SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 1-8668
December 29, 1995 Commission file number
____________________
FINGERHUT COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1396490
(State of Incorporation) (I.R.S. Employer Identification
No.)
4400 Baker Road, Minnetonka, Minnesota 55343
(Address of principal executive offices)
(612) 932-3100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
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 Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of March 20, 1996, 46,434,994 shares of the Registrant's
Common Stock were outstanding and the aggregate market value of
Common Stock held by non-affiliates of the Registrant on that
date was approximately $604,504,026 based upon the New York Stock
Exchange closing price on March 20, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Shareholders for the
fiscal year ended December 29, 1995, are incorporated by
reference in Parts II and IV.
Certain portions of the Proxy Statement for the Annual Meeting of
Shareholders of Fingerhut Companies, Inc. to be held on May 15,
1996, which will be filed with the Securities and Exchange
Commission within 120 days after December 29, 1995, are
incorporated by reference in Part III.
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the
Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial
Owners and Management 19
Item 13. Certain Relationships and Related
Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedules 20
and Reports on Form 8-K
Signatures 21
Exhibit Index 23
PART I
Item 1. Business
General
Fingerhut Companies, Inc. (the "Company") is a direct-to-the-
consumer marketing company that sells a broad range of products
and services directly to consumers via catalogs, telemarketing,
television and other media. The Company had 1995 revenues of
$2.110 billion. Its principal subsidiaries are Fingerhut
Corporation ("Fingerhut"), Figi's Inc. ("Figi's") and Infochoice
USA, Inc. (formerly USA Direct Incorporated) ("Infochoice").
Fingerhut has been in the direct mail marketing business for over
45 years and sells general merchandise using catalogs and other
direct marketing solicitations. Fingerhut's merchandise includes
a broad mix of quality brand name and private label products,
many of which are specially manufactured or packaged to appeal to
its customers. Fingerhut's net sales were $1.681 billion in
1995. Figi's markets specialty foods and other gifts, primarily
through catalogs, and had net sales of approximately $83 million
in 1995. Infochoice markets products through direct response
television advertisements, typically 30 minutes long.
Infochoice's 1995 net sales were $58 million. The Company's
financial services segment businesses are conducted through its
subsidiaries, Fingerhut Financial Services Corporation ("FFS")
and Direct Merchants Credit Card Bank, National Association
("Direct Merchants Bank"). The Company, through subsidiaries,
operates a joint venture with Montgomery Ward & Co.,
Incorporated. The joint venture does business as "Montgomery
Ward Direct" and sells general merchandise using specialty
catalogs. The Company accounts for its investment in Montgomery
Ward Direct using the equity method of accounting. See Note 18
to the Company's consolidated financial statements incorporated
by reference in Part II for industry segment financial
information.
On January 25, 1996, the Company announced its intention to
create a separate publicly traded company out of its financial
services business, subject to market and other conditions.
The Company is the successor to the business of several
related companies, the first of which was a partnership formed in
1948. Fingerhut became a publicly held corporation in 1970 and
was acquired by a predecessor of The Travelers Inc. ("Travelers")
in 1979. The Company was incorporated in 1978 in connection with
Travelers' acquisition of Fingerhut and became a publicly held
company in May 1990.
Unless the context otherwise indicates, references to the
Company refer to Fingerhut Companies, Inc. and its subsidiaries.
Direct-to-the-Consumer Marketing Segment
The Company's direct to the consumer marketing segment
businesses are conducted by Fingerhut, Figi's, Infochoice and
Montgomery Ward Direct.
Fingerhut Corporation
Introduction
Fingerhut, one of the largest catalog marketers in the United
States, sells general merchandise and financial service products
to moderate income consumers. It is the only large general
merchandise retailer that serves this market exclusively through
catalog direct marketing. The median age of Fingerhut's
customers is slightly lower than the national average and young
families are a significant portion of its customer base.
Fingerhut offers extended payment terms on all purchases under
fixed term, fixed payment installment contracts and makes
substantially all of its sales on credit utilizing its own
closed-end credit. Fingerhut has used its extensive database,
credit programs and proprietary database segmentation software to
establish a dominant position in this market, with a large base
of loyal, repeat customers. Fingerhut has an active customer
base of approximately seven million established customers, which
account for approximately 80% of Fingerhut's net sales.
Marketing
Marketing activities are divided into three primary programs:
new customer acquisition, a transitional program and existing
customer programs. During 1995, Fingerhut mailed approximately
591 million catalogs and other promotions to existing and
prospective customers.
Fingerhut's new customer acquisition program is designed to
identify and attract new customers on a cost-effective basis.
The primary sources of new customers are rented lists,
advertisements in magazines and newspapers, catalog requests and
other direct marketing solicitations. Fingerhut mails catalogs
and other multi-product offerings to prospective customers and
adds them to its data base as responses are received. These
programs are intended to identify and target new customers who
will become long-term Fingerhut customers. New customers account
for approximately 20% of Fingerhut's net sales.
The decisions on which prospective customers to solicit,
which products to offer and which media to use are based upon the
projected long-term profitability and internal rates of return of
the program. Maintaining acceptable financial rates of return on
new customers depends on balancing the cost of acquisition of new
customers with their long-term profitability to Fingerhut. To
determine whether the cost to obtain new customers is acceptable,
Fingerhut maintains a system that monitors profitability by
source of new customers, by type of product and by type of
promotional media. Fingerhut also continuously tests various
media, products, offerings and incentives and analyzes the
results in order to maximize the effectiveness of its customer
acquisition efforts.
After first-time buyers commence payments on their initial
purchases, they are placed into a transitional program. The
amount of time a first-time buyer remains in a transitional
program and the number and type of products he or she is offered
depends on the buyer's purchasing and payment practices. A
customer is placed on Fingerhut's promotable customer list after
demonstrating his or her creditworthiness.
Fingerhut reaches its existing customers through extensive
promotional mailing efforts, primarily catalogs, and through
telemarketing. In 1995, Fingerhut mailed 155 different catalogs
and other promotions to its established customers. These
mailings included general merchandise catalogs, specialty
catalogs, small and large multi-product mailers and single
product promotions.
Management believes that the key factors in maximizing the
profitability of its existing customer list are developing
long-term repeat buyers and balancing customer response with
appropriate credit losses and customer return rates for each
segment of its customer list. Fingerhut promotes customer
satisfaction and loyalty by extending credit; by using a number
of marketing devices, including targeted promotions, deferred
payments, 30-day free home trials, a "satisfaction assured"
policy, free gifts, merchandise giveaways, and personalized
mailings; and by offering attractive brand name and private label
merchandise.
Fingerhut is a leader in the development and use of
information-based marketing concepts and management believes that
Fingerhut's extensive data base and proprietary data base
segmentation software afford it a significant competitive
advantage within its market niche. The data base contains names,
addresses, behavioral characteristics, general demographic
information, information provided by the customer and information
on the sources of the customers' initial responses. The data
base is continually updated as new information is obtained.
Credit Management
Fingerhut generally does not require its customers to provide
traditional credit information in order to approve purchases on
credit. Instead of using traditional credit applications,
Fingerhut has developed sophisticated and highly automated
proprietary techniques for evaluating the creditworthiness of new
and existing customers and for selecting those customers who will
receive various categories of mailings. Management believes that
Fingerhut's more than 45 years of experience in the mail order
business, its data base containing purchase and payment histories
of more than 30 million people and its significant investment in
computer technology and proprietary analytical models give
Fingerhut a unique ability to analyze the creditworthiness of
customers in its market. The goal of the analysis is not to
achieve the lowest possible credit losses but to balance credit
losses and return rates with customer response, thereby
optimizing profitability. Consequently, Fingerhut's planned
credit losses typically are higher than other direct mail and
retail companies.
Once a customer places an order, Fingerhut employs
proprietary techniques designed to identify customers whose
orders can be automatically shipped, customers from whom
additional information, including credit applications, must be
obtained and reviewed and customers to whom credit is declined.
After purchases are shipped, customer payments are continuously
monitored to identify credit problems as early as possible.
Fingerhut has a flexible policy of working with certain
delinquent customers, including adjusting their payment
schedules, which Fingerhut believes reduces default rates and
maintains customer loyalty.
Substantially all of Fingerhut's sales are made utilizing its
own closed-end credit program, which uses fixed term, fixed
payment installment plans. Monthly payments are made by
customers and processed by Fingerhut through the use of coupons
contained in payment books delivered with each order shipment.
Payment terms to existing customers generally range from 4 to 36
monthly payments. In addition, a majority of sales are to
customers who receive a deferred payment option, which extends
the due date of the first payment by approximately four to five
months. Many customers pay their accounts in full before the end
of the scheduled payment term.
Merchandising
Fingerhut offers a broad mix of brand name and private label
consumer products, including electronics, housewares, home
textiles, apparel, furniture, home accessories, jewelry, sporting
goods and toys, tools, automotive, lawn and garden, and financial
service products. In 1995, Fingerhut offered approximately
16,000 different products. Fingerhut's sales mix by product
category for 1995 is shown in the following table:
Fingerhut Corporation 1995 Product Mix
Percent of
Gross Retail Sales
Electronics 21%
Home Textiles 18%
Housewares 17%
Furniture/Home Accessories 10%
Leisure 9%
Apparel 8%
Jewelry 8%
Tools/Automotive/Lawn & Garden 6%
Financial Service Products
and Other 3%
----
100%
Fingerhut selects merchandise to be offered to its customers
by evaluating historical product and category demand and
analyzing emerging merchandise trends in conjunction with
proprietary marketing information. Fingerhut is constantly
developing unique brand name and private label product groupings,
such as coordinated kitchen ensembles, coordinated bed and bath
ensembles and tool sets, targeted to appeal to its customers and
to add value and/or style to its merchandise.
Fingerhut's general merchandise catalogs feature a wide array
of products; they are updated and published throughout the year,
including a 496-page holiday big book. Specialty catalogs mailed
to targeted portions of Fingerhut's customer list permit
Fingerhut to expand the product selection and intensify the
growth opportunities for certain product categories. These
specialty catalogs include outdoor living, jewelry, electronics,
domestics/housewares, gifts, juvenile, seniors, home fitness,
home improvement and Spanish-language catalogs.
Vendor Relations
The Company purchases products from approximately 2,100
different suppliers and maintains strong relations with its
vendors. In 1995, the top ten vendors accounted for
approximately 19% of the Company's total merchandise purchases,
with Thomson Consumer Electric Inc. accounting for approximately
4% of the total merchandise purchases and Roadmaster Corporation
and Springs Industries, Inc. each accounting for approximately 3%
of the total merchandise purchases.
The Company maintains close relations with overseas
representatives in Hong Kong, Taiwan, Korea, Philippines,
Thailand and Europe. In 1995, approximately 16% of the Company's
merchandise was imported directly from foreign vendors and
approximately an additional 20% was purchased through importers.
Management Information Systems
Fingerhut pioneered the use of information-based marketing
concepts in the mail order industry, using computer technology
and related software developed by the Company. The Company
continues to be highly dependent on information systems and its
computer operations are among the largest and most sophisticated
in the direct marketing industry. Management believes that these
operations, combined with Fingerhut's extensive data base and
advanced information systems, have been key factors in its growth
and profitability.
Fingerhut's management information systems provide data
processing capabilities to Fingerhut, Figi's, Infochoice and
Montgomery Ward Direct and support all areas of the Company,
including marketing, credit, order fulfillment, customer service,
inventory control and finance. Fingerhut's management
information systems currently operate on mainframe computers
connected to on-line terminals and client-server systems used in
all aspects of the Company's business.
Preparation and Mailing of Promotional Materials
Fingerhut performs a large portion of the production process
for its promotional materials in house. The creative department
uses desktop publishing for the design and production of all
Fingerhut's mailings. A substantial portion of the color
photographs used in Fingerhut's catalogs and other marketing
materials are taken at the Company's in-house photo studio and
Fingerhut prepares color separations for approximately 40% of its
promotional materials. In addition, Fingerhut's eight-color web
printing presses print more than half of its catalog "wraps", the
personalized outside cover used on Fingerhut catalogs.
Substantially all of the Company's promotional materials, except
the wraps, are printed at outside vendors.
Fingerhut's mailing operations are designed to provide the
flexibility and rapid response time required to keep pace with
its changing marketing and merchandising needs. Fingerhut has
two mailing facilities in Minnesota that cut, fold, insert, sort
and deliver to the post office its single and multiple product
promotions. For catalog mailings, Fingerhut personalizes the
catalog wraps and delivers them to its outside printers
pre-sorted for mailing.
Costs of Mailing
In 1995, the Company spent an aggregate of $296 million on
postage (including the cost of parcel shipments that were passed
on to customers) of which 48% was attributable to the mailing of
promotional materials, 44% was attributable to parcel shipments
and 8% was attributable to various correspondence with customers.
As is customary in the direct mail industry, the Company passes
on the cost of parcel shipments directly to the customer as part
of the shipping and handling charge. The costs of mailing
promotional material and certain other correspondence (including
postage) are not directly passed on to customers, but are
considered in the Company's overall product pricing and mailing
strategies.
The Company substantially reduces mailing costs by
effectively using discounts offered by the United States Postal
Service from the basic postal rates. For example, Fingerhut
sorts mailings by zip code to the carrier route level and also
prints the "zip plus four" bar-code to obtain optimum postal
discounts, resulting in savings not always available to smaller
direct mail companies. In January 1995, the United States Postal
Service increased its first class, third class and fourth class
postage rates. In addition, the cost of paper also increased.
To reduce the effect of the postal and paper increases, Fingerhut
took steps to reduce its operating expenses and will continue to
improve the efficiency of its mailings by reviewing mailing depth
criteria and catalog size. The Company will adopt new
innovations in mail processing techniques, as appropriate, and
believes that the increasing cost and complexity of the postal
rate structure will strengthen the long-term competitive position
of larger, more sophisticated mail order firms such as Fingerhut.
Order Processing and Fulfillment
Fingerhut provides order processing and fulfillment services
for Infochoice and Montgomery Ward Direct. Although most of
Fingerhut's customer orders are received by mail, telephone
ordering has become a more important part of Fingerhut's
business. The majority of Infochoice's and Montgomery Ward
Direct's customers place their orders by telephone. In 1995,
Fingerhut processed approximately 24 million Fingerhut,
Infochoice and Montgomery Ward Direct orders and approximately 54
million Fingerhut, Infochoice and Montgomery Ward Direct customer
payments.
In 1995, Fingerhut shipped approximately 29 million
Fingerhut, Infochoice and Montgomery Ward Direct packages from
its warehouse and distribution facilities in Minnesota and
Tennessee. In order to minimize shipping costs, packages are
trucked to drop points throughout the country where they enter
the USPS or the United Parcel Service systems for delivery to the
customer. In addition, Fingerhut offers optional express
delivery in selected promotions.
Figi's Inc.
Figi's is a mail order retailer of specialty food gifts (such
as quality cheeses, smoked meats, candies and baked goods) and
other gifts headquartered in Marshfield, Wisconsin. The Company
acquired Figi's in 1981. Figi's is one of the largest direct
mail food gifts marketers in the United States, with 1995 net
sales of approximately $83 million.
New customers are acquired from sources similar to those used
by Fingerhut, although Figi's customers include both moderate
income consumers attracted by Figi's in-house credit terms and
more affluent customers who use credit cards. Sales using Figi's
interest-free, three payment credit terms constituted
approximately 83% of its net sales in 1995.
Figi's offerings are made predominantly in catalogs mailed
prior to holidays and other gift-giving occasions such as
Christmas, Easter, Valentine's Day and Mother's Day. Figi's
business is highly seasonal, with approximately 81% of its net
sales in the fourth quarter. Like Fingerhut, Figi's seeks to
develop repeat business from customers by offering a
"satisfaction assured" policy. During 1995, Figi's sales mix by
product category was as follows:
Figi's Inc. 1995 Product Mix
Percent of
Gross Retail Sales
Cheese/Meat Selections 45%
Other Food Gifts 15%
Baked Goods 13%
Non-Food Gifts 13%
Candy 8%
Nuts/Snack Foods 6%
-----
100%
Figi's uses marketing techniques similar to those developed
by Fingerhut, such as sweepstakes and in-house credit terms, to
improve customer response and expand its customer base. Figi's
also uses mailing list evaluation and segmentation techniques
similar to those used by Fingerhut. In addition, Figi's offers
its customers the opportunity to place orders by telephone and
accepts payment by major credit card.
Infochoice USA, Inc.
Infochoice markets specially selected products primarily
through 30-minute direct response television advertisements
commonly known as "infomercials." These advertisements provide
entertaining and informative product demonstrations and often
feature a well known entertainer or other recognized individual.
Infochoice's advertisements are distributed through cable
networks and broadcast television stations. During 1995, these
products included the Body by Jake(r) Ab and Back Plus(tm) and the
Bissell(r) Plus(tm) vacuum. Infochoice's sales mix by product
category in 1995 was: 89% fitness/leisure and 11% housewares.
Infochoice's 1995 net sales were approximately $58 million.
Infochoice promotes payment by major credit card and also
offers its customers the option to pay for their purchases by
credit card installment billing. Infochoice features a 30-day
refund policy on all of its products. Products featured in
Infochoice's television advertisements are later included in
Fingerhut's and Montgomery Ward Direct's catalogs and identified
"As seen on TV." In addition, Infochoice may receive royalties
on successful products later sold in non-affiliated retail
stores.
In November 1994, the Company announced that it would scale
back the operations of Infochoice. In March 1995, Infochoice
entered into a joint venture with Guthy-Renker Corporation, under
which Guthy-Renker will manage infomercial production, media
placement and market distribution and Infochoice will provide
product development and sourcing, customer service and
fulfillment. The joint venture's business is conducted through
USA Direct/Guthy-Renker, Inc., a corporation in which Infochoice
and Guthy Renker Corporation each have a 50% interest. USA
Direct/Guthy-Renker, Inc. tested several shows in 1995 and is
continuing to do so in 1996. The Company will account for USA
Direct/Guthy-Renker, Inc. using the equity method of accounting.
Montgomery Ward Direct
The Company has a joint venture limited partnership with
Montgomery Ward & Co., Incorporated ("Montgomery Ward"). The
partnership is structured as a Delaware limited partnership in
which the Company and Montgomery Ward, through subsidiaries, each
have a 50% interest and conducts business under the name
"Montgomery Ward Direct". Montgomery Ward Direct mails its
catalogs primarily to Montgomery Ward credit card holders and
certain outside rented lists and accepts payment through bank
credit cards and the Montgomery Ward credit card. Receivables
generated by sales made through the Montgomery Ward credit card
are sold through Montgomery Ward to Montgomery Ward Credit
Corporation in accordance with a previously existing agreement
between Montgomery Ward and Montgomery Ward Credit Corporation.
Montgomery Ward provides, without cost to the partnership,
the use of the Montgomery Ward(r) tradename and certain information
related to its active credit card account holders and has agreed
to provide similar information with respect to future Montgomery
Ward credit card account holders. Fingerhut provides certain
customer names and certain creative, buying, order processing,
customer service, computer services and warehousing services and
facilities. During 1995, Fingerhut generally was reimbursed by
the partnership for its costs incurred in providing the services
and facilities.
The Company accounts for Montgomery Ward Direct using the
equity method of accounting; accordingly, 50% of Montgomery Ward
Direct's profits or losses are recorded in administrative
expenses included in "Administrative and selling expenses" in the
Consolidated Statements of Earnings contained in the Company's
consolidated financial statements. In 1995, Montgomery Ward
Direct mailed 89 million catalogs and generated net sales of $165
million.
Financial Services Segment
Through its financial services segment, the Company markets
select consumer financial services, including credit cards,
extended product service agreements and insurance products. The
Company's financial services segment businesses are conducted by
Fingerhut Financial Services Corporation and Direct Merchants
Bank.
Direct Merchants Credit Card Bank, National Association
Direct Merchants Bank is a special-purpose credit card bank,
established under Section 2(c)(2)(F) of the Bank Holding Company
Act of 1956, as amended by the Competitive Equality Banking Act
of 1987, as amended ("CEBA"), and was chartered as a national
banking association on February 14, 1995.
As of December 29, 1995, Direct Merchants Bank had opened
approximately 750,000 Fingerhut co-branded and other MasterCard(r)
credit card accounts and had approximately $542 million in
outstanding receivables. Direct Merchants Bank generates
interest and other income from its credit card business through
finance charges assessed on outstanding balances, interchange
income and credit card fees. Credit card income also includes
fees paid by credit card customers for product enhancements they
may select.
The credit card accounts are generated under a license from
MasterCard International Inc. ("MasterCard International") and
subject to the terms and conditions of membership in MasterCard
International. MasterCard International licenses its trademark
to its member financial institutions to issue credit cards to
their customers and provides clearing services facilitating
exchange of payments among member institutions and networks
linking members' credit authorization systems. MasterCard
credit cards are issued as part of the worldwide MasterCard
International systems, and the transactions creating the
receivables through the use of the credit cards are processed
through the MasterCard International authorization and settlement
systems.
The MasterCard credit cards may be used to purchase goods
and services, to obtain cash advances and to consolidate and
transfer account balances from other credit cards. Cardholders
make purchases when using a credit card to buy goods or services.
A cash advance is made when a credit card is used to obtain cash
from a financial institution, an automated teller machine, or by
a draft drawn on the account.
In early 1994, through a joint venture with an independent
third party, the Company began testing a Fingerhut co-branded
MasterCard(r) issued by an affiliate of the third party. Fingerhut
customers were solicited using Fingerhut's credit scoring models
and behavioral data. Direct Merchants Bank purchased these
accounts in September 1995. The Company believes that the test
provided evidence of the ability of Fingerhut's proprietary mail
score model to rank order credit risk of a given pool of
Fingerhut customers.
Direct Merchants Bank began issuing credit cards in early
1995. Its strategy is to target customers through a carefully
matched combination of pricing, credit analysis and packaging.
Direct Merchants Bank varies the rate, fee and credit line
offerings using a risk-based pricing approach that balances a
prospect's creditworthiness and profit potential. During 1995
and continuing in 1996, Direct Merchants Bank has targeted three
distinct market segments with pre-approved applications:
customers who have purchased more than one product from Fingerhut
("Fingerhut Multi-Buyers"), individuals who have not purchased
from Fingerhut in the past ("External Prospects"), and customers
who have purchased only one product from Fingerhut ("Fingerhut
Single-Buyers"). Prospects are contacted on a nationwide basis
through direct mail and telephone solicitations. In addition,
Direct Merchants Bank is seeking to establish affinity and co-
branded card relationships with outside companies.
Fingerhut Multi-Buyers are solicited based on the extensive
behavioral, payment and credit information available through
Fingerhut's proprietary database, combined with industry standard
credit bureau scores. External Prospects are evaluated based on
credit bureau information, utilizing internally developed fraud
screens and other criteria. These prospect attributes are
combined with other risk scores and evaluated using a multi-step
approach and sophisticated statistical tools. The External
Prospects list is further reduced by excluding those matched
against Fingerhut's proprietary fraud, deceased, prison and bad
debt files. The segmentation and selection process for Fingerhut
Single-Buyers is similar to the approach used for External
Prospects. However, due to the single purchase from Fingerhut,
additional proprietary information is available and used to
further refine the selection.
For each of the three market segments, the credit card offer
is determined by the prospect's risk profile prior to
solicitation. Terms of the credit card offers range from a $30
annual fee and an annual percentage rate of the prime rate plus
14.6% to no annual fee and an annual percentage rate of prime
rate plus 6.45%. Each cardholder is subject to an agreement
governing the terms and conditions of the accounts. Pursuant to
such agreements, Direct Merchants Bank reserves the right to
change or terminate certain terms, conditions, services, or
features of the account (including increasing or decreasing
periodic finance charges, late fees, returned check charges and
any other charges or the minimum payment), subject to the
conditions set forth in the cardholder agreement.
Once an account is approved, an initial credit line is
established based on an individual's risk profile using automated
screening and credit scoring techniques. This process results in
a portfolio with initial average credit lines below the industry
average due to the higher average risk elements inherent in
Direct Merchants Bank's target customer market. Direct Merchants
Bank may elect, at anytime and without prior notice to the
accountholder, to preclude or restrict further credit card use by
the accountholder, usually as a result of violating the
contractual terms (delinquency, over-limit, etc.), poor payment
performance or Direct Merchants Bank's concern over the
creditworthiness of the accountholder. Based on behavioral
scoring and payment patterns, credit lines are adjusted over
time. Credit lines may also be adjusted at the request of the
cardholder, subject to Direct Merchants Bank's evaluation of the
cardholder's payment and usage history.
The interest rates on all of Direct Merchants Bank's current
credit card accounts are variable. This helps maintain net
interest margins in both rising and declining interest rate
environments. Direct Merchants Bank assesses periodic finance
charges on an account generally if the cardholder has not paid
the balance in full from the previous billing cycle: such
finance charge is based upon the average daily balance
outstanding on the account during the monthly billing cycle. If
a payment is not received by the payment due date, finance
charges are imposed on all purchases from the date of the
transaction to the statement cycle date. In addition to the
finance charge, Direct Merchants Bank has the right to impose
late fees under the circumstances described below. Finance
charges are imposed on each cash advance from the day such
advance is made until the advance is paid in full. The finance
charge is applied to the average daily balance. The average
daily balance is the sum of the daily unpaid balances of
purchases and cash advances on each day of the monthly billing
cycle divided by the number of days in such monthly billing
cycle. Many accountholders are given a grace period on
purchases. For most accountholders, if the entire balance on the
account is paid during the grace period, a finance charge is not
imposed. Certain accountholders are not given a grace period,
depending on the credit card terms offered, which have been
determined by the prospect's risk profile prior to solicitation.
Most of the existing accounts have an annual fee of $30.00.
Direct Merchants Bank may waive all or a portion of the annual
membership fee in connection with solicitations of new accounts
or upon annual renewal, depending on the credit terms offered,
which have been determined by utilizing a combination of factors,
including likelihood to respond, credit risk profile and profit
potential. In addition to the annual fee, Direct Merchants Bank
may charge accounts certain other fees including: (i) a late fee
with respect to any unpaid monthly payment if Direct Merchants
Bank does not receive the required minimum monthly payment by the
next month's closing date; (ii) a cash advance fee on the amount
of each cash advance; (iii) a fee with respect to each check
submitted by a cardholder in payment of an account which is not
honored and (iv) an overlimit charge if, at any time during the
billing cycle, the total amount owed exceeds the cardholder's
credit line by greater than $30.00 due to transactional activity.
There can be no assurance that daily periodic finance charges,
fees and other charges will remain at current levels in the
future.
Direct Merchants Bank also offers its credit card customers
in certain states the option to purchase related products and
services, such as credit card registration, a debt waiver product
and accidental death insurance.
Fingerhut Financial Services Corporation
The remainder of the Company's financial services segment
businesses are conducted by Fingerhut Financial Services
Corporation ("FFS"). Through FFS, Fingerhut offers its customers
the opportunity to purchase extended product service plans on a
wide variety of products sold by Fingerhut. Customers may
purchase extended product service plans when they purchase the
product. In addition, the extended product service plans are
marketed through telemarketing. FFS also works with third
parties to offer Fingerhut customers the opportunity to purchase
other financial service products, such as certain types of
insurance.
Other Information
Other Business Activities
The Company derives additional revenues from manufacturing
plastic products, wholesaling excess merchandise and list rental
and package inserts. Taken together, such activities accounted
for less than 3% of the Company's 1995 net sales.
Competition
The direct marketing industry includes a wide variety of
specialty and general merchandise retailers and is both highly
fragmented and highly competitive. The Company sells its
products to customers in all states of the United States and
competes in the purchase and sale of merchandise with all
retailers. Fingerhut's traditional principal competitor in the
business of direct marketing general merchandise to moderate
income customers is J.C. Penney Company, Inc., which operates a
large number of retail stores in addition to its mail order
businesses and generates substantial catalog sales at its retail
premises in addition to direct mail marketing. In the direct
marketing retail industry, Fingerhut also competes with
television shopping marketers, such as QVC Network, Inc. and Home
Shopping Network, Inc. Fingerhut also competes with retail
department stores, discount department stores and variety stores,
many of which are national chains, for the general merchandise
spending of its customers.
The principal methods of competition within the direct
marketing industry and in the Company's market segments include
purchasing convenience, extension of credit, customer service,
free trial and merchandise value. The Company believes that it
is able to compete on the strength of its marketing strategy
despite strong competitive pressures. Although barriers to
entering the direct marketing business are minimal and many new
companies have entered and may continue to enter the industry in
competition with the Company, a substantial capital investment
would be required to develop customer databases and software
capabilities comparable to those of the Company. The Company
believes that these assets are necessary to compete effectively
in the Company's market niche, where the predictability of
response rates and combined credit and return losses is critical.
Direct Merchants Bank competes with national, regional, and
local bankcard issuers as well as general purpose credit cards,
such as American Express, Discover Card and Diners Club. Many of
these issuers are substantially larger and have more seasoned
credit card portfolios than Direct Merchants Bank. The principal
competitive factors are targeted marketing, product quality and
competitive pricing. The Company believes that Fingerhut's
database allows Direct Merchants Bank to more effectively compete
in the market for moderate income cardholders. The Company also
believes that the ability to leverage Fingerhut's long term
relationship with, and proprietary information regarding, its
customers gives Direct Merchants Bank a competitive advantage.
Seasonality
The Company's business is seasonal. In 1995, approximately
35% of the Company's net sales and approximately 60% of its net
earnings occurred in the fourth quarter. In addition to seasonal
variations, the Company experiences variances in quarterly
results from year to year that result from changes in the timing
of its promotions and the types of customers and products
promoted and, to some extent, variations in dates of holidays and
the timing of quarter ends resulting from a 52/53 week year.
Accordingly, the results of interim periods are not necessarily
indicative of the results for the year.
Employees
As of December 29, 1995, the Company had approximately 9,500
employees, of whom approximately 2,600 were represented by the
Midwest Regional Joint Board or the Tennessee/Kentucky District _
Southern Regional Joint Board of the Amalgamated Clothing and
Textile Workers Union. One of the Company's principal collective
bargaining agreements expired on February 1, 1996 and the other
expires on February 2, 1997. The Company is in negotiations for
an agreement to replace the expired agreement and union employees
are continuing to work as if the expired agreement were still in
effect.
Trademarks and Tradenames
The Company and its subsidiaries have registered and continue
to register, when appropriate, various trademarks, tradenames and
service marks used in connection with its business and for
private label marketing of certain of its products. The Company
considers these trademarks and service marks to be readily
identifiable with, and valuable to its business.
Governmental Matters
Direct to the Consumer Marketing Segment
The Company's business is subject to regulation by a variety
of state and federal laws and regulations related to, among other
things, advertising, time payment pricing, offering and extending
of credit, charging and collecting state sales and use taxes and
product safety. The Company's practices in certain of these
areas are subject to periodic inquiries and proceedings by
various regulatory agencies. None of these actions has had a
material adverse effect upon the Company. In addition, the
operations of Fingerhut have been subject to certain federal and
state consent decrees, the most recent dating back to 1978.
These decrees regulate the manner in which products and gifts may
be described by the Company and specific aspects of credit,
advertising and merchandise substitution policies. The Company
does not consider the existence of these decrees to be a
significant impediment to its profitability or operations.
From time to time the Company has received notices and
inquiries from states with respect to collection of use taxes for
sales to residents of these states. To the extent that any
states are successful in such claims, the Company's cost of doing
business could be increased, although it does not believe any
increase would be material.
Fingerhut relies on the Minnesota "time-price" doctrine in
establishing and collecting installment payments on products sold
in many states. Under this doctrine, the difference between the
time price and the cash price for the same goods is not treated
as interest subject to regulation under laws governing the
extension of credit. In other states, Fingerhut is subject to
regulations that limit maximum finance charges and require
refunding of finance charges to customers under certain
circumstances. Fingerhut believes that its time payment pricing
and credit practices are in compliance with applicable state
requirements. However, certain customers have challenged the
applicability of the time-price doctrine to Fingerhut's business.
See "Legal Proceedings." Any change of law that would negatively
affect Fingerhut's pricing policies could have an adverse effect
on the Company's profitability.
Financial Services Segment
Direct Merchants Bank is a "credit card bank" under CEBA, and
as such is subject to certain restrictions, including that it may
only engage in credit card operations, it may not offer checking
or transaction accounts, and it may only accept time deposits in
amounts of $100,000 or more. Because of these restrictions,
Direct Merchants Bank is not considered a "bank" for purposes of
the Bank Holding Company Act of 1956, as amended (the "BHCA") and
the Company is not required to register as a bank holding company
under the BHCA.
Under federal law, Direct Merchants Bank may "export" (i.e.,
charge its customers resident in other states) the finance
charges permissible under the law of Utah, its state of domicile.
Consistent with prevailing industry practice, Direct Merchants
Bank also exports credit card fees (including, for example,
annual fees, late charges and fees for exceeding credit limits)
permitted under Utah law. Certain jurisdictions may attempt, and
private parties are attempting, to require out-of-state credit
card issuers to comply with such jurisdictions' consumer
protection laws, including laws limiting the charges imposed by
such out-of-state credit card issuers. A successful attempt
could have an adverse impact on the credit card operations of out-
of-state credit card issuers, including Direct Merchants Bank.
Such a determination could also lead to similar actions in other
states by private parties or governmental agencies and could have
an adverse impact on Direct Merchants Bank's credit card
operations. Since October 1991, a number of lawsuits and
administrative actions have been filed in several states against
out-of-state banks (both federally insured state chartered banks
and federally chartered banks) that issue credit cards. These
actions challenge various fees and charges (such as late payment
fees, over-the-limit fees, and returned payment check fees)
assessed against residents of the states in which such suits were
filed, based on restrictions or prohibitions under such states'
laws alleged to be applicable to out-of-state credit card
issuers. In October 1991, a federal district court upheld a
Massachusetts law that bars banks from assessing late payment
fees on credit card accounts of residents of that state in a
proceeding involving Greenwood Trust (the issuer of the Discover
Card). However, in August 1992, the federal Court of Appeals for
the First Circuit reversed the federal district court on the
grounds that the Massachusetts law was preempted by applicable
federal law, and in December 1995 the federal Court of Appeals
for the Third Circuit reached a similar result in a case
involving Meridian Bank. The Supreme Courts of California and
Colorado have recently reached similar results. However, other
courts, including the Supreme Court of New Jersey, have ruled in
favor of challenges to the assessment of late payment and other
fees. The United States Supreme Court is expected to rule on the
issue this year in an appeal from the California Supreme Court
decision referred to above. If the United States Supreme Court
determines that the term "interest" as defined in Section 85 of
the National Bank Act does not include late payment fees or other
similar charges assessed by federally chartered banks such as
Direct Merchants Bank, lawsuits such as those referred to above
could have the effect of limiting certain charges, other than
periodic finance charges, that could be assessed on credit card
accounts of residents of various states and could require credit
card issuers to pay refunds and civil penalties with respect to
charges previously imposed on cardholders in such states. There
can be no assurance that Direct Merchants Bank will not be named
as a defendant in future lawsuits or administrative actions.
Direct Merchants Bank is subject to numerous federal and state
consumer protection and other laws, including the Truth-in-
Lending Act, the Equal Credit Opportunity Act, the Home Mortgage
Disclosure Act, the Community Reinvestment Act, the Electronic
Funds Transfer Act, and the Fair Credit Reporting Act.
Provisions of those statutes, and related regulations, among
other matters, require disclosure to borrowers of finance charges
in terms of an annual percentage rate, prohibit certain
discriminatory practices in extending credit, require Direct
Merchants Bank to serve the banking needs of its local
communities, and regulate the dissemination and use of
information relating to a borrower's creditworthiness. The
United States Congress and the states may enact laws and
amendments to existing laws to regulate further the credit card
industry or to reduce finance charges or other fees or charges
applicable to credit card and other consumer revolving loan
accounts. Such laws, as well as any new laws or rulings which
may be adopted, may adversely affect Direct Merchants Bank's
ability to collect on its credit card receivables or maintain
previous levels of periodic rate finance charges and other fees
and charges on its credit card accounts.
Direct Merchants Bank is subject primarily to regulation and
periodic examination by the Office of the Comptroller of the
Currency (the "Comptroller"). Such regulation relates to the
maintenance of reserves for certain types of deposits, the
maintenance of certain financial ratios, transactions with
affiliates and a broad range of other banking practices. In
addition, Direct Merchants Bank is subject to capital adequacy
guidelines. As of December 31, 1995, the minimum required ratio
of total capital to risk-weighted assets (including certain off-
balance sheet items) was 8%. At least half of the total capital
is to be comprised of common stock, retained earnings and non-
cumulative perpetual preferred stock ("Tier 1 capital"). The
remainder ("Tier 2 capital") may consist of other preferred
stock, certain hybrid debt/equity instruments, a limited amount
of term subordinated debt or a limited amount of the reserve for
possible credit losses. In addition, Direct Merchants Bank is
subject to a minimum leverage ratio (Tier 1 capital divided by
total average assets) of 3%. As of December 31, 1995, Direct
Merchants Bank's Tier 1 capital ratio was 37.5% (as was its
combined Tier 1 and Tier 2 capital ratio) and its leverage ratio
was 20%.
