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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 1-8941
FRUIT OF THE LOOM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3361804
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5000 Sears Tower,
233 South Wacker Drive,
Chicago, Illinois 60606
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (312) 876-1724
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
Class A Common Stock, $.01 par value New York Stock Exchange
7% Debentures Due 2011 American Stock Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
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
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As of March 10, 1995, there were outstanding 69,170,456 shares of the
Registrant's Class A Common Stock, par value $.01 per share, and 6,690,976
shares of the Registrant's Class B Common Stock, par value $.01 per share. The
aggregate market value of the Registrant's Class A Common Stock held by
nonaffiliates at March 21, 1995 was approximately $1,692,000,000.
Documents Incorporated by Reference
Part III incorporates by reference information from the proxy statement for
the Annual Meeting of Stockholders to be held on May 16, 1995.
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FRUIT OF THE LOOM, INC.
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders
(None) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure (None) . . . . . . . . . . 58
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . 58
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 60
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 60
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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PART I
ITEM 1. BUSINESS
Fruit of the Loom, Inc. ("Fruit of the Loom" or the "Company") is a
vertically integrated international basic apparel company, emphasizing branded
products for consumers ranging from infants to senior citizens. It is the
largest domestic producer of underwear and of activewear for the imprinted
market, selling products principally under the FRUIT OF THE LOOM , BVD , SCREEN
STARS , BEST , MUNSINGWEAR , WILSON , BOTANY 500 and JOHN HENRY brand names.
Fruit of the Loom also manufactures and markets sports licensed apparel bearing
the names, tradenames and logos of the National Football League, the National
Basketball Association, Major League Baseball and the National Hockey League,
professional sports teams and most major colleges and universities, as well as
the likenesses of certain popular professional athletes under the PRO PLAYER ,
SALEM , SALEM SPORTSWEAR and OFFICIAL FAN brands. The Company manufactures
and markets men's and boys' basic and fashion underwear, activewear for the
imprint market, casualwear, jeanswear using the GITANO brand name, licensed
sports apparel, women's and girls' underwear, infants' and toddlers' apparel
and family socks. The Company is a fully integrated manufacturer, performing
most of its own spinning, knitting, cloth finishing, cutting, sewing and
packaging. Management believes that the Company is a low cost producer in the
markets it serves. Management considers the Company's primary strengths to be
its excellent brand recognition, low cost production, strong relationships with
mass merchandisers and discount chains and its ability to effectively service
its customer base.
The Company manufactures and markets underwear and activewear (which both
include T-shirts). Management believes that consumer awareness of the value
and excellent quality at competitive prices of FRUIT OF THE LOOM brand products
will benefit the Company in the current retail environment where consumers are
more value conscious.
During the last five calendar years, the Company has been the market
leader in men's and boys' underwear, with an annual market share ranging from
approximately 38% to 40%. In 1994, the Company's share in the men's and boys'
underwear market was approximately 38% compared to an approximate 33% share for
its closest competitor.
The Company offers a broad array of men's and boys' underwear, including:
briefs, boxer shorts, T-shirts and A-shirts, colored and "high fashion" (as
well as RIBBED WHITES ) underwear. It sells all-cotton and cotton-blend
underwear under its FRUIT OF THE LOOM and BVD brand names. Products sold under
the BVD brand name are priced higher than those sold under the FRUIT OF THE
LOOM brand name and are generally designed to appeal to a more premium market.
Under licensing arrangements, the Company manufactures and markets men's and
boys' underwear bearing the MUNSINGWEAR, KANGAROO , BOTANY 500 and JOHN HENRY
trademarks as well as certain activewear bearing the MUNSINGWEAR and BOTANY 500
trademarks in the United States and certain foreign markets.
Management believes the Company is the largest of the domestic activewear
manufacturers that supply screen printers and that it has a market share of
approximately 33% of the screen print T-shirt market. The Company produces and
sells blank shirts and fleecewear under the SCREEN STARS brand name and premium
fleecewear and T-shirts under the FRUIT OF THE LOOM, LOFTEEZ and BEST BY
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ITEM 1. BUSINESS - (Continued)
FRUIT OF THE LOOM labels. These products are manufactured in a variety of
styles and colors and are sold to distributors, screen printers and specialty
retailers, who generally apply a decoration prior to sale at retail. Product
quality, delivery responsiveness and price are important factors in the sale of
activewear. Management believes that the Company's recent capacity additions
and its low cost position afford it a competitive advantage in this market.
The Company markets casualwear under the FRUIT OF THE LOOM, BVD and
MUNSINGWEAR brands. The Company markets a selection of jersey and fleece tops,
shorts and bottoms. There are separate Spring and Fall lines with updated
color selections for each of the men's, women's, boys' and girls' categories.
A national marketing program includes national advertising and local
cooperative advertising, promotions and in-store merchandising. The casualwear
market is fragmented and has no dominant brands.
In 1993, twenty new styles were introduced in the casualwear line with
more fashion treatments, color selections and heavier fabrics; sixty-three new
styles were added in 1994 which emphasized casualwear tailored specifically for
ladies and girls. Late in the fourth quarter of 1994, the Company reevaluated
its continued expansion of the FRUIT OF THE LOOM casualwear line. As a result
of the Company's reevaluation, a substantial number of slower moving or less
profitable items have been removed from the line.
In March 1994, the Company purchased certain assets of the Gitano Group,
Inc. ("Gitano"), including the GITANO and other trademarks. Gitano designs,
manufactures (including contract manufacturing) and markets women's and men's
jeanswear and jeans related sportswear. During 1994 and prior to the
acquisition of the certain Gitano assets by the Company, Gitano provided
certain merchandising, marketing and design functions for its largest customer
which then directly contracted for the merchandise from third party sources.
Following the acquisition by the Company, Gitano reverted to a traditional role
of an apparel wholesaler, carrying and financing its jeanswear and jeans
related product inventories and selling these goods to its customers.
Accordingly, the former arrangement of providing merchandise, marketing and
design services to its largest customer on a fee basis was terminated in late
1994. In addition to its core apparel products, Gitano licenses the production
and sale of a variety of accessories and other products bearing the GITANO
trademark.
The Company entered the imprinted licensed sportswear business through its
acquisitions of Salem Sportswear Corporation ("Salem"), Artex Manufacturing Co.
Inc. ("Artex") and Pro Player, Inc. ("Pro Player"), which were acquired in
November 1993, January 1994 and August 1994, respectively. The Company
designs, manufactures and markets sports apparel under licenses granted by
major American sports leagues, professional players and many American colleges
and universities. The Company sells a wide variety of quality sportswear,
including T-shirts, sweatshirts, shorts and light outerwear under the SALEM,
SALEM SPORTSWEAR and OFFICIAL FAN brands. The Company manufactures and markets
a wide variety of decorated sportswear to retail stores, college book stores
and mass merchants. The Company is currently one of only three companies using
the "dual" license concept of combining licensed cartoon characters with the
logos of major professional sports leagues. The Company has licenses from all
the major professional sports leagues as well as from the Walt Disney Company
and Warner Bros. for LOONEY TUNES . Under its PRO PLAYER brand, the Company
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ITEM 1. BUSINESS - (Continued)
designs and markets heavy jackets, light jackets, headwear and other outerwear
bearing the logos or insignia of professional and college teams and leagues.
In addition, the Company (under license agreements) manufactures and markets
sportswear featuring the well known WILSON trademark. In late December 1994,
the Company announced the closing of substantially all of the operating
locations of Artex and the consolidation of these operations into existing
Company facilities.
The Company produces women's and girls' underwear, in white and colors,
under the FRUIT OF THE LOOM brand name. The Company introduced its women's and
girls' lines in 1984 using the branded, packaged product strategy that it had
successfully employed in the men's and boys' market. In 1994 the Company
introduced a new panty program with all new product, new fit, new construction
and re-designed packaging. The Company's products are packaged, typically
three to a pack, making them convenient for the merchant to handle and display.
During the last five calendar years, in the fragmented women's and girls'
underwear market, the Company was one of the branded market leaders with a
market share ranging from approximately 13% to 17%. In 1994, the Company's
share in the women's and girls' underwear market was approximately 13% compared
to a market share of 26% for the largest competing brand. No other competitor
had more than a 4% market share in 1994.
The Company granted a license to Warnaco Inc. whereby Warnaco Inc.
manufactures and sells bras, slips, camisoles and other products under the
FRUIT OF THE LOOM brand name in North America. The Company also licenses the
use of the FRUIT OF THE LOOM brand name to a select group of companies who
manufacture a variety of products such as ladies athleticwear and sheer
hosiery.
The Company offers a broad array of childrenswear including decorated
underwear (generally with pictures of licensed movie or cartoon characters)
under the FUNPALS and FUNGALS brand names and layette sets under the FRUIT OF
THE LOOM brand and the recently developed WINNIE THE POOH license which
includes both packaged and hanging sets.
The Company entered the basic family sock market in mid-1986 through
acquisitions and management believes the Company is now one of the two largest
domestic manufacturers and that no manufacturer has more than a 10% market
share.
Marketing and Distribution
The Company sells its products to over 22,000 accounts, including all
major discount and mass merchandisers, wholesale clubs and screen printers.
The Company also sells to many department, specialty, drug and variety stores,
national chains, supermarkets and sports specialty stores. The Company's
products are principally sold by a nationally organized direct sales force of
full-time employees. Certain of the Company's imprinted sportswear products are
sold through independent sales representatives. The Company's products are
shipped from 17 primary distribution centers to over 82,000 customer locations.
Management believes that one of the Company's primary strengths is its
excellent relationships with mass merchandisers and discount chains. These
retailers accounted for approximately 66% of the men's and boys' underwear and
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ITEM 1. BUSINESS - (Continued)
Marketing and Distribution - (Concluded)
approximately 58% of the women's and girls' underwear sold in the United States
in 1994, up from approximately 56% and 54%, respectively, in 1990. The Company
supplied approximately 50% of the men's and boys' underwear and approximately
20% of the women's and girls' underwear sold by discount and mass merchandisers
in the United States in 1994. During the last several years many of the
Company's principal customers have revamped their inventory and distribution
systems requiring their suppliers to offer more flexible product deliveries.
In response to these demands, the Company has invested heavily in warehousing
and distribution facilities.
Sales to one customer amounted to approximately 15.6%, 13.4% and 11.8% of
consolidated net sales in 1994, 1993 and 1992, respectively. Additionally,
sales to a second customer amounted to approximately 11.8%, 12.3% and 10.2% of
consolidated net sales in 1994, 1993 and 1992, respectively. Management does
not believe the loss of any one customer would adversely affect its business as
a large percentage of these sales would shift to other outlets due to the high
degree of brand awareness and consumer loyalty to the Company's products. The
Company's business is seasonal to the extent that approximately 56% of annual
sales occur in the second and third quarters. Sales are generally the lowest
in the first quarter.
International Operations
The Company primarily sells activewear through its foreign operations,
principally in the United Kingdom, continental Europe, Canada, Mexico and
Japan. The Company's approach has generally been to establish production in
foreign markets by both acquiring existing manufacturing facilities and
building new plants in order to decrease the impact of foreign currency
fluctuations on international sales and to better serve these markets. The
Company has established manufacturing plants in Canada, the Republic of Ireland
and Northern Ireland (United Kingdom) as a means of accomplishing these
objectives. In addition, the Company has established manufacturing operations
in Mexico, Honduras, El Salvador and Jamaica to assemble fabrics which have
been manufactured and cut in the Company's United States' operations, as well
as externally sourced fabric, into finished goods for sale principally in the
United States. The Company has established manufacturing operations in Morocco
where fabrics from the Republic of Ireland are cut and sewn and returned to
Europe for sale.
Since 1990, the Company's international sales have more than doubled.
Sales from international operations during 1994 were $325,800,000 and were
principally generated from products manufactured at the Company's foreign
facilities. These international sales accounted for approximately 14.2% of the
Company's net sales in 1994. Management believes international sales will
continue to be a source of growth for the Company, particularly in Europe.
This growth will depend on continued demand for the Company's products in
diverse international marketplaces. See "Business Segment and Major Customer
Information" in the Notes to Consolidated Financial Statements.
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ITEM 1. BUSINESS - (Continued)
Manufacturing
Principal manufacturing operations consist of spinning, knitting, cloth
finishing, cutting, sewing and packaging. In addition, licensed sportswear
products are generally produced by applying decorative images, most often by
screen printing or embroidery, to blank garments. The Company knits yarn into
fabric using a multiple-knitting technique that produces long tubes of fabric
corresponding in weight and diameter to various sizes and styles required to
make underwear and activewear. Substantially all of the Company's products are
either bleached to remove the ecru color of natural cotton or dyed for colored
products. To achieve certain colors, the fabric must be bleached and dyed.
Computer controlled die cutting is used in all areas where management
believes it is more efficient. Fabric is distributed to employees operating
individual sewing machines. To increase efficiency, each employee specializes
in a particular function, such as sewing waistbands on briefs. Quality
checkpoints occur at many intervals in the manufacturing process, and each
garment is inspected prior to packaging.
Competition
All of the Company's markets are highly competitive. Competition in the
underwear and activewear markets is generally based upon quality, price and
delivery. The Company's vertically integrated manufacturing structure,
supplemented with some off-shore sewing of fabrics supplied by the Company's
domestic knitting operations, allows it to produce high quality products at
costs which management believes are among the lowest in the industry. The
Company has recently invested additional capital in warehousing and
distribution facilities to service its customer base effectively. In response
to market conditions, the Company, from time to time, reviews and adjusts its
product offerings and pricing structure. Where appropriate, the Company uses
contract manufacturing to further minimize its costs. Such contract
manufacturing accounted for less than 5% of the Company's total production in
1994.
Licensing and Trademarks
The Company owns the FRUIT OF THE LOOM, BVD, SCREEN STARS, BEST, LOFTEEZ
and certain other trademarks, which are registered or protected by common law
in the United States and in many foreign countries. These trademarks are used
on men's, women's and children's underwear and activewear and sportswear
marketed by the Company. The Company owns the GITANO trademark which is
registered in the United States and in many foreign countries for use
principally in connection with women's jeanswear, sportswear and certain other
apparel and accessory items.
The Company licenses properties from different companies for its decorated
underwear products. Among the characters licensed are: THE LITTLE MERMAID ,
BEAUTY AND THE BEAST , 101 DALMATIANS , BATMAN , BATMAN FOREVER , LOONEY TUNES,
SONIC THE HEDGEHOG , BIKER MICE FROM MARS , MIGHTY MORPHIN POWER RANGERS , LAMB
CHOP , THE SWAN PRINCESS , VR TROOPERS , SKELETON WARRIORS , PEANUTS ,
POCAHONTAS and WINNIE THE POOH. The Company also has a license to use the
MUNSINGWEAR, KANGAROO, BOTANY 500 and JOHN HENRY trademarks on its men's and
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ITEM 1. BUSINESS - (Continued)
Licensing and Trademarks - (Concluded)
boys' underwear and certain activewear. The Company has a license to use the
WILSON brand on its sweatshirts and sweatpants, T-shirts, shorts and other
athletic activewear.
In addition, the Company owns the SALEM, SALEM SPORTSWEAR, OFFICIAL FAN
and PRO PLAYER trademarks for its licensed sportswear business. The Company
licenses properties, including team insignia, images of professional athletes
and college logos, from the National Football League, the National Basketball
Association, Major League Baseball, the National Hockey League, professional
players' associations and certain individual players and many American colleges
and universities. These owned and licensed trademarks are used on sports
apparel, principally T-shirts, shorts, sweatshirts and jerseys, marketed by the
Company. The Company also licenses properties from the Walt Disney Company and
Warner Bros. for LOONEY TUNES for use in a dual license concept combining
cartoon characters with major professional sports leagues.
In 1994, the Company entered into a licensing agreement with the Walt
Disney Company whereby the Company's European subsidiary will offer for sale a
variety of casualwear apparel products bearing the world famous DISNEY
characters in Europe, Eastern Europe and the Middle East. Collections to be
offered will include T-shirts, sweatshirts, sweatpants, shorts, shirts,
turtlenecks, polos and leggings as well as a number of denim products.
Products are expected to be available in retail stores in the Fall of 1995.
Imports
The Company did not experience a negative impact from the implementation
of the North American Free Trade Agreement (NAFTA). NAFTA's strict rule of
origin, which generally requires apparel to be made from North American spun
yarn and North American knit or woven fabric, should continue to prevent Mexico
from becoming an export platform for low-wage manufacturers from outside the
region. The Company believes that its more capital and technology intensive
yarn spinning, knitting and cloth finishing operations in the United States
remain at an advantage to import competitors. Nonetheless, apparel imports
from Mexico are increasing. As the Company produces more garments in total,
the Company is increasing the capacity of its more labor intensive assembly
operations in Mexico, the Caribbean and Central America. This action is
necessary to help the Company remain competitive as import competition
increases.
As with Mexico, imports from the Caribbean and Central America likely will
continue to rise more rapidly than imports from other parts of the world. This
is because Section 9802 (previously Section 807) of the United States tariff
schedule grants preferential quotas for Caribbean and Central American
countries when United States made and cut fabrics are used, and duty is paid
only on the value added outside the United States. United States apparel and
textile manufacturers, including the Company, will continue to use Section 9802
to compete with direct imports. The use of Section 9802 will accelerate if the
United States Congress adopts the proposed "NAFTA Parity" for the countries of
the Caribbean and Central America, which, among other things, would grant duty
free treatment for apparel assembled in the region from United States
components.
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ITEM 1. BUSINESS - (Continued)
Imports - (Concluded)
Direct imports accounted for approximately 21% of the United States men's
and boys' underwear market (46% if Section 9802 imports are included) in 1994
and approximately 39% (81% including Section 9802 imports) of the women's and
girls' underwear market. With regard to activewear and cotton socks, imports
accounted for approximately 35% and 2.4% of these respective markets in 1993,
the latest period for which data is available.
U.S. tariffs and quotas established under the international agreement
known as the Multifiber Arrangements (MFA) limit the growth of imports from low
wage foreign suppliers such as China, India and Pakistan. Consequently,
management does not believe that imports from these countries presently pose a
significant threat to its business. Import competition will continue to
increase and accelerate as MFA quotas are phased out. Quotas will be
completely eliminated on January 1, 2005. The Company will monitor closely the
impact of the MFA quota phase out and will respond as necessary to maintain its
low-cost position.
Employees
The Company employs approximately 37,400 persons. Approximately 5,200
employees, principally international, are covered by collective bargaining
agreements.
Miscellaneous
Materials and Supplies. Materials and supplies used by the Company are
available in adequate quantities. The primary raw materials used in the
manufacturing processes are cotton and polyester which are subject to the price
volatility of the commodity markets. The Company enters into futures contracts
as hedges for its purchases of cotton for inventory.
Other. The Company was incorporated under the laws of the state of
Delaware in 1985. The principal executive offices of the Company are located
at 233 South Wacker Drive, 5000 Sears Tower, Chicago, Illinois 60606, telephone
(312)876-1724. As used in this Annual Report on Form 10-K, the term "the
Company" refers to Fruit of the Loom, Inc. and its subsidiaries, together with
its predecessor, Northwest Industries, Inc. ("Northwest"), unless otherwise
stated or indicated by the context. Market share data contained herein are for
domestic markets and are based upon information supplied to the Company by the
National Purchase Diary, which management believes to be reliable.
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ITEM 2. PROPERTIES
The Company has properties and facilities aggregating approximately
20,652,000 square feet of usable space, of which approximately 8,463,000 square
feet of facilities are under leases expiring through 2016. Management believes
that the Company's facilities and equipment are in good condition and that the
Company's properties, facilities and equipment are adequate for its current
operations. The Company has invested approximately $1.4 billion in capacity
expansion and plant modernization programs during the past nine calendar years.
Capital spending, primarily to enhance distribution and yarn manufacturing
capabilities and to establish offshore assembly operations, is expected to
approximate $125,000,000 to $140,000,000 in 1995. Management believes that
these prior investments, together with planned capital expenditures, will allow
the Company to accommodate current and anticipated sales growth and remain a
low cost producer in the next several years.
Set forth below is a summary of the principal facilities owned or leased
by the Company:
<TABLE>
<CAPTION>
No. of Square Feet
Primary Use Locations Owned Leased
<S> <C> <C> <C>
Manufacturing . . . . . . . . . . . . . 61 7,714,000 2,976,000
Warehouse and distribution . . . . . . . 71 4,336,000 5,129,000
Sales and administration . . . . . . . . 35 139,000 358,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities,
such as those under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, its regulations and similar state statutes
("Superfund Legislation") in connection with the sale of certain discontinued
operations, some of which were significant generators of hazardous waste. The
Company and its subsidiaries have also retained certain liabilities related to
the sale of products in connection with the sale of certain discontinued
operations. The Company's retained liability reserves at December 31, 1994
related to discontinued operations consist primarily of certain environmental
and product liability reserves of approximately $79,100,000. The Company has
recorded receivables related to these liabilities of approximately $36,700,000
which, management believes, will be recovered from insurance and other sources.
