was made in 1992.
<PAGE>
Change in Fiscal Reporting Periods
Effective in the first quarter of fiscal 1992,
the Company adopted a 52/53 week fiscal year. The
1992 financial statements contained 53 weeks.
This change was implemented in an effort to
conform the Company's accounting periods to that
of many of its customers and to minimize heavy
overtime and air freight resulting from calendar
month-end deadlines that did not match customer
deadlines. The change did not have a significant
impact on results for 1992.
Concentrations of Credit Risk
Financial instruments which potentially expose
the Company to concentrations of credit risk, as
defined by Statement of Financial Accounting
Standards No. 105, consist primarily of trade
accounts receivable. The Company's customers are
not concentrated in any specific geographic region
but are concentrated in the retail industry. One
customer accounted for $22,407,000 (12.4%),
$21,721,000 (14.3%) and $21,905,000 (14.5%) of the
Company's consolidated sales during the years
ended November 5, 1993, November 6, 1992 and
October 31, 1991, respectively. The Company
performs ongoing credit evaluations of its
customers' financial condition. The Company
establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of
specific customers, historical trends and other
information.
Change in Par Value
In the second quarter of 1993 the Company's
shareholders approved a change in the par value
of the Company's common stock from $4.00 per share
to no-par value. As a result, the Company's
additional paid-in capital account was
reclassified to the common stock account during
the second quarter of 1993.
<PAGE>
Factory Conversion Expense
In response to the success of the Company's
Savane casual product line, the Company embarked
on a program to convert large portions of its
Costa Rican and Mexican factories from dress to
casual in the third quarter of 1993. Such
conversion required the rearrangement,
modification, or re-engineering of certain
existing equipment, as well as the installation
of new equipment. Certain other costs were also
incurred as a result of the conversion. These
included testing and set-up of equipment,
retraining costs for employees, labor costs
associated with local statutes, additional U.S.
import duties on temporarily higher costs and
additional costs resulting from customs and
practices in the countries where the Company
operates. Total costs associated with the factory
conversion were approximately $4,000,000 and such
amount is reported in the caption "Factory
Conversion Expense" in the Consolidated Statements
of Operations.
<PAGE>
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of
the following:
Estimated useful
lives (years) 1993 1992
(thousands of dollars)
Factory machinery and equipment 9-12 $ 22,243 19,919
Buildings 20-50 3,375 3,415
Building improvements 3-20 4,196 3,738
Other fixtures and equipment 3-10 10,640 7,880
Land 528 528
Construction in progress 171 159
Total property, plant
and equipment 41,153 35,639
Less accumulated depreciation 26,727 25,263
Net property, plant and
equipment $ 14,426 10,376
Depreciation expense approximated $2,486,000 in
1993, $1,957,000 in 1992 and $1,853,000 in 1991.
(3) DEBT
Short-Term Debt
As of November 5, 1993 the Company had two
primary credit facilities. The Company's U.S.
credit facility prohibits the payment of dividends
by the Company and, except for debt service of the
Company's 5% convertible subordinated debentures,
the credit facilities restrict the subsidiaries
from transferring substantially all net assets to
the Parent Company through intercompany loans,
advances, or dividends.
The first credit facility, for Farah U.S.A.,
provides up to $40,000,000 of credit through
November 3, 1995 for the Company's United States
operations for either borrowings or letters of
credit. Availability under the facility is limited
by formulas derived from accounts receivable,
inventory and fixed assets. The facility is
secured by substantially all assets of Farah U.S.A.
and is guaranteed by its parent company and each
of Farah U.S.A.'s domestic affiliates. Such
guarantees are secured by substantially all of the
assets of the related affiliates. The interest
rate is prime (6% at November 5, 1993) plus 2 1/4%
for borrowings and 1/4% per month for letters of
credit. An unused credit line fee of 1/2% per
annum is charged on the unused portion of the line
when borrowings decrease below $17,500,000. As
of November 5, 1993 usage under the facility was
$27,246,000 (including letters of credit of
$1,440,000) and the excess credit line available
was $12,754,000. The credit facility restricts
<PAGE>
indebtedness and requires the maintenance of
minimum net worth (as defined), minimum working
capital and maximum capital expenditures. There
are also quarterly and annual pre-tax profit
requirements for Farah U.S.A.
The second credit facility provides up to
3,000,000 Pounds of credit through January 1, 1994 for
use in the United Kingdom and Ireland. It also
provides a 200,000 Pounds U.K. Customs Bond, and a
$1,000,000 letter of credit to the Company's U.S.
lender. Availability under the facility is limited
by formulas derived from accounts receivable and
inventory. The facility is secured by
substantially all of the Company's assets in the
U.K. and Ireland. The interest rate is prime plus
2% for borrowings, 2% for the Customs Bond and
letter of credit to the Company's U.S. lender and
standard tariff for other letters of credit. As
of November 5, 1993 usage under the facility, all
in the form of letters of credit and guarantees,
was $1,235,000 and the excess credit line available
was $4,545,000. The agreement requires a net worth
minimum and minimum working capital ratio for the
Company's U.K. and Irish subsidiaries. The
Company's U.S. lender has indicated that they will
provide financing for the Company's U.K. operations
after the current facility expires.
The following table reflects short-term debt
balances and interest rates in 1993, 1992 and 1991:
1993 1992 1991
(thousands of dollars)
Average outstanding
balance $ 22,868 16,839 18,189
Maximum month-end
balance outstanding 25,680 21,785 19,084
Weighted average interest rate:
During year 8.7% 9.7% 12.3%
Year-end 8.3% 9.0% 11.2%
<PAGE>
Long-Term Debt
Long-term debt at year-end is as follows:
1993 1992
(thousands of dollars)
5% convertible subordinated debentures,
due February 1, 1994 $ 3,925 3,925
Term note secured by fixed assets, due the
earlier of expiration of the short-term
credit facility or August 2, 1995,
bearing interest at prime plus 2 1/4%,
due in monthly installments 182 322
Secured loans for equipment purchase, bearing
interest at 8.01% and 7.90%, due in monthly
installments thru January 1997 253 -
Obligations under capital leases 1,328 491
Total long-term debt 5,688 4,738
Less current installments 4,509 286
Net long-term debt $ 1,179 4,452
The 5% convertible subordinated debentures
are convertible into the Company's common stock
at $37.62 per share, subject to adjustment under
certain anti-dilution provisions. On December 3,
1993 the Company announced an offer to exchange
these debentures, due February 1, 1994, for 8.5%
convertible subordinated debentures due February
1, 2004.
Installments of long-term debt are as
follows (in thousands):
1994 $ 4,509
1995 375
1996 346
1997 231
1998 226
1999 1
$ 5,688
During 1993 a related party to the Company
purchased a Junior Participation of $2,000,000 in
the Company's U.S. credit facility. The debt was
repaid on November 5, 1993.
<PAGE>
(4) SHAREHOLDERS' EQUITY
In the fourth quarter of 1992 and second quarter
of 1993, the Company sold 1,200,000 and 619,000
shares, respectively, of its common stock to
Marciano Investments, Inc. "(Marciano"). Proceeds
from the sales, net of expenses, were approximately
$5,430,000 in 1992 and $5,958,000 in 1993. The
shares acquired in these transactions, together
with separately acquired shares, gave Marciano and
the related parties approximately 32% of the
Company's total outstanding common stock as of
November 5, 1993. The definitive agreement
executed in connection with the 1993 sale contains
a provision which restricts Marciano from owning
more than 40% of the Company's common stock for
18 months from March, 1993 without the consent of
the Company. The agreement also contains
restrictions on the Company's ability to sell
certain equity securities for 18 months from March,
1993 without the consent of Marciano.
(5) EMPLOYEE, EXECUTIVE AND DIRECTOR STOCK OPTIONS
AND AWARDS
The Company has granted options to certain
employees and Directors pursuant to employee and
non-employee Director stock option plans to
purchase the Company's common stock at amounts
not less than the market price on the date of the
grant.
During 1993, 80,000 shares of the Company's
common stock were awarded to certain officers and
directors pursuant to the stock option and
restricted stock plan. The awards vest over
varying periods beginning in 1993 and ending in
1996 of which 12,500 shares vested and were issued
in 1993. The Company is recognizing the expense
related to these awards over the period of service
called for by the vesting provision of the awards.
<PAGE>
The following table summarizes activity for such
options and awards for the years ended November
5, 1993 and November 6, 1992:
Shares
Available
For Grant
Balance, October 31, 1991 185,590
Granted (38,500)
Exercised-
Cancelled or terminated 24,912
Balance, November 6, 1992 172,002
New shares authorized 75,000
Granted (187,000)
Exercised -
Cancelled or terminated 42,500
Balance, November 5, 1993 102,502
Options included above expire as follows:
Five years after date of grant 22,950
Ten years after date of grant 547,487
PART TWO OF SHARES AVAILABLE TO GRANT TABLE:
Options and Awards Outstanding
Shares Price Per Share
Balance, October 31, 1991 677,981 $ 4.00 - 10.00
Granted 38,500 6.625 - 6.875
Exercised (109,725) 4.00 - 5.75
Cancelled or terminated (24,912) 5.75 - 10.00
Balance, November 6, 1992 581,844 4.00 - 10.00
New shares authorized - 6.875
Granted 187,000 0 - 10.00
Exercised (85,983) 0 - 10.00
Cancelled or terminated (44,924) 6.00 - 10.00
Balance, November 5, 1993 637,937 0 - 10.00
<PAGE>
(6) INCOME TAXES
Income (loss) before taxes and income taxes in 1993, 1992 and 1991 are
shown below:
1993 1992 1991
(thousands of dollars)
Income (loss) before income taxes:
Domestic operations $ (1,682) (11,489) (4,097)
Foreign operations 2,118 2,269 (1,105)
Total consolidated $ 436 (9,220) (5,202)
Income taxes:
Domestic operations $ - - -
Foreign operations
Current 304 369 306
Deferred - - -
Total foreign 304 369 306
Total consolidated $ 304 369 306
The effective tax rate differs from the statutory U.S. federal tax rate
as summarized below:
1993 1992 1991
(thousands of dollars)
Expected income taxes at U.S.
statutory rate $ 148 (3,135) (1,769)
Effect of differing tax rates
in foreign countries 79 38 (153)
U.S. taxes on earnings of
foreign subsidiaries - 232 85
Unrecognized deferred tax benefits - 2,264 2,143
U.S. taxes on dividends from
foreign countries 1,100 1,020 -
Recognition of unrecognized
deferred tax benefits (981) - -
Other (42) (50) -
Income taxes, as reported $ 304 369 306
<PAGE>
At November 5, 1993, the Company had net
operating loss carryforwards for financial
reporting purposes of approximately $15,700,000,
most of which can be carried forward for
substantial periods. For tax purposes, there were
net operating loss carryforwards at November 5,
1993 available to offset future taxable income of
approximately $4,000,000, of which $3,500,000 and
$500,000 expire in 2007 and 2008 respectively.
In addition, there were foreign tax credit
carryforwards at November 5, 1993 available to
offset limited classes of future taxable income
of approximately $1,700,000, which expire beginning
in 1994, with all expiring by 1996.
Certain of the Company's foreign subsidiaries
had undistributed retained earnings of
approximately $21,200,000 at November 5, 1993.
No U.S. tax has been provided on the undistributed
earnings because management intends to indefinitely
reinvest such earnings in the foreign operations.
The amount of the unrecognized deferred tax
liability for these undistributed earnings is
approximately $5,900,000 at November 5, 1993.
During 1993 the Internal Revenue Service
completed its examination of the Company's U.S.
tax returns for the years 1989 thru 1991. The
examination resulted in no additional tax payments.
<PAGE>
(7) EMPLOYEE BENEFIT PLANS
The Company has two retirement plans. The first
is a defined benefit plan which covers
substantially all bargaining unit employees and
retirees and the second is a defined contribution
plan established pursuant to Section 401(k) of the
internal revenue code which covers all non-union
U.S. and Puerto Rican employees.
Under the defined benefit plan the basic monthly
pension payable to a participant upon normal
retirement equals the product of the participant's
deferred monthly retirement income amount times
the number of years of credited service. Assets
of the defined benefit plan are invested primarily
in U.S. government obligations, corporate bonds
and equity securities.
Under the defined contribution plan, each
participant may contribute from 1% to 13% of
his/her compensation. The Company matches
contributions up to 3% of the participant's
compensation. In 1993, 1992 and 1991 the Company's
contribution to the Plan was approximately
$334,000, $311,000 and $315,000, respectively.
