SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Quarter Ended 1-8668
June 26, 1998 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)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No _____
As of July 24, 1998, 47,168,471 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
FINGERHUT COMPANIES, INC.
FORM 10-Q
June 26, 1998
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Financial Statements
Consolidated Statements of Earnings (Unaudited) -
thirteen weeks and twenty-six weeks ended
June 26, 1998 and June 27, 1997........................ 3
Consolidated Statements of Financial Position
(Unaudited) - June 26, 1998 and December 26, 1997...... 4
Consolidated Statements of Cash Flows (Unaudited) -
thirteen weeks and twenty-six weeks ended
June 26, 1998 and June 27, 1997........................ 5
Condensed Notes to Consolidated Financial
Statements (Unaudited)................................. 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ..................... 9
Part II - Other Information
Item 1. Legal Proceedings ......................................20
Item 4. Submission of Matters to a Vote of Security Holders ....20
Item 6. Exhibits and Reports on Form 8-K .......................20
Signatures.......................................................22
FINGERHUT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of dollars, except share and per share data)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
Revenues:
Net sales $ 332,588 $ 340,726 $ 605,552 $ 630,263
Finance income and
other securitization
income, net 95,712 55,489 190,083 115,966
428,300 396,215 795,635 746,229
Costs and expenses:
Product cost 155,343 177,438 283,994 323,732
Administrative and
selling expenses 197,518 164,543 376,071 321,580
Provision for uncol-
lectible accounts 42,376 26,582 79,906 58,628
Interest expense, net 9,103 8,803 19,382 17,084
404,340 377,366 759,353 721,024
Earnings before income
taxes and minority
interest 23,960 18,849 36,282 25,205
Provision for income
taxes 9,186 7,296 13,989 9,664
Net earnings before
minority interest 14,774 11,553 22,293 15,541
Minority interest (2,102) (1,644) (4,116) (3,071)
Net earnings $ 12,672 $ 9,909 $ 18,177 $ 12,470
Earnings per share:
Basic $ .27 $ .22 $ .39 $ .27
Diluted $ .25 $ .20 $ .36 $ .26
Dividends $ .04 $ .04 $ .08 $ .08
Weighted average shares:
Basic 46,798,983 46,036,759 46,591,119 46,101,842
Diluted 51,463,562 48,889,417 50,969,012 48,755,765
See accompanying Condensed Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of dollars)
(Unaudited)
June 26, December 26,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 162,052 $ 145,418
Accounts receivable 245,237 607,874
Retained interest in securitized
receivables 687,413 406,650
Less: reserve for uncollectible
accounts and unearned finance income (181,962) (190,777)
Accounts receivable, net 750,688 823,747
Inventories, net 125,150 124,424
Promotional material 81,700 64,440
Deferred income taxes 213,500 197,355
Other 14,987 13,708
Total current assets 1,348,077 1,369,092
Property and equipment, net 265,400 272,190
Excess of cost over fair value of
net assets acquired, net 85,493 77,161
Customer lists, net 8,401 8,401
Other assets 30,071 24,912
$1,737,442 $1,751,756
LIABILITIES
Current liabilities:
Accounts payable $ 149,166 $ 177,021
Accrued payroll and employee benefits 37,951 57,860
Other accrued liabilities 94,643 93,037
Revolving credit facility 150,000 144,000
Other payables due to credit card
securitizations, net 192,168 134,562
Current portion of long-term debt 76 84
Current income taxes payable 5,682 71,659
Total current liabilities 629,686 678,223
Long-term debt, less current portion 345,149 345,187
Deferred income taxes 18,762 20,441
Other non-current liabilities 9,035 8,130
1,002,632 1,051,981
Minority interest 33,841 29,790
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 472 463
Additional paid-in capital 308,732 292,407
Unearned compensation (545) (738)
Earnings reinvested 392,310 377,853
Total stockholders' equity 700,969 669,985
$1,737,442 $1,751,756
See accompanying Condensed Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Twenty-Six Weeks Ended
June 26, June 27,
1998 1997
Cash flows from operating activities:
Net earnings $ 18,177 $ 12,470
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation and amortization 41,283 26,622
Amortization of unearned compensation 415 757
Minority interest in earnings 4,051 3,039
Change in assets and liabilities:
Accounts receivable, net 73,059 31,461
Inventories, net (726) (1,723)
Promotional material and other current assets (18,539) (7,421)
Accounts payable (27,855) (14,587)
Accrued payroll and employee benefits (19,909) (15,615)
Accrued liabilities 1,606 (17,540)
Other payables due to credit card
securitizations, net 57,606 40,852
Current income taxes payable (61,178) (55,325)
Deferred income taxes (17,824) 6,803
Other (17,523) 7,994
Net cash provided by operating activities 32,643 17,787
Cash flows from investing activities:
Excess of cost over fair value of credit card
portfolio acquisitions (12,671) (2,879)
Additions to property and equipment (16,885) (10,559)
Net cash used by investing activities (29,556) (13,438)
Cash flows from financing activities:
Repayments of long-term debt (46) (46)
Revolving credit facility 6,000 24,000
Issuance of common stock 11,313 1,099
Repurchase of common stock - (3,325)
Cash dividends paid (3,720) (3,688)
Net cash provided by financing activities 13,547 18,040
Net increase in cash and cash
equivalents 16,634 22,389
Cash and cash equivalents at beginning of period 145,418 61,003
Cash and cash equivalents at end of period $ 162,052 $ 83,392
Supplemental noncash investing and financing activities:
Tax benefit from exercise of non-qualified
stock options, disqualified dispositions of
Employee Stock Purchase Plan Shares, and
vesting of restricted stock $ 4,799 $ 192
Issuance of restricted stock, net of forfeitures $ 222 $ -
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 13,891 $ 17,199
Cash paid during the period for income taxes $ 91,791 $ 58,287
Included in cash and cash equivalents were liquid investments with original
maturities of fifteen days or less.
See accompanying Condensed Notes to Consolidated Financial Statements.
FINGERHUT COMPANIES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. Consolidated financial statements
The consolidated financial statements of Fingerhut Companies, Inc.
(the "Company") reflect the financial position and results of
operations of the Company and its wholly owned and majority owned
subsidiaries, after elimination of all material intercompany
transactions and balances.
The consolidated financial statements as of June 26, 1998 and June
27, 1997, and for the thirteen and twenty-six weeks ended June 26,
1998 and June 27, 1997, included herein are unaudited and have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. The
interim financial statements reflect all adjustments (consisting of
normal recurring accruals) that are, in the opinion of management,
necessary for a fair statement of the results for the interim
periods. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's 1997 Annual Report to Shareholders
and incorporated by reference in the Company's annual report on Form
10-K filed with the Securities and Exchange Commission. The results
of operations for the interim period should not be considered
indicative of the results to be expected for the entire year.
During the first quarter of 1998, the Company implemented Statement
of Financial Accounting Standards No. 130 (FAS 130), "Reporting
Comprehensive Income." FAS 130 has no material effect on the
consolidated financial statements.
2. Earnings per share
Basic earnings per share was computed by dividing net earnings by
the weighted average shares of common stock outstanding during the
periods. Diluted earnings per share was computed by dividing net
earnings by the weighted average shares of common stock and common
stock equivalents outstanding during the periods. The dilutive
effect of the potential exercise of outstanding options to purchase
shares of common stock was calculated using the treasury stock
method.
3. Accounts receivable, net
Accounts receivable, net of amounts sold, consisted of the
following:
(In thousands of dollars) June 26, December 26,
1998 1997
Customer receivables (Retail) $ 190,870 $ 339,553
Retained interest in securitized
receivables 153,254 178,652
Reserve for uncollectible accounts,
net of anticipated recoveries (93,082) (100,901)
Reserve for returns and exchanges (9,109) (12,322)
Other reserves (11,571) (22,765)
Net collectible amount 230,362 382,217
Unearned finance income (20,281) (22,750)
Accounts receivable, net (Retail) 210,081 359,467
Credit card and other receivables (Metris) 54,367 268,321
Retained interest in securitized
receivables 534,159 227,998
Reserve for uncollectible accounts,
net of anticipated recoveries (47,919) (32,039)
Credit card and other receivables, net 540,607 464,280
Accounts receivable, net $ 750,688 $ 823,747
During the quarter, the Retail segment accelerated its efforts to
move customers from an installment-based lending program to
revolving credit accounts. By the end of the quarter, approximately
600,000 customer accounts had been converted or were awaiting
conversion. It is the intention of the Company to continue this
practice over the coming years until substantially all of its
customer accounts have been converted to revolving credit.
4. Revolving credit accounting methods
As the Company converts customer accounts from installment credit to
revolving credit, the Company is evaluating the assumptions to be
used in accounting for revolving credit. For example, the provision
for uncollectible accounts for revolving credit is based upon an
estimated twelve month roll rate of charge-offs versus a provision
to cover the entire estimated charge-offs for an installment contract
balance. Conversely, finance income, net, is only recognized as
earned for revolving credit accounts versus recognition of the full
net finance income from an installment based contract at the time
the receivable is sold.
5. Stockholders' equity
During the twenty-six week period ended June 26, 1998, 832,067
shares of common stock were issued related to the exercise of
employee stock options, and 18,478 shares of common stock were
issued under the Fingerhut Companies, Inc. Employee Stock Purchase
Plan. The total shares of common stock outstanding as of June 26,
1998 were 47,160,339.
6. Subsequent events
On July 23, 1998, the Company declared a cash dividend in the amount
of $.04 per share, aggregating approximately $1.9 million, payable
on August 20, 1998, to the shareholders of record as of the close of
business on August 6, 1998.
In July 1998, the Company issued 8,132 shares of common stock under
the Fingerhut Companies, Inc. Employee Stock Purchase Plan.
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THIRTEEN AND TWENTY-SIX WEEKS ENDED
JUNE 26, 1998 AND JUNE 27, 1997
RETAIL SEGMENT
STATEMENTS OF EARNINGS
(In thousands of dollars, except per share data)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
Revenues:
Net sales $ 326,496 $ 340,400 $ 595,916 $ 630,556
Finance income and
other securitization
income, net 3,184 355 3,621 3,489
329,680 340,755 599,537 634,045
Costs and expenses:
Product cost 155,265 177,289 283,855 323,722
Administrative and
selling expenses 145,285 133,052 269,572 257,924
Provision for uncol-
lectible accounts 20,986 20,153 38,474 41,145
Interest expense, net 4,347 7,215 9,767 14,434
325,883 337,709 601,668 637,225
Earnings (loss) before
income taxes 3,797 3,046 (2,131) (3,180)
Provision for income
tax expense (benefit) 1,423 1,212 (800) (1,264)
Net earnings (loss) $ 2,374 $ 1,834 $ (1,331) $ (1,916)
Earnings (loss) per
share - Diluted $ .05 $ .04 $ (.03) $ (.04)
RETAIL SEGMENT
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
Fingerhut Key Statistics:
Sales per mailing -
existing customer list $ 2.59 $ 2.93 $ 2.60 $ 2.94
Cost per new customer $ 17.05 $ 13.72 $ 19.47 $ 14.97
Mailings (in 000's)
New customers 44,087 35,098 77,936 68,061
Existing customers 88,574 85,282 159,544 153,295
Active customer list
(in 000's) 4,158 4,562 4,158 4,562
Contribution margin per
existing customer $ 20 $ 20 $ 35 $ 35
Reserves for bad debt
as a percent of total
managed receivables 17.0% 17.1% 17.0% 17.1%
Reserves for bad debt
as a percent of
accounts 29 days plus
delinquent 76% 70% 76% 70%
Segment Key Statistics: (in 000's)
Capital expenditures $ 6,323 $ 5,143 $ 11,690 $ 8,385
Depreciation $ 10,034 $ 11,178 $ 20,480 $ 22,679
RETAIL SEGMENT
STATEMENTS OF EARNINGS (Managed Basis*)
(In thousands of dollars, except per share data)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
Revenues:
Net sales $ 326,496 $ 340,400 $ 595,916 $ 630,556
Finance income and
other revenues 49,060 55,673 93,041 101,661
375,556 396,073 688,957 732,217
Costs and expenses:
Product cost 155,265 177,289 283,855 323,722
Administrative and
selling expenses 146,543 136,447 273,305 262,929
Provision for uncol-
lectible accounts 51,827 56,323 95,997 103,761
Discount on sale of
accounts receivable 13,777 15,753 28,164 30,551
Interest expense, net 4,347 7,215 9,767 14,434
371,759 393,027 691,088 735,397
Earnings (loss) before
income taxes 3,797 3,046 (2,131) (3,180)
Provision for income
tax expense (benefit) 1,423 1,212 (800) (1,264)
Net earnings (loss) $ 2,374 $ 1,834 $ (1,331) $ (1,916)
Earnings (loss) per
share - Diluted ** $ .05 $ .04 $ (.03) $ (.04)
* Presented in format consistent with prior periods.
** Loss per share computed on a "diluted" share basis which is consistent
with the Consolidated Statement of Earnings and the use of "primary" shares for
results of operations prior to the implementation of FAS 128 for the year ended
December 26, 1997.
Results of Operations - Retail Segment
Second Quarter
Net sales for the current 13-week period were $326.5 million compared to net
sales of $340.4 million for the related period in 1997, a decrease of 4 percent.
Fingerhut Corporation ("Fingerhut"), the Company's core business in this
segment, had second quarter net sales of $316.5 million compared to $333.4
million in the same period in 1997, a decrease of 5 percent. Net sales from
Fingerhut's new customer acquisition programs increased 6 percent to $64.3
million as a result of more mailings and a reduced returns and allowances rate,
partially offset by lower sales per mailing. Net sales from Fingerhut's existing
customer list totaled $252.2 million, which was an 8 percent decrease from the
second quarter of 1997. The decrease was due to lower sales per mailing,
partially driven by the Company's strategy to control credit risk. A lower
returns and allowances rate mitigated the year over year net sales decrease.
Finance income and other securitization income, net, for the quarter was
$3.2 million, compared to $0.4 million in the second quarter of 1997.
This increase was primarily due to a lower provision for uncollectible
accounts as well as lower collection costs applied to securitized
receivables, and the securitization of new customer accounts, partially
offset by lower finance income due to the reduced size of the customer
portfolio.
Product cost for the current 13-week period was 47.6 percent of net
sales, or $155.3 million, compared to 52.1 percent of net sales, or
$177.3 million, during the comparable prior-year period. The decrease as
a percent of net sales was primarily the result of negotiated vendor cost
reductions, foreign currency devaluation, lower inventory obsolescence
and cost reductions related to customer returns.
Administrative and selling expenses for the current 13-week period were
$145.3 million, or 44.5 percent of net sales, compared to $133.1 million,
or 39.1 percent of net sales, in the comparable prior-year period.
Continued cost controls resulted in administrative expense levels
consistent with prior year, offset by higher selling expenses caused by
increased mailings as well as costs associated with the conversion of
customer accounts to revolving credit.
The provision for uncollectible accounts relating to receivables sold is
included in "Finance income and other securitization income, net." The
provision for uncollectible accounts on a "managed" basis for the current
13-week period was 15.9 percent of net sales, compared to 16.5 percent of
net sales for the second quarter of 1997. At the end of the second
quarter, account balances 29 days or more delinquent as a percent of
managed receivables stood at 22.5 percent, down from 24.6 percent at the
end of the prior-year second quarter and 26.2 percent at the end of
second quarter 1996. Bad debt reserves as a percent of balances 29 days
or more delinquent stood at 76 percent at the end of second quarter, up
from 70 percent in comparable quarter last year. Customer payments as a
percent of originating receivables have also improved significantly over
last year contributing to the reduction in delinquency.
Net interest expense for the current 13-week period was $4.3 million,
compared with $7.2 million in the second quarter of 1997. The decrease
in expense was due to lower working capital requirements as a result of
better inventory management and lower customer receivables. The cash
position for the Retail Segment was $138 million at quarter end compared
to $35 million in the prior year.
The effective consolidated tax rate, which includes both the Retail
Segment and Metris, for the second quarter of 1998 was 38.3 percent
compared to 38.7 percent in the comparable prior-year period.
As a result of the items discussed above, the Retail Segment generated
net earnings of $2.4 million, or $0.05 per share, compared to a second
quarter 1997 net earnings of $1.8 million, or $0.04 per share.
First Half
Net sales for the 26-week period ended June 26, 1998 were $595.9 million
compared to $630.6 million for the corresponding period in 1997, a
decrease of 5 percent. Fingerhut had year to date net sales of $574.2
million compared to $610.0 million in the same period in 1997, a decrease
of 6 percent. Net sales from Fingerhut's new customer acquisition
programs increased 2 percent to $114.0 million, which was primarily due
to an increase in the number of mailings. Net sales from Fingerhut's
existing customer list declined 8 percent to $460.2 million, primarily as
a result of lower sales per mailing, partially driven by the Company's
strategy to control credit risk.
Finance income and other securitization income, net, for the first half
of 1998 was $3.6 million, compared to $3.5 million for the same period in
1997. The increase was primarily due to securitization of new customer
accounts, a lower provision for uncollectible accounts and lower
collection costs applied to securitized receivables, offset by lower
finance income due to the reduced size of the customer portfolio.
Product cost for the current 26-week period was 47.6 percent of net
sales, or $283.9 million, compared to 51.3 percent of net sales, or
$323.7 million, during the comparable prior-year period. The decrease
as a percent of net sales was primarily the result of negotiated vendor
cost reductions, foreign currency devaluations, and cost reductions
related to customer returns.
Administrative and selling expenses for the first half of 1998 were
$269.6 million, or 45.2 percent of net sales, compared to $257.9 million,
or 40.9 percent of net sales, in the comparable prior-year period.
Continued cost controls resulted in administrative expense levels
consistent with prior year, while lower sales per mailing was the primary
reason for the increase as a percent of net sales.
The provision for uncollectible accounts on a "managed" basis for the
first half of 1998 was 16.1 percent of net sales, compared to 16.5
percent of net sales in the comparable prior-year period. The Company
continues to focus on reducing bad debt through the tightening of its
credit criteria as well as the acceleration of collection programs.
Reserve provisions have been lowered prudently as actual results have
been monitored and evaluated.
Net interest expense for the first half of 1998 was $9.8 million compared
to $14.4 million in the comparable prior-year period. The decrease was
primarily due to lower working capital requirements as a result of better
inventory management and lower customer receivables.
The effective consolidated tax rate, which includes both the Retail and
Financial Services Segments, for the first half of 1998 was 38.6 percent
compared with 38.3 percent in the comparable period of the prior-year.
The rate increase year over year was driven by the increase in Metris
profits which have an applied tax rate of 38.5%.
As a result of the items discussed above, the Retail Segment generated a
net loss for the 26-week period ended June 26, 1998 of $1.3 million, or
$(.03) per share, compared to a net loss of $1.9 million, or $(.04) per
share in the comparable period of 1997.
METRIS COMPANIES INC.
STATEMENTS OF EARNINGS
(In thousands of dollars, except per share data)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Revenues:
Net sales $ 7,251 $ 1,528 $ 12,915 $ 2,425
Finance income and
other securitization
income, net 92,528 55,134 186,462 112,477
99,779 56,662 199,377 114,902
Costs and expenses:
Product cost 78 10 139 10
Administrative and
selling expenses 53,392 32,832 109,778 66,374
Provision for uncol-
lectible accounts 21,390 6,429 41,432 17,483
Interest expense, net 4,756 1,588 9,615 2,650
79,616 40,859 160,964 86,517
Earnings before income
taxes and minority
interest 20,163 15,803 38,413 28,385
Provision for income
taxes 7,763 6,084 14,789 10,928
Net earnings before
minority interest 12,400 9,719 23,624 17,457
Minority interest (2,102) (1,644) (4,116) (3,071)
Net earnings $ 10,298 $ 8,075 $ 19,508 $ 14,386
Earnings per share
Diluted $ .20 $ .16 $ .38 $ .30
Key Statistics:
Managed net charge-off
ratio 10.6% 9.0% 9.7% 8.8%
Period-end managed
loans (in 000's) $3,880,965 $2,124,821 $3,880,965 $2,124,821
Total accounts (in 000's) 2,430 1,591 2,430 1,591
Managed loan loss
reserves (in 000's) $ 324,157 $ 139,825 $ 324,157 $ 139,825
Managed delinquency ratio 7.4% 5.9% 7.4% 5.9%
Reserves as a percent of
30-day plus receivables 112% 112% 112% 112
Results of Operations - Financial Services Segment (Metris Companies
Inc.)
Second Quarter
Metris contributed net income for the quarter ended June 30 1998 of $10.3
million, or $.20 per share, up from $8.1 million, or $.16 per share, for
the second quarter of 1997. The 27 percent increase in net income is the
result of an increase in net interest income and other operating income
partially offset by increases in the provision for loan losses and other
operating expenses. Metris' managed credit card loan portfolio increased
7 percent, or $264 million, during the second quarter bringing the
portfolio to approximately $3.9 billion at June 30, 1998. Also during
the quarter, Metris generated approximately 300,000 new accounts to end
the quarter with over 2.4 million credit card accounts.
First Half
Metris contributed net income for the six months ended June 30, 1998 of
$19.5 million, or $.38 per share, compared to $14.4 million, or $.30 per
share, for the comparable prior-year period. Year to date, Metris'
charge volume was approximately $1.6 billion, a 49 percent increase over
the same period in 1997. Managed credit card fees, interchange and other
related credit card income was $114.3 million compared to $68.8 million
for the comparable period last year.
Liquidity and Capital Resources (Consolidated)
The Company funds its operations through internally generated funds, the
sale of accounts receivable pursuant to the Fingerhut Master Trust, the
Metris Master Trust, third party conduits, borrowings under the Company's
Amended and Restated Revolving Credit Facility and Metris' Revolving
Credit Facility (the "Revolving Credit Facilities") and the issuance of
long-term debt and common stock.
The proceeds from the sale of Fingerhut accounts receivable were $1.051
billion and $1.205 billion at June 26, 1998 and December 26, 1997,
respectively. Net proceeds received from the sale of credit card
receivables were $3.205 billion at June 30, 1998 and $3.057 billion at
December 31, 1997, of which $24.3 million and $29.3 million,
respectively, was deposited in an investor reserve account held by the
trustee of the Metris Master Trust for the benefit of the Metris Master
Trust's certificateholders.
During the first quarter, the Fingerhut Master Trust was amended to
include certain revolving receivables and certain previously unsold, new
customer installment receivables. As a result of this the Company
terminated an agreement to sell revolving receivables to a third party
conduit.
In April 1998, the Company issued Series 1998-1 and Series 1998-2
securities to third parties. This generated net proceeds of $897.0
million of which $790.0 million was used to pay down the entire principal
portion of the 1997-1 Series. Approximately $102.5 million of the
remaining proceeds was used to reduce the Class A Variable Funding
Certificate issued under Series 1994-2.
On July 30, 1998, the Company closed Series 1998-3, a $400 million
variable funding series issued out of the Fingerhut Master Trust and sold
to third party conduits. Approximately $91 million in proceeds were used
to make an early repayment of Series 1994-2. Series 1994-2 supported the
$1.2 billion asset backed commercial paper program that the Company
shared with Metris. This commercial paper program was terminated on July
30, 1998. It was replaced by Series 1998-3 for the Company and a stand
alone $600 million asset backed commercial paper program for Metris.
The Revolving Credit Facilities provide for aggregate commitments of up
to $500.0 million, of which $200.0 million represents the Company's
credit facility and $300.0 million represents Metris' credit facility,
which is currently guaranteed by the Company. The expiration date for
both facilities is September 2001. As of June 26, 1998, outstanding
revolving credit balances totaled $150.0 million, of which $150.0 million
related to Metris and outstanding letters of credit totaled $9.9 million,
of which $6.3 million and $3.6 million related to the Company and Metris,
respectively. As of June 27, 1997, outstanding revolving credit balances
totaled $97.0 million, of which $48.0 million and $49.0 million related
to the Company and Metris, respectively and the Company's outstanding
letters of credit totaled $6.4 million. Additional outstanding open
letters of credit under a separate agreement aggregated $44.2 million and
$36.2 million at June 26, 1998 and June 27, 1997, respectively.
The Company had an aggregate amount of fixed rate notes outstanding of
$345.0 million of which $245.0 and $100.0 related to the Company and
Metris, respectively, as of June 26, 1998 and $270.0 million as of June
27, 1997.
The Company generated $32.6 million in cash from operations during the
26-week period ended June 26, 1998 compared with $17.8 million generated
for operations during the related period in 1997. This $14.8 million net
increase in cash generated by operations resulted primarily from a
significant decrease in the Retail Segments' accounts receivable, net,
and an increase in payables due to Metris credit card securitizations,
net.
Net cash used by investing activities for the 26-week period ended June
26, 1998 was $29.6 million, compared to $13.4 million for the comparable
period in 1997. This $16.2 increase in cash used by investing activities
resulted primarily from a $9.8 million increase in excess of cost over
fair value of Metris credit card portfolio acquisitions.
Net cash provided by financing activities for the 26-week period ended
June 26, 1998 was $13.5 million, compared with $18.0 million generated
for the comparable period in 1997. The $4.5 million net decrease was due
to higher working capital requirements for Metris, which was partially
offset by increase in issuance of common stock.
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 the current 26-week period, no stock was
repurchased. Total purchases to date under this plan were 1,612,200
shares for an aggregate of $24.9 million.
On July 23, 1998, the Company declared a cash dividend in the amount of
$.04 per share, aggregating approximately $1.9 million, payable on August
20, 1998, to the shareholders of record as of the close of business on
August 6, 1998.
In July 1998, the Company issued 8,132 shares of common stock under the
Fingerhut Companies, Inc. Employee Stock Purchase Plan.
The Company believes it will have sufficient funds available to meet
current and future commitments.
FINGERHUT COMPANIES, INC.
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements include statements regarding intent, belief or current
expectations of the Company and its management. Shareholders and
prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number
of risks and uncertainties that may cause the Company's actual results to
differ materially from the results discussed in the forward-looking
statements, including: general economic conditions affecting disposable
consumer income such as employment, business conditions, interest rates
and taxation; risks associated with unsecured credit transactions;
interest rate risks; seasonal variations in consumer purchasing
activities; increases in postal and paper costs; competition in the
retail and direct marketing industry; dependence on the securitization of
accounts receivable and credit card loans to fund operations; state and
federal laws and regulations related to advertising, offering and
extending credit, charging and collecting state sales/use taxes; product
safety; and risks of doing business with foreign suppliers. Each of
these factors is more fully discussed in Exhibit 99 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 26, 1997.
Part II. Other Information
Item 1. Legal Items
In October 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 Section 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 a proposed television 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. Venue has been
transferred to federal district court in Minnesota. On May 29,
1997, the court granted the Company's motion to dismiss with
leave for plaintiffs to file an amended complaint. On July 17,
1997, plaintiffs served their amended complaint. In lieu of
an answer, the Company filed a motion to dismiss on September
15, 1997. On July 15, 1998, the court granted in part and
denied in part the Company's motion to dismiss. The Company
filed its answer on July 27, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held on
May 6, 1998. At the meeting, the shareholders elected Stanley
S. Hubbard (39,474,092 votes for and 266,166 votes withheld),
Kenneth A. Macke (39,480,305 votes for and 259,953 votes
withheld) and Christina L. Shea (39,475,774 votes for and
264,484 votes withheld) to three-year terms as directors and
ratified the appointment of KPMG Peat Marwick LLP as the
independent auditors of the Company (39,679,879 votes for,
25,632 votes against and 34,747 votes abstaining). The terms of
office of the following directors continued after the meeting:
Theodore Deikel, Wendell R. Anderson, Edwin C. Gage,
Dudley C. Mecum and John M. Morrison.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Form of Change of Control Severance Agreement
entered into between the Company and certain
Executive Officers
10.2 Form of Change of Control Severance Agreement
entered into between the Company and certain
other Officers
11 Computation of Earnings per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements 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.
FINGERHUT COMPANIES, INC.
Date: August 4, 1998 By:
/s/ Gerald T. Knight
Gerald T. Knight
Chief Financial Officer
(Principal Financial Officer)
Date: August 4, 1998 By:
/s/ John C. Manning
John C. Manning
Vice President, Finance
Date: August 4, 1998 By:
/s/ Thomas C. Vogt
Thomas C. Vogt
Corporate Controller
(Principal Accounting Officer)
&k2S
FINGERHUT COMPANIES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I.
PURPOSES 1
ARTICLE II.
CERTAIN DEFINITIONS 1
2.1 Accrued Obligations 1
2.2 Agreement Term 1
2.3 Article 1
2.4 Beneficial owner 2
2.5 Cause 2
2.6 Change of Control 2
2.7 Code 3
2.8 Disability 3
2.9 Effective Date 3
2.10 Good Reason 3
2.11 Gross-up Payment 3
2.12 Imminent Control Change Date 3
2.13 IRS 3
2.14 1934 Act 3
2.15 Notice of Termination 3
2.16 Plans 4
2.17 Policies 4
2.18 Post-Change Period 4
2.19 SEC 4
2.20 Section 4
2.21 Subsidiary 4
2.22 Termination Date 4
2.23 Termination Performance Period 4
2.24 Voting Securities 4
ARTICLE III.
POST-CHANGE PERIOD PROTECTIONS 4
3.1 Position and Duties 4
3.2 Compensation 5
3.3 Stock Options 7
ARTICLE IV.
TERMINATION OF EMPLOYMENT 8
4.1 Disability 8
4.2 Death 8
4.3 Cause 8
4.4 Good Reason 9
ARTICLE V.
OBLIGATIONS OF THE COMPANY UPON TERMINATION 10
5.1 If by the Executive for Good Reason or by
the Company Other Than for Cause or Disability 10
5.2 If by the Company for Cause 11
5.3 If by the Executive Other Than for Good
Reason 12
5.4 If by the Company for Disability 12
5.5 If upon Death 12
ARTICLE VI.
NON-EXCLUSIVITY OF RIGHTS 12
6.1 Waiver of Other Severance Rights 12
6.2 Other Rights 13
ARTICLE VII.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY 13
7.1 Gross-up for Certain Taxes 13
7.2 Determination by the Executive 14
7.3 Additional Gross-up Amounts 14
7.4 Gross-up Multiple 15
7.5 Opinion of Counsel 15
7.6 Amount Increased or Contested 15
7.7 Refunds 16
ARTICLE VIII.
EXPENSES AND INTEREST 17
8.1 Legal Fees and Other Expenses 17
8.2 Interest 17
ARTICLE IX.
NO SET-OFF OR MITIGATION 17
9.1 No Set-off by Company 17
9.2 No Mitigation 18
ARTICLE X.
CONFIDENTIALITY AND NONCOMPETITION 18
10.1 Confidentiality 18
10.2 Noncompetition/Nonsolicitation 18
10.3 Remedy 19
ARTICLE XI.
MISCELLANEOUS 19
11.1 No Assignability 19
11.2 Successors 20
11.3 Payments to Beneficiary 20
11.4 Non-alienation of Benefits 20
11.5 Severability 20
11.6 Amendments 20
11.7 Notices 20
11.8 Counterparts 21
11.9 Governing Law 21
11.10 Captions 21
11.11 Tax Withholding 21
11.12 No Waiver 21
11.13 Entire Agreement 21
FINGERHUT COMPANIES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT dated as of , 1997 is made
between FINGERHUT COMPANIES, INC., a Minnesota corporation
having its principal place of business in Minnetonka, Minnesota
(the "Company"), and (the
"Executive"), a resident of .
ARTICLE I.
PURPOSES
The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and
its stockholders to assure that the Company will have the
continued service of the Executive, despite the possibility or
occurrence of a change of control of the Company. The Board
believes it is imperative to reduce the distraction of the
Executive that would result from the personal uncertainties
caused by a pending or threatened change of control, to encourage
the Executive's full attention and dedication to the Company, and
to provide the Executive with compensation and benefits
arrangements upon a change of control which ensure that the
expectations of the Executive will be satisfied and are
competitive with those of similarly-situated corporations. This
Agreement is intended to accomplish these objectives.
ARTICLE II.
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall
have the following meanings:
2.1 "Accrued Obligations" -- see Section 5.3.
2.2 "Agreement Term" means the period commencing on the
date of this Agreement and ending on the later of May 31, 2000
or a date which is twelve months after the date the Company
gives Executive notice of expiration (such applicable date called
the "Expiration Date"); provided, however, that if a Change of
Control or an Imminent Control Change Date occurs before the
Expiration Date, then (a) the Agreement Term shall automatically
extend to a date which is twelve (12) months after the date of
the Change of Control or Imminent Change of Control, as further
extended under the terms of this sentence should any Change of
Control or Imminent Change of Control occur prior to the
expiration of the Agreement Term as from time to time so
extended.
2.3 "Article" means an article of this Agreement.
2.4 "Beneficial owner" means such term as defined in Rule
13d-3 of the SEC under the 1934 Act.
2.5 "Cause" -- see Section 4.3(b).
2.6 "Change of Control" means, except as otherwise
provided below, the occurrence of any of the following:
a. any person (as such term is used in Rule 13d-5 of
the SEC under the 1934 Act) or group (as such term is
defined in Section 13(d) of the 1934 Act), other than a
Subsidiary or any employee benefit plan (or any related
trust) of the Company or a Subsidiary, becomes the
beneficial owner of 25% or more of the common stock of the
Company or of Voting Securities representing 25% or more of
the combined voting power of all Voting Securities of the
Company, except that no Change of Control shall be deemed to
have occurred solely by reason of any such acquisition by a
corporation with respect to which, after such acquisition,
more than 80% of both the common stock of such corporation
and the combined voting power of the Voting Securities of
such corporation are then beneficially owned, directly or
indirectly, by the persons who were the beneficial owners of
the common stock and Voting Securities of the Company
immediately before such acquisition in substantially the
same proportion as their ownership, immediately before such
acquisition, of the common stock and Voting Securities of
the Company, as the case may be;
b. individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Directors") cease for
any reason to constitute at least a majority of the Board;
provided that any individual who becomes a director after
the Effective Date whose election, or nomination for
election by the Company's stockholders, was approved by a
vote or written consent of at least two-thirds of the
directors then comprising the Incumbent Directors shall be
considered an Incumbent Director, but excluding, for this
purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened
election contest relating to the election of the directors
of the Company (as such terms are used in Rule 14a-11 of the
SEC under the 1934 Act); or
c. approval by the stockholders of the Company of
any of the following:
(1) a merger, reorganization or
consolidation ("Merger") with respect to which the
individuals and entities who were the respective
beneficial owners of the stock and Voting Securities
of the Company immediately before such Merger do not,
after such Merger, beneficially own, directly or
indirectly, more than 80% of, respectively, the common
stock and the combined voting power of the Voting
Securities of the corporation resulting from such
Merger in substantially the same proportion as their
ownership immediately before such Merger, or
(2) the sale or other disposition of all or
substantially all of the assets of the Company.
Despite clauses (a), (b) and (c) of this definition, a Change of
Control shall not occur with respect to the Executive if the
Executive is, by written agreement executed before such Change of
Control, a participant on such Executive's own behalf in a
transaction in which the persons or entities (or their
affiliates) with whom the Executive has the written agreement
Acquire the Company (as defined below) and, pursuant to the
written agreement, the Executive has an equity interest in the
resulting entity or a right to acquire such an equity interest.
"Acquire the Company" means the acquisition of beneficial
ownership by purchase, merger, or otherwise, of either more than
50% of the stock (such percentage to be computed in accordance
with Rule 13d-3(d)(1)(i) of the SEC under the 1934 Act) or
substantially all of the assets of the Company or its successors.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended.
2.8 "Disability" -- see Section 4.1(b).
2.9 "Effective Date" means the first date on which a
Change of Control occurs during the Agreement Term. Despite
anything in this Agreement to the contrary, if the Company
terminates the Executive's employment before the date of a Change
of Control, and if the Executive reasonably demonstrates that
such termination of employment (a) was at the request of a third
party who had taken steps reasonably calculated to effect the
Change of Control or (b) otherwise arose in connection with or
anticipation of the Change of Control, then "Effective Date"
shall mean the date immediately before the date of such
termination of employment.
2.10 "Good Reason" -- see Section 4.4(b).
2.11 "Gross-up Payment" -- see Section 7.1.
2.12 "Imminent Control Change Date" means any date on which
occurs (a) a presentation to the Company's stockholders generally
or any of the Company's directors or executive officers of a
proposal or offer for a Change of Control, or (b) the public
announcement (whether by advertisement, press release, press
interview, public statement, SEC filing or otherwise) of a
proposal or offer for a Change of Control, or (c) such proposal
or offer remains effective and unrevoked.
2.13 "IRS" means the Internal Revenue Service.
2.14 "1934 Act" means the Securities Exchange Act of 1934.
2.15 "Notice of Termination" means a written notice given
in accordance with Section 12.7 which sets forth (a) the specific
termination provision in this Agreement relied upon by the party
giving such notice, (b) in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under such termination provision and
(c) if the Termination Date is other than the date of receipt of
such Notice of Termination, the Termination Date.
2.16 "Plans" means plans, programs, policies or practices
of the Company.
2.17 "Policies" means policies, practices or procedures of
the Company.
2.18 "Post-Change Period" means the period commencing on
the Effective Date and ending on the second anniversary of such
date.
2.19 "SEC" means the Securities and Exchange Commission.
2.20 "Section" means, unless the context otherwise
requires, a section of this Agreement.
2.21 "Subsidiary" means a corporation as defined in
Section 424(f) of the Code with the Company being treated as the
employer corporation for purposes of this definition.
2.22 "Termination Date" means the date of receipt of the
Notice of Termination or any later date specified in such notice
(which date shall be not more than 15 days after the giving of
such notice), as the case may be; provided, however, that (a) if
the Company terminates the Executive's employment other than for
Cause or Disability, then the Termination Date shall be the date
of receipt of such Notice of Termination and (b) if the
Executive's employment is terminated by reason of death or
Disability, then the Termination Date shall be the date of death
of the Executive or the Disability Effective Date, as the case
may be.
2.23 "Termination Performance Period" -- see Section
3.2(b)(2)(B).
2.24 "Voting Securities" of a corporation means securities
of such corporation that are entitled to vote generally in the
election of directors of such corporation.
ARTICLE III.
POST-CHANGE PERIOD PROTECTIONS
3.1 Position and Duties.
a. During the Post-Change Period, (1) the
Executive's position (including offices, titles, reporting
requirements and responsibilities), authority and duties
shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned
at any time during the 90-day period immediately before the
Effective Date and (2) the Executive's services shall be
performed at the location where the Executive was employed
immediately before the Effective Date or any other location
less than 40 miles from such former location.
b. During the Post-Change Period (other than any
periods of vacation, sick leave or disability to which the
Executive is entitled), the Executive agrees to devote the
Executive's full attention and time to the business and
affairs of the Company and, to the extent necessary to
discharge the duties assigned to the Executive in accordance
with this Agreement, to use the Executive's best efforts to
perform faithfully and efficiently such duties. During the
Post-Change Period, the Executive may (1) serve on
corporate, civic or charitable boards or committees,
(2) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (3) manage personal
investments, so long as such activities are consistent with
the Policies of the Company at the Effective Date and do not
significantly interfere with the performance of the
Executive's duties under this Agreement. To the extent that
any such activities have been conducted by the Executive
before the Effective Date and were consistent with the
Policies of the Company at the Effective Date, the continued
conduct of such activities (or activities similar in nature
and scope) after the Effective Date shall not be deemed to
interfere with the performance of the Executive's duties
under this Agreement.
3.2 Compensation.
a. Base Salary. During the Post-Change Period, the
Company shall pay or cause to be paid to the Executive an
annual base salary in cash ("Guaranteed Base Salary"), which
shall be paid in a manner consistent with the Company's
payroll practices in effect immediately before the Effective
Date at a rate at least equal to 12 times the highest
monthly base salary paid or payable to the Executive by the
Company in respect of the 12-month period immediately before
the Effective Date. During the Post-Change Period, the
Guaranteed Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base
salary awarded to other peer executives of the Company. Any
increase in Guaranteed Base Salary shall not limit or reduce
any other obligation of the Company to the Executive under
this Agreement. After any such increase, the Guaranteed
Base Salary shall not be reduced and the term "Guaranteed
Base Salary" shall thereafter refer to the increased amount.
b. Target Bonus.
(1) In addition to Guaranteed Base Salary,
the Company shall pay or cause to be paid to the
Executive a bonus (the "Guaranteed Bonus") for each
Performance Period which ends during the Post-Change
Period. "Performance Period" means each period of
time designated in accordance with any bonus
arrangement ("Bonus Plan") which is based upon
performance and approved by the Board or any committee
of the Board. The Guaranteed Bonus shall be at least
equal to the product of
(A) the greatest of (i) the On Plan
Percentage (as defined below), or (ii) the Actual
Bonus Percentage (as defined below),
multiplied by
(B) the Guaranteed Annual Salary.
(2) For purposes of this Section 3.2(b):
(A) "On Plan Percentage" means the
percentage of Guaranteed Base Salary to which the
Executive would have been entitled under any
Bonus Plan for the Performance Period for which
the Guaranteed Bonus is awarded ("Current
Performance Period") as if the performance
achieved 100% of performance goals established
pursuant to such Bonus Plan.
(B) "Actual Bonus Percentage" means
the percentage of the rate of Guaranteed Base
Salary for the Current Performance Period which
the Executive would accrue as a bonus under any
Bonus Plan if the performance during the Current
Performance Period were measured by the actual
performance during the Current Performance
Period; provided, however, that for purposes of
calculating the Guaranteed Bonus, "Actual Bonus
Percentage" means the percentage of the rate of
Guaranteed Base Salary for the Performance Period
during which the Termination Date occurred (the
"Termination Performance Period") which the
Executive would accrue as a bonus under any Bonus
Plan if the performance during such Termination
Performance Period were measured by the actual
performance during the Termination Performance
Period before the Termination Date projected to
the last day of such Performance Period.
c. Incentive, Savings and Retirement Plans. In
addition to Guaranteed Base Salary and Guaranteed Bonus
payable as provided in this Section, the Executive shall be
entitled to participate during the Post-Change Period in all
incentive (including long-term incentives), savings and
retirement Plans applicable to other peer executives of the
Company, but in no event shall such Plans provide the
Executive with incentive (including long-term incentives),
savings and retirement benefits which, in any case, are less
favorable, in the aggregate, than the most favorable of
those provided by the Company for the Executive under such
Plans as in effect at any time during the 90-day period
immediately before the Effective Date.
d. Welfare Benefit Plans. During the Post-Change
Period, the Executive and the Executive's family shall be
eligible to participate in, and receive all benefits under,
welfare benefit Plans provided by the Company (including,
without limitation, medical, prescription, dental,
disability, salary continuance, individual life, group life,
dependent life, accidental death and travel accident
insurance Plans) and applicable to other peer executives of
the Company and their families, but in no event shall such
Plans provide benefits which in any case are less favorable,
in the aggregate, than the most favorable of those provided
to the Executive under such Plans as in effect at any time
during the 90-day period immediately before the Effective
Date.
e. Fringe Benefits. During the Post-Change Period,
the Executive shall be entitled to fringe benefits in
accordance with the most favorable Plans applicable to peer
executives of the Company, but in no event shall such Plans
provide fringe benefits which in any case are less
favorable, in the aggregate, than the most favorable of
those provided by the Company to peer executives under such
Plans in effect at any time during the 90-day period
immediately before the Effective Date.
f. Expenses. During the Post-Change Period, the
Executive shall be entitled to prompt reimbursement of all
reasonable employment-related expenses incurred by the
Executive upon the Company's receipt of accountings in
accordance with the most favorable Policies applicable to
peer executives of the Company, but in no event shall such
Policies be less favorable, in the aggregate, than the most
favorable of those provided by the Company for the Executive
under such Policies in effect at any time during the 90-day
period immediately before the Effective Date.
g. Office and Support Staff. During the Post-Change
Period, the Executive shall be entitled to an office or
offices of a size and with furnishings and other
appointments, and to exclusive personal secretarial and
other assistance in accordance with the most favorable
Policies applicable to peer executives of the Company, but
in no event shall such Policies be less favorable, in the
aggregate, than the most favorable of those provided by the
Company for the Executive under such Policies in effect at
any time during the 90-day period immediately before the
Effective Date.
h. Vacation. During the Post-Change Period, the
Executive shall be entitled to paid vacation in accordance
with the most favorable Policies applicable to peer
executives of the Company, but in no event shall such
Policies be less favorable, in the aggregate, than the most
favorable of those provided by the Company for the Executive
under such Policies in effect at any time during the 90-day
period immediately before the Effective Date.
3.3 Stock Options.
In addition to the other benefits provided in this
Section, on the Effective Date, the Executive shall become
fully vested in any and all outstanding stock options
granted to Executive for shares of common stock of the
Company or to the extent that such options are not vested,
shall receive a lump-sum cash payment equal to the spread of
all non-vested, forfeited options as of the date such
options are forfeited.
ARTICLE IV.
TERMINATION OF EMPLOYMENT
4.1 Disability.
a. During the Post-Change Period, the Company may
terminate the Executive's employment upon the Executive's
Disability (as defined in Section 4.1(b))) by giving the
Executive or his legal representative, as applicable,
(1) written notice in accordance with Section 12.7 of the
Company's intention to terminate the Executive's employment
pursuant to this Section and (2) a certification of the
Executive's Disability by a physician selected by the
Company or its insurers and reasonably acceptable to the
Executive or the Executive's legal representative. The
Executive's employment shall terminate effective on the 30th
day (the "Disability Effective Date") after the Executive's
receipt of such notice unless, before the Disability
Effective Date, the Executive shall have resumed the
full-time performance of the Executive's duties.
b. "Disability" means any medically determinable
physical or mental impairment that has lasted for a
continuous period of not less than six months and can be
expected to be permanent or of indefinite duration, and that
renders the Executive unable to perform the duties required
under this Agreement.
4.2 Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Post-Change
Period.
4.3 Cause.
a. During the Post-Change Period, the Company may
terminate the Executive's employment for Cause.
b. "Cause" means any of the following: commission
by the Executive of any felony; or willful breach of duty by
the Executive in the course of the Executive's employment;
except that Cause shall not mean:
(1) bad judgment or negligence;
(2) any act or omission believed by the
Executive in good faith to have been in or not opposed to
the interest of the Company (without intent of the Executive
to gain, directly or indirectly, a profit to which the
Executive was not legally entitled);
(3) any act or omission with respect to which a
determination could properly have been made by the Board
that the Executive met the applicable standard of conduct
for indemnification or reimbursement under the Company's
by-laws, any applicable indemnification agreement, or
applicable law, in each case in effect at the time of such
act or omission; or
(4) any act or omission with respect to which
notice of termination of employment of the Executive is
given more than 12 months after the earliest date on which
any member of the Board, not a party to the act or omission,
knew or should have known of such act or omission.
c. Any termination of the Executive's employment by
the Company for Cause shall be communicated to the Executive
by Notice of Termination.
4.4 Good Reason.
a. During the Post-Change Period, the Executive may
terminate his or her employment for Good Reason.
b. "Good Reason" means any of the following:
(1) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including offices, titles,
reporting requirements or responsibilities), authority
or duties as contemplated by Section 3.1(a)(1), or any
other action by the Company which results in a
diminution or other material adverse change in such
position, authority or duties;
(2) any failure by the Company to comply
with any of the provisions of Article III;
(3) the Company's requiring the Executive
to be based at any office or location other than the
location described in Section 3.1(a)(2);
(4) any other material adverse change to
the terms and conditions of the Executive's
employment;
(5) any purported termination by the
Company of the Executive's employment other than as
expressly permitted by this Agreement (any such
purported termination shall not be effective for any
other purpose under this Agreement); or
(6) a termination of employment by the
Executive for any reason during the 30-day period
immediately following the first anniversary of the
Effective Date.
Any reasonable determination of "Good Reason" made in good
faith by the Executive shall be conclusive.
c. Any termination of employment by the Executive
for Good Reason shall be communicated to the Company by
Notice of Termination. A passage of time prior to delivery
of Notice of Termination or a failure by the Executive to
include in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason
shall not waive any right of the Executive under this
Agreement or preclude the Executive from asserting such fact
or circumstance in enforcing rights under this Agreement.
ARTICLE V.
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Good Reason or by the Company
Other Than for Cause or Disability. If, during the Post-Change
Period, the Company shall terminate Executive's employment other
than for Cause or Disability, or if the Executive shall terminate
employment for Good Reason, the Company shall immediately pay the
Executive, in addition to all vested rights arising from the
Executive's employment as specified in Article III, a cash amount
equal to the sum of the following amounts:
a. to the extent not previously paid, the Guaranteed
Base Salary and any accrued vacation pay through the
Termination Date;
b. the difference between (1) the product of (A) the
Guaranteed Bonus, multiplied by (B) a fraction, the
numerator of which is the number of days in the Termination
Performance Period which elapsed before the Termination
Date, and the denominator of which is the total number of
days in the Termination Performance Period, and (2) the
amount of any Guaranteed Bonus paid to the Executive with
respect to the Termination Performance Period;
c. all amounts previously deferred by or an accrual
to the benefit of the Executive under any nonqualified
deferred compensation or pension plan, together with any
accrued earnings thereon, and not yet paid by the Company;
d. an amount equal to the product of (1) three (3.0)
multiplied by (2) the sum of (A) Guaranteed Base Salary and
(B) the highest Guaranteed Bonus paid (or payable regardless
of whether earned) to the Executive in the two prior years;
e. an amount equal to the sum of the value of the
unvested portion of the Executive's accounts or accrued
benefits under any qualified plan maintained by the Company
as of the Termination Date;
f. an amount equal to the value (determined using
actuarial assumptions consistent with those used by the
Company for financial reporting purposes) of the Executive's
accrued benefits under (1) the Fingerhut Corporation Pension
Excess Plan and (2) the Fingerhut Companies, Inc.
Nonqualified Supplemental Executive Retirement Plan (or any
such successor or similar plans as may be in effect as of
the Termination Date) (the "Excess/Supplemental Plans"
calculated as though the Executive (A) continued to accrue
benefits under the Excess/Supplemental Plans for a period of
three years after the Termination Date, and (B) received
compensation during each year of such three-year period
equal to the sum of the Guaranteed Base Salary and the
highest Guaranteed Bonus paid (or payable) to the Executive
in the two years preceding the Termination Date; and
g. an amount equal to the payment to which the
Executive would be entitled under the Fingerhut Corporation
Profit Sharing Excess Plan (or any such successor or similar
plan as may be in effect as of the Termination Date) for the
plan year in which the Termination Date occurs as if the
Executive were eligible to share in the Company's
contribution to the Fingerhut Corporation Profit Sharing
Plan for such plan years; and
h. pay on behalf of Executive all fees and costs
charged by the outplacement firm selected by the Executive
to provide outplacement services or at the election of the
Executive, cash equal to the fees and expenses such
outplacement firm would charge.
Until the third anniversary of the Termination Date or such later
date as any Plan of the Company may specify, the Company shall
continue to provide to the Executive and the Executive's family
welfare benefits (including, without limitation, medical,
prescription, dental, disability, salary continuance, individual
life, group life, accidental death and travel accident insurance
plans and programs) which are at least as favorable as the most
favorable Plans of the Company applicable to other peer
executives and their families as of the Termination Date, but
which are in no event less favorable than the most favorable
Plans of the Company applicable to other peer executives and
their families during the 90-day period immediately before the
Effective Date. The cost of such welfare benefits shall not
exceed the cost of such benefits to the Executive immediately
before the Termination Date or, if less, the Effective Date.
Notwithstanding the foregoing, if the Executive is covered under
any medical, life, or disability insurance plan(s) provided by a
subsequent employer, then the amount of coverage required to be
provided by the Employer hereunder shall be reduced by the amount
of coverage provided by the subsequent employer's medical, life,
or disability insurance plan(s). The Executive's rights under
this Section shall be in addition to, and not in lieu of, any
post-termination continuation coverage or conversion rights the
Executive may have pursuant to applicable law, including without
limitation continuation coverage required by Section 4980 of the
Code.
5.2 If by the Company for Cause. If the Company
terminates the Executive's employment for Cause during the
Post-Change Period, this Agreement shall terminate without
further obligation by the Company to the Executive, other than
the obligation immediately to pay the Executive in cash the
Executive's Guaranteed Base Salary through the Termination Date,
plus the amount of any compensation previously deferred by the
Executive, plus any accrued vacation pay, in each case to the
extent not previously paid.
5.3 If by the Executive Other Than for Good Reason. If
the Executive terminates employment during the Post-Change Period
other than for Good Reason, Disability or death, this Agreement
shall terminate without further obligations by the Company, other
than the obligation immediately to pay the Executive in cash all
amounts specified in clauses (a), (b) and (c) of the first
sentence of Section 5.1 (such amounts collectively, the "Accrued
Obligations").
5.4 If by the Company for Disability. If the Company
terminates the Executive's employment by reason of the
Executive's Disability during the Post-Change Period, this
Agreement shall terminate without further obligations to the
Executive, other than
(a) the Company's obligation immediately to pay the
Executive in cash all Accrued Obligations, and
(b) the Executive's right after the Disability
Effective Date to receive disability and other benefits at
least equal to the greater of (1) those provided under the
most favorable disability Plans applicable to disabled peer
executives of the Company in effect immediately before the
Termination Date or (2) those provided under the most
favorable disability Plans of the Company in effect at any
time during the 90-day period immediately before the
Effective Date.
5.5 If upon Death. If the Executive's employment is
terminated by reason of the Executive's death during the
Post-Change Period, this Agreement shall terminate without
further obligations to the Executive's legal representatives
under this Agreement, other than the obligation immediately to
pay the Executive's estate or beneficiary in cash all Accrued
Obligations. Despite anything in this Agreement to the contrary,
the Executive's family shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the
Company to the surviving families of peer executives of the
Company under such Plans, but in no event shall such Plans
provide benefits which in each case are less favorable, in the
aggregate, than the most favorable of those provided by the
Company to the Executive under such Plans in effect at any time
during the 90-day period immediately before the Effective Date.
ARTICLE VI.
NON-EXCLUSIVITY OF RIGHTS
6.1 Waiver of Other Severance Rights. To the extent that
payments are made to the Executive pursuant to Section 5.1, the
Executive hereby waives the right to receive severance payments
under any other Plan or agreement of the Company.
6.2 Other Rights. Except as provided in Section 6.1, this
Agreement shall not prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive or other
Plans, provided by the Company or any of its Subsidiaries and for
which the Executive may qualify, nor shall this Agreement limit
or otherwise affect such rights as the Executive may have under
any other agreements with the Company or any of its Subsidiaries.
Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any Plan of the Company or
any of its Subsidiaries and any other payment or benefit required
by law at or after the Termination Date shall be payable in
accordance with such Plan or applicable law except as expressly
modified by this Agreement.
ARTICLE VII.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
7.1 Gross-up for Certain Taxes. If it is determined (by
the reasonable computation of the Company's independent auditors,
which determinations shall be certified to by such auditors and
set forth in a written certificate ("Certificate") delivered to
the Executive) that any benefit received or deemed received by
the Executive from the Company pursuant to this Agreement or
otherwise (collectively, the "Payments") is or will become
subject to any excise tax under Section 4999 of the Code or any
similar tax payable under any United States federal, state, local
or other law (such excise tax and all such similar taxes
collectively, "Excise Taxes"), then the Company shall,
immediately after such determination, pay the Executive an amount
(the "Gross-up Payment") equal to the product of
(a) the amount of such Excise Taxes
multiplied by
(b) the Gross-up Multiple (as defined in Section
7.4).
The Gross-up Payment is intended to compensate the Executive for
the Excise Taxes and any federal, state, local or other income or
excise taxes or other taxes payable by the Executive with respect
to the Gross-up Payment.
The Executive or the Company may at any time request the
preparation and delivery to the Executive of a Certificate. The
Company shall, in addition to complying with Section 7.2, cause
all determinations and certifications under the Article to be
made as soon as reasonably possible and in adequate time to
permit the Executive to prepare and file the Executive's
individual tax returns on a timely basis.
7.2 Determination by the Executive.
a. If the Company shall fail to deliver a
Certificate to the Executive (and to pay to the Executive
the amount of the Gross-up Payment, if any) within 14 days
after receipt from the Executive of a written request for a
Certificate, or if at any time following receipt of a
Certificate the Executive disputes the amount of the
Gross-up Payment set forth therein, the Executive may elect
to demand the payment of the amount which the Executive, in
accordance with an opinion of counsel to the Executive
("Executive Counsel Opinion"), determines to be the Gross-up
Payment. Any such demand by the Executive shall be made by
delivery to the Company of a written notice which specifies
the Gross-up Payment determined by the Executive and an
Executive Counsel Opinion regarding such Gross-up Payment
(such written notice and opinion collectively, the
"Executive's Determination"). Within 14 days after delivery
of the Executive's Determination to the Company, the Company
shall either (1) pay the Executive the Gross-up Payment set
forth in the Executive's Determination (less the portion of
such amount, if any, previously paid to the Executive by the
Company) or (2) deliver to the Executive a Certificate
specifying the Gross-up Payment determined by the Company's
independent auditors, together with an opinion of the
Company's counsel ("Company Counsel Opinion"), and pay the
Executive the Gross-up Payment specified in such
Certificate. If for any reason the Company fails to comply
with clause (2) of the preceding sentence, the Gross-up
Payment specified in the Executive's Determination shall be
controlling for all purposes.
b. If the Executive does not make a request for, and
the Company does not deliver to the Executive, a
Certificate, the Company shall, for purposes of Section 7.3,
be deemed to have determined that no Gross-up Payment is
due.
7.3 Additional Gross-up Amounts. If, despite the initial
conclusion of the Company and/or the Executive that certain
Payments are neither subject to Excise Taxes nor to be counted in
determining whether other Payments are subject to Excise Taxes
(any such item, a "Non-Parachute Item"), it is later determined
(pursuant to the subsequently-enacted provisions of the Code,
final regulations or published rulings of the IRS, final judgment
of a court of competent jurisdiction or the Company's independent
auditors that any of the Non-Parachute Items are subject to
Excise Taxes, or are to be counted in determining whether any
Payments are subject to Excise Taxes, with the result that the
amount of Excise Taxes payable by the Executive is greater than
the amount determined by the Company or the Executive pursuant to
Section 7.1 or 7.2, as applicable, then the Company shall pay the
Executive an amount (which shall also be deemed a Gross-up
Payment) equal to the product of
(a) the sum of (1) such additional Excise Taxes and
(2) any interest, fines, penalties, expenses or other costs
incurred by the Executive as a result of having taken a
position in accordance with a determination made pursuant to
Section 7.1
multiplied by
(b) the Gross-up Multiple.
7.4 Gross-up Multiple. The Gross-up Multiple shall equal
a fraction, the numerator of which is one (1.0), and the
denominator of which is one (1.0) minus the sum, expressed as a
decimal fraction, of the rates of all federal, state, local and
other income and other taxes and any Excise Taxes applicable to
the Gross-up Payment; provided that, if such sum exceeds 0.8, it
shall be deemed equal to 0.8 for purposes of this computation.
(If different rates of tax are applicable to various portions of
a Gross-up Payment, the weighted average of such rates shall be
used.)
7.5 Opinion of Counsel. "Executive Counsel Opinion" means
a legal opinion of nationally recognized executive compensation
counsel that there is a reasonable basis to support a conclusion
that the Gross-up Payment determined by the Executive has been
calculated in accord with this Article and applicable law.
"Company Counsel Opinion" means a legal opinion of nationally
recognized executive compensation counsel that (a) there is a
reasonable basis to support a conclusion that the Gross-up
Payment set forth of the Certificate of Company's independent
auditors has been calculated in accord with this Article and
applicable law, and (b) there is no reasonable basis for the
calculation of the Gross-up Payment determined by the Executive.
7.6 Amount Increased or Contested. The Executive shall
notify the Company in writing of any claim by the IRS or other
taxing authority that, if successful, would require the payment
by the Company of a Gross-up Payment. Such notice shall include
the nature of such claim and the date on which such claim is due
to be paid. The Executive shall give such notice as soon as
practicable, but no later than 10 business days, after the
Executive first obtains actual knowledge of such claim; provided,
however, that any failure to give or delay in giving such notice
shall affect the Company's obligations under this Article only if
and to the extent that such failure results in actual prejudice
to the Company. The Executive shall not pay such claim less than
30 days after the Executive gives such notice to the Company (or,
if sooner, the date on which payment of such claim is due). If
the Company notifies the Executive in writing before the
expiration of such period that it desires to contest such claim,
the Executive shall:
a. give the Company any information that it
reasonably requests relating to such claim,
b. take such action in connection with contesting
such claim as the Company reasonably requests in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by the Company,
c. cooperate with the Company in good faith to
contest such claim, and
d. permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax, including related interest and
penalties, imposed as a result of such representation and payment
of costs and expenses. Without limiting the foregoing, the
Company shall control all proceedings in connection with such
contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner. The Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall
indemnify the Executive, on an after-tax basis, for any Excise
Tax or income tax, including related interest or penalties,
imposed with respect to such advance; and further provided that
any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. The Company's control of the
contest shall be limited to issues with respect to which a
Gross-up Payment would be payable. The Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the IRS or other taxing authority.
7.7 Refunds. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 7.6, the
Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 7.6) promptly pay the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7.6, a determination is made that the
Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in
writing of its intent to contest such determination before the
expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the
amount of Gross-up Payment required to be paid. Any contest of a
denial of refund shall be controlled by Section 7.6.
ARTICLE VIII.
EXPENSES AND INTEREST
8.1 Legal Fees and Other Expenses.
a. If the Executive incurs legal fees or other
expenses in a good faith effort to obtain benefits under
this Agreement (including, without limitation, the fees and
other expenses of the Executive's legal counsel in
connection with the delivery of the Opinion referred to in
Section 7.5), regardless of whether the Executive ultimately
prevails, the Company shall reimburse the Executive on a
current basis for such fees and expenses to the extent not
reimbursed under the Company's officers and directors
liability insurance policy, if any. The existence of any
controlling case or regulatory law which is directly
inconsistent with the position taken by the Executive shall
be evidence that the Executive did not act in good faith.
b. Reimbursement of legal fees and expenses shall be
made monthly upon the written submission of a request for
reimbursement together with evidence that such fees and
expenses are due and payable or were paid by the Executive.
If the Company shall have reimbursed the Executive for legal
fees and expenses and it is later determined that the
Executive was not acting in good faith, all amounts paid on
behalf of, or reimbursed to, the Executive shall be promptly
refunded to the Company.
8.2 Interest. If the Company does not pay any amount
due to the Executive under this Agreement within three days after
such amount became due and owing, interest shall accrue on such
amount from the date it became due and owing until the date of
payment at a annual rate equal to two percent (2.0%) above the
base commercial lending rate announced by Harris Trust and
Savings Bank in effect from time to time during the period of
such nonpayment.
ARTICLE IX.
NO SET-OFF OR MITIGATION
9.1 No Set-off by Company. The Executive's right to
receive when due the payments and other benefits provided for
under this Agreement is absolute, unconditional and subject to no
set-off, counterclaim or legal or equitable defense. Time is of
the essence in the performance by the Company of its obligations
under this Agreement. Any claim which the Company may have
against the Executive, whether for a breach of this Agreement or
otherwise, shall be brought in a separate action or proceeding
and not as part of any action or proceeding brought by the
Executive to enforce any rights against the Company under this
Agreement.
9.2 No Mitigation. The Executive shall not have any duty
to mitigate the amounts payable by the Company under this
Agreement by seeking new employment following termination.
Except as specifically otherwise provided in this Agreement, all
amounts payable pursuant to this Agreement shall be paid without
reduction regardless of any amounts of salary, compensation or
other amounts which may be paid or payable to the Executive as
the result of the Executive's employment by another employer.
ARTICLE X.
CONFIDENTIALITY AND NONCOMPETITION
10.1 Confidentiality. Executive acknowledges that it is
the policy of the Company and its subsidiaries to maintain as
secret and confidential all valuable and unique information and
techniques acquired, developed or used by the Company and its
subsidiaries relating to their business, operations, employees
and customers, which gives the Company and its subsidiaries a
competitive advantage in the retail catalogue industry and other
businesses in which the Company and its subsidiaries are engaged
("Confidential Information"). Executive recognizes that all such
Confidential Information is the sole and exclusive property of
the Company and its subsidiaries, and that disclosure of
Confidential Information would cause damage to the Company and
its subsidiaries. Executive agrees that, except as required by
the duties of his employment with the Company and/or its
subsidiaries and except in connection with enforcing the
Executive's rights under this Agreement or if compelled by a
court or governmental agency, he will not, without the consent of
the Company, disseminate or otherwise disclose any Confidential
Information obtained during his employment with the Company
and/or its subsidiaries for so long as such information is
valuable and unique.
10.2 Noncompetition/Nonsolicitation.
a. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if
Executive's employment is terminated for any reason,
thereafter for a period of one (1) year, Executive will not
at any time directly or indirectly, in any capacity, engage
or participate in, or become employed by or render advisory
or consulting or other services in connection with any
Prohibited Business as defined in Section 10.2(d).
b. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if
Executive's employment is terminated for any reason,
thereafter for a period of one (1) year, Executive shall not
make any financial investment, whether in the form of equity
or debt, or own any interest, directly or indirectly, in any
Prohibited Business. Nothing in this Section 10.2(b) shall,
however, restrict Executive from making any investment in
any company whose stock is listed on a national securities
exchange or actively traded in the over-the-counter market;
provided that (1) such investment does not give Executive
the right or ability to control or influence the policy
decisions of any Prohibited Business, and (2) such
investment does not create a conflict of interest between
Executive's duties hereunder and Executive's interest in
such investment.
c. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if
Executive's employment is terminated for any reason,
thereafter for a period of one (1) year, Executive shall not
(1) employ any employee of the Company and/or its
subsidiaries or (2) interfere with the Company's or any of
its subsidiaries' relationship with, or endeavor to entice
away from the Company and/or its subsidiaries any person,
firm, corporation, or other business organization who or
which at any time (whether before or after the date of
Executive's termination of employment), was an employee,
customer, vendor or supplier of, or maintained a business
relationship with, any business of the Company and/or its
subsidiaries which was conducted at any time during the
period commencing one year prior to the termination of
employment.
d. For the purpose of this Section 10.2, "Prohibited
Business" shall be defined as any retail catalogue business
or any other type of business, entity and any branch, office
or operation thereof, which is a direct and material
competitor of the Company wherever the Company does
business, in the United States or abroad.
10.3 Remedy. Executive and the Company specifically agree
that, in the event that Executive shall breach his obligations
under this Article X, the Company and its subsidiaries will
suffer irreparable injury and no adequate remedy for such breach,
and shall be entitled to injunctive relief therefor, and in
particular, without limiting the generality of the foregoing, the
Company shall not be precluded from pursuing any and all remedies
it may have at law or in equity for breach of such obligations;
provided, however, that such breach shall not in any manner or
degree whatsoever limit, reduce or otherwise affect the
obligations of the Company under this Agreement, and in no event
shall an asserted breach of the Executive's obligations under
this Article X constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this
Agreement.
ARTICLE XI.
MISCELLANEOUS
11.1 No Assignability. This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
legal representatives.
11.2 Successors. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and
assigns. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company
to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
Any successor to the business and/or assets of the Company which
assumes or agrees to perform this Agreement by operation of law,
contract, or otherwise shall be jointly and severally liable with
the Company under this Agreement as if such successor were the
Company.
11.3 Payments to Beneficiary. If the Executive dies before
receiving amounts to which the Executive is entitled under this
Agreement, such amounts shall be paid in a lump sum to the
beneficiary designated in writing by the Executive, or if none is
so designated, to the Executive's estate.
11.4 Non-alienation of Benefits. Benefits payable under
this Agreement shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution or levy of any kind,
either voluntary or involuntary, before actually being received
by the Executive, and any such attempt to dispose of any right to
benefits payable under this Agreement shall be void.
11.5 Severability. If any one or more articles, sections
or other portions of this Agreement are declared by any court or
governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any
article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to
be unlawful or invalid shall be construed so as to effectuate the
terms of such article, section or other portion to the fullest
extent possible while remaining lawful and valid.
11.6 Amendments. Except as provided in Section 2.2 hereof,
this Agreement shall not be altered, amended or modified except
by written instrument executed by the Company and Executive.
11.7 Notices. All notices and other communications under
this Agreement shall be in writing and delivered by hand or by
first class registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing. Notice and communications shall be
effective when actually received by the addressee.
11.8 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original,
but all of which together constitute one and the same instrument.
11.9 Governing Law. This Agreement shall be interpreted
and construed in accordance with the laws of the State of
Minnesota, without regard to its choice of law principles.
11.10 Captions. The captions of this Agreement are not
a part of the provisions hereof and shall have no force or
effect.
11.11 Tax Withholding. The Company may withhold from
any amounts payable under this Agreement any federal, state or
local taxes that are required to be withheld pursuant to any
applicable law or regulation.
11.12 No Waiver. The Executive's failure to insist
upon strict compliance with any provision of this Agreement shall
not be deemed a waiver of such provision or any other provision
of this Agreement. A waiver of any provision of this Agreement
shall not be deemed a waiver of any other provision, and any
waiver of any default in any such provision shall not be deemed a
waiver of any later default thereof or of any other provision.
11.13 Entire Agreement. This Agreement contains the
entire understanding of the Company and the Executive with
respect to its subject matter.
IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement as of the date first above written.
[Executive]
FINGERHUT COMPANIES, INC.
By:
Title:
&k2S
FINGERHUT COMPANIES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I.
PURPOSES 1
ARTICLE II.
CERTAIN DEFINITIONS 1
2.1 Accrued Obligations 1
2.2 Agreement Term 1
2.3 Article 1
2.4 Beneficial owner 2
2.5 Cause 2
2.6 Change of Control 2
2.7 Code 3
2.8 Disability 3
2.9 Effective Date 3
2.10 Good Reason 3
2.11 Imminent Control Change Date 3
2.12 IRS 3
2.13 1934 Act 3
2.14 Notice of Termination 3
2.15 Plans 4
2.16 Policies 4
2.17 Post-Change Period 4
2.18 SEC 4
2.19 Section 4
2.20 Subsidiary 4
2.21 Termination Date 4
2.22 Termination Performance Period 4
2.23 Voting Securities 4
ARTICLE III.
POST-CHANGE PERIOD PROTECTIONS 4
3.1 Position and Duties 4
3.2 Compensation 5
3.3 Stock Options 7
ARTICLE IV.
TERMINATION OF EMPLOYMENT 8
4.1 Disability 8
4.2 Death 8
4.3 Cause 8
4.4 Good Reason 9
ARTICLE V.
OBLIGATIONS OF THE COMPANY UPON TERMINATION 10
5.1 If by the Executive for Good Reason or by
the Company Other Than for Cause or Disability 10
5.2 If by the Company for Cause 11
5.3 If by the Executive Other Than for Good
Reason 12
5.4 If by the Company for Disability 12
5.5 If upon Death 12
ARTICLE VI.
NON-EXCLUSIVITY OF RIGHTS 12
6.1 Waiver of Other Severance Rights 12
6.2 Other Rights 12
ARTICLE VII.
EXPENSES AND INTEREST 13
7.1 Legal Fees and Other Expenses 13
7.2 Interest 13
ARTICLE VIII.
NO SET-OFF OR MITIGATION 13
8.1 No Set-off by Company 13
8.2 No Mitigation 14
ARTICLE IX.
CONFIDENTIALITY AND NONCOMPETITION 14
9.1 Confidentiality 14
9.2 Noncompetition/Nonsolicitation 14
9.3 Remedy 15
ARTICLE X.
MISCELLANEOUS 15
10.1 No Assignability 15
10.2 Successors 16
10.3 Payments to Beneficiary 16
10.4 Non-alienation of Benefits 16
10.5 Severability 16
10.6 Amendments 16
10.7 Notices 16
10.8 Counterparts 17
10.9 Governing Law 17
10.10 Captions 17
10.11 Tax Withholding 17
10.12 No Waiver 17
10.13 Entire Agreement 17
FINGERHUT COMPANIES, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT dated as of , 1997 is made between
FINGERHUT COMPANIES, INC., a Minnesota corporation having its
principal place of business in Minnetonka, Minnesota (the
"Company"), and (the "Executive"), a resident
of .
ARTICLE I.
PURPOSES
The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and
its stockholders to assure that the Company will have the
continued service of the Executive, despite the possibility or
occurrence of a change of control of the Company. The Board
believes it is imperative to reduce the distraction of the
Executive that would result from the personal uncertainties
caused by a pending or threatened change of control, to encourage
the Executive's full attention and dedication to the Company, and
to provide the Executive with compensation and benefits
arrangements upon a change of control which ensure that the
expectations of the Executive will be satisfied and are
competitive with those of similarly-situated corporations. This
Agreement is intended to accomplish these objectives.
ARTICLE II.
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall
have the following meanings:
2.1 "Accrued Obligations" -- see Section 5.3.
2.2 "Agreement Term" means the period commencing on the
date of this Agreement and ending on the later of May 31, 2000
or a date which is twelve months after the date the Company
gives Executive notice of expiration (such applicable date called
the "Expiration Date"); provided, however, that if a Change of
Control or an Imminent Control Change Date occurs before the
Expiration Date, then (a) the Agreement Term shall automatically
extend to a date which is twelve (12) months after the date of
the Change of Control or Imminent Change of Control, as further
extended under the terms of this sentence should any Change of
Control or Imminent Change of Control occur prior to the
expiration of the Agreement Term as from time to time so
extended.
2.3 "Article" means an article of this Agreement.
2.4 "Beneficial owner" means such term as defined in Rule
13d-3 of the SEC under the 1934 Act.
2.5 "Cause" -- see Section 4.3(b).
2.6 "Change of Control" means, except as otherwise
provided below, the occurrence of any of the following:
a. any person (as such term is used in Rule 13d-5 of
the SEC under the 1934 Act) or group (as such term is
defined in Section 13(d) of the 1934 Act), other than a
Subsidiary or any employee benefit plan (or any related
trust) of the Company or a Subsidiary, becomes the
beneficial owner of 25% or more of the common stock of the
Company or of Voting Securities representing 25% or more of
the combined voting power of all Voting Securities of the
Company, except that no Change of Control shall be deemed to
have occurred solely by reason of any such acquisition by a
corporation with respect to which, after such acquisition,
more than 80% of both the common stock of such corporation
and the combined voting power of the Voting Securities of
such corporation are then beneficially owned, directly or
indirectly, by the persons who were the beneficial owners of
the common stock and Voting Securities of the Company
immediately before such acquisition in substantially the
same proportion as their ownership, immediately before such
acquisition, of the common stock and Voting Securities of
the Company, as the case may be;
b. individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Directors") cease for
any reason to constitute at least a majority of the Board;
provided that any individual who becomes a director after
the Effective Date whose election, or nomination for
election by the Company's stockholders, was approved by a
vote or written consent of at least two-thirds of the
directors then comprising the Incumbent Directors shall be
considered an Incumbent Director, but excluding, for this
purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened
election contest relating to the election of the directors
of the Company (as such terms are used in Rule 14a-11 of the
SEC under the 1934 Act); or
c. approval by the stockholders of the Company of
any of the following:
(1) a merger, reorganization or
consolidation ("Merger") with respect to which the
individuals and entities who were the respective
beneficial owners of the stock and Voting Securities
of the Company immediately before such Merger do not,
after such Merger, beneficially own, directly or
indirectly, more than 80% of, respectively, the common
stock and the combined voting power of the Voting
Securities of the corporation resulting from such
Merger in substantially the same proportion as their
ownership immediately before such Merger, or
(2) the sale or other disposition of all or
substantially all of the assets of the Company.
Despite clauses (a), (b) and (c) of this definition, a Change of
Control shall not occur with respect to the Executive if the
Executive is, by written agreement executed before such Change of
Control, a participant on such Executive's own behalf in a
transaction in which the persons or entities (or their
affiliates) with whom the Executive has the written agreement
Acquire the Company (as defined below) and, pursuant to the
written agreement, the Executive has an equity interest in the
resulting entity or a right to acquire such an equity interest.
"Acquire the Company" means the acquisition of beneficial
ownership by purchase, merger, or otherwise, of either more than
50% of the stock (such percentage to be computed in accordance
with Rule 13d-3(d)(1)(i) of the SEC under the 1934 Act) or
substantially all of the assets of the Company or its successors.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended.
2.8 "Disability" -- see Section 4.1(b).
2.9 "Effective Date" means the first date on which a
Change of Control occurs during the Agreement Term. Despite
anything in this Agreement to the contrary, if the Company
terminates the Executive's employment before the date of a Change
of Control, and if the Executive reasonably demonstrates that
such termination of employment (a) was at the request of a third
party who had taken steps reasonably calculated to effect the
Change of Control or (b) otherwise arose in connection with or
anticipation of the Change of Control, then "Effective Date"
shall mean the date immediately before the date of such
termination of employment.
2.10 "Good Reason" -- see Section 4.4(b).
2.11 "Imminent Control Change Date" means any date on which
occurs (a) a presentation to the Company's stockholders generally
or any of the Company's directors or executive officers of a
proposal or offer for a Change of Control, or (b) the public
announcement (whether by advertisement, press release, press
interview, public statement, SEC filing or otherwise) of a
proposal or offer for a Change of Control, or (c) such proposal
or offer remains effective and unrevoked.
2.12 "IRS" means the Internal Revenue Service.
2.13 "1934 Act" means the Securities Exchange Act of 1934.
2.14 "Notice of Termination" means a written notice given
in accordance with Section 11.7 which sets forth (a) the specific
termination provision in this Agreement relied upon by the party
giving such notice, (b) in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under such termination provision and
(c) if the Termination Date is other than the date of receipt of
such Notice of Termination, the Termination Date.
2.15 "Plans" means plans, programs, policies or practices
of the Company.
2.16 "Policies" means policies, practices or procedures of
the Company.
2.17 "Post-Change Period" means the period commencing on
the Effective Date and ending on the second anniversary of such
date.
2.18 "SEC" means the Securities and Exchange Commission.
2.19 "Section" means, unless the context otherwise
requires, a section of this Agreement.
2.20 "Subsidiary" means a corporation as defined in
Section 424(f) of the Code with the Company being treated as the
employer corporation for purposes of this definition.
2.21 "Termination Date" means the date of receipt of the
Notice of Termination or any later date specified in such notice
(which date shall be not more than 15 days after the giving of
such notice), as the case may be; provided, however, that (a) if
the Company terminates the Executive's employment other than for
Cause or Disability, then the Termination Date shall be the date
of receipt of such Notice of Termination and (b) if the
Executive's employment is terminated by reason of death or
Disability, then the Termination Date shall be the date of death
of the Executive or the Disability Effective Date, as the case
may be.
2.22 "Termination Performance Period" -- see Section
3.2(b)(2)(B).
2.23 "Voting Securities" of a corporation means securities
of such corporation that are entitled to vote generally in the
election of directors of such corporation.
ARTICLE III.
POST-CHANGE PERIOD PROTECTIONS
3.1 Position and Duties.
a. During the Post-Change Period, (1) the
Executive's position (including offices, titles, reporting
requirements and responsibilities), authority and duties
shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned
at any time during the 90-day period immediately before the
Effective Date and (2) the Executive's services shall be
performed at the location where the Executive was employed
immediately before the Effective Date or any other location
less than 40 miles from such former location.
b. During the Post-Change Period (other than any
periods of vacation, sick leave or disability to which the
Executive is entitled), the Executive agrees to devote the
Executive's full attention and time to the business and
affairs of the Company and, to the extent necessary to
discharge the duties assigned to the Executive in accordance
with this Agreement, to use the Executive's best efforts to
perform faithfully and efficiently such duties. During the
Post-Change Period, the Executive may (1) serve on
corporate, civic or charitable boards or committees,
(2) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (3) manage personal
investments, so long as such activities are consistent with
the Policies of the Company at the Effective Date and do not
significantly interfere with the performance of the
Executive's duties under this Agreement. To the extent that
any such activities have been conducted by the Executive
before the Effective Date and were consistent with the
Policies of the Company at the Effective Date, the continued
conduct of such activities (or activities similar in nature
and scope) after the Effective Date shall not be deemed to
interfere with the performance of the Executive's duties
under this Agreement.
3.2 Compensation.
a. Base Salary. During the Post-Change Period, the
Company shall pay or cause to be paid to the Executive an
annual base salary in cash ("Guaranteed Base Salary"), which
shall be paid in a manner consistent with the Company's
payroll practices in effect immediately before the Effective
Date at a rate at least equal to 12 times the highest
monthly base salary paid or payable to the Executive by the
Company in respect of the 12-month period immediately before
the Effective Date. During the Post-Change Period, the
Guaranteed Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base
salary awarded to other peer executives of the Company. Any
increase in Guaranteed Base Salary shall not limit or reduce
any other obligation of the Company to the Executive under
this Agreement. After any such increase, the Guaranteed
Base Salary shall not be reduced and the term "Guaranteed
Base Salary" shall thereafter refer to the increased amount.
b. Target Bonus.
(1) In addition to Guaranteed Base Salary,
the Company shall pay or cause to be paid to the
Executive a bonus (the "Guaranteed Bonus") for each
Performance Period which ends during the Post-Change
Period. "Performance Period" means each period of
time designated in accordance with any bonus
arrangement ("Bonus Plan") which is based upon
performance and approved by the Board or any committee
of the Board. The Guaranteed Bonus shall be at least
equal to the product of
(A) the greater of (i) the On Plan
Percentage (as defined below), or (ii) the Actual
Bonus Percentage (as defined below),
multiplied by
(B) the Guaranteed Annual Salary.
(2) For purposes of this Section 3.2(b):
(A) "On Plan Percentage" means the
percentage of Guaranteed Base Salary to which the
Executive would have been entitled under any
Bonus Plan for the Performance Period for which
the Guaranteed Bonus is awarded ("Current
Performance Period") as if the performance
achieved 100% of performance goals established
pursuant to such Bonus Plan.
(B) "Actual Bonus Percentage" means
the percentage of the rate of Guaranteed Base
Salary for the Current Performance Period which
the Executive would accrue as a bonus under any
Bonus Plan if the performance during the Current
Performance Period were measured by the actual
performance during the Current Performance
Period; provided, however, that for purposes of
calculating the Guaranteed Bonus, "Actual Bonus
Percentage" means the percentage of the rate of
Guaranteed Base Salary for the Performance Period
during which the Termination Date occurred (the
"Termination Performance Period") which the
Executive would accrue as a bonus under any Bonus
Plan if the performance during such Termination
Performance Period were measured by the actual
performance during the Termination Performance
Period before the Termination Date projected to
the last day of such Performance Period.
c. Incentive, Savings and Retirement Plans. In
addition to Guaranteed Base Salary and Guaranteed Bonus
payable as provided in this Section, the Executive shall be
entitled to participate during the Post-Change Period in all
incentive (including long-term incentives), savings and
retirement Plans applicable to other peer executives of the
Company, but in no event shall such Plans provide the
Executive with incentive (including long-term incentives),
savings and retirement benefits which, in any case, are less
favorable, in the aggregate, than the most favorable of
those provided by the Company for the Executive under such
Plans as in effect at any time during the 90-day period
immediately before the Effective Date.
d. Welfare Benefit Plans. During the Post-Change
Period, the Executive and the Executive's family shall be
eligible to participate in, and receive all benefits under,
welfare benefit Plans provided by the Company (including,
without limitation, medical, prescription, dental,
disability, salary continuance, individual life, group life,
dependent life, accidental death and travel accident
insurance Plans) and applicable to other peer executives of
the Company and their families, but in no event shall such
Plans provide benefits which in any case are less favorable,
in the aggregate, than the most favorable of those provided
to the Executive under such Plans as in effect at any time
during the 90-day period immediately before the Effective
Date.
e. Fringe Benefits. During the Post-Change Period,
the Executive shall be entitled to fringe benefits in
accordance with the most favorable Plans applicable to peer
executives of the Company, but in no event shall such Plans
provide fringe benefits which in any case are less
favorable, in the aggregate, than the most favorable of
those provided by the Company to peer executives under such
Plans in effect at any time during the 90-day period
immediately before the Effective Date.
f. Expenses. During the Post-Change Period, the
Executive shall be entitled to prompt reimbursement of all
reasonable employment-related expenses incurred by the
Executive upon the Company's receipt of accountings in
accordance with the most favorable Policies applicable to
peer executives of the Company, but in no event shall such
Policies be less favorable, in the aggregate, than the most
favorable of those provided by the Company for the Executive
under such Policies in effect at any time during the 90-day
period immediately before the Effective Date.
g. Office and Support Staff. During the Post-Change
Period, the Executive shall be entitled to an office or
offices of a size and with furnishings and other
appointments, and to exclusive personal secretarial and
other assistance in accordance with the most favorable
Policies applicable to peer executives of the Company, but
in no event shall such Policies be less favorable, in the
aggregate, than the most favorable of those provided by the
Company for the Executive under such Policies in effect at
any time during the 90-day period immediately before the
Effective Date.
h. Vacation. During the Post-Change Period, the
Executive shall be entitled to paid vacation in accordance
with the most favorable Policies applicable to peer
executives of the Company, but in no event shall such
Policies be less favorable, in the aggregate, than the most
favorable of those provided by the Company for the Executive
under such Policies in effect at any time during the 90-day
period immediately before the Effective Date.
3.3 Stock Options.
In addition to the other benefits provided in this
Section, on the Effective Date, the Executive shall become
fully vested in any and all outstanding stock options
granted to Executive for shares of common stock of the
Company or to the extent that such options are not vested,
shall receive a lump-sum cash payment equal to the spread of
all non-vested, forfeited options as of the date such
options are forfeited.
ARTICLE IV.
TERMINATION OF EMPLOYMENT
4.1 Disability.
a. During the Post-Change Period, the Company may
terminate the Executive's employment upon the Executive's
Disability (as defined in Section 4.1(b))) by giving the
Executive or his legal representative, as applicable,
(1) written notice in accordance with Section 10.7 of the
Company's intention to terminate the Executive's employment
pursuant to this Section and (2) a certification of the
Executive's Disability by a physician selected by the
Company or its insurers and reasonably acceptable to the
Executive or the Executive's legal representative. The
Executive's employment shall terminate effective on the 30th
day (the "Disability Effective Date") after the Executive's
receipt of such notice unless, before the Disability
Effective Date, the Executive shall have resumed the
full-time performance of the Executive's duties.
b. "Disability" means any medically determinable
physical or mental impairment that has lasted for a
continuous period of not less than six months and can be
expected to be permanent or of indefinite duration, and that
renders the Executive unable to perform the duties required
under this Agreement.
4.2 Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Post-Change
Period.
4.3 Cause.
a. During the Post-Change Period, the Company may
terminate the Executive's employment for Cause.
b. "Cause" means any of the following: commission
by the Executive of any felony; or willful breach of duty by
the Executive in the course of the Executive's employment;
except that Cause shall not mean:
(1) bad judgment or negligence;
(2) any act or omission believed by the
Executive in good faith to have been in or not opposed to
the interest of the Company (without intent of the Executive
to gain, directly or indirectly, a profit to which the
Executive was not legally entitled);
(3) any act or omission with respect to which a
determination could properly have been made by the Board
that the Executive met the applicable standard of conduct
for indemnification or reimbursement under the Company's
by-laws, any applicable indemnification agreement, or
applicable law, in each case in effect at the time of such
act or omission; or
(4) any act or omission with respect to which
notice of termination of employment of the Executive is
given more than 12 months after the earliest date on which
any member of the Board, not a party to the act or omission,
knew or should have known of such act or omission.
c. Any termination of the Executive's employment by
the Company for Cause shall be communicated to the Executive
by Notice of Termination.
4.4 Good Reason.
a. During the Post-Change Period, the Executive may
terminate his or her employment for Good Reason.
b. "Good Reason" means any of the following:
(1) the assignment to the Executive of any
duties inconsistent in any respect with the
Executive's position (including offices, titles,
reporting requirements or responsibilities), authority
or duties as contemplated by Section 3.1(a)(1), or any
other action by the Company which results in a
diminution or other material adverse change in such
position, authority or duties;
(2) any failure by the Company to comply
with any of the provisions of Article III;
(3) the Company's requiring the Executive
to be based at any office or location other than the
location described in Section 3.1(a)(2);
(4) any other material adverse change to
the terms and conditions of the Executive's
employment; or
(5) any purported termination by the
Company of the Executive's employment other than as
expressly permitted by this Agreement (any such
purported termination shall not be effective for any
other purpose under this Agreement).
Any reasonable determination of "Good Reason" made in good
faith by the Executive shall be conclusive.
c. Any termination of employment by the Executive
for Good Reason shall be communicated to the Company by
Notice of Termination. A passage of time prior to delivery
of Notice of Termination or a failure by the Executive to
include in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason
shall not waive any right of the Executive under this
Agreement or preclude the Executive from asserting such fact
or circumstance in enforcing rights under this Agreement.
ARTICLE V.
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Good Reason or by the Company
Other Than for Cause or Disability. If, during the Post-Change
Period, the Company shall terminate Executive's employment other
than for Cause or Disability, or if the Executive shall terminate
employment for Good Reason, the Company shall immediately pay the
Executive, in addition to all vested rights arising from the
Executive's employment as specified in Article III, a cash amount
equal to the sum of the following amounts:
a. to the extent not previously paid, the Guaranteed
Base Salary and any accrued vacation pay through the
Termination Date;
b. the difference between (1) the product of (A) the
Guaranteed Bonus, multiplied by (B) a fraction, the
numerator of which is the number of days in the Termination
Performance Period which elapsed before the Termination
Date, and the denominator of which is the total number of
days in the Termination Performance Period, and (2) the
amount of any Guaranteed Bonus paid to the Executive with
respect to the Termination Performance Period;
c. all amounts previously deferred by or an accrual
to the benefit of the Executive under any nonqualified
deferred compensation or pension plan, together with any
accrued earnings thereon, and not yet paid by the Company;
d. an amount equal to the product of (1) one (1.0)
multiplied by (2) the sum of (A) Guaranteed Base Salary and
(B) the highest Guaranteed Bonus paid (or payable regardless
of whether earned) to the Executive in the two prior years;
e. an amount equal to the sum of the value of the
unvested portion of the Executive's accounts or accrued
benefits under any qualified plan maintained by the Company
as of the Termination Date;
f. an amount equal to the value (determined using
actuarial assumptions consistent with those used by the
Company for financial reporting purposes) of the Executive's
accrued benefits under (1) the Fingerhut Corporation Pension
Excess Plan and (2) the Fingerhut Companies, Inc.
Nonqualified Supplemental Executive Retirement Plan (or any
such successor or similar plans as may be in effect as of
the Termination Date) (the "Excess/Supplemental Plans"
calculated as though the Executive (A) continued to accrue
benefits under the Excess/Supplemental Plans for a period of
one year after the Termination Date, and (B) received
compensation during such one-year period equal to the sum of
the Guaranteed Base Salary and the highest Guaranteed Bonus
paid (or payable) to the Executive in the two years
preceding the Termination Date; and
g. an amount equal to the payment to which the
Executive would be entitled under the Fingerhut Corporation
Profit Sharing Excess Plan (or any such successor or similar
plan as may be in effect as of the Termination Date) for the
plan year in which the Termination Date occurs as if the
Executive were eligible to share in the Company's
contribution to the Fingerhut Corporation Profit Sharing
Plan for such plan years; and
h. pay on behalf of Executive all fees and costs
charged by the outplacement firm selected by the Executive
to provide outplacement services or at the election of the
Executive, cash equal to the fees and expenses such
outplacement firm would charge.
Until the first anniversary of the Termination Date or such later
date as any Plan of the Company may specify, the Company shall
continue to provide to the Executive and the Executive's family
welfare benefits (including, without limitation, medical,
prescription, dental, disability, salary continuance, individual
life, group life, accidental death and travel accident insurance
plans and programs) which are at least as favorable as the most
favorable Plans of the Company applicable to other peer
executives and their families as of the Termination Date, but
which are in no event less favorable than the most favorable
Plans of the Company applicable to other peer executives and
their families during the 90-day period immediately before the
Effective Date. The cost of such welfare benefits shall not
exceed the cost of such benefits to the Executive immediately
before the Termination Date or, if less, the Effective Date.
Notwithstanding the foregoing, if the Executive is covered under
any medical, life, or disability insurance plan(s) provided by a
subsequent employer, then the amount of coverage required to be
provided by the Employer hereunder shall be reduced by the amount
of coverage provided by the subsequent employer's medical, life,
or disability insurance plan(s). The Executive's rights under
this Section shall be in addition to, and not in lieu of, any
post-termination continuation coverage or conversion rights the
Executive may have pursuant to applicable law, including without
limitation continuation coverage required by Section 4980 of the
Code.
5.2 If by the Company for Cause. If the Company
terminates the Executive's employment for Cause during the
Post-Change Period, this Agreement shall terminate without
further obligation by the Company to the Executive, other than
the obligation immediately to pay the Executive in cash the
Executive's Guaranteed Base Salary through the Termination Date,
plus the amount of any compensation previously deferred by the
Executive, plus any accrued vacation pay, in each case to the
extent not previously paid.
5.3 If by the Executive Other Than for Good Reason. If
the Executive terminates employment during the Post-Change Period
other than for Good Reason, Disability or death, this Agreement
shall terminate without further obligations by the Company, other
than the obligation immediately to pay the Executive in cash all
amounts specified in clauses (a), (b) and (c) of the first
sentence of Section 5.1 (such amounts collectively, the "Accrued
Obligations").
5.4 If by the Company for Disability. If the Company
terminates the Executive's employment by reason of the
Executive's Disability during the Post-Change Period, this
Agreement shall terminate without further obligations to the
Executive, other than
(a) the Company's obligation immediately to pay the
Executive in cash all Accrued Obligations, and
(b) the Executive's right after the Disability
Effective Date to receive disability and other benefits at
least equal to the greater of (1) those provided under the
most favorable disability Plans applicable to disabled peer
executives of the Company in effect immediately before the
Termination Date or (2) those provided under the most
favorable disability Plans of the Company in effect at any
time during the 90-day period immediately before the
Effective Date.
5.5 If upon Death. If the Executive's employment is
terminated by reason of the Executive's death during the
Post-Change Period, this Agreement shall terminate without
further obligations to the Executive's legal representatives
under this Agreement, other than the obligation immediately to
pay the Executive's estate or beneficiary in cash all Accrued
Obligations. Despite anything in this Agreement to the contrary,
the Executive's family shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the
Company to the surviving families of peer executives of the
Company under such Plans, but in no event shall such Plans
provide benefits which in each case are less favorable, in the
aggregate, than the most favorable of those provided by the
Company to the Executive under such Plans in effect at any time
during the 90-day period immediately before the Effective Date.
ARTICLE VI.
NON-EXCLUSIVITY OF RIGHTS
6.1 Waiver of Other Severance Rights. To the extent that
payments are made to the Executive pursuant to Section 5.1, the
Executive hereby waives the right to receive severance payments
under any other Plan or agreement of the Company.
6.2 Other Rights. Except as provided in Section 6.1, this
Agreement shall not prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive or other
Plans, provided by the Company or any of its Subsidiaries and for
which the Executive may qualify, nor shall this Agreement limit
or otherwise affect such rights as the Executive may have under
any other agreements with the Company or any of its Subsidiaries.
Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any Plan of the Company or
any of its Subsidiaries and any other payment or benefit required
by law at or after the Termination Date shall be payable in
accordance with such Plan or applicable law except as expressly
modified by this Agreement.
ARTICLE VII.
EXPENSES AND INTEREST
7.1 Legal Fees and Other Expenses.
a. If the Executive incurs legal fees or other
expenses in a good faith effort to obtain benefits under
this Agreement, regardless of whether the Executive
ultimately prevails, the Company shall reimburse the
Executive on a current basis for such fees and expenses to
the extent not reimbursed under the Company's officers and
directors liability insurance policy, if any. The existence
of any controlling case or regulatory law which is directly
inconsistent with the position taken by the Executive shall
be evidence that the Executive did not act in good faith.
b. Reimbursement of legal fees and expenses shall be
made monthly upon the written submission of a request for
reimbursement together with evidence that such fees and
expenses are due and payable or were paid by the Executive.
If the Company shall have reimbursed the Executive for legal
fees and expenses and it is later determined that the
Executive was not acting in good faith, all amounts paid on
behalf of, or reimbursed to, the Executive shall be promptly
refunded to the Company.
7.2 Interest. If the Company does not pay any amount due
to the Executive under this Agreement within three days after
such amount became due and owing, interest shall accrue on such
amount from the date it became due and owing until the date of
payment at a annual rate equal to two percent (2.0%) above the
base commercial lending rate announced by Harris Trust and
Savings Bank in effect from time to time during the period of
such nonpayment.
ARTICLE VIII.
NO SET-OFF OR MITIGATION
8.1 No Set-off by Company. The Executive's right to
receive when due the payments and other benefits provided for
under this Agreement is absolute, unconditional and subject to no
set-off, counterclaim or legal or equitable defense. Time is of
the essence in the performance by the Company of its obligations
under this Agreement. Any claim which the Company may have
against the Executive, whether for a breach of this Agreement or
otherwise, shall be brought in a separate action or proceeding
and not as part of any action or proceeding brought by the
Executive to enforce any rights against the Company under this
Agreement.
8.2 No Mitigation. The Executive shall not have any
duty to mitigate the amounts payable by the Company under this
Agreement by seeking new employment following termination.
Except as specifically otherwise provided in this Agreement, all
amounts payable pursuant to this Agreement shall be paid without
reduction regardless of any amounts of salary, compensation or
other amounts which may be paid or payable to the Executive as
the result of the Executive's employment by another employer.
ARTICLE IX.
CONFIDENTIALITY AND NONCOMPETITION
9.1 Confidentiality. Executive acknowledges that it is
the policy of the Company and its subsidiaries to maintain as
secret and confidential all valuable and unique information and
techniques acquired, developed or used by the Company and its
subsidiaries relating to their business, operations, employees
and customers, which gives the Company and its subsidiaries a
competitive advantage in the retail catalogue industry and other
businesses in which the Company and its subsidiaries are engaged
("Confidential Information"). Executive recognizes that all such
Confidential Information is the sole and exclusive property of
the Company and its subsidiaries, and that disclosure of
Confidential Information would cause damage to the Company and
its subsidiaries. Executive agrees that, except as required by
the duties of his employment with the Company and/or its
subsidiaries and except in connection with enforcing the
Executive's rights under this Agreement or if compelled by a
court or governmental agency, he will not, without the consent of
the Company, disseminate or otherwise disclose any Confidential
Information obtained during his employment with the Company
and/or its subsidiaries for so long as such information is
valuable and unique.
9.2 Noncompetition/Nonsolicitation.
a. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if
Executive's employment is terminated for any reason,
thereafter for a period of one (1) year, Executive will not
at any time directly or indirectly, in any capacity, engage
or participate in, or become employed by or render advisory
or consulting or other services in connection with any
Prohibited Business as defined in Section 9.2(d).
b. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if
Executive's employment is terminated for any reason,
thereafter for a period of one (1) year, Executive shall not
make any financial investment, whether in the form of equity
or debt, or own any interest, directly or indirectly, in any
Prohibited Business. Nothing in this Section 9.2(b) shall,
however, restrict Executive from making any investment in
any company whose stock is listed on a national securities
exchange or actively traded in the over-the-counter market;
provided that (1) such investment does not give Executive
the right or ability to control or influence the policy
decisions of any Prohibited Business, and (2) such
investment does not create a conflict of interest between
Executive's duties hereunder and Executive's interest in
such investment.
c. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if
Executive's employment is terminated for any reason,
thereafter for a period of one (1) year, Executive shall not
(1) employ any employee of the Company and/or its
subsidiaries or (2) interfere with the Company's or any of
its subsidiaries' relationship with, or endeavor to entice
away from the Company and/or its subsidiaries any person,
firm, corporation, or other business organization who or
which at any time (whether before or after the date of
Executive's termination of employment), was an employee,
customer, vendor or supplier of, or maintained a business
relationship with, any business of the Company and/or its
subsidiaries which was conducted at any time during the
period commencing one year prior to the termination of
employment.
d. For the purpose of this Section 9.2, "Prohibited
Business" shall be defined as any retail catalogue business
or any other type of business, entity and any branch, office
or operation thereof, which is a direct and material
competitor of the Company wherever the Company does
business, in the United States or abroad.
9.3 Remedy. Executive and the Company specifically agree
that, in the event that Executive shall breach his obligations
under this Article IX, the Company and its subsidiaries will
suffer irreparable injury and no adequate remedy for such breach,
and shall be entitled to injunctive relief therefor, and in
particular, without limiting the generality of the foregoing, the
Company shall not be precluded from pursuing any and all remedies
it may have at law or in equity for breach of such obligations;
provided, however, that such breach shall not in any manner or
degree whatsoever limit, reduce or otherwise affect the
obligations of the Company under this Agreement, and in no event
shall an asserted breach of the Executive's obligations under
this Article IX constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this
Agreement.
ARTICLE X.
MISCELLANEOUS
10.1 No Assignability. This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
legal representatives.
10.2 Successors. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and
assigns. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company
to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
Any successor to the business and/or assets of the Company which
assumes or agrees to perform this Agreement by operation of law,
contract, or otherwise shall be jointly and severally liable with
the Company under this Agreement as if such successor were the
Company.
10.3 Payments to Beneficiary. If the Executive dies before
receiving amounts to which the Executive is entitled under this
Agreement, such amounts shall be paid in a lump sum to the
beneficiary designated in writing by the Executive, or if none is
so designated, to the Executive's estate.
10.4 Non-alienation of Benefits. Benefits payable under
this Agreement shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution or levy of any kind,
either voluntary or involuntary, before actually being received
by the Executive, and any such attempt to dispose of any right to
benefits payable under this Agreement shall be void.
10.5 Severability. If any one or more articles, sections
or other portions of this Agreement are declared by any court or
governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any
article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to
be unlawful or invalid shall be construed so as to effectuate the
terms of such article, section or other portion to the fullest
extent possible while remaining lawful and valid.
10.6 Amendments. Except as provided in Section 2.2 hereof,
this Agreement shall not be altered, amended or modified except
by written instrument executed by the Company and Executive.
10.7 Notices. All notices and other communications under
this Agreement shall be in writing and delivered by hand or by
first class registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing. Notice and communications shall be
effective when actually received by the addressee.
10.8 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original,
but all of which together constitute one and the same instrument.
10.9 Governing Law. This Agreement shall be interpreted
and construed in accordance with the laws of the State of
Minnesota, without regard to its choice of law principles.
10.10 Captions. The captions of this Agreement are not a
part of the provisions hereof and shall have no force or effect.
10.11 Tax Withholding. The Company may withhold from any
amounts payable under this Agreement any federal, state or local
taxes that are required to be withheld pursuant to any applicable
law or regulation.
10.12 No Waiver. The Executive's failure to insist upon
strict compliance with any provision of this Agreement shall not
be deemed a waiver of such provision or any other provision of
this Agreement. A waiver of any provision of this Agreement
shall not be deemed a waiver of any other provision, and any
waiver of any default in any such provision shall not be deemed a
waiver of any later default thereof or of any other provision.
10.13 Entire Agreement. This Agreement contains the entire
understanding of the Company and the Executive with respect to
its subject matter.
IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement as of the date first above written.
[Executive]
FINGERHUT COMPANIES, INC.
By:
Title:
&k2S
<TABLE>
Exhibit 11
FINGERHUT COMPANIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(In thousands of dollars, except per share data)
Unaudited
Thirteen Weeks Ended Twenty-Six Week Ended
June 26, June 27, June 26, June 27,
1998 1997 1998 1997
Basic
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings (a) $ 12,672 $ 9,909 $ 18,177 $12,470
Weighted average shares
of common stock
outstanding (b) 46,798,983 46,036,759 46,591,119 46,101,842
Basic earnings per share
of common stock (a/b) $ .27 $ .22 $ .39 $ .27
Diluted
Net earnings (c) $ 12,672 $ 9,909 $ 18,177 $ 12,470
Weighted average shares
of common stock
outstanding 46,798,983 46,036,759 46,591,119 46,101,842
Common stock
equivalents 4,664,579 2,852,658 4,377,893 2,653,923
Weighted average shares of
common stock and common
stock equivalents (d) 51,463,562 48,889,417 50,969,012 48,755,765
Fully diluted earnings per
share of common stock and
common stock equivalents
(c/d) $ .25 $ .20 $ .36 $ .26
Common stock equivalents for earnings per share are computed by
the treasury stock method using the average market price.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-END> JUN-26-1998
<CASH> 162,052
<SECURITIES> 0
<RECEIVABLES> 932,650
<ALLOWANCES> 181,962
<INVENTORY> 125,150
<CURRENT-ASSETS> 1,348,077
<PP&E> 501,553
<DEPRECIATION> 236,153
<TOTAL-ASSETS> 1,737,442
<CURRENT-LIABILITIES> 629,686
<BONDS> 345,149
0
0
<COMMON> 472
<OTHER-SE> 700,497
<TOTAL-LIABILITY-AND-EQUITY> 1,737,442
<SALES> 605,552
<TOTAL-REVENUES> 795,635
<CGS> 283,994
<TOTAL-COSTS> 739,971
<OTHER-EXPENSES> 4,116
<LOSS-PROVISION> 79,906
<INTEREST-EXPENSE> 19,382
<INCOME-PRETAX> 32,166
<INCOME-TAX> 13,989
<INCOME-CONTINUING> 18,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,177
<EPS-PRIMARY> .39
<EPS-DILUTED> .36
</TABLE>