Management and outside environmental consultants evaluate, on a site-by-site or
a claim-by-claim basis, the extent of environmental damage, the type of
remediation that will be required and the Company's proportionate share of
those costs as well as the Company's liability in each case. The Company's
retained liability reserves related to discontinued operations principally
pertain to 11 specifically identified environmental sites and the
aforementioned product liabilities. Five sites and the total product
liabilities individually represent more than 10% of the net reserve and, in the
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ITEM 2. LEGAL PROCEEDINGS - (Continued)
aggregate, represent approximately 96% of the net reserve. Management believes
it has adequately estimated the impact of remediating identified sites, the
expected contribution from other potentially responsible parties and recurring
costs for managing sites as well as the ultimate resolution of the product
liability claims. Management currently estimates actual payments before
recoveries to range from approximately $9,200,000 to $24,200,000 annually
between 1995 and 1998 and $14,300,000 in total subsequent to 1998. Only the
long-term monitoring costs of approximately $6,600,000 primarily scheduled to
be paid in 1999 and beyond have been discounted. The discount rate used was
10%. The undiscounted aggregate long-term monitoring costs, to be paid over
approximately the next 20 years, is approximately $17,800,000. Management
believes that adequate reserves have been established to cover potential claims
based on facts currently available and current Superfund Legislation. The
Company has provided the foregoing information in accordance with Staff
Accounting Bulletin 92.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and
Federal regulatory agencies under Superfund Legislation and by private citizens
under Superfund Legislation and common law theories. Since 1982, the United
States Environmental Protection Agency (the "EPA") has actively sought
compensation for response costs and remedial action at offsite disposal
locations from waste generators under the Superfund Legislation, which
authorizes such action by the EPA regardless of fault, legality of original
disposal or ownership of a disposal site. The EPA's activities under the
Superfund Legislation can be expected to continue during 1995 and future years.
In February 1986, the Company completed the sale of stock of its then
wholly owned subsidiary, Universal Manufacturing Corporation ("Universal"), to
MagneTek, Inc., ("MagneTek"). At the time of the sale there was a suit pending
against Universal and Northwest by L.M.P. Corporation ("LMP"). The suit (the
"LMP Litigation") alleged that Universal and Northwest fraudulently induced LMP
to sell its business to Universal and then suppressed the development of
certain electronic lighting ballasts in breach of the agreement of sale, which
required Universal to pay to LMP a percentage of the net profits from such
business from 1982 through 1986. Two additional plaintiffs, Stevens
Luminoptics Partnership and Calmont Technologies Inc., joined the litigation in
1986. In December 1989 and January 1990, a jury returned certain verdicts
against Universal and also returned verdicts in favor of Northwest and on
certain issues in favor of Universal. A judgment totalling $25,800,000, of
which $7,500,000 represented punitive damages, reflecting these verdicts was
entered by the Alameda County, California Superior Court in January 1990
against Universal.
In April 1992, the California Court of Appeals reversed the $25,800,000
judgment against Universal and affirmed those verdicts favorable to Universal
and Northwest. In July 1992, the California Supreme Court denied the
plaintiffs' petition for review. The case was then remanded to the trial
court. In October 1994, following a retrial of the LMP Litigation, a jury
returned a verdict of approximately $96,000,000 against Universal. The jury
verdict included breach of contract and fraud damages and approximately
$6,000,000 in punitive damages. The Company is obligated to indemnify
Universal for damages incurred in this case.
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ITEM 2. LEGAL PROCEEDINGS - (Continued)
Management of the Company believes that the jury's decision is incorrect
and is contrary to the evidence. Based on discussions with counsel and on
other information currently available, management believes that the court
committed numerous errors during the trial and, accordingly, that the judgment
will not stand on appeal. The Company intends to vigorously appeal this
verdict.
In March 1988, a class action suit entitled Endo et al. v. Albertine, et
al. was filed in the United States District Court for the Northern District of
Illinois (the "District Court") against the Company, its then directors,
certain of its then executive officers, its then underwriters and the Company's
current independent auditors in connection with the Company's initial public
offering of Class A Common Stock and certain debt securities in March 1987.
The suit alleges, among other things, violations of Federal and state
securities laws against all of the defendants, as well as breaches of fiduciary
duties by the director and officer defendants, and seeks unspecified damages.
Motions to dismiss the complaint were filed by all defendants. In
December 1990, a magistrate judge recommended that the District Court dismiss
all of the plaintiffs' claims with prejudice. On January 29, 1993, the
District Court adopted in part and rejected in part the magistrate judge's
recommendation for dismissal of the complaint. As a result, the litigation
will continue as to various remaining counts of the complaint. Both the
defendants and the plaintiffs filed motions for summary judgment which were
denied in all material respects. Management and the Board of Directors believe
that this suit is without merit and intend to continue to vigorously defend
against this litigation.
On December 23, 1993, James J. Locke, as Trustee of Locke Family Trust,
and I. Jack Saline filed a lawsuit against the Company and certain of its then
officers and directors, including William Farley and John B. Holland, in the
District Court. The lawsuit was then amended to add additional plaintiffs. On
April 19, 1994, the District Court granted plaintiffs' motion for class
certification. The plaintiffs claim that all of the defendants engaged in
conduct violating Section 10b of the Securities Exchange Act of 1934, as
amended (the "Act"), and that Mr. Farley and Mr. Holland also violated Section
20a of the Act. According to the plaintiffs, beginning before June 1992 and
continuing through early June 1993, the Company, with the knowledge and
assistance of the individual defendants, issued positive public statements
about its expected sales increases and growth through 1993 and afterwards.
They also allege that beginning in approximately mid-1992 and continuing
afterwards, the Company's business was not as strong and its growth prospects
were not as certain as represented. The plaintiffs further allege that during
the end of 1992 and beginning of 1993, certain of the individual defendants
traded the stock of the Company while in the possession of material, non-public
information. The plaintiffs ask for unspecified amounts as compensatory
damages, pre-judgment and post-judgment interest, attorneys' fees, expert
witness fees and costs and ask the District Court to impose a constructive
trust on the proceeds of the individual defendants' trades to satisfy any
potential judgment. Management believes that this suit is without merit and
management and the Company intend to vigorously defend against this litigation.
<PAGE>
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS - (Concluded)
Management believes, based on information currently available, that the
ultimate resolution of the aforementioned litigation will not have a material
adverse effect on the financial condition or operations of the Company.
In March 1992, the Company received a refund of approximately $60,000,000
relating to Federal income taxes paid by Northwest plus interest thereon
applicable to the tax years 1964-1968. However, in September 1992, the
Internal Revenue Service (the "IRS") issued a statutory notice of deficiency in
the amount of approximately $7,300,000 for the taxable years from which the
March 1992 refund arose, exclusive of interest which would have accrued from
the date the IRS asserted the tax was due until payment, presently a period of
about 27 years. In October 1994 the United States Tax Court ruled in favor of
the Company in the above case. In January 1995 the IRS filed an appeal with
the United States Court of Appeals for the Seventh Circuit. The Company
believes, based on information currently available, that the IRS position is
without merit and that the Company will prevail in this appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
William Farley, an executive officer and director of the Company, holds
100% of the common stock of Farley Inc. ("FI"). William Farley and FI together
own all of the Class B Common Stock of the Company outstanding. See
"Consolidated Statement of Common Stockholders' Equity" in the Notes to
Consolidated Financial Statements. William Farley also owns 318,000 shares of
the Class A Common Stock of the Company. As of March 10, 1995, there were
2,593 registered holders of record of the Class A Common Stock of the Company.
Common Stock Prices and Dividends Paid
The Company's Class A Common Stock is listed on the New York Stock
Exchange. Prior to December 3, 1993, the Company's Class A Common Stock was
listed on the American Stock Exchange. The following table sets forth the high
and low market prices of the Class A Common Stock for 1994 and 1993:
<TABLE>
<CAPTION> Market Prices
1994 1993
High Low High Low
<S> <C> <C> <C> <C>
1st Quarter . . . . . . . . . . . . . . $ 31-5/8 $ 23 $ 49-1/4 $ 40
2nd Quarter . . . . . . . . . . . . . . 33 25-3/4 43-1/2 29-3/4
3rd Quarter . . . . . . . . . . . . . . 27-1/2 23-1/4 34 27-3/4
4th Quarter . . . . . . . . . . . . . . 29-7/8 24-5/8 38-1/8 22-7/8
</TABLE>
No dividends were declared on the Company's common stock issues during
1994 or 1993. The Company does not currently anticipate paying any dividends
in 1995. For restrictions on the present or future ability to pay dividends,
see "Long-Term Debt" in the Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
(In Millions, Except Per Share Data)
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992 1991 1990
Earnings Statement Data<F1>:
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $2,297.8 $1,884.4 $1,855.1 $1,628.1 $1,426.8
Gross earnings . . . . . . . . . . . . . 646.5 647.4 660.3 525.6 506.6
Operating earnings . . . . . . . . . . . 235.0<F2> 381.5 409.9 319.3 300.3
Interest expense . . . . . . . . . . . . 95.4 72.7 82.1 114.9 129.4
Earnings before income tax expense,
extraordinary items and cumulative effect
of change in accounting principle . . 133.5 367.1 319.9 201.0 148.6
Earnings before extraordinary items
and cumulative effect of change
in accounting principle . . . . . . . 60.3 212.8<F3> 188.5 111.0<F4> 77.1<F5>
Earnings per common share before extraordinary items and cumulative
effect of change in accounting principle:
Primary . . . . . . . . . . . . . . . .79 2.80<F3> 2.48 1.60<F4> 1.25<F5>
Fully diluted . . . . . . . . . . . . .79 2.80<F3> 2.48 1.55<F4> 1.18<F5>
Average common shares outstanding:
Primary . . . . . . . . . . . . . . . 76.0 76.0 76.0 69.4<F6><F7> 61.9
Fully diluted . . . . . . . . . . . . 76.0 76.0 76.0 72.8<F6> 67.3
Year Ended December 31,
1994 1993 1992 1991 1990
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . $3,163.5 $2,734.0 $2,281.9 $2,114.9 $2,151.2
Long-term debt . . . . . . . . . . . . . 1,440.2 1,194.0 756.3 811.2<F6><F7> 1,014.4
Deferred and noncurrent income taxes . . 43.4 51.0 49.1 167.4 156.3
Other noncurrent liabilities . . . . . . 222.3 191.5 187.9 77.3 67.5
Common stockholders' equity . . . . . . . 1,125.8 1,047.0 855.0 688.7<F6><F7> 417.9
<FN>
<F1> This information should be read in conjunction with "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" and the Financial Statements and Supplementary Data.
<F2> Includes pretax charges of approximately $40 to write inventories down
to net realizable value and a pretax charge of $18 related to the
write-off of Artex intangibles.
<F3> Includes a pretax gain of $67.3 ($.55 per share on both a primary and
fully diluted basis) from the Company's investment in Acme Boot Company,
Inc. ("Acme Boot"). Excluding this gain, earnings per share were $2.25
on both a primary and fully diluted basis.
<F4> Includes the effect of a court ordered refund of Federal income taxes
of $10.5, plus interest of $49.4, ($.57 per share on both a primary and
fully diluted basis), a pretax charge of $10.2 ($.12 per share on both
a primary and fully diluted basis) for certain obligations and other
matters related to former subsidiaries and a pretax charge of $39.2
($.45 per share on both a primary and fully diluted basis) to write down
the Company's investment in Acme Boot to its then market value.
<F5> Includes a pretax charge of $16.3 ($.17 and $.16 per share on a primary
and fully diluted basis, respectively) for certain obligations and other
matters related to former subsidiaries. Excluding this charge, earnings
per share were $1.42 and $1.34 on a primary and fully diluted basis,
respectively.
<PAGE>
<PAGE> 17
<F6> In May 1991, the Company completed the underwritten primary offering of
7.5 shares of its Class A Common Stock (the "Stock Offering"). The
Company used the proceeds of approximately $101.5 from the Stock
Offering to reduce borrowings under its domestic bank agreements.
<F7> In July 1991, the Company called for redemption all of its 6-3/4%
Convertible Subordinated Debentures due March 1, 2002 (the "Debentures")
totaling $59.9. The Debentures were converted into Class A Common Stock
of the Company at a conversion price of $11.25 per share. Approximately
5.3 shares were issued in the conversion.
</FN>
</TABLE>
<PAGE>
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The table below sets forth selected operating data (in millions of dollars
and as percentages of net sales) of the Company:
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $ 2,297.8 $ 1,884.4 $ 1,855.1
Gross earnings . . . . . . . . . . . . . . . $ 646.5 $ 647.4 $ 660.3
Gross margin . . . . . . . . . . . . . . . . 28.1% 34.4% 35.6%
Operating earnings . . . . . . . . . . . . . $ 235.0 $ 381.5 $ 409.9
Operating margin . . . . . . . . . . . . . . 10.2% 20.2% 22.1%
</TABLE>
Operations
1994 Compared to 1993
Net sales increased 21.9% in 1994 compared to 1993. The increase in net
sales in 1994 was primarily due to the results of the Company's new licensed
sports apparel line, principally as a result of the acquisitions of Salem in
November 1993, Artex in January 1994 and Pro Player in August 1994. Also,
volume increases in certain of the Company's existing businesses reflecting
improved demand and the introduction of new programs and products in 1994
contributed to the sales increase in 1994. In addition, the 1994 results
include the operations of Gitano since April 1994. These increases were
partially offset by the negative effects of lower average selling prices
(principally for domestic activewear in the first six months of 1994).
Gross earnings decreased .1% in 1994 compared to 1993. The gross margin
was 28.1% in 1994 compared to 34.4% in 1993. In December 1994, the Company
announced the closing of substantially all of the operations of Artex,
consolidating the manufacturing portion of those operations into existing
Company-owned facilities. In addition, the Company's casualwear businesses,
Fruit of the Loom casualwear and Gitano, undertook significant product line
reduction programs during the fourth quarter, and administrative consolidations
resulted in the elimination of the New York casualwear group. The Company also
undertook a comprehensive review of its other domestic product offerings during
the last quarter of 1994. As a result of this review, a substantial number of
slower moving or less profitable items have been removed, principally from the
casualwear and licensed sports apparel lines, and written down to net
realizable value. The total of the various inventory related charges was
approximately $40,000,000. In addition, gross earnings and gross margin have
been impacted by the effects of lower prices and promotional activities, other
general cost increases, including cotton cost increases, and manufacturing
inefficiencies as certain sewing operations are transferred to offshore
locations.
<PAGE>
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Operations - (Continued)
1994 Compared to 1993 - (Continued)
Operating earnings decreased 38.4% compared to 1993 while the operating
margin decreased ten percentage points to 10.2% of net sales in 1994. The
decreases in operating earnings resulted from higher selling, general and
administrative expenses and goodwill amortization (from the acquisitions of
Salem, Artex, Gitano and Pro Player) in 1994, coupled with the decrease in
gross earnings. Selling, general and administrative expenses increased to
16.4% of net sales in 1994 compared to 12.7% of net sales in 1993. Higher
selling and other administrative costs arose both from the acquisitions of
Salem, Artex, Gitano and Pro Player and from the Company's continuing effort to
improve customer service by making investments in added distribution
capabilities, computer systems and other infrastructure required to service
customers more effectively. In addition, selling, general and administrative
expenses in 1994 include charges related to the consolidation of the Company's
licensed sportswear operations.Costs associated with the closing of the Artex
operations included the write-off of approximately $18,000,000 of intangibles.
The increases in selling, general and administrative expenses also include
higher royalty costs in 1994, principally due to the acquisitions of the Salem,
Artex and Pro Player licensed sports apparel operations.
Interest expense in 1994 increased 31.2% from 1993. The increase was
principally attributable to the effect of higher debt levels in 1994. Higher
debt levels were primarily due to the acquisitions of Salem, Artex, Gitano and
Pro Player, which were financed through borrowings under the Company's
$800,000,000 revolving line of credit (the "New Credit Agreement"), and higher
working capital levels.
Included in other expense - net in 1994 is $16,000,000 of service fee
income from Gitano's operations which represented Gitano's transition to a
marketing service organization from a traditional wholesaler base. These
revenues are not expected to recur after 1994 as Gitano reverts to a
traditional apparel wholesaler. This was partially offset by $12,500,000 of
charges to provide for certain obligations of and legal expenses pertaining to
litigation related to retained liabilities of former subsidiaries. In
addition, other expense - net in 1994 and 1993 included approximately
$8,100,000 and $7,900,000, respectively, of deferred debt fee amortization and
bank fees.
In 1993 the Company received approximately $72,900,000 from Acme Boot
representing the entire unpaid principal and liquidation preference (including
accrued interest and dividends) on its investment in the securities of the
affiliate. The Company recorded a pretax gain of $67,300,000 related to the
investment in Acme Boot upon the receipt of the above mentioned proceeds. See
"Related Party Transactions" in the Notes to Consolidated Financial Statements.
The effective income tax rate for 1994 and 1993 differed from the Federal
statutory rate of 35% primarily due to the impact of goodwill amortization, a
portion of which is not deductible for Federal income tax purposes, state
income taxes and the provision for interest related to prior years' taxes.
<PAGE>
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Operations - (Continued)
1994 Compared to 1993 - (Concluded)
In 1993 the Company recorded an extraordinary charge of $8,700,000 ($.11
per share) in connection with the refinancing of its bank credit agreements and
the redemption of its 12-3/8% Senior Subordinated Debentures due 2003 (the
"12-3/8% Notes"). The extraordinary charge consisted principally of the non-
cash write-off of the related unamortized debt expense on the bank credit
agreements, the 12-3/8% Notes and other debt issues and the premiums paid in
connection with the early redemption of the 12-3/8% Notes, both net of income
tax benefits.
In the first quarter of 1993, the Company recorded the cumulative effect
of an accounting change related to the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement No.
109"), resulting in a $3,400,000 ($.04 per share) benefit.
Earnings per share before extraordinary items and cumulative effect of
change in accounting principle decreased 71.8% to $.79 from $2.80 for 1993.
Net earnings per share in 1993 were $2.73 and included an $.11 extraordinary
charge related to the early retirement of debt and a $.04 benefit related to
the cumulative effect of a change in accounting for income taxes.
Management believes that the relatively moderate rate of inflation over
the past few years has not had a significant impact on the Company's sales or
profitability.
1993 Compared to 1992
Net sales increased 1.6% in 1993 from 1992. The increased net sales for
1993 as compared to 1992 are due to volume increases in casualwear,
international activewear and underwear combined with price increases
(principally for domestic activewear and casualwear). These increases more
than offset the adverse effects of volume declines in domestic activewear,
unfavorable foreign currency exchange rate comparisons on international sales
between the two periods and increased sales of promotional and closeout
merchandise in 1993. With respect to international operations, the Company's
approach has been to establish production in foreign markets by both acquiring
existing manufacturing facilities and building new plants in order to better
serve these markets. Management believes international sales will continue to
be a source of growth for the Company, particularly in Europe. However, any
such growth is subject to the risk that the Company's products in diverse
international marketplaces will not be widely accepted.
Gross earnings decreased 2.0% in 1993 compared to 1992. The gross margin
was 34.4% in 1993 compared to 35.6% in 1992. The decrease in gross earnings in
1993 is due primarily to the unfavorable effects of operating certain
facilities on reduced production schedules in response to lower than expected
consumer demand, inventory valuation adjustments and unfavorable changes in
product mix due to promotions and closeouts. These decreases more than offset
the favorable effects of the sales price and volume increases discussed above
and lower raw material costs.
<PAGE>
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Operations - (Concluded)
1993 Compared to 1992 - (Concluded)
Operating earnings decreased 6.9% compared to 1992 and the operating
margin decreased 1.9 percentage points to 20.2% in 1993. The decreases are due
to lower gross earnings and gross margin as well as higher selling, general and
administrative expenses. Selling, general and administrative expenses
increased to 12.7% of net sales in 1993 compared to 12.1% in the prior year.
The spending increase is primarily attributable to increased selling expenses
resulting from increased royalty payments and increased shipping expenses. The
shipping expense increase results from a shift in product mix to more
casualwear and an increased number of shipments as customer order patterns have
changed to include an increased number of smaller quantity shipments.
Interest expense for 1993 decreased 11.4% from 1992. Lower interest
expense is principally attributable to the effect of lower interest rates on
the Company's debt instruments which more than offset the effects of higher
average debt levels during 1993. The lower interest rates are principally due
to the Company's refinancing of its 10-3/4% Notes (as hereinafter defined) with
a 7-7/8% senior note issue in the fourth quarter of 1992. In addition, lower
average prime and LIBOR interest rates on the Company's variable rate debt
instruments in 1993 compared to 1992 contributed to the lower average interest
rates.
The effective income tax rate before extraordinary items and cumulative
effect of change in accounting principle for 1993 and 1992 differed from the
Federal statutory rate of 35% and 34%, respectively, primarily due to the
impact of goodwill amortization, which is not deductible for Federal income tax
purposes, state income taxes and the provision for interest related to prior
years' taxes.
In 1992, the Company redeemed all of its $280,000,000 principal amount of
10-3/4% Senior Subordinated Notes due July 15, 1995 (the "10-3/4% Notes"). The
Company recorded an extraordinary charge of approximately $9,900,000 ($.13 per
share) in connection with the redemption of the 10-3/4% Notes, which consisted
principally of the premiums paid in connection with the early redemption of the
10-3/4% Notes and the non-cash write-off of the related unamortized debt
expense, both net of income tax benefits.
Earnings per share before extraordinary items and cumulative effect of
change in accounting principle were $2.80 for 1993 compared to $2.48 for 1992,
a 12.9% increase. Net earnings per share in 1993 were $2.73 and include an
$.11 extraordinary charge related to the early retirement of debt and a $.04
benefit related to the cumulative effect of a change in accounting for income
taxes. Included in earnings per share before extraordinary items and
cumulative effect of change in accounting principle and net earnings per share
in 1993 is the effect of a gain related to the Company's investment in Acme
Boot of $.55 per share.
Liquidity and Capital Resources
Funds generated from the Company's operations are the major source of
liquidity and are supplemented by funds obtained from capital markets including
<PAGE>
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Liquidity and Capital Resources - (Concluded)
bank facilities. During 1994, the Company obtained bank revolving lines of
credit for certain of its foreign operations and separate letter of credit
facilities to replace certain letters of credit which were outstanding under
the New Credit Agreement at December 31, 1993.
In connection with the verdict in the LMP Litigation, the Company posted a
bond on November 9, 1994 in an amount equal to one and one-half times the value
of the judgment as collateral for the judgment during the pendency of an appeal
of the verdict. In order to obtain the bond, a $73,000,000 letter of credit
was required which reduced the Company's borrowing availability under the New
Credit Agreement.
The Company has available for the funding of its operations approximately
$846,200,000 of revolving lines of credit. As of March 21, 1995 approximately
$88,600,000 was available and unused under these facilities.
Net cash provided by operating activities for the years ended December 31,
1994 and 1993 were $215,100,000 and $89,800,000, respectively. The primary
components of cash provided by operating activities in 1994 were net earnings
plus depreciation and amortization (totaling $216,100,000) partially offset by
an increase in working capital of $3,600,000. In 1994, increases in trade
accounts payable of $32,500,000 and other working capital declines (primarily
increased other current liabilities) of $60,600,000 only partially offset
increases in accounts receivable of $23,300,000 and inventories of $73,400,000.
The primary components of cash provided by operating activities in 1993 were
net earnings plus depreciation and amortization (totaling $329,100,000)
partially offset by an increase in working capital of $152,200,000. The
working capital increase in 1993 was principally caused by higher inventories
of $130,700,000. The increases in inventory in both 1994 and 1993 reflected
the Company's ongoing efforts to improve customer service and, in 1994, the
effect of the acquisitions of Artex, Gitano and Pro Player. In 1993, the
Company realized a gain from its investment in Acme Boot of approximately
$67,300,000, the cash effect of which was included in investing activities for
1993.
Net cash used for investing activities in 1994 and 1993 were $430,800,000
and $335,900,000, respectively. Capital expenditures, net of amounts
attributable to capital leases of $40,600,000 and $2,900,000 in 1994 and 1993,
respectively, were $246,400,000 and $259,600,000 in 1994 and 1993,
respectively. In 1994 the Company used approximately $192,100,000 on the
acquisitions of Artex, Gitano and Pro Player, the funds for which were provided
by borrowings under the New Credit Agreement. In 1993, the Company used
approximately $157,600,000 on the acquisition of Salem. Also in 1993, the
Company received approximately $72,900,000 in proceeds from the investment in
Acme Boot. Capital spending, primarily to enhance distribution and yarn
manufacturing capabilities and to establish and support offshore assembly
operations, is anticipated to approximate $125,000,000 to $140,000,000 in 1995.
<PAGE>
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Liquidity and Capital Resources - (Concluded)
Net cash provided by financing activities in 1994 and 1993 was
$190,900,000 and $262,900,000, respectively, and consisted principally of
borrowings under the Company's bank credit agreements.
In September 1994 the Company entered into a five year operating lease
agreement with two automatic annual renewal options, primarily for certain
machinery and equipment. The total cost of the assets to be covered by the
lease is limited to $200,000,000. The total cost of assets under lease as of
December 31, 1994 was approximately $76,000,000. The lease provides for a
substantial residual value guarantee by the Company at the termination of the
lease and includes purchase and renewal options at fair market values.
Management believes the funding available to it is sufficient to meet
anticipated requirements for capital expenditures, working capital and other
needs.
The Company's debt instruments, principally its bank agreements, contain
covenants restricting its ability to sell assets, incur debt, pay dividends and
make investments and requiring the Company to maintain certain financial
ratios. See "Long-Term Debt" in the Notes to Consolidated Financial
Statements.
<PAGE>
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . 25
Consolidated Balance Sheet - December 31, 1994 and 1993 . . . . . . . . 26
Consolidated Statement of Earnings for Each of the Years Ended December
31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statement of Cash Flows for Each of the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 30
Supplementary Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . 56
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . 65
Note: All other schedules are omitted because they are not applicable or
not required.
<PAGE>
<PAGE> 25
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of
Fruit of the Loom, Inc.
We have audited the accompanying consolidated balance sheet of Fruit of
the Loom, Inc. and Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings and cash flows for each of the
three years in the period ended December 31, 1994. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Fruit of the Loom, Inc. and Subsidiaries at December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as whole, presents fairly in all material respects
the information set forth therein.
As discussed in the Notes to Consolidated Financial Statements, the
Company changed its method of accounting for income taxes in 1993.
ERNST & YOUNG LLP
Chicago, Illinois
February 14, 1995
<PAGE>
<PAGE> 26
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1994 1993
ASSETS (In thousands of dollars)
Current Assets
<S> <C> <C>
Cash and cash equivalents (including restricted cash) . . . . . . . . . . $ 49,400 $ 74,200
Notes and accounts receivable (less allowance for possible
losses of $20,700,000 and $16,100,000, respectively) . . . . . . . . . 295,600 239,700
Inventories
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,200 454,500
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,500 94,000
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . 39,100 25,600
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,800 54,700
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 1,076,600 942,700
Property, Plant and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,300 9,100
Buildings, structures and improvements . . . . . . . . . . . . . . . . . . 435,600 325,200
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 1,041,300 867,900
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . 35,200 31,700
1,531,400 1,233,900
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . 473,200 367,900
Net property, plant and equipment . . . . . . . . . . . . . . . . 1,058,200 866,000
Other Assets
Goodwill (less accumulated amortization of $242,400,000 and
$207,200,000, respectively) . . . . . . . . . . . . . . . . . . . . . 965,800 895,300
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,900 30,000
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,028,700 925,300
$ 3,163,500 $ 2,734,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . $ 23,100 $ 34,000
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 113,300 78,100
Accrued payroll and vacation pay . . . . . . . . . . . . . . . . . . . . . 33,100 25,700
Accrued insurance obligations . . . . . . . . . . . . . . . . . . . . . . 23,600 15,500
Accrued advertising and promotion . . . . . . . . . . . . . . . . . . . . 23,400 15,400
Accrued pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,800 18,700
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,300 14,300
Other accounts payable and accrued expenses . . . . . . . . . . . . . . . 77,200 48,800
Total current liabilities . . . . . . . . . . . . . . . . . . . . 331,800 250,500
Noncurrent Liabilities
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,440,200 1,194,000
Net deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 43,400 51,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222,300 191,500
Total noncurrent liabilities . . . . . . . . . . . . . . . . . . . 1,705,900 1,436,500
<PAGE>
<PAGE> 27
Common Stockholders' Equity
Common stock and capital in excess of par value, $.01 par value;
authorized, Class A, 200,000,000 shares, Class B,
30,000,000 shares; issued and outstanding:
Class A Common Stock, 69,160,349 and 69,032,919 shares, respectively . 463,700 459,600
Class B Common Stock, 6,690,976 shares . . . . . . . . . . . . . . . . 4,400 4,400
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680,600 620,300
Currency translation adjustments . . . . . . . . . . . . . . . . . . . . . (22,900) (37,300)
Total common stockholders' equity . . . . . . . . . . . . . . . . 1,125,800 1,047,000
$ 3,163,500 $ 2,734,000
</TABLE>
See accompanying notes.
<PAGE>
<PAGE> 28
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
(In thousands, except per share data)
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,297,800 $ 1,884,400 $ 1,855,100
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . 1,651,300 1,237,000 1,194,800
Gross earnings . . . . . . . . . . . . . . . . . . . . . . . 646,500 647,400 660,300
Selling, general and administrative expenses . . . . . . . . . 376,300 240,100 225,000
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . 35,200 25,800 25,400
Operating earnings . . . . . . . . . . . . . . . . . . . . . 235,000 381,500 409,900
Interest expense . . . . . . . . . . . . . . . . . . . . . . . (95,400) (72,700) (82,100)
Gain on Acme Boot investment . . . . . . . . . . . . . . . . . -- 67,300 --
Other expense-net . . . . . . . . . . . . . . . . . . . . . . . (6,100) (9,000) (7,900)
Earnings before income tax expense,
extraordinary items and cumulative effect
of change in accounting principle . . . . . . . . . . . 133,500 367,100 319,900
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 73,200 154,300 131,400
Earnings before extraordinary items and cumulative
effect of change in accounting principle . . . . . . . . 60,300 212,800 188,500
Extraordinary items - loss on early
retirement of debt and debt redemption . . . . . . . . . -- (8,700) (9,900)
Earnings before cumulative effect of change
in accounting principle . . . . . . . . . . . . . . . . 60,300 204,100 178,600
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . . -- 3,400 --
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 60,300 $ 207,500 $ 178,600
Earnings per common share:
Earnings before extraordinary items and cumulative
effect of change in accounting principle . . . . . . . . $ .79 $ 2.80 $ 2.48
Extraordinary items . . . . . . . . . . . . . . . . . . . . -- (.11) (.13)
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . -- .04 --
Net earnings per common share . . . . . . . . . . . . . . . $ .79 $ 2.73 $ 2.35
Average common shares outstanding . . . . . . . . . . . . . 76,000 76,000 76,000
</TABLE>
See accompanying notes.
<PAGE>
<PAGE> 29
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
Cash Flows from Operating Activities (In thousands of dollars)
<S> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 60,300 $ 207,500 $ 178,600
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 155,800 121,600 107,500
Deferred income taxes . . . . . . . . . . . . . . . . . (7,600) 30,200 (9,200)
(Increase) decrease in notes and accounts receivable . . (23,300) 14,200 (35,100)
Increase in inventories . . . . . . . . . . . . . . . . (73,400) (130,700) (83,100)
Increase (decrease) in trade accounts payable . . . . . 32,500 (6,000) 31,100
Other working capital changes . . . . . . . . . . . . . 60,600 (29,700) 38,600
Extraordinary items . . . . . . . . . . . . . . . . . . -- 8,700 9,900
Cumulative effect of change in accounting for income taxes -- (3,400) --
Gain on Acme Boot investment . . . . . . . . . . . . . . -- (67,300) --
Decrease in income taxes and interest receivable . . . . -- -- 59,900
Net payments on retained liabilities
related to former subsidiaries . . . . . . . . . . . (14,400) (38,600) (30,500)
Other-net . . . . . . . . . . . . . . . . . . . . . . . 24,600 (16,700) (20,200)
Net cash provided by operating activities . . . . . 215,100 89,800 247,500
Cash Flows from Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . (287,000) (262,500) (188,900)
Less amount attributable to capital leases . . . . . . . . . 40,600 2,900 --
Capital expenditures . . . . . . . . . . . . . . . . (246,400) (259,600) (188,900)
Acquisition of Gitano . . . . . . . . . . . . . . . . . . . (91,400) -- --
Acquisition of Pro Player . . . . . . . . . . . . . . . . . (55,700) -- --
Acquisition of Artex . . . . . . . . . . . . . . . . . . . . (45,000) -- --
Acquisition of Salem . . . . . . . . . . . . . . . . . . . . -- (157,600) --
Net proceeds from Acme Boot investment . . . . . . . . . . . -- 72,900 --
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . 7,700 8,400 (3,900)
Net cash used for investing activities . . . . . . . (430,800) (335,900) (192,800)
Cash Flows from Financing Activities
Net borrowings under long-term debt agreements . . . . . . . 232,300 782,400 337,900
Principal payments on long-term debt and capital leases . . (42,200) (100,700) (100,100)
(Decrease) increase in short-term notes payable . . . . . . -- (65,100) 17,500
Refinancing of long-term debt . . . . . . . . . . . . . . . -- (267,900) --
Prepayment of long-term debt . . . . . . . . . . . . . . . . -- (82,300) (280,000)
Debt redemption premiums . . . . . . . . . . . . . . . . . . -- (3,300) (11,500)
Net proceeds from issuance of common stock . . . . . . . . . 800 1,700 7,600
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,900) (100)
Net cash provided by (used for) financing activities 190,900 262,900 (28,700)
Net (decrease) increase in cash and cash
equivalents (including restricted cash) . . . . . . . . . . (24,800) 16,800 26,000
Cash and cash equivalents (including restricted
cash) at beginning of year . . . . . . . . . . . . . . . . . 74,200 57,400 31,400
Cash and cash equivalents (including restricted
cash) at end of year . . . . . . . . . . . . . . . . . . . . $ 49,400 $ 74,200 $ 57,400
</TABLE>
See accompanying notes.
<PAGE>
<PAGE> 30
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements of the
Company include the accounts of the Company and all of its subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Inventories. Inventory costs include material, labor and factory
overhead. Inventories are stated at the lower of cost or market (net
realizable value). Approximately 71.9% and 78.9% of year-end inventory amounts
at December 31, 1994 and 1993, respectively, are determined using the last-in,
first-out cost method. If the first-in, first-out method had been used, such
inventories would have been $41,500,000 and $29,400,000 higher than reported at
December 31, 1994 and 1993, respectively. The remainder of the inventories are
determined using the first-in, first-out method.
Property, Plant and Equipment. Property, plant and equipment is stated at
cost. Depreciation, which includes amortization of assets under capital
leases, is based on the straight-line method over the estimated useful lives of
depreciable assets. Interest costs incurred in the construction or acquisition
of property, plant and equipment are capitalized.
Goodwill. Goodwill is amortized using the straight-line method over
periods ranging from 15 to 40 years.
Pre-operating Costs. Pre-operating costs associated with the start-up of
significant new production facilities are deferred and amortized over three
years.
Futures Contracts. The Company periodically enters into futures contracts
as hedges for its purchases of cotton for inventory. Gains and losses on these
hedges are matched to inventory purchases and charged or credited to cost of
sales as such inventory is sold.
Forward Contracts. The Company has entered into forward contracts to
cover its principal and interest obligations on certain foreign currency
denominated bank loans. The original discount on these contracts is amortized
over the life of the contract and serves to reduce the effective interest cost
of these loans. In addition, the Company has entered into forward contracts to
cover the future obligations of certain foreign subsidiaries for certain
inventory purchases. Gains and losses related to qualifying hedges of firm
commitments are deferred and are matched to inventory purchases and charged or
credited to cost of sales as such inventory is sold. Gains and losses related
to anticipated transactions that do not qualify as hedges are recognized as
components of other income or expense as they are incurred.
<PAGE>
<PAGE> 31
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summary of Significant Accounting Policies - (Concluded)
Deferred Grants. The Company has negotiated grants from the governments
of the Republic of Ireland and of Northern Ireland. The grants are being used
for employee training, the acquisition of property and equipment and other
governmental business incentives such as general employment. Employee training
grants are recognized in income in the year in which the costs to which they
relate are incurred by the Company. Grants for the acquisition of property and
equipment are netted against the related capital expenditure. Grants for
property and equipment under operating leases are amortized to income as a
reduction of rents paid. Unamortized amounts netted against fixed assets under
these grants at December 31, 1994 and 1993 were $33,500,000 and $28,500,000,
respectively. At December 31, 1994 and 1993, the Company has a contingent
liability to repay, in whole or in part, grants received of approximately
$54,300,000 and $43,500,000, respectively, in the event that the Company does
not meet defined average employment levels or terminates operations in the
Republic of Ireland or Northern Ireland.
Income Taxes. Effective January 1, 1993, the Company adopted Statement
No. 109. Under Statement No. 109, the liability method is used in accounting
for income taxes. Prior to the adoption of Statement No. 109, income tax
expense was determined using the deferred method.
Pension Plans. The Company maintains pension plans which cover
substantially all employees. The plans provide for benefits based on an
employee's years of service and compensation. The Company funds the minimum
contributions required by the Employee Retirement Income Security Act of 1974.
Acquisitions
In late January 1994 the Company acquired Artex for approximately
$45,000,000. In late March 1994 the Company acquired certain assets of Gitano
for approximately $91,400,000. In August 1994 the Company acquired Pro Player
for approximately $55,700,000, including approximately $14,200,000 of Pro
Player debt which was repaid by the Company. The principals of Pro Player, who
are also key employees of that business, may also be entitled to receive
compensation based in part on the attainment of certain levels of operating
performance by the acquired entity. In November 1993 the Company acquired
Salem for approximately $157,600,000, including approximately $23,900,000 of
Salem debt which was repaid by the Company. The aforementioned acquisitions
(collectively, the "Acquisitions") were accounted for using the purchase method
of accounting. Accordingly, the purchase prices were preliminarily allocated
to assets and liabilities based on their estimated fair values as of the date
of the Acquisitions. The cost in excess of the net assets acquired in the
Acquisitions was approximately $215,000,000 and is being amortized over periods
ranging from 15 to 20 years. The results of operations of Salem, Artex, Gitano
and Pro Player are not material in relation to the Company's consolidated
financial statements and, therefore, pro forma financial information has not
been presented.
<PAGE>
<PAGE> 32
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Short-term
investments (consisting primarily of certificates of deposit, overnight
deposits or Eurodollar deposits) totaling $4,100,000 and $16,100,000 were
included in cash and cash equivalents at December 31, 1994 and 1993,
respectively. These investments were carried at cost, which approximated
quoted market value.
Included in short-term investments at December 31, 1994 and 1993 was
$1,500,000 and $6,400,000, respectively, of restricted cash collateralizing
domestic subsidiaries' letters of credit and insurance obligations.
Short-Term Notes Payable
In August 1993, the Company entered into the New Credit Agreement. See
"Long-Term Debt." Certain indebtedness of the Company under preexisting
secured domestic bank agreements was refinanced with the proceeds of loans
under the New Credit Agreement and the preexisting bank agreements were
terminated at that time.
Prior to August 1993, the Company's domestic bank agreements consisted of
revolving lines of credit, bank term loans (the"Term Loan Facilities"), a
special purpose loan, a capital expenditure facility (the "Capital Expenditure
Facility") and a letter of credit facility (collectively, the "Credit
Agreements"). All borrowings under the Credit Agreements represented loans to
the Company's principal operating subsidiary.
Under the Credit Agreements, the Company had $350,000,000 available for
the funding of its operations under revolving lines of credit (the "Revolving
Credit Facilities"). The Revolving Credit Facilities were scheduled to expire
on June 30, 1995. Borrowings under the Revolving Credit Facilities were due on
demand and were collateralized under the terms of the Credit Agreements.
<PAGE>
<PAGE> 33
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt
(In thousands of dollars)
<TABLE>
<CAPTION> December 31,
Interest Rate 1994 1993
Senior Secured
<S> <C>
Foreign Facility Loans, maturing 1994-1995 . . . . . Variable<F1> $ -- $ 22,100
Capitalized lease obligations, maturing
1994-2017<F2> . . . . . . . . . . . . . . . . . 3.1 - 12.96% 116,900 90,700
Total senior secured . . . . . . . . . . . . . 116,900 112,800
Senior Unsecured
Foreign Facility Loans, maturing 1994-1995 . . . . . Variable<F1> 5,400 --
Foreign Credit Facilities, maturing 1996-1997 . . . Variable<F3> 38,000 --
New Term Loan, maturing 1998 . . . . . . . . . . . . Variable<F4> 40,000 40,000
New Credit Agreement, maturing 1999 . . . . . . . . Variable<F5> 521,700 329,900
Fixed rate debt, maturing 1999<F6> . . . . . . . . . . 7.97% 249,100 249,000
Fixed rate debt, maturing 2003<F7> . . . . . . . . . . 6.61 148,900 148,800
Fixed rate debt, maturing 2008 . . . . . . . . . . . . 6.97 123,400 128,400
Fixed rate debt, maturing 2011<F8> . . . . . . . . . . 12.6 71,900 71,100
Fixed rate debt, maturing 2023<F9> . . . . . . . . . . 7.49 148,000 148,000
Total Senior Unsecured . . . . . . . . . . . . . 1,346,400 1,115,200
Total . . . . . . . . . . . . . . . . . . . . . . . . 1,463,300 1,228,000
Less current maturities . . . . . . . . . . . . . . . . . . (23,100) (34,000)
Total long-term debt . . . . . . . . . . . . . . . . . . . $ 1,440,200 $ 1,194,000
<FN>
<F1> Interest ranged from 1.89% to 3.60% during 1994 and from .5% to 9.15%
during 1993. (These rates are net of discount amortization. The
Company has entered into forward contracts that fix the dollar amount
of interest that has to be paid.)
<F2> Represents the present value of future rentals on capitalized leases.
The capitalized leases are secured by the related property under lease.
<F3> Interest ranged from 5.68% to 7.10% during 1994. The weighted average
interest rate for borrowings outstanding at December 31, 1994 was
approximately 6.25%.
<F4> Interest ranged from 4.0% to 6.86% during 1994 and from 4.12% to 6.0%
during 1993. The weighted average interest rate for borrowings
outstanding under the New Term Loan at December 31, 1994 was
approximately 6.65%.
<F5> Interest ranged from 3.41% to 8.5% during 1994 and from 3.38% to 6.0%
during 1993.
<F6> Net of unamortized discount of $900 and $1,000 in 1994 and 1993,
respectively (nominal rate 7.875%).
<F7> Net of unamortized discount of $1,100 and $1,200 in 1994 and 1993,
respectively (nominal rate 6.5%).
<F8> Net of unamortized discount of $53,100 and $53,900 in 1994 and 1993,
respectively (nominal rate 7%).
<F9> Net of unamortized discount of $2,000 (nominal rate 7.375%).
</FN>
</TABLE>
<PAGE>
<PAGE> 34
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt - (Continued)
The New Credit Agreement provides the Company with an $800,000,000
revolving line of credit which expires in June 1999 and includes a letter of
credit facility. At December 31, 1994 approximately $73,000,000 of letters of
credit were issued under the New Credit Agreement to secure a bond posted in
connection with the appeal of the LMP Litigation. At December 31, 1993
approximately $59,800,000 of letters of credit were issued under the New Credit
Agreement to secure certain insurance and debt obligations reflected in the
accompanying Consolidated Balance Sheet, which letters of credit were replaced
with separate letter of credit facilities in 1994. Borrowings under the New
Credit Agreement bear interest at a rate approximating the prime rate (8.5% at
December 31, 1994) or, at the election of the Company, at rates approximating
LIBOR (6.5% at December 31, 1994) plus 30 basis points. The Company also pays
a facility fee (the "Facility Fee") under the New Credit Agreement equal to 15
basis points on the aggregate commitments thereunder. Interest rates and the
Facility Fee are subject to increase or decrease based upon the Company's
unsecured debt rating. The weighted average interest rate for borrowings
outstanding under the New Credit Agreement at December 31, 1994 was
approximately 6.45%. Borrowings under the New Credit Agreement are guaranteed
by certain of the Company's subsidiaries.
In 1994 the Company obtained $84,400,000 of standby letter of credit
facilities from its bank lenders. At December 31, 1994 approximately
$83,300,000 of letters of credit were issued under this facility to secure
various insurance and other obligations reflected in the accompanying
Consolidated Balance Sheet. In addition, the Company has $95,000,000 of trade
letter of credit facilities. At December 31, 1994 the Company has $51,100,000
of documentary letters of credit outstanding under these facilities to finance
various trade activities.
In August 1993, the Company's wholly-owned subsidiary, Fruit of the Loom
Canada, Inc. issued an unsecured senior note due 2008 (the "Canadian Note") in
a private placement transaction with certain insurance companies. The Canadian
Note is fully guaranteed by the Company and its principal operating
subsidiaries and ranks pari passu in right of payment with the New Credit
Agreement.
In 1993, the Company redeemed its 12-3/8% Notes. The Company recorded an
extraordinary charge in 1993 of approximately $8,700,000 ($.11 per share)
relating to the early extinguishment of debt, primarily in connection with the
refinancing of the Credit Agreements and the redemption of the 12-3/8% Notes.
The extraordinary charge consists principally of the non-cash write-off of the
related unamortized debt expense on the Credit Agreements, the 12-3/8% Notes
and other debt issues and the premiums paid in connection with the early
redemption of the 12-3/8% Notes, both net of income tax benefits.
In 1993, the Company issued $150,000,000 principal amount of its 6-1/2%
Notes due 2003 (the "6-1/2% Notes") and $150,000,000 principal amount of its
7-3/8% Debentures due 2023 (the "7-3/8% Debentures"). The 6-1/2% Notes and the
7-3/8% Debentures will mature November 15, 2003 and November 15, 2023,
respectively, and may not be redeemed by the Company prior to maturity. The
<PAGE>
<PAGE> 35 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt - (Continued)
6-1/2% Notes and the 7-3/8% Debentures are general, unsecured obligations of
the Company. However, the obligations of the Company under the New Credit
Agreement, the Canadian Note and the Foreign Credit Facilities are guaranteed
by certain of the Company's subsidiaries and such debt effectively ranks ahead
of the 6-1/2% Notes and the 7-3/8% Debentures with respect to such guarantees.
In addition to refinancing its Revolving Credit Facilities under the New
Credit Agreement, the Company also refinanced its Term Loan Facilities and its
Capital Expenditure Facility. Under the terms of the Credit Agreements, the
Company had a term loan which required quarterly principal payments with final
maturity at June 30, 1995. The Company also had an additional $100,000,000
term loan which had a final maturity of June 30, 1995. Borrowings under the
Term Loan Facilities were collateralized under the terms of the Credit
Agreements on a pari passu basis with borrowings under the Revolving Credit
Facilities. All borrowings under the Term Loan Facilities were repaid through
borrowings under the New Credit Agreement in 1993.
Under the Credit Agreements, the Company originally had a Capital
Expenditure Facility of up to $75,000,000 to be drawn down at various times
prior to March 31, 1991, if necessary, to finance capital expenditures. At
December 31, 1992, $44,100,000 was outstanding under the Capital Expenditure
Facility and no additional borrowings were available under this facility. The
Capital Expenditure Facility required quarterly principal payments which
commenced in June 1991 with final maturity scheduled on June 30, 1995. All
borrowings under the Capital Expenditure Facility were repaid through
borrowings under the New Credit Agreement in 1993.
In 1992, the Company issued $250,000,000 principal amount of its 7-7/8%
Senior Notes Due 1999 (the "7-7/8% Notes"). The 7-7/8% Notes will mature on
October 15, 1999 and may not be redeemed by the Company prior to maturity. The
7-7/8% Notes are general, unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future senior obligations of
the Company. However, the obligations of the Company under the New Credit
Agreement, the Canadian Note and the Foreign Credit Facilities are guaranteed
by certain of the Company's subsidiaries and such debt effectively ranks ahead
of the 7-7/8% Notes with respect to such guarantees.
In 1992, the Company redeemed all of its 10-3/4% Notes. The redemption
was funded through borrowings under the Credit Agreements and the proceeds from
the issuance of the 7-7/8% Notes. The Company recorded an extraordinary charge
of approximately $9,900,000 ($.13 per share) in connection with the redemption
of the 10-3/4% Notes, which consisted principally of the premiums paid in
connection with the early redemption of the 10-3/4% Notes and the non-cash
write-off of the related unamortized debt expense, both net of income tax
benefits.
The New Credit Agreement imposes certain limitations on, and requires
compliance with covenants from, the Company and its subsidiaries including,
among other things: (i) maintenance of certain financial ratios and compliance
with certain financial tests and limitations; (ii) limitations on incurrence of
additional indebtedness and granting of certain liens and guarantees; and (iii)
<PAGE>
<PAGE> 36 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt - (Concluded)
restrictions on mergers, sale and leaseback transactions, asset sales and
investments. The New Credit Agreement also allows the Company to pay dividends
on its common stock so long as, among other things, the aggregate amount of
such dividends paid since August 16, 1993 does not exceed the sum of
$75,000,000 and fifty percent of the Company's consolidated net earnings since
June 30, 1993.
The New Credit Agreement provides for the acceleration of amounts
outstanding thereunder should any person or entity other than William Farley,
or any person or entity controlled by William Farley, control more than 50% of
the voting stock or voting rights associated with such stock of the Company.
The aggregate amount of scheduled annual maturities of long-term debt for
each of the next five years is: $23,100,000 in 1995; $38,100,000 in 1996;
$36,000,000 in 1997; $51,100,000 in 1998; and $780,600,000 in 1999.
Cash payments of interest on debt were $86,600,000, $67,100,000 and
$89,700,000 in 1994, 1993 and 1992, respectively. These amounts exclude
amounts capitalized.
Financial Instruments
Certain of the Company's foreign subsidiaries enter into forward exchange
contracts to hedge currency exposure relative to certain inventory purchases
and principal and interest obligations of certain foreign currency denominated
bank loans. The Company primarily sells European currencies and purchases
United States dollars. As of December 31, 1994 the primary foreign currencies
sold forward to hedge the foreign currency exposure relative to inventory
purchases expressed in United States dollar equivalents were as follows:
$1,800,000 Italian lira, $1,900,000 German marks, $2,000,000 British pounds and
$1,800,000 French francs. At December 31, 1994, the Company had bought forward
Greek drachma relative to its Greek drachma denominated debt obligations, the
value of which was the United States dollar equivalent of $5,600,000. The
original discount of the purchased forward contracts serves to reduce the
effective interest cost of the drachma denominated loans and effectively makes
these loans the equivalent of United States dollar based loans. All of the
aforementioned contracts mature in less than one year.
The fair value of the Company s foreign exchange forward contracts was
estimated based on quoted market prices of comparable contracts. At December
31, 1994 and 1993, the fair value for the Company's forward contracts
approximated their face value.
The fair values of financial guarantees and letters of credit approximate
the face value of the underlying instruments.
The fair values of the Company's non-publicly traded long-term debt were
estimated using discounted cash flow analyses, based on the Company s current
incremental borrowing rates for similar types of borrowing arrangements. Fair
values for publicly traded long-term debt were based on quoted market prices
<PAGE>
<PAGE> 37 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Financial Instruments - (Concluded)
when available. At December 31, 1994 and 1993, the fair value of the Company's
debt was approximately $1,369,000,000 and $1,305,800,000, respectively.
The Company monitors its positions with, and the credit quality of, the
financial institutions which are counterparties to its off-balance-sheet
financial instruments and does not anticipate nonperformance of the
counterparties. The Company does not require collateral from its
counterparties and management believes that the Company would not realize a
material loss in the event of nonperformance by the counterparties.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to most major discount and mass merchandisers,
wholesale clubs and screen printers as well as many department, specialty, drug
and variety stores, national chains, supermarkets and sports specialty stores.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral or other security to support customer receivables.
The Company's ten largest customers accounted for approximately 40.2% of net
sales in 1994 and approximately 29% of gross accounts receivable at December
31, 1994. The Company routinely assesses the financial strength of its
customers and, as a consequence, management believes that its trade receivable
credit risk exposure is limited.
Contingent Liabilities
The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities,
such as those under Superfund Legislation, in connection with the sale of
certain discontinued operations, some of which were significant generators of
hazardous waste. The Company and its subsidiaries have also retained certain
liabilities related to the sale of products in connection with the sale of
certain discontinued operations. The Company's retained liability reserves at
December 31, 1994 related to discontinued operations consist primarily of
certain environmental and product liability reserves of approximately
$79,100,000. The Company has recorded receivables related to these
environmental liabilities of approximately $36,700,000 which management
believes will be recovered from insurance and other sources. Management and
outside environmental consultants evaluate, on a site-by-site or a claim-by-
claim basis, the extent of environmental damage, the type of remediation that
will be required and the Company's proportionate share of those costs as well
as the Company's liability in each case. The Company's retained liability
reserves related to discontinued operations principally pertain to 11
specifically identified environmental sites and the aforementioned product
liabilities. Five sites and the total product liabilities individually
represent more than 10% of the net reserve and in the aggregate represent
approximately 96% of the net reserve. Management believes they have adequately
estimated the impact of remediating identified sites, the expected contribution
from other potentially responsible parties and recurring costs for managing
sites as well as the ultimate resolution of the product liability claims.
Management currently estimates actual payments before recoveries to range from
approximately $9,200,000 to $24,200,000 annually between 1995 and 1998 and
<PAGE>
<PAGE> 38 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingent Liabilities - (Continued)
$14,300,000 in total subsequent to 1998. Only the long-term monitoring costs
of approximately $6,600,000, primarily scheduled to be paid in 1999 and beyond
have been discounted. The discount rate used was 10%. The undiscounted
aggregate long-term monitoring costs, to be paid over approximately the next 20
years, is approximately $17,800,000. Management believes that adequate
reserves have been established to cover potential claims based on facts
currently available and current Superfund Legislation. The Company has
provided the foregoing information in accordance with Staff Accounting Bulletin
92.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and
Federal regulatory agencies under Superfund Legislation and by private citizens
under Superfund Legislation and common law theories. Since 1982, the EPA has
actively sought compensation for response costs and remedial action at offsite
disposal locations from waste generators under the Superfund Legislation, which
authorizes such action by the EPA regardless of fault, legality of original
disposal or ownership of a disposal site. The EPA's activities under the
Superfund Legislation can be expected to continue during 1995 and future years.
In February 1986, the Company completed the sale of stock of its then
wholly owned subsidiary, Universal, to MagneTek. At the time of the sale there
was a suit pending against Universal and Northwest by LMP. The suit alleged
that Universal and Northwest fraudulently induced LMP to sell its business to
Universal and then suppressed the development of certain electronic lighting
ballasts in breach of the agreement of sale, which required Universal to pay to
LMP a percentage of the net profits from such business from 1982 through 1986.
Two additional plaintiffs, Stevens Luminoptics Partnership and Calmont
Technologies Inc., joined the litigation in 1986. In December 1989 and January
1990, a jury returned certain verdicts against Universal and also returned
verdicts in favor of Northwest and on certain issues in favor of Universal. A
judgment totalling $25,800,000, of which $7,500,000 represented punitive
damages, reflecting these verdicts was entered by the Alameda County,
California Superior Court in January 1990 against Universal.
In April 1992, the California Court of Appeals reversed the $25,800,000
judgment against Universal and affirmed those verdicts favorable to Universal
and Northwest. In July 1992, the California Supreme Court denied the
plaintiffs' petition for review. The case was then remanded to the trial
court.
Pursuant to the stock purchase agreement (the "Stock Purchase Agreement")
under which Universal was sold, the Company agreed to indemnify MagneTek for a
two-year period following the sale of Universal for certain contingent
liabilities. MagneTek brought suit against the Company for declaratory and
other relief in connection with the indemnification under the Stock Purchase
Agreement. In April 1992, the Los Angeles County, California Superior Court
found that the Company was obligated by the Stock Purchase Agreement to
indemnify MagneTek for any liability that may be assessed against MagneTek or
Universal in the LMP Litigation and to reimburse MagneTek for, among other
things, its costs and expenses in defending that case. The court entered a
<PAGE>
<PAGE> 39 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingent Liabilities - (Continued)
judgment requiring the Company to reimburse and indemnify MagneTek in two
stages: currently, to reimburse MagneTek for costs of defense and related
expenses in the LMP Litigation, plus costs of litigating the indemnity case
with the Company; and at a later date, if and when any liability in the LMP
Litigation is finally determined or a settlement is reached in that case, to
reimburse and/or indemnify MagneTek for that amount as well. In 1993 the
Company paid approximately $9,600,000 in settlement of its obligations to
MagneTek related to the litigation expenses incurred by MagneTek.
In October 1994, following a retrial of the LMP Litigation, a jury
returned a verdict of approximately $96,000,000 against Universal. The jury
verdict included breach of contract and fraud damages and approximately
$6,000,000 in punitive damages. The Company is obligated to indemnify
Universal for damages incurred in this case.
Management of the Company believes that the jury's decision is incorrect
and is contrary to the evidence. Based on discussions with counsel and on
other information currently available, management believes that the court
committed numerous errors during the trial and, accordingly, that the judgment
will not stand on appeal. The Company intends to vigorously appeal this
verdict.
In March 1988, a class action suit entitled Endo et al. v. Albertine, et
al. was filed in the District Court against the Company, its then directors,
certain of its then executive officers, its then underwriters and the Company's
current independent auditors in connection with the Company's initial public
offering of Class A Common Stock and certain debt securities in March 1987.
The suit alleges, among other things, violations of Federal and state
securities laws against all of the defendants, as well as breaches of fiduciary
duties by the director and officer defendants, and seeks unspecified damages.
Motions to dismiss the complaint were filed by all defendants. In
December 1990, a magistrate judge recommended that the District Court dismiss
all of the plaintiffs' claims with prejudice. In January 1993, the District
Court adopted in part and rejected in part the magistrate judge's
recommendation for dismissal of the complaint. As a result, the litigation
will continue as to various remaining counts of the complaint. Both the
defendants and the plaintiffs filed motions for summary judgment which were
denied in all material respects. Management and the Board of Directors believe
that this suit is without merit and intend to continue to vigorously defend
against this litigation.
On December 23, 1993, James J. Locke, as Trustee of Locke Family Trust,
and I. Jack Saline filed a lawsuit against the Company and certain of its then
officers and directors, including William Farley and John B. Holland, in the
District Court. The lawsuit was then amended to add additional plaintiffs. On
April 19, 1994, the District Court granted plaintiffs' motion for class
certification. The plaintiffs claim that all of the defendants engaged in
conduct violating Section 10b of the Securities Exchange Act of 1934 and that
Mr. Farley and Mr. Holland also violated Section 20a of the Act. According to
the plaintiffs, beginning before June 1992 and continuing through early June
<PAGE>
<PAGE> 40 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingent Liabilities - (Concluded)
1993, the Company, with the knowledge and assistance of the individual
defendants, issued positive public statements about its expected sales
increases and growth through 1993 and afterwards. They also allege that
beginning in approximately mid-1992 and continuing afterwards, the Company's
business was not as strong and its growth prospects were not as certain as
represented. The plaintiffs further allege that during the end of 1992 and
beginning of 1993, certain of the individual defendants traded the stock of the
Company while in the possession of material, non-public information. The
plaintiffs ask for unspecified amounts as compensatory damages, pre-judgment
and post-judgment interest, attorneys' fees, expert witness fees and costs and
ask the District Court to impose a constructive trust on the proceeds of the
individual defendants' trades to satisfy any potential judgment. Management
believes that this suit is without merit and management and the Company intend
to vigorously defend against this litigation.
Management believes, based on information currently available, that the
ultimate resolution of the aforementioned litigation will not have a material
adverse effect on the financial condition or operations of the Company.
In August 1991, two creditors of a former subsidiary of Northwest, Lone
Star Steel Company, Inc. (a wholly owned subsidiary of Lone Star Technologies,
Inc., a publicly owned company) brought suit against the Company in the
Superior Court of the State of Delaware. In this suit, the creditors sought
damages of approximately $13,100,000, plus interest, against the Company for
what they alleged was the remaining liability under certain leases. In January
1993, the Superior Court of Delaware issued an Opinion and Order finding that
the leases were in default, but made no findings as to the amount of damages.
The Company appealed the ruling and on June 4, 1993 the Supreme Court of
Delaware entered an order affirming the Opinion and Order of the Superior Court
of Delaware issued in January 1993. In December 1993, the Company paid the
lessors approximately $9,500,000 in settlement of this suit.
In 1992, the Company was named in a suit seeking to enforce the terms of a
former subsidiary's lease on which the Company was contingently obligated. The
Company paid approximately $17,500,000 in 1992 in settlement of the suit and
its contingent obligations under the lease.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee the Company received an
annual fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley. See "Related
Party Transactions."
In connection with the Company's transaction with Acme Boot during 1993,
the Company guaranteed, on an unsecured basis, the repayment of debt incurred
or created by Acme Boot under Acme Boot's bank credit facility. See "Related
Party Transactions." At December 31, 1994 Acme Boot has a bank credit facility
<PAGE>
<PAGE> 41
which provides for up to $30,000,000 of loans and letters of credit, subject to
a borrowing base. Acme Boot's bank credit facility is secured by first liens
on substantially all of the assets of Acme Boot and its subsidiaries (which are
approximately $71,900,000 at December 31, 1994). At December 31, 1994
approximately $9,300,000 in loans and letters of credit were outstanding under
Acme Boot's bank credit facility.
<PAGE>
<PAGE> 42
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Lease Commitments
The Company and its subsidiaries lease certain manufacturing, warehousing
and other facilities and equipment. The leases generally provide for the
lessee to pay taxes, maintenance, insurance and certain other operating costs
of the leased property. The leases on most of the properties contain renewal
provisions.
In September 1994, the Company entered into a five year operating lease
agreement with two automatic annual renewal options, primarily for certain
machinery and equipment. The total cost of the assets to be covered by the
lease is limited to $200,000,000. The total cost of assets under lease as of
December 31, 1994 was approximately $76,000,000. The lease provides for a
substantial residual value guarantee by the Company at the end of the initial
lease term and includes purchase and renewal options at fair market values.
The table of future minimum operating lease payments which follows below
excludes any payment related to the residual value guarantee which is due upon
termination of the lease. The Company has the right to exercise a purchase
option with respect to the leased equipment or the equipment can be sold to a
third party. The Company expects the fair market value of the leased
equipment, subject to the purchase option or sold to a third party, to
substantially reduce or eliminate the Company's payment under the residual
value guarantee. The Company is obligated to pay the difference between the
maximum amount of the residual value guarantee and the fair market value of the
equipment at the termination of the lease. At December 31, 1994 the maximum
amount of the residual value guarantee relative to the assets under the lease
at December 31, 1994 is approximately $50,900,000.
Following is a summary of future minimum payments under capitalized leases
and under operating leases that have initial or remaining noncancelable lease
terms in excess of one year at December 31, 1994 (in thousands of dollars):
<TABLE>
<CAPTION> Capitalized Operating
Leases Leases
Year Ending December 31,
<S> <C> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,900 $ 20,100
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,200 20,200
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,400 16,800
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,800 14,500
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,800 11,500
Years subsequent to 1999 . . . . . . . . . . . . . . . . . 117,100 6,100
Total minimum lease payments . . . . . . . . . . . . . . . . . . 193,200 $ 89,200
Imputed interest . . . . . . . . . . . . . . . . . . . . . . . . (76,300)
Present value of minimum capitalized lease payments . . . . . . . 116,900
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . (12,200)
Long-term capitalized lease obligations . . . . . . . . . . . . . $ 104,700
</TABLE>
<PAGE>
<PAGE> 43 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Lease Commitments - (Concluded)
Assets recorded under capital leases are included in Property, Plant and
Equipment as follows (in thousands of dollars):
<TABLE>
<CAPTION> December 31,
1994 1993
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,800 $ 1,200
Buildings, structures and improvements . . . . . . . . . . . . 72,900 39,000
Machinery and equipment . . . . . . . . . . . . . . . . . . . 94,800 94,200
177,500 134,400
Accumulated depreciation . . . . . . . . . . . . . . . . . . . (78,500) (67,600)
$ 99,000 $ 66,800
</TABLE>
Rental expense for operating leases amounted to $20,200,000, $11,600,000
and $9,100,000 in 1994, 1993 and 1992, respectively.
Stock Plans
At December 31, 1994 and 1993, approximately 1,494,700 and 1,546,600
shares, respectively, of Class A Common Stock were reserved for issuance under
the Company's 1987 Stock Option Plan (the "Plan"). Under the terms of the
Plan, options may be granted to eligible employees of the Company, its parent
and its subsidiaries at a price not less than the market price on the date of
grant. Option shares must be exercised within the period prescribed by the
Compensation Committee of the Board of Directors at the time of grant but not
later than ten years and one day from the date of grant. The Plan provides for
the granting of qualified and nonqualified stock options.
The following summarizes the activity of the Plan for 1994:
<TABLE>
<CAPTION> Option Price Shares
Per Share Under Option
<S> <C> <C>
Outstanding at December 31, 1993 . . . . . . . . $6-3/8 to $47-5/8 1,515,400
Options granted . . . . . . . . . . . . . . . . $25-3/8 to $30-7/8 37,000
Options exercised . . . . . . . . . . . . . . . $6-3/8 to $20-1/4 (51,900)
Options canceled . . . . . . . . . . . . . . . . $14-1/2 to $41-3/8 (66,200)
Outstanding at December 31, 1994 . . . . . . . . $6-3/8 to $47-5/8 1,434,300
Exercisable at December 31, 1994 . . . . . . . . $6-3/8 to $47-5/8 1,427,300
</TABLE>
In 1994 the Company established the Executive Incentive Compensation Plan
(the "1994 Plan"). The 1994 Plan provides for the granting of non-qualified
stock options, incentive stock options, performance shares and annual incentive
awards. The 1994 Plan is administered by the Compensation Committee of the
Board of Directors and provides for the granting of up to 3,600,000 shares
<PAGE>
<PAGE> 44 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Plans - (Continued)
under the plan, which shares are reserved and available for purchase under the
provisions of the plan. Stock options may be granted under the 1994 Plan to
eligible employees of the Company, its parent and its subsidiaries at a price
not less than the market price on the date of grant. Options granted vest at
such time as prescribed by the Compensation Committee, but in no event may any
option be exercisable prior to six months following its grant. No option
granted shall be exercisable later than the tenth anniversary date of its
grant. The Company granted 664,100 options to eligible employees in 1994 at
prices ranging from $24.75 to $30.88.
Performance shares may be granted to eligible employees of the Company,
its parent and its subsidiaries. Each performance share shall have a value
equal to the market price of the Company's Class A Common Stock on the date the
performance share is earned. The Compensation Committee of the Board of
Directors sets performance goals to be achieved over performance periods of not
less than two years. The extent to which performance goals based on total
shareholder return over a two year period are met will determine the number of
performance shares earned by participants. Payment of earned performance
shares shall be made in either cash or shares of Class A Common Stock within
seventy five days following the close of the performance period.
In 1993, the Company's stockholders approved the Company's Directors'
Stock Option Plan (the "Directors' Plan"). The Directors' Plan provides for
the issuance of options to purchase up to 175,000 shares of Class A Common
Stock, which shares are reserved and available for purchase upon the exercise
of options granted under the Directors' Plan. Only directors who are not
employees of the Company, any parent or subsidiary of the Company or Farley
Industries, Inc. ("FII") are eligible to participate in the Directors' Plan.
The Directors' Plan is administered by the Company's Board of Directors. Under
the Directors' Plan each non-employee director is initially granted an option
to purchase 7,500 shares of Class A Common Stock. On the date of each annual
meeting at which such person is elected or after which the person continues as
a non-employee director, such non-employee director shall be granted an option
to purchase 2,500 shares of Class A Common Stock (the "Annual Options"). The
options are exercisable at a price per share equal to the fair market value per
share of the Class A Common Stock on the date of grant. Option shares must be
exercised not later than ten years from the date of grant and do not become
exercisable until the first anniversary of the date of grant.
The following summarizes the activity of the Directors' Plan for 1994:
<TABLE>
<CAPTION> Option Price Shares
Per Share Under Option
<S> <C> <C>
Outstanding at December 31, 1993 . . . . . . . . $31-1/4 to $42 57,500
Annual Options granted . . . . . . . . . . . . . $30-7/8 15,000
Outstanding at December 31, 1994 . . . . . . . . $30-7/8 to $42 72,500
Exercisable at December 31, 1994 . . . . . . . . $31-1/4 to $42 57,500
</TABLE>
<PAGE>
<PAGE> 45 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Plans - (Concluded)
In 1992, the Company established the 1992 Executive Stock Option Plan (the
"1992 Plan"). The 1992 Plan provides for the issuance of options to purchase
up to 975,000 shares of Class A Common Stock, which shares are reserved and
available for purchase upon the exercise of stock options granted under the
1992 Plan. The 1992 Plan is administered by the Compensation Committee of the
Board of Directors. In 1992, options to purchase 975,000 shares of Class A
Common Stock were granted under the 1992 Plan to two directors of the Company
who are also employees of the Company. The options are exercisable at a price
of $28.88 per share (which was the closing price of the Class A Common Stock on
the date of grant). Pursuant to the terms of the grants, options for the
shares vest (subject to acceleration under certain circumstances) as follows:
(i) one-third of the options granted vest immediately upon grant; (ii)
one-third of the options granted vest if the closing price of the Class A
Common Stock reaches or exceeds $45 per share for 90 consecutive days within
six years from the date of grant; and (iii) the remaining one-third of the
options granted vest if the closing price of the Class A Common Stock reaches
or exceeds $60 per share for 90 consecutive days within six years from the date
of grant. All vested options expire 10 years and one day after the date of
grant. Options which do not vest because the Company's stock price has not
reached the targeted price levels for vesting expire six years after the date
of grant. As of December 31, 1994, 325,000 of these options are exercisable
and none of these options have been exercised or canceled.
In July 1991, the Company granted an option to purchase 50,000 shares of
the Class A Common Stock to a director of the Company who is also an employee
of FII at a purchase price of $10.25 per share. The exercise period of the
option terminates ten years and one day from the date of grant. As of December
31, 1994, none of these options have been exercised or canceled.
At December 31, 1994 and 1993, approximately 238,800 and 268,000 shares,
respectively, of Class A Common Stock were reserved for issuance under the
Company's 1989 Stock Grant Plan. Under the terms of this plan, eligible
employees of the Company, its parent and its subsidiaries are awarded shares,
subject to forfeitures or certain restrictions which generally expire three
years from the date of the grant. Shares are awarded in the name of the
employee, who has all the rights of a shareholder, subject to the above
mentioned restrictions. The Company canceled 11,400 previously issued shares
during 1994. The Company granted approximately 40,600 shares to eligible
employees during 1994.
At December 31, 1994 and 1993, approximately 298,600 and 344,900 shares,
respectively, of Class A Common Stock were reserved for issuance under the
Company's 1987 Long-Term Bonus Plan. Under the terms of this plan, eligible
employees of the Company's operating subsidiary participate in cash and stock
bonus pools for four year plan periods. Awards under this plan are payable in
a combination of cash and stock. No new four year plan period began subsequent
to December 31, 1990. The Company issued approximately 46,300 shares to
eligible employees during 1994.
<PAGE>
<PAGE> 46
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Consolidated Statement of Common Stockholders' Equity
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
(in thousands)
Common Shares
<S> <C> <C> <C>
Balance, beginning of period . . . . . . . . . . . . . . . . . 75,724 75,554 74,794
Class A shares issued upon exercise of options . . . . . . . . 52 106 701
Class A shares issued under long-term bonus plan . . . . . . . 46 52 45
Class A shares issued under stock grant plan-net . . . . . . . 29 12 14
Balance, end of period . . . . . . . . . . . . . . . . . . . . 75,851 75,724 75,554
Common Stock and Capital in Excess of Par Value
Balance, beginning of period . . . . . . . . . . . . . . . . . $ 464,000 $ 458,400 $ 441,200
Class A shares issued upon exercise of options . . . . . . . . 1,000 2,400 15,100
Class A shares issued under long-term bonus plan . . . . . . . 1,100 2,400 1,500
Class A shares issued under stock grant plan-net . . . . . . . 2,000 700 600
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 100 --
Balance, end of period . . . . . . . . . . . . . . . . . . . . $ 468,100 $ 464,000 $ 458,400
Retained Earnings
Balance, beginning of period . . . . . . . . . . . . . . . . . $ 620,300 $ 412,800 $ 234,200
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . 60,300 207,500 178,600
Balance, end of period . . . . . . . . . . . . . . . . . . . . $ 680,600 $ 620,300 $ 412,800
Currency Translation Adjustments
Balance, beginning of period . . . . . . . . . . . . . . . . . $ (37,300) $ (16,200) $ 13,300
Translation adjustments-net . . . . . . . . . . . . . . . . . 14,400 (21,100) (29,500)
Balance, end of period . . . . . . . . . . . . . . . . . . . . $ (22,900) $ (37,300) $ (16,200)
</TABLE>
Holders of Class A Common Stock are entitled to receive, on a cumulative
basis, the first dollar per share of dividends declared. Thereafter, holders
of Class A Common Stock and Class B Common Stock will share ratably in any
dividends declared. Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to five votes. The Class B
Common Stock is convertible into the Class A Common Stock on a share for share
basis.
Approximately 9.2% of the Company's common stock at December 31, 1994 is
held by FI and William Farley. Because these affiliates hold all of the Class
B Common Stock of the Company outstanding, which has five votes per share, they
control approximately 32.9% of all voting rights of the Company. All actions
submitted to a vote of stockholders are voted on by holders of Class A Common
Stock and Class B Common Stock voting together as a single class, except for
the election of directors. With respect to the election of directors, holders
of the Class A Common Stock vote as a separate class and are entitled to elect
25% of the total number of directors constituting the entire Board of Directors
<PAGE>
<PAGE> 47 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Consolidated Statement of Common Stockholders' Equity - (Concluded)
and, if not a whole number, then the holders of the Class A Common Stock are
entitled to elect the nearest higher whole number of directors that is at least
25% of the total number of directors. If, at the record date for any
stockholder meeting at which directors are elected, the number of shares of
Class B Common Stock outstanding is less than 12.5% of the total number of
shares of both classes of common stock outstanding, then the holders of Class A
Common Stock would vote together with the holders of Class B Common Stock to
elect the remaining directors to be elected at such meeting, with the holders
of Class A Common Stock having one vote per share and the holders of Class B
Common Stock having five votes per share. At December 31, 1994, FI and William
Farley's combined ownership of Class B Common Stock is approximately 8.8% of
the total common stock of the Company outstanding. As a result, Mr. Farley
does not have the sole ability to elect those members of the Company's Board of
Directors who are not separately elected by the holders of the Company's Class
A Common Stock.
Business Segment and Major Customer Information
The Company operates in only one business segment consisting of the
manufacturing and marketing of basic apparel. Sales to one customer amounted
to approximately 15.6%, 13.4% and 11.8% of consolidated net sales in 1994, 1993
and 1992, respectively. Additionally, sales to a second customer amounted to
approximately 11.8%, 12.3% and 10.2% of consolidated net sales in 1994, 1993
and 1992, respectively.
Sales, operating earnings and identifiable assets are as follows (in
thousands of dollars):
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
Net Sales
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . $ 1,972,000 $ 1,634,600 $ 1,616,800
Foreign . . . . . . . . . . . . . . . . 325,800 249,800 238,300
Total . . . . . . . . . . . . . . . . . $ 2,297,800 $ 1,884,400 $ 1,855,100
Operating Earnings
Domestic . . . . . . . . . . . . . . . . $ 234,500 $ 368,900 $ 388,100
Foreign . . . . . . . . . . . . . . . . 21,900 29,800 36,100
General corporate expenses . . . . . . . (21,400) (17,200) (14,300)
Total . . . . . . . . . . . . . . . . . $ 235,000 $ 381,500 $ 409,900
December 31,
1994 1993 1992
Identifiable Assets
Domestic . . . . . . . . . . . . . . . . $ 2,661,000 $ 2,390,700 $ 1,985,200
Foreign . . . . . . . . . . . . . . . . 442,400 300,500 278,100
Corporate . . . . . . . . . . . . . . . 60,100 42,800 18,600
Total . . . . . . . . . . . . . . . . . $ 3,163,500 $ 2,734,000 $ 2,281,900
</TABLE>
<PAGE>
<PAGE> 48
Corporate assets presented above consist primarily of cash and other
short-term investments, deferred financing costs and, in 1994, a receivable
related to anticipated environmental recoveries and, in 1992, the investment
in Acme Boot. Corporate assets in 1994 and 1993 also include Federal income
taxes receivable.
<PAGE>
<PAGE> 49
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension Plans
Pension expense was $11,700,000, $5,500,000 and $4,900,000 in 1994, 1993
and 1992, respectively. The net pension expense is comprised of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
Components:
<S> <C> <C> <C>
Service cost - benefits earned during the period . . . . $ 11,700 $ 7,700 $ 7,000
Interest cost on projected benefit obligation . . . . . 12,800 10,800 9,600
Return on assets:
Actual loss (gain) . . . . . . . . . . . . . . . . . 800 (5,900) (11,600)
Deferred actuarial (losses) gains . . . . . . . . . (13,500) (5,800) 1,200
Amortization of unrecognized net loss . . . . . . . . . 1,200 -- --
Amortization of unrecognized January 1, 1987 net
transition asset . . . . . . . . . . . . . . . . . . (1,300) (1,300) (1,300)
Net periodic pension cost . . . . . . . . . . . $ 11,700 $ 5,500 $ 4,900
Assumptions:
Discount rate . . . . . . . . . . . . . . . . . . . . . 7.75% 9% 9%
Rates of increase in compensation levels . . . . . . . . 5-8% 5-8% 5-8%
Expected long-term rate of return on assets . . . . . . 10% 10% 10%
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's Consolidated Balance Sheet (in thousands of
dollars):
<TABLE>
<CAPTION> December 31,
1994 1993
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits . . . . . . . . . . . . . . . . . . . . $ 106,400 $ 106,000
Non-vested benefits . . . . . . . . . . . . . . . . . . 10,200 10,600
Accumulated benefit obligation . . . . . . . . . . . 116,600 116,600
Effect of projected future salary increases . . . . . . 52,400 50,500
Projected benefit obligation . . . . . . . . . . . . . . . . 169,000 167,100
Plan assets at fair value . . . . . . . . . . . . . . . . . 118,200 125,100
Plan assets less than projected
benefit obligation . . . . . . . . . . . . . . . . . . . (50,800) (42,000)
Unrecognized loss . . . . . . . . . . . . . . . . . . . . . 39,700 33,300
Unrecognized prior service cost . . . . . . . . . . . . . . (200) (200)
Unrecognized net transition asset at end of period . . . . . (8,500) (9,800)
Unfunded accrued pension cost at end of period . . . . . . . $ (19,800) $ (18,700)
</TABLE>
The discount rate for purposes of determining the funded status of the plans
at December 31, 1994 and 1993 was 8.25% and 7.75%, respectively.
<PAGE>
<PAGE> 50 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension Plans - (Concluded)
Plan assets, which are primarily invested in United States Government,
international and domestic corporate debt securities, equity securities, real
estate and venture capital funds, are commingled in a master trust which
includes the assets of the pension plans of substantially all affiliated
companies controlled directly and indirectly by William Farley (the "Master
Trust"). Plan assets, except those that are specifically identified to a
particular plan, are shared in different proportions by each of the plans in
the Master Trust ("Allocated Assets"). Any gains and losses associated with
the Allocated Assets are spread among each of the plans based on each plan's
respective share of the Allocated Assets market value. The Company's plan
assets represent approximately 69.3% and 51.8% of the Master Trust Allocated
Assets at December 31, 1994 and 1993, respectively.
Included in the Master Trust Allocated Assets at December 31, 1994 and 1993
were 647,852 shares (with a cost of $5,100,000 and a market value of
$17,500,000 and $15,600,000, respectively) of the Company's Class A Common
Stock.
As of December 31, 1994 and 1993, the Master Trust holds 348,012 shares
(with a cost of $7,700,000 and a market value of $9,400,000 and $8,400,000,
respectively) of the Company's Class A Common Stock that is specifically
identified to the retirement plans of FI. Any change in market value
associated with these shares is allocated entirely to the FI plans and does not
effect the Master Trust Allocated Assets.
Depreciation Expense
Depreciation expense, including amortization of capital leases, approximated
$107,600,000, $84,300,000 and $67,800,000 in 1994, 1993 and 1992, respectively.
Advertising Expense
Advertising, which is expensed as incurred, approximated $70,800,000,
$52,800,000 and $62,500,000 in 1994, 1993 and 1992, respectively.
Income Taxes
Income taxes are included in the Consolidated Statement of Earnings as
follows (in thousands of dollars):
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Income tax expense on earnings
before extraordinary items and cumulative
effect of change in accounting principle $ 73,200 $ 154,300 $ 131,400
Extraordinary items . . . . . . . . . . . . -- (4,700) (5,100)
Cumulative effect of change in
accounting for income taxes . . . . . . -- (3,400) --
Total income tax expense . . . . . . . . $ 73,200 $ 146,200 $ 126,300
</TABLE>
<PAGE>
<PAGE> 51
Included in earnings before extraordinary items and cumulative effect of
change in accounting principle are foreign losses of $15,500,000 in 1994 and
foreign earnings of $17,000,000 and $34,600,000 in 1993 and 1992, respectively.
<PAGE>
<PAGE> 52
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes - (Continued)
The components of income tax expense (benefit) related to earnings before
extraordinary items and cumulative effect of change in accounting principle
were as follows (in thousands of dollars):
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,600 $ 111,100 $ 124,100
State . . . . . . . . . . . . . . . . . . . . . . . . . . 6,100 10,100 9,700
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 1,100 2,900 6,800
Total current . . . . . . . . . . . . . . . . . . . . 80,800 124,100 140,600
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . (7,400) 28,500 (9,000)
State . . . . . . . . . . . . . . . . . . . . . . . . . . (200) 1,800 (400)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . -- (100) 200
Total deferred . . . . . . . . . . . . . . . . . . . . (7,600) 30,200 (9,200)
Total . . . . . . . . . . . . . . . . . . . . . . $ 73,200 $ 154,300 $ 131,400
</TABLE>
Deferred income taxes related to earnings before extraordinary items and
cumulative effect of change in accounting principle were as follows (in
thousands of dollars):
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Depreciation and amortization . . . . . . . . . . . . . . . $ 17,000 $ 10,300 $ 5,700
Inventory valuation . . . . . . . . . . . . . . . . . . . . (7,000) 3,600 (2,000)
Intangible valuation . . . . . . . . . . . . . . . . . . . . (6,100) -- --
Payments on certain obligations of former subsidiaries . . . -- 13,500 9,900
Interest on income taxes receivable, net of tax refund . . . -- -- (16,900)
Interest on prior years' taxes . . . . . . . . . . . . . . -- -- 3,600
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . (11,500) 2,800 (9,500)
Deferred income tax expense (benefit) . . . . . . . . . $ (7,600) $ 30,200 $ (9,200)
</TABLE>
The income tax rate on earnings before extraordinary items and cumulative
effect of change in accounting principle differed from the Federal statutory
rate as follows:
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Federal statutory rate . . . . . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
Goodwill amortization . . . . . . . . . . . . . . . . . . 7.9 2.5 2.7
State income taxes, net of Federal tax benefit . . . . . . 2.9 2.1 1.9
Interest on prior years' taxes . . . . . . . . . . . . . . 5.2 2.1 1.9
Foreign operating losses . . . . . . . . . . . . . . . . . 4.1 -- --
Other-net . . . . . . . . . . . . . . . . . . . . . . . . (.3) .3 .6
Effective rate . . . . . . . . . . . . . . . . . . . . 54.8% 42.0% 41.1%
</TABLE>
<PAGE>
<PAGE> 53
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes - (Continued)
Deferred income taxes are provided for temporary differences between
income tax and financial statement recognition of revenues and expenses.
Deferred tax liabilities (assets) are comprised of the following (in thousands
of dollars):
<TABLE>
<CAPTION> December 31,
1994 1993
<S> <C> <C>
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . $ 120,600 $ 92,100
Items includible in future tax years . . . . . . . . . . . . . . . . . . 39,700 21,000
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . 160,300 113,100
Inventory valuation reserves . . . . . . . . . . . . . . . . . . . . . . (27,900) (4,800)
Accrued employee benefit expenses . . . . . . . . . . . . . . . . . . . (23,200) (18,300)
Acquired tax benefits and basis differences . . . . . . . . . . . . . . (14,800) (14,400)
Allowance for possible losses on receivables . . . . . . . . . . . . . . (6,200) (5,800)
Items deductible in future tax years . . . . . . . . . . . . . . . . . . (44,800) (18,800)
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . (116,900) (62,100)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . $ 43,400 $ 51,000
</TABLE>
Effective January 1, 1993, the Company recorded the cumulative effect of a
change in accounting principle related to the initial adoption of Statement No.
109 resulting in a $3,400,000 ($.04 per share) benefit.
In 1993, the Company paid the IRS approximately $28,300,000 in settlement
of Federal income tax assessments for the tax periods ended December 31, 1984
and July 31, 1985 (the final predecessor tax periods). This amount included
approximately $14,800,000 of accrued interest. The Company had previously
established reserves for these matters and these payments did not have an
impact on the 1993 tax provision.
The IRS previously asserted income tax deficiencies, excluding statutory
interest which accrues from the date the tax was due until payment, for the
Company of approximately $93,000,000 for the years 1978-1980 and $15,400,000
for the years 1981-1983. The Company had protested the IRS's asserted tax
deficiencies for these six years with respect to a number of issues and also
had raised certain affirmative tax issues that bear on these years. Settlement
agreements with respect to all the 1978-1980 and 1981-1983 protested and
affirmative issues resulted in the Company receiving a refund of approximately
$5,900,000, including interest, in January 1993.
In an unrelated matter, the IRS declined to seek United States Supreme
Court review of a decision by the United States Court of Appeals for the Third
Circuit which reversed a lower court ruling and directed the lower court to
order a refund to the Company of approximately $10,500,000 in Federal income
taxes collected from a predecessor of the Company, plus approximately
$49,400,000 in interest thereon applicable to the tax years 1964-1968. The
Company received the full refund of approximately $60,000,000 in March 1992.
However, in September 1992 the IRS issued a statutory notice of deficiency in
<PAGE>
<PAGE> 54 FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income Taxes - (Concluded)
the amount of approximately $7,300,000 for the taxable years from which the
March 1992 refund arose, exclusive of interest which would accrue from the date
the IRS asserted the tax was due until payment, presently a period of about 27
years. In October 1994, the United States Tax Court ruled in favor of the
Company in the above case. In January 1995 the IRS filed an appeal with the
United States Court of Appeals for the Seventh Circuit. The Company believes,
based on information currently available, that the IRS position is without
merit and that the Company will prevail in this appeal.
Cash payments for income taxes were $49,000,000, $137,500,000 and
$131,600,000 in 1994, 1993 and 1992, respectively.
Other Expense-Net
Included in other expense-net in 1994 is $16,000,000 of service fee income
from Gitano's operations which represent Gitano's transition to a marketing
service organization from a traditional wholesaler base. These revenues are
not expected to recur after 1994 as Gitano reverts to a traditional apparel
wholesaler. This service fee revenue was partially offset by $12,500,000 of
charges to provide for certain obligations of and legal expenses pertaining to
litigation related to retained liabilities of former subsidiaries. In
addition, included in other expense-net in 1994, 1993 and 1992 was deferred
debt fee amortization and bank fees of approximately $8,100,000, $7,900,000 and
$10,100,000, respectively.
Earnings Per Share
Primary earnings per share are based on the weighted average number of
common shares and equivalents outstanding during the year.
Related Party Transactions
Under the terms of a management agreement between FII and the Company, FII
provides the Company, to the extent that the Company may request, (i) general
management services which include, but are not limited to, financial
management, legal, tax, accounting, corporate development, human resource and
personnel advice; (ii) investment banking services in connection with the
acquisition or disposition of the assets or operations of a business or entity;
(iii) financing services in connection with the arrangement by FII of public or
private debt (including letter of credit facilities); and (iv) other financial,
accounting, legal and advisory services rendered outside the ordinary course of
the Company's business. FII is owned and controlled by Mr. Farley; its
approximately 60 employees provide services to companies owned or controlled by
Mr. Farley, including the Company. Certain of the executive officers of the
Company are employed by, and receive their compensation from, FII. These
officers devote their time as needed to those companies owned and controlled by
Mr. Farley and, accordingly, do not devote full time to any single company,
including the Company.
In consideration for investment banking and financing services, the
Company pays FII fees established by FII and determined to be reasonable by FII
in relation to (i) the size and complexity of the transaction; and (ii) the
<PAGE>
<PAGE> 55
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
Related Party Transactions - (Concluded)
fees customarily charged by other advisors for similar investment banking and
financing services; provided, such fees shall not exceed two percent of the
total consideration paid or received by the Company or two percent of the
aggregate amount available for borrowing or use under the subject agreement or
facility. Fees for investment banking and financing services are generally
payable to FII upon the closing of the subject transaction or agreement.
Effective January 1994, the Company entered into a new management
agreement (the "Management Agreement") with FII pursuant to which FII agreed to
render substantially similar services to the Company as under the prior
management agreements. Under the terms of a management agreement, the Company
pays a fee to FII based on FII's cost of providing management services. The
Company paid management fees to FII of approximately $8,800,000 in 1994,
approximately $9,900,000 in 1993 and approximately $7,000,000 in 1992. At
December 31, 1994 approximately $600,000 was owed for management services
related to 1994, which amount was paid in February 1995. The Company also paid
a financing fee of approximately $2,500,000 to FII in 1994 for financing
services related to 1993, which costs were capitalized as deferred financing
costs in 1994. The Company paid a financing fee to FII during 1992 of
approximately $2,300,000, which costs were capitalized as deferred financing
costs in 1992. It is anticipated that the Company will enter into a management
agreement for 1995 under substantially the same terms and conditions as the
Management Agreement.
Concurrently with entering into the management agreement with FII in 1992,
the Company's Board of Directors determined to employ Mr. Farley directly as
Chairman and Chief Executive Officer of the Company. Mr. Farley did not
receive compensation in 1994, 1993 or 1992 from FII for his services as
Chairman and Chief Executive Officer of the Company.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee the Company received an
annual fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley. See "Contingent
Liabilities".
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated
debentures of the affiliate. The Company recognized no earnings in 1992
related to its investment in the securities of the affiliate because of the
inability of the affiliate to make payments under the terms of the securities.
In the fourth quarter of 1993, the Company received approximately $72,900,000
from Acme Boot representing the entire unpaid principal and liquidation
preference (including accrued interest and dividends) on its investment in the
securities of the affiliate. The Company recorded a pretax gain of
approximately $67,300,000 in connection with the investment in Acme Boot upon
the receipt of the above mentioned proceeds. See "Contingent Liabilities."
<PAGE>
<PAGE> 56
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA
Quarterly Financial Summary (Unaudited)
(In millions of dollars, except per share amounts)
<TABLE>
<CAPTION> Quarter Total
First Second Third Fourth Year
1994
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $ 438.2 $ 635.2 $ 640.4 $ 584.0 $2,297.8
Gross earnings . . . . . . . . . . . . . . 145.8 190.8 201.5 108.4 646.5
Operating earnings (loss) . . . . . . . . . 66.7 91.5 98.4 (21.6)<F1> 235.0
Net earnings (loss) . . . . . . . . . . . . 25.1 38.7 40.2 (43.7) 60.3
Net earnings (loss) per common share . . . .33 .51 .53 (.58) .79
Quarter Total
First Second Third Fourth Year
1993
Net sales . . . . . . . . . . . . . . . . . $ 428.9 $ 523.0 $ 484.2 $ 448.3 $1,884.4
Gross earnings . . . . . . . . . . . . . . 157.7 192.8 175.1 121.8 647.4
Operating earnings . . . . . . . . . . . . 94.3 121.7 108.4 57.1 381.5
Earnings before extraordinary items
and cumulative effect of change in
accounting principle . . . . . . . . . 44.1 58.4 48.6 61.7 212.8
Net earnings . . . . . . . . . . . . . . . 47.5<F2> 58.4 40.0<F3> 61.6<F4> 207.5
Earnings per common share before
extraordinary items and
cumulative effect of change
in accounting principle . . . . . . . .58<F2> .77 .64<F3> .81<F4> 2.80
<PAGE>
<PAGE> 57
<FN>
<F1> Includes pretax charges of approximately $40 to write inventories down
to net realizable value and a pretax charge of $18 related to the
write-off Artex intangibles.
<F2> In the first quarter of 1993, the Company recorded the cumulative
effect of a change in accounting principle related to the adoption of
Statement No. 109 resulting in a $3.4 ($.04 per share) benefit.
<F3> In connection with the refinancing of the Credit Agreements and the
redemption of the 12-3/8% Notes in the third quarter of 1993, the
Company recorded an extraordinary charge of approximately $8.6 ($.11
per share) which consists principally of the non-cash write-off of the
related unamortized debt expense on the Credit Agreements and the
12-3/8% Notes and the premiums paid in connection with the early
redemption of the 12-3/8% Notes, both net of income tax benefits.
<F4> In the fourth quarter of 1993, the Company recorded a pretax gain of
approximately $67.3 ($.55 per share) related to its investment in
Acme Boot.
</FN>
</TABLE>
<PAGE>
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of December 31, 1994 were as
follows:
Name Age Position
William Farley 52 Chairman of the Board
and Chief Executive Officer
John B. Holland 62 President and Chief Operating
Officer
Richard C. Lappin 50 Vice-Chairman of the Board
Richard M. Cion 51 Senior Executive Vice
President-Corporate Development
Larry K. Switzer 51 Executive Vice President and
Chief Financial Officer
Michael F. 40 Vice President and Controller
Bogacki
Burgess D. Ridge 50 Vice President-Administration
Earl C. Shanks 38 Vice President and Treasurer
Officers serve at the discretion of the Board of Directors. Messrs.
Lappin, Cion, Switzer, Bogacki, Ridge and Shanks are employed by FII which
provides management services to companies owned or managed by Mr. Farley. They
devote their time to those companies as needed and, accordingly, do not devote
full time to any single company, including the Company. Certain of the
executive officers, as noted below, are also executive officers of FI and were
executive officers of VBQ, Inc. ("VBQ"), formerly a defense contractor and an
affiliate of FI. Certain of the executive officers, as noted below, were also
executive officers of Valley Fashions Corp. (formerly West Point Acquisition
Corp. and currently West Point Stevens, Inc.). During 1992, FI and Valley
Fashions Corp. emerged from bankruptcy proceedings and VBQ became the subject
of a Chapter 7 liquidation.
William Farley. Mr. Farley has been Chairman of the Board and Chief
Executive Officer of the Company since May 1985. Mr. Farley has also been
Chairman and a director of Acme Boot for more than the past five years. During
the past five years, Mr. Farley has also been Chairman and Chief Executive
Officer of FII. He has held substantially similar positions with FI since
1982, VBQ from 1984 until January 1992, West Point-Pepperell, Inc. ("West
Point") from April 1989 until October 1992 and Valley Fashions Corp. from March
1989 until October 1992.
<PAGE>
<PAGE> 59
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (Continued)
John B. Holland. Mr. Holland has been a director of the Company since
November 1992 and President of the Company since May 1992. Mr. Holland has
served as Chief Operating Officer of the Company for more than the past five
years. Mr. Holland served as Vice Chairman of West Point from April 1989 until
September 1992 and as a director of West Point from April 1989 until September
1992. Mr. Holland served as Vice Chairman of Valley Fashions Corp. from March
1989 until June 1990. Mr. Holland is also a director of Dollar General Corp.
and First Kentucky National Corp.
Richard C. Lappin. Mr. Lappin has been a director of the Company since
December 1990 and Vice Chairman of the Company since October 1991. Mr. Lappin
has been Vice Chairman and Chief Executive Officer of Acme Boot since February
1991 and a director of Acme Boot since December 1993. Mr. Lappin has been
President and Chief Operating Officer of FII since February 1991. From October
1989 to February 1991, Mr. Lappin served in various capacities with FI,
including President and Chief Executive Officer of the Doehler Jarvis and
Southern Fastening Systems divisions of FI.
Richard M. Cion. Mr. Cion has been Senior Executive Vice President of the
Company since June 1990, of FII and Acme Boot since February 1990 and of West
Point from February 1990 until October 1992. Mr. Cion was also a director of
West Point from April 1989 until October 1992. Mr. Cion served as a director
of Valley Fashions Corp. from April 1989 until June 1992. Mr. Cion was also
Senior Executive Vice President of Valley Fashions Corp. from March 1992 until
October 1992. From April 1988 to February 1990, Mr. Cion was a Managing
Director with Drexel Burnham Lambert Incorporated, an investment banking firm.
Larry K. Switzer. Mr. Switzer has been Senior Executive Vice President
and Chief Financial Officer of the Company, FII and FI since May 1994. From
September 1992 to March 1993 Mr. Switzer was Executive Vice President and Chief
Financial Officer of Alco Standard Corporation, a manufacturer and marketer of
office equipment and supplies. Mr. Switzer was Senior Vice President and Chief
Financial Officer of S.C. Johnson & Son, Inc., a manufacturer and marketer of
household cleaning and pest control products, from before 1990 to August 1992.
Michael F. Bogacki. Mr. Bogacki has been Corporate Controller of the
Company, FII and FI since October 1988. Mr. Bogacki was appointed Vice
President of FII in November 1989, of the Company in May 1990 and of FI in June
1990 and of Acme Boot in February 1991. In June 1991, Mr. Bogacki was
appointed Assistant Secretary of the Company. Mr. Bogacki was Corporate
Controller of Valley Fashions Corp. from March 1989 until November 1992. Mr.
Bogacki was also Vice President of Valley Fashions Corp. from June 1991 until
November 1992.
Burgess D. Ridge. Mr. Ridge was Assistant Treasurer of the Company, FII
and FI from before 1990 until October 1991. Mr. Ridge was appointed Vice
President Administration of FII and FI in August 1991 and of the Company in
October 1991.
<PAGE>
<PAGE> 60
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (Concluded)
Earl C. Shanks. Mr. Shanks served as Vice President-Taxes and Assistant
Secretary of the Company, FII and FI from before 1990 until June 1991. In June
1991, Mr. Shanks became Treasurer of the Company, FII, Acme Boot and FI. Mr.
Shanks was Vice President and Assistant Secretary of West Point from April 1989
until November 1992. Mr. Shanks served as Vice President-Taxes and Assistant
Secretary of Valley Fashions Corp. from March 1989 until June 1991. Mr. Shanks
was Vice President and Treasurer of Valley Fashions Corp. from June 1991 until
November 1992. During the past five years Mr. Shanks has been Vice President
of Acme Boot. Mr. Shanks was Vice President-Taxes of VBQ from before 1990 to
January 1992.
Information relating to the directors of the Company is set forth in the
Registrant's proxy statement for its Annual Meeting of Stockholders to be held
on May 16, 1995 (the "Proxy Statement") to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act
of 1934, as amended, and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth in the Proxy
Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, and is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security ownership of certain beneficial
owners and management is set forth in the Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the terms of a management agreement between FII and the Company, FII
provides the Company, to the extent that the Company may request, (i) general
management services which include, but are not limited to, financial
management, legal, tax, accounting, corporate development, human resource and
personnel advice; (ii) investment banking services in connection with the
acquisition or disposition of the assets or operations of any business or
entity; (iii) financing services in connection with the arrangement by FII of
public or private debt (including letter of credit facilities); and (iv) other
financial, accounting, legal and advisory services rendered outside the
ordinary course of the Company's business. FII is owned and controlled by Mr.
Farley; its approximately 60 employees provide services to companies owned or
controlled by Mr. Farley, including the Company. Certain of the executive
officers of the Company are employed by, and receive their compensation from,
FII. These officers devote their time as needed to those companies owned and
controlled by Mr. Farley and, accordingly, do not devote full time to any
single company, including the Company.
<PAGE>
<PAGE> 61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - (Concluded)
In consideration for investment banking and financing services, the
Company pays FII fees established by FII and determined to be reasonable by FII
in relation to (i) the size and complexity of the transaction; and (ii) the
fees customarily charged by other advisors for similar investment banking and
financing services; provided, such fees shall not exceed two percent of the
total consideration paid or received by the Company or two percent of the
aggregate amount available for borrowing or use under the subject agreement or
facility. Fees for investment banking and financing services are generally
payable to FII upon the closing of the subject transaction or agreement.
Effective January 1994, the Company entered into the Management Agreement
with FII pursuant to which FII agreed to render substantially similar services
to the Company as under the prior management agreements. Under the terms of a
management agreement, the Company pays a fee to FII based on FII's cost of
providing management services. The Company paid management fees to FII of
approximately $8,800,000 in 1994, approximately $9,900,000 in 1993 and
approximately $7,000,000 in 1992. At December 31, 1994 approximately $600,000
was owed for management services related to 1994, which amount was paid in
1995. The Company also paid a financing fee of approximately $2,500,000 to FII
in 1994 for financing services related to 1993, which costs were capitalized as
deferred financing costs in 1994. The Company paid a financing fee to FII
during 1992 of approximately $2,300,000, which costs were capitalized as
deferred financing costs in 1992. It is anticipated that the Company will
enter into a management agreement for 1995 under substantially the same terms
and conditions as the Management Agreement.
Concurrently with entering into the new management agreement with FII in
1992, the Company's Board of Directors determined to employ Mr. Farley directly
as Chairman and Chief Executive Officer of the Company. Mr. Farley did not
receive compensation in 1994, 1993 or 1992 from FII for his services as
Chairman and Chief Executive Officer of the Company.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley, the Company's Chairman of the Board and Chief
Executive Officer. In exchange for the guarantee, the Company received an
annual fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley.
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated
debentures of the affiliate. The Company recognized no income in 1992 related
to its investment in the securities of the affiliate because of the inability
of the affiliate to make payments under the terms of the securities. In the
fourth quarter of 1993, the Company received approximately $72,900,000 from
Acme Boot representing the entire unpaid principal and liquidation preference
(including accrued interest and dividends) on its investment in the securities
of the affiliate. The Company recorded a pretax gain of approximately
<PAGE>
<PAGE> 62
$67,300,000 in connection with the investment in Acme Boot upon the receipt of
the above mentioned proceeds. See "Contingent Liabilities."
Information relating to certain relationships and related transactions is
set forth in the Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934,
as amended, and is hereby incorporated by reference.
<PAGE>
<PAGE> 63
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedule and exhibits
1. Financial Statements
The financial statements listed in the Index to Financial Statements and
Supplementary Data on page 24 are filed as part of this Annual Report.
2. Financial Statement Schedule
The schedule listed in the Index to Financial Statements and Supplementary
Data on page 24 are filed as part of this Report.
3. Exhibits
The exhibits listed in the Index to Exhibits on pages 66 and 67 are filed
part of this Annual Report.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter of 1994.
<PAGE>
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, State of Illinois, on March 28, 1995.
FRUIT OF THE LOOM, INC.
BY: LARRY K. SWITZER
(Larry K. Switzer
Executive Vice President and
Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
March 28, 1995.
Name Capacity
WILLIAM FARLEY Chairman of the Board and
(William Farley) Chief Executive Officer (Principal
Executive Officer) and Director
LARRY K. SWITZER Executive Vice President
(Larry K. Switzer) and Chief Financial Officer
(Principal Financial Officer)
MICHAEL F. BOGACKI Vice President and
(Michael F. Bogacki) Controller (Principal
Accounting Officer)
OMAR Z. AL ASKARI Director
(Omar Z. Al Askari)
DENNIS S. BOOKSHESTER Director
(Dennis S. Bookshester)
JOHN B. HOLLAND Director
(John B. Holland)
LEE W. JENNINGS Director
(Lee W. Jennings)
HENRY A. JOHNSON Director
(Henry A. Johnson)
RICHARD C. LAPPIN Director
(Richard C. Lappin)
A. LORNE WEIL Director
(A. Lorne Weil)
SIR BRIAN G. WOLFSON Director
(Sir Brian G. Wolfson)
<PAGE>
<PAGE> 65
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
(In thousands of dollars)
<TABLE>
<CAPTION> Balance at Additions Balance
Beginning Charged to Charged to at End
Description: of Period Costs and Expense Other Accounts<F1> Deductions<F2> of Period
Year Ended December 31, 1994:
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets
to which they apply:
Accounts receivable allowances:
Doubtful accounts . . . . . . . . $ 12,500 $ 6,000 $ 1,100 $ 7,600 $ 12,000
Sales discounts, returns, and
allowances . . . . . . . . . . 3,600 20,300 600 15,800 8,700
$ 16,100 $ 26,300 $ 1,700 $ 23,400 $ 20,700
Year Ended December 31, 1993:
Reserves deducted from assets
to which they apply:
Accounts receivable allowances:
Doubtful accounts . . . . . . . . $ 10,800 $ 4,100 $ 2,800 $ 5,200 $ 12,500
Sales discounts, returns, and
allowances . . . . . . . . . . 3,500 3,600 -- 3,500 3,600
$ 14,300 $ 7,700 $ 2,800 $ 8,700 $ 16,100
Year Ended December 31, 1992:
Reserves deducted from assets
to which they apply:
Accounts receivable allowances:
Doubtful accounts . . . . . . . . $ 11,400 $ 5,100 $ 600 $ 6,300 $ 10,800
Sales discounts, returns, and
allowances . . . . . . . . . . 2,800 900 -- 200 3,500
$ 14,200 $ 6,000 $ 600 $ 6,500 $ 14,300
<FN>
<F1> Recoveries of bad debts and, in 1994 and 1993, the effect of the Acquisitions.
<F2> Bad debts written off and allowances and discounts taken by customers.
</FN>
</TABLE>
<PAGE>
<PAGE> 66
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
(Item 14(a)(3) and 14(c))
Description
3(a)* - Restated Certificate of Incorporation of the Company and Certificate
of Amendment of the Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993).
3(b)* - By-Laws of the Company (incorporated herein by reference to Exhibit
4(b) to the Company's Registration Statement on Form S-2, Reg. No.
33-8303 (the "S-2")).
4(a)* - $800,000,000 Credit Agreement dated as of August 16, 1993, among the
several banks and other financial institutions from time to time
parties thereto (the "Lenders"), Bankers Trust Company, a New York
banking corporation, as administrative agent for the Lenders
thereunder, Chemical Bank, NationsBank of North Carolina N.A., The
Bank of New York and the Bank of Nova Scotia, as co-agents
(incorporated herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3, Reg. No. 33-50567 (the "1993 S-
3")).
4(b)* - Subsidiary Guarantee Agreements dated as of August 16, 1993 by each
of the guarantors signatory thereto in favor of the beneficiaries
referred to therein (incorporated herein by reference to Exhibit 4.4
to the 1993 S-3).
10(a)* - Fruit of the Loom 1989 Stock Grant Plan dated January 1, 1989
(incorporated herein by reference to Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988).
10(b)* - Fruit of the Loom 1987 Stock Option Plan (incorporated herein by
reference to Exhibit 10(b) to the S-2).
10(c)* - Fruit of the Loom, Inc. Stock Option Agreement for Richard C. Lappin
(incorporated herein by reference to Exhibit 10(d) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991).
10(d)* - Fruit of the Loom 1992 Executive Stock Option Plan (incorporated
herein by reference to the Company's Registration Statement on Form
S-8, Reg. No. 33-57472).
10(e)* - Fruit of the Loom, Inc. Directors' Stock Option Plan (incorporated
herein by reference to the Company's Registration Statement on Form
S-8, Reg. No. 33-50499).
10(f)* - Fruit of the Loom, Inc. Executive Incentive Compensation Plan
(incorporated herein by reference to Exhibit A to the Company's
Proxy Statement for its annual meeting on May 17, 1994).
10(g)* - Guarantee of Payment dated as of June 27, 1994 by Fruit of the Loom,
Inc. and NationsBank of Florida N.A. (incorporated herein by
reference to Exhibit 10(a) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994(the "10-Q")).
See footnotes on following page.
<PAGE>
<PAGE> 67
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS - (Concluded)
(Item 14(a)(3) and 14(c))
Description
10(h)* - Stock Pledge Agreement dated as of June 27, 1994 between William F.
Farley and Fruit of the Loom, Inc. (incorporated herein by reference
to Exhibit 10(b) to the 10-Q).
10(i)* - Management Agreement between Farley Industries, Inc. and the Company
dated as of January 1, 1994 (incorporated herein by reference to
Exhibit 10(c) to the 10-Q).
10(j) - Employment Agreement between Fruit of the Loom, Inc. and William
Farley.
10(k) - Employment Agreement between Fruit of the Loom, Inc. and John B.
Holland.
10(l) - Employment Agreement between Farley Industries, Inc., Fruit of the
Loom, Inc. and Richard C. Lappin.
10(m) - Employment Agreement between Farley Industries, Inc., Fruit of the
Loom, Inc. and Richard M. Cion.
10(n) - Employment Agreement between Farley Industries, Inc., Fruit of the
Loom, Inc. and Earl C. Shanks.
10(o) - Employment Agreement between Farley Industries, Inc., Fruit of the
Loom, Inc. and Larry K. Switzer.
11 - Computation of Earnings Per Common Share.
22 - Subsidiaries of the Company.
24 - Consent of Ernst & Young LLP.
27 - Financial Data Schedule.
* Document is available at the Public Reference Section of the Securities and
Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 (Commission file #1-8941).
The Registrant has not listed or filed as Exhibits to this Annual Report
certain instruments with respect to long-term debt representing indebtedness of
the Company and its subsidiaries which do not individually exceed 10% of the
total assets of the Registrant and its subsidiaries on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant agrees to
furnish such instruments to the Securities and Exchange Commission upon
request.
<PAGE> 68
CONFORMED COPY
FRUIT OF THE LOOM, INC.
Employment Agreement for William Farley
<PAGE>
<PAGE> 69
FRUIT OF THE LOOM, INC.
Employment Agreement for William Farley
Page
1. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
3. Offices and Duties . . . . . . . . . . . . . . . . . . . . . . . . . 70
4. Salary and Annual Incentive Compensation . . . . . . . . . . . . . . 71
5. Long Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement . . . . . . . . . . 72
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability . . . . . . . . . . . . . . . . . . . . . . . . 75
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability . . . . . . . . . . . 78
8. Definitions Relating to Termination Events . . . . . . . . . . . . . 81
9. Excise Tax Gross-Up . . . . . . . . . . . . . . . . . . . . . . . . 84
10. Non-Competition and Non-Disclosure; Executive Cooperation . . . . . 87
11. Governing Law; Disputes; Arbitration . . . . . . . . . . . . . . . . 88
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
13. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 91
<PAGE>
<PAGE> 70
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of the 28th day of March,
1995, by and between FRUIT OF THE LOOM, INC., a Delaware corporation (the
"Company"), and William Farley ("Executive"), and shall become effective as of
December 18, 1994 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has served the Company in the position of
Chairman of the Board and Chief Executive Officer since May 1985; and
WHEREAS, the Company desires to continue to employ Executive in
his capacity as Chairman of the Board and Chief Executive Officer in
connection with the conduct of its businesses, and Executive desires to accept
such employment on the terms and conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the terms
upon which Executive shall be so employed.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby
acknowledge, the Company and Executive hereby agree as follows:
1. Employment.
The Company hereby agrees to employ Executive as its Chairman of
the Board and Chief Executive Officer, and Executive hereby agrees to accept
such employment and serve in such capacities, during the Term as defined in
Section 2 and upon the terms and conditions set forth in this Employment
Agreement (this "Agreement").
2. Term.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating
on December 17, 1997 and any period of extension thereof in accordance with
this Section 2, subject to earlier termination in accordance with Section 6 or
7. The Term shall be extended automatically without further action by either
party for an additional one year on December 18, 1995 and on each succeeding
December 18 thereafter, unless either party shall have served written notice
in accordance with the provisions of Section 12(d) upon the other party prior
to the June 30 preceding the date upon which such extension would become
effective electing not to extend the Term further as of the December 18 next
succeeding the date such notice is served, in which case employment shall
terminate at the end of the Term as extended, subject to earlier termination
in accordance with Section 6 or 7.
3. Offices and Duties.
The provisions of this Section 3 will apply during the Term:
<PAGE>
<PAGE> 71
(a) Generally. Executive shall serve as the Chief Executive
Officer of the Company and, if elected, to serve as a member of the Board of
Directors of the Company (the "Board") and for so long as he is serving on the
Board, Executive agrees to serve as Chairman of the Board, as a member of the
Executive Committee, and as a member of any other Board Committee if the Board
shall elect Executive to such positions. In any and all such capacities,
Executive shall report only to the Board of Directors of the Company.
Executive shall have and perform such duties, responsibilities, and
authorities as are customary for the chief executive officer of a publicly
held corporation of the size, type, and nature of the Company as they may
exist from time to time and consistent with such position and status, but in
no event shall such duties, responsibilities, and authorities be reduced from
those of Executive prior to the Effective Date. Executive shall devote
substantial business time and attention, and his best efforts, abilities,
experience, and talent to the position of Chief Executive Officer and for the
businesses of the Company; provided, however, that nothing in this Agreement
shall preclude or prohibit Executive from engaging in other activities,
including but not limited to (i) continuing employment as Chairman and Chief
Executive Officer and in other capacities by Farley Industries, Inc. or a
successor ("FII") or Farley Inc. or a successor ("FI"), (ii) employment in any
capacity by other entities in which Executive, FII, or FI may have a direct or
indirect equity investment, for which FII may perform management services,
and/or which may be otherwise affiliated with Executive, FII, or FI, (iii)
service as a director of any other entity, (iv) service to any educational,
charitable, community, civic, religious, or similar type of organization, and
public speaking engagements, and (v) management of personal and family
investments and financial and legal affairs, to the extent that such other
activities (including those indicated in (i) through (v) above) do not
preclude or render unlawful Executive's employment or service to the Company
hereunder or otherwise materially inhibit the performance of Executive's
duties under this Agreement or materially impair the business of the Company
or its subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Chicago, Illinois.
In no event shall the Executive's principal place of employment be relocated
outside of Chicago, Illinois without his prior written consent.
(c) Rank of Executive Within Company. As Chairman of the Board
and Chief Executive Officer of the Company, Executive shall be the highest-
ranking executive of the Company.
4. Salary and Annual Incentive Compensation.
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4.
(a) Base Salary. The Company will pay to Executive during the
Term a base salary at the initial annual rate of $850,000, payable in cash in
substantially equal monthly installments during each calendar year, or portion
thereof, of the Term and otherwise in accordance with the Company's usual
payroll practices with respect to senior executives (except to the extent
<PAGE>
<PAGE> 72
deferred under Section 5(d)). Executive's annual base salary shall be
reviewed by the Compensation Committee of the Board (the "Committee") at least
once in each calendar year and may be increased above, but may not be reduced
below, the then-current rate of such base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Company's 1995 Executive Incentive Compensation Plan (subject to
stockholder approval thereof) (the "1995 EICP"), the Company's Executive
Incentive Compensation Plan (the "EICP") if the 1995 EICP is not approved by
the Company's stockholders, and any successor to the 1995 EICP or the EICP,
which shall offer to Executive an opportunity to earn additional compensation
in amounts determined by the Committee in accordance with the applicable plan
and consistent with past practices of the Company; provided, however, that the
Company will use its best efforts to maintain in effect, for each year during
the Term, the 1995 EICP, the EICP, or an equivalent plan under which the Chief
Executive Officer of the Company shall be eligible for an award not less than
the award opportunity assigned to him under the 1995 EICP or the EICP during
1995 if the 1995 EICP is not approved by the Company's stockholders. Any such
annual incentive compensation payable to Executive shall be paid in accordance
with the Company's usual practices with respect to payment of incentive
compensation to senior executives (except to the extent deferred under Section
5(d)).
5. Long-Term Compensation, Including Stock Options, and
Benefits, Deferred Compensation, and Expense Reimbursement
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation
by senior executives of the Company, as presently in effect or as they may be
modified or added to by the Company from time to time, subject to the
eligibility and other requirements of such plans and programs, including
without limitation the long-term incentive features of the 1995 EICP, the EICP
if the 1995 EICP is not approved by the Company's stockholders, any successor
to such plans, and other stock option plans, performance share plans,
management incentive plans, deferred compensation plans, and supplemental
retirement plans; provided, however, that such plans and programs, in the
aggregate, shall provide Executive with benefits and compensation and
incentive award opportunities substantially no less favorable than those
provided by the Company to Executive under such plans and programs as in
effect on January 1, 1995. For purposes of this Agreement, all references to
"performance share plans" and "performance shares" refer to such arrangements
under the 1995 EICP or the EICP and to any performance shares, performance
units, stock grants, or other long-term incentive arrangements adopted as a
successor or replacement to performance shares under such plans or other plans
of the Company.
(b) Stock Option Grant Upon Signing Agreement. In addition to
the compensation otherwise specified under Sections 4 and 5, the Company has
granted to Executive, as of December 18, 1994 and conditioned upon Executive's
execution of this Agreement, a non-qualified stock option to purchase 750,000
shares of the Company's Class A Common Stock (the "1995 Option"), under the
<PAGE>
<PAGE> 73
1995 EICP, subject to stockholder approval of the 1995 EICP at the Company's
1995 Annual Meeting of Stockholders. The 1995 Option shall be evidenced by,
and have the terms set forth in, the option agreement attached as Exhibit A
hereto (the "Option Agreement") which has been authorized and approved by the
Committee under the 1995 EICP.
Not later than such time as the 1995 Option becomes exercisable,
the Company will have filed with the Securities and Exchange Commission, and
will thereafter maintain the effectiveness of, a registration statement
registering under the Securities Act of 1933, as amended, the offer and sale
of shares by the Company pursuant to the 1995 Option, which registration
statement shall include a resale prospectus covering the reoffer and resale
(or other disposition) of all shares acquired by Executive upon exercise of
the 1995 Option, and the Company will maintain as current all offering
materials under such registration statement at all times that offers and sales
of such shares could be made by the Company or Executive.
(c) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or
duplication, in all employee and executive benefit plans and programs of the
Company, as presently in effect or as they may be modified or added to by the
Company from time to time, to the extent such plans are available to other
senior executives or employees of the Company, subject to the eligibility and
other requirements of such plans and programs, including without limitation
plans providing pensions, other retirement benefits, medical insurance, life
insurance, disability insurance, and accidental death or dismemberment
insurance, and participation in savings, profit-sharing, and stock ownership
plans; provided, however, that such benefit plans and programs, in the
aggregate, shall provide Executive with benefits and compensation and
incentive award opportunities substantially no less favorable than those
provided by the Company to Executive under such plans and programs as in
effect on January 1, 1995.
In furtherance of and not in limitation of the foregoing, during
the Term:
(i) Executive will participate as Chief Executive Officer in all
executive and employee vacation and time-off programs;
(ii) The Company will provide Executive with coverage as Chief
Executive Officer in long-term disability insurance and benefits
substantially no less favorable (including any required
contributions by Executive) than such insurance and benefits in
effect on January 1, 1995;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit of not less than ten
times Executive's annual base salary payable in accordance with
Section 4(a); provided, however, that such insurance may be
combined with a supplementary retirement funding vehicle;
(iv) Executive will be entitled to retirement benefits substantially no
less favorable than those under the pension plans and programs of
the Company as in effect on January 1, 1995. For purposes of
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calculating such benefits, Executive's compensation will include
100% of annual base salary paid under Section 4(a) and no less
than 50% of annual incentive compensation paid under Section 4(b),
and Executive will be retroactively credited, as of January 1,
1995, with 12 years of service under such plans, which shall be
fully vested upon such crediting; and amounts equal to the present
value of Executive's accrued benefit vested at any time during the
Term under all supplemental (non-qualified) pension plans of the
Company, will be fully funded by the Company by deposits to an
irrevocable "rabbi trust"; and
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior executives,
provided, however, that supplemental health and medical benefits
shall provide for reimbursement of Executive to the extent that
the $750,000 limitation on maximum lifetime health and medical
benefits and reimbursements under other Company policies and
programs is exceeded.
Any provision to the contrary contained in this Agreement
notwithstanding, unless Executive is terminated by the Company for "Cause" (as
defined in Section 8(a) hereof), Executive may elect continued participation
after termination in the Company's health and medical coverage for himself and
his spouse and dependent children after such coverage would otherwise end
until such time as Executive becomes eligible for Medicare; provided, however,
that in the event of such election, Executive shall pay the Company each year
an amount equal to the current annual COBRA premium being paid by other former
employees of the Company, unless otherwise provided under Section 6 or 7.
(d) Deferral of Compensation. The Company shall implement
deferral arrangements, reasonably acceptable to Executive and the Company,
permitting Executive to elect to irrevocably defer receipt, pursuant to
written deferral election terms and forms (the "Deferral Election Forms"), of
all or a specified portion of (i) his annual base salary and annual incentive
compensation under Section 4, (ii) long-term incentive compensation under
Sections 5(a) and (b) (including payouts relating to performance shares), and
(iii) shares acquired upon exercise of options granted under Sections 5(a) and
(b) that are acquired in an exercise in which Executive pays the exercise
price by the surrender of previously acquired shares, to the extent of the net
additional shares acquired by Executive in such exercise; provided, however,
that such deferrals shall not reduce Executive's total cash compensation in
any calendar year below the sum of (i) the FICA maximum taxable wage base plus
(ii) 1.45% of Executive's annual salary, annual incentive compensation and
long-term incentive compensation in excess of such FICA maximum. In addition,
the Committee may require mandatory deferral of amounts payable as annual
incentive compensation under Section 4(b) or long-term incentive compensation
under Sections 5(a) and (b), which deferrals will otherwise be in accordance
with this Section 5(d).
In accordance with such duly executed Deferral Election Forms or
the terms of any such mandatory deferral, the Company shall credit to one or
more bookkeeping accounts maintained for Executive on the respective payment
date or dates, amounts equal to the compensation subject to deferral, such
credits to be denominated in cash if the compensation would have been paid in
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cash but for the deferral or in shares if the compensation would have been
paid in shares but for the deferral. An amount of cash equal in value to all
cash-denominated amounts credited to Executive's account and a number of
shares of Common Stock equal to the number of shares credited to Executive's
account pursuant to this Section 5(d) shall be transferred as soon as
practicable following such crediting by the Company to, and shall be held and
invested by, an independent trustee selected by the Company and reasonably
acceptable to Executive (a "Trustee") pursuant to a "rabbi trust" established
by the Company in connection with such deferral arrangement and as to which
the Trustee shall make investments based on Executive's investment objectives
(including possible investment in publicly traded stocks and bonds, mutual
funds, real estate, and insurance vehicles). Thereafter, Executive's deferral
accounts will be valued by reference to the value of the assets of the "rabbi
trust"; provided, however, that a portion of the assets of the "rabbi trust"
may be used to reimburse the Company for its reasonable cost of funds
resulting from payment of taxes by the Company relating to rabbi trust assets
during the period of deferral and prior to the settlement of Executive's
deferral accounts. The Company shall pay all other costs of administration of
the deferral arrangement, without deduction or reimbursement from the assets
of the "rabbi trust."
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or under the terms of any mandatory
deferral, the Company shall promptly pay to Executive cash equal to the cash
then credited to Executive's deferral accounts and cash equal in value to any
shares of Common Stock then credited to Executive's deferral accounts, less
applicable withholding taxes, and such distribution shall be deemed to fully
settle such accounts; provided, however, that the Company may instead settle
such accounts by directing the Trustee to distribute the assets of the "rabbi
trust." The Company and Executive agree that compensation deferred pursuant
to this Section 5(d) shall be fully vested and nonforfeitable; provided,
however, Executive acknowledges that his rights to the deferred compensation
provided for in this Section 5(d) shall be no greater than those of a general
unsecured creditor of the Company, and that such rights may not be pledged,
collateralized, encumbered, hypothecated, or liable for or subject to any
lien, obligation, or liability of Executive, or be assignable or transferable
by Executive, otherwise than by will or the laws of descent and distribution,
provided that Executive may designate one or more beneficiaries to receive any
payment of such amounts in the event of his death.
(e) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability
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Executive may terminate employment as Chief Executive Officer upon
Executive's retirement at or after age 65 ("Normal Retirement") or, if
approved in advance by the Committee, upon Executive's early retirement prior
to age 65 ("Approved Early Retirement"). The Company may terminate the
employment of Executive as Chief Executive Officer due to the Disability (as
defined in Section 8(c)) of Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In
the event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred to in the definition
of Disability (set forth in Section 8(c)) absent the actions referred to
therein being taken by Executive to return to service and present to the
Company a certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations
of the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, provided, however, that subject to the provisions of
Section 12(i), the Company will pay Executive (or his beneficiaries or
estate), and Executive (or his beneficiaries or estate) will be entitled to
receive, the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination of
employment, pro rated through such date of termination, will be
paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination of employment under any compensation and benefit
plans, programs, and arrangements set forth or referred to in
Sections 4(b) and 5(a) and (c) hereof (including any earned annual
incentive compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated (unless
otherwise payable under (ii) above), Executive will be paid an
amount equal to the average annual incentive compensation paid to
Executive in the three years immediately preceding the year of
termination (or, if Executive was not eligible to receive or did
not receive such incentive compensation for any year in such three
year period, the Executive's target annual incentive compensation
for such year(s) shall be used to calculate average annual
incentive compensation) multiplied by a fraction the numerator of
which is the number of days Executive was employed in the year of
termination and the denominator of which is the total number of
days in the year of termination;
(iv) In lieu of any payment in respect of performance shares or other
compensatory long term incentive award granted in accordance with
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Section 5(a) for any performance period not completed at the date
Executive's employment terminated (unless otherwise payable under
(ii) above), Executive will be paid in cash an amount equal to the
cash amount payable plus the value of any shares of Common Stock
or other property (valued at the date of termination) payable upon
achievement of (A) the maximum performance, in the case of death
or Disability, or (B) target performance, in the case of Normal
Retirement or Early Retirement, in respect of each tranche of
performance shares, multiplied by a fraction the numerator of
which is the number of days Executive was employed during the
respective performance period and the denominator of which is the
total number of days in such performance period;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs and the agreements and other documents thereunder
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e); and
(viii) If Executive's employment terminates due to Disability, for the
period extending from such termination until Executive reaches age
65, Executive shall continue to participate in all employee
benefit plans, programs, and arrangements under Section 5(c)
providing health, medical, and life insurance and pension benefits
in which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment with
the Company during such period or, if such plans, programs, or
arrangements do not allow Executive's continued participation, a
cash payment equivalent on an after-tax basis to the value of the
additional benefits Executive would have received under such
employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to termination, as
if Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination, with such benefits
payable by the Company at the same times and in the same manner as
such benefits would have been received by Executive under such
plans (it being understood that the value of any insurance-
provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a
carrier having an investment grade or better credit rating);
provided further, that in the case of termination of Executive's employment
due to Disability, Executive must continue to satisfy the conditions set forth
in Section 10 in order to continue receiving the compensation and benefits
under (viii), above. Amounts payable under (i), (ii), (iii), (iv), and (vii)
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above will be paid as promptly as practicable after termination of Executive's
employment; provided, however, that, to the extent that the Company would not
be entitled to deduct any such payments under Internal Revenue Code Section
162(m), such payments shall be made at the earliest time that the payments
would be deductible by the Company without limitation under Section 162(m)
(unless this provision is waived by the Company).