The Company's policy is to fund accrued pension
cost when such costs are deductible for tax
purposes. Net periodic pension cost for the years
ended November 5, 1993, November 6, 1992 and
October 31, 1991 included the following components:
1993 1992 1991
(thousands of dollars)
Service cost-benefits
earned during the period $ 35 39 130
Interest cost on projected
benefit obligation 511 494 504
Actual return on plan assets (381) (71) (965)
Net amortization and deferral (39) (370) 494
Net periodic pension
cost $ 126 92 163
<PAGE>
The following table sets forth the funded status
at November 5, 1993 and November 6, 1992 of the
defined benefit plan (in thousands):
Actuarial present value of benefit
obligation:
1993 1992
Vested benefit obligation $ (7,150) (5,734)
Non-vested benefit obligation (110) (21)
Accumulated benefit obligation (7,260) (5,755)
Projected benefit obligation (7,260) (5,755)
Plan assets at market value 5,338 5,286
Projected benefit obligation
in excess of plan assets (1,922) (469)
Unrecognized transition liability being
recognized over average future
service of plan participants 601 667
Unrecognized net loss from past
experience different from that
assumed and effects of changes
in assumptions 2,050 524
Adjustment required to recognize
minimum liability (2,651) (1,191)
Accrued pension expense $ (1,922) (469)
<PAGE>
In determining the benefit obligations and
service cost of the Company's defined benefit plan,
weighted average discount rates of 7.50% and 9.25%
were used in 1993 and 1992, respectively. The
expected long-term rate of return on plan assets
was 9.5% in both years.
In 1993, as required by Statement of Financial
Accounting Standards No. 87, "Employers' Accounting
for Pensions", the Company adjusted its additional
pension liability to $2,651,000 to reflect the
increased excess of the accumulated benefits over
the fair value of plan assets. The adjusted
additional pension liability which had no effect
on 1993 operations, was offset by an intangible
asset of $601,000 and a decrease to shareholders'
equity of $2,050,000.
The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards
No. 106, "Employer's Accounting for Post-retirement
Benefits Other Than Pensions". The Company
generally does not offer any post-retirement
benefits; therefore the statement will have no
impact on the Company.
In November 1992, Statement of Financial
Accounting Standards No. 112, "Employers'
Accounting for Post Employment Benefits" was
issued. Adoption is required for fiscal years
beginning after December 15, 1993. The Company
does not believe that the adoption of this
statement will have a significant impact on the
Company.
(8) LEASES
During 1988 the Company consummated a sale and
leaseback of its main El Paso, Texas manufacturing
and office facility. A portion of the sale was
paid by delivery of a $7,500,000 promissory note
to the Company, secured by a second mortgage on
the property. The balance of the note receivable
at November 5, 1993 and November 6, 1992 was
$6,450,000 and $6,686,000, respectively. The
promissory note bears interest at 9.25% with
principal and interest payable in monthly
installments through February 2007. In connection
with the sale, the Company entered into a ten year
operating lease of the facility which is extendible
for an additional ten years at the Company's
option. The Company has pledged a $2,500,000
certificate of deposit as security for this lease.
A deferred gain was recognized on the sale, of
which $9,314,000 remains to be recognized over the
remaining years of the initial lease term.
<PAGE>
The Company and its subsidiaries occupy certain
facilities and use certain equipment under
operating leases which expire at various dates from
fiscal 1994 to 2016. The following is a summary
by year of the non-cancellable portion of future
minimum lease payments under operating leases (in
thousands):
1994 $ 7,398
1995 6,627
1996 5,848
1997 5,706
1998 3,140
Later years 1,199
Lease payments * $ 29,918
* Minimum payments have not been reduced
by minimum sub-lease rental income
of $4,703,000 due in the future under
non-cancellable sub-leases.
During 1992 the Company entered into a 6 1/2
year operating sub-lease agreement for
approximately one-half of its El Paso manufacturing
facility. The following is a summary by year of
the non-cancellable portion of future minimum
rental income (in thousands):
1994 $ 881
1995 1,028
1996 1,028
1997 1,028
1998 738
Total $ 4,703
Rental expense for all operating leases for
1993, 1992 and 1991 was $6,860,000, $6,837,000 and
$6,570,000, respectively, (net of sub-lease income
of approximately $881,000 in 1993 and $575,000 in
1992).
<PAGE>
(9) GEOGRAPHIC SEGMENT INFORMATION
The Company is engaged in one business segment.
This includes the design, manufacture, distribution
and sale of men's, young men's and boys' apparel
in the United States and certain foreign countries,
principally in Europe and the South Pacific. The
following tabulation presents information regarding
geographic segments for the years ended 1993, 1992
and 1991. Transfers between the United States and
foreign areas are recorded at normal selling
prices. Operating profit is total revenue less
operating expenses. In computing operating profit,
general corporate expenses, interest expense and
income taxes have been excluded.
PART ONE OF GEOGRAPHIC SEGMENT INFORMATION TABLE:
1993 1992
(thousands of dollars)
Net sales:
United States to unaffiliated
customers $ 151,017 116,031
Transfers between areas 480 109
Total United States 151,497 116,140
Europe 20,069 26,140
South Pacific 9,028 9,819
Adjustments and eliminations (480) (109)
Total $ 180,114 151,990
Operating profit (loss):
United States $ 1,274 (9,494)
Europe 602 671
South Pacific 1,565 2,097
Adjustments and eliminations (66) (65)
Total 3,375 (6,791)
Net gain on sale of assets 323 9
General corporate expenses (1,810) (1,478)
Interest expense, net (1,452) (960)
Income (loss) before income taxes $ 436 (9,220)
Identifiable assets:
United States $ 97,811 70,328
Europe 11,813 12,997
Far East and the South Pacific 11,842 11,400
Adjustments and eliminations (2,575) (1,588)
Total $ 118,891 93,137
<PAGE>
PART TWO OF GEOGRAPHIC SEGMENT INFORMATION TABLE:
1991
(thousands of dollars)
Net sales:
United States to unaffiliated customers 109,630
Transfers between areas 280
Total United States 109,910
Europe 31,415
South Pacific 10,157
Adjustments and eliminations (280)
Total 151,202
Operating profit (loss):
United States (2,224)
Europe (840)
South Pacific 247
Adjustments and eliminations (67)
Total (2,884)
Net gain on sale of assets 127
General corporate expenses (1,300)
Interest expense, net (1,145)
Income (loss) before
income taxes (5,202)
Identifiable assets:
United States 70,382
Europe 21,480
Far East and the South Pacific 19,553
Adjustments and eliminations (4,588)
Total 106,827
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Farah Incorporated:
We have audited the accompanying consolidated balance
sheets of Farah Incorporated (a Texas corporation) and
subsidiaries as of November 5, 1993 and November 6, 1992 and
the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years
ended November 5, 1993, November 6, 1992, and October 31,
1991. These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Farah Incorporated and subsidiaries as of November
5, 1993 and November 6, 1992, and the results of their
operations and their cash flows for each of the years ended
November 5, 1993, November 6, 1992, and October 31, 1991 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Dallas, Texas
December 15, 1993
<PAGE>
Quarterly unaudited information for fiscal 1993
compared to fiscal 1992 is as follows:
(thousands of dollars except share data)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
1993 -
Net sales $ 35,316 41,748 43,773 59,277
Gross profit 10,640 12,017 11,509 18,928
Net income (loss) 604 1,289 (5,179) 3,418
Net income (loss) per share 0.08 0.17 (0.65) 0.42
Weighted average shares
of common stock and
common stock equivalents
outstanding 7,318,463 7,742,098 7,939,768 8,124,443
1992 -
Net sales $ 34,102 37,753 37,104 43,031
Gross profit 8,862 8,999 8,233 12,387
Net income (loss) (425) (2,258) (8,109) 1,203
Net income (loss) per share (0.07) (0.37) (1.34) .17
Weighted average shares
of common stock and common
stock equivalents
outstanding 5,967,616 6,043,062 6,065,142 7,212,596
- - The third quarter of 1992 includes a provision for loss on Generra
bankruptcy of $6,146,000 (see Note 1 to the consolidated financial
statements for more discussion).
- - In the fourth quarter of 1992 and second quarter of 1993, the Company
sold 1,200,000 and 619,000 shares, respectively, of its common stock to
Marciano Investments, Inc. (see Note 4 to the consolidated financial
statements for more discussion).
- - For loss quarters, common stock equivalents are excluded from the
"weighted average shares of common stock and common stock equivalents
outstanding" line.
<PAGE>
Common Stock -
There were 8,076,468 shares of the Company's
common stock, no par value outstanding as of
January 19, 1994, owned of record by approximately
2,700 shareholders. Trading volume during fiscal
1993 averaged approximately 25,900 shares per day.
The common stock is listed on the New York Stock
Exchange which is its principal U.S. trading
market (trading symbol: FRA). The Company
terminated its listing on the Pacific Stock
Exchange on June 26, 1991, but the stock continues
to be traded on such exchange under the symbol
FRA. The following table sets forth the high and
low sales prices for the common stock on the New
York Stock Exchange for each quarterly period
during the last two fiscal years:
1993 1992
High Low High Low
1st Quarter $ 9 7/8 5 1/2 8 7/8 5 3/4
2nd Quarter 10 1/4 6 1/2 8 1/8 5 3/4
3rd Quarter 8 6 1/8 7 1/8 4 3/8
4th Quarter 10 7/8 6 7/8 6 1/8 5
The closing sales price of the Company's common
stock on the New York Stock Exchange as of January
19, 1994 was $13.75.
As of November 5, 1993, there were $3,925,000
aggregate principal amount of the Company's 5%
convertible subordinated debentures due February
1, 1994 outstanding, owned of record by 170
holders. On December 3, 1993, the Company offered
to exchange the existing debentures for 8.5%
convertible subordinated debentures due on
February 1, 2004. Approximately $1,354,000 were
tendered for exchange pursuant to the offer as of
January 7, 1994. The offer expires on January 21,
1994.
The Company has not paid any dividends on its
common stock since 1986. The Company's U.S.
credit facility prohibits the payment of dividends
by the Company.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
1993 Sales compared to 1992
Sales increased from $151,990,000 in 1992 to
$180,114,000 in 1993, a $28,124,000 increase (18.5%).
Leading the increase was a 34.1% increase at Farah U.S.A., Inc.,
the company responsible for sales in the United States. Farah
U.S.A. sales increased from $101,981,000 in 1992 to
$136,767,000 in 1993. Sales at Farah International, Inc.,
the company responsible for sales in Europe and Australia,
declined from $35,959,000 in 1992 to $29,097,000 in 1993, a
19.1% decrease. Sales at Value Slacks, Inc., the Company's
factory outlet store division, increased from $14,050,000 in
1992 to $14,250,000 in 1993, a 1.4% increase.
Farah U.S.A. accounted for 76% of the Company's
consolidated sales in 1993 compared to 67% in 1992. Leading
the increase in sales at Farah U.S.A. was its successful Savane
brand of casual cotton no wrinkle pants. Savane, sold primarily
in the men's market, had sales of $60,387,000 in 1993 compared
to $17,230,000 in 1992, a 250% increase. This large increase is
due to a number of factors, including the shift in consumer
preferences toward a more casual lifestyle, and the ease of
care that no wrinkle products offer. In addition, the Company
believes that its policy of selling Savane product only to better
department stores and a national television advertising campaign
in 1993 stimulated sales during the year. Sales of Farah and
Farah Clothing Co. branded product decreased from
$64,239,000 in 1992 to $52,920,000 in 1993. Sales of
these brands were primarily of dress product, with the largest
amount of sales of men's product, followed by boys'. The sales
decrease was caused mainly by the shift from dress to casual as
evidenced by the increase in Savane sales. Sales of the
Company's John Henry product decreased from $18,300,000 in
1992 to $14,739,000 in 1993. Most of the John Henry product
sold in 1993 was in the dress category and the decrease in John
Henry sales was also due to the consumer shift toward casual
product. The final significant component of Farah U.S.A.'s
sales in 1993 was its private label division where sales
increased from $1,104,000 in 1992 to $7,516,000 in 1993.
1993 was the first full year of sales in the private label division.
Overall, Farah U.S.A. sales prices were comparable between
years, with higher prices from Savane sales being offset by
lower private label sales prices.
<PAGE>
Based on orders received to date, the Company expects
that sales will increase in 1994, led by sales of its Savane
product, which are expected to be more than 50% of Farah
U.S.A. sales. All orders are subject to cancellation and there
can be no assurances that existing orders will materialize as
sales. However, for a number of reasons, the Company
believes that the orders on hand are a reasonable indication
of 1994 sales. First, the Company believes that the no wrinkle
segment of the men's casual market will continue to experience
growth. Second, the Company has presented new no wrinkle
fabrications and a dress category under the Savane label to
customers on a preliminary basis and has received a good
response. Because of increasing competition in the no wrinkle
market and shifts in consumer attitudes that the apparel industry
experiences from time to time, there is no assurance that sales of
Savane products will increase.
Farah International accounted for 16% of the Company's
consolidated sales in 1993 and 24% in 1992. The Company's
largest international subsidiary in 1993 was Farah U.K. with
sales of $19,227,000, followed by Farah Australia and Farah New
Zealand with combined sales of $9,028,000. Sales at Farah U.K.
decreased by $6,276,000 in 1993, a 25% decrease. Unit sales
decreased by 15% while prices declined by 12%. The decrease
in units was due to lower sales of certain seasonal product and
lower closeout sales in 1993 compared to 1992. While sales
prices in British Pound Sterling increased by 1%, sales prices in
equivalent U.S. dollars decreased due to the weakening of the
U.S. Dollar compared to the British Pound Sterling. The
average exchange rate in 1993 was $1.51 per Pound compared
to $1.80 in 1992. Sales at Farah Australia and Farah New Zealand
decreased by $302,000, primarily due to sales price reductions
resulting from lower import duty levels imposed in Australia
which were, in turn, passed through to the customer as lower
sales prices. In addition, the U.S. Dollar strengthened by over
9% compared to the Australian Dollar in 1993 which contributed
to the lower sales price per unit in U.S. Dollar terms. Unit sales
at Farah Australia and New Zealand increased by 7% due to more
market penetration in New Zealand where unit sales increased
52%.
<PAGE>
The Company expects that sales at Farah International will
increase slightly in 1994. This is due to an expected improvement
in the U.K. economy, an increase in sales of Savane product in the
U.K. and Australia and plans to sell Savane product into the
European Common Market. Test market sales of no wrinkle
cotton casual pants in the Common Market in 1993 were
successful. However, there can be no assurance that sales at
Farah International will increase in 1994.
<PAGE>
Value Slacks accounted for 8% of the Company's
consolidated sales in 1993 and 9% in 1992. As of the end
of fiscal 1993, Value Slacks operated 20 U.S. stores and 11
Puerto Rican stores compared to 14 U.S. stores and 15 Puerto
Rican stores at the end of fiscal 1992. Sales in Value Slacks'
U.S. stores increased by 14% in 1993 while Puerto Rican store
sales decreased by 13%. Overall sales prices increased by 10%
in 1993 and unit sales decreased by 8%. The sales price
increase was due to the opening of more U.S. stores where
the mix of product sold trended toward more first quality
merchandise and higher sales of Savane product in 1993.
Savane carries a higher selling price than other Farah products.
The unit decrease occurred in the Puerto Rican stores where there
were fewer stores operating and the general economic conditions
were not favorable for the type of merchandise that Value Slacks
sold.
Because of the success that Value Slacks has enjoyed in
its new U.S. stores and the continuing deterioration of sales
volume in its Puerto Rican stores, the Company intends to open
additional U.S. stores in 1994 and close certain Puerto Rican
stores. The net effect of current plans will result in an
increase in stores by the end of 1994.
1992 Sales compared to 1991
Sales increased from $151,202,000 in 1991 to
$151,990,000 in 1992, a $788,000 increase (.5%). Farah
U.S.A. sales increased from $94,492,000 in 1991 to
$101,981,000 in 1992, a 7.9% increase. Sales at Farah
International declined from $41,572,000 in 1991 to $35,959,000
in 1992, a 13.5% decrease. Sales at Value Slacks decreased from
$15,138,000 in 1991 to $14,050,000 in 1992, a 7.2% decrease.
Farah U.S.A. accounted for 67% of the Company's
consolidated sales in 1992 compared to 62% in 1991. The
largest category of sales in 1992 was Farah and Farah Clothing
Co. branded products which accounted for $62,017,000 of sales
in 1992 and $67,192,000 of sales in 1991. The majority of sales
under these brands were men's dress products, followed by boys'
dress products. Sales of Savane casual products were made
entirely in men's departments in 1992 and amounted to
$17,230,000 compared to $5,526,000 in 1991. The increase
in Savane sales and decrease in sales of the other Farah brands
reflected the shift in consumer preference from dress product to
casual product. John Henry sales were $18,300,000 in 1992
compared to $18,590,000 in 1991.
<PAGE>
Farah International accounted for 24% of the Company's
consolidated sales in 1992 and 27% in 1991. There was an 11%
decrease in unit volume and a 2% decrease in the average sales
price in 1992. The decrease in sales occurred mainly at Farah
U.K. where sales decreased from $30,125,000 in 1991 to
$25,503,000 in 1992. U.K. unit sales were down 16% due to
soft economic conditions, a decrease in the number of retail
outlets in customer stores and declining sales of certain key
products. Combined sales of Farah Australia and New Zealand
were $9,330,000 in 1992 compared to $9,000,000 in 1991. The
Company closed Farah Japan during the second half of 1992. In
conjunction with the closing, the Company sold substantially all
of its Japanese inventory at reduced prices. This, in turn,
accounted for the decrease in sales price at Farah
International. Excluding Farah Japan, sales prices were
comparable in 1992 and 1991.
Value Slacks accounted for 9% of the Company's
consolidated sales in 1992 and 10% in 1991. As of the end
of fiscal 1992, Value Slacks operated 14 U.S. stores and 15
Puerto Rican stores compared to 14 U.S. stores and 16 Puerto
Rican stores at the end of fiscal 1991. The sales decrease in 1992
was comprised of a 15% decrease in unit volume, offset by an
increase in average sales price of 9%. Sales were flat in the
U.S. stores and decreased by 14% in the Puerto Rican stores.
<PAGE>
1993 Gross Profit compared to 1992
Gross profit as a percent of sales was 29.5% in 1993
compared to 25.3% in 1992. Gross profit in 1993 was 27% at
Farah U.S.A., 37% at Farah International and 42% at Value
Slacks, compared to 1992 gross profit of 20% at Farah
U.S.A., 35% at Farah International and 37% at Value Slacks.
The improvement in gross profit as a percent of sales at
Farah U.S.A. was primarily due to higher sales of Savane product
which carried a higher gross profit percent than other Farah
brands. In addition, Farah U.S.A. more fully utilized its
factories in 1993 than it did in 1992. In 1992, production
levels were increased in the first part of the year to meet
projected sales levels of dress products. While sales did
increase in the first half of 1992, they did not reach the
expected levels due to lower sales of dress product at retail.
As a result, production was reduced in the second and third
quarters to levels below plan. This resulted in decreased plant
efficiencies and lower gross profit percents in 1992. With the
large shift in sales from dress product to casual product in
1993, Farah U.S.A. was able to better utilize its factories.
However, since its factories were configured primarily for dress
production, it became necessary late in the second quarter of 1993
to embark on a program to convert large portions of its Costa
Rican and Mexican factories from dress to casual. The impact
of such conversion resulted in approximately $4,000,000 of
"factory conversion expense". In addition, Farah U.S.A.
incurred certain other additional costs resulting from plant
inefficiencies both before and during the conversion process
which it does not anticipate incurring in 1994.
<PAGE>
The Company expects the 1993 improvement in gross
profit percent at Farah U.S.A. to continue in 1994, primarily
because of the strong demand for Savane product discussed
above and the completed reconfiguration of its plants to more
efficiently sew Savane product. In addition, the North American
Free Trade Agreement (NAFTA) will have a favorable impact on
duties paid for products imported from Mexico in 1994.
However, there can be no assurance that the improvement in
gross profit percent will continue in 1994 due to the possible
impact of market shifts and increased competition previously
discussed.
The improvement in gross profit percent at Farah
International was due to lower closeout sales at Farah
U.K., as well as lower markdowns in general at Farah U.K. In
addition, the Company was able to more fully utilize its Irish
factories in 1993 which also contributed to the improvement.
The Company expects the 1993 gross profit percent
improvement at Farah International to be maintained in 1994
because the Irish factories are expected to continue to operate at
a relatively efficient level. In addition, plans to sell product in the
European Common Market will provide an additional sales base
for product which may be produced in Ireland. This will allow
the Company to operate its Irish facilities more efficiently and
therefore maintain its gross profit percent. However, there can
be no assurances that the gross profit percent at Farah
International will be maintained in 1994.
The increase in gross profit percent at Value Slacks was
primarily due to favorable results at its U.S. stores. The gross
profit percent in the U.S. stores was 46% in 1993 compared to
40% in 1992 and the gross profit percent in the Puerto Rican
stores was 35% in 1993 and 34% in 1992. The increase in
both instances was due to fewer markdowns and higher Savane
sales. Savane product carries a higher gross profit percent than
other Farah brands.
The Company expects the gross profit percent from Value
Slacks to continue to improve in 1994. The primary reason is an
increased number of U.S. stores compared to Puerto Rican stores
operating in 1994. As discussed above, the U.S. stores maintain a
higher gross profit percent than the Puerto Rican stores. In
addition, effective with the beginning of fiscal 1994, Value
Slacks implemented a new computerized point of sale system
which will enable management to more effectively monitor and
utilize inventories which should, in turn, increase the gross
profit percent. However, there can be no assurance that the
higher gross profit percent in the U.S. stores will continue in
1994 or that the point of sale system will result in higher gross
profit.
<PAGE>
1992 Gross Profit compared to 1991
Gross profit as a percent of sales was 25.3% in 1992
compared to 25.7% in 1991. Gross profit in 1992 was 20% at
Farah U.S.A., 35% at Farah International and 37% at Value
Slacks, compared to a 1991 gross profit of 21% at Farah
U.S.A., 35% at Farah International and 29% at Value Slacks.
As discussed above, in the early part of 1992 Farah
U.S.A. increased its production levels to meet projected sales
levels. Although sales levels did increase in the first half of
1992, they did not reach expected levels which resulted in
excess inventory quantities. In order to bring inventory levels
in line with anticipated sales levels, production was reduced in the
second and third quarters, resulting in lower plant efficiencies.
This resulted in higher costs per unit than planned and the sale of
certain inventory below standard selling price to reduce
inventory. Accordingly, the gross profit percent at Farah
U.S.A. was lower in 1992 than in 1991.
While Farah International's gross profit percent was
comparable in both 1992 and 1991, the gross profit percent at
Farah U.K. was down by approximately 6%, offset by an
increased gross profit percent at Farah Australia and New
Zealand. The gross profit percent was lower in the first half of
1992 as a result of the previously discussed inventory closeouts
at Farah U.K. and Farah Japan and lower production volumes in
Ireland. Production levels were increased in the third quarter of
1992, decreasing unit costs and improving the gross profit
percent in both the third and fourth quarter.
The improvement in Value Slacks' gross profit percent in
1992 was due to the implementation of new merchandising
strategies implemented in late 1991. These strategies
improved sales prices by over $1.00 per unit in 1992, thus
improving the gross profit percent. In addition, approximately
$1,800,000 of markdowns were taken in late 1991 in an effort to
dispose of older store inventory.
1993 Selling, General and Administrative Expenses compared to
1992
Selling, General and Administrative ("SG&A") expenses as
a percent of sales were 26.0% in 1993 compared to 27.6% in
1992. SG&A was 23% of sales at Farah U.S.A. compared to
22% in 1992, 33% at Farah International compared to 35% in
1992 and 45% at Value Slacks compared to 48% in 1992.
The increase in SG&A as a percent of sales at Farah
U.S.A. was due to increased advertising in 1993 with the
introduction of a national television advertising campaign for
Father's Day 1993 to promote its Savane product. Partially
offsetting this higher expense were certain fixed costs which
did not increase in proportion to the increase in sales. The
Company plans to continue national television advertising in
1994.
<PAGE>
The decrease in SG&A as a percent of sales at Farah
International occurred at Farah U.K. where the number of
retail outlets maintained in customers' stores was decreased.
In addition, certain other cost cutting measures at Farah U.K.
reduced the SG&A percent.
SG&A at Value Slacks as a percent of sales was lower in
1993 compared to 1992. The higher percentage in 1992 resulted
from higher costs associated with the closure of certain Puerto
Rican stores and higher occupancy, advertising and labor costs
as a percent of sales in the Puerto Rican stores.
1992 Selling, General & Administrative Expenses compared to 1991
Selling, General and Administrative ("SG&A") expenses as
a percent of sales were 27.6% in both 1992 and 1991. SG&A
was 22% in 1992 at Farah U.S.A. compared to 21% in 1991, 35%
in both years at Farah International and 48% in 1992 at Value
Slacks compared to 45% in 1991.
The increase in SG&A as a percent of sales at Farah
U.S.A. was primarily due to a 50% increase in advertising
compared to 1991, partially offset by a lower per unit shipping
cost.
While SG&A as a percent of sales was comparable
between years, there was a decrease at Farah U.K. of
approximately 6%. This was the result of non-recurring
expenses incurred in 1991 related to severance payments, higher
occupancy costs associated with the move to a new warehouse
and office facility and increased legal fees. This decrease was
offset by an increase in Farah Japan for costs related to closure
of the Japanese operations and increased expenses at Farah
Australia for setup costs of a new computer system.
The increase in SG&A as a percent of sales at Value
Slacks was the result of higher advertising and certain store
operating costs that did not decrease in proportion to the
decrease in sales.
<PAGE>
Other Income (Expense)
The following table illustrates the changes in interest
expense, net of interest income, over the past three fiscal
years:
1993 1992 1991
Interest expense, net (000s) $ 1,452 960 1,145
Interest expense, net as
a % of sales .8% .6% .8%
Average debt (000s) $ 23,394 21,283 22,666
Average interest rate 8.7% 9.7% 13.1%
The increase in net interest expense in 1993 was due to higher
borrowings as a result of higher receivable and inventory levels
at Farah U.S.A. in support of the sales growth of Savane. The
decrease in 1992 was due to decreasing interest rates and lower
borrowings on lower inventory levels.
Foreign currency transaction gains (losses) were
($151,000), $1,460,000 and ($832,000) in 1993, 1992 and
1991, respectively. Foreign currency transaction gains and
losses are primarily related to the strength of the U.S. Dollar
compared to the British Pound Sterling. Included in 1992 is an
$841,000 currency gain which was recognized upon the closure
of Farah Japan.
Excluding net interest expense and foreign currency
transaction gains (losses), there was $317,000 of other
income in 1993 and $6,286,000 and $432,000 of other expense
in 1992 and 1991, respectively. Included in 1992 was a provision
of $6,146,000 related to the bankruptcy of Generra Sportswear
Company, Inc. Generra filed for protection under Chapter 11 of
the federal bankruptcy laws during the second half of 1992. In
conjunction with the 1989 sale of Generra, the Company retained
a 5% ownership interest in Generra and obtained a $5,000,000
note receivable.
<PAGE>
Income taxes
The Company's effective tax rate fluctuates from year to
year depending on the mix of income or loss in countries in
which the Company conducts its business. In addition, there
was a limitation in 1991, 1992 and 1993 on recognition of
deferred tax benefits on U.S. losses in accordance with
Statement of Financial Accounting Standards No. 96,
"Accounting for Income Taxes". See Note 6 to the
consolidated financial statements for further discussion.
Liquidity and Capital Resources
Key statistics demonstrating financial condition of the
Company are as follows:
November 5, November 6,
1993 1992
(Dollars in thousands)
Working capital $ 32,773 36,825
Total debt 31,368 14,745
Long-term debt 1,179 4,452
Current ratio 1.5:1 2.1:1
Long-term debt-to-equity .03:1 .11:1
Total debt-to-equity .72:1 .38:1
Days sales in accounts
receivable 48 52
Inventory turnover 2.7 2.8
<PAGE>
The primary reason for the decrease in working capital,
increase in total debt and decrease in current ratio was the
increase in inventory, receivables and debt at Farah U.S.A. to
support the increase in sales growth discussed above. The
Company purchased $6,803,000 of fixed assets in 1993,
consisting primarily of factory machinery and information
equipment and related software. The main source of working
capital was short-term credit and leases. There was also a sale
of 619,000 shares of the Company's treasury stock to Marciano
Investments, Inc. for $5,881,000, net of expenses, in 1993. In
conjunction with such sale, the Company agreed not to sell
additional equity securities until September, 1994, except
under certain circumstances.
The Company's primary credit facility, which expires in
November 1995, provides up to $40,000,000 of availability for
either borrowings or letters of credit to Farah U.S.A. and Value
Slacks. Farah U.K. will also be a party to the facility upon
execution of documents, which is anticipated to be in January
1994. Availability under the facility is based on formulas derived
from accounts receivable, inventory and fixed assets. The facility
is secured by substantially all of the Company's assets and
guaranteed by Farah Incorporated and each of Farah U.S.A.'s
domestic affiliates. Such guarantees are secured by substantially
all of the assets of the related affiliates. The maximum credit
available to Farah U.K. will be $2,500,000 and any credit
extended to Farah U.K. will reduce the amount available to
Farah U.S.A.
The formulas contained in the credit facility provide the
greatest availability of credit for receivables and the lowest for
inventory. In addition, the maximum credit that may be used
related to inventory is $20,000,000 in the U.S. and will be
$1,750,000 in the U.K. Accordingly, in those months in which
receivables are lowest and inventory is highest, availability under
the facility is lowest. In addition, in high sales months where
receivables have not yet been collected, availability under the
formulas, as well as maximum credit available, is also the most
limited. These months have traditionally been January,
February, July and August.
There are three financial covenants for both Farah
Incorporated consolidated and Farah U.S.A. in the Company's
primary credit facility: minimum working capital, minimum
tangible net worth and maximum capital spending.
Furthermore, there is a quarterly and annual minimum
profitability covenant for Farah U.S.A. As of November 5,
1993 the Company was in compliance with all of these
covenants. The facility also prohibits the payment of
dividends and, except to service its convertible subordinated
debentures as discussed below, it restricts the subsidiaries from
transferring substantially all their net assets to the Parent
Company, Farah Incorporated, through intercompany loans,
advances or dividends.
<PAGE>
Almost all of Farah U.S.A.'s major fabric suppliers furnish
additional financing by providing unsecured 60-day credit lines.
During fiscal 1993, the maximum usage at any month-end under
these lines of credit was $9,179,000.
In 1994, major liquidity requirements will be financing of
anticipated growth, capital expenditures and the retirement of its
existing convertible subordinated debentures which are due on
February 1, 1994.
The Company expects capital expenditures in 1994 not to
exceed $6,500,000 and to be primarily for factory machinery and
information equipment and related software. To the extent that
the Company's seasonal cash flows allow, 1994 capital
expenditures will be financed through operations.
Thereafter, it expects such expenditures to be financed
through leases, short-term credit facilities or other credit
arrangements.
Total principal outstanding of the Company's 5%
convertible subordinated debentures is $3,925,000. On
December 3, 1993, the Company offered to exchange the
existing debentures for 8.5% convertible subordinated
debentures due on February 1, 2004. The offer to exchange
is scheduled to expire on January 21, 1994. As of January 7,
1994, approximately $1,354,000 were tendered.
The Company believes that its current credit facility is
adequate for its 1994 anticipated liquidity requirements.
However, from time to time the liquidity requirements may
exceed the credit limit available under the facility. At such
time, the Company may be required to request additional credit
under the facility or seek other sources of financing. Alternative
sources of financing could include debt, debt convertible into
equity or equity. In addition, the Company may seek additional
capital in the future to take advantage of growth opportunities and
improve productivity. This could be in the form of debt, debt
convertible into equity or equity.
Inflation did not materially impact the Company in 1993,
1992 or 1991.
<PAGE>
SELECTED FINANCIAL DATA
PART ONE OF SELECTED FINANCIAL DATA TABLE:
1993 1992
Summary of Operations:
(thousands of dollars)
Net sales $ 180,114 151,990
Cost of sales 127,020 113,509
Selling, general and
administrative expenses 47,372 41,915
Factory conversion expense 4,000 -
Operating income (loss) 1,722 (3,434)
Other income (expense):
Foreign currency gains (losses) (151) 1,460
Gains on asset sales 320 9
Provision for Generra bankruptcy - (6,146)
Other, net (3) (149)
Interest expense, net (1,452) (960)
Income (loss) before income taxes 436 (9,220)
Income tax provision (benefit) 304 369
Net income (loss) 132 (9,589)
Per Share Information:
Net income (loss) 0.02 (1.52)
Book value per share based on shares
outstanding at balance sheet dates 5.45 5.37
Shares outstanding 7,971,625 7,266,642
Financial Position at Year-End:
(thousands of dollars)
Current assets $ 94,119 71,808
Property, plant and equipment, net 14,426 10,376
Other assets, non-current 10,346 10,953
Total assets 118,891 93,137
Current liabilities 61,346 34,983
Long-term debt 1,179 4,452
Other liabilities 3,627 3,346
Deferred gain on sale of building 9,314 11,346
Shareholders' equity 43,425 39,010
Total liabilities and
shareholders' equity 118,891 93,137
Current ratio 1.5 to 1 2.1 to 1
<PAGE>
PART TWO OF SELECTED FINANCIAL DATA TABLE:
1991 1990
Summary of Operations:
(thousands of dollars)
Net sales $ 151,202 139,616
Cost of sales 112,308 115,468
Selling, general and
administrative expenses 41,687 41,494
Factory conversion expense - -
Operating income (loss) (2,793) (17,346)
Other income (expense):
Foreign currency gains (losses) (832) 851
Gains on asset sales 127 9,697
Provision for Generra bankruptcy - -
Other, net (559) 1,568
Interest expense, net (1,145) (1,199)
Income (loss) before income taxes (5,202) (6,429)
Income tax provision (benefit) 306 168
Net income (loss) (5,508) (6,597)
Per Share Information:
Net income (loss) (0.93) (1.06)
Book value per share based on shares
outstanding at balance sheet dates 7.70 8.72
Shares outstanding 5,957,789 5,950,568
Financial Position at Year-End:
(thousands of dollars)
Current assets $ 79,583 88,942
Property, plant and equipment, net 10,970 11,336
Other assets, non-current 16,274 19,288
Total assets 106,827 119,566
Current liabilities 38,358 41,645
Long-term debt 5,192 6,176
Other liabilities 4,046 4,467
Deferred gain on sale of building 13,378 15,411
Shareholders' equity 45,853 51,867
Total liabilities and
shareholders' equity 106,827 119,566
Current ratio 2.1 to 1 2.1 to 1
<PAGE>
PART THREE OF SELECTED FINANCIAL DATA TABLE:
1989 *
Summary of Operations:
(thousands of dollars)
Net sales $ 239,047
Cost of sales 183,428
Selling, general and
administrative expenses 67,611
Factory conversion expense -
Operating income (loss) (11,992)
Other income (expense):
Foreign currency gains (losses) (775)
Gains on asset sales 2,419
Provision for Generra bankruptcy -
Other, net (271)
Interest expense, net (4,618)
Income (loss) before income taxes (15,237)
Income tax provision (benefit) (1,546)
Net income (loss) (13,691)
Per Share Information:
Net income (loss) (2.19)
Book value per share based on shares
outstanding at balance sheet dates 9.62
Shares outstanding 6,261,354
Financial Position at Year-End:
(thousands of dollars)
Current assets $ 92,931
Property, plant and equipment, net 19,832
Other assets, non-current 16,570
Total assets 129,333
Current liabilities 38,179
Long-term debt 10,636
Other liabilities 1,309
Deferred gain on sale of building 18,983
Shareholders' equity 60,226
Total liabilities and
shareholders' equity 129,333
Current ratio 2.4 to 1
* Operations in the first seven months of 1989 include Generra
Sportswear Company, Inc., a former subsidiary sold in 1989.
<PAGE>
EXHIBIT 22
Subsidiaries of Farah Incorporated
<PAGE>
EXHIBIT 22
FARAH INCORPORATED AND SUBSIDIARIES
JURISDICTION OF PERCENT
NAME INCORPORATION OWNED
PARENT:
Farah Incorporated
SUBSIDIARIES OF FARAH INCORPORATED:
Farah U.S.A., Inc. Texas 100%
Farah International, Inc. Texas 100%
Value Slacks, Inc. Texas 100%
Farah Licensing Company Delaware 100%
Farah (Far East) Limited Hong Kong 100%
Exportadora Triple Siete, S.A. Costa Rica 100%
SUBSIDIARIES OF FARAH U.S.A., INC.:
Farah Sales Corp. Texas 100%
Farah Manufacturing Services, Inc. Texas 100%
Farah Manufacturing Company, Inc. Texas 100%
Farah Manufacturing Company of
New Mexico, Inc. New Mexico 100%
Farah Clothing Company, Inc. Texas 100%
FTX, Inc. Texas 100%
Radco Sportswear, Inc. Texas 100%
Dimmit Industries, S.A. de C.V. Mexico 100%
Touche Industrial, S.A. de C.V. Mexico 100%
SUBSIDIARIES OF FARAH INTERNATIONAL, INC.:
Farah Manufacturing (U.K.) Limited England 100%
Farah (Australia) Pty. Limited Australia 100%
Farah Japan Limited Japan 100%
Farah Limited (Ireland) Ireland 100%
Farah (New Zealand) Limited New Zealand 100%
SUBSIDIARIES OF VALUE SLACKS, INC.:
Value Clothing Company, Inc. Texas 100%
SUBSIDIARIES OF FARAH (FAR EAST) LIMITED:
Corporacion Farah - Costa Rica, S.A. Costa Rica 100%
Farah (Fiji) Limited Fiji 50%
Farah (Exports) Ireland Ireland 100%
South Pacific Investments Limited Fiji 50%
SUBSIDIARY OF FARAH LIMITED (IRELAND):
Farah Manufacturing Company
(Ireland) Limited Ireland 100%
<PAGE>
EXHIBIT 24
Consent of Independent Public Accountants.
<PAGE>
EXHIBIT 24
Consent of Independent Public Accountants
As independent public accountants, we hereby
consent to the incorporation of our reports
included in this Form 10-K, into the Company's
previously filed Registration Statements on Form
S-8 No. 2-75949, 33-11930 and 33-46661.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Dallas, Texas
January 28, 1994