There are various legal limitations on the extent to which
Direct Merchants Bank can pay dividends to the Company. The
prior approval of the Comptroller is required if the total of all
dividends declared by Direct Merchants Bank in any calendar year
exceeds its net profits (as defined) for that year combined with
its retained net profits for the preceding two years, less any
required transfers to surplus accounts. In addition, Direct
Merchants Bank may not pay a dividend in an amount greater than
its undivided profits then on hand after deducting its losses and
bad debts. The Comptroller also has authority under the
Financial Institutions Supervisory Act to prohibit a national
bank from engaging in any unsafe or unsound practice in
conducting its business. It is possible, depending upon the
financial condition of the bank in question and other factors,
that the Comptroller could claim that a dividend payment might
under some circumstances be an unsafe or unsound practice.
Direct Merchants Bank is also subject to restrictions under
federal law that limit the transfer of funds by Direct Merchants
Bank to the Company and its other subsidiaries in the form of
loans, extensions of credit, investments or asset purchases and
require generally that Direct Merchant Bank's transactions with
its affiliates be on terms no less favorable to the bank than
comparable transactions with unrelated third parties. These
transfers by Direct Merchants Bank to the Company or any single
affiliate are limited in amount to 10% of capital and surplus.
Transfers to all affiliates are limited to an aggregate of 20% of
Direct Merchants Bank's capital and surplus. In addition, such
loans and extensions of credit are also subject to various
collateral requirements.
Because the banking and consumer finance businesses in general
are the subject of such extensive regulation at both the state
and federal levels, and because numerous legislative and
regulatory proposals are advanced each year which, if adopted,
could affect Direct Merchants Bank's profitability or the manner
in which it conducts its activities, the Company cannot now
predict the extent of the impact of any such new laws or
regulations.
Various legislative proposals have been introduced in Congress
in recent years, including, among others, proposals relating to
imposing a statutory cap on credit card interest rates,
permitting affiliations between banks and commercial or
securities firms, and proposals which would place new
restrictions on a lender's ability to utilize pre-screening of
consumers' credit reports through credit reporting agencies
(credit bureaus) in connection with the lender's direct marketing
efforts. It is impossible to determine whether any of these
proposals will become law and, if so, what impact they will have
on the Company.
Executive Officers of the Registrant
Name Age Present Office
Theodore Deikel 60 Chairman of the Board,
Chief Executive Officer and
President
Thomas J. Bozlinski 48 Senior Vice President,
Information Services
John D. Buck 45 Senior Vice President, Human
Resources
John K. Ellingboe 45 Senior Vice President,
Business Development,
General Counsel and
Secretary
Andrew V Johnson 40 Senior Vice President,
Marketing
Peter G. Michielutti 39 Senior Vice President, Chief
Financial Officer
James B. Moran 59 Senior Vice President,
Operations and
President, Fingerhut
Fulfillment Services
Richard L. Tate 50 Senior Vice President,
Merchandising
Ronald N. Zebeck 41 President, Fingerhut
Financial Services Corporation
Robert W. Oberrender 36 Vice President, Treasurer
Thomas C. Vogt 49 Corporate Controller
Theodore Deikel has served as Chairman of the Board, Chief
Executive Officer and President since 1989. From 1985 until
rejoining the Company, Mr. Deikel served as Chairman and CEO of
CVN Companies, Inc. ("CVN"), a direct marketing company using
television and direct mail. From 1979 to 1983, Mr. Deikel was
Executive Vice President of American Can Company (a predecessor
to Travelers) and Chairman of American Can Company's specialty
retailing division, which included the Company. In addition, Mr.
Deikel was Chief Executive Officer of Fingerhut from 1975 to
1983.
Thomas J. Bozlinski became Senior Vice President, Information
Systems in January 1996. He was Vice President, Information
Systems of the Company from June 1993 to January 1996. Prior to
that he was Managing Director, Systems & Operations of Northwest
Airlines Corp.
John D. Buck joined the Company as Senior Vice President,
Human Resources on March 1, 1996. For more than five years prior
to that, he was Vice President, Administration of Alliant
Techsystems, Inc., a supplier of defense products and services to
the United States government and its allies.
John K. Ellingboe has been Senior Vice President, Business
Development, since October 1993, General Counsel of the Company
since June 1990 and Secretary of the Company since April 1990.
Andrew V Johnson has been Senior Vice President, Marketing of
the Company since January 1993. Prior to that time, he was Vice
President, Marketing of the Company from November 1989 to January
1993.
Peter G. Michielutti was hired as Senior Vice President,
Chief Financial Officer of the Company in July, 1995. Prior to
that he held various positions with divisions/subsidiaries of
Household International Inc. (consumer finance services). He was
Chief Financial Officer of Household Credit Services from May
1992 to July 1995, Vice President-Financial Administration-Canada
of Household Financial Corporation Limited from March 1991 to May
1992, and Vice President-Financial Administration of Household
Bank FSB from August 1990 to March 1991.
James B. Moran has been Senior Vice President, Operations
since January 1992 and was Senior Vice President, Subsidiaries
from September 1991 to January 1992. From 1988 until joining the
Company, Mr. Moran was President and Chief Executive Officer of
Tru-Part Manufacturing, a wholesale distribution company.
Richard L. Tate has been Senior Vice President, Merchandising
of the Company since October 1993. Prior to that time he was
Vice President, Merchandising of the Company from December 1989
to October 1993.
Ronald N. Zebeck was hired as President of Fingerhut Financial
Services Corporation in March 1994 and is also Chief Executive
Officer of Direct Merchants Bank. He was Managing Director, GM
Card Operations of General Motors Corporation from 1991 to 1993
and director of marketing of Advanta Corporation from 1987 to
1991.
Robert W. Oberrender has been Vice President, Treasurer of the
Company since July 1994. Prior to that time, he was Assistant
Treasurer of the Company from February 1993 to July 1994 and was
Vice President, Corporate Finance & Banking Group of Chemical
Bank for more than five years prior to February 1993.
Thomas C. Vogt has been Corporate Controller since November
1994. Prior to that time, he was Assistant Controller,
Operations of the Company from August 1991 to October 1994 and
was Vice President and Controller of Hanover Direct, Inc. from
April 1989 to July 1991. He held various financial positions at
Fingerhut from October 1973 to March 1989.
Officers of the Company are elected by, and hold office at
the will of, the Board of Directors and do not serve a "term of
office" as such.
Item 2. Properties
The Company's executive and administrative offices and
warehouse and distribution facilities are located in a number of
facilities in Minnesota, Tennessee, Wisconsin, Utah and Oklahoma.
The total facilities presently used by the Company's continuing
operations have an aggregate of approximately 6.2 million square
feet, of which approximately 6.1 million square feet is used for
the direct to the consumer marketing segment and 48,000 square
feet is used for the financial services segment. Of these,
Fingerhut owns a 193,000 square foot office building in
Minnetonka (which it previously leased and purchased from the
lessor in January 1996), a new 186,000 square foot data and
technology center in Plymouth, Minnesota, which opened in June
1995, buildings in St. Cloud with an aggregate of approximately
1.5 million square feet, buildings in Alexandria with an
aggregate of approximately 53,000 square feet and buildings in
Mora with approximately 162,000 square feet. Figi's owns
buildings in Marshfield, Wisconsin with an aggregate of
approximately 297,000 square feet. Tennessee Distribution, Inc.,
a subsidiary of the Company, owns a one million square foot
warehouse and distribution facility near Bristol, Tennessee.
Western Distribution, Inc., a subsidiary of the Company, owns a
one million square foot warehouse and distribution facility near
Spanish Fork, Utah.
The Company leases the remainder of the facilities it uses,
which consist of office, operations and warehouse space.
Item 3. Legal Proceedings
The Company is a party to various claims, legal actions,
sales/use tax disputes and other complaints arising in the
ordinary course of business. In the opinion of management, any
losses that may occur are adequately covered by insurance, are
provided for in the financial statements, or are without merit
and the ultimate outcome of these matters will not have a
material effect on the financial position or operations of the
Company.
On or about October 16, 1995, the Company was served with a
legal action commenced in federal district court in Arizona by
two shareholders against the Company, a current officer and a
former officer alleging violations of Sections 10(b) and 20 of
the Securities Exchange Act of 1934, as amended and Rule 10b-5
thereunder. The complaint (i) alleges that the Company made
false and misleading statements or omissions with respect to its
plans regarding S The Shopping Network, (ii) requests
certification as a class action on behalf of shareholders of the
Company who purchased Common Stock during a specified period and
(iii) alleges unspecified damages. The Company considers the
plaintiffs' claims to be without merit and intends to vigorously
defend the matter.
On January 11, 1996 and February 13, 1996, Fingerhut was
served with legal actions commenced in Minnesota District Court,
Fourth Judicial District on behalf of certain Fingerhut
customers. The complaints are substantially similar and (i)
allege violations of the consumer credit sales act and usury and
(ii) requests certification as a class action, declaratory and
injunctive relief, money damages with interest, including the
principal and interest paid on plaintiffs' credit purchases, and
class damages and equitable relief, attorneys' fees and costs.
In addition, the parties have filed a stipulation to consolidate
these cases. The Company believes Fingerhut's time payment
pricing and credit practices are in compliance with applicable
state law. Fingerhut has retained outside counsel and intends to
vigorously defend these actions.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during
the fourth quarter of the Company's fiscal year ended December
29, 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The information required by this item is set forth in
"Quarterly Financial and Stock Data" on pages 42 and 43 of the
Company's Annual Report to Shareholders for the fiscal year ended
December 29, 1995 (the "1995 Annual Report") and is incorporated
herein by reference.
Item 6. Selected Financial Data
The information required by this item is set forth under the
caption "Five Year Summary of Selected Consolidated Financial
Data" on page 19 of the 1995 Annual Report and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item is set forth under the
caption "Management's Discussion and Analysis of Results of
Operations and Financial Condition" on pages 20 to 23 of the 1995
Annual Report and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The audited Consolidated Financial Statements of the
Registrant and independent auditors' report thereon and the
unaudited Quarterly Financial and Stock Data set forth on pages
24 to 43 of the 1995 Annual Report are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to
directors is set forth under "Proposal 1: Election of Directors"
in the Company's proxy statement for the annual meeting of
shareholders to be held on May 15, 1996, which will be filed
within 120 days of December 29, 1995 (the "Proxy Statement") and
is incorporated herein by reference. The information required by
this item with respect to executive officers is, pursuant to
instruction 3 of Item 401(b) of Regulation S-K, set forth in Part
I of this Form 10-K under "Business--Executive Officers of the
Registrant." The information required by this item with respect
to reports required to be filed under Section 16(a) of the
Securities Exchange Act of 1934 is set forth under "Security
Ownership of Certain Beneficial Owners and Management_Compliance
with Section 16" in the Proxy Statement and is incorporated by
reference.
Item 11. Executive Compensation
The information required by this item is set forth under
"Executive Compensation" in the Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is set forth under
"Security Ownership of Certain Beneficial Owners and Management"
in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is set forth under
"Arrangements and Transactions with Related Parties" in the Proxy
Statement and is incorporated herein by reference.
With the exception of the information incorporated by
reference in Items 10-13 above, the Proxy Statement is not to be
deemed filed as part of this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are made part of this report:
1. Consolidated Financial Statements.
The following consolidated financial
statements, the related notes and the report of the
Company's independent auditors are incorporated
herein by reference from the 1995 Annual Report as
part of this report at Item 8 hereof:
Independent Auditors' Report dated
January 24, 1996.
Consolidated Statements of Earnings
for each of the three fiscal years ended
December 29, 1995.
Consolidated Statements of Financial
Position at December 29, 1995 and December 30,
1994.
Consolidated Statements of Changes
in Stockholders' Equity for each of the three
fiscal years ended December 29, 1995.
Consolidated Statements of Cash
Flows for each of the three fiscal years ended
December 29, 1995.
Notes to Consolidated Financial Statements.
With the exception of the foregoing
information and the information incorporated by
reference in Items 5-8 of this Part II, the 1995
Annual Report is not to be deemed filed as part of
this Form 10-K.
2. Financial Statement Schedule: The following
schedule for each of the three years ended
December 29, 1995 is included in this Form 10-K:
Independent Auditors' Report on
consolidated financial statement schedule dated
January 24, 1996.
Schedule II - Valuation and Qualifying Accounts.
Certain schedules have been omitted because
they are not required under the related instructions
or are inapplicable, or because the required
information is included elsewhere in the financial
statements or related notes.
(b) Reports on Form 8-K: None
(c) Exhibits: See Exhibit Index on page 23 of this Report.
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 on the 27th day of March, 1996.
FINGERHUT COMPANIES, INC.
(Registrant)
By /s/Theodore Deikel
Theodore Deikel
Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of Fingerhut Companies, Inc., the Registrant, and in
the capacities and on the dates indicated.
Signature Title Date
Principal executive Chairman of the Board, March 27, 1996
officer and director: Chief Executive Officer
and President
/s/Theodore Deikel
Theodore Deikel
Principal financial officer: Senior Vice President, March 27, 1996
Chief Financial Officer
/s/Peter G. Michielutti
Peter G. Michielutti
Principal accounting officer: Corporate Controller March 27, 1996
/s/Thomas C. Vogt
Thomas C. Vogt
Directors:
/s/Wendell R.Anderson Director March 27, 1996
Wendell R. Anderson
/s/Edwin C.Gage Director March 27, 1996
Edwin C. Gage
/s/Stanley S. Hubbard Director March 27, 1996
Stanley S. Hubbard
/s/Richard M. Kovacevich Director March 27, 1996
Richard M. Kovacevich
/s/Dudley C. Mecum Director March 27, 1996
Dudley C. Mecum
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
Articles of Incorporation and Bylaws
3.a Amended and Restated
Articles of Incorporation of the
Registrant (restated in
electronic format as amended to
July 29, 1993)(Incorporated by
reference to Exhibit 3.a to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
31, 1993).
3.b Bylaws of the
Registrant (restated in
electronic format as amended to
July 29, 1993)(Incorporated by
reference to Exhibit 3.b to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
31, 1993).
Material Contracts
10.a Pooling and Servicing Agreement
dated as of June 29, 1994 among
Fingerhut Receivables, Inc., as
Transferor, Fingerhut
Corporation, as Servicer, and The
Bank of New York (Delaware), as
Trustee (Incorporated by
reference to Exhibit 10.b to
Registrant's Quarterly Report on
Form 10-Q (File No. 1-8668) for
the fiscal quarter ended July 1,
1994).
(i) Series 1994-1 Supplement
dated as of June 29, 1994
(Incorporated by reference to
Exhibit 10.b(i) to Registrant's
Quarterly Report on Form 10-Q
(File No. 1-8668) for the fiscal
quarter ended July 1, 1994).
(ii) Series 1994-2 Supplement
dated as of November 15, 1994
(Incorporated by reference to
Exhibit 10.b(ii) to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 31, 1994).
10.b Purchase Agreement dated as of
June 29, 1994 between Fingerhut
Receivables, Inc., as Buyer, and
Fingerhut Corporation, as Seller
(Incorporated by reference to
Exhibit 10.a. to Registrant's
Quarterly Report on Form 10-Q
(File No. 1-8668) for the fiscal
quarter ended July 1, 1994).
10.c Pooling and Servicing
Agreement dated as of May 26,
1995 among Fingerhut Financial
Services Receivables, Inc., as
Transferor, Direct Merchants
Credit Card Bank, National
Association, as Servicer, and The
Bank of New York (Delaware), as
Trustee (Incorporated by
reference to Exhibit 10.u to
Registrant's Quarterly Report on
Form 10-Q (File 1-8668) for the
fiscal quarter ended June 30,
1995).
(i) Series 1995-1 Supplement dated
as of May 26, 1995 (Incorporated by reference
to Exhibit 10.u(i) to Registrant's
Quarterly Report on Form 10-Q
(File 1-8668) for the
fiscal quarter ended June 30,
1995).
10.d* Fingerhut Corporation
Profit Sharing Plan 1989 Revision
(Incorporated by reference to
Exhibit 10(d) to Registrant's
Registration Statement on Form
S-1 (No. 33-33923)).
10.e* Fingerhut Companies,
Inc. and Subsidiaries 1995 Key
Management Incentive Bonus Plan
for Designated Corporate
Officers.
10.f* Fingerhut Corporation
Pension Plan 1990 Revision
(Incorporated by reference to
Exhibit 10(f) to Registrant's
Registration Statement on Form
S-1 (No. 33-33923)).
10.g* Fingerhut Companies,
Inc. Stock Option Plan
(Incorporated by reference to
Exhibit 10(h) to Registrant's
Registration Statement on Form
S-1 (No. 33-33923)).
10.h* Executive Tax Planning/Preparation and
Financial Planning Policy.
(Incorporated by reference to
Exhibit 10.h to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 31, 1994).
10.i* Fingerhut Companies,
Inc. 1995 Long-Term Incentive and
Stock Option Plan.
(i)* Form of option agreement.
10.j* Fingerhut Companies,
Inc. 1992 Long-Term Incentive and
Stock Option Plan. (Incorporated
by reference to (Exhibit 10(j) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
25, 1992).
10.k* Fingerhut Companies,
Inc. and Subsidiaries Annual
Incentive Bonus Plan for
Designated Corporate Officers
(Incorporated by reference to
Exhibit 10.k to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 31, 1993).
10.l* Stock Option and
Valuation Rights Agreement dated
as of March 21, 1994, between
Fingerhut Companies, Inc. and
Ronald N. Zebeck.
10.m* Fingerhut Companies,
Inc. Directors' Retainer Stock
Deferral Plan (Incorporated by
reference to Exhibit 10.m to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
31, 1993).
10.n Amended and Restated
Revolving Credit and Letter of
Credit Facility dated as of
October 17, 1994, among Fingerhut
Companies, Inc., the Guarantors
party thereto, the Lenders party
thereto, the Issuing Banks party
thereto, Chemical Bank as Agent
and NationsBank of North Carolina
N.A., as Co-Agent (Incorporated
by reference to Exhibit 10.n to
Registrant's Quarterly Report on
Form 10-Q (File No. 1-8668) for
the fiscal quarter ended
September 30, 1994).
10.o Form of Purchase
Agreement dated as of January 14,
1991, relating to the sale of
$65,000,000 of 9.81% Senior
Notes, Series A, due June 30,
1996 and $25,000,000 of 10.12%
Senior Notes, Series B, due
December 30, 1997 (Incorporated
by reference to Exhibit 10(o) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
28, 1990).
(i) First Amendment
Agreement dated as of March 1,
1992. (Incorporated by reference
to Exhibit 10(o)(i) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
27, 1991).
(ii) Second Amendment Agreement dated as of
June 17, 1994 (Incorporated by
reference to Exhibit 10.o(ii) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
31, 1994).
(iii) Third Amendment Agreement dated
as of October 30, 1995.
10.p Purchase Agreement
dated as of February 15, 1991,
relating to the sale of
$20,000,000 of 9.74% Senior
Notes, Series C, due August 15,
1996 (Incorporated by reference
to Exhibit 10(p) to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 28, 1990).
(i) First Amendment
Agreement dated as of March 1,
1992. (Incorporated by reference
to Exhibit 10(p)(i) to
Registrant's Annual Report on
Form 10-K (File No. 1-8668) for
the fiscal year ended December
27, 1991).
(ii) Second Amendment
Agreement dated as of
June 17, 1994. This document is
being omitted from filing
pursuant to Instruction 2 to Item
601 of Regulation S-K.
(iii) Third Amendment
Agreement dated as of October 30,
1995. This document is being
omitted from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
10.q Purchase Agreement
dated as of January 15, 1992,
relating to the sale of
$15,000,000 of 6.96% Senior
Notes, Series D, due August 15,
1996. (Incorporated by reference
to Exhibit 10(q) to Registrant's
Annual Report on Form 10-K (File
No. 1-8668) for the fiscal year
ended December 27, 1991).
(i) First Amendment
Agreement dated as of March 1,
1992. (Incorporated by reference
to Exhibit 10(q)(i) to
Registrant's Annual Report on
From 10-K (File No. 1-8668) for
the fiscal year ended December
27, 1991).
(ii) Second Amendment Agreement dated as of
June 17, 1994. This document is
being omitted from filing
pursuant to Instruction 2 to Item
601 of Regulation S-K.
(iii) Third Amendment Agreement dated as of October 30,
1995. This document is being
omitted from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
10.r Pledge Agreement
dated as of March 20, 1992,
securing the Company's
obligations under the Credit
Agreement and its Senior Notes,
Series A, B, C and D.
(Incorporated by reference to
Exhibit 10(r) to Registrant's
Annual Report on Form 10-K (File
No. 1-8668 for the fiscal year
ended December 27, 1991).
10.s Purchase Agreement
dated as of June 15, 1992,
relating to the sale of
$60,500,000 of 8.92% Senior
Unsecured Notes, Series A, due
June 15, 2002 and $14,500,000 of
8.92% Senior Unsecured Notes,
Series B, due June 15, 2004
(Incorporated by reference to
Exhibit 10(s) to Registrant's
Quarterly Report on form 10-Q
(File No. 1-8668) for the fiscal
quarter ended June 26, 1992.
(i) First Amendment Agreement dated as of June
17, 1994. This document is being
omitted from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
(ii) Second Amendment dated as of October 30, 1995.
This document is being omitted
from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
10.t Purchase Agreement
dated as of August 1, 1993,
relating to the sale of
$45,000,000 of 6.83% Senior
Unsecured Notes, Series C, due
August 1, 2000 (Incorporated by
reference to Exhibit 10.t to
Registrant's Quarterly Report on
Form 10-Q (File 1-8668) for the
fiscal quarter ending September
24, 1993).
(i) First Amendment Agreement dated as of June
17, 1994. This document is being
omitted from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
(ii) Second Amendment dated as of October 30, 1995.
This document is being omitted
from filing pursuant to
Instruction 2 to Item 601 of
Regulation S-K.
10.u* Fingerhut Corporation Pension Excess Plan.
10.v* Fingerhut Corporation Profit Sharing
Excess Plan.
10.w* Fingerhut Companies, Inc.
Supplemental Executive Retirement Plan.
10.x* Fingerhut Companies, Inc. Non-
employee Directors Stock Option Plan.
Other Exhibits
11 Computation of Earnings per Share
13 Pages 19 to 43 of the
1995 Annual Report to
Shareholders. The 1995 Annual
Report shall not be deemed to be
filed with the Commission except
to the extent that information is
specifically incorporated herein
by reference. Exhibit 13 also
includes a financial statement
schedule, and independent
auditors' report thereon, that
was not part of the 1995 Annual
Report.
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
______
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of Form
10-K.
Exhibit 10.e
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
1995 KEY MANAGEMENT INCENTIVE BONUS PLAN
FOR
DESIGNATED CORPORATE OFFICERS
Highlights
This incentive bonus program covers designated Corporate
Officers.
The Plan is based on Company financial performance and on
achievement of approved individual performance objectives
(MBO's).
(Company financial performance will be allocated between
overall Company performance and the performance of designated
business unit(s). Financial schedules will be developed for
overall company performance and each designated business unit.)
The Plan is self-funding; that is, the financial objectives
of the Company and business units must be met after the effect of
any bonus payments.
At goal, overall Company performance will require earnings
per share of $x.xx. The maximum payout under overall Company
performance will occur at pre-tax consolidated earnings per share
of $x.xx. No incentive bonus for overall company financial
performance will be paid unless $x.xx per share goal is achieved.
At goal, Fingerhut Base Business performance will require
pre-tax consolidated earnings of $xx.x million. The maximum payout
under Fingerhut Base Business performance will occur at pre-tax
consolidated earnings of $xxx.x million. No incentive bonus for Fingerhut
Base Business financial performance will be paid unless the
$xx.x million goal is achieved.
At goal, Fingerhut Financial Services (FFS) performance will
require pre-tax consolidated earnings of $xx.x million. The
maximum payout under FFS performance will occur at pre-tax
consolidated earnings of $xx.x million. No incentive bonus for
FFS financial performance will be paid unless the $xx.x million
goal is achieved.
The practice of establishing minimum earnings requirements
for payout on individual performance objectives (MBO's) has been
discontinued. The financial objectives of the company and/or
designated business units, however, must be met after the effect
of any bonus payments in order for individual performance
objectives (MBO's).
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
1995 KEY MANAGEMENT INCENTIVE BONUS PLAN
Participation in this Plan is limited to officers of Fingerhut
Companies, Inc., and subsidiaries recommended by the Executive
Compensation Committee and approved by the Chief Executive
Officer. The intent of the Plan is to pay bonus amounts at goal
ranging from 75% to 125% of base salary. The bonus amounts are
based on: (1) targeted bonus percentage, (2) Company financial
performance, (which includes performance of overall Company and
the performance of designated business unit(s)), and (3)
achievement of individual objectives. (For the Chief Executive
Officer, at goal, 100% of targeted bonus amount will be
determined by overall Company financial performance.
(For Executive Vice Presidents, Senior Vice Presidents, and the
President, Fingerhut Financial Services, at goal, 65% of targeted
bonus amount will be allocated between overall Company
performance and designated business unit(s) performance, and 35%
will be determined by achievement of individual objectives. For
Vice Presidents at goal, 50% of the targeted bonus amounts will
be allocated between overall Company performance and designated
business unit(s) performance, and 50% will be determined by
achievement of individual objectives). In the event of above
goal overall Company performance and/or business unit(s)
performance, the corresponding Company performance factor will be
increased in accordance with Schedules B, C, or D, as applicable.
This Plan will be effective for fiscal years commencing January
1, 1996 and later but the Company may change, modify or terminate
the Plan at any time, including adding or deleting business
units. Schedules B, C, and D of the Plan will be revised each
fiscal year to reflect the overall Company's and business unit(s)
fiscal year goals. (Schedule E will be revised each year to
reflect the weighting of Company financial performance allocated
between overall Company performance and performance of designated
business unit(s) for each designated Corporate Officer. Prior to
the start of each fiscal year the Executive Compensation
Committee will review the Plan and the revised Schedules B, C, D,
and E.
Eligibility
1. Participation in the Plan is limited to officers of
Fingerhut Companies, Inc. and subsidiaries who are
recommended by the Executive Compensation Committee and
approved by the Chief Executive Officer and who are not
participants in the Annual Incentive Bonus Plan.
2. No bonus award will be made if a participant leaves the
employ of the Company prior to the last day of the
measurement period. The only exceptions to this will be for
death, retirement, disability, or transfer to an affiliate
company and in these situations a prorated bonus award will
be made.
In the event of a prorated award the participant may be paid
a bonus for the time during the bonus period that he or she
was a participant. In the event of an involuntary
termination, the Executive Compensation Committee will have
complete discretion to pay or not pay a bonus and to adjust
the bonus amount in whatever way the Committee deems
appropriate.
3. A new participant who becomes eligible to participate in the
Plan during a bonus period may be paid a bonus in proportion
to the time during the bonus period that he or she was a
participant. A participant whose position and targeted bonus
percentage changes during the year shall receive an adjusted
bonus based on performance in each position held and
proportional in amount to the period each position was held.
This adjustment will apply to both Company and individual
performance objectives.
Definition of Salary
1. Salary shall be defined as paid base wages during the fiscal
year exclusive of any benefits and other payments.
2. Bonus amounts paid under the Plan shall be included for
purposes of determining benefits from the Fingerhut Corporation
Pension and Profit Sharing Plans.
Payment
1. The formula yielding the individual bonus payment for all
participants will be as follows:
Paid Base Targeted Overall Business Individual Bonus
Wages X Bonus X Company + Unit(s) + Performance = Amount
Performance Performance Factor
Factor
Example - At Goal Performance
- - Executive Vice President earns $280,000 salary
- - Targeted bonus percentage is 125% of paid base wages
- - (Company performance factor is allocated 20% to overall
Company financial performance and 60% to designated business
unit financial performance.)
- - Overall Company performance factor is achieved at goal (i.e.
20%)
- - Designated business unit performance factor is achieved at
goal (i.e. 60%)
- - Individual performance rating is 15%
Salary X 125% X (20% + 65% + 15%) = Bonus
--------------------------------------------------------
$280,000 $350,000 95% = $332,500
Example - Above Goal Performance
- - Executive Vice President earns $280,000 salary
- - Targeted bonus percentage is 125% of paid base wages
- - (Company performance factor is allocated 20% to overall
Company financial performance and 60% to designated business
unit financial performance)
- - overall Company performance factor is achieved above goal at
25%
- - Designated business unit performance factor is achieved
above goal at 70%
- - Individual performance rating is 15%
Salary X 125% X (25% + 70% + 15%) = Bonus
---------------------------------------------------
$280,000 $350,000 110% = $385,000
Example - Below Goal Performance
- - Executive Vice President earns $280,000 salary
- - Targeted bonus percentage is 125% of paid base wages
- - (Company performance factor is allocated 20% to overall
Company financial performance and 60% to designated business
unit financial performance)
- - Overall Company performance factor is achieved below goal at
15%
- - Designated business unit performance factor is achieved
below goal at 55%
- - Individual performance rating is 15%
Salary X 125% X (15% + 55% + 15%) = Bonus
---------------------------------------------------
$280,000 $350,000 85% = $297,500
2. In the event the minimum Plan threshold for payout for
overall company performance is not attained, no payout will
be made on the Company performance factor allocated to
overall company performance. In the event the minimum Plan
threshold for payout for designated business unit(s)
performance is not attained, no payout will be made on the
Company performance factor allocated to designated business
unit(s) performance.
3. In the event the minimum Plan threshold for payout of
Company performance is not attained, a special Discretionary Fund
will be established in an amount equal to 10% of annualized
salaries of all Plan participants. This fund may or may not be
paid out, as determined at the discretion of the Executive
Compensation Committee and approved by the Chief Executive
Officer.
4. No threshold level will be established for payout of
individual performance objectives (MBO's).
5. Payment of bonus awards will be made in cash and will
include required payroll deductions after the actual results have
been reviewed by the Chief Financial Officer and approved by the
Chief Executive Officer. The bonus payments will occur as soon
as possible after the approval date.
6. The Plan is self-funding. Thus, the financial objectives of
the Company must be met after the effect of any bonus payments.
7. The Chief Executive Officer may make discretionary bonus
payments to participants over and above the defined formula for
(i) extraordinary performance or (ii) in other cases, upon the
recommendation of the Executive Compensation Committee where
determined by the Committee to be warranted.
8. If significant unforeseen results affect the Company's
business positively or negatively during the year, that were not
included in the Company performance goal and/or business unit(s)
goal for the year, the financial performance goal may be adjusted
to reflect the effects of such unplanned events. Such unplanned
situations shall include but are not limited to:
A. Unplanned acquisitions/new business ventures
B. Unplanned divestitures
C. The inclusion or exclusion of new participants under
the Plan as mentioned in items A and B.
The Executive Compensation Committee will make a
recommendation on the appropriate adjustment of such an unplanned
situation on this Plan, which will be decided by the Chief
Executive Officer.
Approvals
1. The head of each Department will recommend individual
objectives and the (weighting between overall Company performance
and business unit(s) performance) at the start of the measurement
period. Each Officer will recommend and justify to the Executive
Compensation Committee the weighting of the Company performance
factor, objectives, and performance factors for participating
officers. The Executive Compensation Committee will review the
Company performance factor weightings, objectives, and
performance factors, approve them, and forward to the Chief
Executive Officer. The decision of the Chief Executive Officer
will be final, conclusive and binding with respect to the
establishment of Company performance factor weightings,
objectives, and performance of the participants.
2. Achievement of objectives ratings of the participants will
be reviewed, recommended and submitted by the appropriate officer
to the Executive Compensation Committee. Final determination and
approval of satisfaction of Plan objectives and bonus amounts
will be by the Chief Executive Officer.
3. The administration of the Key Management Incentive Bonus
Plan is the responsibility of the Executive Compensation
Committee.
FINGERHUT COMPANIES, INC.
AND SUBSIDIARIES
GUIDELINES FOR ESTABLISHING INDIVIDUAL
PERFORMANCE OBJECTIVES
1. Key Management Incentive Bonus Plan (KMIBP) participants
will meet with the appropriate Officer prior to the beginning of
the measurement period to discuss specific results to be achieved
during the year.
2. The participant will then draft and submit to the Officer
goals to be accomplished during the year. These objectives must
be written on the KMIBP form (see attached). The participant and
Officer will then recommend achievement rating points to each
objective (see schedule F). Points assigned should reflect the
priority of the objective; i.e. higher priority objectives should
carry more points. Achievement rating points assigned must total
20 for Management Committee members, Executive Vice Presidents,
Senior Vice Presidents and the President, Fingerhut Financial
Services and total 50 for Vice Presidents.
3. Characteristics of Well Developed Objectives - To be
meaningful, individual performance objectives (MBO's) should be:
Challenging - The objective should present a challenge to
the participant.
Attainable - The objective should be both realistic and
achievable.
Measurable - The objective should be as specific and
quantitative as possible. It should be expressed in tangible and
measurable terms. If it is not quantifiable, the results of the
achievement should be verifiable.
Relevant - There should be a clear and direct relationship
between the objective and the Company's goals.
4. Performance objectives require the approval of the Executive
Compensation Committee and the Chief Executive Officer prior to
formal communication to the participants. The Chief Executive
Officer reserves the right to add, delete, or change recommended
objectives.
5. At the end of each quarter, and at fiscal year end, the
participant and the appropriate Officer will review results
against objectives. The final rating at the end of the
measurement period will determine the bonus amount paid.
SCHEDULE A
FINGERHUT COMPANIES, INC.
AND SUBSIDIARIES
1995 KEY MANAGEMENT INCENTIVE BONUS PLAN
Job Level
Targeted Bonus Schedule
Job Level Targeted Bonus Percentage
Executive Vice Presidents 125% of Paid Base Wages
President, Fingerhut Financial 125% of Paid Base Wages
Services
Senior Vice Presidents 100% of Paid Base Wages
Vice Presidents 75% of Paid Base Wages
SCHEDULE F
FINGERHUT COMPANIES, INC.
AND SUBSIDIARIES
1995 KEY MANAGEMENT INCENTIVE BONUS PLAN
INDIVIDUAL OBJECTIVES
PERFORMANCE FACTOR - MANAGEMENT COMMITTEE MEMBERS,
EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND
PRESIDENT, FINGERHUT FINANCIAL SERVICES
1 to 35 Points
Maximum Performance
Factor Possible - 35 Points
PERFORMANCE FACTOR - VICE PRESIDENTS
1 to 50 Points
Maximum Performance
Factor Possible - 50 Points
The Plan is self-funding; that is, the financial objectives of
the overall Company and/or designated Business Unit(s) must be
met after the effect of any bonus payment.
Exhibit 10.i
FINGERHUT COMPANIES, INC.
1995 LONG-TERM INCENTIVE AND STOCK OPTION PLAN
1. Purpose of Plan.
This Plan shall be known as the "FINGERHUT COMPANIES, INC.
1995 LONG-TERM INCENTIVE AND STOCK OPTION PLAN" and is
hereinafter referred to as the "Plan." The purpose of the Plan is
to aid in maintaining and developing personnel capable of
ensuring the future success of Fingerhut Companies, Inc., a
Minnesota corporation (the "Company"), to offer such personnel
additional incentives to put forth maximum efforts for the
success of the business, and to afford them an opportunity to
acquire a proprietary interest in the Company through stock
options and other long-term incentive awards as provided herein.
Options granted under this Plan may be either incentive stock
options ("Incentive Stock Options"') within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"'), or stock options which do not qualify as Incentive
Stock Options ("Nonqualified Stock Options"). Awards granted
under this Plan may be stock appreciation rights, restricted
stock or performance awards as hereinafter described.
2. Stock Subject to Plan.
Subject to the provisions of Section 15 hereof, the stock to
be subject to options or other awards under the Plan shall be the
Company's common stock, $.01 par value (the "Common Stock").
Subject to adjustment as provided in Section 15 hereof, the
maximum number of shares on which options may be exercised or
other awards issued under this Plan shall be 2,500,000 shares.
If an option or award under the Plan expires, or for any reason
is terminated or unexercised with respect to any shares, such
shares shall again be available for options or awards thereafter
granted during the term of the Plan.
3. Administration of Plan.
(a) The Plan shall be administered by the Compensation
Committee of the Board of Directors (the "Committee") which shall
be a committee comprised solely of two or more "outside
directors" of Fingerhut Companies, Inc. which satisfied the
requirements of Section 162(m) of the Code; provided, however,
that until the first meeting of shareholders of the Company at
which directors are to be elected that occurs after January 1,
1996 (or such later date as may be provided in regulations
proposed or promulgated under the Code), the Compensation
Committee may be composed of two or more disinterested directors
within the meaning of Rule 16b-3 promulgated under the Securities
Act of 1934.
(b) The Committee shall have plenary authority in its
discretion, but subject to the express provisions of the Plan:
(i) to determine the purchase price of the Common Stock covered
by each option or award, (ii) to determine the employees to whom
and the time or times at which such options and awards shall be
granted and the number of shares to be subject to each, (iii) to
determine the form of payment to be made upon the exercise of an
SAR or in connection with performance awards, either cash, Common
Stock or a combination thereof, (iv) to determine the terms of
exercise of each option and award, (v) to accelerate the time at
which all or any part of an option or award may be exercised,
(vi) to amend or modify the terms of any option or award with the
consent of the optionee, (vii) to interpret the Plan, (viii) to
prescribe, amend and rescind rules and regulations relating to
the Plan, (ix) to determine the terms and provisions of each
option and award agreement under the Plan (which agreements need
not be identical), including the designation of those options
intended to be Incentive Stock Options, and (x) to make all other
determinations necessary or advisable for the administration of
the Plan, subject to the exclusive authority of the Board of
Directors under Section 16 hereof to amend or terminate the Plan.
The Committee's determinations on the foregoing matters, unless
otherwise disapproved by the Board of Directors of the Company,
shall be final and conclusive.
4. Eligibility.
Incentive Stock Options may only be granted under this Plan
to any full or part-time employee (which term as used herein
includes, but is not limited to, officers and directors who are
also employees) of the Company and of its present and future
subsidiary corporations within the meaning of Section 424(f) of
the Code (herein called "subsidiaries"). Full or part-time
employees, consultants or independent contractors to the Company
or one of its subsidiaries shall be eligible to receive
Nonqualified Stock Options and awards. In determining the
persons to whom options and awards shall be granted and the
number of shares subject to each, the Committee may take into
account the nature of services rendered by the respective
employees or consultants, their present and potential
contributions to the success of the Company and such other
factors as the Committee in its discretion shall deem relevant.
A person who has been granted an option or award under this Plan
may be granted additional options or awards under the Plan if the
Committee shall so determine; provided, however, that for
Incentive Stock Options granted after December 31, 1986, to the
extent the aggregate fair market value (determined at the time
the Incentive Stock Option is granted) of the Common Stock with
respect to which all Incentive Stock Options are exercisable for
the first time by an employee during any calendar year (under all
plans described in subsection (d) of Section 422 of the Code of
his employer corporation and its parent and subsidiary
corporations) exceeds $100,000, such options shall be treated as
Nonqualified Stock Options. Nothing in the Plan or in any
agreement thereunder shall confer on any employee any right to
continue in the employ of the Company or any of its subsidiaries
or affect, in any way, the right of the Company or any of its
subsidiaries to terminate his or her employment at any time.
5. Price.
The option price for all Incentive Stock Options granted
under the Plan shall be determined by the Committee but shall not
be less than 100% of the fair market value per share of Common
Stock at the date of grant of such option. The option price for
Nonqualified Stock Options granted under the Plan and, if
applicable, the price for all awards shall also be determined by
the Committee. For purposes of the preceding sentence and for
all other valuation purposes under the Plan, the fair market
value of the Common Stock shall be as reasonably determined by
the Committee. If on the date of grant of any option or award
hereunder the Common Stock is not traded on an established
securities market, the Committee shall make a good faith attempt
to satisfy the requirements of this Section 5 and in connection
therewith shall take such action as it deems necessary or
advisable.
6. Term.
Each option and award and all rights and obligations
thereunder shall expire on the date determined by the Committee
and specified in the option or award agreement. The Committee
shall be under no duty to provide terms of like duration for
options or awards granted under the Plan, but the term of an
Incentive Stock Option may not extend more than ten (10) years
from the date of grant of such option and the term of options
granted under the Plan which do not qualify as Incentive Stock
Options may not extend more than fifteen (15) years from the date
of granting of such option.
7. Exercise of Option or Award.
(a) The Committee shall have full and complete authority to
determine whether an option or award will be exercisable in full
at any time or from time to time during the term thereof, or to
provide for the exercise thereof in such installments, upon the
occurrence of such events (such as termination of employment for
any reason) and at such times during the term of the option as
the Committee may determine and specify in the option or award
agreement.
(b) The exercise of any option or award granted hereunder
shall only be effective at such time that the sale of Common
Stock pursuant to such exercise will not violate any state or
federal securities or other laws.
(c) An optionee or grantee electing to exercise an option
or award shall give written notice to the Company of such
election and of the number of shares subject to such exercise.
The full purchase price of such shares shall be tendered with
such notice of exercise. Payment shall be made to the Company in
cash (including bank check, certified check, personal check, or
money order), or, at the discretion of the Committee and as
specified by the Committee, (i) by delivering certificates for
Common Stock already owned by the optionee or grantee having a
fair market value as of the date of grant equal to the full
purchase price of the shares, or (ii) by delivering the
optionee's or grantee's promissory note, which shall provide for
interest at a rate not less than the minimum rate required to
avoid the imputation of income, original issue discount or a
below-market-rate loan pursuant to Sections 483, 1274 or 7872 of
the Code or any successor provisions thereto, or (iii) a
combination of cash, the optionee's or grantee's promissory note
and such shares. The fair market value of such tendered shares
shall be determined as provided in Section 5 hereof. The
optionee's or grantee's promissory note shall be a full recourse
liability of the optionee and may, at the discretion of the
Committee, be secured by a pledge of the shares being purchased.
Until such person has been issued the shares subject to such
exercise, he or she shall possess no rights as a shareholder with
respect to such shares.
(d) The Committee may grant "restoration" options,
separately or together with another option, pursuant to which,
subject to the terms and conditions established by the Committee
and any applicable requirements of Rule 16b-3 promulgated under
the Securities and Exchange Act of 1934 or any other applicable
law, the optionee would be granted a new option when the payment
of the exercise price of the option to which such "restoration"
option relates is made by the delivery of shares of Common Stock
owned by the optionee, as described in subsection (c) above,
which new option would be an option to purchase the number of
shares not exceeding the sum of (a) the number of shares of
Common Stock tendered as payment upon the exercise of the option
to which such "restoration" option relates and (b) the number of
shares of Common Stock, if any, tendered as payment of the amount
to be withheld under applicable income tax laws in connection
with the exercise of the option to which such "restoration"
option relates, as described in Section 11 hereof. "Restoration"
options may be granted with respect to options previously granted
under this Plan or any prior stock option plan of the Company,
and may be granted in connection with any option granted under
this Plan at the time of such grant. The purchase price of the
Common Stock under each such new option, and the other terms and
conditions of such option, shall be determined by the Committee
consistent with the provisions of the Plan.
8. Stock Appreciation Rights.
(a) Grant. At the time of grant of an option or award
under the Plan (or at any other time), the Committee, in its
discretion, may grant a stock appreciation right ("SAR")
evidenced by an agreement in such form as the Committee shall
from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the
agreement representing such SAR, which agreement shall comply
with and be subject to the following terms and conditions and any
additional terms and conditions established by the Committee that
are consistent with the terms of the Plan.
(b) Exercise. An SAR shall be exercised by the delivery to
the Company of a written notice which shall state that the holder
thereof elects to exercise his or her SAR as to the number of
shares specified in the notice and which shall further state what
portion, if any, of the SAR exercise amount (hereinafter defined)
the holder thereof requests be paid in cash and what portion, if
any, is to be paid in Common Stock of the Company. The Committee
promptly shall cause to be paid to such holder the SAR exercise
amount either in cash, in Common Stock of the Company, or any
combination of cash and shares as the Committee may by the holder
of the SAR or in the sole and absolute discretion of the
Committee. The SAR exercise amount is the excess of the fair
market value of one share of Common Stock on the date of exercise
over the per share exercise price in respect of which the SAR was
granted, multiplied by the number of shares as to which the SAR
is exercised. For the purposes hereof, the fair market value of
the Common Stock shall be determined as provided in Section 5
hereof.
9. Restricted Stock Awards.
Awards of Common Stock subject to forfeiture and transfer
restrictions may be granted by the Committee. Any restricted
stock award shall be evidenced by an agreement in such form as
the Committee shall from time to time approve, which agreement
shall comply with and be subject to the following terms and
conditions and any additional terms and conditions established by
the Committee that are consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted
stock award made under the Plan shall be for such number of
shares of Common Stock as shall be determined by the Committee
and set forth in the agreement containing the terms of such
restricted stock award. Such agreement shall set forth a period
of time during which the grantee must remain in the continuous
employment of the Company in order for the forfeiture and
transfer restrictions to lapse. If the Committee so determines,
the restrictions may lapse during such restricted period in
installments with respect to specified portions of the shares
covered by the restricted stock award. The agreement may also,
in the discretion of the Committee, set forth performance or
other conditions that will subject the Common Stock to forfeiture
and transfer restrictions. The Committee may, at its discretion,
waive all or any part of the restrictions applicable to any or
all outstanding restricted stock awards.
(b) Delivery of Common Stock and Restrictions. At the time
of a restricted stock award, a certificate representing the
number of shares of Common Stock awarded thereunder shall be
registered in the name of the grantee. Such certificate shall be
held by the Company or any custodian appointed by the Company for
the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the
restrictions imposed thereon as the Committee, in its discretion,
may determine. The grantee shall have all rights of a
shareholder with respect to the Common Stock, including the right
to receive dividends and the right to vote such shares, subject
to the following restrictions: (i) the grantee shall not be
entitled to delivery of the stock certificate until the
expiration of the restricted period and the fulfillment of any
other restrictive conditions set forth in the restricted stock
agreement with respect to such Common Stock; (ii) none of such
shares may be sold, assigned, transferred, pledged, hypothecated
or otherwise encumbered or disposed of during such restricted
period or until after the fulfillment of any such other
restrictive conditions; and (iii) except as otherwise determined
by the Committee, all of the Common Stock shall be forfeited and
all rights of the grantee to such Common Stock shall terminate,
without further obligation on the part of the Company, unless the
grantee remains in the continuous employment of the Company for
the entire restricted period in relation to which such Common
Stock was granted and unless any other restrictive conditions
relating to the restricted stock award are met. Any Common
Stock, any other securities of the Company and any other property
(except for cash dividends) distributed with respect to the
Common Stock subject to restricted stock awards shall be subject
to the same restrictions, terms and conditions as such restricted
Common Stock.
(c) Termination of Restrictions. At the end of the
restricted period and provided that any other restrictive
conditions of the restricted stock award are met, or at such
earlier time as otherwise determined by the Committee, all
restrictions set forth in the agreement relating to the
restricted stock award or in the Plan shall lapse as to the
restricted Common Stock subject thereto, and a stock certificate
for the appropriate number of shares of Common Stock, free of the
restrictions and the restricted stock legend, shall be delivered
to the grantee or his beneficiary or estate, as the case may be.
If the Common Stock is traded on a securities exchange, the
Company shall not be required to deliver such certificates until
such shares have been admitted for trading on such securities
exchange.
10. Performance Awards.
The Committee is further authorized to grant Performance
Awards. Subject to the terms of this Plan and any applicable
award agreement, a Performance Award granted under the Plan (i)
may be denominated or payable in cash, Common Stock (including,
without limitation, restricted stock), other securities, other
awards, or other property and (ii) shall confer on the holder
thereof rights valued as determined by the Committee, in its
discretion, and payable to, or exercisable by, the holder of the
Performance Award, in whole or in part, upon the achievement of
such performance goals during such performance periods as the
Committee, in its discretion, shall establish. Subject to the
terms of this Plan and any applicable award agreement, the
performance goals to be achieved during any performance period,
the length of any performance period, the amount of any
Performance Award granted, and the amount of any payment or
transfer to be made by the grantee and by the Company under any
Performance Award shall be determined by the Committee.
11. Income Tax Withholding.
In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action
as it deems appropriate to ensure that all applicable federal or
state payroll, withholding, income or other taxes, which are the
sole and absolute responsibility of an optionee or grantee under
the Plan, are withheld or collected from such optionee or
grantee. In order to assist an optionee or grantee in paying all
federal and state taxes to be withheld or collected upon exercise
of an option or award which does not qualify as an Incentive
Stock Option hereunder, the Committee, in its absolute discretion
and subject to such additional terms and conditions as it may
adopt, shall permit the optionee or grantee to satisfy such tax
obligation by (i) electing to have the Company withhold a portion
of the shares otherwise to be delivered upon exercise of such
option or award with a fair market value, determined in
accordance with Section 5 hereof, equal to such taxes or (ii)
delivering to the Company Common Stock other than the shares
issuable upon exercise of such option or award with a fair market
value, determined in accordance with Section 5 hereof, equal to
such taxes.
12. Additional Restrictions.
(a) The Committee shall have full and complete authority to
determine whether all or any part of the Common Stock acquired
upon exercise of any of the options or awards granted under the
Plan shall be subject to restrictions on the transferability
thereof or any other restrictions affecting in any manner the
optionee's or grantee's rights with respect thereto, but any such
restriction shall be contained in the agreement relating to such
options or awards.
(b) No person, who is an employee of the Company at the
time of grant, may be granted any award or awards, the value of
which awards are based solely on an increase in the value of the
Common Stock after the date of grant of such awards, for more
than 250,000 shares, in the aggregate, in any one calendar year
period. The foregoing annual limitation specifically includes
the grant of any awards representing "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code.
13. Ten Percent Shareholder Rule.
Notwithstanding any other provision in the Plan, if at the
time an option is otherwise to be granted pursuant to the Plan
the optionee owns directly or indirectly (within the meaning of
Section 424(d) of the Code) Common Stock of the Company
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or its parent
or subsidiary corporations, if any (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be
granted to such optionee pursuant to the Plan shall satisfy the
requirements of Section 422(c)(5) of the Code, and the option
price shall be not less than 110% of the fair market value of the
Common Stock determined as described herein, and such option by
its terms shall not be exercisable after the expiration of five
(5) years from the date such option is granted.
14. Non-Transferability.
No option or award granted under the Plan shall be
transferable by an optionee or grantee, otherwise than by will or
the laws of descent or distribution. Except as otherwise
provided in an option or award agreement, during the lifetime of
an optionee or grantee, the option shall be exercisable only by
such optionee or grantee.
15. Dilution or Other Adjustments.
If there shall be any change in the Common Stock through
merger, consolidation, reorganization, recapitalization, dividend
in the form of stock (of whatever amount), stock split or other
change in the corporate structure, appropriate adjustments in the
Plan and outstanding options and awards shall be made by the
Committee. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of
shares subject to the Plan, the number of shares and the price
per share subject to outstanding options and awards and the
amount payable upon exercise of outstanding awards, in order to
prevent dilution or enlargement of option or award rights.
16. Amendment or Discontinuance of Plan.
The Board of Directors may amend or discontinue the Plan at
any time. Subject to the provisions of Section 15 hereof,
however, no amendment of the Plan shall without shareholder
approval: (i) increase the maximum number of shares under the
Plan as provided in Section 2 hereof, (ii) decrease the minimum
price provided in Section 5 hereof, (iii) extend the maximum term
under Section 6 hereof, or (iv) modify the eligibility
requirements for participation in the Plan. The Board of
Directors shall not alter or impair any option or award
theretofore granted under the Plan without the consent of the
holder of the option or award.
17. Time of Granting.
Nothing contained in the Plan or in any resolution adopted
or to be adopted by the Board of Directors or by the shareholders
of the Company, and no action taken by the Committee or the Board
of Directors (other than the execution and delivery of an option
or award agreement), shall constitute the granting of an option
or award hereunder.
18. Effective Date and Termination of Plan.
(a) The Plan shall be submitted to the shareholders of the
Company for their approval and adoption.
(b) Unless the Plan shall have been discontinued as
provided in Section 16 hereof, the Plan shall terminate March 31,
2005. No option or award may be granted after such termination,
but termination of the Plan shall not, without the consent of the
optionee or grantee, alter or impair any rights or obligations
under any option or award theretofore granted.
Exhibit 10.i(i)
FINGERHUT COMPANIES, INC.
1995 LONG-TERM INCENTIVE AND STOCK OPTION PLAN
Non-Qualified Stock Option Agreement
This Non-Qualified Stock Option Agreement is made and
entered into as of [date] by and between [name] (the
"Optionee") and Fingerhut Companies, Inc., a Minnesota
corporation, with its principal business office located in
Minnetonka, Minnesota (the "Company").
WHEREAS, the Compensation Committee (the "Committee")
of the Board of Directors of the Company (the "Board")
desires to provide Optionee with an option to purchase
shares of common stock of the Company pursuant to the
provisions of the Fingerhut Companies, Inc. 1995 Long-Term
Incentive and Stock Option Plan (the "Plan") and this Non-
Qualified Stock Option Agreement (the "Agreement"), and
Optionee desires to acquire such option.
NOW, THEREFORE, for and in consideration of the mutual
covenants and promises contained herein, and for other
valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as
follows:
1. Grant of Option. The Company hereby grants to
Optionee effective as of [date] (the "Date of Grant"), the
option (the "Option") to purchase an aggregate of [number]
([no]) shares (the "Shares") of common stock of the Company
(the "Common Stock"), subject to the terms and conditions
set forth herein and in the Plan.
2. Option Price. The purchase price of the Shares
subject to the Option (the "Option Price") shall be $[price]
per share, subject to adjustment as provided herein.
3. Term of Option; Time of Exercise.
3.1 The term of the Option shall be for a period of
ten (10) years from the Date of Grant. The Option shall be
exercisable with respect to thirty-three and one-third
percent (33-1/3%) of the Shares on [date2] and annually
thereafter, on a cumulative basis, with respect to thirty-
three and one-third percent (33-1/3%) of the Shares.
3.2 This Option shall not under any circumstances be
exercisable after, and this Agreement and Option shall
terminate as to all unexercised Shares at, 5:00 p.m.
(Minnesota time) on the date that is ten (10) years from the
Date of Grant (the "Expiration Date"), unless terminated
prior thereto pursuant to the provisions of Section 5
hereof.
3.3 Notwithstanding the vesting provisions contained
in Section 3.1 hereof, but subject to the other terms and
conditions set forth herein, the Option may be exercised in
full immediately following the date of a "Change in Control"
(as hereinafter defined). For purposes of this Agreement,
the following terms shall have the definitions set forth
below:
(a) "Change in Control" shall mean:
(i) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Company is then subject to such reporting
requirement; or
(ii) the public announcement (which, for purposes of
this definition, shall include, without limitation, a report
filed pursuant to Section 13(d) of the Exchange Act) by the
Company or any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) that such
person has become the "beneficial owner" (as defined in Rule
13d-3 promulgated 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; provided, however, that
notwithstanding the foregoing, no Change of Control shall be
deemed to have occurred for purposes of this Agreement by
reason of ownership of 30% or more of the total voting
capital stock of the Company then issued and outstanding by
any subsidiary of the Company or any employee benefit plan
of the Company or of any subsidiary of the Company or any
entity holding shares of the Common Stock organized,
appointed or established for, or pursuant to the terms of,
any such plan (any such person or entity described in this
proviso is referred to herein as a "Company Entity"); or
(iii) the announcement of a tender offer by any
person or entity (other than a Company Entity) for 30% or
more of the Company's voting capital stock then issued and
outstanding, which tender offer has not been approved by the
Board, a majority of the members of which are Continuing
Directors (as hereinafter defined), and recommended to the
shareholders of the Company; or
(iv) the Continuing Directors (as hereinafter defined)
cease to constitute a majority of the Company's Board of
Directors; or
(v) the shareholders of the Company approve (x) any
consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant
to which shares of Company stock would be converted into
cash, securities or other property, other than a merger of
the Company in which shareholders immediately prior to the
merger have the same proportionate ownership of stock of the
surviving corporation immediately after the merger; (y) any
sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially
all of the assets of the Company; or (z) any plan of
liquidation or dissolution of the Company.
(b) "Continuing Director" shall mean any person who is
a member of the Board of Directors of the Company, while
such person is a member of the Board of Directors, who is
not an Acquiring Person (as defined below) or an Affiliate
or Associate (as defined below) of an Acquiring Person, or a
representative of an Acquiring Person or of any such
Affiliate or Associate, and who (x) was a member of the
Board of Directors on the date of this Agreement as first
written above or (y) subsequently becomes a member of the
Board of Directors, if such person's initial nomination for
election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing
Directors. For purposes of this subparagraph (ii),
"Acquiring Person" shall mean any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) who or
which, together with all Affiliates and Associates of such
person, is the "beneficial owner" (as defined in Rule 13d-3
promulgated 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, but shall not include any Company Entity; and
"Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated
under the Exchange Act.
4. Exercise of Option.
4.1 Subject to the terms and conditions of the Plan
and this Section 4, this Option may be exercised by Optionee
in whole or in part by written notice to the Company at its
principal executive office in Minnetonka, Minnesota
addressed to the attention of its General Counsel. Such
notice shall specify Optionee's election to exercise this
Option and the number of Shares in respect of which it is
being exercised, and shall be signed by Optionee. The
Company shall not, however, be required to sell or issue any
Shares pursuant to this Option if the issuance of such
Shares would constitute a violation by Optionee or the
Company of any applicable law or regulation of any
governmental authority.
4.2 Notice of exercise of the Option by Optionee shall
be accompanied by payment of the full Option Price of the
Shares as to which the Option is to be exercised, together
with payment of the amount determined by the Company to be
necessary to satisfy any applicable federal, state and local
tax withholding requirements arising from the exercise of
the Option. The Company shall issue and deliver a
certificate or certificates representing such Shares as soon
as practicable after such notice and payments are received.
Payment of such Option Price shall be made in cash or check
payable to the order of the Company or, in lieu thereof, if
the Committee in its sole discretion at the time of exercise
so permits, by tendering to the Company shares of common
stock of the Company having a fair market value equal to the
Option Price. Payment by the Optionee of any required
amount of withholding for tax purposes shall be made in cash
or check payable to the order of the Company. The
certificate or certificates for the Shares as to which the
Option shall have been so exercised shall be registered in
the name of Optionee (or Optionee's Representative (as
defined in Section 5)) or at the direction of Optionee or
such Representative and shall be delivered as aforesaid to
or upon the written order of such person or persons. In the
event that the Option shall be exercised by any person or
persons other than Optionee, such notice shall be
accompanied by appropriate proof of the authority and right
of such person or persons to exercise the Option. All
Shares purchased upon the exercise of the Option as provided
herein shall be fully paid and nonassessable.
5. Termination of Option.
(a) This Option shall terminate and may no longer be
exercised if Optionee ceases to be employed by the Company
or one of its subsidiaries (as defined in the Plan) except:
(i) if Optionee's employment shall be terminated for
any reason other than gross and willful misconduct, death,
disability or retirement, Optionee may, at any time before
(x) the expiration of ninety (90) days after such
termination or (y) the Expiration Date, whichever shall
first occur, exercise this Option (A) to the extent that the
Option was exercisable on the date of the termination of
employment in the case of voluntary termination or (B) to
the extent that the Option was or would become exercisable
on or before the expiration of such ninety (90) day period
in the case of involuntary termination; provided, however,
that if, immediately prior to such termination of
employment, Optionee was an "officer" as defined in Rule 16a-
1(f) promulgated under the Exchange Act, the periods of
exercisability referred to in clauses (A) and (B) above (but
not the acceleration of vesting referred to in clause (B))
shall be extended from ninety (90) days to seven (7) months
after the date of such termination;
(ii) if Optionee's employment shall be terminated by
reason of Optionee's gross and willful misconduct during the
course of employment (as may be determined by the Committee
in its sole and absolute discretion), including but not
limited to, wrongful appropriation of funds of the employer
or the commission of a gross misdemeanor or felony, this
Option shall be terminated as of the date of the misconduct
and Optionee shall have no further rights hereunder.
(iii) if Optionee's employment shall be terminated
by reason of Optionee's death, this Option will become fully
exercisable and may be exercised, by the Optionee's
Representative (as defined below) at any time before (a) the
expiration of three (3) years after the date of death, or
(b) the Expiration Date, whichever shall first occur;
(iv) (A) if Optionee's employment shall be terminated
by reason of Optionee's disability (other than Total
Disability), as may be determined by the Committee in its
sole and absolute discretion, this Option may be exercised,
to the extent that the Option was exercisable on the date of
disability, by Optionee or Optionee's guardian or legal
representative, at any time before (x) the expiration of one
(1) year after the date Optionee's employment was terminated
by reason of such disability or (y) the Expiration Date,
whichever shall first occur; or (B) if Optionee's employment
shall be terminated by reason of Optionee's Total
Disability, this Option will become fully exercisable and
may be exercised by Optionee or Optionee's guardian or legal
representative at any time before (x) the expiration of
three (3) years after the date Optionee's employment was
terminated by reason of such disability or (y) the
Expiration Date, whichever shall first occur;
(v) if the Optionee's employment shall be terminated
by the Optionee's Retirement (as defined below), this Option
will become fully exercisable and may be exercised by
Optionee before (x) the expiration of three years after such
date, or (y) the Expiration Date, whichever shall first
occur; or
(vi) if Optionee dies or becomes disabled (as may be
determined by the Committee in its sole and absolute
discretion) during the time of exercisability after
termination of employment provided in clause (i) of this
Section 5(a), this Option may be exercised, to the extent
that the Option was exercisable on the date of death or
disability: (x) in the case of death, by the Optionee's
Representative or (y) in the case of disability, by Optionee
or Optionee's guardian or legal representative, before (A)
the expiration of one year after the date of death or the
onset of such disability, or (B) the Expiration Date,
whichever shall first occur.
(b) Notwithstanding the provisions contained in
Section 5(a) above, but subject to the other terms and
conditions set forth herein, in the event that, within one
year following a Change in Control, Optionee's employment is
terminated for any reason other than for gross and willful
misconduct (including Optionee's voluntary termination),
Optionee shall have the right to exercise the Option in
whole or in part at any time before (i) the expiration of
one year after the date of such termination of employment,
or (ii) the Expiration Date, whichever shall first occur.
(c) For purposes of this Agreement, the following
terms shall be defined as follows:
(i) "Retirement" shall mean any termination other than
by death or gross and willful misconduct after the
Optionee's age plus completed years of service equals sixty
(60) or more; provided, however, that if Optionee is less
than age 65 on the date of termination of employment,
Optionee must have completed at least five (5) years of
service. For purposes of this definition, "years of
service" shall be calculated in accordance with the
Fingerhut Corporation Pension Plan as in effect on such
date.
(ii) "Representative" shall mean the person or persons
to whom Optionee's rights under this Agreement shall pass
upon death, whether by will or by the applicable laws of
descent and distribution.
(iii) "Total Disability" shall have the meaning
given to "permanent and total disability" in Section
22(e)(3) of the Code (as defined in the Plan) and shall be
determined by the Committee in its sole and absolute
discretion.
(d) Notwithstanding the foregoing provisions of
Section 5(a), the Committee shall have the authority, on a
case by case basis, in its sole and absolute discretion to
extend for up to a period of two (2) years following the
termination of employment of Optionee the period of vesting
referred to in Section 3.1 and the period of exercisability,
provided such extension does not exceed the Expiration Date.
6. Leave of Absence; Related Employment. A leave of
absence granted in accordance with the Company's usual
procedure which does not operate to interrupt continuous
employment for other benefits granted by the Company shall
not be considered a termination of employment under this
Agreement. A period of related employment during which
Optionee is not employed by the Company nor a subsidiary (as
defined in the Plan) shall not be considered a termination
of employment under this Agreement if (i) such employment is
undertaken by Optionee at the request of the Company or a
subsidiary, (ii) immediately prior to the undertaking of
such employment Optionee was an officer or employee of the
Company or a subsidiary or was engaged in related
employment, and (iii) such employment is recognized by the
Committee, in its sole discretion, as related employment.
The death or disability of Optionee during a period of
related employment shall be treated, for purposes of this
agreement, as if such death or the onset of such disability
had occurred while Optionee was an officer or employee of
the Company.
7. Adjustments for Changes in Common Stock.
7.1 In the event that the outstanding shares of Common
Stock (other than shares held by dissenting shareholders)
shall be changed into, or exchanged for, a different number
or kind of shares of Common Stock or other securities of the
Company, or, if further changes or exchanges of any Common
Stock or other securities into which the Common Stock shall
have been changed, or for which it shall have been
exchanged, shall be made (whether by reason of merger,
consolidation, reorganization, recapitalization, stock
dividend, reclassification, split-up, combination of shares
or otherwise), then for each Share subject to the Option,
there shall be substituted and exchanged therefor the number
and kind of shares of Common Stock or other securities into
or for which each outstanding share of Common Stock (other
than shares held by dissenting shareholders) shall be so
changed or exchanged. If in the event of any such changes
or exchanges in order to prevent dilution or enlargement of
rights under this Agreement, it is necessary to make an
adjustment in the number, kind, or option exercise price of
the Shares then subject to the Option, such adjustment shall
be made by the Committee and shall be effective and binding
for all purposes of this Agreement.
7.2 All adjustments made pursuant to the provision of
this Section 7 shall be made by the Committee, whose
determination as to which adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive.
8. Non-transferability of Option.
(a) Except as provided in subsection 8(b) below, the
Option granted under this Agreement shall not be
transferable by Optionee, either voluntarily or
involuntarily, except by will or the laws of descent and
distribution. This Option may not be transferred, assigned,
pledged or hypothecated, whether by operation of law or
otherwise, or be subject to attachment, execution or similar
process. Any attempt to do so shall void this Option.
During the lifetime of Optionee, this Option may be
exercised only by the Optionee (or by Optionee's guardian or
legal representative in the case of disability) or by a
permitted transferee pursuant to a transfer as described
below.
(b) To the extent such transfers are permitted under
the Plan and are not restricted by Rule 16b-3 promulgated
under the Exchange Act, the Committee, in its sole
discretion, may establish, as permitted by applicable law,
rules and conditions under which an Optionee may transfer
this Option to any member of Optionee's "immediate family"
(as such term is defined in Rule 16a-1(e) promulgated under
the Exchange Act), to a trust whose beneficiaries are
members of Optionee's "immediate family" or to or for the
benefit of an organization exempt from federal income tax
pursuant to Section 501 of the Code.
9. Rights as a Shareholder. No rights of a
shareholder of the Company shall attach to Optionee with
respect to any of the Shares until this Option shall be duly
exercised as to such Shares and Optionee shall have become
the holder of record of such Shares. No adjustments shall
be made for cash dividends or other distributions or rights
as to which there is a record date preceding the date that
Optionee becomes the holder of record of such Shares.
10. Securities Law Compliance. The exercise of all or
any portion of this Option shall only be effective at such
time that the sale of Common Stock issued pursuant to such
exercise will not violate any state or federal securities or
other laws. The Company is under no obligation to effect
any registration of the stock subject to the Option under
the Securities Act of 1933 or to effect any state
registration or qualification of such Common Stock. The
Company may, in its sole discretion, defer the effectiveness
of any full or partial exercise of the Option in order to
ensure that the issuance of stock upon exercise will be in
compliance with federal or state securities laws and the
rules of the New York Stock Exchange or any other exchange
upon which the Company's Common Stock is traded.
11. Limitation of Liability. Nothing in this
Agreement shall be construed to:
(a) limit in any way the right of the Company or a
subsidiary to terminate the employment of Optionee; or
(b) be evidence of any agreement or understanding,
express or implied, that the Company or a subsidiary shall
employ Optionee in any particular position at any particular
rate of compensation or for any particular period of time.
12. Severability. It is intended that each provision
of this Agreement shall be viewed as separate and divisible.
In the event that any provision hereof shall be held to be
invalid or unenforceable, the remaining provisions of this
Agreement shall continue to be in full force and effect.
13. Governing Law. This Agreement shall be construed
in accordance with and governed by the laws of the State of
Minnesota.
14. Further Assurances. Upon the exercise of the
option by Optionee or at such subsequent date as either the
Company or Optionee may reasonably request, each party
hereto agrees to execute and deliver such further
instruments and to take such other action as shall be
reasonably required to carry out the intent and purposes of
this Agreement.
15. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same document.
16. Notices. All notices that are required or may be
given pursuant to the terms of this Agreement shall be in
writing and delivered personally or by registered or
certified mail, return receipt requested, postage prepaid,
addressed as follows and shall be deemed to have been given
upon delivery to the addressee:
To the Company:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attention: General Counsel
To Optionee:
At Optionee's residence address listed in the
Company's personnel records.
Notice of a change in address of one of the parties hereto
shall be given in writing to the other party as provided
above, but shall be effective only upon actual receipt.
17. Amendment. This Agreement may not be amended or
modified by the parties hereto in any manner, except by a
written instrument signed by both parties hereto.
18. Binding Effect: Assignment. This Agreement shall
be binding upon the heirs, successors and assigns of the
parties hereto. This Agreement shall not be assigned by
either party hereto without the express written consent of
the other party.
19. Entire Agreement. The Plan, the rules adopted by
the Committee from time to time and this Agreement
constitute, except as to any written agreement between the
parties hereto which specifically references this Section
19, the entire understanding between the parties hereto with
respect to the matters covered herein and supersede all
previous written, oral or implied understandings between the
parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company and Optionee have
executed this Agreement as of the day and year first above
written.
FINGERHUT COMPANIES, INC.
By___________________________
OPTIONEE SIGNATURE
_____________________________
Social Security #:
Date:
Exhibit 10.l
THIS STOCK OPTION AND VALUE
APPRECIATION RIGHTS AGREEMENT (this
"Agreement"), is made and entered into as of
March 21, 1994, between FINGERHUT COMPANIES,
INC., a Minnesota corporation (the
"Company"), and RONALD N. ZEBECK, an
individual resident of Minnesota
("Employee").
WHEREAS, the Company desires to provide Employee
with an incentive to put forth maximum efforts for the
success of the business of Fingerhut Financial Services
("FFS"), currently a business conducted by wholly-owned
subsidiaries of the Company, and certain related businesses
by giving him an interest in the success of the FFS Business
either in the form of cash or, under certain circumstances,
in the form of options to acquire common stock of Public
FFS.
NOW, THEREFORE, for good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the Company and Employee hereby agree as
follows:
ARTICLE I
DEFINITIONS
Defined terms used in this Agreement have the
meanings set forth below:
"Additional Capital Contributions" as of any
specified date means the cumulative amount of (i) any
capital contributions made by the Company to the FFS
Business, whether or not stock is issued in exchange
therefor, less (ii) any dividends paid by the FFS Business
(or recorded as paid on the books of the FFS Business) on
such Additional Capital Contributions, if such contributions
are made or dividends are paid (or recorded) after the date
as of which the Initial Value was determined and before the
specified date.
"Adjusted Initial Value" means (i) the Initial
Value, reduced by the portion of the Initial Value
attributable to any business not conducted by Public FFS
immediately after the Public Event, times 2, plus (ii) the
product, immediately before the Public Event, of (x) the
Imputed Earnings Rate, (y) the Additional Capital
Contributions, and (z) the Average P/E Ratio.
"Average P/E Ratio" means, as of any date, one-
half the sum of (i) the arithmetic average of the P/E Ratios
of the publicly traded companies having businesses
comparable to the FFS Business that are listed on Exhibit I
(as such exhibit may be amended from time to time upon the
recommendation of Montgomery Securities, subject to mutual
agreement of the parties) and (ii) the P/E Ratio of the
Company.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Company Stock Option" means Employee's option to
purchase 55,000 shares of Common Stock, par value $.01 per
share, of the Company represented by the Non-Qualified Stock
Option Agreement between the Company and Employee, dated as
of May 1995 (or any amendment or successor thereto).
"Current Four Fiscal Quarters" as of any date
means the most recently ended fiscal quarter of the Company
and the three preceding fiscal quarters.
"Current Value" means the product, as of the
Terminal Date, of (i) aggregate Net Earnings of the FFS
Business for the Current Four Fiscal Quarters minus the
product of (x) the Imputed Earnings Rate and (y) the daily
average cumulative Additional Capital Contributions over the
Current Four Fiscal Quarters, and (ii) the Average P/E
Ratio.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Exercise Price" means, with respect to each share
of FFS Common Stock subject to the FFS Option, an amount
equal to (i) 3.4126% times the Adjusted Initial Value
immediately before the Public Event, divided by (ii) the
number of shares of FFS Common Stock subject to the FFS
Option.
"Expiration Date" means the date that is ten years
after the date of this Agreement.
"FFS Business" means, as of the date hereof, the
business of FFS as defined in Exhibit II. At any time after
the date hereof, "FFS Business" will mean the FFS Business
as of the date hereof, as adjusted to reflect any changes to
the components of the business, each such change to be
described in sufficient detail to permit determination of
all appropriate income, expense and balance sheet
adjustments, if any, relating thereto all as set forth on
Exhibit II (as such exhibit may be amended from time to
time).
"FFS Common Stock" has the meaning assigned in
Section 3.01.
"FFS Option" has the meaning assigned in Section
3.01.
"Imputed Earnings Rate" at any time means the
product of (i) the average daily interest rate in effect on
the Company's revolving credit facility, and (ii) 100% minus
the effective income tax rate (expressed as a percentage)
for the FFS Business, all as calculated over the Current
Four Fiscal Quarters.
"Initial Value" means $12,964,000, which is the
agreed value of the FFS Business as of the date of this
Agreement calculated as set forth on Exhibit III.
"Net Earnings of the FFS Business" means the after-
tax income or loss of the FFS Business, as adjusted to
reflect all the expenses and costs of operating the FFS
Business, but without reduction for any interest charge for
amounts treated as capital of the FFS Business. The
calculation shall take into account intercompany charges for
transactions between the Company (or its subsidiaries and
affiliates) and the FFS Business, as determined on an arms'
length basis and mutually agreed to by the Company and
Employee.
"Option Percentage" means, as of the date of this
Agreement, 3.4126%; provided, however, that if, as a result
of an issuance of stock in any entity owning the FFS
Business after the date of this Agreement and prior to the
Public Event, the Company's ownership interest in such
entity is reduced below 100% and the consideration for such
issuance remains in the FFS Business, the "Option
Percentage" as of any date shall be the product of 3.4126%
and the Company's then-proportionate equity interest in such
entity.
"P/E Ratio" for any company and as of any date
means the ratio of (i) the closing price of the common stock
of such company on such date on the principal securities
exchange (or over-the-counter trading market) on which such
common stock is traded over (ii) the net earnings of such
company for the rolling four fiscal quarters immediately
preceding such date.
"Public Event" means the initial registration
under Section 12(b) or 12(g) of the Exchange Act of the
common equity securities of any entity conducting any
significant portion of the FFS Business and the sale or
distribution of such securities to the public.
"Public FFS" means the entity whose equity
securities are registered in the Public Event.
"Representative" means (i) in the case of
Employee's death, the person or persons to whom Employee's
rights under the FFS Option shall pass upon death, whether
by will or by the applicable laws of descent and
distribution, and (ii) in the case of disability, Employee's
guardian or legal representative.
"Retirement" means any termination of employment
with the Company or its affiliates or Public FFS other than
by death after the Employee's age plus completed years of
service equals 60 or more; provided, however, that if
Employee is less than age 65 on the date of termination of
employment, Employee must have completed at least 5 years of
service. For purposes of this definition, "years of
service" shall be calculated in accordance with the
Fingerhut Corporation Pension Plan as in effect on such date
of termination of employment.
"Terminal Date" means the earlier of (i) the last
date on which Employee is employed by the Company or Public
FFS (including their subsidiaries), whether such employment
has been terminated by reason of death, disability,
retirement, voluntary or involuntary termination or any
other reason, or (ii) the seventh anniversary of the date of
this Agreement.
"Total Disability" has the meaning given to
"permanent and total disability" in Section 22(e)(3) of the
Code, and shall be determined by the Board of Directors of
Public FFS, or any committee thereof, in its sole and
absolute discretion.
"VAR" has the meaning assigned in Section 2.01.
"VAR Percentage" means, as of the date of this
Agreement, 3.3%; provided, however, that if, as a result of
an issuance of stock in any entity owning the FFS Business
after the date of this Agreement and prior to the Public
Event, the Company's ownership interest in such entity is
reduced below 100% and the consideration for such issuance
remains in the FFS Business, the "VAR Percentage" as of any
date shall be the product of 3.3% and the Company's then-
proportionate equity interest in such entity.
"Vested FFS Common Stock" means, as of any date,
the number of shares of FFS Common Stock received by
Employee pursuant to exercise of the FFS Option equal to the
lesser of (i) the number of shares of FFS Common Stock
received by Employee as of such date pursuant to exercise of
the FFS Option or (ii) the product of (A) the total number
of shares of FFS Common Stock subject to the FFS Option and
(B) the Vested Percentage as of such date.
"Vested Percentage" means the percentage specified
below corresponding to the period of time from the date of
this Agreement to the date the Vested Percentage is being
determined:
Time Vested Percentage
One year or more 25%
Two years or more 50%
Three years or more 75%
Four years or more 100%
ARTICLE II
VALUE APPRECIATION RIGHT
SECTION 2.01. Grant of VAR. The Company hereby
grants Employee, subject to the terms and conditions of this
Agreement, a value appreciation right ("VAR") with respect
to the FFS Business. The VAR will be payable (if at all)
only on the Terminal Date.
SECTION 2.02. Amount Payable. The amount payable
to Employee under the VAR shall equal:
VAR Percentage x [(Current Value) - (Initial
Value x 2)] x Vested Percentage on Terminal Date
SECTION 2.03. Payment of VAR. (a) The Company
shall pay Employee in cash, in one lump-sum, the amount, if
any, due under the VAR within 10 business days of the
Terminal Date. In addition, the Company will pay Employee
interest on the amount due under the VAR from the Terminal
Date to the date of such payment, at a rate of interest
equal to the 6-month Treasury Bill in effect on the Terminal
Date.
(b) The Company shall withhold or collect from
Employee such amounts as are required by any applicable
federal or state income tax laws or regulations for payroll
withholding, income or other tax purposes.
SECTION 2.04. Transferability of VAR. The VAR
shall not be transferable by Employee, either voluntarily or
involuntarily, except by will or the laws of descent and
distribution. The VAR may not be transferred, assigned,
pledged or hypothecated, whether by operation of law or
otherwise, or be subject to attachment, execution or similar
process. Any attempt to do so shall void the VAR. The VAR
will be payable, during the lifetime of Employee, only to
Employee.
SECTION 2.05. Termination of VAR. The VAR will
lapse and no amounts will be payable thereunder (i) if
Employee or Representative exercises all or any part of the
Company Stock Option or (ii) if the FFS Option has been
granted to Employee.
ARTICLE III
FFS OPTION
SECTION 3.01. Grant of FFS Option. Upon the
occurrence of a Public Event, the Company will cause Public
FFS to grant Employee the right and option (the "FFS
Option") to purchase the number of shares of common stock of
Public FFS ("FFS Common Stock") equal to the product of the
Option Percentage (as of the date of the Public Event) and
the number of shares of FFS Common Stock issued and
outstanding immediately before the Public Event. The
exercise price shall be equal to the Exercise Price. The
FFS Option shall have the terms and conditions set forth in
this Agreement. The FFS Option is not intended to be an
incentive stock option within the meaning of Section 422 of
the Code.
SECTION 3.02. Exercisability of FFS
Option/Mandatory Exercise. (a) Except as otherwise provided
in Sections 3.04 and 3.05, the FFS Option may be exercised
by the Employee at any time during his period of employment
with Public FFS, but may not be exercised after the
termination of such employment for any reason.
(b) Upon the occurrence of a Public Event,
Employee shall exercise the FFS Option to the extent that
the FFS Common Stock to be received would be Vested FFS
Common Stock as of the date of the Public Event.
SECTION 3.03. Vesting of FFS Common Stock. (a)
Any FFS Common Stock received by Employee upon exercise of
the FFS Option that is then Vested FFS Common Stock, or that
becomes Vested FFS Common Stock during his period of
employment with Public FFS, shall not be subject to
forfeiture.
(b) Any FFS Common Stock received upon exercise of
the FFS Option will be forfeited at the time of the
following events unless it is Vested FFS Common Stock at
that time: (i) except as otherwise provided in Sections 3.04
and 3.05, upon Employee's termination of employment with
Public FFS on any date for any reason, or (ii)
notwithstanding Section 3.03(a), upon the exercise by
Employee or Representative of all or any part of the Company
Stock Option. Any FFS Common Stock issued pursuant to an
exercise of the FFS Option that is not Vested FFS Common
Stock as of the date of exercise shall bear a legend
specifying that such stock may be subject to forfeiture.
(c) If any FFS Common Stock is forfeited pursuant
to Section 3.03(b), Public FFS shall promptly return to the
Employee (without interest) the Exercise Price for such FFS
Common Stock.
SECTION 3.04. Termination of FFS Option.
(a) The FFS Option will terminate on the Expiration Date.
(b) The FFS Option will immediately terminate if
Employee or Representative exercises all or any part of the
Company Stock Option.
SECTION 3.05. Special Rules in the Case of
Termination of Employment. Subject in all cases to Sections
3.03(b)(ii) and 3.04:
(a) If Employee's employment with Public FFS is
terminated by reason of Employee's death, Total Disability
or Retirement, (i) the FFS Option may be exercised by
Employee or Representative at any time before the expiration
of three years after the date of termination, (ii) any FFS
Common Stock received upon such exercise (whether or not
Vested FFS Common Stock) shall not be subject to forfeiture
and (iii) any FFS Common Stock received by Employee upon
exercise of the FFS Option while employed by Public FFS
shall not be subject to forfeiture.
(b) If Employee's employment with Public FFS is
terminated by reason of Employee's disability (other than
Total Disability), as may be determined by the Board of
Directors of Public FFS, or any committee thereof, in its
sole and absolute discretion, (i) the FFS Option may be
exercised by Employee at any time before the expiration of
one year after the date of such termination but only to the
extent that the FFS Common Stock to be received would have
been Vested FFS Common Stock if Employee had exercised the
FFS Option immediately prior to such termination and
(ii) any FFS Common Stock received upon such exercise shall
not be subject to forfeiture.
(c) If Employee's employment with Public FFS is
voluntarily terminated by Employee for any reason other than
as described in Section 3.05(a) or (b), (i) the FFS Option
may be exercised by Employee at any time before the
expiration of 90 days after such termination but only to the
extent that the FFS Common Stock to be received would have
been Vested FFS Common Stock if Employee had exercised the
FFS Option immediately prior to such termination and
(ii) any FFS Common Stock received upon such exercise shall
not be subject to forfeiture; provided, however, that if,
immediately prior to such termination of employment,
Employee was an "officer" as defined in Rule 16a-1(f)
promulgated under the Exchange Act, the 90-day period of
exercisability shall be extended to seven months from the
date of such termination of employment.
(d) If Employee's employment with Public FFS is
terminated for any reason other than as described in Section
3.05(a), (b) or (c), (i) the FFS Option may be exercised by
Employee at any time before the expiration of 90 days after
such termination but only to the extent that the FFS Common
Stock to be received would have been Vested FFS Common Stock
if Employee had exercised the FFS Option as an employee of
Public FFS on the date that is 90 days after such
termination, (ii) any FFS Common Stock received upon such
exercise shall not be subject to forfeiture and (iii) any
FFS Common Stock received by Employee upon exercise of the
FFS Option while employed by Public FFS that would have
become Vested FFS Common Stock had Employee remained
employed by Public FFS for the 90-day period following such
termination shall not be subject to forfeiture; provided,
however, that if, immediately prior to such termination of
employment, Employee was an "officer" as defined in
Rule 16a-1(f) promulgated under the Exchange Act, the 90-day
period of exercisability referred to in clause (i) (but not
the additional vesting) shall be extended to seven months
from the date of such termination of employment;
(e) If Employee dies or becomes disabled (as may
be determined by the Board of Directors of Public FFS, or
any committee thereof, in its sole and absolute discretion)
after termination of employment with Public FFS during a
period when the FFS Option is exercisable pursuant to
Section 3.05(a) through (d), (i) the FFS Option may be
exercised by Employee or Representative at any time before
the expiration of one year after the date of death or the
onset of such disability (or within such longer period as
may be provided by Section 3.05(a) through (d)) but only to
the extent that the FFS Common Stock to be received would
have been Vested FFS Common Stock if Employee had exercised
the FFS Option on the date of death or the onset of such
disability and (ii) any FFS Common Stock received upon such
exercise shall not be subject to forfeiture.
(f) Notwithstanding the foregoing provisions of
this Section 3.05, the Board of Directors of Public FFS, or
any committee thereof, shall have the authority, on a case
by case basis and in its sole and absolute discretion, for
purposes of this Article III, to treat Employee as having
been employed by Public FFS for a period of up to two years
following the termination of employment of Employee for any
reason.
SECTION 3.06. Rights as Shareholder. Employee
will not have any of the rights of a shareholder with
respect to the FFS Common Stock subject to the FFS Option
unless and until such FFS Common Stock has been issued to
Employee upon the proper exercise of the FFS Option. Upon
proper exercise of the FFS Option, Employee will have all
the rights of a shareholder with respect to the FFS Common
Stock received regardless of whether such FFS Common Stock
is Vested FFS Common Stock. Employee shall have no rights
as a shareholder with respect to any FFS Common Stock that
is forfeited pursuant to the provisions of this Agreement.
SECTION 3.07. Investment Representation.
Employee hereby represents and agrees that any FFS Common
Stock that Employee may acquire pursuant to exercise of the
FFS Option will be acquired for long-term investment
purposes and not with the view toward the distribution or
sale thereof in a public offering within the meaning of the
Securities Act of 1933. Employee acknowledges that at the
time of acquisition such FFS Common Stock will not be
registered under either the Federal or applicable state
securities laws, and that Public FFS will be relying upon
the foregoing investment representation in agreeing to issue
such FFS Common Stock to Employee, and may require similar
investment representations at the time of issuance.
Employee acknowledges that the transferability of such FFS
Common Stock will be subject to restrictions imposed by all
applicable Federal and state securities laws and agrees that
the certificates evidencing such FFS Common Stock may be
imprinted with an appropriate legend setting forth such
restrictions on transferability.
SECTION 3.08. Manner of Exercise of the FFS
Option. (a) The FFS Option can be exercised only by
Employee or Representative in whole or in part by written
notice to Public FFS at its principal executive office
addressed to the attention of its General Counsel. The
notice must specify employee's election to exercise the FFS
Option and the number of shares of FFS Common Stock in
respect of which it is being exercised, and shall be signed
by Employee. Public FFS shall not, however, be required to
sell or issue any FFS Common Stock pursuant to the FFS
Option if the issuance of such FFS Common Stock would
constitute a violation by Employee or Public FFS of any
applicable law or regulation of any governmental authority.
(b) Notice of exercise of the FFS Option by
Employee shall be accompanied by payment of the full
exercise price for the shares of FFS Common Stock designated
in the notice, together with payment of the amount
determined by Public FFS to be necessary to satisfy any
applicable Federal, state and local tax withholding
requirements arising from the exercise of the FFS Option.
Public FFS shall issue and deliver a certificate or
certificates representing such shares of FFS Common Stock as
soon as practicable after such notice and payments are
received. Payment of such exercise price shall be made
(i) in cash or by check or wire transfer payable to the
order of Public FFS, (ii) by tendering to Public FFS shares
of FFS Common Stock having a fair market value equal to the
Exercise Price or (iii) by providing Public FFS with a copy
of irrevocable instructions to a broker to deliver to Public
FFS on the date of exercise the amount of sale proceeds to
pay the exercise price and any withholding taxes. Payment
by the Employee of any required amount of withholding for
tax purposes (including any withholding that may be required
after the date of exercise of the FFS Option) shall be made
in cash or by check or wire transfer payable to the order of
Public FFS.
The certificate or certificates for the FFS Common
Stock as to which the FFS Option shall have been so
exercised shall be registered in the name of Employee or
Representative or at the direction of Employee or
Representative and shall be delivered as aforesaid to or
upon written order of such person or persons. In the event
that the FFS Option shall be exercised by any person or
persons other than Employee, such notice shall be
accompanied by appropriate proof of the authority and right
of such person or persons to exercise the FFS Option. All
FFS Common Stock purchased upon the proper exercise of the
FFS Option shall be fully paid and nonassessable.
SECTION 3.09. Adjustments. If there is any
change in the FFS Common Stock through merger,
consolidation, reorganization, recapitalization, stock
dividend, stock split or other change in the corporate
structure of Public FFS, appropriate adjustments shall be
made by Public FFS in the number and the price of the FFS
Common Stock in order to prevent dilution or enlargement of
the option rights granted thereunder. Any such adjustments
shall be made in accordance with the provisions of Treasury
regulation section 1.425-1.
SECTION 3.10. Reservation of Shares. Public FFS
will be obligated at all times during the term of the FFS
Option to reserve and keep available such number of shares
of FFS Common Stock as will be sufficient to satisfy the
requirements of the FFS Option.
SECTION 3.11. Non-Transferability of FFS Option.
(a) Except as provided in Section 3.11(b), the FFS Option
shall not be transferable by Employee, either voluntarily or
involuntarily, except by will or the laws of descent and
distribution. The FFS Option may not be transferred,
assigned, pledged or hypothecated, whether by operation of
law or otherwise, or be subject to attachment, execution or
similar process. Any attempt to do so shall void the FFS
Option. During the lifetime of Employee, the FFS Option may
be exercised only by Employee or Representative or by a
permitted transferee pursuant to a transfer described in
Section 3.11(b).
(b) To the extent such transfers are not
restricted by Rule 16b-3 promulgated under the Exchange Act,
the Board of Directors of Public FFS, or any committee
thereof, in its sole and absolute discretion, may establish,
as permitted by applicable law, rules and conditions under
which Employee may transfer the FFS Option to any member of
Employee's "immediate family" (as such term is defined in
Rule 16a-1(e) promulgated under the Exchange Act), to a
trust whose beneficiaries are members of Employee's
"immediate family" or to or for the benefit of an
organization exempt from Federal income tax pursuant to
Section 501 of the Code.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. No Right to Continued Employment.
This Agreement shall not confer on Employee any right with
respect to continuance of employment with the Company or any
subsidiary of the Company, nor will it interfere in any way
with the right of the Company to terminate such employment
at any time.
SECTION 4.02. Arbitration. (a) Any controversy
or claim arising between the parties in connection with this
Agreement, the VAR, the FFS Option or the Company Stock
Option, including determinations of the Adjusted Initial
Value and the Current Value, shall be resolved by binding
arbitration in accordance with the terms and conditions of
this Section 4.03.
(b) This agreement to arbitrate shall continue
in full force and effect despite the expiration, rescission
or termination of the VAR, the FFS Option or the Company
Stock Option. All arbitration shall be undertaken pursuant
to the Federal Arbitration Act, and the decision of the
arbitrator(s) shall be enforceable in any court of competent
jurisdiction. The parties knowingly and voluntarily waive
their rights to have their dispute tried and adjudicated by
a judge or jury. The arbitrator(s) shall apply the law of
the State of Minnesota and the arbitration shall be held in
Minneapolis, Minnesota.
(c) Any party may demand arbitration by sending
written notice to the other party. The arbitration and the
selection of the arbitrator(s) shall be conducted in
accordance with such rules as may be agreed upon by the
parties, or, failing agreement within 30 days after
arbitration is demanded, under the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"), as
such rules may be modified by this Agreement. In any
dispute which involves more than One Million Dollars
($1,000,000) in damages, if the parties are unable to agree
upon a single arbitrator within 60 days, three arbitrators
shall be used. Unless the parties agree otherwise, they
shall be limited in their discovery to directly relevant
documents. Responses or objections to a document request
shall be served 20 days after receipt of the request. The
arbitrator(s) shall resolve any discovery disputes.
(d) The arbitrator(s) shall have the authority to
award actual money damages (with interest on unpaid amounts
from the date due), specific performance and temporary
injunctive relief, but the arbitrator(s) shall not have the
authority to award exemplary or punitive damages, and the
parties expressly waive any claimed right to such damages.
The arbitration shall be of each party's individual claims
only, and no claim of any other party shall be subject to
arbitration in such proceeding. The costs of arbitration,
but not the costs and expenses of the parties, shall be
shared equally by the parties. If a party fails to proceed
with arbitration, unsuccessfully challenges the arbitration
award or fails to comply with the arbitration award, the
other party is entitled to costs, including reasonable
attorney's fees, for having to compel arbitration or defend
or enforce the award. Except as otherwise required by law,
the parties and the arbitrator(s) agree to maintain as
confidential all information or documents obtained during
the arbitration process, including the resolution of the
dispute.
SECTION 4.03. Severability. It is intended that
each provision of this Agreement shall be viewed as separate
and divisible. In the event that any provision hereof shall
be held invalid or unenforceable, the remaining provisions
of this Agreement shall continue to be in full force and
effect.
SECTION 4.04. Governing Law. This Agreement
shall be construed in accordance with the laws of the State
of Minnesota.
SECTION 4.04. Further Assurances. Each party
hereto agrees to execute and deliver such further
instruments and to take such other action as shall be
reasonably required to carry out the intent and purposes of
this Agreement.
SECTION 4.05. Counterparts. This Agreement may
be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same document.
SECTION 4.06. Amendment. This Agreement may not
be amended or modified by the parties hereto in any manner,
except by written instrument signed by both parties hereto.
SECTION 4.07. Binding Effect; Assignment. This
Agreement shall be binding upon the successors and assigns
of the parties hereto and, upon the occurrence of a Public
Event, shall be binding upon Public FFS (which shall be
deemed to be a party to this Agreement). This Agreement
shall not be assigned by either party hereto without the
express written consent of the other party.
SECTION 4.08. Entire Agreement. This Agreement
constitutes the entire understanding between the parties
hereto with respect to the matters specifically covered
herein and supersedes all previous written, oral or implied
understandings between the parties hereto with respect to
the subject matter hereof.
IN WITNESS WHEREOF, the Company and Employee have
executed this Agreement as of the date set forth in the
first paragraph.
FINGERHUT COMPANIES, INC.
By
Name: John K. Ellingboe
Title: Senior Vice President,
General Counsel and
Secretary
Ronald N. Zebeck
Exhibit 10.o(iii)
FINGERHUT COMPANIES, INC.
__________________
$65,000,000
9.81% Senior Notes, Series A, Due June 30, 1996
$25,000,000
10.12% Senior Notes, Series B, due December 30, 1997
________________
THIRD AMENDMENT AGREEMENT
_________________
Dated as of October 30, 1995
to
PURCHASE AGREEMENT
dated as of January 14, 1991
as amended by
FIRST AMENDMENT AGREEMENT
dated as of March 1, 1992
and
SECOND AMENDMENT AGREEMENT
dated as of June 17, 1994
THIRD AMENDMENT AGREEMENT, dated as of October 30, 1995
("this Amendment"), between Fingerhut Companies, Inc., a
Minnesota corporation (the "Company"), and the Noteholders
(as defined below).
Preliminary Statement
The statements in this "Preliminary Statement" are made
by the Company.
Reference is made to the separate Purchase Agreements
dated as of January 14, 1991, between the Company and the
Purchasers listed in Schedule 1 thereto and their assigns
(the "Noteholders") pursuant to which the Company issued and
sold its 9.81% Senior Notes, Series A, due June 30, 1996, in
the aggregate principal amount of $65,000,000 (the "Series A
Notes") and its 10.12% Senior Notes, Series B, due
December 30, 1997, in the aggregate principal amount of
$25,000,000 (the "Series B Notes"), as amended by the First
Amendment Agreement dated as of March 1, 1992 and the Second
Amendment Agreement dated as of June 17, 1994 (collectively,
as amended, the "Purchase Agreement"). The Series A Notes
and the Series B Notes are hereinafter collectively referred
to herein as the "Notes." Unless otherwise defined in this
Amendment, capitalized terms used herein without definition
shall have the meanings set forth in the Purchase Agreement.
The Company and Principal Mutual Life Insurance Company
("Principal Mutual") have entered into a Purchase Agreement,
dated as of February 15, 1991, pursuant to which the Company
issued and sold its 9.74% Senior Notes, Series C, due August
15, 1996, in the aggregate principal amount of $20,000,000
(the "Series C Notes"), as amended by the First Amendment
Agreement dated as of March 1, 1992, and the Second
Amendment Agreement dated as of June 17, 1994 (as amended,
the "Series C Purchase Agreement"), and a Purchase Agreement
dated as of January 15, 1992, pursuant to which the Company
issued and sold its 6.96% Senior Notes, Series D, due August
15, 1996, in the aggregate principal amount of $15,000,000
(the "Series D Notes"), as amended by the First Amendment
Agreement dated as of March 1, 1992 and the Second Amendment
Agreement dated as of June 17, 1994 (as amended, the "Series
D Purchase Agreement). The Series C Notes and the Series D
Notes are collectively referred to herein as the "Other
Notes" and the Series C Purchase Agreement and the Series D
Purchase Agreement are collectively referred to herein as
the "Other Purchase Agreements."
The Purchase Agreement definition of "Credit Card
Bank", unlike the definition used in the Bank Credit
Agreement, could be read to limit the Company to only one
such entity. The Company has given a current copy of the
Bank Credit Agreement to Hebb & Gitlin, special counsel to
the Noteholders. In February 1995, the Company received a
federal charter for Direct Merchants Credit Card Bank, N.A.
For strategic business reasons, the Company is planning to
form a second credit card bank. In addition, the Company
may in the future be presented with business opportunities
which may require a third credit card bank. In addition,
the Company believes that the 5% investment limit may not
permit optimal capitalization of its Credit Card Bank.
In connection with the foregoing, the Company has
requested the amendment of certain provisions of the
Purchase Agreement and the Other Purchase Agreements to
revise certain definitions and covenants in the Purchase
Agreement and the Other Purchase Agreements to reflect the
Company's plans for the Credit Card Bank.
Accordingly, the Company and the Noteholders hereby
agree as follows:
ARTICLE 1
CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT
This Amendment is expressly subject to and shall become
effective only upon satisfaction of each of the following
conditions (such date upon which all of such conditions are
satisfied being herein called the "Effective Date"):
Section 1.1. There shall exist on the Effective Date
no Default or Event of Default under the Loan Documents or
any of the Other Purchase Agreements and the documents
related thereto, both before and after giving effect to this
Amendment and the Other Amendments (as defined in Section
1.2 hereof).
Section 1.2. Amendments, similar in substance to this
Amendment, to the Other Purchase Agreements (collectively,
the "Other Amendments") shall have been entered into by the
requisite percentage of noteholders under the Other Purchase
Agreements and become effective, and the Noteholders shall
have received satisfactory evidence to such effect.
Section 1.3. The Noteholders shall have received a
certificate, dated as of the Effective Date and signed by a
Responsible Officer of the Company, stating that, as of the
Effective Date, (i) all of the obligations of the Company to
be performed prior to or as of the Effective Date under this
Amendment have been performed; (ii) the representations and
warranties contained in Article 4 of this Amendment are
accurate and complete, and (iii) all of the conditions to
the effectiveness of this Amendment have been satisfied in
full.
Section 1.4. All corporate and other proceedings and
all documents incident to the transactions contemplated by
this Amendment shall be satisfactory in form and substance
to the Noteholders, and the Noteholders shall have received
copies of all documents and records relating thereto which
they may reasonably request.
ARTICLE 2
AMENDMENTS TO ARTICLE VIII OF THE PURCHASE AGREEMENT
Section 2.1. Clause (n) of 8.9 of the Purchase
Agreement is hereby amended in its entirety to read as set
forth below:
(n) make and permit to remain outstanding
investments in the Credit Card Bank; provided that
the aggregate principal amount of the Company's
and the Subsidiaries' capital contributions,
loans, advances and Guarantees to or for the
benefit of the Credit Card Bank at any time
outstanding permitted under this clause (n) shall
not exceed 10% of Consolidated Net Worth.
ARTICLE 3
AMENDMENTS TO ARTICLE X OF THE PURCHASE AGREEMENT
Section 3.1. 10.2 of the Purchase Agreement is
hereby amended by restating the definition of the term
"Credit Card Bank" to read in its entirety as follows:
"Credit Card Bank" shall mean Direct
Merchants Credit Card Bank, National Association
and any other FDIC-insured limited purpose credit
card national bank(s) to be formed or acquired by
the Company or one of the Subsidiaries, which
shall engage only in the business activities
specified in Section 2(c)(2)(F) of the Bank
Holding Company Act of 1956, as amended by the
Competitive Equality Banking Act of 1987, as
amended.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1. The Company hereby represents and
warrants to the Noteholders as of the Effective Date:
(a) Each of the Company, the Guarantors, the
Significant Subsidiaries and the Pledgors is duly organized,
validly existing and in good standing in its jurisdiction of
incorporation.
(b) The Company has the power to enter into this
Amendment and to perform its obligations hereunder.
(c) The execution and delivery by the Company of this
Amendment and the performance of its obligations hereunder
have been duly authorized, and this Amendment will, upon
execution and delivery thereof, be duly executed and
delivered thereby and will constitute the legal, valid and
binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to applicable
laws affecting the enforcement of creditors' rights
generally and principles of equity.
(d) Neither the execution nor delivery by the Company
of this Amendment nor the performance by it of its
obligations hereunder or under the Purchase Agreement (as
amended as contemplated hereby), the Notes, the Pledge
Agreement or the Guaranty of each Guarantor:
(1) will adversely affect the enforceability against
the Company of the Purchase Agreement or the Notes, against
the Guarantors of the Guaranty or against any Pledgor of the
security interest in the Pledged Stock under the Pledge
Agreement;
(2) will require the taking of any action or the
giving of any consent or approval by, or the making or any
registration or filing with, any Governmental Authority or
other person other than such actions, consents, approvals,
registrations and filings as have heretofore been taken,
given or made (as the case may be);
(3) will violate any provision of the articles of
incorporation or bylaws of any of the Company, any
Guarantor, any Significant Subsidiary or any Pledgor or any
provision of any law, rule, regulation, order or decree of
any Governmental Authority applicable thereto;
(4) will violate or constitute a default under any
material agreement to which any of the Company, any
Guarantor, any Significant Subsidiary or any Pledgor is a
party or by which any of its properties or assets is or may
be bound; or
(5) will result in the creation or imposition of any
Lien on the properties or assets of the Company, any
Guarantor, any Significant Subsidiary or any Pledgor other
than (i) Liens in favor of the Collateral Agent for the
benefit of the Secured Parties under the Pledge Agreement
and (ii) as contemplated by the Receivables Transfer
Agreement.
(e) Neither this Amendment nor any certificate
furnished in connection herewith nor any other document or
statement furnished to the Noteholders in connection with
the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material
fact necessary in order to make the statements contained
herein and therein not misleading. Except as expressly
disclosed in documents filed by the Company or any
Subsidiary with the Commission and delivered by the Company
to the Noteholders prior to the Effective Date, there is no
fact known to the Company (except for general economic or
political conditions) which materially adversely affects,
or, so far as the Company can now reasonably foresee, would
be likely to materially and adversely affect, the business,
properties, prospects, operations or condition, financial or
otherwise, of the Company and the Subsidiaries taken as a
whole or the ability of the Company or any Significant
Subsidiary to perform any material obligation under any Loan
Document, which has not been disclosed in writing to the
Noteholders.
(f) There exists (i) no Default or Event of Default
under the Loan Documents either before or after giving
effect to this Amendment and (ii) no Event of Default or
event that with the lapse of time or giving of notice would
constitute an Event of Default under the Other Purchase
Agreements, either before or after giving effect to the
Other Amendments.
ARTICLE 5
MISCELLANEOUS
Section 5.1 This Amendment shall not be valid and
binding upon the Company or any Noteholder under the
Purchase Agreement until the execution hereof by a Majority-
in-Interest of Noteholders and complete satisfaction by the
Company of the conditions precedent set forth in Article 1,
and upon the execution hereof by such Noteholders, and
compliance by the Company with said conditions precedent,
this Amendment shall be valid and binding upon the Company
and each Noteholder under the Purchase Agreement with
respect to each provision of this Amendment.
Section 5.2 This Amendment embodies the entire
agreement and understanding of the parties hereto and
supersedes all prior agreements and understandings relating
to the subject matter hereof. In case any one or more of
the provisions contained in this Amendment, or in the
Purchase Agreement as amended hereby, or in any Note, or any
application thereof, shall be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions continued herein
and therein, and any other applications thereof, shall not
in any way be affected or impaired thereby.
Section 5.3 This Amendment is intended to be
governed by the laws of the State of New York and shall be
construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of such State.
Section 5.4 This Amendment shall bind and inure to
the benefit of the respective successors and assigns of the
Company and the Noteholders.
Section 5.5 Except as otherwise expressly provided
herein, nothing continued in this Amendment shall, or shall
be construed to, modify, invalidate or otherwise affect any
provision of the Purchase Agreement or any right of the
Noteholders arising thereunder.
Section 5.6 The execution of this Amendment by the
Noteholders shall not in any way constitute, or be construed
as, a waiver of any provision of, or of any Default or Event
of Default otherwise existing under, the Purchase Agreement,
nor shall it constitute an agreement or obligation of the
Noteholders to give its consent to any future amendment of
the Purchase Agreement or to any future transaction which
would, absent consent of the Noteholders, constitute a
Default or Event of Default under the Purchase Agreement.
Section 5.7 Except as specifically provided herein,
the Purchase Agreement is in all respects ratified and
confirmed, and all the terms, conditions and provisions
thereof shall be and remain in full force and effect. For
any and all purposes, from and after the Effective Date, any
and all references hereafter to the Purchase Agreement, and
all references to "this Agreement" in the Purchase
Agreement, shall refer to the Purchase Agreement as hereby
amended.
Section 5.8 This Amendment may be executed in as
many counterparts as may be deemed necessary or convenient
and by the different parties hereto on separate counterparts
(provided that the Company will execute each counterpart),
and each of which, when so executed, shall be deemed to be
an original, but all such counterparts shall constitute but
one and the same agreement.
Section 5.9 The Company will pay, or cause to be
paid, the reasonable out-of-pocket costs and expenses of the
Noteholders in connection with entering into this Amendment
and the consummation of all transactions contemplated
hereby, and the Company will also indemnify and hold the
Noteholders harmless from and against all liability and loss
with respect to or resulting from all claims on account of
brokers' or finders' fees or commissions in connection with
this Amendment or any of the transactions contemplated
hereby. The obligations of the Company under this Section
5.9 shall survive payment of any Note issued under the
Purchase Agreement.
IN WITNESS WHEREOF, the Company and the undersigned
Noteholders have caused this Amendment to be executed by
their respective officer or officers thereto duly
authorized.
FINGERHUT COMPANIES, INC.
By: /s/Robert W. Oberrender
Name: Robert W. Oberrender
Title: Vice President, Treasurer
By: /s/Peter G. Michielutti
Name: Peter G. Michielutti
Title: Senior Vice President,
Chief Financial Officer
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF
AMERICA
By: /s/Marie A. Shmaruk
Name: Marie A. Shmaruk
Title: Associate Director,
Private Placements
THE EQUITABLE OF COLORADO, INC.
By: /s/Ina Lane
Name: Ina Lane
Title: Investment Officer
EQUITABLE VARIABLE LIFE INSURANCE COMPANY
By: /s/Ina Lane
Name: Ina Lane
Title: Investment Officer
MUTUAL OF OMAHA INSURANCE COMPANY
By: /s/Troy R. Gerhardt
Name: Troy R. Gerhardt
Title: First Vice President
COMPANION LIFE INSURANCE COMPANY
By: /s/John L. Maginn
Name: John L. Maginn
Title: Vice President &
Assistant Treasurer
By: /s/Richard A. Witt
Name: Richard A. Witt
Title: Second Vice President &
Assistant Treasurer
UNITED OF OMAHA LIFE INSURANCE COMPANY
By: /s/Troy R. Gerhardt
Name: Troy R. Gerhardt
Title: First Vice President
NATIONWIDE LIFE INSURANCE COMPANY*
WEST COAST LIFE INSURANCE COMPANY**
WISCONSIN HEALTH CARE
LIABILITY INSURANCE PLAN**
NATIONWIDE LIFE AND ANNUITY
(formerly Financial Horizons Life
Insurance Company)*
FARMLAND LIFE INSURANCE COMPANY**
By: /s/Jeffrey G. Milburn
Name: Jeffrey G. Milburn
Title: Vice President - Corporate
Fixed-Income Securities
**By: /s/Jeffrey G. Milburn
Name: Jeffrey G. Milburn
Title: Attorney-in-fact
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
By: /s/Lydia S. Sangree
Name: Lydia S. Sangree
Title: Assistant Vice President
GREAT NORTHERN INSURED ANNUITY CORPORATION
By: /s/William D. Koski
Name: William D. Koski
Title: Vice President
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: /s/Ina Lane
Name: Ina Lane
Title: Investment Officer
BANK HAPOALIM B.M.
By: /s/David Cohen
Name: David Cohen
Title: First Vice President
By: /s/Bruce E. Wetter
Name: Bruce E. Wetter
Title: Vice President
Exhibit 10.u
FINGERHUT CORPORATION
PENSION EXCESS PLAN
As Adopted Effective Generally as of January 1, 1995
Table of Contents
Page
ARTICLE 1 Description 1
1.1 Plan Name 1
1.2 Plan Purpose 1
1.3 Plan Type 1
ARTICLE 2 Definitions, Construction and Interpretation 2
2.1 Administrator 2
2.2 Board 2
2.3 Code 2
2.4 Company 2
2.5 ERISA 2
2.6 Governing Law 2
2.7 Headings 2
2.8 Number and Gender 2
2.9 Participant 2
2.10 Pension Plan 2
2.11 Plan 2
2.12 Trust 2
2.13 Trustee 2
ARTICLE 3 Participation 3
3.1 Participation 3
3.2 Condition of Participation 3
ARTICLE 4 Benefits 4
4.1 Amount 4
4.2 Form and Time of Payment 4
4.3 Entitlement, Reductions 5
4.4 Payment in the Event of Incapacity 5
ARTICLE 5 Source of Payments; Nature of Interest 6
5.1 Establishment of Trust 6
5.2 Source of Payments 6
5.3 Status of Plan 6
5.4 Non-assignability of Benefits 6
ARTICLE 6 Amendment and Termination 7
6.1 Amendment 7
6.2 Termination of Participation 7
6.3 Termination 7
ARTICLE 7 Administration 9
7.1 Administrator 9
7.2 Rules and Regulations 9
7.3 Administrator's Discretion 9
7.4 Specialist's Assistance 9
7.5 Indemnification 9
7.6 Benefit Claim Procedure 9
7.7 Disputes 10
ARTICLE 8 Miscellaneous 11
8.1 Withholding and Offsets 11
8.2 Other Benefits 11
8.3 No Warranties Regarding Tax Treatment 11
8.4 No Employment Rights Created 11
FINGERHUT CORPORATION
PENSION EXCESS PLAN
ARTICLE 1
Description of Plan
1.1 Plan Name. The name of the Plan is the "Fingerhut
Corporation Pension Excess Plan."
1.2 Plan Purpose. The purpose of the Plan is to ensure that
Participants will not be deprived of benefits that would
otherwise be payable under the Pension Plan but for the reduction
in the limitation on compensation imposed by Code section
401(a)(17) from $235,840 to $150,000 and based on the $115,641
limitation in effect for 1993 under Code section 415(b)(1)(A).
1.3 Plan Type. The Plan is an unfunded plan maintained
primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees and,
as such, is exempt from Parts 2, 3 and 4 of Subtitle B of Title I
of ERISA by operation of sections 201(2), 302(a)(3) and 401(a)(4)
thereof, respectively, and from Title IV of ERISA by operation of
section 4021(a)(6) thereof. The Plan is also intended to be
unfunded for tax purposes. The Plan will be construed and
administered in a manner that is consistent with and gives effect
to the foregoing.
ARTICLE 2
Definitions, Construction and Interpretation
The definitions and rules of construction and interpretation set
forth in this article apply in construing the Plan unless the
context otherwise indicates.
2.1 Administrator. "Administrator" means the Company or any
individual or committee appointed by the Board to perform
administrative duties pursuant to Section 7.1.
2.2 Board. "Board" means the Company's Board of Directors or
any individual or committee authorized to act on behalf of such
Board of Directors.
2.3 Code. "Code" means the Internal Revenue Code of 1986, as
amended. Any reference to a specific provision of the Code
includes a reference to that provision as it may be amended from
time to time and to any successor provision.
2.4 Company. "Company" means Fingerhut Corporation or any
successor thereto.
2.5 ERISA. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended. Any reference to a specific
provision of ERISA includes a reference to that provision as it
may be amended from time to time and to any successor provision.
2.6 Governing Law. To the extent state law is not preempted by
the provisions of ERISA or any other laws of the United States,
this Plan will be administered, and all questions pertaining to
the construction, validity, effect and enforcement of the Plan
will be determined, in accordance with the internal, substantive
laws of the State of Minnesota without regard to the conflict of
law rules of the State of Minnesota or of any other jurisdiction.
2.7 Headings. The headings of articles, sections, subsections
and clauses are included solely for convenience and, if there is
a conflict between such headings and the text of the Plan, the
text will control.
2.8 Number and Gender. Wherever appropriate, the singular may
be read as the plural, the plural may be read as the singular and
one gender may be read as the other gender.
2.9 Participant. "Participant" means an individual described in
Section 3.1.
2.10 Pension Plan. "Pension Plan" means the Fingerhut
Corporation Pension Plan.
2.11 Plan. "Plan" means the Fingerhut Corporation Pension Excess
Plan, as from time to time amended.
2.12 Trust. "Trust" means any trust or trusts established by the
Company pursuant to Section 5.1.
2.13 Trustee. "Trustee" means the independent corporate trustee
or trustees that at the relevant time has or have been appointed
to act as Trustee of the Trust.
ARTICLE 3
Participation
3.1 Participation. To be eligible to receive benefits pursuant
to the Plan, an individual must have been
(a) an officer of the Company on January 1, 1994 and
December 31, 1994 and
(b) a participant in the Pension Plan on January 1, 1994.
A Participant will cease to be such as of the date on which
all benefits to which he or she is entitled under the Plan
have been distributed in full.
3.2 Condition of Participation. As a condition to the receipt
of benefits pursuant to the Plan, each Participant is bound by
all of the terms and conditions of the Plan, including but not
limited to the reserved right of the Board to amend or terminate
the Plan and the provisions of Section 7.7, and is required to
furnish to the Administrator such pertinent information, and must
execute such instruments, as the Administrator may require.
ARTICLE 4
Benefits
4.1 Amount.
(A) As of the date on which a Participant's Pension Plan
benefit is scheduled to commence, the Administrator will
determine the amount of the benefit to which the Participant is
entitled pursuant to the Plan in accordance with Subsection (B).
(B) Subject to Sections 4.2 and 4.3, the amount of the
benefit to which a Participant is entitled pursuant to the Plan
will be computed in the following manner:
(1) The Administrator will determine a monthly benefit
amount equal to the amount by which the monthly benefit
determined pursuant to clause (a) exceeds the monthly benefit
determined pursuant to clause (b), in each case based on a
benefit payable in the normal form under the Pension Plan
commencing at the later of the Participant's normal retirement
date under the Pension Plan or the date on which benefits under
the Pension Plan are scheduled to commence.
(a) The monthly benefit to which the Participant
would be entitled under the Pension Plan determined as if
the limitation in effect under Code section 401(a)(17) for
each calendar year after 1993 were $235,840 and the
limitation in effect under Code section 415(b)(1)(A) were
$115,641.
(b) The actual amount of the monthly benefit to
which the Participant is entitled under the Pension Plan.
(2) The amount determined pursuant to clause (1) will be adjusted
in the same manner as the Participant's benefit under
the Pension Plan to reflect any early or late commencement of
the benefit.
(C) If a Participant dies before his or her "annuity
starting date," within the meaning of Code section 417(f)(2), and
the Participant's surviving spouse is entitled to a "qualified
preretirement survivor annuity," within the meaning of Code
section 417(c), from the Pension Plan or the Pension Plan
provides for the payment of any other death benefit to the
surviving spouse or any other person, the amount of the benefit
to which the surviving spouse or other person is entitled
pursuant to the Plan will be determined in accordance with
Subsection (B) but based, for the purpose of clause (1), on the
difference between the normal form of the death benefit
determined under items (a) and (b).
4.2 Form and Time of Payment.
(A) Payment of a benefit to any Participant determined
pursuant to Section 4.1(B) or surviving spouse or other person
determined pursuant to Section 4.1(C) will be made or commence,
as the case may be, at the same time and in the same form as his
or her benefit under the Pension Plan.
(B) If a Participant, surviving spouse or other person
entitled to receive a benefit under the Plan elects to receive
his or her benefit under the Pension Plan in a form other than
the normal form, the benefit under the Plan will be actuarially
adjusted to reflect the form in which it is paid in the same
manner as the benefit under the Pension Plan.
(C) If a Participant dies following the commencement of
monthly benefit payments, any death benefits payable under the
form of payment applicable to the Participant's benefit under the
Plan will be paid to the same beneficiary or joint or contingent
annuitant, as the case may be, as his or her benefit under the
Pension Plan.
4.3 Entitlement, Reductions. Notwithstanding the foregoing
provisions of this Article 4 -
(A) The Company has no obligation to pay a benefit pursuant
to the Plan to any former Participant to the extent the
obligation to pay the benefit has been transferred to or assumed
by a successor to all or any portion of the business of the
Company.
(B) If a Participant who is receiving or entitled to
receive a benefit pursuant to the Plan is reemployed with the
Company or an affiliate of the Company and, in connection with
such reemployment, his or her Pension Plan benefit payment is
suspended, his or her benefit under the Plan will be suspended
for the same period. The Participant's benefit under the Plan
will recommence at the same time as his or her benefit under the
Pension Plan and the amount of the benefit at recommencement will
be adjusted, based on a methodology and assumptions determined by
the Administrator to be reasonable, to reflect any additional
benefits earned and benefits previously paid.
4.4 Payment in the Event of Incapacity. If any person entitled
to receive any payment under the Plan is physically, mentally, or
legally incapable of receiving or acknowledging receipt thereof,
and no legal representative has been appointed for such person,
the Administrator, in his or her discretion, may (but is not
required to) cause any sum otherwise payable to such person to be
paid to any one or more of the following (as may be chosen by the
Administrator): the person's beneficiary or joint or contingent
annuitant for purposes of his or her benefit under the Plan, if
any, the institution maintaining such person, a custodian for
such person under the Uniform Transfers to Minors Act of any
state, or such person's spouse, children, parents or other
relatives by blood or marriage. Any payment so made completely
discharges all liability under the Plan to the extent of such
payment.
ARTICLE 5
Source of Payments; Nature of Interest
5.1 Establishment of Trust. With the prior approval of the
Board, the Company may establish a Trust with an independent
corporate trustee. The Trust must be a grantor trust that
conforms substantially with the model trust described in Revenue
Procedure 92-64. The Company may from time to time transfer to
the Trust cash, marketable securities or other property
acceptable to the Trustee in accordance with the terms of the
Trust.
5.2 Source of Payments.
(A) Subject to Subsection (B), a Participant's benefit will
be paid by the Company.
(B) The Trustee, if any, will make distributions to
Participants and Beneficiaries from the Trust in satisfaction of
the Company's obligations under the Plan in accordance with the
terms of the Trust.
5.3 Status of Plan. Nothing contained in the Plan or Trust is
to be construed as providing for assets to be held for the
benefit of any Participant or any other person or persons to whom
benefits are to be paid pursuant to the terms of this Plan, the
Participant's or other person's only interest under the Plan
being the right to receive the benefits set forth herein. The
Trust is established only for the convenience of the Company and
the Participants, and no Participant has any interest in the
assets of the Trust prior to distribution of such assets pursuant
to the Plan. To the extent the Participant or any other person
acquires a right to receive benefits under this Plan or the
Trust, such right is no greater than the right of any unsecured
general creditor of the Company.
5.4 Non-assignability of Benefits. The benefits payable under
the Plan and the right to receive future benefits under the Plan
may not be anticipated, alienated, sold, transferred, assigned,
pledged, encumbered, or subjected to any charge or legal process.
ARTICLE 6
Amendment and Termination
6.1 Amendment.
(A) The Company reserves the right to amend the Plan at any
time to any extent that it may deem advisable. To be effective,
an amendment must be stated in a written instrument approved in
advance or ratified by the Board and executed in the name of the
Company by its President or a Vice President and attested by the
Secretary or an Assistant Secretary.
(B) An amendment adopted in accordance with Subsection (A)
is binding on all interested parties as of the effective date
stated in the amendment; provided, however, that no amendment
will have any retroactive effect so as to deprive any
Participant, or the beneficiary or joint or contingent annuitant
of a deceased Participant, of any benefit to which he or she is
entitled under the terms of the Plan in effect immediately prior
to the effective date of the amendment, determined in the case of
a Participant who is employed by the Company or an affiliate as
if he or she had terminated employment immediately prior to the
effective date of the amendment.
(C) The provisions of the Plan in effect at the termination
of a Participant's employment will, except as otherwise expressly
provided by a subsequent amendment, continue to apply to such
Participant.
6.2 Termination of Participation. Notwithstanding any other
provision of the Plan to the contrary, if determined by the
Administrator to be necessary to ensure that the Plan is exempt
from ERISA to the extent contemplated by Section 1.3 or upon the
Administrator's determination that a Participant's interest in
the Plan has been or is likely to be includable in the
Participant's gross income for federal income tax purposes prior
to the actual payment of benefits pursuant to the Plan, the
Administrator may take any or all of the following steps:
(a) terminate the Participant's future participation in the
Plan;
(b) cause the Participant's entire interest in the Plan to
be distributed to the Participant in the form of an immediate
lump sum calculated based on a methodology and assumptions
determined by the Administrator to be reasonable; and/or
(c) transfer the benefits that would otherwise be payable
pursuant to the Plan for all or any of the Participants to a new
plan that is similar in all material respects (other than those
which require the action in question to be taken.)
6.3 Termination.
(A) The Company reserves the right to terminate the Plan in
its entirety or with respect to any group of similarly situated
current or former employees. The Plan will terminate in its
entirety or with respect to a particular group of current or
former employees as of the date specified by the Company in a
written instrument adopted and executed in the manner of an
amendment.
(B) Upon the termination of the Plan in its entirety or
with respect to any group of current or former employees, the
Company will either (1) cause any benefits to which Participants
have become entitled prior to the effective date of the
termination to continue to be paid in accordance with the
provisions of Article 4 or (2) subject to Subsection (C), cause
the entire interest in the Plan of any or all Participants, or
the beneficiaries or joint or contingent annuitants of any or all
deceased Participants, to be distributed in the form of an
immediate lump sum payment calculated based on a methodology and
assumptions determined by the Administrator to be reasonable.
ARTICLE 7
Administration
7.1 Administrator. The Plan may be administered on behalf of
the Company by the Board or an individual or Committee selected
by the Board.
7.2 Rules and Regulations. The Administrator has the
discretionary power and authority to make such rules and
regulations as the Administrator determines to be consistent with
the terms, and necessary or advisable in connection with the
administration, of the Plan and to modify or rescind any such
rules or regulations.
7.3 Administrator's Discretion. The Administrator has the
discretionary power and authority to make all determinations
necessary for administration of the Plan, except those
determinations that the Plan requires others to make, and to
construe, interpret, apply and enforce the provisions of the Plan
and Plan rules and regulations whenever necessary to carry out
its intent and purpose and to facilitate its administration,
including, without limitation, the discretionary power and
authority to remedy ambiguities, inconsistencies, omissions and
erroneous benefit calculations. In the exercise of its
discretionary power and authority, the Administrator will treat
all similarly situated persons uniformly. The Administrator's
interpretations, determinations, rules, procedures,
methodologies, assumptions and calculations are final and binding
on all persons and parties concerned.
7.4 Specialist's Assistance. The Administrator may retain such
actuarial, accounting, legal, clerical and other services as may
reasonably be required in the administration of the Plan, and may
pay reasonable compensation for such services. All costs of
administering the Plan will be paid by the Company.
7.5 Indemnification. The Company will indemnify and hold
harmless, to the extent permitted by law, each director, officer,
and employee of the Company against any and all liabilities,
losses, costs and expenses (including legal fees) of every kind
and nature that may be imposed on, incurred by or asserted
against such director, officer or employee at any time by reason
of his or her services in connection with the Plan, but only if
he or she did not act dishonestly or in bad faith or in willful
violation of the law or regulations under which such liability,
loss, cost or expense arises. The Company has the right, but not
the obligation, to select counsel and control the defense and
settlement of any action for which a director, officer or
employee may be entitled to indemnification under this provision.
7.6 Benefit Claim Procedure.
(A) If a request for a benefit by a Participant or
beneficiary of a deceased Participant is denied in whole or in
part, he or she may, not later than 30 days after the denial,
file with the Administrator a written claim objecting to the
denial.
(B) The Administrator, not later than 90 days after receipt
of such claim, will render a written decision to the claimant on
the claim. If the claim is denied, in whole or in part, such
decision will include the reason or reasons for the denial; a
reference to the Plan provisions on which the denial is based; a
description of any additional material or information, if any,
necessary for the claimant to perfect his or her claim; an
explanation as to why such information or material is necessary;
and an explanation of the Plan's claim procedure.
(C) The claimant may file with the Administrator, not later
than 60 days after receiving the Administrator's written
decision, a written notice of request for review of the
Administrator's decision, and the claimant or his or her
representative may thereafter review relevant Plan documents
which relate to the claim and may submit written comments to the
Administrator.
(D) Not later than 60 days after receipt of such review
request, the Administrator will render a written decision on the
claim, which decision will include the specific reasons for the
decision, including a reference to the Plan's specific provisions
where appropriate.
(E) The foregoing 90 and 60-day periods during which the
Administrator must respond to the claimant may be extended by up
to an additional 90 or 60 days, respectively, if special
circumstances beyond the Administrator's control so require and
notice of such extension is given to the claimant prior to the
expiration of such initial 90 or 60-day period, as the case may
be.
(F) A Participant or beneficiary must exhaust the procedure
described in this section before making any claim of entitlement
to benefits pursuant to the Plan in any court or any other
proceeding.
7.7 Disputes.
(A) In the case of a dispute between a Participant or
beneficiary and the Company, Board, Administrator or other person
relating to or arising from the Plan, the United States District
Court for the District of Minnesota is a proper venue for any
action initiated by or against the Company, Board, Administrator
or other person and such court will have personal jurisdiction
over any Participant or beneficiary named in the action.
(B) Regardless of where an action relating to or arising
from the Plan is pending, the law as stated and applied by the
United States Court of Appeals for the Eighth Circuit or the
United States District Court for the District of Minnesota will
apply to and control all actions relating to the Plan brought
against the Plan, Company, Administrator or any other person or
against any Participant or beneficiary.
ARTICLE 8
Miscellaneous
8.1 Withholding and Offsets. The Company and the Trustee retain
the right to withhold from any compensation or benefit payment
pursuant to the Plan any and all income, employment, excise and
other tax as the Company or Trustee deem necessary in connection
with any benefits earned or paid pursuant to the Plan and the
Company may offset against amounts payable to any person under
the Plan any amounts then owing to the Company by such person.
8.2 Other Benefits. Amounts paid pursuant to the Plan do not
constitute salary or compensation for the purpose of computing
benefits under any other benefit plan, practice, policy or
procedure of the Company or any affiliate of the Company unless
otherwise expressly provided thereunder.
8.3 No Warranties Regarding Tax Treatment. The Company make no
warranties regarding the tax treatment to any person of
participation in the Plan or any action or omission of the
Company or Participant in connection therewith and each
Participant will hold the Administrator and the Company and their
officers, directors, employees, agents and advisors harmless from
any liability resulting from any tax position taken in good faith
in connection with the Plan.
8.4 No Employment Rights Created. Neither the establishment of
nor participation in the Plan gives any employee a right to
continued employment or limits the right of the Company or any
affiliate of the Company to discharge, transfer, demote or modify
the terms and conditions of employment or otherwise deal with any
employee without regard to the effect such action might have on
his or her with respect to the Plan.
Exhibit 10.v
FINGERHUT CORPORATION
PROFIT SHARING EXCESS PLAN
As Adopted Effective January 1, 1994
Table of Contents
ARTICLE 1 Description of Plan 1
1.1 Plan Name 1
1.2 Plan Purpose 1
ARTICLE 2 Definitions, Construction and Interpretation 2
2.1 Administrator 2
2.2 Board 2
2.3 Code 2
2.4 Company 2
2.5 Participant 2
2.6 Plan 2
2.7 Plan Year 2
2.8 Profit Sharing Plan 2
ARTICLE 3 Participation 3
3.1 Participation 3
3.2 Condition of Participation 3
ARTICLE 4 Payments 4
4.1 Eligibility for Payment 4
4.2 Amount of Payment 4
4.3 Timing of Payment 4
ARTICLE 5 Miscellaneous 5
5.1 Administration 5
5.2 Status of Plan 5
5.3 Non-assignability of Benefits 5
5.4 Amendment and Termination 5
5.5 No Employment Rights Created 5
5.6 Withholding and Offsets 5
5.7 Other Benefits. 5
5.8 Disputes 6
5.9 Governing Law. 6
FINGERHUT CORPORATION
PROFIT SHARING EXCESS PLAN
ARTICLE 1
Description of Plan
1.1 Plan Name. The name of the Plan is the "Fingerhut
Corporation Profit Sharing Excess Plan."
1.2 Plan Purpose. The Plan provides current cash payments to
Participants for Plan Years beginning after 1993 and ending
before 2001 to compensate them for the reduction in contributions
made on their behalf under the Profit Sharing Plan due to the
reduction in the limitation on compensation imposed by Code
section 401(a)(17) from $235,840 to $150,000 effective for Plan
Years beginning after 1993 and based on the $30,000 limitation in
effect for the 1993 Plan Year under Code section 415(c)(1)(A).
ARTICLE 2
Definitions
The definitions set forth in this article apply in construing the
Plan unless the context otherwise requires.
2.1 Administrator. "Administrator" means the Company or any
individual or committee appointed by the Board to perform
administrative duties pursuant to Section 5.1.
2.2 Board. "Board" means the Company's Board of Directors or
any individual or committee authorized to act on behalf of such
Board of Directors.
2.3 Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time. Any reference to a specific provision
of the Code includes a reference to that provision as it may be
amended from time to time and to any successor provision.
2.4 Company. "Company" means Fingerhut Corporation or any
successor thereto.
2.5 Participant. "Participant" means an individual described in
Section 3.1.
2.6 Plan. "Plan" means the Fingerhut Corporation Profit Sharing
Excess Plan, as from time to time amended.
2.7 Plan Year. "Plan Year" means a calendar year.
2.8 Profit Sharing Plan. "Profit Sharing Plan" means the
Fingerhut Corporation Profit Sharing Plan, as from time to time
amended.
ARTICLE 3
Participation
3.1 Participation. To be eligible to receive payments pursuant
to the Plan, an individual must have been
(a) an officer of the Company on both January 1, 1994
and March 31, 1995, and
(b) a participant in the Profit Sharing Plan on
December 31, 1994.
3.2 Condition of Participation. Each Participant is bound by
all of the terms and conditions of the Plan, including but not
limited to the reserved right of the Board to amend or terminate
the Plan, and is required to furnish to the Administrator such
pertinent information, and must execute such instruments, as the
Administrator may require.
ARTICLE 4
Payments
4.1 Eligibility for Payment. To be eligible to receive a
payment pursuant to the Plan for a Plan Year, a Participant must
be eligible to share in the Company's contribution to the Profit
Sharing Plan for the Plan Year.
4.2 Amount of Payment. For each Plan Year beginning after 1993
and ending before 2001 for which the Company makes a contribution
to the Profit Sharing Plan and the Company's Chief Executive
Officer authorizes payments pursuant to the Plan, the Company
will make a cash payment to each eligible Participant in an
amount equal to the sum of
(a) the amount of the contribution that would have been
made on the Participant's behalf for the Plan Year under the
Profit Sharing Plan if the limitation in effect for the Plan Year
under Code section 401(a)(17) were $235,840, minus the amount of
the Company contribution actually made on the Participant's
behalf under the Profit Sharing Plan for the Plan Year, provided
that if for any Plan Year the sum of the amount determined
pursuant to this clause (a) plus the amount of the Company
contribution actually made on the Participant's behalf under the
Profit Sharing Plan would otherwise exceed $30,000, the amount
determined pursuant to this clause (a) will be reduced to the
extent necessary to prevent such excess, plus
(b) a corresponding tax "gross up" amount, as determined
by the Administrator based on assumptions and calculation
methodology determined by the Administrator to be reasonable
after consultation with the Company's Tax Department, that
reimburses the Participant for his or her state and federal
income tax liability, as determined by the Administrator, with
respect to the payment received by the Participant pursuant to
the Plan for the Plan Year (including the amount received
pursuant to this clause (b)).
4.3 Timing of Payment. The Company's payment for a Plan Year,
if any, will be made on a date determined by the Company but in
no case more than 30 days following the date on which the Company
has made its final contribution to the Profit Sharing Plan for
the Plan Year.
ARTICLE 5
Miscellaneous
5.1 Administration. The Plan may be administered on behalf of
the Company by the Board or an individual or committee selected
by the Board. The Administrator has the discretionary power and
authority to issue, modify and revoke such rules and procedures
as the Administrator deems advisable, to construe, interpret,
apply and enforce the terms of the Plan and Plan rules and
procedures and to remedy ambiguities, inconsistencies, omissions
and erroneous Account balances. Whenever the Plan requires the
Administrator to make a determination, the determination will be
made by the Administrator in his, her or its sole discretion and
without regard to whether different determinations have been made
in the past with respect to other persons, whether or not
similarly situated. The Administrator's interpretations,
determinations, rules, procedures and calculations are final and
binding on all persons and parties concerned.
5.2 Status of Plan. Nothing contained in the Plan is to be
construed as providing for assets to be held for the benefit of
any Participant or any other person or persons to whom benefits
are to be paid pursuant to the terms of this Plan, the
Participant's or other person's only interest under the Plan
being the right to receive the benefits set forth herein. To the
extent the Participant or any other person acquires a right to
receive benefits under this Plan, such right is no greater than
the right to any unsecured general creditor of the Company.
5.3 Non-assignability of Benefits. The benefits payable under
the Plan and the right to receive future benefits under the Plan
may not be anticipated, alienated, sold, transferred, assigned,
pledged, encumbered or subjected to any charge.
5.4 Amendment and Termination. The Company reserves the right
to amend or terminate the Plan at any time by way of a written
instrument approved or ratified by the Board and executed in the
name of the Company by a duly authorized officer. No amendment
or termination may adversely affect a payment to which a
Participant or Beneficiary became entitled under the Plan prior
to the date of such amendment or termination.
5.5 No Employment Rights Created. Nothing in this Plan gives
any Participant a right to continued employment or limits the
right of the Company to discharge, transfer, demote, modify terms
and conditions of employment or otherwise deal with the
Participant without regard to the effect such action might have
on him or her under the Plan.
5.6 Withholding and Offsets. The Company retains the right to
withhold from any benefit payment under the Plan, any and all
income, employment, excise and other tax as the Company may, in
its sole discretion, deem necessary and the Company may offset
against amounts payable to a Participant under the Plan any
amounts then owing to the Company by such Participant.
5.7 Other Benefits. Amounts paid pursuant to the Plan do not
constitute salary or compensation for the purpose of computing
benefits under any other benefit plan, practice, policy or
procedure of the Company unless otherwise expressly provided
thereunder.
5.8 Disputes. In the event of a dispute over whether the
Participant is entitled to a payment under this Plan, the amount
or timing of a payment or any other provision of this Plan, the
Participant is responsible for paying any costs he or she incurs,
including attorneys' fees and legal expenses, and the Company is
responsible for paying any costs it incurs, including attorneys'
fees and any legal expenses. Any such dispute may be brought
only in a court of competent jurisdiction in Minnesota.
5.9 Governing Law. All questions pertaining to the
construction, validity, effect and enforcement of the Plan will
be determined in accordance with the internal, substantive laws
of the State of Minnesota without regard to the conflict of law
rules of the State of Minnesota or of any other jurisdiction.
Exhibit 10.w
FINGERHUT COMPANIES, INC.
NONQUALIFIED SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
Effective January 1, 1996
TABLE OF CONTENTS
Page
SECTION 1. INTRODUCTION 1
1.1. Preamble
1.2. Definitions
1.2.1. Accrued Gross Benefit
1.2.2. Actuarial Equivalent
1.2.3. Affiliate
1.2.4. Average Annual Compensation
1.2.5. Benefit Offset
1.2.6. Change in Control
1.2.7. Code
1.2.8. Compensation
1.2.9. Compensation Committee
1.2.10. Compensatory Stock
1.2.11. Effective Date
1.2.12. Employer
1.2.13. ERISA
1.2.14. Participant
1.2.15. Pension Excess Plan
1.2.16. Pension Plan
1.2.17. Plan Statement
1.2.18. Plan Year
1.2.19. Principal Sponsor
1.2.20. Profit Sharing Excess Plan
1.2.21. Profit Sharing Plan
1.2.22. SERP
1.2.23. Service
1.2.24. Social Security Benefit
1.2.25. Termination of Employment
1.3. Rules of Interpretation
SECTION 2. PARTICIPANTS 6
2.1. General Participation Rule
2.2. Overriding Exclusion
SECTION 3. BENEFITS PAYABLE 6
3.1. Benefit for Participants
3.2. Death Benefits
3.2.1. Death Before Termination of Employment
3.2.2. Death After Termination of Employment
3.2.3. No Other Death Benefits
3.3. Payment in Case of Incompetency or Disability
3.4. Suspension Upon Reemployment
SECTION 4. FORFEITURE OF BENEFITS 8
SECTION 5. FUNDING OF PLAN 8
5.1. Unfunded Obligation
5.2. Hedging Investments
5.3. Corporate Obligation
SECTION 6. GENERAL MATTERS 9
6.1. Amendments and Termination
6.1.1. Amendment
6.1.2. Termination
6.1.3. After a Change In Control
6.1.4. No Oral Amendments
6.2. Spendthrift Provision
6.3. Administrative Determinations
6.4. Rules and Regulations
6.5. Certifications
6.6. Errors in Computations
SECTION 7. BENEFIT CLAIMS 11
7.1. Claims Procedure
7.1.1. Original Claim
7.1.2. Claims Review Procedure
7.1.3. General Rules
SECTION 8. PLAN ADMINISTRATION 12
8.1. Principal Sponsor
8.1.1. Officers
8.1.2. Chief Executive Officer
8.1.3. Board of Directors
8.2. Conflict of Interest
8.3. Administrator
8.4. Service of Process
8.5. IRC and ERISA Status
8.6. Effect on Other Plans
SECTION 9. DISCLAIMERS 13
9.1. Term of Employment
9.2. Delegation
SCHEDULE I. PARTICIPATING EMPLOYERS SI-1
APPENDIX A. ACTUARIALLY EQUIVALENT BENEFITS A-1
FINGERHUT COMPANIES, INC.
NONQUALIFIED SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
SECTION 1
INTRODUCTION
1.1. Preamble. ERISA authorizes the establishment of an
unfunded, nonqualified plan maintained primarily for the purpose
of providing deferred compensation for a select group of
management or highly compensated employees and to coordinate the
benefits provided to them under other qualified and nonqualified
retirement programs available to them as a result of their
employment. FINGERHUT COMPANIES, INC., a Minnesota corporation
(hereinafter "Principal Sponsor") and certain subsidiaries of the
Principal Sponsor (collectively the "Employers") have determined
that it is in their best interest to establish and maintain such
an unfunded, nonqualified deferred compensation plan for those
purposes. Therefore, the Principal Sponsor, for itself and the
other Employers, does hereby establish this SERP, the terms and
conditions of which are as follows.
1.2. Definitions. When used herein with initial capital
letters, the following words have the following meanings:
1.2.1. Accrued Gross Benefit - a dollar amount
determined as of a Participant's Termination of Employment and
expressed as an annual single life annuity payable for the life of
the Participant commencing as of the first of the Plan Year
following the later of the date of the Participant's Termination
of Employment or the date the Participant would attain age sixty-
five (65) years and which is equal to the product of (a)
multiplied by (b):
(a) Sixty percent (60%) multiplied by a fraction (not
greater than one):
(i) The numerator of which is the Participant's
Service determined as of the Termination of
Employment, and
(ii) The denominator of which is thirty (30).
(b) The Participant's Average Annual Compensation
determined as of such Termination of Employment.
The Accrued Gross Benefit may increase or decrease from time to
time before a Termination of Employment.
1.2.2. Actuarial Equivalent - a benefit of equal value
when determined on the basis of actuarial tables, factors and
assumptions set forth in the Appendix A to this Plan Statement.
1.2.3. Affiliate - a business entity which is affiliated
in ownership with the Principal Sponsor and is recognized as an
Affiliate by the Principal Sponsor for the purposes of this SERP.
(All Employers must be an Affiliate of the Principal Sponsor. All
Affiliates are not, however, Employers.)
1.2.4. Average Annual Compensation - a dollar amount
which is the annual average of the Participant's Compensation
attributable to each of the three (3) completed calendar years,
whether consecutive or not, ending not later than the last day of
the calendar month immediately before the date the Average Annual
Compensation is determined which produce the highest average. The
Average Annual Compensation may increase or decrease from time to
time before a Termination of Employment.
1.2.5. Benefit Offset - a dollar amount determined as of
a Participant's Termination of Employment and expressed as an
annual single life annuity payable for the life of the Participant
commencing as of the first of the Plan Year following the later of
the date of the Participant's Termination of Employment or the
date the Participant would attain age sixty-five (65) years and
which is equal to the sum of:
(a) the Participant's Social Security Benefit
determined as of such Termination of Employment
when expressed as an annual single life annuity
commencing as of the first of the Plan Year
following the later of the date of the
Participant's Termination of Employment or the date
the Participant would attain age sixty-five (65)
years; and
(b) the Participant's accrued benefit under the Pension
Plan and the Pension Excess Plan determined as of
such Termination of Employment when expressed as an
annual single life annuity commencing as of the
first of the Plan Year following the later of the
date of the Participant's Termination of Employment
or the date the Participant would attain age sixty-
five (65) years; and
(c) seventy-five percent (75%) of the Participant's
account balance under the Profit Sharing Plan
attributable to employer contributions (including
both the elective contributions and the non-
elective contributions) determined as of such
Termination of Employment and determined as if no
withdrawals or distributions had been made from the
Profit Sharing Plan and as if all elective
contributions which could have been contributed to
the Profit Sharing Plan had been contributed to the
Profit Sharing Plan:
(i) together with interest at eight and one-half
percent (8.5%) compounded annually from the
Termination of Employment to the later of the
date of the Participant's Termination of
Employment or the date the Participant would
attain age sixty-five (65) years, and
(ii) then converted to and expressed as an
Actuarial Equivalent annual single life
annuity commencing as of the first of the Plan
Year following the later of the date of the
Participant's Termination of Employment or the
date the Participant would attain age sixty-
five (65) years; and
(d) an amount equal to the dollars credited or paid to
the Participant under the Profit Sharing Excess
Plan:
(i) together with interest at eight and one-half
percent (8.5%) compounded annually from the
date so credited or paid to the Termination of
Employment, and
(ii) then converted to and expressed as an
Actuarial Equivalent annual single life
annuity commencing as of the first of the Plan
Year following the later of the date of the
Participant's Termination of Employment or the
date the Participant would attain age sixty-
five (65) years; and
(e) fifteen percent (15%) of the dollar amount by which
the value of Compensatory Stock (determined at
Termination of Employment to the extent held on
that date or at the time of disposition to the
extent disposed of by gift, sale or exchange before
Termination of Employment) exceeds twice the value
at the time it was acquired by the Participant (but
disregarding the value of the Compensatory Stock to
the extent it exceeds three hundred percent of the
value at the time it was acquired by the
Participant):
(i) together with interest at eight and one-half
percent (8.5%) compounded annually from the
Termination of Employment to the later of the
date of the Participant's Termination of
Employment or the date the Participant would
attain age sixty-five (65) years, and
(ii) then converted to and expressed as an
Actuarial Equivalent annual single life
annuity commencing as of the first of the Plan
Year following the later of the date of the
Participant's Termination of Employment or the
date the Participant would attain age sixty-
five (65) years.
The Benefit Offset may increase or decrease from time to time
before a Termination of Employment.
1.2.6. Change in Control - an event defined as a Change
in Control in the form of nonqualified stock option agreement
adopted by the Compensation Committee of the Board of Directors
under the "Fingerhut Corporation Stock Option Plan" or the
comparable successor plan most recently adopted before such event.
1.2.7. Code - the Internal Revenue Code of 1986, as
amended.
1.2.8. Compensation - a dollar amount which is the
annual amount of base salary and short term annual incentive
compensation paid to the Participant for services rendered as an
employee of an Employer. Compensation may increase and decrease
from time to time.
(a) Profit Sharing Plan Income. Compensation shall
include amounts which the Participant would have
received and would have been included as
Compensation but for an election to defer income
under section 401(k) of the Code.
(b) Cafeteria Plan Contributions. Compensation
shall include amounts which the Participant would
have received and which would have been included as
Compensation but for section 125 of the Code.
(c) Deferred Compensation. Notwithstanding the
foregoing, Compensation shall include amounts of
base salary and short term annual incentive
compensation which were deferred at the election of
the Participant or otherwise under a nonqualified
plan of deferred compensation at the time such
amounts would have been paid but for such election
to defer and not at the time actually received by
the Participant.
1.2.9. Compensation Committee - the committee of that
name constituted by the Board of Directors of the Principal
Sponsor.
1.2.10. Compensatory Stock - capital stock of the
Principal Sponsor or any Affiliate of the Principal Sponsor which
is:
(a) acquired directly or indirectly by a Participant
under any compensation program sponsored by the
Principal Sponsor or an Affiliate, and
(b) owned directly or indirectly by the Participant at
any time on or after January 1, 1996;
excluding for this purpose, however, any such stock which is
acquired and disposed of substantially simultaneously for the
purpose of exercising options to purchase it and other stock.
Compensatory Stock acquired under options granted by the Principal
Sponsor or any Affiliate shall be deemed acquired on the date that
the option is granted and not the date that the option is
exercisable or exercised.
1.2.11. Effective Date - January 1, 1996.
1.2.12. Employer - the Principal Sponsor and each business
entity affiliated with the Principal Sponsor that employs persons
who are designated for participation in this SERP. (See Schedule
I for a listing of such Employers as of January 1, 1996.)
1.2.13. ERISA - the Employee Retirement Income Security
Act of 1974, as amended.
1.2.14. Participant - an employee of an Employer who
becomes a Participant in the SERP in accordance with the
provisions of Section 2. An employee who has become a Participant
shall be considered to continue as a Participant in the SERP until
the date of the Participant's death or, if earlier, the date when
the Participant is no longer employed by an Employer and upon
which the Participant no longer has any entitlement to a benefit
under the SERP (that is, the Participant has received a
distribution of all of the Participant's benefit under the SERP or
the Participant's benefit under the SERP has been forfeited).
1.2.15. Pension Excess Plan - the nonqualified deferred
compensation plan established by the Principal Sponsor for the
purpose of providing nonqualified deferred compensation benefits
in excess of the benefits that can be provided under the Pension
Plan because of various limitations under the Code and known as
the "Fingerhut Companies, Inc. Excess Benefit Plan."
1.2.16. Pension Plan - the tax-qualified defined benefit
pension plan known as the "Fingerhut Corporation Pension Plan," as
the same is existing and amended from time to time.
1.2.17. Plan Statement - this document entitled
"FINGERHUT COMPANIES, INC. NONQUALIFIED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN," as adopted by
the Principal Sponsor effective as of January 1, 1996, as the same may
be amended from time to time thereafter.
1.2.18. Plan Year - the twelve (12) consecutive month
period ending each December 31.
1.2.19. Principal Sponsor - FINGERHUT COMPANIES, INC., a
Minnesota corporation.
1.2.20. Profit Sharing Excess Plan - the nonqualified
deferred compensation plan or other cash payment program
established by the Principal Sponsor for the purpose of providing
either nonqualified plan accruals or cash payments to replace
contributions and allocations that cannot be provided under the
Profit Sharing Plan because of various limitations under the Code
and known as the "Fingerhut Companies, Inc. Excess Profit Sharing
Plan."
1.2.21. Profit Sharing Plan - the tax-qualified defined
contribution profit sharing plan, including a qualified cash or
deferred arrangement, known as the "Fingerhut Corporation Profit
Sharing Plan," as the same is existing and may be amended from
time to time.
1.2.22. SERP - the nonqualified deferred compensation plan
of the Employers established for the benefit of employees eligible
to participate therein, as first set forth in this Plan Statement.
(As used herein, "SERP" refers to the legal entity established by
an Principal Sponsor and not to the document pursuant to which the
SERP is maintained. That document is referred to herein as the
"Plan Statement.") The SERP shall be referred to as the
"FINGERHUT COMPANIES, INC. NONQUALIFIED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN."
1.2.23. Service - a measure of a Participant's total
employment with the Principal Sponsor and all Affiliates (whether
or not continuous) expressed in years and fractions of years and
determined under rules established by the Compensation Committee.
The Compensation Committee may, in its discretion, agree in
writing to recognize as Service periods of employment before
employment with an Employer.
1.2.24. Social Security Benefit - the approximate
monthly amount available for the benefit of the Participant at
that Participant's social security retirement age, (excluding
amounts available for spouses and for other dependents), as an old
age or disability insurance benefit under the provisions of Title
II of the Federal Social Security Act in effect on the date of the
Participant's Termination of Employment (or his or her social
security retirement age if the Termination of Employment is later
than the social security retirement age) whether or not payment of
such amount in delayed, suspended or forfeited because of failure
to apply, accepting other work, or any other similar reason within
the control of the Participant (and determined without any
increases in cost of living, legislated changes or any other
similar factors after that date). For this purpose, a Participant
shall be conclusively deemed to have had taxable wages at or above
the "OASDI" taxable wage base in all years prior to the year of
his or her Termination of Employment or death. The determination
by the Principal Sponsor of the Social Security Benefit shall be
final and binding upon all parties interested in this SERP.
1.2.25. Termination of Employment - a complete
severance of an employee's employment relationship with the
Principal Sponsor, all Employers and all Affiliates, if any, for
any reason other than the employee's death. Notwithstanding the
absence of an actual severance of employment relationship or the
number of a Participant's actual years of Service, for the
purposes of this SERP upon the occurrence of a Change in Control:
(i) a Participant shall be conclusively considered to have had a
severance of employment relationship, and (ii) a Participant shall
be conclusively considered to have completed five (5) years of
Service after January 1, 1996, for the purposes of Section 3.1(i).
A transfer from employment with an Employer to employment with an
Affiliate of an Employer shall not constitute a Termination of
Employment. If an Employer who is an Affiliate ceases to be an
Affiliate because of a sale of substantially all the stock or
assets of that Employer, then Participants who are employed by
that Employer and who cease to be employed by the Principal
Sponsor or that Employer on account of the sale of substantially
all the stock or assets of that Employer shall be deemed to have
thereby had a Termination of Employment for the purpose of paying
benefits from this SERP.
1.3. Rules of Interpretation. An individual shall be
considered to have attained a given age on the individual's
birthday for that age (and not on the day before). The birthday
of any individual born on a February 29 shall be deemed to be
February 28 in any year that is not a leap year. Notwithstanding
any other provision of this Plan Statement or any election or
designation made under the SERP, any individual who feloniously
and intentionally kills a Participant shall be deemed for all
purposes of this SERP and all elections and designations made
under this SERP to have died before such Participant. A final
judgment of conviction of felonious and intentional killing is
conclusive for the purposes of this Section. In the absence of a
conviction of felonious and intentional killing, the Compensation
Committee shall determine whether the killing was felonious and
intentional for the purposes of this Section. Whenever
appropriate, words used herein in the singular may be read in the
plural, or words used herein in the plural may be read in the
singular; the masculine may include the feminine; and the words
"hereof," "herein" or "hereunder" or other similar compounds of
the word "here" shall mean and refer to the entire Plan Statement
and not to any particular paragraph or Section of this Plan
Statement unless the context clearly indicates to the contrary.
The titles given to the various Sections of this Plan Statement
are inserted for convenience of reference only and are not part of
this Plan Statement, and they shall not be considered in
determining the purpose, meaning or intent of any provision
hereof. Any reference in this Plan Statement to a statute or
regulation shall be considered also to mean and refer to any
subsequent amendment or replacement of that statute or regulation.
This instrument has been executed and delivered in the State of
Minnesota and has been drawn in conformity to the laws of that
State and shall, except to the extent that federal law is
controlling, be construed and enforced in accordance with the laws
of the State of Minnesota.
SECTION 2
PARTICIPANTS
2.1. General Participation Rule. An individual shall be a
Participant in this SERP if that individual, on or after
January 1, 1996, satisfies all of the following criteria:
(i) he or she is an officer or other senior management
employee of the Principal Sponsor, and
(ii) he or she is actively employed by the Principal
Sponsor, and
(iii) he or she is affirmatively selected for
participation in the SERP by the Compensation
Committee.
Any individual who has become a Participant in the SERP shall
continue as a Participant until all benefits which are due under
this SERP have been received without regard to whether he or she
continues as an officer or a participant in the Pension Plan or an
active employee. The Compensation Committee may, in its
discretion, impose restrictions or limitations upon the benefits
payable under the SERP as a condition of participation.
Notwithstanding any thing apparently to the contrary contained in
this Plan Statement, it shall be construed to prevent the
duplication of benefits provided under any other plan or
arrangement, whether qualified or nonqualified, funded or
unfunded, to the extent that such other benefits are provided
directly or indirectly by an Employer.
2.2. Overriding Exclusion. Notwithstanding anything
apparently to the contrary in this Plan Statement or in any
written communication, summary, resolution or document or oral
communication, no individual shall be a Participant in this SERP,
develop benefits under this SERP or be entitled to receive
benefits under this SERP (either for himself or his or her
survivors) unless such individual is a member of a select group of
management or highly compensated employees (as that expression is
used in ERISA). If a court of competent jurisdiction, any
representative of the U.S. Department of Labor or any other
governmental, regulatory or similar body makes any direct or
indirect, formal or informal, determination that an individual is
not a member of a select group of management or highly compensated
employees (as that expression is used in ERISA), such individual
shall not be (and shall not have ever been) a Participant in this
SERP at any time. If any person not so defined has been
erroneously treated as a Participant in this SERP, upon discovery
of such error such person's erroneous participation shall
immediately terminate ab initio and upon demand such person shall
be obligated to reimburse the Principal Sponsor for all amounts
erroneously paid to him or her.
SECTION 3
BENEFITS PAYABLE
3.1. Benefit for Participants. Upon the Termination of
Employment of a Participant:
(i) at or after his attaining age sixty-five (65) years
and completing five (5) years of Service (excluding
Service before January 1, 1996), or
(ii) at a time when the Participant has attained at
least age fifty-five (55) years and completed at
least five (5) years of Service (excluding Service
before January 1, 1996) and has a combination of
age (expressed in whole years) and Service
(expressed in whole years and including Service
before January 1, 1996) equal to or greater than
seventy (70),
there shall be paid to a Participant the excess, if any, of:
(a) the Accrued Gross Benefit determined as of the date
of the Termination of Employment, over
(b) the Benefit Offsets also determined as of the date
of the Termination of Employment.
Except as may otherwise be specifically provided in this SERP,
this benefit (minus the withholding, payroll and other taxes which
must be deducted therefrom) shall be converted to the Actuarial
Equivalent single lump sum and shall be paid to the Participant in
a single payment in cash as soon as may be practicable after the
end of the Plan Year in which the Termination of Employment
occurs. If the Compensation Committee determines that delaying
the time payment is made would increase the probability that such
payment would be fully deductible for federal or state income tax
purposes, the Compensation Committee may unilaterally delay the
time for making the payment for up to twenty-four (24) months
after the date such payment would otherwise be payable.
3.2. Death Benefits.
3.2.1. Death Before Termination of Employment. If a
Participant dies before Termination of Employment, a benefit shall
be paid equal to the amount, if any, that the Participant would
have received if, rather than dying, the Participant had a
Termination of Employment on the date of his or her death. (For
the purposes of this Section 3.2.1, each Participant shall be
conclusively considered to have completed five (5) years of
Service after January 1, 1996.) This benefit shall be paid:
(a) if the Participant was married at death, to the
Participant's surviving spouse (or the surviving
spouse's estate if the surviving spouse should die
before receiving such payment), at the time and in
the amount as would have been paid to the
Participant, and
(b) if the Participant was not married at death, to the
personal representative of the Participant's estate
at the time and in the amount as would have been
paid to the Participant.
3.2.2. Death After Termination of Employment. If a
Participant dies after a Termination of Employment when a payment
was due to the Participant but not actually paid, the amount of
such payment shall be paid:
(a) if the Participant was married at death, to the
Participant's surviving spouse (or the surviving
spouse's estate if the surviving spouse should die
before receiving such payment), at the time and in
the amount as would have been paid to the
Participant, and
(b) if the Participant was not married at death, to the
personal representative of the Participant's estate
at the time and in the amount as would have been
paid to the Participant.
3.2.3. No Other Death Benefits. In no other case shall
any benefit be payable under this SERP to or with respect to the
Participant to any person after the death of the Participant.
3.3. Payment in Case of Incompetency or Disability. In
case of legal incompetency or disability, (including minority), of
a Participant or surviving spouse entitled to receive any payment
under this SERP, payment may be made, if the Compensation
Committee has been advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or
other legal representative of such incompetent or
disabled Participant or surviving spouse; or
(b) to a person or institution entrusted with the care
maintenance of the incompetent or disabled
Participant or surviving spouse, provided such
person or institution has satisfied the
Compensation Committee that the payment will be
used for the best interest and assist in the care
of such disabled or incompetent Participant or
surviving spouse or, provided further, that no
prior claim for said payment has been made by a
duly appointed guardian, conservator or other legal
representative of such disabled or incompetent
Participant or surviving spouse.
Any payment made in accordance with this Section shall constitute
a complete discharge of any liability or obligation of this SERP
and the Principal Sponsor and all Employers therefor.
3.4. Suspension Upon Reemployment. If any Participant is
entitled to receive payment under this SERP on account of a
previous Termination of Employment and is subsequently reemployed
by the Principal Sponsor or an Affiliate, such payment shall be
discontinued until there is a subsequent Termination of
Employment.
SECTION 4
FORFEITURE OF BENEFITS
All unpaid benefits under this SERP shall be permanently forfeited
upon the determination by the Compensation Committee that the
Participant, either before or after Termination of Employment
engaged in felonious conduct or other serious criminal activity
resulting in material harm to the Principal Sponsor or an
Affiliate.
SECTION 5
FUNDING OF PLAN
5.1. Unfunded Obligation. The obligation of the Principal
Sponsor to make payments under this SERP constitutes only the
unsecured promise of the Principal Sponsor to make such payments.
The Participant shall have no lien, prior claim or other security
interest in any property of any Principal Sponsor. If a fund is
established by the Principal Sponsor in connection with this SERP,
the property therein shall remain the sole and exclusive property
of the Principal Sponsor. The Principal Sponsor will pay the cost
of this SERP out of its general assets.
5.2 Hedging Investments. If the Principal Sponsor elects to
finance all or a portion of its costs in connection with this SERP
through the purchase of life insurance or other investments, the
Participant agrees, as a condition of participation in this SERP,
to cooperate with the Principal Sponsor in the purchase of such
investment to any extent reasonably required by the Principal
Sponsor and relinquishes any claim he or she may have either for
himself or herself or any beneficiary to the proceeds of any such
investment or any other rights or interests in such investment.
If a Participant fails or refuses to cooperate, then
notwithstanding any other provision of this SERP the Principal
Sponsor shall immediately and irrevocably terminate and forfeit
the Participant's entitlement to benefits under the SERP.
5.3 Corporate Obligation. Neither the Principal Sponsor's
officers nor any member of its Board of Directors in any way
secures or guarantees the payment of any benefit or amount which
may become due and payable hereunder to or with respect to any
Participant. Each Participant and other person entitled at any
time to payments hereunder shall look solely to the assets of the
Principal Sponsor for such payments as an unsecured, general
creditor. After benefits shall have been paid to or with respect
to a Participant and such payment purports to cover in full the
benefit hereunder, such former Participant or other person or
persons, as the case may be, shall have no further right or
interest in the other assets of the Principal Sponsor in
connection with this SERP. Neither the Principal Sponsor nor any
of its officers nor any member of its Boards of Directors shall be
under any liability or responsibility for failure to effect any of
the objectives or purposes of the SERP by reason of the insolvency
of the Principal Sponsor.
SECTION 6
GENERAL MATTERS
6.1. Amendments and Termination.
6.1.1. Amendment. Prior to the occurrence of a Change in
Control, the Compensation Committee may unilaterally amend this
Plan Statement prospectively, retroactively or both, at any time
and for any reason deemed sufficient by it without notice to any
person affected by this SERP both with regard to persons expecting
to receive benefits in the future and persons already receiving
benefits at the time of such action; provided, however, that:
(i) such amendment of the SERP cannot be effective
before January 1, 2001, with respect to any
Participant who does not affirmatively consent in
writing to such amendment, and
(ii) the benefit payable to or with respect to each
Participant who has had a Termination of Employment
or died as of the effective date of the amendment
of the SERP may not be diminished or delayed by
such amendment, and
(iii) the benefit payable to each other Participant shall
be computed as of the effective date of such
amendment of the SERP and thereafter that benefit
shall be preserved as the minimum benefit payable
for the purposes of Section 3.1 and Section 3.2
(but the payment thereof shall not be thereby
accelerated).
6.1.2. Termination. Prior to the occurrence of a Change
in Control, the Compensation Committee may terminate this SERP,
for any reason deemed sufficient by it without notice to any
person affected by this SERP both with regard to persons expecting
to receive benefits in the future and persons already receiving
benefits at the time of such action; provided, however, that:
(i) such termination of the SERP cannot be effective
before January 1, 2001, with respect to any
Participant who does not affirmatively consent in
writing to such termination, and
(ii) the benefit payable to or with respect to each
Participant who has had a Termination of Employment
or died as of the effective date of the termination
of the SERP may not be diminished or delayed by
such termination, and
(iii) the benefit payable to each other Participant shall
be computed and paid to each Participant as if such
Participant had a Termination of Employment on the
effective date of such termination of the SERP.
6.1.3. After a Change In Control. After a Change in
Control, the Plan Statement cannot be amended or the SERP
terminated (as applied to Participants who are Participants on the
date of the Change in Control) unless:
(a) all benefits payable to or with respect to such
Participants (whether earned before or after the
Change in Control) have been paid in full, or
(b) eighty percent (80%) of all the Participants
determined as of the date of the Change in Control
give written consent to such amendment or
termination.
6.1.4. No Oral Amendments. No modification of the
terms of this Plan Statement shall be effective unless it is in
writing and signed on behalf of the Principal Sponsor by a person
authorized to execute such writing. No oral representation
concerning the interpretation or effect of this Plan Statement
shall be effective to amend the Plan Statement.
6.2 Spendthrift Provision. No Participant or surviving
spouse or beneficiary shall have the power to transmit, assign,
alienate, dispose of, pledge or encumber any benefit payable under
this SERP before its actual payment to such person. The Principal
Sponsor shall not recognize any such effort to convey any interest
under this SERP. No benefit payable under this SERP shall be
subject to attachment, garnishment, execution following judgment
or other legal process before actual payment to such person. This
section shall not prevent the Principal Sponsor from observing the
terms of a qualified domestic relations order as provided in
section 206(d) of ERISA.
6.3. Administrative Determinations. The Compensation
Committee shall make such determinations as may be required from
time to time in the administration of the SERP. The Compensation
Committee shall have the discretionary authority and
responsibility to interpret and construe the Plan Statement and to
determine all factual and legal questions under the SERP,
including but not limited to the entitlement of Participants and
beneficiaries, and the amounts of their respective interests.
Each interested party may act and rely upon all information
reported to them hereunder and need not inquire into the accuracy
thereof, nor be charged with any notice to the contrary. Such
determinations, interpretations, constructions and other decisions
of the Compensation Committee that are made before a Change in
Control shall be accorded the greatest deference possible in the
event of litigation. Such determinations, interpretations,
constructions and other decisions of the Compensation Committee
that are made after a Change in Control shall be accorded no
deference in the event of litigation.
6.4. Rules and Regulations. Any rule not in conflict or at
variance with the provisions hereof may be adopted by the
Compensation Committee.
6.5. Certifications. Information to be supplied or written
notices to be made or consents to be given by the Principal
Sponsor pursuant to any provision of this Plan Statement may be
signed in the name of the Principal Sponsor by any officer who has
been authorized to make such certification or to give such notices
or consents.
6.6. Errors in Computations. The Principal Sponsor shall not
be liable or responsible for any error in the computation of any
benefit payable to or with respect to any Participant resulting
from any misstatement of fact made by the Participant or by or on
behalf of any survivor to whom such benefit shall be payable,
directly or indirectly, to the Principal Sponsor, and used by the
Principal Sponsor in determining the benefit. The Principal
Sponsor shall not be obligated or required to increase the benefit
payable to or with respect to such Participant which, on discovery
of the misstatement, is found to be understated as a result of
such misstatement of the Participant. However, the benefit of any
Participant which is overstated by reason of any such misstatement
or any other reason shall be reduced to the amount appropriate in
view of the truth (and to recover any prior overpayment). If a
Participant shall notify the Principal Sponsor of an error in the
computation of a benefit and furnish substantiation of the nature
and extent of such error not later than three (3) years after the
payment of the benefit, the Principal Sponsor shall be obligated
to pay to the Participant any amount of additional benefit
resulting from the correction of such error.
SECTION 7
BENEFIT CLAIMS
7.1. Claims Procedure. The claims procedure set forth in this
Section 7.1 shall be the exclusive procedure for the disposition
of claims for benefits arising under the SERP until such time as a
Change in Control occurs. Without limiting the generality of this
provision, an application for benefits under Section 3 and an
objection to a forfeiture under Section 4 shall be processed as a
claim under this procedure.
7.1.1. Original Claim. Any employee, former employee or
beneficiary of such employee or former employee may, if he or she
so desires, file with the Compensation Committee a written claim
for benefits under the SERP. Within ninety (90) days after the
filing of such a claim, the Compensation Committee shall notify
the claimant in writing whether the claim is upheld or denied in
whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified
amount of additional time (but not more than one hundred eighty
days from the date the claim was filed) to reach a decision on the
claim. If the claim is denied in whole or in part, the
Compensation Committee shall state in writing:
(a) the specific reasons for the denial;
(b) the specific references to the pertinent provisions
of this Plan Statement on which the denial is
based;
(c) a description of any additional material or
information necessary for the claimant to perfect
the claim and an explanation of why such material
or information is necessary; and
(d) an explanation of the claims review procedure set
forth in this section.
7.1.2. Claims Review Procedure. Within sixty (60) days
after receipt of notice that the claim has been denied in whole or
in part, the claimant may file with the Board of Directors of the
Principal Sponsor a written request for a review and may, in
conjunction therewith, submit written issues and comments. Within
sixty (60) days after the filing of such a request for review, the
Board of Directors shall notify the claimant in writing whether,
upon review, the claim was upheld or denied in whole or in part or
shall furnish the claimant a written notice describing specific
special circumstances requiring a specified amount of additional
time (but not more than one hundred twenty days from the date the
request for review was filed) to reach a decision on the request
for review.
7.1.3. General Rules.
(a) No inquiry or question shall be deemed to be a
claim or a request for a review of a denied claim
unless made in accordance with the claims
procedure. The Compensation Committee may require
that any claim for benefits and any request for a
review of a denied claim be filed on forms to be
furnished by the Compensation Committee upon
request.
(b) All decisions on claims and on requests for a
review of denied claims shall be made by the
Compensation Committee or the Board of Directors,
as the case may be.
(c) the Compensation Committee and the Board of
Directors may, in its discretion, hold one or more
hearings on a claim or a request for a review of a
denied claim.
(d) A claimant may be represented by a lawyer or other
representative (at the claimant's own expense), but
the Compensation Committee and the Board of
Directors reserves the right to require the
claimant to furnish written authorization. A
claimant's representative shall be entitled to
copies of all notices given to the claimant.
(e) The decision of the Compensation Committee on a
claim and or the Board of Directors on a request
for a review of a denied claim shall be served on
the claimant in writing. If a decision or notice
is not received by a claimant within the time
specified, the claim or request for a review of a
denied claim shall be deemed to have been denied.
(f) Prior to filing a claim or a request for a review
of a denied claim, the claimant or his or her
representative shall have a reasonable opportunity
to review a copy of this Plan Statement and all
other pertinent documents in the possession of the
Compensation Committee.
SECTION 8
PLAN ADMINISTRATION
8.1. Principal Sponsor.
8.1.1. Officers. Except as hereinafter provided,
functions generally assigned to the Principal Sponsor shall be
discharged by its officers or delegated and allocated as provided
herein.
8.1.2. Chief Executive Officer. Except as hereinafter
provided, the Chief Executive Officer of the Principal Sponsor may
delegate or redelegate and allocate and reallocate to one or more
persons or to a committee of persons jointly or severally, and
whether or not such persons are directors, officers or employees,
such functions assigned to the Principal Sponsor generally
hereunder as the Chief Executive Officer may from time to time
deem advisable.
8.1.3. Board of Directors. Notwithstanding the
foregoing, the Compensation Committee shall have the exclusive
authority, which may not be delegated, to act for the Principal
Sponsor to amend this Plan Statement, to terminate this SERP, and
to determine eligibility to participate in the SERP under Section
2.
8.2. Conflict of Interest. If any officer or employee of the
Principal Sponsor or any Employer, or any member of the
Compensation Committee or any Employer to whom authority has been
delegated or redelegated hereunder shall also be a Participant in
the SERP, such Participant shall have no authority as such
officer, employee or member with respect to any matter specially
affecting such Participant's individual interest hereunder or the
interest of a person superior to him or her in the organization
(as distinguished from the interests of all Participants or a
broad class of Participants), all such authority being reserved
exclusively to the other officers, employees or members as the
case may be, to the exclusion of such Participant, and such
Participant shall act only in such Participant's individual
capacity in connection with any such matter.
8.3. Administrator. FINGERHUT COMPANIES, INC. shall be the
administrator for purposes of section 3(16)(A) of the Employee
Retirement Income Security Act of 1974.
8.4. Service of Process. In the absence of any designation to
the contrary by the Compensation Committee, the Secretary of the
Principal Sponsor is designated as the appropriate and exclusive
agent for the receipt of service of process directed to the SERP
in any legal proceeding, including arbitration, involving the
SERP.
8.5. IRC and ERISA Status. This SERP is intended to be a
nonqualified deferred compensation arrangement. The rules of
section 401(a) et seq of the Code shall not apply to this SERP.
The rules of section 3121(v) and section 3306(r)(2) of the Code
shall apply to this SERP. This SERP is adopted with the
understanding that it is in part an unfunded excess benefit plan
within the meaning of section 3(36) ERISA and is in part an
unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees as provided in sections 201(2), 301(3) and
401(a)(1) of ERISA. Each provision hereof shall be interpreted
and administered accordingly.
8.6. Effect on Other Plans. This SERP shall not alter,
enlarge or diminish any person's employment rights or obligations
or rights or obligations under Pension Plan or any other plan. It
is specifically contemplated that Pension Plan, Profit Sharing
Plan, Pension Excess Plan and Profit Sharing Excess Plan will,
from time to time, be amended and possibly terminated. All such
amendments and termination shall be given effect under this SERP
(it being expressly intended that this SERP shall not lock in the
benefit structures of Pension Plan, Profit Sharing Plan, Pension
Excess Plan and Profit Sharing Excess Plan as they exist at the
adoption of this SERP or upon the commencement of participation,
or commencement of benefits by any Participant).
SECTION 9
DISCLAIMERS
9.1. Term of Employment. Neither the terms of this Plan
Statement nor the benefits hereunder nor the continuance thereof
shall be a term of the employment of any employee. Except as
provided in Section 6 (after a Change in Control), the Principal
Sponsor and the Employers shall not be obliged to continue the
SERP. The terms of this Plan Statement shall not give any
employee the right to be retained in the employment of any
Employer.
9.2. Delegation. The Employers and their officers and the
members of their Boards of Directors shall not be liable for an
act or omission of another person with regard to a responsibility
that has been allocated to or delegated to such other person
pursuant to the terms of this Plan Statement or pursuant to
procedures set forth in this Plan Statement.
SCHEDULE I
PARTICIPATING EMPLOYERS
Effective as of January 1, 1996
EMPLOYER NAME EMPLOYER ID NUMBER
SI-1
APPENDIX A
ACTUARIALLY EQUIVALENT BENEFITS
When converting benefits to a single lump sum for payment to
a Participant, the benefit to be converted is the single life
annuity form payable at age sixty-five (65) years or the date as
of which it is determined, if later. When converting benefits to
a single lump sum for any other purpose, the benefit to be
converted shall be the benefit payable at the latest date such
benefit may commence. The factors to be used to convert any form
to a lump sum benefit (or to make the conversions into single life
annuities required by Section 1.2.5(c), (d) or (e)) shall be:
Interest Assumption: The compounded average yield on 30-year
Treasury securities for the five (5)
calendar years preceding the calendar year
including the year of the Participant's
Termination of Employment or death
(reduced, for the purpose of making the
conversions into single life annuities
required by Section 1.2.5(d) and (e) but
not for the purpose of making the
conversions into single life annuities
required by Section 1.2.5(c), to reflect
the highest federal marginal income tax
rate in effect as of such Termination of
Employment or death).
Mortality Assumption: The mortality rate determined
from the table prescribed by
the Secretary of the Treasury
under section
417(e)(3)(A)(ii)(I) of the
Code based on the prevailing
commissioners' standard table
used to determine reserves for
group annuity contracts.
Exhibit 10.x
FINGERHUT COMPANIES, INC.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of Plan. This plan shall be known as the
"Fingerhut Companies, Inc. Nonemployee Director Stock Option
Plan" and is hereinafter referred to as the "Plan." The
purpose of the Plan is to promote the interests of Fingerhut
Companies, Inc., a Minnesota corporation (the "Company"), by
enhancing its ability to attract and retain the services of
experienced and knowledgeable outside directors and by
providing an additional means for such directors to identify
with the interests of the Company's shareholders.
2. Administration.
(a) The Plan shall be administered by a committee (the
"Employee Directors Committee") comprised of all members of
the Board of Directors of the Company (the "Board of
Directors") who are officers or employees of the Company or
any of its subsidiaries. All questions of interpretation of
the Plan or of any options issued under it shall be
determined by the Employee Directors Committee and such
determination shall be final and binding upon all persons
having an interest in the Plan. Any or all powers and
discretion vested in the Employee Directors Committee under
this Plan may be exercised by any person or committee duly
authorized by the Employee Directors Committee.
(b) The Employee Directors Committee shall have
plenary authority in its discretion, but subject to the
express provisions of the Plan: (i) to determine the
purchase price of the Common Stock covered by each option,
(ii) to determine the directors to whom and the time or
times at which such options shall be granted and the number
of shares to be subject to each, (iii) to determine the
terms of exercise of each option, (iv) to amend or modify
the terms of any option with the consent of the optionee,
(v) to amend or interpret the Plan, (vi) to prescribe, amend
and rescind rules and regulations relating to the Plan,
(vii) to determine the terms and provisions of each option
agreement under the Plan (which agreements need not be
identical), and (viii) to make all other determinations
necessary or advisable for the administration of the Plan,
subject to the concurrent authority of the Board of
Directors under Section 17 hereof to amend the Plan and
exclusive authority of the Board of Directors under Section
17 hereof to terminate the Plan. The Employee Directors
Committee's determinations on the foregoing matters shall be
final and conclusive, unless otherwise disapproved by the
Board of Directors of the Company.
3. Participation in the Plan. Each director of the
Company shall be eligible to participate in the Plan unless
such director is an officer or employee of the Company or
any subsidiary of the Company. A director who has been
granted an option under this Plan may be granted additional
options under the Plan.
4. Stock Subject to the Plan. Subject to the
provisions of Section 14 hereof, the stock to be subject to
options under the Plan shall be authorized but unissued
shares of the Company's common stock, par value $.01 per
share (the "Common Stock"). Subject to the adjustment as
provided in Section 14 hereof, the maximum number of shares
on which options may be exercised under this Plan shall be
100,000 shares. If an option under the Plan expires, or for
any reason is terminated or unexercised with respect to any
shares, such shares shall be available for options
thereafter granted during the term of the Plan.
5. Nonqualified Stock Options. All options granted
under the Plan shall be nonqualified stock options which do
not qualify as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
6. Terms and Conditions of Options. Each option
granted under this Plan shall be evidenced by a written
agreement in such form as the Employee Directors Committee
shall from time to time approve, which agreements shall
comply with and be subject to the terms and conditions of
the Plan:
7. Term of Options. Each option and all rights and
obligations thereunder shall expire on the date determined
by the Employee Directors Committee and specified in the
option agreement. The Employee Directors Committee shall be
under no duty to provide terms of like duration for options
granted under the Plan, but the term of options granted
under the Plan may not extend more than fifteen (15) years
from the date of granting of such option.
8. Exercise of Options.
(a) The Employee Directors Committee shall have full
and complete authority to determine whether an option will
be exercisable in full at any time or from time to time
during the term thereof, or to provide for the exercise
thereof in such installments, upon the occurrence of such
events (such as termination of employment for any reason)
and at such times during the term of the option as the
Employee Directors Committee may determine and specify in
the option agreement.
(b) The exercise of any option granted hereunder shall
only be effective at such time as counsel to the Company
shall have determined that the issuance and delivery of
Common Stock pursuant to such exercise will not violate any
state or federal securities or other laws. An optionee
desiring to exercise an option may be required by the
Company, as a condition of the effectiveness of any exercise
of an option granted hereunder, to agree in writing that all
Common Stock to be acquired pursuant to such exercise shall
be held for his or her own account without a view to any
further distribution thereof, that the certificates for such
shares shall bear an appropriate legend to that effect and
that such shares will not be transferred or disposed of
except in compliance with applicable federal and state
securities laws.
(c) An optionee electing to exercise an option shall
give written notice to the Company of such election and of
the number of shares subject to such exercise. The full
purchase price of such shares shall be tendered with such
notice of exercise. Payment shall be made to the Company by
delivery of (A) cash (including check, bank draft or money
order), (B) shares of Common Stock already owned by the
optionee having a fair market value as of the date of
exercise equal to the full purchase price of the shares, (C)
written authorization for the Company to retain from the
total number of shares of Common Stock as to which the
option is exercised that number of shares having a fair
market value as of the date of exercise equal to the
aggregate exercise price of the options exercised, (D) any
combination of the foregoing methods of payment, or (E) such
other form of consideration as the Employee Directors
Committee may deem acceptable. For purposes of the
preceding sentence, the fair market value of Common Stock
tendered shall be determined as provided in Section 11 as of
the date of exercise.
9. Effect of Termination of Directorship or Death or
Disability.
(a) In the event that an optionee shall cease to be a
director of the Company for any reason other than such
person's gross and willful misconduct or such person's death
or disability, (as may be determined in the sole discretion
of the Employee Directors Committee) such optionee shall
have the right to exercise the option at any time within
seven months after such termination of directorship to the
extent of the full number of shares he or she was entitled
to purchase under the option on the date of termination,
subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
(b) In the event that an optionee shall cease to be a
director of the Company by reason of the optionee's gross
and willful misconduct during the course of his or her
service as a director of the Company, including but not
limited to wrongful appropriation of funds of the Company,
or the commission of a gross misdemeanor or felony, the
option shall be terminated as of the date of the misconduct
and the optionee shall have no further rights thereunder.
(c) If the optionee shall die while serving as a
director of the Company or within seven months after
termination of his or her directorship for any reason other
than the optionee's gross and willful misconduct or the
optionee shall become disabled (as may be determined in the
sole discretion of the Employee Directors Committee) while
serving as a director of the Company and such optionee shall
not have fully exercised the option, such option may be
exercised at any time within 12 months after the date of
such death or the onset of such disability by the optionee
or the optionee's legal representative, in the case of
disability, or by the personal representative(s),
administrator(s), or heir(s) of the optionee, in the case of
death, to the extent of the full number of shares the
optionee was entitled to purchase under the option on the
date of death, disability, or termination of directorship,
if earlier, and subject to the condition that no option
shall be exercisable after the expiration of the term of the
option.
10. Option Exercise Price. The option price for all
Options granted under the Plan shall be determined by the
Employee Directors Committee but shall not be less than 100%
of the fair market value per share of Common Stock as of the
date of grant of such option.
11. Fair Market Value of Common Stock. For purposes
of this Plan, the fair market value of the Common Stock as
of a given date shall be the closing price of the Common
Stock on the New York Stock Exchange on the trading date
immediately preceding such date. If the Common Stock is not
publicly traded on such date, the Employee Directors
Committee shall make a good faith attempt to determine such
fair market value and, in connection therewith, shall take
such actions and consider such factors as it deems necessary
or advisable.
12. Transfer Restrictions. No option granted under
the Plan or interest therein may be transferred, assigned,
pledged or hypothecated by the optionee during such
optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or
similar process, except that options shall be transferable
by the optionee: (a) by will or by the laws of descent and
distribution as provided in Section 9(c) hereof; (b) to any
child, stepchild, grandchild, parent, step-parent,
grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law
of the optionee, including adoptive relationships
("immediate family members"); (c) to charitable
organizations; or (d) to trusts for the benefit of immediate
family members of the optionee or charitable organizations.
Except as provided in Section 9 hereof with respect to
disability of the optionee, and except for options that have
been transferred in accordance with the provisions of this
Section 12, during the lifetime of the optionee an option
granted under this Plan shall be exercisable only by the
optionee.
13. Limitation of Rights
(a) No Right to Continue as a Director. Neither the
Plan, nor the granting of an option nor any other action
taken pursuant to the Plan, shall constitute, or be evidence
of, any agreement or understanding, express or implied, that
the Company will retain a director for any period of time,
or at any particular rate of compensation.
(b) No Shareholder Rights for Options. An optionee
shall have no rights as a shareholder with respect to the
shares covered by options until the date of the issuance to
such optionee of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for
which the record date is prior to the date such certificate
is issued.
14. Adjustments to Common Stock. If there shall be
any change in Common Stock through merger, consolidation,
reorganization, recapitalization, stock dividend (of
whatever amount), stock split or other changes in the
corporate structure, appropriate adjustments to the Plan and
outstanding options shall be made. In the event of any such
changes, adjustments shall include, where appropriate,
changes in the aggregate number of shares subject to the
Plan, the number of shares subject to outstanding options
and the option exercise prices thereof in order to prevent
dilution or enlargement of option rights.
15. Effective Date of the Plan. The Plan shall take
effect immediately upon its approval by the affirmative vote
of the majority of the directors of the Company at a duly
held meeting of the Board of Directors.
16. Time for Granting Options. Unless the Plan shall
have been terminated as provided in Section 17 hereof, the
Plan shall terminate upon the expiration of 10 years from
the date upon which it takes effect as provided in Section
15 hereof. No option may be granted after such termination,
but termination of the Plan shall not, without the consent
of the optionee, alter or impair any rights or obligations
under any option theretofore granted.
17. Amendment of the Plan. Either the Board of
Directors or the Employee Directors Committee may amend the
Plan in any respect whatsoever; provided however, that the
Board of Directors shall alter or impair any option
theretofore granted under the Plan without the consent of
the holder of the option. Notwithstanding the foregoing,
only the Board of Directors has the authority to amend the
Plan to increase the number of shares subject thereto or to
terminate the Plan.
18. Governing Law. The Plan and all determinations
made and actions taken pursuant hereto shall be governed by
the law of the State of Minnesota and construed accordingly.
EXHIBIT 11
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE FISCAL YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994
AND DECEMBER 31, 1993
(In thousands of dollars, except per share data)
1995 1994 1993
Primary
Net earnings (a) $ 50,858 $ 45,925 $ 75,328
=========== =========== ===========
Weighted average shares of
common stock outstanding 45,834,575 46,237,706 46,019,158
Common stock equivalents 2,644,396 4,032,713 4,082,581
Weighted average shares of
common stock and common
stock equivalents (b) 48,478,971 50,270,419 50,101,739
=========== =========== ===========
Primary earnings per share
of common stock and common
stock equivalents (a / b) $1.05 $.91 $1.50
=========== =========== ===========
Fully Diluted
Net earnings (c) $ 50,858 $ 45,925 $ 75,328
=========== =========== ===========
Weighted average shares of
common stock outstanding 45,834,575 46,237,706 46,019,158
Common stock equivalents 2,684,995 4,054,602 4,611,732
Weighted average shares of
common stock and common
stock equivalents (d) 48,519,570 50,292,308 50,630,890
=========== =========== ===========
Fully diluted earnings per
share of common stock and common
stock equivalents (c / d) $1.05 $.91 $1.49
=========== =========== ===========
Common stock equivalents for primary earnings per share are computed by the
treasury stock method using the average market price.
Common stock equivalents for fully diluted earnings per share are computed by
the treasury stock method using the ending market price or the average of the
fully diluted monthly amounts, whichever is higher.
Exhibit 13
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
FIVE-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
For the fiscal year ended
December 29, December 30, December 31, December 25, December 27,
1995 1994 1993(c) 1992 1991
Earnings data:
<S> <C> <C> <C> <C> <C>
Revenues $ 2,109,956 $ 1,934,385 $ 1,807,908 $ 1,606,114 $ 1,428,428
Earnings before income taxes (b) $ 76,306 $ 70,926 $ 111,879 $ 93,930 $ 81,398
Net earnings (b) $ 50,858 $ 45,925 $ 75,328 $ 61,806 $ 53,558
Net earnings as a percent of revenues (b) 2.4% 2.4% 4.2% 3.8% 3.7%
Per share:
Earnings (a) (b) $ 1.05 $ .91 $ 1.50 $ 1.19 $ 1.07
Dividends declared $ .16 $ .16 $ .16 $ .16 $ .16
At fiscal year-end
Financial position data:
Total assets $ 1,281,077 $ 1,097,933 $ 988,302 $ 925,649 $ 801,999
Total current debt $ 215,099 $ 336 $ 313 $ 333 $ 62,853
Long-term debt and capitalized lease,
less current portion $ 146,564 $ 246,516 $ 246,852 $ 247,190 $ 119,164
Total stockholders' equity $ 547,490 $ 500,950 $ 472,389 $ 399,591 $ 384,149
</TABLE>
[Photo] Bob Stay
Director of Mail Division,
Mora and Alexandria
(a) Based on a weighted average of 48,478,971; 50,270,419; 50,101,739;
51,937,936 and 49,960,546 shares of common stock and common stock equivalents
for the fiscal years ended December 29, 1995; December 30, 1994; December 31,
1993; December 25, 1992 and December 27, 1991, respectively.
(b) 1994 earnings before income taxes included a $29.9 million charge
($19.4 million after tax) relating to unusual items. 1995 earnings before
income taxes include an $8.0 million adjustment ($5.3 million after tax)
to these unusual items. See Note 3 to the Consolidated Financial Statements.
(c) In 1993, the Company sold certain assets of COMB Corporation and FDC,
Inc., a subsidiary of Figi's Inc.
Fingerhut Companies, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company experiences variances in quarterly results from year
to year that result from changes in the timing of its promotions,
the types of customers and products promoted and, to some extent,
variations in dates of holidays and the timing of the quarter
ends resulting from a 52/53 week fiscal year. Fiscal years 1995
and 1994 included 52 weeks compared to 53 weeks in 1993. In
addition, the individual cost components (product cost,
administrative and selling expenses, and provision for
uncollectible accounts) and gross margin as a percent of net
sales may vary from period to period due to the different types
of products, mail programs, and customers promoted.
Highlights of operations: For the fiscal year ended
Percent of net sales 1995 1994 1993
----- ---- ----
Finance income and other revenues 15.5% 12.6% 10.6%
Product cost 48.9 49.7 50.3
Administrative and selling expenses 41.4 40.8 37.9
Provision for uncollectible account 15.1 13.3 11.9
Percent of revenues
Discount on sale of accounts receivable 3.9% 2.8% 1.5%
Interest expense, net 1.2 1.3 1.9
Earnings before income taxes 3.6 3.7 6.2
Provision for income taxes 1.2 1.3 2.0
Net earnings 2.4 2.4 4.2
1995 COMPARED WITH 1994
The Company reported record revenues of $2.110 billion in 1995.
Revenues reflected increased sales from Fingerhut's existing
customer list and new customer acquisition programs as well as a
significant increase in finance income. The Company reduced
mailings to its existing customers in the second half of fiscal
1995 to increase sales per mailing and improve profitability.
The Company intends to continue this strategy in fiscal 1996 with
the expectation of reduced revenues and improved advertising
productivity. 1995 results also included higher provisions for
uncollectible accounts as well as higher administrative and
selling expenses as a result of increased paper and postage
prices.
The Company's net sales in 1995 were $1.826 billion compared to
$1.719 billion in 1994, an increase of 6 percent. Fingerhut
Corporation ("Fingerhut"), the Company's core business, had net
sales of $1.681 billion in 1995 compared to $1.577 billion in
1994, an increase of 7 percent. Net sales from Fingerhut's
existing customer list increased 6 percent to $1.399 billion
primarily as a result of a higher average order size and higher
sales per mailing. Net sales from Fingerhut's new customer
acquisition programs increased 10 percent in 1995 to $282 million
primarily due to increased mailings as well as higher average
order size. Net sales from Figi's Inc. ("Figi's") increased 18
percent in 1995 to $83 million compared to $70 million in 1994
due to an increase in mailings coupled with a higher average
order size and higher sales per mailing. Net sales from
Infochoice USA, Inc. (formerly USA Direct Incorporated)
("Infochoice") were $58 million in 1995 compared to $59 million
for 1994. Montgomery Ward Direct L.P., a 50 percent owned
affiliate accounted for under the equity method, had net sales of
$165 million compared to $188 million for 1994. Montgomery Ward
Direct's sales are not included as revenues in the Company's
consolidated financial statements.
Finance income and other revenues for the year were $283.6
million compared to $215.7 million in 1994. The increase was due
to net revenues from MasterCard r accounts issued by the
Company's subsidiary, Direct Merchants Credit Card Bank, National
Association ("Direct Merchants Bank"). These net revenues
include finance income, net of asset backed financing expense,
loan loss provisions, and administrative and other fees related
to the sale of credit card receivables. Fingerhut also
recognized increased finance income for the year as a result of
higher revenues from existing customers and the effect of
lengthened payment plans.
Product cost for the year was $892.8 million, or 48.9 percent of
net sales, compared to $854.5 million, or 49.7 percent of net
sales, during the prior year. The decrease as a percent of net
sales was due to cost efficiencies partially offset by margin
reductions in the second half of the year as a result of offering
lower retail prices to improve the customer value package.
Administrative and selling expenses in 1995 were $755.9 million,
or 41.4 percent of net sales, compared to $701.6 million, or 40.8
percent of net sales, in the prior year. Price increases for
paper and postage, increased investment in new customer
acquisition programs, as well as operating and account
acquisition expenses associated with Direct Merchants Bank
contributed to the higher ratio of expense to net sales in 1995.
These increases were partially offset by benefits realized due to
the Company's cost reduction program, 1994 operating expenses
associated with, and the cancellation of, S The Shopping Network
and provisions for corporate streamlining, as well as the partial
recovery in 1995 of these restructuring reserves.
The provision for uncollectible accounts in 1995 was $276.7
million, or 15.1 percent of net sales, compared with $229.4
million, or 13.3 percent of net sales, for the prior year. The
increase as a percent of net sales was due primarily to higher
delinquency levels experienced on both existing and new customer
receivables and an increase in new customer acquisitions which
have higher reserve requirements. In addition, provisions were
established for the portion of the MasterCard receivables that
remains on the Company's balance sheet.
Discount on sale of accounts receivable for the year was $82.4
million compared to $53.7 million for 1994. The increase
resulted primarily from higher short-term interest rates in 1995,
an increase in the amount of accounts receivable sold due to both
an increase in 1995 sales and the replacement of the Receivables
Transfer Agreement with the Fingerhut Master Trust in June 1994,
as well as the impact of extended pay plans.
Net interest expense for the year was $25.9 million compared to
$24.3 million in 1994. The increase was primarily due to the
higher utilization of the revolving credit agreement used to fund
normal business needs and to finance the growth of the MasterCard
portfolio, partially offset by the expiration of an interest rate
swap agreement in June 1994.
The effective tax rate for 1995 was 33.3 percent compared with
35.2 percent in the prior year. The decrease in the effective
tax rate was due to an increase in merchandise donations, as well
as a one-time benefit for prior years' net favorable resolution of
an Internal Revenue Service exam. These factors were partially
offset by additional state income taxes in 1995.
The above factors resulted in net earnings for 1995 of $50.9
million, or $1.05 per share, compared with $45.9 million, or $.91
per share, for 1994.
[BAR GRAPH]
Total Assets
(In millions)
1995 $1281.1
1994 $1097.9
1993 $ 988.3
1992 $ 925.6
1991 $ 802.0
[PHOTO] Roshani Narpaul
Manager, Capital & Lease
Accounting, Minnetonka
1994 COMPARED WITH 1993
The Company reported record revenues of $1.934 billion in 1994.
Net earnings of $45.9 million, or $.91 per share, were negatively
impacted by the fourth quarter after-tax charge of $19.4 million,
or $.39 per share, relating to the cancellation of its proposed
24-hour cable television shopping channel, substantial reduction
of its Infochoice infomercial subsidiary and provisions for
corporate streamlining. Also during the fourth quarter, the
intended purchaser of Figi's, a catalog marketer of specialty
foods and other gifts, was unable to complete its financing. As
a result, the Company reversed the effects of the sale, which
were recorded in the fourth quarter of 1993. This did not have a
material impact on earnings.
Net sales for the year were $1.719 billion compared to $1.634
billion in 1993. Excluding COMB Corporation ("COMB") and FDC,
Inc. ("FDC"), which the Company sold in 1993, net sales for the
1994 52-week period increased 11 percent from $1.554 billion in
1993, a 53-week period. Fingerhut had net sales of $1.577
billion in 1994 compared to $1.414 billion in 1993, an increase
of 12 percent. Net sales from Fingerhut's existing customer list
increased 13 percent to $1.321 billion primarily as a result of a
higher average order size and additional mailings, partially
offset by lower response per mailing. Net sales from Fingerhut's
new customer acquisition programs increased 5 percent in 1994 to
$256 million primarily due to a higher average order size and
increased mailings. Net sales from Figi's increased 6 percent in
1994 to $70 million compared to $66 million in 1993 as a result
of increased customer acquisitions. Net sales from Infochoice
decreased 16 percent in 1994 to $59 million compared to $70
million for 1993, resulting from less successful product
promotions. Montgomery Ward Direct had net sales of $188 million
compared to $116 million for 1993.
Finance income and other revenues for the year were $215.7
million compared to $173.9 million in 1993. The increase was due
to increased sales from Fingerhut's existing customers, longer
payment plans and a higher percent of accounts receivable sold
under the Fingerhut Master Trust.
Product cost for the year was $854.5 million, or 49.7 percent of
net sales, compared to $821.4 million, or 50.3 percent of net
sales, during the prior year. The decrease as a percent of net
sales was due to improved margins in the core business as a
result of improved buying, and the sale of COMB, which had a
higher product cost as a percent of net sales, partially offset
by provisions for the cancellation of S The Shopping Network and
scaling back Infochoice.
Administrative and selling expenses for 1994 were $701.6 million,
or 40.8 percent of net sales, compared to $619.0 million, or 37.9
percent of net sales, in the prior year. The increase was
primarily due to operating expenses associated with, and the
cancellation of, S The Shopping Network, scaling back Infochoice
and provisions for corporate streamlining, as well as planned
higher depreciation costs.
The provision for uncollectible accounts was $229.4 million, or
13.3 percent of net sales, compared with $194.5 million, or 11.9
percent of net sales, for the prior year. The increase as a
percent of net sales was due to the following three factors: the
sale of COMB and FDC, which had lower provisions for
uncollectible accounts as a percent of net sales, a higher
provision for uncollectible accounts on Fingerhut's existing
customer list and increased provisions related to scaling back
Infochoice.
Discount on sale of accounts receivable for the year was $53.7
million compared to $26.7 million for the comparable period in
1993. The increase resulted from higher short-term interest
rates, as well as an increase in the amount of accounts
receivable sold and the replacement of the Receivables Transfer
Agreement with the Fingerhut Master Trust.
Net interest expense for the year was $24.3 million compared to
$34.5 million in 1993. The decrease was primarily attributable
to the expiration of the interest rate swap agreements on June
30, 1993 and June 30, 1994.
The effective tax rate for 1994 was 35.2 percent compared with
32.7 percent in the prior year. In 1993, the Company recognized
a one-time benefit of $2.0 million on its deferred tax asset as a
result of the Omnibus Budget Reconciliation Act of 1993 ("the
Act"). Other factors contributing to the increase in the 1994
effective income tax rate included a provision for additional
state income taxes and the disallowance of certain deductions as
a result of the Act, partially offset by an increase in
merchandise donations.
The above factors resulted in net earnings for 1994 of $45.9
million, or $.91 per share, compared with $75.3 million, or $1.50
per share, for 1993.
[BAR GRAPH]
Working Capital
(In millions)
1995 $365.4
1994 $468.3
1993 $472.9
1992 $413.0
1991 $298.2
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations through internally generated
funds, the sale of accounts receivable pursuant to the Fingerhut
Master Trust and the Fingerhut Financial Services Master Trust
(the "Master Trusts"), borrowings under the Revolving Credit
Facility and issuance of long-term debt and common stock.
The proceeds from the sale of Fingerhut accounts receivable were
$1.254 billion and $1.096 billion for the years ending December
29, 1995 and December 30, 1994, respectively. Net proceeds
received from the sale of MasterCard receivables were $448.6
million as of December 29, 1995. The Company plans to support
future receivables growth through the sale and issuance of
additional certificates by the Master Trusts and through
borrowings under the Revolving Credit Facility.
The Revolving Credit Facility provides for aggregate commitments
of $400.0 million, which includes the issuance of up to $200.0
million in letters of credit. The commitment expires in October
1999. As of December 29, 1995, the Company had an outstanding
revolving credit balance of $115.0 million and outstanding
letters of credit of $4.6 million. As of December 30, 1994, the
Company had no borrowings under the Revolving Credit Facility but
had outstanding letters of credit of $5.8 million. Additional
outstanding open letters of credit under a separate agreement
aggregated $34.3 million and $34.9 million at December 29, 1995
and December 30, 1994, respectively.
The Company had an aggregate amount of fixed rate notes
outstanding of $245.0 million as of December 29, 1995 and
December 30, 1994. A total of $65.0 million of the notes mature
in June 1996 and an additional $35.0 million mature in August
1996. The Company believes it will be able to refinance these
notes prior to their maturity dates and on acceptable terms. In
addition, the Fingerhut Master Trust Series 1994-1 certificates
enter into amortization periods beginning in December 1996. The
Company believes the Fingerhut Master Trust will be able to issue
a new series of certificates to replace the amortizing
certificates.
[PHOTO] Melody Linkowski
Quality Control Manager,
St. Cloud
The Company used $29.1 million of cash for operations in 1995
compared with $92.4 million provided from operations in 1994.
This net $121.5 million increase in cash used for operations
reflected increased working capital requirements. The most
significant items affecting working capital were increases in
customer accounts receivable, promotional material and other
current assets, accounts payable, and deferred income taxes and a
decrease in accrued liabilities. The change in customer accounts
receivable from a $3.7 million source of cash in 1994 to a $112.6
million use of cash in 1995 resulted primarily from retained
receivables associated with MasterCard accounts issued by the
Company's subsidiary, Direct Merchants Bank. The change also
reflects an increase in the percent of accounts receivable that
could be sold in 1994 due to the replacement of the Receivables
Transfer Agreement with the Fingerhut Master Trust in June 1994.
Promotional material and other current assets increased $21.8
million in 1995 due to increased mailings and price increases for
paper and postage. Deferred income taxes increased as a result of
an increase in reserve provisions relating to accounts
receivable. The decrease in accrued liabilities was due to prior
year costs associated with canceling the launch of S The Shopping
Network, scaling back Infochoice and provisions for corporate
streamlining. The above factors were partially offset by a
$29.4 million increase in accounts payable due to expenses
incurred with respect to Direct Merchants Bank and the timing of
purchases and disbursements.
The Company's use of cash for investment activities of $94.4
million in 1995 increased $36.9 million compared to 1994 as a
result of capital expenditures related to the facility additions
discussed below.
Several facility additions were approved by the Company's Board
of Directors in 1994. Construction continued in 1995 on a
western distribution center in Spanish Fork, Utah, which began in
the third quarter of 1994. Capital spending through December 29,
1995 was $53.2 million. The remaining construction of this one
million square-foot facility in 1996 is projected to cost
approximately $6.8 million. The data and technology center in
Plymouth, Minnesota opened in the second quarter of 1995.
Capital spending through December 29, 1995 on the data center was
$25.3 million.
The owner of certain office and warehouse facilities leased to
the Company exercised its right to require the Company to
repurchase those facilities for approximately $14.1 million. The
Company completed this purchase on January 11, 1996.
Net cash provided by financing activities was $104.3 million in
1995 compared with $14.5 million used by financing activities in
1994. This net $118.8 million increase in cash provided by
financing activities was due primarily to $115.0 million in net
borrowings under the Revolving Credit Facility.
On January 25, 1996, the Company declared a cash dividend of $.04
per share, or an aggregate of $1.8 million, payable on February
22, 1996 to shareholders of record as of the close of business on
February 8, 1996.
During 1994, the Company's Board of Directors authorized the
repurchase of up to 2.5 million shares of the Company's common
stock that may be made from time to time at prevailing prices in
the open market or by block purchase and may be discontinued at
any time. The purchases are made within certain restrictions
relating to volume, price and timing in order to minimize the
impact of the purchase on the market for the Company's common
stock. During 1995, the Company repurchased at prevailing market
prices 214,100 shares of its common stock for an aggregate of
$3.2 million. Total purchases through December 29, 1995 were
1,021,500 shares for an aggregate of $16.6 million.
The Company believes it will have sufficient funds available to
meet current and future commitments. For further discussion of
the above financing arrangements, see the Notes to Consolidated
Financial Statements.
[BAR GRAPH]
Stockholders' Equity
(In millions)
1995 $547.5
1994 $500.9
1993 $472.4
1992 $399.6
1991 $384.1
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
Since the Company's inventory turns approximately four times a
year, the product cost reported in the financial statements, on a
first-in, first-out basis, would not have been materially
different from the product cost at current prices. Also, since
the Company does not rely on any particular product group or
brand, management believes that the Company can adjust its
product mix to reduce the effects of price changes on its overall
merchandise base.
Due to the timing of the Company's promotions, the Company is
generally able to reflect cost increases and decreases resulting
from the effects of inflation and foreign currency fluctuations
in its selling prices. In addition, most foreign purchase orders
are denominated in U.S. dollars. Accordingly, the results of
operations for the periods discussed have not been significantly
affected by these factors.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except per share data)
For the fiscal year ended
December 29, December 30, December 31,
1995 1994 1993
Revenues: ------------ ------------ ------------
Net sales $ 1,826,339 $ 1,718,647 $ 1,634,009
Finance income and other revenues 283,617 215,738 173,899
------------ ------------ ------------
2,109,956 1,934,385 1,807,908
Costs and expenses: ------------ ------------ ------------
Product cost 892,736 854,461 821,357
Administrative and selling expenses 755,891 701,582 619,009
Provision for uncollectible accounts 276,688 229,396 194,494
Discount on sale of accounts receivable 82,392 53,736 26,713
Interest expense, net 25,943 24,284 34,456
------------ ------------ ------------
2,033,650 1,863,459 1,696,029
------------ ------------ ------------
Earnings before income taxes 76,306 70,926 111,879
Provision for income taxes 25,448 25,001 36,551
------------ ------------ ------------
Net earnings $ 50,858 $ 45,925 $ 75,328
============ ============ ============
Earnings per share $ 1.05 $ .91 $ 1.50
============ ============ ============
Weighted average shares outstanding 48,478,971 50,270,419 50,101,739
============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
A S S E T S
December 29, December 30,
1995 1994
Current assets: ------------ ------------
Cash and cash equivalents $ 66,109 $ 85,382
Customer accounts receivable, net 464,176 351,605
Inventories, net 156,352 159,048
Promotional material 80,357 59,477
Deferred income taxes 131,035 116,755
Other 23,542 19,645
------------ ------------
Total current assets 921,571 791,912
Property and equipment, net 279,455 226,385
Excess of cost over fair value of net
assets acquired, net 44,047 44,321
Customer lists, net 11,201 12,601
Other assets 24,803 22,714
------------ ------------
$1,281,077 $1,097,933
============ ============
[PHOTO] Dave Jensen
Manager, Quality Assurance
Administration, Minnetonka
L I A B I L I T I E S
Current liabilities:
Accounts payable $ 185,475 $ 156,121
Accrued payroll and employee benefits 39,872 39,891
Other accrued liabilities 70,879 55,595
Accrued unusual charges 2,458 29,358
Revolving credit facility 115,000 -
Current portion of long-term debt 100,099 336
Current income taxes payable 42,380 42,327
------------ ------------
Total current liabilities 556,163 323,628
Long-term debt, less current portion 146,564 246,516
Deferred income taxes 23,096 21,762
Other non-current liabilities 7,764 5,077
------------ ------------
733,587 596,983
------------ ------------
S T O C K H O L D E R S ' E Q U I T Y
Preferred stock - -
Common stock 459 456
Additional paid-in capital 258,917 253,926
Earnings reinvested 288,114 246,568
------------ ------------
Total stockholders' equity 547,490 500,950
------------ ------------
$1,281,077 $1,097,933
============ ============
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
For the fiscal year ended
December 29, December 30, December 31,
1995 1994 1993
Cash flows from operating activities: ------------ ------------ -----------
Net earnings $ 50,858 $ 45,925 $ 75,328
Adjustments to reconcile net earnings to
net cash (used) provided by operating
activities:
Depreciation and amortization 47,103 37,693 29,708
Change in assets and liabilities,
excluding the effects of business
divestitures:
Customer accounts receivable, net (112,571) 3,662 (41,621)
Inventories, net 2,696 (7,019) (27,739)
Promotional material and
other current assets (21,777) (13,010) (9,872)
Accounts payable 29,354 32,194 (27,374)
Accrued payroll and employee benefits (19) 1,414 3,279
Accrued liabilities (6,921) 26,599 (8,504)
Current income taxes payable 1,407 16,464 8,914
Deferred and other income taxes (12,946) (40,664) 6,980
Other (6,267) (10,869) (640)
Net cash (used) provided by operating ------------ ------------ -----------
activities (29,083) 92,389 8,459
------------ ------------ -----------
Cash flows from investing activities:
Additions to property and equipment (94,442) (69,578) (51,771)
Proceeds from business divestitures - 12,039 26,889
------------ ------------ -----------
Net cash used by investing activities (94,442) (57,539) (24,882)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds from long-term debt - - 45,000
Repayments of long-term debt (381) (313) (45,402)
Revolving credit facility 115,000 - -
Repurchase of common stock (7,862) (8,706) -
Issuance of common stock 4,829 1,930 2,529
Cash dividends paid (7,334) (7,401) (7,364)
Net cash provided (used) by financing ------------ ------------ -----------
activities 104,252 (14,490) (5,237)
------------ ------------ -----------
Net (decrease) increase in cash and cash
equivalents (19,273) 20,360 (21,660)
Cash and cash equivalents at beginning
of year 85,382 65,022 86,682
------------ ------------ -----------
Cash and cash equivalents at end of year $ 66,109 $ 85,382 $ 65,022
============ ============ ===========
Supplemental noncash investing and financing activities:
Tax benefit from exercise of non-qualified stock
options and disqualified dispositions of ESPP
shares $ 1,354 $ 1,508 $ 2,305
Accrued stock repurchase $ - $ 4,695 $ -
The Company included in cash and cash equivalents liquid investments with
maturities of 15 days or less.
See accompanying Notes to Consolidated Financial Statements.
[PHOTO] Kathy Yurczyk
Senior Customer Service
Representative, St. Cloud
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands of dollars)
[PHOTO] Alicia Aguilar
Bilingual Outbound Telephone Sales Representative
Minnesota Telemarketing, Inc., Brooklyn Center
Common stock Additional
Number of Par paid-in Earnings
shares value capital reinvested Total
Balance, December 25, 1992 45,751,398 $ 458 $ 250,153 $ 148,980 $ 399,591
Exercise of stock options 397,050 3 4,831 - 4,834
Cash dividends paid - - - (7,364) (7,364)
Net earnings - - - 75,328 75,328
---------- ----- --------- ---------- -----------
Balance, December 31, 1993 46,148,448 461 254,984 216,944 472,389
Stock repurchase (807,400) (8) (4,493) (8,900) (13,401)
Exercise of stock options 211,025 2 3,033 - 3,035
Employee stock purchase plan 20,582 1 402 - 403
Cash dividends paid - - - (7,401) (7,401)
Net earnings - - - 45,925 45,925
---------- ----- --------- ---------- -----------
Balance, December 30, 1994 45,572,655 456 253,926 246,568 500,950
Stock repurchase (214,100) (2) (1,192) (1,974) (3,168)
Exercise of stock options 471,599 4 4,718 - 4,722
Employee stock purchase plan 119,568 1 1,465 (4) 1,462
Cash dividends paid - - - (7,334) (7,334)
Net earnings - - - 50,858 50,858
---------- ----- --------- ---------- -----------
Balance, December 29, 1995 45,949,722 $ 459 $ 258,917 $ 288,114 $ 547,490
=========== ====== ==================== ===========
See accompanying Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Fingerhut Companies, Inc. (the "Company") is a direct-to-the-consumer
marketing company selling a broad range of products and services to
moderate-to middle-income consumers via catalogs, telemarketing,
television and other media.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Company
and its wholly owned subsidiaries and the Company's investment in and 50
percent share of net earnings or losses of Montgomery Ward Direct, after
elimination of all material intercompany transactions and balances. At
December 29, 1995 and December 30, 1994, the Company's principal
subsidiaries were Fingerhut Corporation ("Fingerhut"), Figi's Inc.
("Figi's") and Infochoice USA, Inc. (formerly USA Direct Incorporated)
("Infochoice").
At December 29, 1995, the Company's Financial Services segment, which
consists primarily of net revenues from MasterCard accounts issued by the
Company's subsidiary, Direct Merchants Credit Card Bank, National
Association ("Direct Merchants Bank"), and net retail revenues from the
sale of extended service plans to the Company's customers, represented a
material portion of the Company's financial position. See Note 18 for
further discussion.
Reclassifications have been made to prior years' Consolidated Financial
Statements whenever necessary to conform to the current year's
presentation.
Fiscal Year
The fiscal years ended December 29, 1995 and December 30, 1994 included
52 weeks. The fiscal year ended December 31, 1993 included 53 weeks.
Revenue Recognition
Substantially all sales are made on the installment contract basis.
Finance income on installment contracts (net of estimated returns and
exchanges, allowances, uncollectible amounts and collection costs) is
recognized using an effective interest method over the weighted average
of the contract periods (which approximates seventeen months) or when
collected, whichever is faster. When accounts receivable are sold (see
Note 4), finance income, net, is recognized.
Sales are recorded at the time of shipment and a provision for
anticipated merchandise returns, net of exchanges, is recorded based upon
historical experience. The provision charged against sales for 1995,
1994 and 1993 amounted to $267.7 million, $275.3 million and $253.2
million, respectively.
Amounts billed to customers for shipping and handling of orders are
netted against the associated costs.
Finance income on credit card receivables is accrued as earned and is
classified on the balance sheet, to the extent not collected, with the
related receivables. Annual credit card fees are deferred and recognized
as income, net of account origination costs, over 12 months on a
straight-line basis.
Earnings Per Share
Earnings per share is computed by dividing net earnings by the weighted
average shares of common stock and common stock equivalents outstanding
during the year. The dilutive effect of the potential exercise of
outstanding options to purchase shares of common stock is calculated
using the treasury stock method.
Inventories
Inventories, principally merchandise, are stated at the lower of cost (as
determined on a first-in, first-out basis) or market. The Company has
established a reserve for excess and obsolete inventory, which is based
on management's best estimates of the amount of inventory which is slow
moving or subject to obsolescence. The estimates are subject to change
in the near term, depending on changes in economic conditions and other
factors.
Promotional Material
Promotional material primarily includes free gifts and items in inventory
associated with direct response advertising (paper, printing and
postage).
The cost of mailed or aired direct response advertising is deferred and
expensed over the period during which the orders are expected, generally
one to four months. The amount of mailed or aired direct response
advertising included in the Consolidated Statement of Financial Position
is not material. The cost of non-direct response advertising is expensed
as incurred.
Credit Card Origination Costs
The Company defers certain credit card origination costs in accordance
with Statement of Financial Accounting Standards No. 91, "Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Costs of Leases" (FAS 91) and the consensus
reached at the Emerging Issues Task Force (EITF) meeting of the Financial
Accounting Standards Board regarding the amortization period for net
deferred credit card origination costs (EITF Issue 92-5). Eligible
direct loan origination costs include costs associated with successful
credit card acquisitions that are incurred by the Company in transactions
with independent third parties and certain costs relating to loan
underwriting and the preparation and processing of loan documents.
Credit card origination costs that qualify for deferral under FAS 91 are
netted against the related credit card fee, if any, and the net amount is
amortized on a straight-line basis over the cardholder's privilege
period, generally 12 months, as an adjustment to "Finance income and
other revenues."
Property and Equipment
Property and equipment are stated at cost and depreciated or amortized on
a straight-line basis over their estimated economic useful lives (30
years for buildings; five years for software; three to 10 years for
machinery and equipment, furniture and fixtures; and over the estimated
useful life of the property or the life of the lease, whichever is
shorter, for leasehold improvements). The Company capitalizes software
developed for internal use that represents major enhancements and
replacements of operating and management information systems.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The Company adopted the provisions of FAS 121 in fiscal 1995.
Intangible Assets
The excess of cost over fair value of net assets acquired is amortized on
a straight-line basis over 40 years.
The ongoing cost of developing and maintaining customer lists is charged
to operations as incurred. Customer lists obtained by the acquisition of
a business are capitalized at fair market value and amortized over their
estimated useful lives, approximately 15 years.
At each balance sheet date, management assesses whether there has been an
impairment in the carrying value of intangible assets, primarily by
comparing current and projected sales, operating income and annual cash
flows with the related annual amortization expense. Based on this
assessment, management has concluded that intangible assets are fully
realizable.
Income Taxes
The Company provides for deferred taxes on the temporary differences
between the financial statement carrying amounts and the tax bases of
assets and liabilities that will result in future taxable or deductible
amounts. The Company provides for deferred taxes at the enacted tax rate
that is expected to apply when the temporary differences reverse.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Stock-Based Employee Compensation
The Company follows the provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for stock-based employee
compensation arrangements. Under the guidelines of Opinion 25,
compensation cost for stock-based employee compensation plans is
recognized based on the difference, if any, between the quoted market
price of the stock on the date of grant and the amount an employee must
pay to acquire the stock. The Company plans to implement the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," in fiscal year 1996 and retain
its current accounting method for stock-based employee compensation.
[PHOTO] Harry Anders
Media Coordinator,
Photo Studio, Plymouth
Credit Card Receivables Sold and Serviced with Limited Recourse and
Securitization Income
Certain credit card receivables of Direct Merchants Bank have been
securitized and sold to investors with limited recourse (See Note 4).
The related servicing rights to these receivables are retained by Direct
Merchants Bank. The sale of these receivables has been recorded in
accordance with Statement of Financial Accounting Standards No. 77,
"Reporting by Transferors for Transfers of Receivables with Recourse."
Upon sale, the receivables are removed from the balance sheet, and a gain
on sale is recognized for the difference between the carrying value of
the receivables and the adjusted sales proceeds. The adjusted sales
proceeds are based on a present value estimate of future cash flows to be
received over the life of the receivables, net of certain funding and
servicing costs. Future cash flows are modified based on estimates of
the impacts of prepayments on receivables sold, normal servicing fees and
other factors. The resulting gain is further reduced by establishing a
reserve for estimated probable loan losses under the recourse provisions.
Gains on sale, recourse provisions and servicing cash flows on
receivables are reported in the accompanying statements of earnings as
"Finance income and other revenues."
3. UNUSUAL ITEMS
In the fourth quarter of 1994, the Company recorded an after-tax charge
of $19.4 million, or $.39 per share, relating to the cancellation of its
proposed 24-hour cable television shopping channel. The $29.9 million
pre-tax charge covered the costs of closing down S The Shopping Network
and substantially scaling back Infochoice, as well as provisions for
corporate streamlining. The charge included $6.8 million for the cost of
severance and related employee benefits to approximately 100 employees
throughout all levels of the Company and $23.1 million for the write-off
and disposition of assets and anticipated costs of fulfilling contractual
commitments. These activities were substantially completed at December
29, 1995. A summary of the changes in the Company's reserve for unusual
charges is as follows:
[PHOTO] Monica Nayenga
Packaging Specialist,
St. Cloud
<TABLE>
<CAPTION>
Accrued unusual Accrued unusual
charges at Reserves Reserve charges at
(In thousands of dollars) December 30, 1994 utilized adjustments December 29, 1995
<S> <C> <C> <C> <C> <C>
Product costs $ 5,253 $ (2,226) $ (2,295) $ 732
Administrative and selling expenses 20,771 (16,287) (2,761) 1,723
Provision for uncollectible accounts 3,334 (431) (2,900) 3
--------- --------- --------- ---------
$ 29,358 $(18,944) $ (7,956) $ 2,458
========= ========= ========= =========
</TABLE>
In December 1993, the Company signed a letter of intent to sell certain
assets of Figi's. The effects of the Figi's transaction were recorded in
the fourth quarter of 1993. During the fourth quarter of 1994, the
intended purchaser of Figi's was unable to complete its financing. As a
result, the Company reversed the effects of the sale. This did not have a
material impact on 1994 net earnings.
In 1993, the Company sold certain assets of COMB Corporation and FDC, Inc.
The net financial results of these divestitures did not have a material
impact on net earnings.
4. SALE OF ACCOUNTS RECEIVABLE
Fingerhut Master Trust
In June 1994, the Fingerhut Master Trust issued the Series 1994-1
certificates which raised $900.0 million of proceeds. The Fingerhut Master
Trust allows Fingerhut to sell, on a continuous basis, an undivided
interest in a pool of customer accounts receivables, subject to meeting
certain eligibility requirements. In November 1994, the Fingerhut Master
Trust issued the Series 1994-2 variable funding certificates with maximum
proceeds of $490.4 million. The Series 1994-1 certificates enter into
amortization periods beginning December 1996. In May 1995, the Company
amended the Series 1994-2 Supplement to extend the life of the Series
1994-2 certificates with amortization periods beginning in May 1999.
The Fingerhut Master Trust, which replaced the Receivables Transfer
Agreement in June 1994, allowed Fingerhut to sell a greater percentage of
its receivables. The proceeds from the sale of accounts receivable were
$1.254 billion and $1.096 billion for the years ending December 29, 1995
and December 30, 1994, respectively. The Company's retained interest in
the Fingerhut Master Trust was approximately $186.1 million and $184.2
million as of December 29, 1995 and December 30, 1994, respectively. The
retained interest is included in the Company's Statements of Financial
Position under "Customer accounts receivable, net."
"Discount on sale of accounts receivable" is comprised of the interest,
discount and administrative and other fees paid or due to the purchasers of
the accounts receivable sold. The discount, determined under the Fingerhut
Master Trust and the Receivables Transfer Agreement, approximates the
prevailing short-term London Inter-Bank Offered Rate (LIBOR) and commercial
paper rates for high grade unsecured notes, respectively, plus
administrative fees. The rates (including administrative fees) applicable
to receivables sold as of December 29, 1995 and December 30, 1994 were 6.3
percent.
The Company has included in "Other accrued liabilities" the estimated
expenses related to the subsequent collections of the receivables sold
($19.8 million and $18.5 million for 1995 and 1994, respectively).
Fingerhut Financial Services Master Trust
In May 1995, the Fingerhut Financial Services Master Trust (the "FFS Master
Trust") was established. The FFS Master Trust allows the Company to sell,
on a continuous basis, an undivided interest in a pool of MasterCard
receivables generated or acquired by Direct Merchants Bank. In May 1995,
the FFS Master Trust issued the Series 1995-1 variable funding certificates
with maximum proceeds of $512.6 million. The Series 1995-1 certificates
enter into amortization periods beginning in May 1999.
The proceeds generated from the sale of MasterCard receivables to the FFS
Master Trust were $448.6 million, of which $25.8 million was deposited in
an investor reserve account held by the trustee of the FFS Master Trust for
the benefit of the Trust's certificate holders. The Company's retained
interest in the FFS Master Trust was $87.7 million. The retained interest
is included in the Company's Statement of Financial Position under
"Customer accounts receivable, net."
A credit risk exists for losses on receivables in which the certificate
purchasers have an undivided interest, up to the amount of Fingerhut's
retained interest in the Fingerhut Master Trust and the FFS Master Trust.
Any losses beyond that level are the responsibility of the certificate
purchasers.
5. CUSTOMER ACCOUNTS RECEIVABLE
Substantially all of the Company's customer accounts receivable were
generated by Fingerhut, Direct Merchants Bank and Figi's. Fingerhut uses
fixed-term, fixed-payment installment plans with terms up to 36 months
(excluding deferred billing periods of generally four to five months) and
finance charge rates ranging from 18 percent to 25.9 percent. Direct
Merchants Bank grants MasterCard revolving lines of credit which typically
include an annual fee and floating rates of interest ranging from 15
percent to 22.5 percent. Figi's uses fixed-term, fixed-payment plans with
terms up to three months (excluding deferred billing periods of up to
approximately three months) with no finance charge. Customer accounts
receivable are classified as current assets and include some which are due
after one year, consistent with industry practice. Customer accounts
receivable, net of amounts sold, consists of the following:
(In thousands of dollars) 1995 1994
Customer installment receivables $ 511,174 $ 484,158
Reserve for uncollectible accounts, net of
anticipated recoveries (105,048) (81,271)
Reserve for returns and exchanges (13,442) (14,889)
Other reserves (20,192) (17,223)
---------- ----------
Net collectible amount 372,492 370,775
Unearned finance income (24,885) (19,170)
---------- ----------
Customer installment receivables, net 347,607 351,605
---------- ----------
Credit card receivables 122,567 -
Reserve for uncollectible accounts, net of
anticipated recoveries (5,300) -
Other reserves (698) -
---------- ----------
Credit card receivables, net 116,569 -
---------- ----------
Total Customer accounts receivable, net $ 464,176 $ 351,605
========== ==========
Other reserves for customer installment receivables consist primarily of
allowances for anticipated adjustments of finance charges billed to
customers (due to earlier than scheduled payment) and anticipated costs
required to collect customer accounts.
Other reserves for credit card receivables consist primarily of allowances
for anticipated adjustments of finance charges billed to certain customers
(due to unemployment and disability) and adjustments to principal and
finance charges billed to certain customers (due to death) under a debt
waiver plan offered to customers. These reserves are treated as a
reduction of receivables in the Consolidated Statement of Financial
Position as payments under the plan are generally used to reduce
outstanding receivables.
The above reserves represent management's best estimates of the amounts not
expected to be collected. A change in economic conditions could have a
significant impact on the Company's target market, which consists of
moderate-to middle-income consumers. As such, the reserve estimates are
subject to change in the near term.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
(In thousands of dollars) 1995 1994
Land and improvements $ 7,267 $ 4,981
Buildings and leasehold improvements 96,340 65,511
Construction in progress 53,679 39,176
Machinery and equipment 125,148 101,315
Software 107,715 90,492
Other, principally furniture and fixtures 19,377 14,922
---------- ----------
409,526 316,397
Less: Accumulated depreciation (85,603) (62,353)
Accumulated amortization of software (44,468) (27,659)
---------- ----------
$ 279,455 $ 226,385
========== ==========
Software amortization expense recorded in 1995, 1994 and 1993 was $16.8
million, $14.3 million and $10.5 million, respectively.
During 1994 and 1995, the Company capitalized $53.2 million relating to the
construction of the new western distribution center. The remaining
construction of this one million square-foot facility in 1996 is projected
to cost approximately $6.8 million. Management does not plan to utilize
this facility in fiscal year 1996. FAS 121 requires that long-lived assets
to be held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows is
less than the carrying amount of the asset, an impairment loss must be
recognized. Based on management's best estimates, the undiscounted net
future cash flows of the western distribution center are greater than its
carrying value. Therefore, the capitalized value of the western
distribution center is not considered impaired in accordance with FAS 121.
7. REVOLVING CREDIT FACILITY
The Revolving Credit Facility provides for aggregate commitments of $400.0
million, which includes the issuance of up to $200.0 million in letters of
credit. The Revolving Credit Facility expires in October 1999. The
proceeds from borrowings under the Revolving Credit Facility are to be used
by the Company to provide for working capital and other general corporate
purposes. The Company's obligations under the Revolving Credit Facility
are secured by a pledge of the capital stock of substantially all of the
Company's subsidiaries. At December 29, 1995, the Company had an
outstanding revolving credit balance of $115.0 million. As of December 30,
1994, the Company had no outstanding borrowings under the Revolving Credit
Facility. The interest rate on borrowings was 7.1 percent and 8.5 percent
at December 29, 1995 and December 30, 1994, respectively. The outstanding
portion of open letters of credit, primarily established to facilitate
international merchandise purchases, was not reflected in the accompanying
financial statements and aggregated $39.0 million at December 29, 1995 and
$40.7 million at December 30, 1994.
[PHOTO] Julie Bencene-Dyer
Assistant Manager, Human Resources,
Tennessee Distribution, Inc.
8. LONG-TERM DEBT
Long-term debt and related maturity dates are as follows:
(In thousands of dollars)
Private placements:
Senior Notes Maturity date Interest rate 1995 1994
Series A June 1996 9.81% $ 65,000 $ 65,000
Series B December 1997 10.12% 25,000 25,000
Series C August 1996 9.74% 20,000 20,000
Series D August 1996 6.96% 15,000 15,000
Series A Unsecured June 2002 8.92% 60,500 60,500
Series B Unsecured June 2004 8.92% 14,500 14,500
Series C Unsecured August 2000 6.83% 45,000 45,000
Other indebtedness (due in various installments through
November 2014; interest at varying rates ranging from
5.87% to 8.5% at December 29, 1995) 1,663 1,852
---------- ----------
246,663 246,852
Current portion of long-term debt (100,099) (336)
---------- ----------
$ 146,564 $ 246,516
========== ==========
The Senior Notes are secured by a pledge of the capital stock of
substantially all of the Company's subsidiaries.
Scheduled annual maturities due on long-term debt at December 29, 1995 were
as follows:
(In thousands of dollars)
1996 $ 100,099
1997 $ 25,084
1998 $ 84
1999 $ 67
2000 $ 45,057
Thereafter $ 76,272
The Senior Notes contain covenants restricting the payment of dividends.
The maximum amount of dividends the Company was permitted to pay at
December 29, 1995 was $99.7 million.
9. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
This footnote discloses the fair value of all financial instruments, both
assets and liabilities, recognized and not recognized, in the Consolidated
Statements of Financial Position for which it is practicable to estimate
fair value.
Quoted market prices generally are not available for all of the Company's
financial instruments. Accordingly, fair values are based on judgments
regarding current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates involve
uncertainties and matters of judgement, and therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
A description of the methods and assumptions used to estimate the fair
value of each class of the Company's financial instruments is as follows:
Cash and cash equivalents, Accounts payable, Accrued payroll and employee
benefits, Other accrued liabilities and Accrued unusual charges
The carrying amounts approximate fair value due to the short maturity of
these instruments.
Customer accounts receivable, net
Installment receivables: Since the average collection period exceeds 90
days, the discounted present value of expected future cash flows from the
collection of the receivables and related deferred finance income was
calculated and it was determined that the carrying amount approximates fair
value.
Credit card receivables: Currently, credit card receivables are originated
with variable rates of interest, with interest rate spreads that differ
based on the related risk of such receivables. Thus, carrying value
approximates market value. However, this valuation does not include the
value that relates to estimated cash flows generated from new loans from
existing customers over the life of the cardholder relationship.
Accordingly, the aggregate fair value of the credit card receivables does
not represent the underlying value of the established cardholder
relationships.
Sale of accounts receivable
The carrying amount of the Company's retained interest in the Fingerhut
Master Trust and the FFS Master Trust approximates fair value, as it was
determined that "Customer accounts receivable, net" approximates fair
value.
Long-term debt
The fair value of the Company's long-term debt was estimated based on the
amount of future cash flows associated with each instrument discounted
using the current rates offered to the Company for similar debt instruments
of comparable maturity.
Interest rate cap and swap agreements
The fair values of interest rate cap and swap agreements were obtained from
dealer quoted prices. These values represent the estimated amount the
Company would pay to terminate the agreements, taking into consideration
current interest rates and the current creditworthiness of the
counterparties.
The estimated fair values of the Company's financial instruments are
summarized as follows:
1995 1994
Carrying Estimated Carrying Estimated
(In thousands of dollars) amount fair value amount fair value
Cash and cash equivalents $ 66,109 $ 66,109 $ 85,382 $ 85,382
Customer accounts receivable, net $ 464,176 $ 464,176 $ 351,605 $ 351,605
Sale of accounts receivable $ 273,800 $ 273,800 $ 184,200 $ 184,200
Long-term debt $ 246,663 $ 259,373 $ 246,852 $ 243,335
Interest rate swap agreements
in a net payable position $ - $ 10,598 $ - $ -
Interest rate cap agreements $ 6,748 $ 2,848 $ 7,887 $ 6,185
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN
TRADING
The Company enters into interest rate cap and swap agreements to hedge its
economic exposure to fluctuating interest rates previously associated with
the Receivables Transfer Agreement and currently associated with the
floating rate certificates issued by the Fingerhut Master Trust and the
FFS Master Trust. Any premiums paid for these agreements are amortized to
"Discount on sale of accounts receivable" if related to customer
installment receivables or "Finance income and other revenues" if related
to credit card receivables, where the economic exposure to fluctuating
interest rates exists.
During 1990, the Company entered into interest rate swap agreements for
notional amounts totaling $260.0 million. The agreements exchanged a
floating rate, which approximated the prevailing short-term commercial
paper rate, for a fixed interest rate of 9.5 percent. On June 30, 1993,
$160.0 million of the interest rate swap agreements expired. The
remaining $100.0 million expired on June 30, 1994.
The Fingerhut Master Trust Series 1994-1 floating rate certificates of
$900.0 million contain imbedded interest rate caps ranging from 11.0
percent to 11.7 percent. In December 1994, the Company entered into a
$500.0 million one year corridor cap which capped LIBOR at 6.5 percent.
This agreement expired December 29, 1995.
The Fingerhut Master Trust Series 1994-2 certificates, initially issued in
November 1994, required a six-year agreement which effectively capped
LIBOR at 11.2 percent on a notional amount varying up to $490.4 million
over the life of the agreement. In connection with the amendment of
Series 1994-2 in May 1995, an additional two and one-half year, 11.2
percent interest rate cap was required for up to a notional amount of
$209.7 million.
In connection with the issuance of the $512.6 million FFS Master Trust
Series 1995-1 certificates in May 1995, the Company entered into an eight-
year agreement effectively capping short-term LIBOR at 11.2 percent for
the floating notional amount of the certificates.
In June and July 1995, the Company entered into several interest rate
corridor swap agreements with total notional amounts of $900.0 million.
These agreements exchange an obligation to pay floating LIBOR of up to
11.2 percent for an obligation to pay fixed interest rates. The fixed
interest rate obligation is approximately 5.8 percent on a $400.0 million
notional amount and approximately 5.7 percent on the remaining $500.0
million notional amount. These agreements expire in July 1998.
For interest rate cap and swap transactions, the contract or notional
amounts do not represent exposure to credit loss. Entering into interest
rate cap and swap agreements involves the risk of dealing with
counterparties and their ability to meet the terms of the contracts.
Notional principal amounts often are used to express the volume of these
transactions, but the amounts potentially subject to credit risk are much
smaller.
10. INTEREST EXPENSE
Net interest expense was as follows:
(In thousands of dollars) 1995 1994 1993
Interest expense $ 27,120 $ 25,711 $ 34,852
Interest income (1,177) (1,427) (396)
--------- --------- ---------
Net interest expense $ 25,943 $ 24,284 $ 34,456
========= ========= =========
The Company paid interest of $24.2 million in 1995, $25.1 million in 1994
and $45.1 million in 1993.
11. OPERATING LEASES
Rental expense for both cancelable and non-cancelable operating leases,
(principally for office and warehouse facilities and computer equipment)
for fiscal years 1995, 1994 and 1993 was $38.6 million, $39.8 million and
$39.1 million, respectively. Future minimum annual rentals at December
29, 1995, under non-cancelable operating leases are as follows:
(In thousands of dollars)
1996 $25,241
1997 $19,668
1998 $ 7,954
1999 $ 1,639
2000 $ 817
The Company leased certain office and warehouse facilities (the
"properties") from a former affiliated company. Annual rental expense for
the properties in 1995, 1994 and 1993 was $1.7 million. The lessor
exercised its right to require the Company to purchase the properties for
approximately $14.1 million. The Company completed the purchase on
January 11, 1996.
The Company also leases office space for one of its telemarketing centers
and warehouse space from a partnership owned by various members of the
immediate family of one of the Company's Directors. Rental expense for
1995, 1994 and 1993 was $1.9 million, $2.1 million and $0.8 million,
respectively.
12. EMPLOYEE BENEFIT PLANS
The Company maintains two non-contributory, defined benefit pension plans
which cover substantially all full-time non-union employees. The plans
provide monthly retirement benefits to eligible participants based upon
years of service and level of compensation. The Company's funding policy
is to make an annual contribution equal to, or exceeding, the minimum
required by the Employee Retirement Income Security Act of 1974. The
actuarial present value of the benefit obligation and the funded status of
the plans were as follows:
(In thousands of dollars) 1995 1994
Actuarial present value of benefit obligations:
Vested benefits $18,726 $12,459
Non-vested benefits 1,676 1,398
-------- --------
Accumulated benefit obligation 20,402 13,857
Effect of future compensation increases 9,289 6,285
-------- --------
Projected benefit obligation 29,691 20,142
Plan assets at fair value 19,855 14,450
-------- --------
Unfunded projected benefit obligation 9,836 5,692
Unrecognized prior service cost (108) (71)
Unrecognized net (loss) gain (892) 2,708
Additional liability 32 -
-------- --------
Accrued pension cost $ 8,868 $ 8,329
======== ========
Plan assets at December 29, 1995 and December 30, 1994 were primarily
invested in an equity fund.
The actuarial present value of the projected benefit obligations
represents the present value of benefits to be paid in the future under
current provisions of the plan based on accumulated service to date and
assuming future annual pay increases of 5.5 percent in 1995 and 1994.
Projected benefits have been discounted using rates of 7.25 percent and
8.50 percent for 1995 and 1994, respectively. In determining pension
expense, the assumed long-term rate of return on plan assets was 9.5
percent for 1995, 1994 and 1993. The Company's non-union pension plans
have vesting periods of five years.
The components of pension expense for non-union employees were as follows:
(In thousands of dollars) 1995 1994 1993
Benefit earned during the period $ 1,990 $ 2,460 $ 1,984
Interest accrued on projected benefit
obligation 1,828 1,822 1,448
Actual return on assets (4,360) (262) (1,577)
Deferred gain (loss) 2,875 (1,038) 472
Amortization of prior service cost 7 5 20
Amortization of net (gain) loss (85) 44 -
-------- -------- -------
Pension expense for the period $ 2,255 $ 3,031 $ 2,347
======== ======== =======
Additionally, the Company participates in a multi-employer pension plan
for all union employees. The plan provides monthly retirement benefits to
eligible participants based upon years of service. The plan is funded
with contributions made in accordance with negotiated labor contracts.
The pension expense related to this plan for 1995, 1994 and 1993 was $1.5
million, $1.6 million and $1.3 million, respectively.
The Company also has several defined contribution plans (some of which
have, or are limited to, 401(k) provisions) covering substantially all
non-union employees. Employer contributions to the plans are
discretionary and are determined by the Board of Directors for each of the
individual companies. The maximum contribution allowed is 15 percent of
each participant's eligible compensation. The cost to the Company of
these plans was $11.7 million, $11.2 million and $14.1 million for 1995,
1994 and 1993, respectively.
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 112 ("FAS 112"), "Employers' Accounting for Postemployment Benefits."
The impact of FAS 112 was not significant to the Company's financial
statements.
[PHOTO] Kelly Fuchs
Inventory Clerk,
St. Cloud
13. INCOME TAXES
The provision for income taxes consisted of the following:
(In thousands of dollars) 1995 1994 1993
Currently payable:
Federal $ 36,072 $ 62,645 $ 23,407
State 1,750 1,139 611
Deferred (12,374) (38,783) 12,533
--------- --------- --------
$ 25,448 $ 25,001 $ 36,551
========= ========= ========
The Company's effective income tax rate differed from the U.S. federal
statutory rate as follows:
1995 1994 1993
U.S. federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 1.4 .7 .5
Merchandise donations (3.1) (2.6) (.9)
Effect of change in federal tax rate on net
deferred income tax asset - - (1.7)
Other, net - 2.1 (.2)
------ ------ ------
Effective income tax rate 33.3% 35.2% 32.7%
====== ====== ======
The "Other, net" tax rate in 1995, 1994 and 1993 was composed of
miscellaneous items, none of which were individually significant.
The current and long-term deferred income tax assets and liabilities
included in the Consolidated Statements of Financial Position as of
December 29, 1995 and December 30, 1994 were composed of the following:
(In thousands of dollars) 1995 1994
Current and long-term deferred income tax
assets resulting from future deductible temporary
differences are:
Accounts receivable reserves $ 202,706 $ 166,846
Yield reserve 12,493 9,697
Inventory obsolescence reserves 4,611 7,016
Reserve for unusual charges 975 8,585
Other 20,029 14,388
---------- ----------
$ 240,814 $ 206,532
=========== ==========
Current and long-term deferred income tax
liabilities resulting from future taxable
temporary differences are:
Accelerated depreciation and amortization $ (26,475) $ (24,658)
Deferred finance income (97,438) (80,930)
Deferred advertising (8,421) (4,513)
Other (541) (1,438)
------------ -----------
$ (132,875) $ (111,539)
============ ===========
Management believes, based on the Company's history of prior operating
earnings and its expectations for the future, that operating income of the
Company will be sufficient to fully utilize the deferred tax assets
included in its consolidated financial statements.
The Company paid income taxes (net of refunds) of $37.1 million, $47.3
million and $21.5 million during 1995, 1994 and 1993, respectively. These
payments of income taxes included a refund from a former affiliated
company, during 1993, of $0.6 million.
14. RELATED PARTY TRANSACTIONS
Related party transactions, detailed by subject and Note reference, are as
follows:
Operating leases Note 11
Income taxes Note 13
Stockholders' equity Note 15
15. STOCKHOLDERS' EQUITY
The Company currently has 100,000,000 authorized shares of $.01 par value
common stock of which 45,949,722 and 45,572,655 were issued and
outstanding as of December 29, 1995 and December 30, 1994, respectively.
The Company is authorized to issue 5,000,000 shares of $.01 par value
preferred stock, none of which have been issued.
During 1994, the Company's Board of Directors authorized the repurchase of
up to 2.5 million shares of the Company's common stock that may be made
from time to time at prevailing prices in the open market or by block
purchase and may be discontinued at any time. The purchases will be made
within certain restrictions relating to volume, price and timing in order
to minimize the impact of the purchase on the market for the Company's
stock. During 1995 and 1994, the Company repurchased 214,100 shares and
807,400 shares of its common stock at prevailing market prices for an
aggregate of $3.2 million and $13.4 million, respectively.
Effective July 1, 1994, the Company made available to certain employees
the Fingerhut 1994 Employee Stock Purchase Plan under which eligible
employees have the opportunity to purchase Company common stock at a
discounted market value determined on the first or last business day of
the calendar quarter, whichever is lower. A maximum of 250,000 shares are
authorized. During 1995, 119,568 shares were issued at an average price
of $12.19 per share. During 1994, 20,582 shares were issued at $19.55 per
share.
The Fingerhut Companies, Inc. Stock Option Plan provides certain
management of the Company with options to purchase up to 7,768,000 shares
of common stock of which 265,925 were available for grant at December 29,
1995. The options are granted at the fair market value on the date of
grant. The options become exercisable in five equal annual installments
beginning on the first anniversary of the date of grant. Unexercised
options will be canceled 10 years and one month after the date of grant.
The Fingerhut Companies, Inc. 1995 Long-Term Incentive and Stock Option
Plan, which was approved by the shareholders of the Company at its annual
shareholders' meeting on May 18, 1995, provides for the granting of
2,250,000 stock options (either incentive stock options or non-qualified
stock options), stock appreciation rights or restricted stock to officers
and other employees. At December 29, 1995, 939,700 shares were available
for grant. The Compensation Committee of the Board has the authority to
determine the exercise prices, vesting dates, expiration dates and other
material conditions upon which options or awards may be exercised, except
that the option price of incentive stock options may not be less than 100
percent of the fair market value of the common stock on the date of grant,
and not less than 110 percent of the fair market value in the case of an
incentive stock option granted to any employee owning more than 10 percent
of the Company's common stock (a "Ten Percent Employee"), and the term of
non-qualified stock options may not exceed 15 years from the date of grant
(not more than 10 years for incentive stock options and five years for
incentive stock options granted to a Ten Percent Employee). In 1995, the
Compensation Committee granted 1,401,800 non-qualified options at an
average price of $14.98 per share, substantially all of which become
exercisable in three equal annual installments beginning on the first
anniversary of the date of grant and will be canceled 10 years after the
date of grant.
The Fingerhut Companies, Inc. Performance Enhancement Investment Plan
("PEIP Plan") provided certain management of the Company with the right to
purchase options to acquire up to 3,000,000 shares of common stock. Under
the PEIP Plan, management was offered the opportunity to purchase option
units, each consisting of four options to purchase common stock, with
exercise prices of 110 percent, 120 percent, 130 percent and 140 percent,
respectively, of the fair market value at the time of grant. The options
were offered at prices determined by the Company on the grant date.
During 1995, the Company discontinued the PEIP Plan and cancelled the
remaining ungranted shares. The Company repurchased 1,724,956 options
granted under the PEIP Plan, for the original purchase price paid by the
option holders, and the repurchase had no impact on the Company's net
earnings. As of December 29, 1995, 342,244 options remained outstanding
and will be repurchased, if unexercised, at an amount equal to or less
than the purchase price on the earlier of the optionee's termination of
employment or the seventh anniversary of the grant date. All purchase
prices are included in "Accrued payroll and employee benefits" in the
Consolidated Statement of Financial Position.
The Fingerhut Companies, Inc. 1992 Stock Option and Long-Term Incentive
Plan provides certain management of the Company with options to purchase
up to 523,382 shares of common stock. In 1992, the Company granted the
Chairman and Chief Executive Officer non-qualified options to purchase
523,382 shares of common stock with an option price of $15.00, the fair
market value at the date of grant. In November 1993, 50 percent of these
options became exercisable, 50 percent became exercisable in November 1994
and all expire in December 1999.
The Company granted an executive a tandem option, which vests over four
years beginning March 1994, for either (a) 55,000 shares of the Company's
common stock at an exercise price of $15.00 per share or (b) a 3.3 percent
equity interest in the Financial Services Segment ("FFS") (see Note 18) at
an exercise price equal to two times the fair value of that interest at
March 1994, adjusted for additional capital contributions to FFS since the
initial value date. The exercise of either option terminates the other
option. If the executive terminates his employment prior to FFS becoming
a publicly held company, the FFS option would be settled in cash.
The following table summarizes the activity of the stock option plans:
Non-qualified stock Option
option shares prices
Outstanding Exercisable (In dollars)
Balance at December 25, 1992 6,344,352 2,453,170 $ 5.45-$17.50
Granted 2,652,076 - 15.12- 34.25
Canceled/forfeited (264,600) - 5.45- 28.04
Exercisable - 1,720,441 5.45- 17.50
Exercised (397,050) (397,050) 5.45- 15.56
----------- ----------- -------------
Balance at December 31, 1993 8,334,778 3,776,561 5.45- 34.25
Granted 484,500 - 17.00- 42.64
Canceled/forfeited (664,375) (4,000) 5.45- 35.69
Exercisable - 1,163,284 5.45- 42.25
Exercised (211,025) (211,025) 5.45- 17.50
----------- ----------- -------------
Balance at December 30, 1994 7,943,878 4,724,820 5.45- 42.64
Granted 1,474,800 28,750 11.38- 21.14
Canceled/forfeited (2,113,532) - 7.44- 42.64
Exercisable - 893,772 5.45- 35.69
Exercised (471,599) (471,599) 5.45- 13.94
----------- ----------- -------------
Balance at December 29, 1995 6,833,547 5,175,743 $ 5.45-$35.69
=========== =========== =============
16. OTHER DISCLOSURES
Administrative and selling expenses included promotional material and
advertising expenses of $488.6 million, $434.2 million and $391.0 million
for 1995, 1994 and 1993, respectively.
Amortization expense relating to the excess of cost over fair value of net
assets acquired was $1.3 million for 1995, 1994 and 1993. Accumulated
amortization was $9.1 million and $7.8 million at December 29, 1995 and
December 30, 1994, respectively.
Amortization expense relating to customer lists was $1.4 million for 1995
and 1994 and $1.5 million for 1993. Accumulated amortization was $9.8
million and $8.4 million at December 29, 1995 and December 30, 1994,
respectively.
17. CONTINGENCIES
The Company is a party to various claims, legal actions, sales tax
disputes and other complaints arising in the ordinary course of business.
In the opinion of management, any losses which may occur are adequately
covered by insurance, are provided for in the consolidated financial
statements, or are without merit and the ultimate outcome of these matters
will not have a material effect on the consolidated financial position or
operations of the Company.
At December 29, 1995, the Company had unused credit line commitments on
open credit card accounts of $710.0 million. The Company does not
anticipate that all of its customers will exercise this entire available
credit at any one time. Commitments on credit card lines are cancelable
at any time.
18. SEGMENT OF BUSINESS REPORTING
The operations of the Company are divided into the following business
segments for financial reporting purposes:
Direct-to-the-Consumer Marketing: Sells a broad range of products and
services directly to consumers via catalogs, television and other media.
Financial Services: Markets a broad array of financial services and
information-driven products through direct marketing and other methods.
Currently, the segment's two primary products are the co-branded
MasterCard, issued by Direct Merchants Bank, and extended service plans
sold to the Company's customers.
The segment information presented below was based on management's best
estimate of the historical assets and revenues which will comprise the
business of the Financial Services Segment at the initiation of the
anticipated public transaction (see Note 19). This information will be
subject to change based on any changes in the Financial Services Segment's
capital, asset and income structure in connection with the public
transaction.
Revenues, earnings before income taxes, identifiable assets, capital
expenditures and depreciation and amortization pertaining to the business
segments in which the Company operates are presented below:
(In thousands of dollars) 1995 1994 1993
Revenues
Direct-to-the-Consumer Marketing $2,048,542 $1,918,723 $1,797,147
Financial Services 61,414 15,662 10,761
---------- ---------- ----------
$2,109,956 $1,934,385 $1,807,908
========== ========== ==========
Earnings before income taxes
Direct-to-the-Consumer Marketing $ 66,838 $ 67,450 $ 110,199
Financial Services 9,468 3,476 1,680
---------- ---------- ----------
$ 76,306 $ 70,926 $ 111,879
========== ========== ==========
Identifiable assets
Direct-to-the-Consumer Marketing $1,109,135 $1,088,109 $ 982,694
Financial Services 171,942 9,824 5,608
---------- ---------- ----------
$1,281,077 $1,097,933 $ 988,302
========== ========== ==========
Capital expenditures
Direct-to-the-Consumer Marketing $ 93,280 $ 69,329 $ 51,722
Financial Services 1,162 249 49
---------- ---------- ----------
$ 94,442 $ 69,578 $ 51,771
========== ========== ==========
Depreciation and amortization
Direct-to-the-Consumer Marketing $ 46,957 $ 37,653 $ 29,689
Financial Services 146 40 19
---------- ---------- ----------
$ 47,103 $ 37,693 $ 29,708
========== ========== ==========
19. SUBSEQUENT EVENTS
On January 25, 1996, the Company declared a cash dividend of $.04 per
share, or an aggregate of $1.8 million, payable on February 22, 1996 to
shareholders of record as of the close of business on February 8, 1996.
On January 11, 1996, the Company purchased certain office and warehouse
facilities from a former affiliated company for $14.1 million.
Subsequent to year-end, the Company engaged two investment banking firms
to provide advice on alternatives for creating a separately traded public
vehicle from the Company's Financial Services Segment. The Company
anticipates completing a transaction in fiscal 1996, subject to market and
certain other conditions.
Fingerhut Companies, Inc. and Subsidiaries
REPORT OF MANAGEMENT
To the Shareholders of Fingerhut Companies, Inc.:
The Company is responsible for the information presented in this annual report.
The consolidated financial statements contained herein were prepared in
accordance with generally accepted accounting principles and were based on
informed judgments and management's best estimates where appropriate.
Financial information elsewhere in this annual report is consistent with that
contained in the consolidated financial statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance, at suitable costs, that assets are safeguarded and
transactions are executed in accordance with established procedures. The
system of internal controls includes Standards of Ethical Business Conduct,
widely communicated to employees, which are designed to require them to
maintain high ethical standards in their conduct of Company affairs, written
procedures that provide for appropriate evidence of authority and a program of
internal audit with management follow-up.
The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, whose appointment was
ratified by shareholder vote at the 1995 annual shareholders' meeting. Their
audit was conducted in accordance with generally accepted auditing standards.
As part of their audit of the Company's 1995 consolidated financial statements,
our independent accountants considered the Company's internal controls to the
extent they deemed necessary to determine the nature, timing and extent of
their audit tests.
The Audit Committee of the Board of Directors is composed entirely of
independent directors. This Committee supervises and reviews the Company's
accounting practices; recommends to the Board the independent auditors; reviews
the audit plans, scope, findings, reports and recommendations; and reviews the
Company's financial controls, procedures and practices. The independent public
accountants and the internal auditors have free access to the Audit Committee
without management present.
Theodore Deikel
Chairman of the Board,
Chief Executive Officer and President
Peter G. Michielutti
Senior Vice President and
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Fingerhut Companies, Inc.:
We have audited the accompanying consolidated statements of financial position
of Fingerhut Companies, Inc. and Subsidiaries (the "Company") as of December
29, 1995 and December 30, 1994 and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows for each of the fiscal
years in the three-year period ended December 29, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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
Fingerhut Companies, Inc. and Subsidiaries as of December 29, 1995 and December
30, 1994, and the results of their operations and their cash flows for each of
the fiscal years in the three-year period ended December 29, 1995 in conformity
with generally accepted accounting principles.
As discussed in Notes 2 and 6 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, in
fiscal 1995.
/KPMG Peat Marwick LLP/
Minneapolis, Minnesota
January 24, 1996
Quarterly Financial -- Fiscal Year Summaries
(In thousands of dollars, 1995
except per share data) First Second Third Fourth Total
Revenues $ 408,942 $ 468,856 $ 481,212 $ 750,946 $2,109,956
Gross margin (a) $ 186,785 $ 203,022 $ 203,571 $ 340,225 $ 933,603
Net earnings (c) $ 6,184 $ 5,794 $ 8,553 $ 30,327 $ 50,858
Earnings per share $ .13 $ .12 $ .18 $ .63 $ 1.05
1994
First Second Third Fourth (b) Total
Revenues $ 362,144 $ 446,031 $ 429,445 $ 696,765 $1,934,385
Gross margin (a) $ 164,292 $ 191,487 $ 193,695 $ 314,712 $ 864,186
Net earnings $ 9,973 $ 16,192 $ 7,087 $ 12,673 $ 45,925
Earnings per share $ .20 $ .32 $ .14 $ .26 $ .91
(a) Gross margin is equal to net sales less product cost.
(b) Fourth quarter 1994 results included an after-tax charge of $19.4 million
from unusual items, as well as the results of Figi's for the year. See
Note 3 to the Consolidated Financial Statements.
(c) Net earnings during 1995 included reserve adjustments for unusual items of
$4.5 million, $1.0 million and $2.5 million for the first, third and
fourth quarters, respectively.
[PHOTO] Jesus Rodriguez
Director, Systems Architecture
Data Technology Center, Plymouth
Stock Data
The Company's common stock is traded under the symbol "FHT" on the New York
Stock Exchange. As of February 29, 1996, there were 723 holders of record of
the Company's common stock.
1995
First Second Third Fourth Year
Common stock price:
High $ 17 $ 16-5/8 $ 17-7/8 $ 16-1/8 $ 17-7/8
Low $ 10-7/8 $ 10-7/8 $ 14-7/8 $ 11-1/2 $ 10-7/8
Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
1994
First Second Third Fourth Year
Common stock price:
High $ 33-1/4 $ 32 $ 29-1/2 $ 23-7/8 $ 33-1/4
Low $ 25-1/4 $ 22-5/8 $ 21-5/8 $ 14 $ 14
Dividends paid $ .04 $ .04 $ .04 $ .04 $ .16
Dividend Policy
The Company intends to pay regular quarterly cash dividends and expects to
retain a substantial portion of its net earnings to fund future growth.
The declaration and payment of dividends will be subject to the discretion
of the Board of Directors, and there can be no assurance that any
dividends will be paid in the future. In determining whether to pay
dividends (as well as the amount and timing thereof), the Board of
Directors will consider a number of factors including the Company's
results of operations, financial condition, future capital requirements
and any applicable restrictive provisions in any financing agreements.
See Note 8 for dividend restrictions.
[PHOTO] Donn Perkins
Merchandising Buyer,
Minnetonka
Independent Auditors' Report
The Board of Directors and Stockholders
Fingerhut Companies, Inc.:
Under date of January 24, 1996, we reported on the consolidated statements of
financial position of Fingerhut Companies, Inc. and subsidiaries as of December
29, 1995 and December 30, 1994, and the related consolidated statements of
earnings, changes in stockholders' equity and cash flows for each of the
years in the three-year period ended December 29, 1995, as contained in the
1995 annual report to stockholders. These consolidated financial statements
and our report thereon are incorporated by reference in the annual report on
Form 10-K for the year 1995. In connection with our audits of the
aforementioned consolidated financial statements, we have also audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
Our report covering the basic consolidated financial statements refers to a
change in the method of accounting for long-lived assets in fiscal 1995.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 24, 1996
SCHEDULE II
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994
AND DECEMBER 31, 1993
(In thousands of dollars)
Additions
charged to
Balance at cost, Balance at
beginning expenses, end
Description of period revenues Deductions of period
Accounts receivable reserves:
1995 $113,383 $851,229 $819,932 (a) $144,680
1994 $112,533 $749,900 $749,050 (a) $113,383
1993 $120,334 $646,702 $654,503 (a) $112,533
Inventory reserves:
1995 $ 18,102 $ 22,756 $ 28,555 (b) $ 12,303
1994 $ 19,328 $ 27,913 $ 29,139 (b) $ 18,102
1993 $ 15,184 $ 21,260 $ 17,116 (b) $ 19,328
(a) Primarily represents reductions in the reserves for actual returns and
exchanges, allowances, uncollectible amounts (net of recoveries) and
collection costs. And also, includes the reserves related to the accounts
receivable sold under the Fingerhut Master Trust, the Fingerhut Financial
Services Master Trust, and the Receivables Transfer Agreement.
(b) Primarily represents inventory sold to liquidators and returned to
vendors.
Exhibit 21
SUBSIDIARIES OF FINGERHUT COMPANIES, INC.*
Names State of Incorporation
- ------- ----------------------
Direct Merchants Credit Card Bank,
National Association National Bank
Fingerhut Corporation Minnesota
Fingerhut Financial Services Corporation Minnesota
Fingerhut Financial Services Receivables, Inc. Delaware
Fingerhut Receivables, Inc. Delaware
Figi's Inc. Wisconsin
Infochoice USA, Inc. Minnesota
Minnesota Telemarketing, Inc. Minnesota
Tennessee Distribution, Inc. Minnesota
Tennessee Telemarketing, Inc. Minnesota
Western Distribution, Inc. Minnesota
Wiman Corporation Minnesota
*The names of certain subsidiaries have been omitted because considered
in the aggregate as a single subsidiary, they would not constitute a
significant subsidiary.
Exhibit 23
Consent of Independent Certified Public Accountants
The Board of Directors
Fingerhut Companies, Inc.:
We consent to incorporation by reference in the registrant
statements (No. 33-38988 and 33-55871) on Form S-8 of
Fingerhut Companies, Inc. and subsidiaries of our reports
dated January 24, 1996 relating to the consolidated
statements of financial position of Fingerhut Companies,
Inc. as of December 29, 1995 and December 30, 1994 and the
related consolidated statements of earnings, changes in
stockholders' equity and cash flows and the related
financial statement schedule for each of the years in the
three-year period ended December 29, 1995, which reports
appear in or are incorporated by reference in the December
29, 1995 annual report on Form 10-K of Fingerhut Companies,
Inc.
Our report covering the basic consolidated financial
statements refers to a change in the method of accounting
for long-lived assets in fiscal 1995.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 27, 1996
<TABLE> <S> <C>
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The schedule contains summary financial information extracted from the
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