7. Termination of Employment For Reasons Other Than Normal
Retirement, Approved Early Retirement, Death or Disability
(a) Termination by the Company for Cause and Termination by
Executive Other Than For Good Reason. In accordance with the provisions of
this Section 7(a), the Company may terminate the employment of Executive as
Chief Executive Officer for Cause (as defined in Section 8(a)) at any time
prior to a Change in Control (as defined in Section 8(b)), and Executive may
terminate his employment as Chief Executive Officer voluntarily for reasons
other than Good Reason (as defined in Section 8(d)) at any time. An election
by Executive not to extend the Term pursuant to Section 2 hereof shall be
deemed to be a termination of this Agreement by Executive for reasons other
than Good Reason at the date of expiration of the Term, unless there occurs a
Change in Control prior to the date of expiration.
Upon a termination of Executive's employment by the Company for
Cause or by the Executive for reasons other than Good Reason, the Term will
immediately terminate, and all obligations of the Company and Executive under
Sections 1 through 5 of this Agreement will immediately cease, provided,
however, that, subject to the provisions of Section 12(i) the Company, shall
pay Executive, and Executive shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination of
employment, pro rated through such date of termination, will be
paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination of employment under any compensation and benefit
plans, programs, and arrangements set forth or referred to in
Sections 4(b) and 5(a) and 5(c) hereof (including any earned
annual incentive compensation and performance shares) in which
Executive theretofore participated will be paid under the terms
and conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's deferral
accounts under deferral arrangements authorized under Section 5(d)
hereof at the date of termination of employment (including cash
equal in value at that date to any shares of Common Stock credited
to Executive's deferral accounts), less applicable withholding
taxes under Section 12(i); provided, however, that the Company may
instead settle such accounts by directing the Trustee to
distribute the assets of the "rabbi trust." Such amounts shall be
paid or distributed as promptly as practicable following such date
of termination, without regard to any stated period of deferral
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otherwise remaining in respect of such amounts, and the payment of
such amounts shall be deemed to fully settle such accounts; and
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as
promptly as practicable after termination of Executive's employment; provided,
however, that, to the extent that the Company would not be entitled to deduct
any such payments under Internal Revenue Code Section 162(m), such payments
shall be made at the earliest time that the payments would be deductible by
the Company without limitation under Section 162(m) (unless this provision is
waived by the Company).
(b) Termination by the Company Without Cause and Termination by
Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of Executive as Chief Executive
Officer without Cause (as defined in Section 8(a)), including after a Change
in Control (as defined in Section 8(b)), upon 90 days' written notice to
Executive, and Executive may terminate his employment as Chief Executive
Officer for Good Reason (as defined in Section 8(d)) upon 90 days' written
notice to the Company; provided, however, that, if the basis for such Good
Reason is correctable, the Company has not corrected the basis for such Good
Reason within 30 days after receipt of such notice. The foregoing
notwithstanding, the Company may, in lieu of providing 90 days' written notice
to Executive, pay Executive his then-current annual base salary under Section
4(a) and credit Executive with service for 90 days for all purposes hereunder.
An election by the Company not to extend the Term pursuant to Section 2 hereof
shall be deemed to be a termination of this Agreement by the Company without
Cause at the date of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause or termination of Executive's employment by the Executive for
Good Reason, the Term will immediately terminate and all obligations of the
parties under Sections 1 through 5 of this Agreement will immediately cease,
except that subject to the provisions of Section 12(i) the Company shall pay
Executive, and Executive shall be entitled to receive, the following:
(i) In the event such termination is a termination by the Company
without Cause or a termination by Executive for Good Reason, a
lump sum cash payment in an amount equal to the sum of Executive's
annual base salary payable under Section 4(a) immediately prior to
termination plus the average annual incentive compensation paid to
Executive in the three years immediately preceding the year of
termination (or, if Executive was not eligible to receive or did
not receive such incentive compensation for any year in such three
year period, the Executive's target annual incentive compensation
for such year(s) shall be used to calculate average annual
incentive compensation) (such sum being the "total cash" for
purposes of this Section 7(b)(i)) multiplied by a number which is
the lesser of (A) 3.0, which payment shall be reduced pro rata to
the extent the number of full months remaining until Executive
attains age 65 is less than 36 months or (B) the number of years
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remaining in the Term without regard to such termination
(including any fraction determined based on the number of days
remaining in the year of termination), which payment shall be
reduced pro rata to the extent the number of full months remaining
until Executive attains age 65 is less than the number of months
remaining in the Term without regard to such termination; or
(ii) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination of
employment, pro rated through such date of termination, will be
paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the date of
termination of employment under any compensation and benefit
plans, programs, and arrangements set forth or referred to in
Sections 4(b) and 5(a) and (c) hereof (including any earned annual
incentive compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated (unless
otherwise payable under (iii) above), Executive will be paid an
amount equal to the average annual incentive compensation paid to
Executive in the three years immediately preceding the year of
termination (or, if Executive was not eligible to receive or did
not receive such incentive compensation for any year in such three
year period, the Executive's target annual incentive compensation
for such year(s) shall be used to calculate average annual
incentive compensation) multiplied by a fraction the numerator of
which is the number of days Executive was employed in the year of
termination and the denominator of which is the total number of
days in the year of termination;
(v) In lieu of any payment in respect of performance shares or other
compensatory long term incentive award granted in accordance with
Section 5(a) for any performance period not completed at the date
Executive's employment terminated (unless otherwise payable under
(iii) above), Executive will be paid in cash an amount equal to
the cash amount payable plus the value of any shares of Common
Stock or other property (valued at the date of termination)
payable upon achievement of the maximum performance in respect of
each tranche of such performance shares or other award without
pro-ration;
(vi) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs and the agreements and other documents thereunder
pursuant to which such stock options were granted;
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(vii) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e);
(ix) A lump-sum cash payment will be paid equal to the present value of
Executive's accrued benefit, if any, which shall be fully vested
at date of termination of employment, under all supplemental (non-
qualified) pension plans of the Company, unless such benefits are
fully funded based on assets held in trust for the benefit of
Executive which cannot be reached by creditors of the Company, or
such benefits are otherwise funded and secured in an equivalent
manner; and
(x) In the event such termination takes place after a Change in
Control, for a period of three years after such termination,
Executive shall continue to participate in all employee,
executive, and special individual benefit plans, programs, and
arrangements under Section 5(c) including but not limited to
health, medical, disability, life insurance, and pension benefits
in which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment with
the Company during such period or, if such plans, programs, or
arrangements do not allow Executive's continued participation, a
cash payment equivalent on an after-tax basis to the value of the
additional benefits Executive would have received under such
employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to termination, as
if Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination, with such benefits
payable by the Company at the same times and in the same manner as
such benefits would have been received by Executive under such
plans (it being understood that the value of any insurance-
provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a
carrier having an investment grade or better credit rating).
Amounts payable under (i), (ii), (iii), (iv), (v), (vii), (viii), and (ix)
above will be paid as promptly as practicable after termination of Executive's
employment, and in no event more than 45 days after such termination;
provided, however, that, if such termination is a termination by the Company
without Cause and prior to a Change in Control, to the extent that the Company
would not be entitled to deduct any such payments under Internal Revenue Code
Section 162(m), such payments shall be made at the earliest time that the
payments would be deductible by the Company without limitation under Section
162(m) (unless this provision is waived by the Company), but in no event later
than twelve months subsequent to the date of termination.
8. Definitions Relating to Termination Events.
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(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition,
"gross misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the
Company and its subsidiaries or materially impairs the value of the
Executive's services to the Company, or (B) willfully engaging in one or more
acts, or willfully omitting to act in accordance with duties hereunder, which
is demonstrably and materially damaging to the Company and its subsidiaries,
including acts and omissions that constitute gross negligence in the
performance of Executive's duties under this Agreement. For purposes of this
Agreement, an act or failure to act on Executive's part shall be considered
"willful" if it was done or omitted to be done by him not in good faith, and
shall not include any act or failure to act resulting from any incapacity of
Executive. Notwithstanding the foregoing, Executive may not be terminated for
Cause unless and until there shall have been delivered to him, within six
months after the Board (A) had knowledge of conduct or an event allegedly
constituting Cause and (B) had reason to believe that such conduct or event
could be grounds for Cause, a copy of a resolution duly adopted by a majority
affirmative vote of the membership of the Board (excluding Executive) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such termination
and not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with his
counsel, to be heard before the Board) finding that, in the good faith opinion
of the Board, Executive was guilty of conduct set forth above in this Section
8(a).
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the shares
of Common Stock of the Company then outstanding (the "Company
Common Stock Outstanding") or the voting securities of the Company
then outstanding entitled to vote generally in the election of
directors (the "Company Voting Securities Outstanding"); provided,
however, that such acquisition of Beneficial Ownership would
result in the Person's Beneficially Owning twenty-five percent
(25%) or more of the Company Common Stock Outstanding or twenty-
five percent (25%) or more of the combined voting power of the
Company Voting Securities Outstanding; and provided further, that
immediately prior to such acquisition such Person was not a direct
or indirect Beneficial Owner of twenty-five percent (25%) or more
of the Company Common Stock Outstanding or twenty-five percent
(25%) or more of the combined voting power of Company Voting
Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this Section
8(b) as a "Corporate Transaction") or, if consummation of such
Corporate Transaction is subject, at the time of such approval by
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stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or
implicitly); or
(iii) A change in the composition of the Board such that the individuals
who, as of the Effective Date, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this Section 8(b), that any
individual who becomes a member of the Board subsequent to the
Effective Date whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided,
further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act, including any successor to
such Rule) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and
the combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in substan-
tially the same proportions as their ownership, immediately prior to such
acquisition or Corporate Transaction, of the Company Common Stock Outstanding
and Company Voting Securities Outstanding, as the case may be; or (3) any
transaction initiated or controlled, directly or indirectly, by Executive, in
a capacity other than as Chairman of the Board, Chief Executive Officer, or a
director of the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning," and
"Beneficial Ownership" shall have the meanings ascribed to
such terms in Rule 13d-3 under the Exchange Act (including
any successor to such Rule).
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(B) The term "Exchange Act" means the Securities Exchange Act
of 1934, as amended from time to time, or any successor act
thereto.
(C) The term "Person" shall have the meaning ascribed to such
term in Section 3(a)(9) of the Exchange Act and used in
Sections 13(d) and 14(d) thereof, including "group" as
defined in Section 13(d) thereof.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of
any physical or mental incapacity or disability as determined by a physician
or physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed termination due to such absence, Executive shall have
returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by the Company and reasonably acceptable to
Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's prior written consent, (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices as
set forth in Section 3(a), status, rank, nature of responsibilities, or
authority within the Company, or a removal of Executive from or any failure to
elect or re-elect or, as the case may be, nominate Executive to any such
positions or offices, including as Chairman of the Board or as a member of any
committee of the Board of Directors upon which Executive has served under
Section 3(a), except in connection with the termination of Executive's
employment for Cause, Disability, Normal Retirement or Approved Early
Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive which are inconsistent
with his status as Chairman of the Board and Chief Executive Officer of the
Company and other positions held under Section 3(a), (C) a decrease in annual
base salary or other compensation opportunities and maximums or benefits
provided under this Agreement, (D) any other failure by the Company to perform
any material obligation under, or breach by the Company of any material
provision of, this Agreement, (E) a relocation of the Corporate Offices of the
Company more than 35 miles from the latest location of such offices prior to
the date of a Change in Control, (F) any failure to secure the agreement of
any successor corporation or other entity to the Company to fully assume the
Company's obligations under this Agreement in a form reasonably acceptable to
Executive, and (G) any attempt by the Company to terminate Executive for Cause
which does not result in a valid termination for Cause, except in the case
that valid grounds for termination for Cause exist but are corrected as
permitted under Section 8(a).
9. Excise Tax Gross-Up.
In the event that there shall occur a Change in Control of the
Company, if Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property), whether pursuant to the terms of this Agreement
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or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest
thereon) on the Total Payments and any federal, state and local income or
employment tax and Excise Tax on the Gross-up Payment provided for by this
Section 9, but before reduction for any federal, state, or local income or
employment tax on the Total Payments, shall be equal to the sum of (a) the
Total Payments, and (b) an amount equal to the product of any deductions
disallowed for federal, state, or local income tax purposes because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income
multiplied by the highest applicable marginal rate of federal, state, or local
income taxation, respectively, for the calendar year in which the Gross-up
Payment is to be made.
For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent compensation
consultants or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and
reasonably acceptable to Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code or are otherwise not subject
to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the total
amount of excess parachute payments within the meaning of
section 280G(b)(1) of the Code (after applying clause (i)
above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
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marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time the Gross-up Payment is made,
Executive shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined (but, if previously paid to the
taxing authorities, not prior to the time the amount of such reduction is
refunded to Executive or otherwise realized as a benefit by Executive) the
portion of the Gross-up Payment that would not have been paid if such Excise
Tax had been applied in initially calculating the Gross-up Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the Gross-up
Payment is made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-up Payment), the Company
shall make an additional Gross-up Payment in respect of such excess (plus any
interest and penalties payable with respect to such excess) at the time that
the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or
any portion thereof) are subject to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to Executive on such
day an estimate, as determined by the Independent Advisors, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as
soon as the amount thereof can be determined. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to Executive, payable
on the fifth day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-
up Payment is made, the amount of each Gross-up Payment shall be computed so
as not to duplicate any prior Gross-up Payment. The Company shall have the
right to control all proceedings with the Internal Revenue Service that may
arise in connection with the determination and assessment of any Excise Tax
and, at its sole option, the Company may pursue or forego any and all
administrative appeals, proceedings, hearings, and conferences with any taxing
authority in respect of such Excise Tax (including any interest or penalties
thereon); provided, however, that the Company's control over any such
proceedings shall be limited to issues with respect to which a Gross-up
Payment would be payable hereunder, and Executive shall be entitled to settle
or contest any other issue raised by the Internal Revenue Service or any other
taxing authority. Executive shall cooperate with the Company in any
proceedings relating to the determination and assessment of any Excise Tax and
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shall not take any position or action that would materially increase the
amount of any Gross-Up Payment hereunder.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive
will not, for a period of two years thereafter, acting alone or in conjunction
with others, directly or indirectly (i) engage (either as owner, investor,
partner, stockholder, employer, employee, consultant, advisor, or director) in
any business in the continental United States in which he has been directly
engaged on behalf of the Company or any subsidiary, or has supervised as an
executive thereof, during the last two years prior to such termination and
which is directly in competition with a business then conducted by the Company
or any of its subsidiaries, other than engaging in the businesses owned or
controlled by FII (excluding those of the Company and its subsidiaries) or FI
(excluding those of the Company and its subsidiaries) at the date of
termination, or providing services through FII to businesses for which FII
provided services at the date of termination; (ii) induce any customers of the
Company or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his or
her employment with the Company or any of its subsidiaries, to curtail or
cancel their business with such companies or any of them; or (iii) induce, or
attempt to influence, any employee of the Company or any of its subsidiaries
to terminate employment; provided, however, that the limitation contained in
clause (i) above shall not apply if Executive's employment is terminated as a
result of a termination by the Company without Cause following a Change in
Control or a termination by Executive for Good Reason. The provisions of
subparagraphs (i), (ii), and (iii) above are separate and distinct commitments
independent of each of the other subparagraphs. It is agreed that the
ownership of not more than one percent of the equity securities of any company
having securities listed on an exchange or regularly traded in the over-the-
counter market shall not, of itself, be deemed inconsistent with clause (i) of
this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company and its subsidiaries so long as such
information has not otherwise been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including
following Executive's termination of employment for any reason), by making
himself available to testify on behalf of the Company or any subsidiary or
affiliate of the Company, in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, and to assist the Company, or any
subsidiary or affiliate of the Company, in any such action, suit, or pro-
ceeding, by providing information and meeting and consulting with the Board or
its representatives or counsel, or representatives or counsel to the Company,
or any subsidiary or affiliate of the Company, as requested. The Company
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agrees to reimburse the Executive, on an after-tax basis, for all expenses
actually incurred in connection with his provision of testimony or assistance.
(d) Release of Employment Claims. Executive agrees, as a
condition to receipt of the termination payments and benefits provided for in
Sections 6 and 7 herein, that he will execute a release agreement, in a form
satisfactory to the Company, releasing any and all claims arising out of
Executive's employment (other than enforcement of this Agreement).
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and
regulations may be applicable. If under the governing law, any portion of
this Agreement is at any time deemed to be in conflict with any applicable
statute, rule, regulation, ordinance, or other principle of law, such portion
shall be deemed to be modified or altered to the extent necessary to conform
thereto or, if that is not possible, to be omitted from this Agreement. The
invalidity of any such portion shall not affect the force, effect, and
validity of the remaining portion hereof. If any court determines that any
provision of Section 10 is unenforceable because of the duration or geographic
scope of such provision, it is the parties' intent that such court shall have
the power to modify the duration or geographic scope of such provision, as the
case may be, to the extent necessary to render the provision enforceable and,
in its modified form, such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to
Executive promptly by the Company, whether or not Executive is successful in
asserting such rights; provided, however, that no reimbursement shall be made
of such expenses relating to any unsuccessful assertion of rights if and to
the extent that Executive's assertion of such rights was in bad faith or
frivolous, as determined by independent counsel mutually acceptable to the
Executive and the Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration
in Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts
of the State of Illinois, or (iii) any other court having jurisdiction. The
Company and Executive further agree that any service of process or notice
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requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it may now or hereafter have to such jurisdiction and any
defense of inconvenient forum. The Company and Executive hereby agree that a
judgment upon an award rendered by the arbitrators may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Subject to Section 11(b), the Company shall bear all costs and expenses
arising in connection with any arbitration proceeding pursuant to this Section
11. Notwithstanding any provision in this Section 11, Executive shall be
entitled to seek specific performance of Executive's right to be paid during
the pendency of any dispute or controversy arising under or in connection with
this Agreement.
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest at the prime rate in effect at the time such
payment first becomes payable, as quoted by the Bankers Trust Company.
12. Miscellaneous.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with
respect to the employment of Executive by the Company and its subsidiaries,
except for contracts relating to compensation under executive compensation and
employee benefit plans of the Company and its subsidiaries. This Agreement
(together with the Option Agreement ) constitutes the entire agreement among
the parties with respect to the matters herein provided, and no modification
or waiver of any provision hereof shall be effective unless in writing and
signed by the parties hereto. Executive shall not be entitled to any payment
or benefit under this Agreement which duplicates a payment or benefit received
or receivable by Executive under such prior agreements and understandings or
under any benefit or compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation
of law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a
condition of the succession, require such Successor to agree to assume the
Company's obligations and be bound by this Agreement. For purposes of this
Agreement, "Successor" shall mean any person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's voting securities or all or substantially all of its
assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
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beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by
Federal Express or other similar overnight service or by certified or
registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:
If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
William Farley
209 East Lake Shore Drive
Chicago, Illinois 60611
If the parties by mutual agreement supply each other with telecopier numbers
for the purposes of providing notice by facsimile, such notice shall also be
proper notice under this Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect
the right of such party to require such performance or to resort to such
remedy at any time thereafter, nor shall the waiver by any party of a breach
of any of the provisions hereof be deemed to be a waiver of any subsequent
breach of such provisions. No such waiver shall be effective unless in
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writing and signed by the party against whom such waiver is sought to be
enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that
are substantially similar to the benefits referred to in Section 5(c) hereof,
any such benefits to be provided by the Company to Executive following the
Term shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by
the Company to Executive pursuant to this Agreement shall not be subject to
offset other than with respect to any amounts that are owed to the Company by
Executive due to his receipt of funds as a result of his fraudulent activity.
The foregoing and other provisions of this Agreement notwithstanding, all
payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
13. Indemnification.
All rights to indemnification by the Company now existing in favor
of the Executive as provided in the Company's Certificate of Incorporation or
By-Laws or pursuant to other agreements in effect on or immediately prior to
the Effective Date shall continue in full force and effect from the Effective
Date (including all periods after the expiration of the Term), and the Company
shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that the Executive provide an
undertaking to repay such advances if it is ultimately determined that the
Executive is not entitled to indemnification; provided, however, that any
determination required to be made with respect to whether the Executive's
conduct complies with the standards required to be met as a condition of
indemnification or advancement of expenses under applicable law and the
Company's Certificate of Incorporation, By-Laws, or other agreement shall be
made by independent counsel mutually acceptable to the Executive and the
Company (except to the extent otherwise required by law). After the date
hereof, the Company shall not amend its Certificate of Incorporation or By-
Laws or any agreement in any manner which adversely affects the rights of the
Executive to indemnification thereunder. Any provision contained herein
notwithstanding, this Agreement shall not limit or reduce any rights of the
Executive to indemnification pursuant to applicable law. In addition, the
Company will maintain directors' and officers' liability insurance in effect
and covering acts and omissions of Executive during the Term and for a period
of six years thereafter on terms substantially no less favorable as those in
effect on the Effective Date.
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IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
FRUIT OF THE LOOM, INC.
By: /S/ Burgess D. Ridge
Name: Burgess D. Ridge
Title: Vice President - