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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File No. 1-5137
FIELDCREST CANNON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-0586036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Lake Drive
Kannapolis, NC 28081
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number (704) 939-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
Common Stock, $1 Par Value New York Stock Exchange
$3.00 Series A Convertible
Preferred Stock, $.01 Par Value The Nasdaq SmallCap Market
6% Convertible Subordinated
Debentures Due 2012 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 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 the 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)
The aggregate market value of voting stock held by non-affiliates of
the registrant was $163,006,852 as of March 1, 1996.
NUMBER OF SHARES OUTSTANDING AT MARCH 1, 1996
Common Stock 8,954,426
DOCUMENTS INCORPORATED BY REFERENCE
Part II incorporates information by reference from the annual report
to shareowners for the year ended December 31, 1995. Part III
incorporates information by reference from the proxy statement for the
annual meeting of shareowners to be held on April 29, 1996.
Total pages 121
Page 1
Exhibit Index page 13
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PART I
Item 1. Business
General
The registrant was incorporated under the laws of Delaware in 1953. The
registrant operates a single segment business in the textile industry and is
principally involved in the manufacture and sale of home furnishing products.
The registrant and its consolidated subsidiaries design, manufacture and market
a broad range of household textile products consisting of towels, sheets,
blankets, comforters and bath rugs. The registrant is vertically integrated in
that it buys the basic raw materials consisting principally of cotton and
synthetic fibers and manufactures a finished consumer product. These products
are marketed primarily by the Company's own sales and marketing staff and
distributed nationally to customers for ultimate retail sale. Customers consist
principally of department stores, chain stores, mass merchants, specialty home
furnishing stores, catalog warehouse clubs and other retail outlets, and
institutional, government and contract accounts.
In 1995 nearly all of the registrant's total sales were comprised of home
furnishings products. Approximately 93% of the Company's 1995 net sales were
from sales of products carrying the registrant's principal brand names of
"Fieldcrest," "Royal Velvet," "Charisma," "St. Marys," "Cannon," "Monticello,"
"Royal Family," "Caldwell" and "Sure Fit"; the remaining 7% were from sales of
private label products.
During 1995 the Company reorganized its New York operations and relocated sales,
marketing and design personnel to Kannapolis, N.C. In December 1995, the Company
announced the closing of two sheeting yarn plants and contracted to purchase
yarn from outside vendors for a portion of its sheeting yarn requirements. In
March 1996, the Company announced it would close a towel weaving plant and a
towel yarn plant as part of the Company's ongoing consolidation effort to
utilize assets more effectively. The combined annual cost reductions from the
reorganization of the New York operations and a related early retirement program
total $8 million. The closing of the four plants including outsourcing of
sheeting yarn and consolidation of towel operations are expected to provide
annual cost savings of $16 to $18 million.
On November 24, 1993 a newly formed and wholly owned subsidiary of the Company
completed a tender offer for all of the outstanding shares of Amoskeag Company
("Amoskeag") for a cash price of $40 per share, or an aggregate of approximately
$141.9 million including certain costs. The acquisition has been accounted for
as a purchase by the Company for the net assets of Amoskeag held for sale at
their net realizable values and as the purchase of treasury stock. Amoskeag
owned 3,606,400 shares of the Company's common stock which was assigned a cost
of $117.2 million after an allocation of $24.7 million to the net assets of
Amoskeag. The operating assets of Amoskeag consisted primarily of the Bangor and
Aroostook Railroad ("BAR") and certain real estate properties. During 1994 the
BAR's operating income of $3 million was excluded from the Company's
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consolidated income statement and $1.6 million of interest costs of the Company
were allocated to the assets held for sale. On March 17, 1995 the Company sold
the BAR for approximately $20 million of cash and $8 million of note
receivables.
Raw Materials
The registrant's basic raw materials are cotton and synthetic fibers. These
materials are generally available from a wide variety of sources, and no
significant shortage of such materials is currently anticipated. Domestic cotton
merchants are the registrant's primary source of cotton, and domestic fiber
producers are the registrant's primary source of synthetic fibers. The
registrant uses significant quantities of cotton which is subject to ongoing
price fluctuations. The registrant in the ordinary course of business may
arrange for purchase commitments with vendors for future cotton requirements.
Patents and Licenses
The registrant holds various patents resulting from company-sponsored research
and development, and others are obtained that are deemed advantageous to company
operations. The Company has license agreements with Waverly, Adrienne Vittadini,
Ellen Tracy and others. The registrant is only partially dependent upon such
patents and licenses in certain product lines, and the loss of any exclusiveness
in these areas would not materially adversely affect overall profitability.
Seasonality in the Company's Business
Primarily because the Company's retail customers have higher sales in the second
half of the calendar year, the Company also experiences greater sales volume in
the last three quarters of the calendar year. It is likely that the Company's
operating performance in the first quarter of a given calendar year will be less
favorable than operating performance in the last three quarters.
Working Capital Items
The registrant carries normal inventory levels to meet delivery requirements of
customers, and customer returns of merchandise shipped are not material. Payment
terms on customer invoices are generally 30 to 60 days.
Customers
The registrant's customers consist principally of department stores, chain
stores, specialty stores, mass merchants, warehouse clubs, other retail outlets
and institutional, government and contract accounts. For the year ended December
31, 1995, the Company's five largest customers accounted for approximately 39%
of net sales. Sales to one customer (Wal-Mart Stores and its affiliates)
represented 16.6% of total sales of the Company. Although
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management of the Company believes that the Company's relationship with Wal-Mart
is excellent and the loss of this customer is unlikely, the loss of Wal-Mart as
a customer would have a material adverse effect on the Company's business. No
other single customer accounted for more than 10% of net sales in 1995.
Order Backlog
The registrant had normal unfilled order backlogs as of December 31, 1995 and
1994 amounting to approximately $76 million and $94 million, respectively. The
majority of these unfilled orders are shipped during the first quarter of the
subsequent fiscal year.
The decrease in unfilled orders in 1995 compared to 1994 is believed to be
primarily due to the timing of new orders. Unfilled orders have become less of
an indicator of future sales as customers have trended toward placing orders as
stock is required. Many orders are placed using electronic data interchange, and
the Company has filled such orders on a quick response basis.
Government Contracts
No material portion of the business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the Government.
Competition
The home furnishing textile industry continues to be highly competitive. Among
the registrant's competitors are a number of domestic and foreign companies with
significant financial resources, experience, manufacturing capabilities and
brand name identity.
The registrant competes with numerous other domestic manufacturers in each of
its principal markets. The domestic towel, sheet, blanket, comforter and bath
rug markets are each comprised of three to five principal manufacturers
(including the registrant) and several smaller domestic manufacturers.
The registrant's principal methods of competition are price, design, service and
product quality. The Company believes that large, low-cost producers with
established brand names, efficient distribution networks and good customer
service will profit in this competitive environment. The Company's ability to
operate profitably in this environment will depend substantially on continued
market acceptance of the Company's products and the Company's efforts to control
costs and produce new and innovative products in response to competitive
pressures and changes in consumer demand.
Environmental Controls
The registrant does not anticipate that compliance with federal, state and local
provisions that have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, will have
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a material effect upon the capital expenditures, earnings and competitive
position of the registrant and its subsidiaries.
Employees
Total employment of the Company and its subsidiaries was 13,610 as of December
31, 1995. Approximately 31% of the Company's hourly employees are subject to
collective bargaining agreements with the Union of Needle Trades, Industrial and
Textile Employees ("UNITE") or the United Textile Workers of America and United
Food and Commercial Workers International Union.
Foreign Sales
The registrant is not currently engaged in significant operations in foreign
countries. Approximately 7% and 6% of the registrant's consolidated net sales
were exported to foreign customers in 1995 and 1994, respectively.
Item 2. Properties
The registrant has 20 principal manufacturing plants, all located in the United
States; 13 are in North Carolina, 1 in South Carolina, 1 in Georgia, 3 in
Alabama, 1 in Pennsylvania and 1 in Virginia. In addition, there are 22
warehousing and distribution centers located in the manufacturing states, plus
Texas. The manufacturing/ warehousing and distribution centers aggregate a floor
area of approximately 17,393,000 square feet. All of the facilities are owned
except: (1) 2 locations totaling approximately 618,000 square feet, title to
which is held by the Development Authorities that issued the Industrial
Development Bonds which were issued to finance the facilities; and (2) 7
locations, totaling approximately 795,000 square feet, where the machinery and
equipment is owned and the buildings are under a long-term lease. Title to the
facilities financed by Industrial Revenue Bonds as described above will be
transferred to the registrant upon the retirement of such bonds. Such facilities
therefore are accounted for as being owned by the registrant.
The registrant owns office buildings in Kannapolis and Eden, North Carolina,
which contain approximately 209,000 square feet.
All other properties owned or controlled by the registrant aggregate
approximately 584,000 square feet and are used for miscellaneous support
services or for sales and marketing.
Plants and equipment of the registrant are considered to be in excellent
condition; substantial capital expenditures for new plants, modernization and
improvements have been made in recent years. The plants generally operate on
either a three shift basis for a five-day week or a four shift basis for a
seven-day week during 50 weeks a year except during periods of curtailment. In
the opinion of the registrant, all plants and properties are adequately covered
by insurance.
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Item 3. Legal Proceedings
The registrant is involved in various claims and lawsuits incidental to its
business. In the opinion of the registrant based in part on the advice of legal
counsel, however, the outcome of these suits will not have a material effect on
the registrant's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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Identification of Executive Officers of the Registrant
<TABLE>
<CAPTION>
Date from
Which Officers
Age at Have Served in
Name 3/31/96 Positions Held Present Capacities
<S> <C> <C> <C>
James M. Fitzgibbons 61 Chairman of the Board Chairman of the Board and
and Chief Executive Chief Executive Officer: 1990
Officer and Director Director: 1985
John M. Nevin 61 Executive Vice President Executive Vice President: 1995
Robert E. Dellinger 51 Vice President Vice President: 1989
M. Kenneth Doss 56 Vice President Vice President: 1988
and Secretary General Counsel: 1985
Secretary: 1986
Kevin M. Finlay 46 Vice President Vice President: 1993
Richard E. Reece 51 Vice President Vice President: 1996
Thomas R. Staab 53 Vice President and Vice President: 1992
Chief Financial Officer Chief Financial Officer: 1994
Gary R. Langford 34 Treasurer Treasurer: 1995
Clifford D. Paulsen 52 Controller Controller: 1992
</TABLE>
None of the executive officers are related by blood, marriage or adoption to any
other executive officer of the registrant or any director or executive officer
of a parent, subsidiary, or affiliate of the registrant. With the exception of
Messrs. Nevin and Langford, each executive officer has been employed by the
registrant for more than five years. Prior to becoming Executive Vice President
of the registrant on October 16, 1995, Mr. Nevin had been Senior Vice President
of Strategic Services at James River Corporation during the last five years.
Prior to joining the registrant in May, 1995, Mr. Langford had been Assistant
Treasurer of AGCO Corporation since October 1990.
Page 7
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Incorporated by reference from the market and dividend data section of the 1995
Annual Report to Shareowners, page 25.
Item 6. Selected Financial Data
Selected financial and statistical data for the years 1991 to 1995 appearing in
the line items "Net sales", "Income (loss) from continuing operations", "Per
share of common stock: Primary income (loss) from continuing operations" and
"Fully diluted income (loss)", "Total assets" and "Long-term debt" are
incorporated by reference from the 1995 Annual Report to Shareowners, page 42.
No cash dividends were declared on Common Stock for the five years in the period
ended December 31, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Incorporated by reference from the 1995 Annual Report to Shareowners, pages 21
through 24.
Item 8. Consolidated Financial Statements and Supplementary Data
Incorporated by reference from the 1995 Annual Report to Shareowners, pages 25
through 41.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Directors is incorporated herein by reference from the
registrant's proxy statement for the annual meeting of shareowners to be held on
April 29, 1996, pages 2 and 3.
For information regarding the Executive Officers of the registrant, see Part I
at page 7.
Item 11. Executive Compensation
Incorporated herein by reference from sections of the registrant's proxy
statement for the annual meeting of shareowners to be held on April 29, 1996
entitled "Compensation of Directors", pages 6 and 7 and "Executive
Compensation", pages 7 through 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the section of the registrant's proxy
statement for the annual meeting of shareowners to be held on
April 29, 1996 entitled "Security Ownership", pages 4 through 6.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the registrant's proxy statement for the
annual meeting of shareowners to be held April 29, 1996, entitled "Executive
Compensation", pages 7 and 8.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1.
and 2. Financial statements and financial statement schedules
The financial statements and schedules listed in the accompanying index to
financial statements are filed as part of this annual report.
3. Exhibits
The exhibits listed as applicable on the accompanying Exhibit Index at page 17
are filed as part of this annual report. Exhibit numbers (10)1. through (10)14.
represent management contracts or compensatory plans or arrangements required to
be filed as an exhibit by Item 601 of Regulation S-K.
(b) Reports on Form 8-K
None.
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FIELDCREST CANNON, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a) 1 & 2)
Page Numbers of the
Annual report to
Shareowners
Consolidated statement of financial position at 27
December 31, 1995 and 1994
Consolidated statement of operations and retained 26
earnings for each of the three years in the period
ended December 31, 1995
Consolidated statement of cash flows for each of the 28
three years in the period ended December 31, 1995
Notes to consolidated financial statements 29-40
Report of independent auditors 41
No schedules are filed because the required information is not applicable or is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements and
notes thereto.
The consolidated financial statements listed in the above index which are
included in the Annual Report to Shareowners of Fieldcrest Cannon, Inc. for the
year ended December 31, 1995 are hereby incorporated by reference. With
exception of the pages listed in the above index and the Items referred to in
Part II, Items 5, 6, 7 and 8, the 1995 Annual Report to Shareowners is not to be
deemed filed as part of this report.
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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.
FIELDCREST CANNON, INC.
March 12, 1996 By:/s/ James M. Fitzgibbons
James M. Fitzgibbons, Chairman of
the Board of Directors and Chief
Executive Officer (Principal
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
signed below by the following persons on behalf of the registrant and in the
capacities on the dates indicated.
/s/ James M. Fitzgibbons March 12, 1996
James M. Fitzgibbons, Chairman of the Board
of Directors and Chief Executive Officer
(Principal Executive Officer)
/s/ M. Kenneth Doss March 12, 1996
M. Kenneth Doss
Vice President and Secretary
/s/ Thomas R. Staab March 12, 1996
Thomas R. Staab
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Clifford D. Paulsen March 12, 1996
Clifford D. Paulsen
Controller (Principal Accounting Officer)
/s/ Tom H. Barrett March 12, 1996
Tom H. Barrett
Director
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/s/ William E. Ford March 12, 1996
William E. Ford
Director
/s/ John C. Harned March 12, 1996
John C. Harned
Director
/s/ Noah T. Herndon March 12, 1996
Noah T. Herndon
Director
/s/ S. Roger Horchow March 12, 1996
S. Roger Horchow
Director
/s/ W. Duke Kimbrell March 12, 1996
W. Duke Kimbrell
Director
/s/ C. J. Kjorlien March 12, 1996
C. J. Kjorlien
Director
/s/ Alexandra Stoddard March 12, 1996
Alexandra Stoddard
Director
Page 12
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EXHIBIT INDEX TO
ANNUAL REPORT ON FORM 10-K FOR
FIELDCREST CANNON, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Page Number
Exhibit or Incorporation
Number Description by Reference to
<S> <C> <C>
(3) 1. Restated Certificate of Incorporation, Registrant's Registration
Exhibit 3-1 to the as amended to date. Statement on Form S-3
filed on February 18, 1994.
2. Amended and Restated By-Laws of the Registrant Exhibit 3-1 to Report on
as amended to November 24, 1993. Form 8-K Filed on
December 9, 1993.
(4) 1. Rights Agreement, dated as of November 24, 1993, Exhibit 1 to the
between the Registrant and The First National Registrant's
Registration Bank of Boston, which includes as filed December 3, 1993.
Exhibit A the Statement on Form 8-A
Form of Rights Certificate of Designations, as
Exhibit B the Form of Rights Certificate, and as
Exhibit C the Summary of Rights to Purchase
Preferred Stock.
2. Indenture dated as of March 15, 1987, relating to Exhibit 4.9 to the
the Registrant's 6% Convertible Subordinated Registrant's Registration
Debentures Due 2012 between the Registrant and Statement on Form S-3
Wachovia Bank and Trust Company, N.A., (No. 33-12436) filed on
including the form of debenture. March 6, 1987.
3. Indenture dated as of June 1, 1992, relating to Exhibit 4.7 of
the Senior Subordinated Debentures Due 2004, Amendment No. 1 to the
between the Registrant and First Union National Registrant's Registration
Bank, as Trustee, including the form of Statement on Form S-3
debenture. (No. 33-47348) filed on
June 3, 1992.
4. Amended and Restated Revolving Credit Exhibit 4-4 to Report
Agreement dated as of March 10, 1994 by and on Form 10-K for
among the Registrant, The First National Bank fiscal year ending
of Boston as agent, Continental Bank N.A., December 31, 1993.
Philadelphia National Bank, and First Union
National Bank of North Carolina, as lead managers,
and certain lenders.
5. First Amendment to the Restated Revolving Exhibit 4-5 to Report on
Credit Agreement dated as of March 10, 1994 by Form 10-K for fiscal year
and among the Registrant, The First National ending December 31, 1994.
Bank of Boston as agent, Continental Bank N.A.,
Philadelphia National Bank, and First Union
National Bank of North Carolina, as lead managers,
and certain lenders.
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6. Second Amendment to the Restated Revolving Exhibit 4-6 to Report on
Credit Agreement dated as of March 10, 1994 by Form 10-K for fiscal year
and among the Registrant, The First National ending December 31, 1994.
Bank of Boston as agent, Continental Bank N.A.,
Philadelphia National Bank, and First Union
National Bank of North Carolina, as lead
managers, and certain lenders.
7. Third Amendment to the Restated Revolving Exhibit 4-7 to Report on
Credit Agreement dated as of March 10, 1994 by Form 10-K for fiscal year
and among the Registrant, The First National ending December 31, 1994.
Bank of Boston as agent, Continental Bank N.A.,
Philadelphia National Bank, and First Union
National Bank of North Carolina, as lead managers,
and certain lenders.
8. Fourth Amendment to the Restated Revolving 17 - 29
Credit Agreement dated as of December 29, 1995
by and among the Registrant, The First National Bank
of Boston as agent, Bank of America Illinois
(formerly known as Continental Bank NA), Corestates
Bank, NA (formerly known as Philadelphia National
Bank, and First Union National Bank of North
Carolina, as lead manager, and certain lenders.
</TABLE>
The registrant, by signing this Report, agrees to furnish the
Securities and Exchange Commission upon its request a copy of
any instrument which defines the rights of holders of
long-term debt of the Registrant and all of its subsidiaries
for which consolidated or unconsolidated financial statements
are required to be filed, and which authorizes a total amount
of securities not in excess of 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
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<TABLE>
<CAPTION>
Page Number
Exhibit or Incorporation
Number Description by Reference to
<S> <C> <C>
(10) *1. Amended and Restated Director Stock Option Exhibit A to the
Plan of the Registrant approved by the Registrant's proxy
stockholders of the Corporation on April 28, statement for the
annual 1992.
meeting of shareowners
held on April 28, 1992.
*2. Stock Option Agreement between the Registrant Exhibit 4.1 to the
and James M. Fitzgibbons dated as of September Registrant's
Registration 11, 1991.
Statement on Form S-8
filed on December 23,
1991.
*3. Employee Retention Agreement between Registrant Exhibit 10.2 to Report
and James M. Fitzgibbons effective as of on Form 10-Q for the
July 9, 1993. quarter ended September
30, 1993.
*4. Employee Retention Agreement between the Exhibit 10.9 to Report
Registrant and Robert E. Dellinger effective on Form 10-K for fiscal
as of July 9, 1993. year ending December
31, 1993.
*5. Instrument of Amendment dated July 29, 1993 Exhibit 10.10 to Report
between the Registrant and Robert E. Dellinger, on Form 10-K for fiscal
amending Exhibit 10.4 above. year ending December 31,
1993.
*6. Employee Retention Agreement between the 30 - 50
Registrant and Kevin M. Finlay effective
as of July 9, 1993.
*7. Instrument of Amendment dated July 29, 1993 51
between the Registrant and Kevin M. Finlay
amending Exhibit 10.6 above.
*8. Employee Retention Agreement between the 52 - 72
Registrant and Thomas R. Staab effective
as of July 9, 1993.
*9. Instrument of Amendment dated July 29, 1993 73
between the Registrant and Thomas R. Staab
amending Exhibit 10.6 above.
*10. Employee Retention Agreement between the 74 - 94
Registrant and M. Kenneth Doss effective
as of July 9, 1993.
</TABLE>
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-----------
*Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of this report.
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<TABLE>
<CAPTION>
<S> <C>
*11. Instrument of Amendment dated July 29, 1993 95
between the Registrant and M. Kenneth Doss,
amending Exhibit 10.6 above.
*12. Form of Employee Retention Agreement between Exhibit 10.6 to Report
the Registrant and other executive officers of on Form 10-Q for the
the Registrant effective as of July 9, 1993. quarter ended September
30, 1993.
*13. Form of Instrument of Amendment dated July 29, Exhibit 10.7 to Report
1993 between the Registrant and other executive on Form 10-Q for the
officers of the Registrant, amending Exhibit quarter ended September
10.12 above. 30, 1993.
*14. 1995 Employee Stock Option Plan of Fieldcrest Exhibit 4.1 of Registrant's
Cannon, Inc. Registration Statement
of Form S-8 filed on
May 8, 1995.
(11) Computation of Primary and Fully Diluted Net Income 96 - 97
(Loss) per Share.
(13) 1995 Annual Report to Shareowners. 98 - 119
(21) Subsidiaries of the Registrant. 120
(23) Consent of independent auditors. 121
</TABLE>
-----------
*Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of this report.
FOURTH AMENDMENT
to
THIRD AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This FOURTH AMENDMENT (the "Amendment"), dated as of December 29, 1995, is
by and among FIELDCREST CANNON, INC., a Delaware corporation (the "Company"),
the lenders listed on the signature pages hereto (the "Lenders"), BANK OF
AMERICA ILLINOIS (formerly known as Continental Bank N.A.), CORESTATES BANK,
N.A. (formerly known as Philadelphia National Bank) and FIRST UNION NATIONAL
BANK OF NORTH CAROLINA, as lead managers for the Lenders (collectively, the
"Lead Managers"), and THE FIRST NATIONAL BANK OF BOSTON, as agent for the
Lenders (the "Agent").
WHEREAS, the Company, the Lenders, the Lead Managers and the Agent are
parties to that certain Third Amended and Restated Revolving Credit Agreement,
dated as of March 10, 1994, as amended (as so amended, the "Credit Agreement");
and
WHEREAS, the Company, the Lenders, the Lead Managers and the Agent have
agreed, subject to the terms and conditions set forth herein, to amend certain
provisions of the Credit Agreement as set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ss.1. CERTAIN DEFINED TERMS. Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
ss.2. AMENDMENT TO CREDIT AGREEMENT.
(a) Section 1 of the Credit Agreement is hereby amended by adding the
following new definitions in the appropriate places in the alphabetical sequence
thereof:
Fourth Amendment. The Fourth Amendment to Third Amended and Restated
Revolving Credit Agreement dated as of December 29, 1995.
Mortgages. The several mortgages from the Company and the Secured
Guarantors to the Agent with respect to the fee interests of the Company
and the Secured Guarantors in the real property listed and described on
Schedule 7.20 attached hereto, each satisfactory to the Lenders and the
Agent in all respects and as may be amended and in effect from time to
time.
Restructuring Charge. An amount equal to the one-time charge against
Consolidated Net Income of the Company and its Subsidiaries for the nine
months of the Company ending September 30, 1995 incurred as a result of the
reorganization of the Company's New York operations, relocation of sales,
marketing and design personnel to Kannapolis, North Carolina
<PAGE>
and the Company's voluntary retirement program, as such amount is reflected
in the consolidated financial statements of the Company and its
Subsidiaries for such fiscal periods; provided that in no event shall the
Restructuring Charge include the Yarn Spinning Charge.
Yarn Spinning Charge. The one-time charge against Consolidated Net
Income of the Company and its Subsidiaries for the fiscal quarter of the
Company ending December 31, 1995 incurred as a result of the restructuring
charge related to closure of the yarn spinning facilities known as Plant 4
and Plant 7, the sale of a warehouse in Eden, North Carolina and related
charges, as such amount is reflected in the consolidated financial
statements of the Company and its Subsidiaries for such fiscal quarter.
(b) Section 1 of the Credit Agreement is hereby further amended by deleting
the definitions of "Applicable Margin" and "Security Documents" in their
entirety, and substituting therefor the following:
Applicable Margin. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a
"Rate Adjustment Period"), the Applicable Margin shall be the applicable
percentage set forth below with respect to the Company's Interest Coverage
Ratio, as determined at the end of the fiscal period of the Company and its
Subsidiaries ending immediately prior to the applicable Rate Adjustment
Period:
Interest Coverage Commitment EuroRate C/D Rate Letter of
Ratio Fee Amounts Amounts Credit
Fees
Less than or equal to 0.500% 2.250% 2.375% 2.250%
0.50 to 1.00
Greater than 0.50 to 0.500% 2.000% 2.125% 2.000%
1.00 and less than or
equal to 1.00 to 1.00
Greater than 1.00 to 0.500% 1.750% 1.875% 1.750%
1.00 and less than or
equal to 1.50 to 1.00
Greater than 1.50 to 0.375% 1.500% 1.625% 1.500%
1.00
Notwithstanding the foregoing, (a) for the period commencing on January 15, 1996
through the date immediately preceding the first Adjustment Date to occur after
December 29, 1995, the Applicable Margin shall be deemed to be the highest
Applicable Margin set forth above and (b) if the Company fails to deliver any
Compliance Certificate pursuant to ss.7.5(d) hereof then, for the period
commencing on the next Adjustment Date to occur subsequent to such failure
through the date immediately preceding the Adjustment Date which occurs
immediately following the date on which such Compliance Certificate is
delivered, the Applicable Margin shall be deemed to be the highest Applicable
Margin set forth above.
<PAGE>
Security Documents. The Security Agreement, the Crestfield Cotton
Guaranty, the FCC Canada Guaranty, the Subsidiary Guaranty, the Fieldcrest
Financing Guaranty, the Fieldcrest Licensing Guaranty, the Fieldcrest
Transportation Guaranty, the Fieldcrest Sure Fit Guaranty, the Crestfield
Cotton Security Agreement, the Subsidiary Security Agreement, the Encee
Security Agreement, the Fieldcrest Financing Security Agreement, the
Fieldcrest Licensing Security Agreement, the Fieldcrest Transportation
Security Agreement, the Fieldcrest Sure Fit Security Agreement, the
Assignment of Acquisition Documents, the Trademark Assignment, the
Fieldcrest Licensing Trademark Assignment, the Mortgages and the Agency
Agreements, and any and all instruments and documents required to be
delivered pursuant thereto, in each case as originally executed, or if
amended, restated, modified or supplemented, as so amended, restated,
modified or supplemented.
(c) Section 1 of the Credit Agreement is hereby further amended by deleting
the word "and" at the end of clause (a) thereof and substituting therefor a
comma and inserting before the period at the end of the definition of
"Consolidated Net Income" the following text: ", (c) there shall be added to
Consolidated Net Income for the fiscal quarters ending March 31, 1995, June 30,
1995 and September 30, 1995 an amount equal to the Restructuring Charge, as
determined on a pre-tax basis, provided, that in no event shall the aggregate
amount added to Consolidated Net Income pursuant to this clause (c) exceed
$15,536,000 and (d) there shall be added to Consolidated Net Income for the
fiscal quarter ending December 31, 1995 an amount equal to the Yarn Spinning
Charge, as determined on a pre-tax basis, provided that in no event shall the
aggregate amount added to Consolidated Net Income pursuant to this clause (d)
exceed $5,000,000, all as determined in accordance with Generally Accepted
Accounting Principles."
(d) Section 1 of the Credit Agreement is hereby further amended by deleting
from clause (ii) of the definition of "Net Security Value of Inventory", the
parenthetical "(unless such security interests have been released by the Agent
pursuant to ss.5(i) hereof)".
(e) Section 2.2 of the Credit Agreement is hereby amended by deleting the
last sentence of such section in its entirety.
(f) Section 4.5 of the Credit Agreement is hereby amended by deleting the
phrase "rate of .375% per annum on" in the first sentence thereof, and
substituting therefor the phrase "Applicable Margin with respect to the
Commitment Fee multiplied by".
(g) Section 5 of the Credit Agreement is hereby amended by deleting clause
(i) thereof in its entirety.
(h) Section 6 of the Credit Agreement is hereby amended by inserting after
ss.6.25 thereof the following new section:
ss.6.26. Assets of Guarantors. Neither St. Mary's nor Fieldcrest
International have or own any assets.
<PAGE>
(i) Section 7 of the Credit Agreement is hereby amended by inserting after
ss.7.19 thereof the following new sections:
ss.7.20. Mortgages. As soon as practicable but in any event on or
prior to April 15, 1996, the Company and its Subsidiaries shall have
granted to the Agent for the benefit of the Lenders a valid and enforceable
first-priority mortgage over the properties described on Schedule 7.20
attached hereto, free and clear of all defects and encumbrances except for
liens permitted under ss.8.2 hereof, or entered into amendments,
satisfactory to the Agent and the Lenders, to the mortgages already
existing in favor of the Agent for the benefit of the Lenders and which
relate to the properties described on Schedule 7.20 attached hereto and
shall have delivered to the Agent fully executed Mortgages or amendments to
Mortgages, as the case may be, with respect to each such property, together
with title insurance policies or endorsements to existing title insurance
policies, if any, surveys, environmental reports, real estate appraisals,
evidences of insurances with the Agent named as loss payee and additional
insured, legal opinions, collateral notes, financing statements and other
documents and certificates with respect to such properties reasonably
required by the Agent, and all steps necessary to perfect such Mortgages
shall have been take to the reasonable satisfaction of the Agent. The
Company will reimburse the Agent for all of its reasonable out-of-pocket
expenses, including but not limited to the reasonable attorneys' fees and
disbursements of the Lender's Special Counsel and other reasonable
attorneys' fees and disbursements, incurred or expended in connection with
the preparation, interpretation, restructuring or termination of the
Mortgages or any amendment thereof and real estate appraisals and surveys
of the properties of the Company and its Subsidiaries.
ss.7.21. Amendments to Security Agreements, Etc. As soon as
practicable but in any event on or prior to March 15, 1996, the Company and
each of the Secured Guarantors shall have executed and delivered an
amendment to its respective Security Agreement granting an additional
security interest in such Person's unencumbered equipment located at the
facilities listed on Schedule 7.20 attached hereto and all such amendments
shall be in form and substance satisfactory to the Agent and the Lenders.
In addition, on or prior to March 15, 1996, duly executed amendments to
financing statements originally filed against the Company and the Secured
Guarantors shall have been received by the Agent and all filings,
recordings, deliveries of instruments and other actions necessary or
desirable in the opinion of the Agent to protect and preserve the Agent's
legal, valid and enforceable first security interest in and lien upon the
Collateral shall have been duly effected and the Agent shall have received
evidence thereof in form and substance satisfactory to the Agent. On or
prior to March 15, 1996, the Agent also shall have received a complete and
fully executed updated Perfection Certificate from the Company and each of
the Secured Guarantors and the results of UCC searches with respect to the
Collateral, indicating no liens other than Permitted Liens and
<PAGE>
otherwise in form and substance satisfactory to the Agent. Simultaneously
with the delivery of the amendments to the Security Agreements, each of the
Lenders shall have received from each of the Secured Guarantors a copy,
certified by a duly authorized officer of such Person to be true and
complete on the date hereof, of each of (i) its charter or other
incorporation documents as in effect on such date of certification, and
(ii) its by-laws as in effect on such date and each of the Lenders shall
have received evidence satisfactory to the Lenders that all corporate
action necessary for the valid execution, delivery and performance by each
of the Secured Guarantors of such amendments to which it is or is to become
a party shall have been duly and effectively taken. Each of the Lenders
also shall have received from each of the Secured Guarantors on or before
March 15, 1996 an incumbency certificate, dated as of the date as of which
the amendment to such Person's Security Agreement is dated, signed by a
duly authorized officer of such Person, and giving the name and bearing a
specimen signature of each individual who shall be authorized: (i) to sign,
in the name and on behalf of such Person, each of the Fourth Amendment, the
amendment to its Security Agreement and the other documents to which such
Person is or is to become a party; and (ii) to give notices and to take
other action on its behalf under the Fourth Amendment, the Security
Agreement and the other documents to which it is a party.
(j) Section 8.1 of the Credit Agreement is hereby amended by deleting
clause (r) thereof in its entirety, and substituting therefor the following:
(r) so long as no Default or Event of Default exists or is continuing
or would exist as a result thereof, unsecured Indebtedness of the Company
not otherwise included in this ss.8.1 in an aggregate amount not at any
time to exceed $20,000,000.
(k) Section 8.3 of the Credit Agreement is hereby amended by deleting
clause (e) thereof in its entirety, and substituting therefor the phrase
"intentionally omitted;".
(l) Section 8.3 of the Credit Agreement is hereby amended by deleting
clause (h) thereof in its entirety, and substituting therefor the following:
(h) so long as no Default or Event of Default exists or is continuing
or would exist as a result thereof, Investments of the Company not
otherwise included in this ss.8.3 in an aggregate amount not at any time to
exceed $30,000,000, provided that any Investment by the Company in any
Subsidiary of the Company pursuant to this ss.8.3(h) shall be limited to
loans to such Subsidiary evidenced by a promissory note of such Subsidiary
and that such promissory note shall be pledged to the Agent for the benefit
of the Lenders and the Agent pursuant to the terms of the Security
Documents to which the Company is a party; provided further that the
aggregate amount of Investments by the Company in any joint ventures or any
other entity in which the Company owns less than 100% of the
<PAGE>
ownership interests of such entity shall not at any time exceed
$15,000,000.
(m) Section 8.5 of the Credit Agreement is hereby amended by deleting the
text of such section in its entirety, and substituting therefor the following:
ss.8.5. Distributions. The Company shall not make any Distributions
except as provided in this ss.8.5. The Company may declare and pay cash
dividends in respect of its preferred stock subject to all of the following
restrictions:
(a) the aggregate amount of cash dividends paid in any fiscal year of
the Company in respect of such preferred stock of the Company shall not
exceed $4,500,000;
(b) no Default or Event of Default shall have occurred and be
continuing at the time of declaration or payment of any cash dividend, and
no Default or Event of Default will exist after giving effect to the
payment of any cash dividend; and
(c) the Company shall have delivered to the Agent no later than one
Business Day after the declaration of such cash dividend (but prior to
payment thereof) a certificate signed by an authorized officer of the
Company and evidence satisfactory to the Agent showing compliance with the
provisions of clauses (a) and (b) hereof.
(n) Section 8.9 of the Credit Agreement is hereby amended by deleting the
text of such section in its entirety, and substituting therefor the following:
ss.8.9. Capital Expenditures. The Company and its Subsidiaries will
not make Consolidated Capital Expenditures in any fiscal year that exceed,
(a) $38,000,000 in the aggregate for the fiscal year of the Company ending
on December 31, 1996, and (b) $55,000,000 in the aggregate in any fiscal
year of the Company thereafter; provided, however, that, if during any
fiscal year the amount of Consolidated Capital Expenditures permitted for
that fiscal year is not so utilized, such unutilized amount may be utilized
in any succeeding fiscal year.
(o) Section 8.10 of the Credit Agreement is hereby amended by deleting the
table set forth at the end of such section in its entirety, and substituting
therefor the following table:
Quarter Ending Ratio
December 31, 1995 0.55 to 1.00
March 31, 1996 0.01 to 1.00
June 30, 1996 0.01 to 1.00
September 30, 1996 0.25 to 1.00
December 31, 1996 1.25 to 1.00
<PAGE>
The last day of each
fiscal quarter 1.50 to 1.00
thereafter
(p) Section 8.11 of the Credit Agreement is hereby amended by deleting the
table set forth at the end of such section in its entirety, and substituting
therefor the following table:
Quarter Ending Ratio
December 31, 1995 1.40 to 1.00
March 31, 1996 0.85 to 1.00
June 30, 1996 0.90 to 1.00
September 30, 1996 1.15 to 1.00
December 31, 1996 and 2.00 to 1.00
thereafter
(q) Section 8.12 of the Credit Agreement is hereby amended by deleting the
table set forth at the end of such section in its entirety, and substituting
therefor the following table:
Period Ratio
10/01/95 through 12/15/95 3.00 to 1.00
12/16/95 through 02/29/96 3.20 to 1.00
03/01/96 through 12/15/96 3.50 to 1.00
12/16/96 through 03/01/97 3.20 to 1.00
Each month thereafter 3.00 to 1.00
(r) The Credit Agreement is hereby further amended by deleting Schedule 6.1
thereto in its entirety, and substituting therefor the Schedule 6.1 attached
hereto.
(s) The Credit Agreement is hereby further amended by adding thereto as
Schedule 7.20 the Schedule 7.20 attached hereto.
ss.3. AMENDMENT FEE. The Company agrees to pay to the Agent, for the
account of the Lenders in accordance with their pro rata share to the Loans, on
or prior to the date on which all conditions set forth in 6 hereof are satisfied
(other than the condition precedent set forth in 6(f) hereof), an amendment fee
(the "Amendment Fee") equal to $243,750.00.
ss.4. AFFIRMATION BY THE COMPANY AND THE GUARANTORS.
<PAGE>
(a) The Company hereby ratifies and confirms all of the Lender Obligations,
including, without limitation, the Loans, and the Company hereby affirms its
absolute and unconditional promise to pay to the Lenders the Loans and all other
amounts due under the Credit Agreement as amended hereby. The Company hereby
confirms that the Lender Obligations are and remain secured pursuant to the
Security Documents to which the Company is a party.
(b) Each of Crestfield Cotton, FCC Canada, Encee, Fieldcrest International,
St. Mary's, Fieldcrest Transportation, Fieldcrest Financing, Fieldcrest
Licensing and Fieldcrest Sure Fit hereby acknowledges the provisions of this
Amendment and hereby reaffirms its absolute and unconditional guaranty of the
Company's payment and performance of the Lender Obligations to the Banks as more
fully described in the Guaranty to which such Person is a party. Each of the
Secured Guarantors hereby confirms that its obligations under the Guaranty to
which it is a party are and remain secured pursuant to the Security Documents to
which it is a party.
ss.5. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Lenders as follows:
(a) Representations and Warranties. The representations and warranties
contained in ss.6 of the Credit Agreement were true and correct in all material
respects when made. The representations and warranties contained in ss.6 of the
Credit Agreement, as amended hereby, are true and correct on the date hereof.
(b) Enforceability. The execution and delivery by the Company and the
Secured Guarantors of this Amendment and all other instruments and agreements
required to be executed and delivered by the Company and the Secured Guarantors,
as the case may be, in connection with the transactions contemplated hereby or
referred to herein (collectively, the "Amendment Documents"), and the
performance by the Company and the Secured Guarantors of the Amendment Documents
and the Credit Agreement, as amended hereby, are within the corporate powers of
the Company and the Secured Guarantors, as the case may be, and have been duly
authorized by all necessary corporate action on the part of the Company and the
Secured Guarantors, as the case may be. Each of the Amendment Documents and the
Credit Agreement, as amended hereby, are valid and legally binding obligations
of the Company and the Secured Guarantors, as the case may be, enforceable in
accordance with their terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights in general.
(c) No Default. No Default or Event of Default has occurred and is
continuing and no Default or Event of Default will exist after the execution and
delivery of this Amendment or after the consummation of the transactions
contemplated hereby.
ss.6. EFFECTIVENESS. This Amendment shall become effective as of December
29, 1995 upon satisfaction of each of the following conditions precedent on or
prior to January 15, 1996:
(a) Delivery. The Company, the Lenders, the Agent and the guarantors
referred to in ss.4(b) hereof shall have executed and
<PAGE>
delivered this Amendment.
(b) Certified Copies of Corporate Documents. Each of the Lenders shall have
received from the Company a copy, certified by a duly authorized officer of the
Company to be true and complete on the date hereof, of each of (i) its charter
or other incorporation documents as in effect on such date of certification, and
(ii) its by-laws as in effect on such date.
(c) Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by the Company of the Amendment Documents to
which it is or is to become a party shall have been duly and effectively taken,
and evidence thereof satisfactory to the Lenders shall have been provided to
each of the Lenders.
(d) Incumbency Certificate. Each of the Lenders shall have received from
the Company an incumbency certificate, dated as of the date hereof, signed by a
duly authorized officer of the Company, and giving the name and bearing a
specimen signature of each individual who shall be authorized: (i) to sign, in
the name and on behalf of the Company, each of the Amendment Documents to which
such company is or is to become a party; and (ii) to give notices and to take
other action on its behalf under the Amendment Documents to which it is a party.
(e) Opinion of Counsel. Each of the Lenders and the Agent shall have
received a favorable legal opinion addressed to the Lenders and the Agent, dated
as of January 15, 1996, in form and substance satisfactory to the Lenders and
the Agent, from M.K. Doss, general counsel to the Company and its Subsidiaries.
(f) Amendment Fee. The Company shall have paid to the Agent the Amendment
Fee.
(g) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident hereto
shall be satisfactory in form and substance to the Agent, and the Agent shall
have received all information and such counterpart originals or certified or
other copies of such documents as the Agent may reasonably request.
ss.7. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly provided
by this Amendment, all of the terms, conditions and provisions of the Credit
Agreement shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and such Credit Agreement shall
be read and construed as one instrument. The consent granted hereunder is
limited to the specific matters referred to herein and the Lenders shall not
have any obligation to issue any further consent with respect to the subject
matter of this consent or any other matter.
(b) This Amendment is intended to take effect as an agreement under seal
and shall be construed according to and governed by the laws of the Commonwealth
of Massachusetts.
<PAGE>
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
(d) The Company hereby agrees to pay to the Agent, on demand by the Agent,
all reasonable out-of-pocket costs and expenses incurred or sustained by the
Agent in connection with the preparation of this Amendment and the documents
referred to herein (including reasonable legal fees).
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as of
the date first above written.
FIELDCREST CANNON, INC.
By:/s/ T. R. Staab
Title: Vice President and
Chief Finanical Officer
THE FIRST NATIONAL BANK
OF BOSTON, as Agent
By:/s/ Mitchell B. Feldman
Title: Managing Director
THE FIRST NATIONAL BANK
OF BOSTON
By:/s/ Mitchell B. Feldman
Title: Managing Director
BANK OF AMERICA ILLINOIS,
individually and as Lead Manager
By:/s/ Deirdre B. Doyle
Title: Vice President
CORESTATES BANK, N. A.,
individually and as Lead Manager
By:/s/ James P. Richards
Title: Vice President
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
individually and as Lead Manager
By:/s/ J. M. Highsmith
Title: Senior Vice President
BANK OF MONTREAL
By:/s/ Joseph A. Bliss
Title: Director
<PAGE>
MELLON BANK, N. A.
By:/s/ Charles H Staub
Title: Vice President
Each of the undersigned joins in this Fourth Amendment for purposes of
ss.4(b) hereof.
CRESTFIELD COTTON COMPANY
By:/s/ T. R. Staab
Title: Vice President and
Treasurer
FCC CANADA, INC.
By:/s/ T. R. Staab
Title: Vice President and
Treasurer
ENCEE, INC.
By:/s/ T. R. Staab
Title: Vice President and
Treasurer
<PAGE>
FIELDCREST CANNON
INTERNATIONAL, INC.
By:/s/ T. R. Staab
Title: Vice President and
Treasurer
ST. MARY'S, INC.
By:/s/ T. R. Staab
Title: Vice President and
Treasurer
FIELDCREST CANNON
TRANSPORTATION, INC.
By:/s/ T. R. Staab
Title: President
FIELDCREST CANNON LICENSING, INC.
By:/s/ John E. Setliff, Jr.
Title: Vice President
FIELDCREST CANNON FINANCING, INC.
By:/s/ John E. Setliff, Jr.
Title: Vice President
FIELDCREST CANNON SURE FIT, INC.
By:/s/ T. R. Staab
Title: Vice President and
Chief Financial Officer
<PAGE>
FIELDCREST CANNON, INC.
Inter-Office Correspondence
July 12, 1993
PERSONAL & CONFIDENTIAL
Mr. K. M. Finlay
Kannapolis
RE: Employee Retention Agreement
Dear Kevin:
Fieldcrest Cannon, Inc. (the "Company") recognizes that, as
is the case with many publicly-held corporations, the possibility
of a change in control may exist and that such possibility, and
the uncertainty and questions which it may raise among key
personnel, may result in the departure or distraction of key
personnel to the detriment of the Company, its stockholders and
its customers.
The Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of the
Company's key personnel, including yourself, to their assigned
duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control
of the Company.
In order to induce you to remain in its employ, the Company
agrees that you shall receive the severance benefits set forth in
this letter agreement (the "Agreement") in the event your
employment with the Company is terminated under the circumstances
described below subsequent to a "Change in Control" of the
<PAGE>
Company (as defined below).
1. Change in Control.
As used herein, the following terms shall have the
following respective meanings:
(a) A "Change in Control" shall occur or be deemed to
have occurred only if any of the following events occur:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (other than Dumaines Trust, Amoskeag
Company, a Delaware corporation ("Amoskeag"), or any
majority owned subsidiary thereof, the Company, any trustee
or other fiduciary holding securities under an employee
benefit plan of the Company, any trustee or other fiduciary
of a trust treated for federal income tax purposes as a
grantor trust of which the Company is the grantor, or any
corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting
power of the Company's then outstanding securities or any
matter which could come before its stockholders for
approval; (ii) any "person" (other than the Dumaines Trust,
the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company,
any trustee or other fiduciary of a trust treated for
federal income tax purposes as a grantor trust of which the
Company is the grantor, or any corporation owned directly or
<PAGE>
indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of
stock of the Company) is or becomes the "beneficial owner,"
directly or indirectly, of securities of Amoskeag
representing 30% or more of the combined voting power of
Amoskeag's then outstanding securities on any matter which
could come before its stockholders for approval, at any time
at which Amoskeag is the "beneficial owner," directly or
indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then
outstanding securities on any matter which could come before
the stockholders for approval; (iii) individuals who, as of
the date hereof, constitute the Board (as of the date
hereof, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that
any person becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of
the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board; (iv) the
stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result
<PAGE>
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than 30% of the
combined voting power of the Company's then outstanding
securities; or (v) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to
have occurred if:
(i) the Company enters in an agreement, the
consummation of which would result in the occurrence of
a Change in Control of the Company,
(ii) any person (including the Company) publicly
announces an intention to take or to consider taking
actions which, if consummated, would constitute a
Change in Control of the Company; or
(iii) the Board of Directors of the Company adopts
a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control of the Company
has occurred.
2. Term of the Agreement.
<PAGE>
The term of this Agreement (the "Term") shall commence
on July 9, 1993 and shall continue in effect through December 31,
1994; provided, however, that commencing on January 1, 1995 and
each January 1 thereafter, the Term shall be automatically
extended for one additional year unless, not later than September
30 of the preceding calendar year, the Company shall have given
you written notice that the Term will not be extended; and
provided further that, if a Change in Control of the Company
shall have occurred during the original or extended Term, this
Agreement shall continue in effect for a period of not less than
24 months beyond the month in which such Change in Control
occurred.
3. Change in Control; Potential Change in Control.
(a) No benefits shall be payable under this Agreement
unless there has been a Change in Control of the Company
during the Term.
(b) You agree that, notwithstanding any provision to
the contrary in this Agreement, in the event of a Potential
Change in Control of the Company, you will not voluntarily
resign as an employee of the Company until the earliest of
(A) a date which is six (6) months after the occurrence of
such Potential Change in Control of the Company or (B) the
termination by you of your employment by reason of
Disability as defined in Section 4(b)(i) or for Good Reason
as defined in Section 4(b)(iii).
4. Employment Status; Termination Following Change in
Control.
(a) You acknowledge that this Agreement does not
constitute a contract of employment or impose on the Company
<PAGE>
any obligation to retain you as an employee and this
Agreement does not prevent you from terminating your
employment at any time except as provided in Section 3(b).
If your employment with the Company terminates for any
reason and subsequently a Change in Control shall have
occurred, you shall not be entitled to any benefits
hereunder. Any termination of your employment by the
Company or by you following a Change in Control of the
Company during the Term shall be communicated by written
notice of termination ("Notice of Termination") to the other
party hereto in accordance with Section 10. The "Date of
Termination" shall mean the effective date of such
termination as specified in the Notice of Termination
(provided that no such Notice of Termination shall specify
an effective date more than 180 days after the date of such
Notice of Termination).
(b) Notwithstanding anything to the contrary herein,
you shall be entitled to the benefits provided in Section 5
only if a Change in Control shall have occurred during the
Term and your employment with the Company is subsequently
terminated or terminates within 24 months after such Change
in Control, unless such termination is (A) because of your
death, (B) by the Company for Disability [as defined in
Section 4(b)(i)] or Cause [as defined in Section 4(b)(ii)],
or (C) by you other than for Good Reason [as defined in
Section 4(b)(iii)].
(i) Disability. If, as a result of incapacity
due to physical or mental illness, you shall have been
absent from the full-time performance of your duties
<PAGE>
with the Company for six (6) consecutive months and,
within thirty (30) days after written notice of
termination is given to you, you shall not have
returned to the full-time performance of your duties,
your employment may be terminated for "Disability."
Any termination for Disability under this Agreement
shall not affect any rights you may otherwise have
under the Company's Long-Term Disability Plan.
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination (A) upon
your willful and continued failure to substantially
perform your duties with the Company [other than any
such failure resulting from your incapacity due to
physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of
Termination by you for Good Reason as defined in
Section 4(b)(iii)], provided that a written demand for
substantial performance has been delivered to you by
the Company specifically identifying the manner in
which the Company believes that you have not
substantially performed your duties and you have not
cured such failure within 30 days after such demand,
(B) by reason of your willful misconduct which is
demonstrably and materially injurious to the Company or
(c) your conviction of a felony from which no appeal is
taken (or which is affirmed upon appeal). For purposes
of this subsection, no act or failure to act on your
part shall be deemed "willful" unless done or omitted
to be done by you not in good faith and without
<PAGE>
reasonable belief that your action or omission was in
the best interest of the Company.
(iii) Good Reason. For purposes of this Agreement,
"Good Reason" shall mean, without your written consent,
the occurrence after a Change in Control of the Company
of any of the following circumstances unless, in the
case of paragraphs (A), (C), (D), (F) or (G), such
circumstances are fully corrected prior to the Date of
Termination [as defined in Section 4(a)] specified in
the Notice of Termination [as defined in Section 4(a)]
given in respect thereof:
(A) the failure of the Company to continue
your employment in a senior executive position
which, in your reasonable judgment, has authority
and responsibility comparable to your authority
and responsibility with the Company immediately
preceding the date of a Change in Control or at
any time thereafter; the assignment to you of any
duties or responsibilities which, in your
reasonable judgment are inconsistent with your
authority or responsibility with the Company
preceding the date of a Change in Control or at
any time thereafter; or any removal of you from
such authority or responsibility, except in
connection with the termination of your employment
for Disability, Cause, as a result of your death
or by you other than for Good Reason;
(B) any reduction in your annual base salary
as in effect on the date hereof or as the same may
<PAGE>
be increased from time to time;
(C) the failure of the Company to continue
in effect any material compensation or benefit
plan in which you participate immediately prior to
the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to
such plan, or the failure by the Company to
continue your participation therein (or in such
substitute or alternative plan) on a basis not
materially less favorable, both in terms of the
amount of benefits provided and the level of your
participation relative to other participants, as
existed at the time of the Change in Control or
the failure by the Company to award cash bonuses
to its executives in amounts substantially
consistent with past practice in light of the
Company's financial performance;
(D) the failure by the Company to continue
to provide you with benefits substantially similar
to those enjoyed by you under any of the Company's
life insurance, medical, health and accident, or
disability plans in which you were participating
at the time of the Change in Control, the taking
of any action by the Company which would directly
or indirectly materially reduce any of such
benefits, or the failure by the Company to provide
you with the number of paid vacation days to which
you are entitled on the basis of years of service
<PAGE>
with the Company in accordance with the Company's
normal vacation policy in effect at the time of
the Change in Control;
(E) the failure of the Company to obtain a
satisfactory agreement from any successor to
assume and agree to perform the Agreement, as
contemplated in Section 8; or
(F) any purported termination of your
employment which is not effected pursuant to a
Notice of Termination satisfying the requirements
of Section 10, which purported termination shall
not be effective for purposes of this Agreement.
5. Compensation Upon Termination; Vesting of Stock.
Following a Change in Control of the Company, you shall
be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case
may be, provided that such period or termination occurs during
the Term; provided, however, that the vesting set forth in
Subsection 5(d) shall be required as of the occurrence of a
Change in Control regardless of whether your employment
terminates during the Term and regardless of the reason for the
termination of employment:
(a) During any period that you fail to perform your
full-time duties with the Company as a result of incapacity
due to physical or mental illness, you shall continue to
receive base salary and all other earned compensation at the
rate in effect at the commencement of any such period
(offset by all compensation payable to you under the
Company's disability plan or program or other similar plan
<PAGE>
during such period) until your employment is terminated
pursuant to Section 4(b)(i) hereof. Thereafter, or in the
event your employment is terminated by reason of death, your
benefits shall be determined under the Company's long-term
disability, retirement, insurance and other compensation
programs then in effect in accordance with the terms of such
programs.
(b) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason
following Change in Control, the Company shall pay you your
full base salary and all other compensation through the Date
of Termination at the rate in effect at the time the Notice
of Termination is given, plus all other amounts to which you
are entitled under any employment contract with the Company
or under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(c) If your employment with the Company is terminated
by the Company (other than for Cause, Disability or your
death) or by you for Good Reason within 24 months after
Change in Control or if your employment with the Company is
terminated by you or the Company for any reason (other than
your death, Disability or retirement) within six (6) months
after a Change in Control, then you shall be entitled to the
benefits below:
(i) the Company shall pay to you (A) your full
base salary and all other compensation through the Date
of Termination at the rate in effect at the time the
Notice of Termination is given, no later than the full
<PAGE>
fifth day following the Date of Termination, plus all
other amounts to which you are entitled under any
compensation plan of the Company at the time such
payments are due, (B) if you so elect, in lieu of your
right to continue to receive deferred compensation
under any deferred compensation plan of the Company
then in effect, no later than the fifth full day
following the Date of Termination, a lump-sum amount,
in cash, equal to the deferred amounts together with
any earnings credited on such amounts under such plan
and (C) if you so elect, in lieu of your right to
continued payments under any employment contract with
the Company, no later than the fifth full day following
the Date of Termination, a lump-sum amount, in cash,
equal to the total of such continued payments;
(ii) the Company shall pay as severance pay to
you, at the time specified in Subsection (e) below, a
lump-sum severance payment (together with the payments
provided in paragraph (iv) below) (the "Severance
Payments") in an amount equal to 200% of your highest
annual base salary in effect during the three-year
period ending the Date of Termination, offset by the
amount, if any, which you are entitled to receive as
severance benefits under any employment contract
between the Company and you;
(iii) the Company shall pay to you all legal fees
and expenses incurred by you as a result of such
termination (including all such fees and expenses, if
any, incurred in contesting or disputing any such
<PAGE>
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement or in
connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999
of the Internal Revenue Code of 1986, as amended (the
"Code") to any payment or benefit provided hereunder);
(iv) for a period of twelve (12) months after your
Date of Termination, the Company shall arrange to
provide you with life, disability, dental, accident and
group health insurance benefits substantially similar
to those which you were receiving immediately prior to
the Notice of Termination. Notwithstanding the
foregoing, the Company shall not provide any benefit
otherwise receivable by you pursuant to this paragraph
(iv) if an equivalent benefit is actually received by
you prior to the end of such 12 month period, and any
such benefit actually received by you shall be reported
to the Company; and
(v) you shall be entitled to any benefits or
payments to which you may be entitled under any other
plan or program of the Company in which you are a
participant at the time of your termination.
(d) As of the occurrence of the Change in Control you
shall become vested in any shares of the Company awarded to
you under the Long-Term Incentive Plan of the Company and
not previously vested, or in any additional shares or
substitute shares issued to reflect a change in the shares
of Common Stock of the Company or a stock dividend or stock
split distributable in shares of common stock of the Company
<PAGE>
or a change in capital structure of the Company, all as
provided in Section 16 of the Long-Term Incentive Plan.
(e) The payments provided for in Subsections 5(b) and
(c) shall be made not later than the fifth day following the
Date of Termination; provided, however, that, if the amounts
of such payments cannot be finally
determined on or before such day, the Company shall pay to
you on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments and
shall pay the remainder of such payments (together with
interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code) as soon as the amount
thereof can be determined but in no event later than the
thirtieth day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
constitute a loan by the Company to you, payable on the
fifth day after demand by the Company (together with
interest at the applicable federal rate provided in Section
7872(f)(2) of the Code).
(f) Except as provided in the second sentence of
Subsection 5(c)(iv) hereof, you shall not be required to
mitigate the amount of any payment provided for in this
Section 5 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in
this Section 5 be reduced by any compensation earned by you
as a result of employment by another employer, by retirement
benefits or by offset against any amount claimed to be owed
by you to the Company or otherwise.
<PAGE>
6. Excise Tax Limitation.
(a) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any
payment or distribution by the Company to or for your
benefit (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 Code, then the aggregate present value of
amounts payable or distributable to you or for your benefit
pursuant to this Agreement (such payments or distributions
pursuant to this Agreement are hereinafter referred to as
"Total Payments") shall be reduced to the Reduced Amount.
The "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of Total
Payments without causing any Payment to be nondeductible by
the Company because of Section 280G of the Code. For
purposes of this Section 6, present value shall be
determined in accordance with Section 280G(d)(4) of the
Code.
(b) All determinations required to be made under this
Section 6 shall be made by the Company's independent public
accountants (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
employee. Any such determination by the Accounting Firm
shall be binding upon the Company and the employee.
(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 Accounting Firm hereunder, it is
<PAGE>
possible that Payments will have been made by the Company
which should not have been made ("Overpayment") or that the
additional Payments which will not have been made by the
Company could have been made ("Underpayment"), in each case,
consistent with the calculations required to be made
hereunder. In the event that the Accounting Firm, based
upon the assertion of a deficiency by the Internal Revenue
Service against the employee which the Accounting Firm
believes has a high probability of success determines that
an Overpayment has been made, any such Overpayment paid or
distributed by the Company to or for the benefit of the
employee shall be treated for all purposes as a loan ab
initio to the employee which the employee 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 such loan shall be deemed to have
been made and no amount shall be payable by the employee to
the Company if and to the extent such deemed loan and
payment would not either reduce the amount on which the
employee is subject to tax under Section 1 and Section 4999
of the Code or generate a refund of such taxes. In the
event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the
employee together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code.
7. Sale of Division.
If the Company sells substantially all of its business
<PAGE>
assets to an entity (the "Purchaser") which is not controlled by
Dumaines Trust or Amoskeag, you will be entitled to receive the
Change in Control Severance Benefits on the effective date of
such sale. In determining such benefits, the hospitalization or
medical reimbursement plan in effect immediately preceding such
effective date shall be continued in effect without change
(except any change that may be mandated by law) for the period
for which you are entitled to coverage. Notwithstanding the
foregoing, the Change in Control Severance Benefits shall not be
payable if you enter the employment of the Purchaser, or if you
fail to enter such employment but the Purchaser offers you the
following: (i) employment in a senior executive position having
authority and responsibility comparable to your authority and
responsibility with the Company immediately preceding the sale,
and (ii) compensation and benefits at least as great as provided
to you by the Company immediately preceding the sale, including
without limitation severance benefits in the event of your
termination of employment with the Purchaser at least as great as
herein provided (but not conditioned on a change in control of
the Purchaser). Notwithstanding the preceding sentence, the
vesting set forth in Subsection 5(d) shall be required on the
effective date of the sale, regardless of any subsequent events.
For the purpose of determining whether the Purchaser is
controlled by Dumaines Trust or Amoskeag, control shall mean the
ownership of voting rights sufficient to elect at least a
majority of the members of the Board of Directors of the
Purchaser.
8. Waiver of Claims
Notwithstanding any provisions of this Agreement to the
<PAGE>
contrary, no payments shall be made to you under Section 5(c)
unless and until you shall have waived and released all claims
which you may have against the Company as of the date of
execution of the waiver and release, including, without
limitation, claims under the Age Discrimination in Employment
Act, but excluding claims for benefits under this Agreement or
claims under any employee benefit plan maintained by the Company.
9. Successors; Binding Agreement.
(a) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or
assets of the Company expressly to assume and agree to
perform this Agreement to the same extent that the Company
would be required to perform it if no such succession had
taken place. Failure of the Company to obtain an assumption
of this Agreement prior to the effectiveness of any
succession shall be a breach of this Agreement and shall
entitle you to compensation from the Company in the same
amount and on the same terms as you would be entitled
hereunder if you had terminated your employment for Good
Reason immediately after a Change in Control of the Company,
except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and
<PAGE>
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or if there is no
such designee, to your estate.
10. Notice.
For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in
writing and shall be duly given when delivered or when mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the General Counsel of
the Company, at 326 East Stadium Drive, Eden, North Carolina, and
to you at the address shown below or to such other address as
either the Company or you may have furnished to the other in
writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Miscellaneous.
(a) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
(b) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws
of the State of North Carolina.
(c) No waiver by you at any time of any breach of, or
compliance with, any provision of this Agreement to be
<PAGE>
performed by the Company shall be deemed a waiver of that or
any other provision at any subsequent time.
(d) This Agreement may be executed in several
counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and
the same instrument.
(e) Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal,
state or local law.
(f) This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter
contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by
any officer, employee or representative of any party hereto;
and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and
cancelled.
<PAGE>
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company this letter,
which will then constitute our agreement on this subject.
Sincerely,
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
James M. Fitzgibbons
Chairman and Chief
Executive Officer
Agreed to this 26th day of July, 1993.
/s/ K. M. Finlay
(Signature)
K. M. Finlay
Print Name
Address:
18912 Peninsula Pointe Drive
Huntersville, NC 28078
<PAGE>
FIELDCREST CANNON, INC.
Inter-Office Correspondence
July 29, 1993
Mr. K. M. Finlay
Kannapolis
RE: Amendment to Employee Retention Agreement
Dear Kevin:
You and Fieldcrest Cannon, Inc. (the "Company") entered into an Employee
Retention Agreement effective July 9, 1993. The Company now deems it appropriate
to amend Subsection 5(c) of the Employee Retention Agreement by deleting the
phrase "or if your employment with the Company is terminated by you or the
Company for any reason (other than your death, Disability or Retirement) within
six (6) months after a Change in Control" therefrom. For good and adequate
consideration, the receipt of which is hereby acknowledged, you agree to the
foregoing amendment. Kindly sign and return to the Company this letter, which
will then constitute our agreement on this subject.
Sincerely,
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
Chairman and Chief
Executive Officer
Agreed to this 2nd day of August, 1993:
/s/ K. M. Finlay
Signature
K. M. Finlay
Print Name
Address:
18912 Peninsula Pointe Dr.
Huntersville, NC 28078
<PAGE>
FIELDCREST CANNON, INC.
Inter-Office Correspondence
July 12, 1993
PERSONAL & CONFIDENTIAL
Mr. T. R. Staab
Eden
RE: Employee Retention Agreement
Dear Tom:
Fieldcrest Cannon, Inc. (the "Company") recognizes that, as
is the case with many publicly-held corporations, the possibility
of a change in control may exist and that such possibility, and
the uncertainty and questions which it may raise among key
personnel, may result in the departure or distraction of key
personnel to the detriment of the Company, its stockholders and
its customers.
The Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of the
Company's key personnel, including yourself, to their assigned
duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control
of the Company.
In order to induce you to remain in its employ, the Company
agrees that you shall receive the severance benefits set forth in
this letter agreement (the "Agreement") in the event your
employment with the Company is terminated under the circumstances
described below subsequent to a "Change in Control" of the
<PAGE>
Company (as defined below).
1. Change in Control.
As used herein, the following terms shall have the
following respective meanings:
(a) A "Change in Control" shall occur or be deemed to
have occurred only if any of the following events occur:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (other than Dumaines Trust, Amoskeag
Company, a Delaware corporation ("Amoskeag"), or any
majority owned subsidiary thereof, the Company, any trustee
or other fiduciary holding securities under an employee
benefit plan of the Company, any trustee or other fiduciary
of a trust treated for federal income tax purposes as a
grantor trust of which the Company is the grantor, or any
corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting
power of the Company's then outstanding securities or any
matter which could come before its stockholders for
approval; (ii) any "person" (other than the Dumaines Trust,
the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company,
any trustee or other fiduciary of a trust treated for
federal income tax purposes as a grantor trust of which the
Company is the grantor, or any corporation owned directly or
indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of
stock of the Company) is or becomes the "beneficial owner,"
directly or
<PAGE>
indirectly, of securities of Amoskeag
representing 30% or more of the combined voting power of
Amoskeag's then outstanding securities on any matter which
could come before its stockholders for approval, at any time
at which Amoskeag is the "beneficial owner," directly or
indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then
outstanding securities on any matter which could come before
the stockholders for approval; (iii) individuals who, as of
the date hereof, constitute the Board (as of the date
hereof, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that
any person becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of
the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board; (iv) the
stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result
<PAGE>
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than 30% of the
combined voting power of the Company's then outstanding
securities; or (v) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to
have occurred if:
(i) the Company enters in an agreement, the
consummation of which would result in the occurrence of
a Change in Control of the Company,
(ii) any person (including the Company) publicly
announces an intention to take or to consider taking
actions which, if consummated, would constitute a
Change in Control of the Company; or
(iii) the Board of Directors of the Company adopts
a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control of the Company
has occurred.
2. Term of the Agreement.
<PAGE>
The term of this Agreement (the "Term") shall commence
on July 9, 1993 and shall continue in effect through December 31,
1994; provided, however, that commencing on January 1, 1995 and
each January 1 thereafter, the Term shall be automatically
extended for one additional year unless, not later than September
30 of the preceding calendar year, the Company shall have given
you written notice that the Term will not be extended; and
provided further that, if a Change in Control of the Company
shall have occurred during the original or extended Term, this
Agreement shall continue in effect for a period of not less than
24 months beyond the month in which such Change in Control
occurred.
3. Change in Control; Potential Change in Control.
(a) No benefits shall be payable under this Agreement
unless there has been a Change in Control of the Company
during the Term.
(b) You agree that, notwithstanding any provision to
the contrary in this Agreement, in the event of a Potential
Change in Control of the Company, you will not voluntarily
resign as an employee of the Company until the earliest of
(A) a date which is six (6) months after the occurrence of
such Potential Change in Control of the Company or (B) the
termination by you of your employment by reason of
Disability as defined in Section 4(b)(i) or for Good Reason
as defined in Section 4(b)(iii).
4. Employment Status; Termination Following Change in
Control.
(a) You acknowledge that this Agreement does not
constitute a contract of employment or impose on the Company
<PAGE>
any obligation to retain you as an employee and this
Agreement does not prevent you from terminating your
employment at any time except as provided in Section 3(b).
If your employment with the Company terminates for any
reason and subsequently a Change in Control shall have
occurred, you shall not be entitled to any benefits
hereunder. Any termination of your employment by the
Company or by you following a Change in Control of the
Company during the Term shall be communicated by written
notice of termination ("Notice of Termination") to the other
party hereto in accordance with Section 10. The "Date of
Termination" shall mean the effective date of such
termination as specified in the Notice of Termination
(provided that no such Notice of Termination shall specify
an effective date more than 180 days after the date of such
Notice of Termination).
(b) Notwithstanding anything to the contrary herein,
you shall be entitled to the benefits provided in Section 5
only if a Change in Control shall have occurred during the
Term and your employment with the Company is subsequently
terminated or terminates within 24 months after such Change
in Control, unless such termination is (A) because of your
death, (B) by the Company for Disability [as defined in
Section 4(b)(i)] or Cause [as defined in Section 4(b)(ii)],
or (C) by you other than for Good Reason [as defined in
Section 4(b)(iii)].
(i) Disability. If, as a result of incapacity
due to physical or mental illness, you shall have been
absent from the full-time performance of your duties
<PAGE>
with the Company for six (6) consecutive months and,
within thirty (30) days after written notice of
termination is given to you, you shall not have
returned to the full-time performance of your duties,
your employment may be terminated for "Disability."
Any termination for Disability under this Agreement
shall not affect any rights you may otherwise have
under the Company's Long-Term Disability Plan.
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination (A) upon
your willful and continued failure to substantially
perform your duties with the Company [other than any
such failure resulting from your incapacity due to
physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of
Termination by you for Good Reason as defined in
Section 4(b)(iii)], provided that a written demand for
substantial performance has been delivered to you by
the Company specifically identifying the manner in
which the Company believes that you have not
substantially performed your duties and you have not
cured such failure within 30 days after such demand,
(B) by reason of your willful misconduct which is
demonstrably and materially injurious to the Company or
(c) your conviction of a felony from which no appeal is
taken (or which is affirmed upon appeal). For purposes
of this subsection, no act or failure to act on your
part shall be deemed "willful" unless done or omitted
to be done by you not in good faith and without
<PAGE>
reasonable belief that your action or omission was in
the best interest of the Company.
(iii) Good Reason. For purposes of this Agreement,
"Good Reason" shall mean, without your written consent,
the occurrence after a Change in Control of the Company
of any of the following circumstances unless, in the
case of paragraphs (A), (C), (D), (F) or (G), such
circumstances are fully corrected prior to the Date of
Termination [as defined in Section 4(a)] specified in
the Notice of Termination [as defined in Section 4(a)]
given in respect thereof:
(A) the failure of the Company to continue
your employment in a senior executive position
which, in your reasonable judgment, has authority
and responsibility comparable to your authority
and responsibility with the Company immediately
preceding the date of a Change in Control or at
any time thereafter; the assignment to you of any
duties or responsibilities which, in your
reasonable judgment are inconsistent with your
authority or responsibility with the Company
preceding the date of a Change in Control or at
any time thereafter; or any removal of you from
such authority or responsibility, except in
connection with the termination of your employment
for Disability, Cause, as a result of your death
or by you other than for Good Reason;
(B) any reduction in your annual base salary
as in effect on the date hereof or as the same may
<PAGE>
be increased from time to time;
(C) the failure of the Company to continue
in effect any material compensation or benefit
plan in which you participate immediately prior to
the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to
such plan, or the failure by the Company to
continue your participation therein (or in such
substitute or alternative plan) on a basis not
materially less favorable, both in terms of the
amount of benefits provided and the level of your
participation relative to other participants, as
existed at the time of the Change in Control or
the failure by the Company to award cash bonuses
to its executives in amounts substantially
consistent with past practice in light of the
Company's financial performance;
(D) the failure by the Company to continue
to provide you with benefits substantially similar
to those enjoyed by you under any of the Company's
life insurance, medical, health and accident, or
disability plans in which you were participating
at the time of the Change in Control, the taking
of any action by the Company which would directly
or indirectly materially reduce any of such
benefits, or the failure by the Company to provide
you with the number of paid vacation days to which
you are entitled on the basis of years of service
<PAGE>
with the Company in accordance with the Company's
normal vacation policy in effect at the time of
the Change in Control;
(E) the failure of the Company to obtain a
satisfactory agreement from any successor to
assume and agree to perform the Agreement, as
contemplated in Section 8; or
(F) any purported termination of your
employment which is not effected pursuant to a
Notice of Termination satisfying the requirements
of Section 10, which purported termination shall
not be effective for purposes of this Agreement.
5. Compensation Upon Termination; Vesting of Stock.
Following a Change in Control of the Company, you shall
be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case
may be, provided that such period or termination occurs during
the Term; provided, however, that the vesting set forth in
Subsection 5(d) shall be required as of the occurrence of a
Change in Control regardless of whether your employment
terminates during the Term and regardless of the reason for the
termination of employment:
(a) During any period that you fail to perform your
full-time duties with the Company as a result of incapacity
due to physical or mental illness, you shall continue to
receive base salary and all other earned compensation at the
rate in effect at the commencement of any such period
(offset by all compensation payable to you under the
Company's disability plan or program or other similar plan
<PAGE>
during such period) until your employment is terminated
ursuant to Section 4(b)(i) hereof. Thereafter, or in the
vent your employment is terminated by reason of death, your
enefits shall be determined under the Company's long-term
isability, retirement, insurance and other compensation
rograms then in effect in accordance with the terms of such
rograms.
(b) If your employment shall be terminated by the
ompany for Cause or by you other than for Good Reason
ollowing Change in Control, the Company shall pay you your
ull base salary and all other compensation through the Date
of Termination at the rate in effect at the time the Notice
of Termination is given, plus all other amounts to which you
are entitled under any employment contract with the Company
or under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(c) If your employment with the Company is terminated
by the Company (other than for Cause, Disability or your
death) or by you for Good Reason within 24 months after
Change in Control or if your employment with the Company is
terminated by you or the Company for any reason (other than
your death, Disability or retirement) within six (6) months
after a Change in Control, then you shall be entitled to the
benefits below:
(i) the Company shall pay to you (A) your full
base salary and all other compensation through the Date
of Termination at the rate in effect at the time the
Notice of Termination is given, no later than the full
<PAGE>
fifth day following the Date of Termination, plus all
other amounts to which you are entitled under any
compensation plan of the Company at the time such
payments are due, (B) if you so elect, in lieu of your
right to continue to receive deferred compensation
under any deferred compensation plan of the Company
then in effect, no later than the fifth full day
following the Date of Termination, a lump-sum amount,
in cash, equal to the deferred amounts together with
any earnings credited on such amounts under such plan
and (C) if you so elect, in lieu of your right to
continued payments under any employment contract with
the Company, no later than the fifth full day following
the Date of Termination, a lump-sum amount, in cash,
equal to the total of such continued payments;
(ii) the Company shall pay as severance pay to
you, at the time specified in Subsection (e) below, a
lump-sum severance payment (together with the payments
provided in paragraph (iv) below) (the "Severance
Payments") in an amount equal to 200% of your highest
annual base salary in effect during the three-year
period ending the Date of Termination, offset by the
amount, if any, which you are entitled to receive as
severance benefits under any employment contract
between the Company and you;
(iii) the Company shall pay to you all legal fees
and expenses incurred by you as a result of such
termination (including all such fees and expenses, if
any, incurred in contesting or disputing any such
<PAGE>
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement or in
connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999
of the Internal Revenue Code of 1986, as amended (the
"Code") to any payment or benefit provided hereunder);
(iv) for a period of twelve (12) months after your
Date of Termination, the Company shall arrange to
provide you with life, disability, dental, accident and
group health insurance benefits substantially similar
to those which you were receiving immediately prior to
the Notice of Termination. Notwithstanding the
foregoing, the Company shall not provide any benefit
otherwise receivable by you pursuant to this paragraph
(iv) if an equivalent benefit is actually received by
you prior to the end of such 12 month period, and any
such benefit actually received by you shall be reported
to the Company; and
(v) you shall be entitled to any benefits or
payments to which you may be entitled under any other
plan or program of the Company in which you are a
participant at the time of your termination.
(d) As of the occurrence of the Change in Control you
shall become vested in any shares of the Company awarded to
you under the Long-Term Incentive Plan of the Company and
not previously vested, or in any additional shares or
substitute shares issued to reflect a change in the shares
of Common Stock of the Company or a stock dividend or stock
split distributable in shares of common stock of the Company
<PAGE>
or a change in capital structure of the Company, all as
provided in Section 16 of the Long-Term Incentive Plan.
(e) The payments provided for in Subsections 5(b) and
(c) shall be made not later than the fifth day following the
Date of Termination; provided, however, that, if the amounts
of such payments cannot be finally determined on or before
such day, the Company shall pay to you on such day
an estimate, as determined in good faith by the Company, of
the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the
applicable federal rate provided for in Section 7872(f)(2)
of the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth day after the Date
of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a
loan by the Company to you, payable on the fifth day after
demand by the Company (together with interest at the
applicable federal rate provided in Section 7872(f)(2) of
the Code).
(f) Except as provided in the second sentence of
Subsection 5(c)(iv) hereof, you shall not be required to
mitigate the amount of any payment provided for in this
Section 5 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in
this Section 5 be reduced by any compensation earned by you
as a result of employment by another employer, by retirement
benefits or by offset against any amount claimed to be owed
by you to the Company or otherwise.
<PAGE>
6. Excise Tax Limitation.
(a) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any
payment or distribution by the Company to or for your
benefit (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 Code, then the aggregate present value of
amounts payable or distributable to you or for your benefit
pursuant to this Agreement (such payments or distributions
pursuant to this Agreement are hereinafter referred to as
"Total Payments") shall be reduced to the Reduced Amount.
The "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of Total
Payments without causing any Payment to be nondeductible by
the Company because of Section 280G of the Code. For
purposes of this Section
6, present value shall be determined in accordance with
Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this
Section 6 shall be made by the Company's independent public
accountants (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
employee. Any such determination by the Accounting Firm
shall be binding upon the Company and the employee.
(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 Accounting Firm hereunder, it is
<PAGE>
possible that Payments will have been made by the Company
which should not have been made ("Overpayment") or that the
additional Payments which will not have been made by the
Company could have been made ("Underpayment"), in each case,
consistent with the calculations required to be made
hereunder. In the event that the Accounting Firm, based
upon the assertion of a deficiency by the Internal Revenue
Service against the employee which the Accounting Firm
believes has a high probability of success determines that
an Overpayment has been made, any such Overpayment paid or
distributed by the Company to or for the benefit of the
employee shall be treated for all purposes as a loan ab
initio to the employee which the employee 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 such loan shall be deemed to have
been made and no amount shall be payable by the employee to
the Company if and to the extent such deemed loan and
payment would not either reduce the amount on which the
employee is subject to tax under Section 1 and Section 4999
of the Code or generate a refund of such taxes. In the
event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the
employee together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code.
7. Sale of Division.
<PAGE>
If the Company sells substantially all of its business
assets to an entity (the "Purchaser") which is not controlled by
Dumaines Trust or Amoskeag, you will be entitled to receive the
Change in Control Severance Benefits on the effective date of
such sale. In determining such benefits, the hospitalization or
medical reimbursement plan in effect immediately preceding such
effective date shall be continued in effect without change
(except any change that may be mandated by law) for the period
for which you are entitled to coverage. Notwithstanding the
foregoing, the Change in Control Severance Benefits shall not be
payable if you enter the employment of the Purchaser, or if you
fail to enter such employment but the Purchaser offers you the
following: (i) employment in a senior executive position having
authority and responsibility comparable to your authority and
responsibility with the Company immediately preceding the sale,
and (ii) compensation and benefits at least as great as provided
to you by the Company immediately preceding the sale, including
without limitation severance benefits in the event of your
termination of employment with the Purchaser at least as great as
herein provided (but not conditioned on a change in control of
the Purchaser). Notwithstanding the preceding sentence, the
vesting set forth in Subsection 5(d) shall be required on the
effective date of the sale, regardless of any subsequent events.
For the purpose of determining whether the Purchaser is
controlled by Dumaines Trust or Amoskeag, control shall mean the
ownership of voting rights sufficient to elect at least a
majority of the members of the Board of Directors of the
Purchaser.
8. Waiver of Claims
<PAGE>
Notwithstanding any provisions of this Agreement to the
contrary, no payments shall be made to you under Section 5(c)
unless and until you shall have waived and released all claims
which you may have against the Company as of the date of
execution of the waiver and release, including, without
limitation, claims under the Age Discrimination in Employment
Act, but excluding claims for benefits under this Agreement or
claims under any employee benefit plan maintained by the Company.
9. Successors; Binding Agreement.
(a) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or
assets of the Company expressly to assume and agree to
perform this Agreement to the same extent that the Company
would be required to perform it if no such succession had
taken place. Failure of the Company to obtain an assumption
of this Agreement prior to the effectiveness of any
succession shall be a breach of this Agreement and shall
entitle you to compensation from the Company in the same
amount and on the same terms as you would be entitled
hereunder if you had terminated your employment for Good
Reason immediately after a Change in Control of the Company,
except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of
law, or otherwise.
<PAGE>
(b) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or if there is no
such designee, to your estate.
10. Notice.
For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in
writing and shall be duly given when delivered or when mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the General Counsel of
the Company, at 326 East Stadium Drive, Eden, North Carolina, and
to you at the address shown below or to such other address as
either the Company or you may have furnished to the other in
writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Miscellaneous.
(a) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
(b) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws
of the State of North Carolina.
(c) No waiver by you at any time of any breach of, or
<PAGE>
compliance with, any provision of this Agreement to be
performed by the Company shall be deemed a waiver of that or
any other provision at any subsequent time.
(d) This Agreement may be executed in several
counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and
the same instrument.
(e) Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal,
state or local law.
(f) This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter
contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by
any officer, employee or representative of any party hereto;
and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and
cancelled.
<PAGE>
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company this letter,
which will then constitute our agreement on this subject.
Sincerely,
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
James M. Fitzgibbons
Chairman and Chief
Executive Officer
Agreed to this 26th day of July, 1993.
/s/ T. R. Staab
(Signature)
T. R. Staab
Print Name
Address:
3726 N.C. 65
Reidsville, NC 27320
<PAGE>
FIELDCREST CANNON, INC.
Inter-Office Correspondence
July 29, 1993
Mr. T. R. Staab
Eden
RE: Amendment to Employee Retention Agreement
Dear Tom:
You and Fieldcrest Cannon, Inc. (the "Company") entered into an
Employee Retention Agreement effective July 9, 1993. The Company now
deems it appropriate to amend Subsection 5(c) of the Employee
Retention Agreement by deleting the phrase "or if your employment with
the Company is terminated by you or the Company for any reason (other
than your death, Disability or Retirement) within six (6) months after
a Change in Control" therefrom. For good and adequate consideration,
the receipt of which is hereby acknowledged, you agree to the
foregoing amendment. Kindly sign and return to the Company this
letter, which will then constitute our agreement on this subject.
Sincerely,
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
Chairman and Chief
Executive Officer
Agreed to this 2nd day of August, 1993:
/s/ T. R. Staab
Signature
T. R. Staab
Print Name
Address:
3726 N.C. 65
Reidsville, NC 27320
<PAGE>
FIELDCREST CANNON, INC.
Inter-Office Correspondence
July 12, 1993
PERSONAL & CONFIDENTIAL
Mr. M. K. Doss
Eden
RE: Employee Retention Agreement
Dear Ken:
Fieldcrest Cannon, Inc. (the "Company") recognizes that, as
is the case with many publicly-held corporations, the possibility
of a change in control may exist and that such possibility, and
the uncertainty and questions which it may raise among key
personnel, may result in the departure or distraction of key
personnel to the detriment of the Company, its stockholders and
its customers.
The Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of the
Company's key personnel, including yourself, to their assigned
duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control
of the Company.
In order to induce you to remain in its employ, the Company
agrees that you shall receive the severance benefits set forth in
this letter agreement (the "Agreement") in the event your
employment with the Company is terminated under the circumstances
described below subsequent to a "Change in Control" of the
Company (as defined below).
<PAGE>
1. Change in Control.
As used herein, the following terms shall have the
following respective meanings:
(a) A "Change in Control" shall occur or be deemed to
have occurred only if any of the following events occur:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (other than Dumaines Trust, Amoskeag
Company, a Delaware corporation ("Amoskeag"), or any
majority owned subsidiary thereof, the Company, any trustee
or other fiduciary holding securities under an employee
benefit plan of the Company, any trustee or other fiduciary
of a trust treated for federal income tax purposes as a
grantor trust of which the Company is the grantor, or any
corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting
power of the Company's then outstanding securities or any
matter which could come before its stockholders for
approval; (ii) any "person" (other than the Dumaines Trust,
the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company,
any trustee or other fiduciary of a trust treated for
federal income tax purposes as a grantor trust of which the
Company is the grantor, or any corporation owned directly or
indirectly by the stockholders of the Company in
<PAGE>
substantially the same proportion as their ownership of
stock of the Company) is or becomes the "beneficial owner,"
directly or indirectly, of securities of Amoskeag
representing 30% or more of the combined voting power of
Amoskeag's then outstanding securities on any matter which
could come before its stockholders for approval, at any time
at which Amoskeag is the "beneficial owner," directly or
indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then
outstanding securities on any matter which could come before
the stockholders for approval; (iii) individuals who, as of
the date hereof, constitute the Board (as of the date
hereof, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that
any person becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of
the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board; (iv) the
stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result
in the voting securities of the Company outstanding
<PAGE>
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no "person"
(as hereinabove defined) acquires more than 30% of the
combined voting power of the Company's then outstanding
securities; or (v) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to
have occurred if:
(i) the Company enters in an agreement, the
consummation of which would result in the occurrence of
a Change in Control of the Company,
(ii) any person (including the Company) publicly
announces an intention to take or to consider taking
actions which, if consummated, would constitute a
Change in Control of the Company; or
(iii) the Board of Directors of the Company adopts
a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control of the Company
has occurred.
2. Term of the Agreement.
The term of this Agreement (the "Term") shall commence
<PAGE>
on July 9, 1993 and shall continue in effect through December 31,
1994; provided, however, that commencing on January 1, 1995 and
each January 1 thereafter, the Term shall be automatically
extended for one additional year unless, not later than September
30 of the preceding calendar year, the Company shall have given
you written notice that the Term will not be extended; and
provided further that, if a Change in Control of the Company
shall have occurred during the original or extended Term, this
Agreement shall continue in effect for a period of not less than
24 months beyond the month in which such Change in Control
occurred.
3. Change in Control; Potential Change in Control.
(a) No benefits shall be payable under this Agreement
unless there has been a Change in Control of the Company
during the Term.
(b) You agree that, notwithstanding any provision to
the contrary in this Agreement, in the event of a Potential
Change in Control of the Company, you will not voluntarily
resign as an employee of the Company until the earliest of
(A) a date which is six (6) months after the occurrence of
such Potential Change in Control of the Company or (B) the
termination by you of your employment by reason of
Disability as defined in Section 4(b)(i) or for Good Reason
as defined in Section 4(b)(iii).
4. Employment Status; Termination Following Change in
Control.
(a) You acknowledge that this Agreement does not
constitute a contract of employment or impose on the Company
any obligation to retain you as an employee and this
<PAGE>
Agreement does not prevent you from terminating your
employment at any time except as provided in Section 3(b).
If your employment with the Company terminates for any
reason and subsequently a Change in Control shall have
occurred, you shall not be entitled to any benefits
hereunder. Any termination of your employment by the
Company or by you following a Change in Control of the
Company during the Term shall be communicated by written
notice of termination ("Notice of Termination") to the other
party hereto in accordance with Section 10. The "Date of
Termination" shall mean the effective date of such
termination as specified in the Notice of Termination
(provided that no such Notice of Termination shall specify
an effective date more than 180 days after the date of such
Notice of Termination).
(b) Notwithstanding anything to the contrary herein,
you shall be entitled to the benefits provided in Section 5
only if a Change in Control shall have occurred during the
Term and your employment with the Company is subsequently
terminated or terminates within 24 months after such Change
in Control, unless such termination is (A) because of your
death, (B) by the Company for Disability [as defined in
Section 4(b)(i)] or Cause [as defined in Section 4(b)(ii)],
or (C) by you other than for Good Reason [as defined in
Section 4(b)(iii)].
(i) Disability. If, as a result of incapacity
due to physical or mental illness, you shall have been
absent from the full-time performance of your duties
with the Company for six (6) consecutive months and,
<PAGE>
within thirty (30) days after written notice of
termination is given to you, you shall not have
returned to the full-time performance of your duties,
your employment may be terminated for "Disability."
Any termination for Disability under this Agreement
shall not affect any rights you may otherwise have
under the Company's Long-Term Disability Plan.
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination (A) upon
your willful and continued failure to substantially
perform your duties with the Company [other than any
such failure resulting from your incapacity due to
physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of
Termination by you for Good Reason as defined in
Section 4(b)(iii)], provided that a written demand for
substantial performance has been delivered to you by
the Company specifically identifying the manner in
which the Company believes that you have not
substantially performed your duties and you have not
cured such failure within 30 days after such demand,
(B) by reason of your willful misconduct which is
demonstrably and materially injurious to the Company or
(c) your conviction of a felony from which no appeal is
taken (or which is affirmed upon appeal). For purposes
of this subsection, no act or failure to act on your
part shall be deemed "willful" unless done or omitted
to be done by you not in good faith and without
reasonable belief that your action or omission was in
<PAGE>
the best interest of the Company.
(iii) Good Reason. For purposes of this Agreement,
"Good Reason" shall mean, without your written consent,
the occurrence after a Change in Control of the Company
of any of the following circumstances unless, in the
case of paragraphs (A), (C), (D), (F) or (G), such
circumstances are fully corrected prior to the Date of
Termination [as defined in Section 4(a)] specified in
the Notice of Termination [as defined in Section 4(a)]
given in respect thereof:
(A) the failure of the Company to continue
your employment in a senior executive position
which, in your reasonable judgment, has authority
and responsibility comparable to your authority
and responsibility with the Company immediately
preceding the date of a Change in Control or at
any time thereafter; the assignment to you of any
duties or responsibilities which, in your
reasonable judgment are inconsistent with your
authority or responsibility with the Company
preceding the date of a Change in Control or at
any time thereafter; or any removal of you from
such authority or responsibility, except in
connection with the termination of your employment
for Disability, Cause, as a result of your death
or by you other than for Good Reason;
(B) any reduction in your annual base salary
as in effect on the date hereof or as the same may
be increased from time to time;
<PAGE>
(C) the failure of the Company to continue
in effect any material compensation or benefit
plan in which you participate immediately prior to
the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to
such plan, or the failure by the Company to
continue your participation therein (or in such
substitute or alternative plan) on a basis not
materially less favorable, both in terms of the
amount of benefits provided and the level of your
participation relative to other participants, as
existed at the time of the Change in Control or
the failure by the Company to award cash bonuses
to its executives in amounts substantially
consistent with past practice in light of the
Company's financial performance;
(D) the failure by the Company to continue
to provide you with benefits substantially similar
to those enjoyed by you under any of the Company's
life insurance, medical, health and accident, or
disability plans in which you were participating
at the time of the Change in Control, the taking
of any action by the Company which would directly
or indirectly materially reduce any of such
benefits, or the failure by the Company to provide
you with the number of paid vacation days to which
you are entitled on the basis of years of service
with the Company in accordance with the Company's
<PAGE>
normal vacation policy in effect at the time of
the Change in Control;
(E) the failure of the Company to obtain a
satisfactory agreement from any successor to
assume and agree to perform the Agreement, as
contemplated in Section 8; or
(F) any purported termination of your
employment which is not effected pursuant to a
Notice of Termination satisfying the requirements
of Section 10, which purported termination shall
not be effective for purposes of this Agreement.
5. Compensation Upon Termination; Vesting of Stock.
Following a Change in Control of the Company, you shall
be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case
may be, provided that such period or termination occurs during
the Term; provided, however, that the vesting set forth in
Subsection 5(d) shall be required as of the occurrence of a
Change in Control regardless of whether your employment
terminates during the Term and regardless of the reason for the
termination of employment:
(a) During any period that you fail to perform your
full-time duties with the Company as a result of incapacity
due to physical or mental illness, you shall continue to
receive base salary and all other earned compensation at the
rate in effect at the commencement of any such period
(offset by all compensation payable to you under the
Company's disability plan or program or other similar plan
during such period) until your employment is terminated
<PAGE>
pursuant to Section 4(b)(i) hereof. Thereafter, or in the
event your employment is terminated by reason of death, your
benefits shall be determined under the Company's long-term
disability, retirement, insurance and other compensation
programs then in effect in accordance with the terms of such
programs.
(b) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason
following Change in Control, the Company shall pay you your
full base salary and all other compensation through the Date
of Termination at the rate in effect at the time the Notice
of Termination is given, plus all other amounts to which you
are entitled under any employment contract with the Company
or under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(c) If your employment with the Company is terminated
by the Company (other than for Cause, Disability or your
death) or by you for Good Reason within 24 months after
Change in Control or if your employment with the Company is
terminated by you or the Company for any reason (other than
your death, Disability or retirement) within six (6) months
after a Change in Control, then you shall be entitled to the
benefits below:
(i) the Company shall pay to you (A) your full
base salary and all other compensation through the Date
of Termination at the rate in effect at the time the
Notice of Termination is given, no later than the full
fifth day following the Date of Termination, plus all
<PAGE>
other amounts to which you are entitled under any
compensation plan of the Company at the time such
payments are due, (B) if you so elect, in lieu of your
right to continue to receive deferred compensation
under any deferred compensation plan of the Company
then in effect, no later than the fifth full day
following the Date of Termination, a lump-sum amount,
in cash, equal to the deferred amounts together with
any earnings credited on such amounts under such plan
and (C) if you so elect, in lieu of your right to
continued payments under any employment contract with
the Company, no later than the fifth full day following
the Date of Termination, a lump-sum amount, in cash,
equal to the total of such continued payments;
(ii) the Company shall pay as severance pay to
you, at the time specified in Subsection (e) below, a
lump-sum severance payment (together with the payments
provided in paragraph (iv) below) (the "Severance
Payments") in an amount equal to 200% of your highest
annual base salary in effect during the three-year
period ending the Date of Termination, offset by the
amount, if any, which you are entitled to receive as
severance benefits under any employment contract
between the Company and you;
(iii) the Company shall pay to you all legal fees
and expenses incurred by you as a result of such
termination (including all such fees and expenses, if
any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any
<PAGE>
right or benefit provided by this Agreement or in
connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999
of the Internal Revenue Code of 1986, as amended (the
"Code") to any payment or benefit provided hereunder);
(iv) for a period of twelve (12) months after your
Date of Termination, the Company shall arrange to
provide you with life, disability, dental, accident and
group health insurance benefits substantially similar
to those which you were receiving immediately prior to
the Notice of Termination. Notwithstanding the
foregoing, the Company shall not provide any benefit
otherwise receivable by you pursuant to this paragraph
(iv) if an equivalent benefit is actually received by
you prior to the end of such 12 month period, and any
such benefit actually received by you shall be reported
to the Company; and
(v) you shall be entitled to any benefits or
payments to which you may be entitled under any other
plan or program of the Company in which you are a
participant at the time of your termination.
(d) As of the occurrence of the Change in Control you
shall become vested in any shares of the Company awarded to
you under the Long-Term Incentive Plan of the Company and
not previously vested, or in any additional shares or
substitute shares issued to reflect a change in the shares
of Common Stock of the Company or a stock dividend or stock
split distributable in shares of common stock of the Company
or a change in capital structure of the Company, all as
<PAGE>
provided in Section 16 of the Long-Term Incentive Plan.
(e) The payments provided for in Subsections 5(b) and
(c) shall be made not later than the fifth day following the
Date of Termination; provided, however, that, if the amounts
of such payments cannot be finally determined on or before
such day, the Company shall pay to you on such day
an estimate, as determined in good faith by the Company, of
the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the
applicable federal rate provided for in Section 7872(f)(2)
of the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth day after the Date
of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a
loan by the Company to you, payable on the fifth day after
demand by the Company (together with interest at the
applicable federal rate provided in Section 7872(f)(2) of
the Code).
(f) Except as provided in the second sentence of
Subsection 5(c)(iv) hereof, you shall not be required to
mitigate the amount of any payment provided for in this
Section 5 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in
this Section 5 be reduced by any compensation earned by you
as a result of employment by another employer, by retirement
benefits or by offset against any amount claimed to be owed
by you to the Company or otherwise.
6. Excise Tax Limitation.
<PAGE>
(a) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any
payment or distribution by the Company to or for your
benefit (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 Code, then the aggregate present value of
amounts payable or distributable to you or for your benefit
pursuant to this Agreement (such payments or distributions
pursuant to this Agreement are hereinafter referred to as
"Total Payments") shall be reduced to the Reduced Amount.
The "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of Total
Payments without causing any Payment to be nondeductible by
the Company because of Section 280G of the Code. For
purposes of this Section
6, present value shall be determined in accordance with
Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this
Section 6 shall be made by the Company's independent public
accountants (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
employee. Any such determination by the Accounting Firm
shall be binding upon the Company and the employee.
(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 Accounting Firm hereunder, it is
possible that Payments will have been made by the Company
<PAGE>
which should not have been made ("Overpayment") or that the
additional Payments which will not have been made by the
Company could have been made ("Underpayment"), in each case,
consistent with the calculations required to be made
hereunder. In the event that the Accounting Firm, based
upon the assertion of a deficiency by the Internal Revenue
Service against the employee which the Accounting Firm
believes has a high probability of success determines that
an Overpayment has been made, any such Overpayment paid or
distributed by the Company to or for the benefit of the
employee shall be treated for all purposes as a loan ab
initio to the employee which the employee 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 such loan shall be deemed to have
been made and no amount shall be payable by the employee to
the Company if and to the extent such deemed loan and
payment would not either reduce the amount on which the
employee is subject to tax under Section 1 and Section 4999
of the Code or generate a refund of such taxes. In the
event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the
employee together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code.
7. Sale of Division.
If the Company sells substantially all of its business
assets to an entity (the "Purchaser") which is not controlled by
<PAGE>
Dumaines Trust or Amoskeag, you will be entitled to receive the
Change in Control Severance Benefits on the effective date of
such sale. In determining such benefits, the hospitalization or
medical reimbursement plan in effect immediately preceding such
effective date shall be continued in effect without change
(except any change that may be mandated by law) for the period
for which you are entitled to coverage. Notwithstanding the
foregoing, the Change in Control Severance Benefits shall not be
payable if you enter the employment of the Purchaser, or if you
fail to enter such employment but the Purchaser offers you the
following: (i) employment in a senior executive position having
authority and responsibility comparable to your authority and
responsibility with the Company immediately preceding the sale,
and (ii) compensation and benefits at least as great as provided
to you by the Company immediately preceding the sale, including
without limitation severance benefits in the event of your
termination of employment with the Purchaser at least as great as
herein provided (but not conditioned on a change in control of
the Purchaser). Notwithstanding the preceding sentence, the
vesting set forth in Subsection 5(d) shall be required on the
effective date of the sale, regardless of any subsequent events.
For the purpose of determining whether the Purchaser is
controlled by Dumaines Trust or Amoskeag, control shall mean the
ownership of voting rights sufficient to elect at least a
majority of the members of the Board of Directors of the
Purchaser.
8. Waiver of Claims
Notwithstanding any provisions of this Agreement to the
contrary, no payments shall be made to you under Section 5(c)
<PAGE>
unless and until you shall have waived and released all claims
which you may have against the Company as of the date of
execution of the waiver and release, including, without
limitation, claims under the Age Discrimination in Employment
Act, but excluding claims for benefits under this Agreement or
claims under any employee benefit plan maintained by the Company.
9. Successors; Binding Agreement.
(a) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or
assets of the Company expressly to assume and agree to
perform this Agreement to the same extent that the Company
would be required to perform it if no such succession had
taken place. Failure of the Company to obtain an assumption
of this Agreement prior to the effectiveness of any
succession shall be a breach of this Agreement and shall
entitle you to compensation from the Company in the same
amount and on the same terms as you would be entitled
hereunder if you had terminated your employment for Good
Reason immediately after a Change in Control of the Company,
except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement,
"Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
<PAGE>
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued
to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or if there is no
such designee, to your estate.
10. Notice.
For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in
writing and shall be duly given when delivered or when mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the General Counsel of
the Company, at 326 East Stadium Drive, Eden, North Carolina, and
to you at the address shown below or to such other address as
either the Company or you may have furnished to the other in
writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
11. Miscellaneous.
(a) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
(b) The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws
of the State of North Carolina.
(c) No waiver by you at any time of any breach of, or
compliance with, any provision of this Agreement to be
performed by the Company shall be deemed a waiver of that or
<PAGE>
any other provision at any subsequent time.
(d) This Agreement may be executed in several
counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and
the same instrument.
(e) Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal,
state or local law.
(f) This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter
contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by
any officer, employee or representative of any party hereto;
and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and
cancelled.
<PAGE>
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company this letter,
which will then constitute our agreement on this subject.
Sincerely,
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
James M. Fitzgibbons
Chairman and Chief
Executive Officer
Agreed to this 26th day
of July, 1993.
/s/ M. K. Doss
(Signature)
M. K. Doss
Print Name
Address:
7902 Southerland Drive
Browns Summit, NC 27214
<PAGE>
FIELDCREST CANNON, INC.
Inter-Office Correspondence
July 29, 1993
Mr. M. K. Doss
Eden
RE: Amendment to Employee Retention Agreement
Dear Ken:
You and Fieldcrest Cannon, Inc. (the "Company") entered into an
Employee Retention Agreement effective July 9, 1993. The Company now
deems it appropriate to amend Subsection 5(c) of the Employee
Retention Agreement by deleting the phrase "or if your employment with
the Company is terminated by you or the Company for any reason (other
than your death, Disability or Retirement) within six (6) months after
a Change in Control" therefrom. For good and adequate consideration,
the receipt of which is hereby acknowledged, you agree to the
foregoing amendment. Kindly sign and return to the Company this
letter, which will then constitute our agreement on this subject.
Sincerely,
FIELDCREST CANNON, INC.
By: /s/ James M. Fitzgibbons
Chairman and Chief
Executive Officer
Agreed to this 2nd day of August, 1993:
/s/ M. K. Doss
Signature
M. K. Doss
Print Name
Address:
7902 Southerland Drive
Browns Summit, NC 27214
<PAGE>
Exhibit 11
Computation of Primary and Fully Diluted Net Income (Loss) Per Share
<TABLE>
<CAPTION>
For the three months For the twelve months
ended December 31 ended December 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Average shares outstanding 8,913,175 8,727,971 8,860,065 8,677,811
Add shares assuming exercise of
options reduced by the number of
shares which could have been
purchased with the proceeds from
exercise of such options 8,129 16,212 15,295 18,204
Average shares and equivalents
outstanding, primary 8,921,304 8,744,183 8,875,360 8,696 015
Average shares outstanding 8,913,175 8,727,971 8,860,065 8,677,811
Add shares giving effect to
the conversion of the
convertible subordinated
debentures 2,824,859 2,824,859 2,824,859 2,824,859
Add shares giving effect to the
conversion of the convertible
preferred stock 2,564,100 2,564,103 2,564,100 2,564,103
Add shares assuming exercise of
options reduced by the number of
shares which could have been
purchased with the proceeds from
exercise of such options 8,129 16,212 15,480 19,132
Average shares and equivalents
outstanding, assuming full
dilution 14,310,263 14,133,145 14,264,505 14,085,905
Primary Earnings
Net income (loss) $(17,729,000) $10,089,000 $(15,725,000) $30,745,000
Preferred dividends (1,125,000) (1,125,000) (4,500,000) (4,500,000)
Earnings (loss) on Common $(18,854,000) $ 8,964,000 $(20,225,000) $26,245,000
Primary earnings (loss) per share
Net income (loss) $ (2.11) $ 1.03 $ (2.28) $ 3.02
</TABLE>
<PAGE>
Exhibit 11
Computation of Primary and Fully Diluted Net Income (Loss) Per Share
<TABLE>
<CAPTION>
For the three months For the twelve months
ended December 31 ended December 31
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Fully Diluted Earnings
Income (loss) from continuing
operations before extraordinary
charge and accounting change $(18,854,000) $ 8,964,000 $(20,225,000) $26,245,000
Add convertible subordinated
debenture interest, net of taxes (1) 1,144,000 (1) 4,575,000
Add convertible preferred
dividends (1) 1,125,000 (1) 4,500,000
Net income (loss) $(18,854,000) $11,233,000 $(20,225,000) $35,320,000
Fully diluted earnings (loss)
per share
Net income (loss) $ (2) $ .80 $ (2) $ 2.51
</TABLE>
(1) The assumed conversion of the Registrant's Convertible Subordinated
Debentures and Convertible Preferred Stock for the three months and
twelve months ended December 31, 1995 would have an anti-dilutive
effect for the computation of earnings per share; therefore conversion
has not been assumed for these periods.
(2) Fully diluted net income per share for the three months and twelve
months ended December 31, 1995 is not presented as effects are
anti-dilutive.
<PAGE>
<PAGE>
FIELDCREST CANNON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following summary income statement from continuing operations sets forth the
percentage relationship that certain costs and expenses and other items in the
income statement bear to net sales (dollars in millions).
<TABLE>
<CAPTION>
1995 1994 1993
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
NET SALES $1,095.2 100.0% $1,063.7 100.0% $1,000.1 100.0%
Cost of sales 966.6 88.3 898.4 84.5 834.7 83.5
Selling, general and administrative 108.2 9.9 94.8 8.9 101.8 10.2
Restructuring charges 20.5 1.8 -- -- 10.0 1.0
OPERATING INCOME (LOSS) (.1) -- 70.5 6.6 53.6 5.3
Interest expense 27.6 2.5 23.3 2.2 27.7 2.7
Other (income) expense, net .1 -- .9 .1 (1.0) (.1)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND ACCOUNTING CHANGES (27.8) (2.5) 46.3 4.3 26.9 2.7
Federal and state income taxes (benefit) (12.1) (1.1) 15.6 1.4 11.9 1.2
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE ACCOUNTING CHANGES $ (15.7) (1.4)% $ 30.7 2.9% $ 15.0 1.5%
</TABLE>
21
<PAGE>
FIELDCREST CANNON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
1995 COMPARED TO 1994
Net sales for 1995 were $1,095.2 million compared to $1,063.7 million for 1994,
an increase of 3%. The $31.5 million increase includes $47.0 million of
furniture coverings from the Sure Fit business acquired in January 1995. The
1.5% decrease in sales, after adjusting for the Sure Fit acquisition, was due to
lower volumes which were only partially offset by price increases implemented in
the last half of 1994 and during 1995. The volume decline occurred in the second
half of the year and is attributed primarily to weakness in retail sales. Gross
profit margins decreased from 15.5% in 1994 to 11.7% in 1995 primarily because
of higher raw material prices and lower mill activity.
Selling, general and administrative expenses as a percent of sales increased
from 8.9% in 1994 to 9.9% in 1995. The increase was due primarily to increased
advertising and other selling expenses.
Operating income for 1995 was also reduced by $20.5 million of restructuring
charges resulting from the reorganization of the Company's New York operations,
which included severance and termination benefits for 54 employees, a related
voluntary early retirement program, which was accepted by 87 employees and
closing two yarn mills. See Note 2 of the Notes to Consolidated Financial
Statements. The reorganization of the New York office and related early
retirement program are expected to reduce pre-tax annual costs by approximately
$8 million. The Company has contracted to purchase yarn from outside vendors and
expects annual pre-tax savings of $8 to $9 million. Before the restructuring
charges, operating income in 1995 was $20.4 million, or 1.9% of sales, compared
to $70.5 million, or 6.6% of sales, in 1994.
Interest expense increased $4.3 million in 1995. The increase was due to higher
rates under the revolver and an increase in average debt outstanding. Debt
increased during 1995 because of the Sure Fit acquisition and the Company's
increased level of capital expenditures. In 1994 the Company allocated $1.6
million of interest costs to the Amoskeag assets held for sale.
An income tax benefit equal to 43.5% of the 1995 pre-tax loss was recognized in
1995, compared to an effective income tax rate of 33.6% on pre-tax income in
1994. A $1.7 million favorable settlement of prior years income taxes in 1994
reduced the 1994 effective tax rate by 3.7%. See Note 13 of the Notes to
Consolidated Financial Statements.
A loss from continuing operations of $15.7 million, or $2.28 per share, was
incurred in 1995 compared to income of $30.7 million, or $3.02 per share, in
1994. The loss before restructuring charges was $3.6 million, or $.91 per share,
in 1995 compared to income of $29.0 million, or $2.82 per share, in 1994 after
excluding the favorable settlements of prior years income taxes of $1.7 million
from 1994.
On March 4, 1996 the Company announced it would close a towel weaving plant and
a yarn manufacturing plant as part of the Company's ongoing consolidation effort
to utilize assets more effectively. The Company expects to accrue a pre-tax
charge of $4.5 to $5.0 million, or $.31 to $.35 per share, for the write-down of
equipment and employee termination benefits in the first quarter of 1996. In
addition, 1996 operating costs will be adversely affected by approximately $3
million of equipment relocation, training and other related transition costs.
The move, when completed, is expected to produce annual cost savings of $8 to $9
million.
1994 COMPARED TO 1993
Net sales from continuing operations in 1994 increased to $1,063.7 million
compared to $1,000.1 million in 1993. The 6.4% increase was due primarily to
increased volume and to a lesser extent to price increases implemented during
the third quarter of 1994. Increases in raw material and labor costs were not
fully recovered by the selling price increases and gross margins declined to
15.5% in 1994 compared to 16.5% in 1993.
Selling, general and administrative expenses as a percent of sales decreased
from 10.2% in 1993 to 8.9% in 1994. The decrease was due primarily to reduced
costs resulting from the voluntary early retirement program implemented in late
1993, lower bad debt expense and a decrease in other selling expenses.
22
<PAGE>
FIELDCREST CANNON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating income as a percent of sales was 6.6% in 1994 compared to 5.3% in
1993. Operating income was reduced 1.0% in 1993 due to $10 million of
restructuring charges. See Note 2 of the Notes to Consolidated Financial
Statements. Before the restructuring charges operating income as a percent of
sales was 6.3% in 1993.
Interest expense decreased $4.4 million in 1994. The reduction of interest
expense was primarily due to lower average debt resulting from the reduction of
debt with the proceeds from the sale of the carpet and rug division in July
1993. In 1994 the Company allocated $1.6 million of interest costs to the
Amoskeag assets held for sale. See Note 3 of the Notes to Consolidated Financial
Statements.
The effective income tax rate was 33.6% in 1994 compared to 44.3% in 1993. The
decrease in the effective income tax rate is due primarily to a $1.7 million
favorable settlement of prior years income taxes in 1994 and the unfavorable
$1.4 million effect of the federal tax rate increase in 1993. See Note 13 of the
Notes to Consolidated Financial Statements.
Income from continuing operations before accounting changes was $30.7 million or
$3.02 per share in 1994 compared to $15.0 million or $1.24 per share in 1993.
Income before non-recurring items was $29.0 millon, or $2.82 per share, in 1994
compared to $22.5 million, or $1.88 per share, in 1993 after excluding the
favorable settlements of prior years income taxes of $1.7 million from 1994, and
the pre-tax restructuring charge of $10 million and a $1.4 million tax
adjustment from 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital, principally
inventory and accounts receivable, and capital expenditures. The Company
historically has financed these requirements, including its working capital
requirements which follow a seasonal pattern, with funds generated from its
operations and through borrowings under its revolving credit agreements.
The table below summarizes the Company cash provided by operating and financing
activities and cash used for additions to plant and equipment.
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
<S> <C> <C>
CASH PROVIDED (USED):
Net income (loss) $(15,725) $30,745
Depreciation and amortization 31,746 29,828
Deferred income taxes (2,384) 7,677
Working capital, excluding
effects of acquisition of Sure
Fit 12,613 (19,719)
Other 1,597 (8,178)
Financing activities 42,386 11,781
TOTAL CASH PROVIDED 70,233 52,134
CASH USED FOR:
Additions to plant and equipment (64,153) (51,929)
Sale of plant and equipment 1,218 1,815
Proceeds from net assets held
for sale 23,241 --
Purchase of Sure Fit, net of
cash acquired (27,300) --
TOTAL CASH (USED) (66,994) (50,114)
INCREASE IN CASH $ 3,239 $2,020
</TABLE>
Working capital requirements decreased in 1995 primarily because accounts
receivables decreased $10.6 million. Working capital requirements increased in
1994 primarily because of a $17.9 million decrease in accounts payable and
accrued liabilities, a $5.6 million increase in accounts receivable and a $4.2
million increase in inventories.
Total debt as a percent of total capitalization (long-term debt, short-term debt
and shareowners' equity) was 63% at December 31, 1995, compared to 58% at the
end of 1994.
Capital expenditures totalled $64.2 million in 1995 compared to $51.9 million
spent in 1994. Capital expenditures for 1996 are expected to be approximately
$38 million. Included in the 1995 and 1994 capital expenditures are $37.2
million and $33.8 million, respectively, for a new weaving plant at the
Company's Columbus, Ga./Phenix City, Ala. towel mill. It is anticipated that
financing of future capital expenditures will be provided by cash flows from
operations, borrowings under the Company's revolving credit facility, and,
possibly, the sale of long-term debt or equity securities.
23
<PAGE>
FIELDCREST CANNON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On January 27, 1995 the Company purchased the Sure Fit furniture covering
business of UTC Holdings, Inc., for a cash purchase price of $27.3 million. Sure
Fit's 1995 sales were $47 million. With the acquisition, the Company amended its
revolving credit facility to permit the transaction and increased the line from
$160 million to $195 million. In March 1995, the Company sold the Bangor and
Aroostook Railroad for approximately $20 million of cash and $8 million of notes
receivable. Proceeds from the sale were used to reduce borrowings under the
revolving credit facility.
The Company's revolving credit facility allows the Company to borrow up to $195
million through January 3, 1998. The Company uses its revolving credit facility
for long-term debt purposes and its seasonal borrowing requirements during the
year. Short-term borrowings are required during the year to finance seasonal
increases in inventories and receivables.
As a result of the operating loss in the fourth quarter of 1995, the Company
amended its revolving term debt agreement effective December 29, 1995, to modify
certain financial covenants for 1995 and future periods to provide the Company
with necessary operating flexibility. The revolving credit facility is secured
by a first lien on substantially all of the Company's accounts receivables and
inventories and a substantial portion of its plant and equipment and bears
interest, at the Company's option, at the prime rate fixed by The First National
Bank of Boston, or at a Euromarket-based rate plus 1.25%. Under the December 29,
1995, amendment the borrowing rate increases to a Euromarket-based rate plus 2%
in February 1996 based upon the Company's 1995 interest coverage ratio.
The revolving credit facility requires, among other things, that the Company
maintain certain financial ratios with regard to working capital, interest
coverage, funded debt and net worth. It allows payment of $4.5 million of
preferred dividends annually, but does not allow dividends on Common Stock. The
agreement also places restrictions on the Company's ability to incur debt or
liens, to make certain investments and to effect certain mergers, consolidations
or sales of assets or changes in control.
At December 31, 1995, borrowings under the $195 million revolving term debt
agreement totalled $142.5 million and $42.5 million of the facility was
available and unused. A letter of credit to secure $10 million of industrial
development bonds of the Company reduces the availability under the revolving
credit facility by $10 million.
As of December 31, 1995, the Company lowered its discount rate from 8.6% to
7.25% for valuing its accumulated pension benefit obligations under FAS 87,
"Employers' Accounting for Pensions" and its accumulated postretirement health
care and life insurance benefit obligations under FAS 106, "Employers'
Accounting for Postretirement Benefits other than Pensions". The lower discount
rate of 7.25% results in a higher value for the calculated obligations and will
result in higher expenses in 1996 than would have been provided with the
previous 8.6% discount rate. The increase in expense is not expected to
materially effect the Company's future operating results or financial condition.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," (FAS 121) which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. FAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt FAS 121 in the first quarter of 1996 and, based on current
circumstances, does not believe the effect of adoption will be material.
24
<PAGE>
FIELDCREST CANNON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARKET AND DIVIDEND DATA
The Company's Common Stock is listed on the New York Stock Exchange (trading
symbol: FLD). At December 31, 1995, there were 2,082 shareholders of record of
Common Stock. See Note 8 of the Notes to Consolidated Financial Statements
regarding restrictions on the payment of dividends. No dividends were paid on
Common Stock during the last two years. The high and low sale prices on the New
York Stock Exchange composite tape for the last two years were as shown below:
<TABLE>
<CAPTION>
Market price
Common Stock
Quarter, 1995 High Low
<S> <C> <C>
1st $ 25 3/8 $19 7/8
2nd 24 1/8 19 3/4
3rd 24 7/8 21 1/4
4th 22 1/4 15 3/4
Quarter, 1994
1st $ 34 3/8 $24 1/4
2nd 33 22 1/2
3rd 29 1/8 23 3/4
4th 27 3/4 23 3/8
</TABLE>
QUARTERLY DATA (UNAUDITED)
Data in millions, except per share information
<TABLE>
<CAPTION>
1995 quarter ended March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Net sales $ 257.0 $ 273.1 $ 280.5 $ 284.6
Gross profit 43.0 34.4 40.1 11.1
Operating income (loss) 12.4 4.2 6.7 (23.4)
Net income (loss) 3.6 (1.6) -- (17.7)
Primary earnings (loss) per share .28 (.30) (.13) (2.11)
Fully diluted earnings (loss) per share .28 (.30) (.13) (2.11)
<CAPTION>
1994 quarter ended March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Net sales $ 232.3 $ 254.8 $ 279.3 $ 297.3
Gross profit 37.4 40.5 44.2 43.2
Operating income 15.0 16.9 20.1 18.5
Net income 5.5 6.7 8.5 10.0
Primary earnings per share .51 .64 .84 1.03
Fully diluted earnings per share .47 .56 .68 .80
</TABLE>
Annual earnings for 1995 were reduced by pre-tax restructuring charges of $20.5
million which increased the net loss by $12.1 million, or $1.37 per share.
Quarterly earnings for 1995 were reduced by restructuring charges of $3.9
million, or $.28 per share; $4.5 million, or $.32 per share; $7.1 million, or
$.53 per share; and $4.9 million or $.23 per share for the first, second, third
and fourth quarter, respectively. The restructuring charges during the first
three quarters were related to the reorganization of the Company's New York
operations and a related early retirement program. The fourth quarter charges
were the result of closing two yarn mills.
The fourth quarter of 1994 includes favorable settlements of prior years income
taxes of $1.7 million which increased net income by $1.7 million, or $.19 per
common share on a primary basis and $.12 per share on a fully diluted basis.
Quarterly earnings per share amounts presented for 1995 do not equal the annual
1995 earnings per share amount due to issuance of shares during the year.
25
<PAGE>
FIELDCREST CANNON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Year Ended December 31
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales $1,095,193 $1,063,731 $1,000,107
Cost of sales (notes 2, 5) 966,642 898,437 834,701
Selling, general and administrative 108,194 94,756 101,843
Restructuring charges (note 2) 20,469 -- 10,000
Total operating costs and expenses 1,095,305 993,193 946,544
Operating income (loss) (112) 70,538 53,563
OTHER DEDUCTIONS (INCOME):
Interest expense 27,630 23,268 27,659
Other, net 67 987 (975)
Total other deductions 27,697 24,255 26,684
Income (loss) before income taxes (27,809) 46,283 26,879
Federal and state income taxes (benefits) (note 13) (12,084) 15,538 11,913
Income (loss) from continuing operations before accounting changes (15,725) 30,745 14,966
Income from discontinued operations -- -- 3,201
Gain from disposition of discontinued operations -- -- 9,207
Cumulative effect of accounting changes -- -- (70,305)
Net income (loss) (15,725) 30,745 (42,931)
Preferred dividends (4,500) (4,500) (463)
Earnings (loss) on common $ (20,225) $ 26,245 $ (43,394)
Amount added to (subtracted from) retained earnings (20,225) 26,245 (43,394)
Retained earnings, January 1 119,280 93,035 136,429
Retained earnings, December 31 $ 99,055 $ 119,280 $ 93,035
INCOME (LOSS) PER COMMON SHARE:
Primary from continuing operations before accounting changes $ (2.28) $ 3.02 $ 1.24
Income from discontinued operations -- -- .27
Gain from disposition of discontinued operations -- -- .78
Cumulative effect of accounting changes -- -- (5.99)
Primary earnings (loss) per common share $ (2.28) $ 3.02 $ (3.70)
Fully diluted earnings (loss) per common share (note 1) $ -- $ 2.51 $ --
Average primary shares outstanding 8,875,360 8,696,015 11,732,505
Average fully diluted shares outstanding 14,264,504 14,085,905 11,733,276
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
FIELDCREST CANNON, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At December 31,
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Cash $ 9,124 $ 5,885
Accounts receivable less allowances of $8,162 in 1995 and $9,506 in 1994, principally
trade 168,112 170,001
Inventories (note 5) 228,167 213,994
Net assets held for sale -- 24,000
Other prepaid expenses and current assets 3,446 3,793
TOTAL CURRENT ASSETS 408,849 417,673
Plant and equipment, net (notes 6, 9) 342,285 314,726
Deferred charges and other assets 61,812 50,266
TOTAL ASSETS $ 812,946 $ 782,665
LIABILITIES AND SHAREOWNERS' EQUITY
Accounts and drafts payable $ 54,274 $ 55,533
Federal and state income taxes -- 2,268
Deferred income taxes 17,593 21,988
Accrued liabilities (note 7) 67,725 53,958
Current portion of long-term debt 780 1,465
TOTAL CURRENT LIABILITIES 140,372 135,212
Senior long-term debt (note 8) 155,262 107,744
Subordinated long-term debt (note 8) 210,000 210,000
Total long-term debt 365,262 317,744
Deferred income taxes 40,475 42,859
Other non-current liabilities 51,406 55,648
TOTAL NON-CURRENT LIABILITIES 457,143 416,251
TOTAL LIABILITIES 597,515 551,463
Commitments (notes 9, 11, 12)
Preferred Stock, $.01 par value (note 10)
Shares authorized: 10,000,000
Shares issued: 1,500,000
(aggregate liquidation preference of $75,000) 15 15
Common Stock, $1 par value (note 10)
Shares authorized: 25,000,000
Shares issued, 1995: 12,560,826 12,561
Shares issued, 1994: 12,360,252 12,360
Additional paid in capital 221,025 216,772
Retained earnings 99,055 119,280
Excess purchase price for Common Stock acquired and held in treasury -- 3,606,400
shares (117,225) (117,225)
TOTAL SHAREOWNERS' EQUITY 215,431 231,202
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 812,946 $ 782,665
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
FIELDCREST CANNON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended December 31,
Dollars in thousands
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) $(15,725) $ 30,745 $ (42,931)
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of accounting changes for FAS 106 and 109 -- -- 70,305
Income and gain on sale from discontinued operations -- -- (12,408)
Depreciation and amortization 31,746 29,828 31,539
Deferred income taxes (2,384) 7,677 2,329
Other 1,597 (8,178) 1,726
Change in current assets and liabilities, excluding effects of acquisition of
Sure Fit and of discontinued operations:
Accounts receivable 10,579 (5,582) (13,132)
Inventories 3,125 (4,160) (10,637)
Current deferred income taxes (4,395) 7,189 (3,971)
Other prepaid expenses and current assets 582 (1,302) 1,638
Accounts payable and accrued liabilities 4,990 (17,870) 8,700
Federal and state income taxes (2,268) 2,006 (3,362)
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES 27,847 40,353 29,796
Cash (used in) discontinued operations -- -- (17,405)
Net cash provided by operating activities 27,847 40,353 12,391
Cash flows from investing activities:
Additions to plant and equipment (64,153) (51,929) (21,594)
Proceeds from disposal of plant and equipment 1,218 1,815 12,621
Proceeds (acquisition) of net assets held for sale 23,241 -- (32,536)
Purchase of Sure Fit, net of cash acquired (27,300) -- --
Proceeds from disposition of discontinued operations -- -- 147,627
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (66,994) (50,114) 106,118
Cash flows from financing activities:
Increase (decrease) in revolving debt 48,298 17,798 (59,899)
Proceeds from issuance of other long-term debt -- 10,000 --
Payments on long-term debt (1,469) (11,597) (14,811)
Proceeds from issuance of common stock 57 80 339
Purchase of treasury stock -- -- (117,225)
Proceeds from issuance of preferred stock -- -- 72,375
Dividends paid on preferred stock (4,500) (4,500) (88)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 42,386 11,781 (119,309)
Net increase (decrease) in cash 3,239 2,020 (800)
Cash at beginning of year 5,885 3,865 4,665
Cash at end of year $ 9,124 $ 5,885 $ 3,865
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest expense $ 25,471 $ 23,871 $ 30,163
Income tax payments 2,848 5,381 23,239
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
year items have been reclassified to conform to the 1995 presentation.
The Company operates in the textile industry and is principally involved in the
manufacture and sale of home furnishings products. These sales are primarily to
domestic department stores, mass retailers, specialty stores and large chain
stores. Sales to one customer (Wal-Mart Stores and its affiliates) represented
16.6%, 18.3% and 17.4% of total sales of the Company in 1995, 1994 and 1993,
respectively.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVENTORIES -- Inventories are valued at the lower of cost, determined
principally on a last-in, first-out basis, or market.
DEPRECIATION -- Buildings, machinery and equipment are depreciated for financial
reporting purposes on the straight line method over the estimated useful lives
of these assets. Depreciation for tax purposes is provided on an accelerated
basis.
DEFERRED FINANCING FEES -- Debt financing fees are amortized over the term of
the related debt.
INCOME TAXES -- The Company adopted Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes" (FAS 109), effective January 1,
1993. Under FAS 109, deferred income taxes are recognized, at enacted tax rates,
to reflect the future income tax effect of reported differences between the book
and tax bases of the Company's assets and liabilities, assuming they will be
realized and settled, respectively, at the amount reported in the Company's
financial statements. See Note 13 for additional information.
INCOME PER COMMON SHARE -- Primary earnings per common share is based on net
income after preferred dividend requirements and the weighted average number of
shares of Common Stock and Class B Common Stock outstanding during the year and
common stock equivalents attributable to outstanding stock options. Fully
diluted earnings per common share are calculated assuming conversion, when
dilutive, of the 6% convertible subordinated sinking fund debentures and the $3
Series A Convertible Preferred Stock. Fully diluted income from continuing
operations and net income per common share for 1995 and 1993 are not presented
as effects are anti-dilutive.
29
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(2) RESTRUCTURING CHARGES
During 1995 the Company reorganized its New York operations and relocated sales,
marketing and design personnel to Kannapolis, N.C. In conjunction with the
reorganization, the Company offered a voluntary early retirement program to its
salaried employees. In December 1995 the Company announced the closing of two
yarn mills and agreed to sell a warehouse. As a result of these actions the
Company incurred restructuring charges of $20.5 million in 1995. The
restructuring charges include approximately $15.6 million primarily for
severance and termination benefits for 54 employees, the voluntary early
retirement program which was accepted by 87 employees and lease costs in
connection with the New York reorganization and $4.4 million for the write-down
of yarn equipment and $.5 million for termination benefits associated with
closing the yarn mills. These charges increased the 1995 loss by $12.1 million,
or $1.37 per share.
Concurrent with the purchase of the capital stock of Amoskeag Company the
Company implemented a number of programs to reduce overhead and cut costs in
1993. As a result of this process, restructuring charges were incurred in 1993
which reduced pre-tax operating income by $10 million. The restructuring charges
include $8 million for the cost of a voluntary early retirement program which
was accepted by 184 employees and severance for additional staff reductions, and
$2 million for direct non-recurring expenses incurred by the Company in
evaluating the purchase of the capital stock of Amoskeag Company. These expenses
did not contribute to the ultimate consummation of the tender offer to acquire
Amoskeag Company. These charges reduced 1993 net income by $6.1 million, or $.52
per share.
(3) ACQUISITION AND MERGER WITH AMOSKEAG COMPANY
On November 24, 1993 a newly formed and wholly owned subsidiary of the Company
completed a tender offer for all of the outstanding shares of Amoskeag Company
("Amoskeag") for a cash price of $40 per share, or an aggregate of approximately
$141.9 million including certain costs. The acquisition has been accounted for
as a purchase by the Company of the net assets of Amoskeag held for sale at
their net realizable values and as the purchase of treasury stock. Amoskeag
owned 3,606,400 shares of the Company's common stock which was assigned a cost
of $117.2 million after an allocation of $24.7 million to the net assets of
Amoskeag. The Company is in the process of selling all of the operating assets
of Amoskeag. These assets were primarily the Bangor and Aroostook Railroad
("BAR") and certain real estate properties. During 1994 the BAR's operating
income of $3 million was excluded from the Company's consolidated income
statement and $1.6 million of interest costs of the Company were allocated to
the assets held for sale. In March, 1995 the Company sold the BAR for
approximately $20 million of cash and $8 million of notes receivable.
(4) DISCONTINUED OPERATIONS
On July 30, 1993 the Company completed the sale of its carpet and rug operations
to Mohawk Industries, Inc. Accordingly, the carpet and rug results have been
classified as discontinued operations in the Statement of Income for 1993.
Results of operations for the carpet and rug operations include an allocation of
corporate interest based on net assets. The sale resulted in a $15.1 million
pre-tax gain which increased after-tax net income by $9.2 million, or $.78 per
share, in 1993.
30
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(5) INVENTORIES
Inventories are valued at the lower of cost or market and consisted of the
following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Finished goods $117,776 $109,423
Work in progress 72,315 65,375
Raw materials and supplies 38,076 39,196
Total $228,167 $213,994
</TABLE>
Approximately 73% of the inventories at year-end 1995 and 74% at year-end 1994
were valued on the last-in, first-out method (LIFO). If the first-in, first-out
method of accounting had been used, inventories would have been greater by
approximately $49 million and $40 million at December 31, 1995 and 1994,
respectively. The LIFO reserve for continuing operations increased $9.2 million
and $6.8 million in 1995 and 1994, respectively.
(6) PLANT AND EQUIPMENT
Plant and equipment is stated at cost and consisted of the following at December
31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 5,376 $ 5,796
Buildings 213,205 184,902
Equipment 404,277 378,374
Plant additions in progress 24,903 40,509
Total 647,761 609,581
Accumulated depreciation (305,476) (294,855)
Net plant and equipment $ 342,285 $ 314,726
</TABLE>
(7) ACCRUED LIABILITIES
Accrued liabilities were as follows at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Salaries and other compensation $ 9,749 $11,291
Pension, medical and other
employee benefit plans 22,937 18,359
Advertising expense 4,301 1,436
Interest expense 4,267 3,240
Other 26,471 19,632
Total $67,725 $53,958
</TABLE>
31
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(8) DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
SENIOR LONG-TERM DEBT:
Revolving term debt $142,522 $ 94,224
Industrial development
bonds, due 2021 10,000 10,000
Industrial revenue bonds, due
in installments through
2002........................ 3,520 4,985
TOTAL SENIOR LONG-TERM DEBT 156,042 109,209
Less current portion 780 1,465
NET SENIOR LONG-TERM DEBT 155,262 107,744
SUBORDINATED LONG-TERM DEBT:
6% convertible subordinated
sinking fund debentures
due 1997 to 2012 125,000 125,000
11.25% senior subordinated
debentures due 2002
to 2004 85,000 85,000
TOTAL SUBORDINATED LONG-TERM
DEBT 210,000 210,000
TOTAL LONG-TERM DEBT $365,262 $317,744
</TABLE>
The Company's revolving credit facility allows the Company to borrow up to $195
million through January 3, 1998. Accordingly, borrowings under the revolving
credit facility are classified as long-term debt. Interest rates on the
revolving term debt are, at the Company's option, at the prime rate fixed by The
First National Bank of Boston, or at a Euromarket-based rate plus 1.25%. The
borrowing rate increases to a Euromarket-based rate plus 2% in February 1996
based upon the Company's 1995 interest coverage ratio. The average interest rate
on the revolving term debt was 7.1% on December 31, 1995.
The revolving credit facility is secured by a first lien on substantially all of
the Company's accounts receivables and inventories and a substantial portion of
its plant and equipment and requires, among other things, that the Company
maintain certain financial ratios with regard to working capital, interest
coverage, funded debt and net worth. It allows payment of $4.5 million of
preferred dividends annually, but does not allow dividends on Common Stock. The
revolving term debt agreement also places restrictions on the Company's ability
to incur debt or liens, to make certain investments and to effect certain
mergers, consolidations or sales of assets or changes in control.
The Company's 6% Convertible Subordinated Sinking Fund Debentures are
convertible into shares of Common Stock of the Company at a conversion price of
$44.25 per share.
At December 31, 1995, the fair value of the Company's 6% Convertible
Subordinated Debentures was $85.6 million compared to a carrying value of $125
million and the fair value of the 11.25% Subordinated Debentures was $80 million
compared to a carrying value of $85 million. The fair value of the debentures is
based on quoted market prices. Differences between fair value and carrying value
of the Company's other debt were not significant.
The aggregate principal and sinking fund payments required to be made on
long-term debt during each of the five years subsequent to December 31, 1995
are: 1996, $.8 million; 1997, $7.0 million; 1998, $149.5 million; 1999, $6.6
million and 2000, $6.6 million.
32
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(9) LEASE OBLIGATIONS
The Company leases certain real estate and equipment under various operating
leases. Listed below are the future minimum rental payments required under these
operating leases with noncancelable terms in excess of one year at December 31,
1995.
<TABLE>
<CAPTION>
Real
Estate Equipment Total
<S> <C> <C> <C>
1996 $ 6,176 $ 10,313 $16,489
1997 5,809 9,391 15,200
1998 5,396 7,415 12,811
1999 4,741 6,518 11,259
2000 4,238 3,213 7,451
Subsequent years 34,914 657 35,571
Net minimum lease payments $61,274 $ 37,507 $98,781
</TABLE>
Total rental expense for all operating leases was $22.0 million, $20.2 million,
and $18.9 million for 1995, 1994 and 1993, respectively.
(10) SHAREOWNERS' EQUITY
In November 1993 the Company's shareowners authorized 10 million shares of
undesignated preferred stock and the issuance of up to 1.8 million shares of
preferred stock. On November 24, 1993, the Company sold 1.5 million shares of
$3.00 Series A Convertible Preferred Stock ("$3.00 Preferred Stock") in a
private offering and received net proceeds of $72.4 million. Each $3.00
Preferred Stock share is convertible into 1.7094 shares of Common Stock,
equivalent to a conversion price of $29.25 on the $50 offering price. Annual
dividends are $3.00 per share and are cumulative. The $3.00 Preferred Stock may
be redeemed at the Company's option on or after September 1, 2004, in whole or
in part, at $50 per share plus accrued and unpaid dividends. In the event the
Company's 11.25% Senior Subordinated Debentures are not outstanding or have been
defeased the $3.00 Preferred Stock may be redeemed, in whole or in part, at the
option of the Company, at a redemption price of $51.50 per share beginning as of
September 10, 1998 and at premiums declining to the $50 liquidation preference
by September 2004.
On November 24, 1993, the Board of Directors adopted a Stockholder Rights Plan
and declared a dividend of one preferred stock purchase right ("right") for each
outstanding share of the Company's Common Stock. Similar rights have been, and
generally will be, issued in respect of Common Stock subsequently issued. Each
right becomes exercisable, upon the occurrence of certain events, for one
one-hundredth of a share of Series B Junior Participating Preferred Stock, $.01
par value, at a purchase price of $80 or, in certain circumstances, Common Stock
or other securities, cash or other assets having a then current market price (as
defined and subject to adjustment) equal to twice such purchase price. Under the
Stockholder Rights Plan, 500,000 shares of Series B Junior Participating
Preferred Stock have been reserved. The rights currently are not exercisable and
will be exercisable only if a person or group acquires beneficial ownership of
15% or more of the Company's outstanding shares of Common Stock. The rights,
which expire on December 6, 2003, are redeemable in whole, but not in part, at
the Company's option at any time for a price of $.02 per right.
Following the acquisition of Amoskeag, the Company converted all shares of Class
B Common Stock held by Amoskeag into an equivalent number of shares of Common
Stock. Under the Company's Certificate of Incorporation, all remaining shares of
Class B Common Stock were automatically converted into an equivalent number of
shares of Common Stock, and no additional shares of Class B Common Stock may be
issued in the future without the prior approval of the holders of Common Stock.
33
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(10) SHAREOWNERS' EQUITY (CONTINUED)
The Company has an Employee Stock Option Plan which was adopted by the Board of
Directors and approved by the shareowners in 1995. Under the Plan, options
granted may be either incentive stock options or nonqualified stock options and
are granted at not less than the fair market value of the Common Stock at the
time of grant. Options generally become exercisable in four equal annual
installments commencing one year from the date of grant. Options generally
expire, if not exercised, within ten years from the date of grant. Under the
option plan, 435,000 shares of Common Stock have been reserved for awards.
During 1995 options to purchase 400,400 shares of Common Stock were awarded at
an average exercise price of $22.17. None of the outstanding options are
exercisable at December 31, 1995 and 34,600 shares are available for grant.
The Company has a Director Stock Option Plan which was adopted by the Board of
Directors and approved by the shareowners. Under the option plan, an annual
grant of an option for 2,000 shares of Common Stock is awarded to each person
who is a Director on the fifth business day after the annual meeting of
shareowners. Options to Directors who are also employees of the Company are
incentive stock options and to all others are nonqualified options. The price
per share is the fair market value on the date each option is granted.
Options may be exercised up to seven years from the date of grant, but no option
may be exercised during the six-month period following its grant except in the
case of death or disability. Under the option plan, 500,000 shares of Common
Stock have been reserved for awards. The following is an analysis of options
under the Director Stock Option Plan:
<TABLE>
<CAPTION>
Number of Option
Shares Price
<S> <C> <C>
Outstanding, January 1,
1993 42,000 $17.625-13.00
Awarded 12,000 23.625
Exercised (21,000) 23.625-13.00
Cancelled (6,000) 23.625-13.00
Outstanding, January 1,
1994 27,000 23.625-13.00
Awarded 8,000 25.625
Exercised (5,000) 17.625-13.00
Outstanding, January 1,
1995 30,000 25.625-13.00
Awarded 16,000 22.125
Exercised (4,000) 17.625-13.00
Cancelled (2,000) 25.625-23.625
Outstanding and
exercisable at
December 31, 1995 40,000 25.625-13.00
Available for grant at
December 31, 1995 427,000
</TABLE>
34
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(10) SHAREOWNERS' EQUITY (CONTINUED)
On September 11, 1991, the Board of Directors approved the grant of a
nonqualified stock option to purchase 20,000 shares of Common Stock to the
Company's chief executive officer. The per share price is $14.875, the fair
market value on that date. This option became exercisable on January 1, 1992,
and expires on September 10, 1998.
The Company has a Long-Term Incentive Plan (the Plan) which was adopted by the
Board of Directors and approved by the shareowners in 1988. Under the Plan,
employees who are senior executives of the Company may be awarded shares of
Common Stock without cost to the employee. The fair market value of the shares
at the date of award is accounted for as deferred compensation and is amortized
over the restricted period. At December 31, 1995, unamortized deferred
compensation of $.9 million is included in shareowners' equity as a reduction of
additional paid in capital. Awards under the Plan are vested after the employee
completes four years of continuous employment beginning with the year for which
the award is made. Vesting occurs prior to completion of four years of
employment if the employee dies while employed, reaches normal retirement or
becomes disabled.
Under the Plan, 650,000 shares of Common Stock have been reserved for awards.
The following is an analysis of shares of restricted stock under the Long-term
Incentive Plan:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Number of Shares:
Outstanding at
beginning of year 151,111 111,674 156,526
Awarded 70,000 70,000 75,000
Cancelled (5,460) -- (4,450)
Issued (74,505) (30,563) (115,402)
Outstanding at end
of year 141,146 151,111 111,674
Available for grant at
end of year 190,008 254,548 324,548
Market value on date of
grant for shares
granted during year $22.00 $28.625 $18.75
</TABLE>
35
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(10) SHAREOWNERS' EQUITY (CONTINUED)
Transactions with respect to common stock and additional paid in capital during
the three years ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
Additional
Class B Paid in
Common Stock Common Stock Capital
Shares Amount Shares Amount Amount
<S> <C> <C> <C> <C> <C>
Balance 12/31/92 8,338,941 $ 8,339 3,635,114 $3,635 $ 136,075
Shares issued to employee savings plans 120,562 120 -- -- 2,883
Restricted shares award 75,000 75 -- -- (75)
Restricted shares cancelled (4,450) (4) -- -- 4
Earned compensation, restricted stock -- -- -- -- 1,126
Director stock options exercised 21,000 21 -- -- 426
Net proceeds from sale of preferred stock
in excess of par value -- -- -- -- 72,360
Exchange or conversion of shares 3,635,114 3,635 (3,635,114) (3,635 ) --
Balance 12/31/93 12,186,167 12,186 -- -- 212,799
Shares issued to employee savings plans 99,085 99 -- -- 2,571
Restricted shares awarded 70,000 70 -- -- (70)
Earned compensation, restricted stock -- -- -- -- 1,431
Preferred stock issuance expense -- -- -- -- (73)
Director stock options exercised 5,000 5 -- -- 114
Balance 12/31/94 12,360,252 12,360 -- -- 216,772
Shares issued to employee savings plans 132,034 132 -- -- 2,563
Restricted shares awarded 70,000 70 -- -- (70)
Restricted shares cancelled (5,460) (5) -- -- --
Earned compensation, restricted stock -- -- -- -- 1,747
Director stock options exercised 4,000 4 -- -- 71
Balance 12/31/95 12,560,826 $12,561 -- $ -- $ 221,025
</TABLE>
Total shares of Common Stock outstanding as of December 31, 1995 are reduced to
8,954,426 shares by 3,606,400 shares of treasury stock acquired with the
acquisition of Amoskeag. The $117.2 million cost of the treasury stock reduces
total shareowners' equity.
36
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(11) EMPLOYEE PENSION AND SAVINGS PLANS
The Company has trusteed pension plans covering essentially all employees. The
plans provide pension benefits that are based on the employees' compensation and
service. The Company's policy is to fund amounts required by applicable
regulations.
Pension expense amounted to $8.2 million in 1995, $6.9 million in 1994 and $13.2
million in 1993. Net pension expense for 1995, 1994 and 1993 consisted of the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost
(benefits earned
during the period) $ 6,530 $ 8,076 $ 8,802
Interest cost on
projected benefit
obligation 17,572 16,668 15,124
Actual return on
assets (52,465) 4,845 (20,985)
Net amortization and
deferral 34,197 (22,703) 4,023
Curtailment and
special termination
benefits 2,359 -- 6,263
Net pension cost $ 8,193 $ 6,886 $ 13,227
</TABLE>
The Company recognized a curtailment loss with the sale of its carpet and rug
division in 1993 and special termination benefits from voluntary early
retirement programs in 1995 and 1993.
The table below sets forth the plans' funded status at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Projected benefit obligation:
Vested benefits $243,767 $199,034
Non-vested benefits 6,265 6,058
Accumulated benefit obligation 250,032 205,092
Additional amounts related to
projected compensation levels 8,121 6,332
Total projected benefit
obligation 258,153 211,424
Plan assets at fair value,
primarily publicly traded
stocks
and bonds 253,378 208,170
Plan assets over (under)
projected benefit obligation (4,775) (3,254)
Unrecognized net loss 31,752 29,911
Unrecognized net
transition assets (1,556) (2,579)
Unrecognized prior service cost 2,470 2,798
Net pension asset recognized in
the Consolidated Statement of
Financial Position $ 27,891 $ 26,876
</TABLE>
Assumptions used in determining the funded status of the pension plans were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate 7.25 % 8.6 % 7.25 %
Increase in compensation
levels 4.5 % 4.5 % 4.5 %
Expected long-term rate of
return on assets 9 % 9 % 9 %
</TABLE>
The Company also sponsors employee savings plans which cover substantially all
employees. The Company provides a match of 70% of employee contributions up to
two percent of compensation and a match of 20% of employee contributions for the
next two percent of compensation. The matching formula may be changed yearly at
the discretion of the Company. The match is contributed quarterly in Common
Stock of the Company. Expense of the Company match was $2.7 million in 1995,
$2.7 million in 1994 and $3.0 million in 1993.
37
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(12) POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company adopted FAS 106, "Employers' Accounting for Postretirement Benefits
other than Pensions", effective January 1, 1993. The cumulative effect on prior
years of the accounting change was charged to income in 1993 which resulted in a
pre-tax charge of $35.1 million and reduced net income by $21.8 million, or
$1.86 per share.
The Company provides medical insurance premium assistance and life insurance
benefits to retired employees. The medical premium assistance payments are at a
fixed dollar amount based on the retiree's years of service. Essentially all of
the Company's employees become eligible for these benefits when they reach
retirement age while working for the Company. The Company's policy is to fund
the plans as benefits are paid.
The table below sets forth the plans' combined status at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accumulated postretirement
benefit obligation --
Retirees $25,057 $23,592
Fully eligible active
participants 8,892 8,020
Other active participants 5,838 4,728
Total 39,787 36,340
Unrecognized net gain (loss) (1,422) 2,114
Accrued postretirement benefit
cost recognized in the
Consolidated Statement of
Financial Position at December $38,365 $38,454
31
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% as of December 31, 1995 and 8.6% as of December 31, 1994.
Medical premium assistance payments are at a fixed dollar amount based on the
retiree's years of service and, therefore, the plan is not affected by a health
care cost trend rate assumption.
Net periodic postretirement benefit cost for 1995, 1994 and 1993 included the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost (benefits
earned during the
period) $ 818 $ 979 $ 974
Interest cost on projected
benefit obligation 2,945 2,820 3,033
Net amortization and
deferral (171) 206 (93)
Curtailment gain -- -- (1,850)
Net periodic
postretirement benefit
cost $3,592 $4,005 $ 2,064
</TABLE>
During 1993 the Company recognized a curtailment gain with the sale of its
carpet and rug division.
38
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(13) INCOME TAXES
The Company adopted FAS 109, "Accounting for Income Taxes", effective January 1,
1993. The cumulative effect on prior years of the accounting change was charged
to net income in 1993 which reduced net income by $48.5 million, or $4.13 per
share.
Under FAS 109, assets and liabilities acquired in purchase business combinations
are assigned their fair values, and deferred taxes are provided for the lower or
higher tax bases. Under APB 11, values were assigned net-of-tax. In adopting FAS
109, the Company adjusted the carrying amounts of assets and liabilities
acquired in the Cannon and Bigelow acquisitions in 1986 and reduced deferred
income tax liabilities to reflect the then current federal tax rate of 34% as
opposed to the higher federal tax rates that were in effect when the deferred
taxes originated. The carrying amounts have subsequently been adjusted to
reflect the increase in the 1993 federal tax rate to 35%.
At December 31, 1995, the Company had $52.1 million of deferred tax assets and
$110.2 million of deferred income tax liabilities which have been netted for
presentation purposes. The significant components of these amounts as shown on
the balance sheet are as follows:
<TABLE>
<CAPTION>
12/31/95 12/31/94
Current Noncurrent Current Noncurrent
Liability Liability Liability Liability
<S> <C> <C> <C> <C>
Depreciation $ 636 $ 52,899 $ -- $ 51,176
Inventory valuation 35,924 -- 36,472 --
Deferred compensation (360) (5,031) (392) (5,262)
Accruals and allowances (16,401) (4,129) (14,686) (6,439)
Operating loss carryforwards (2,155) -- -- --
Other (51) (3,264) 594 3,384
Total deferred tax liabilities $ 17,593 $ 40,475 $ 21,988 $ 42,859
</TABLE>
The provision for income taxes for continuing operations included in the
Consolidated Statement of Income and Retained Earnings for continuing operations
consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current
Federal $ (5,611) $ 5,397 $ 5,483
State 306 56 1,130
Deferred
Federal (3,977) 8,327 4,605
State (2,802) 1,758 695
Total income taxes on
income from
continuing operations
before accounting
changes $(12,084) $15,538 $11,913
</TABLE>
39
<PAGE>
FIELDCREST CANNON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tabular Amounts in thousands except per share
(13) INCOME TAXES (CONTINUED)
The income tax effect of items which altered the Company's effective income tax
rate from the statutory federal rate were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $ (9,733) 35.0% $16,199 35.0% $9,408 35.0%
State taxes, net (1,623) 5.8 2,037 4.4 1,186 4.4
Effect of tax rate change -- -- -- -- 1,400 5.2
Tax credits (543) 2.0 (567) (1.2) -- --
Prior years tax settlements -- -- (1,714) (3.7) -- --
Other (185) .7 (417) (.9) (81) (.3)
Net taxes $(12,084) 43.5% $15,538 33.6% $11,913 44.3%
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards of $49.1
million for state income tax purposes that expire in 2000 through 2010.
40
<PAGE>
FIELDCREST CANNON, INC.
REPORT OF MANAGEMENT
The integrity and objectivity of the information presented in this Annual Report
are the responsibility of Fieldcrest Cannon, Inc. management. The financial
statements contained in this report were audited by Ernst & Young LLP
independent auditors, whose report appears on this page.
The Company maintains a system of internal controls which is independently
assessed on an ongoing basis through a program of internal audits. These
controls include the selection and training of the Company's employees,
organizational arrangements that provide a division of responsibilities and
communication programs explaining the Company's policies and standards. We
believe this system provides reasonable assurance that transactions are executed
in accordance with management's authorization; that transactions are
appropriately recorded to permit preparation of financial statements that, in
all material respects, are presented in conformity with generally accepted
accounting principles; and that assets are properly accounted for and
safeguarded against loss from unauthorized use.
The Board of Directors pursues its responsibilities for the financial statements
through its Audit Committee, which consists solely of directors who are neither
officers nor employees of the Company. The Audit Committee meets periodically
with the independent public accountants, the internal auditors and
representatives of management to discuss internal accounting control, auditing
and financial reporting matters.
Thomas R. Staab
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT AUDITORS
The Shareowners and
Board of Directors of
Fieldcrest Cannon, Inc.
We have audited the accompanying consolidated statement of financial position of
Fieldcrest Cannon, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of operations and retained earnings, and cash flows for
each of the three years in the period ended December 31, 1995. These 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fieldcrest Cannon, Inc. at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As explained in Notes 12 and 13 to the consolidated financial statements,
effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
Greensboro, North Carolina
January 30, 1996
41
<PAGE>
FIELDCREST CANNON, INC.
SELECTED FINANCIAL AND STATISTICAL DATA
In thousands of dollars, except per share data
<TABLE>
<S> <C> <C> <C> <C> <C>
SUMMARY OF CONTINUING OPERATIONS (A) 1995 1994 1993 1992 1991
Net sales $1,095,193 $1,063,731 $1,000,107 $981,773 $960,663
Depreciation $ 30,248 $ 28,779 $ 29,524 $ 29,480 $ 28,473
Operating income (loss) (112)(b) 70,538 53,563 60,855 39,613
Income (loss) from continuing operations $ (15,725)(b) 30,745(c) 14,966(d) 15,690(e) 1,395
PER SHARE OF COMMON STOCK:
Primary income (loss) from continuing
operation $ (2.28)(b) $ 3.02(c) $ 1.24(d) $ 1.39(e) $ 0.13
Fully diluted income (loss) --(b) 2.51(c) --(d) --(e) 0.13
Shareowners' equity 15.68 17.84 13.79 23.76 23.33
Number of employees 13,610 13,926 14,090 14,636 14,935
Number of shareholders 2,082 2,191 2,401 2,735 2,980
SUMMARY OF FINANCIAL POSITION
Capital expenditures $ 64,153 $ 51,929 $ 21,594 $ 20,687 $ 41,000
Working capital 268,477 282,461 262,326 296,580 138,227
Total assets 812,946 782,665 740,446 863,991 882,662
Long-term debt 365,262 317,744 294,611 353,419 253,493
Shareowners' equity 215,431 232,202 193,330 284,478 243,173
FINANCIAL RATIOS
Return on net sales (1.4)% 2.9% 1.5% 1.6% 0.1%
Return on average shareowners' equity (7.0) 14.5 6.8 6.0 0.6
Return on average total assets (2.0) 4.0 1.9 1.8 0.2
</TABLE>
(a) On July 30, 1993, the Company completed the sale of
its carpet and rug operations. Accordingly, the
summary of continuing operations excludes the
discontinued carpet and rug operations for all
periods presented.
(b) Reflects pre-tax restructuring charges of $20.5
million which increased 1995 loss by $12.1 million,
or $1.37 per common share. Fully diluted income per
share is not presented as effects are
anti-dilutive.
(c) 1994 income was increased $1.7 million, or $.20 per
common share on a primary basis and $.12 per share
on a fully diluted basis, as a result of favorable
settlements of prior years income taxes.
(d) Reflects pre-tax restructuring charges of $10
million and income tax adjustments of $1.4 million
which reduced 1993 income from continuing
operations before accounting changes by $7.5
million, or $.64 per common share. The Company
adopted FAS 106, "Employers' Accounting for
Postretirement Benefits other than Pensions" and
FAS 109, "Accounting for Income Taxes", effective
January 1, 1993. The cumulative effect of these
accounting changes reduced 1993 net income by $70.3
million, or $5.99 per common share. Fully diluted
income per share is not presented as effects are
anti-dilutive. Financial ratios for 1993 are based
on income from continuing operations before
accounting changes.
(e) Before extraordinary charge for early retirement of
debt which reduced 1992 net income by $5.2 million
($.46 per common share). Fully diluted income per
share is not presented as effects are
anti-dilutive. Financial ratios for 1992 are based
on income from continuing operations before the
extraordinary charge.
42
Exhibit 21
Subsidiaries of the Registrant
State or Jurisdiction
Name in Which
Incorporated
Amoskeag Company Delaware
Amoskeag Management Company Delaware
Bangor Investment Company Maine
Communications Resource Associates, Inc. Maine
Crestfield Cotton Company Tennessee
Downeast Securities Corporation Delaware
Duxbury Marina Corporation Massachusetts
Encee, Inc. Delaware
FCC Canada, Inc. Delaware
Fieldcrest Cannon Financing, Inc. Delaware
Fieldcrest Cannon Licensing, Inc. Delaware
Fieldcrest Cannon International, Inc. Delaware
Fieldcrest Cannon International
Sales Corporation Barbados
Fieldcrest Cannon Sure Fit, Inc. Delaware
Fieldcrest Cannon Transportation, Inc. Delaware
Karafield Wool Company Pennsylvania
Moore's Falls Corporation Delaware
St. Marys, Inc. Delaware
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Fieldcrest Cannon, Inc. of our report dated January 30,
1996, included in the 1995 Annual Report to Shareholders of Fieldcrest
Cannon, Inc.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8, Nos. 33-44703, 33-59149, and 33-44705 and Form
S-3, No. 33-52325) pertaining to the Director Stock Option Plan of
Fieldcrest Cannon, Inc., the 1995 Employee Stock Option Plan of
Fieldcrest Cannon, Inc., the Stock Option Agreement between Fieldcrest
Cannon, Inc. and James M. Fitzgibbons and the $3.00 Series A
Convertible Preferred Stock, respectively, and in the related
Prospectuses of our report dated January 30, 1996, with respect to the
consolidated financial statements incorporated herein by reference in
this Annual Report (Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Greensboro, North Carolina
March 28, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 9,124
<SECURITIES> 0
<RECEIVABLES> 168,112
<ALLOWANCES> 0
<INVENTORY> 228,167
<CURRENT-ASSETS> 408,849
<PP&E> 342,285
<DEPRECIATION> 0
<TOTAL-ASSETS> 812,946
<CURRENT-LIABILITIES> 140,372
<BONDS> 365,262
12,561
0
<COMMON> 15
<OTHER-SE> 202,855
<TOTAL-LIABILITY-AND-EQUITY> 812,946
<SALES> 1,095,193
<TOTAL-REVENUES> 1,095,193
<CGS> 966,642
<TOTAL-COSTS> 966,642
<OTHER-EXPENSES> 128,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,630
<INCOME-PRETAX> (27,809)
<INCOME-TAX> (12,084)
<INCOME-CONTINUING> (15,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,725)
<EPS-PRIMARY> (2.28)
<EPS-DILUTED> (2.28)
</TABLE>
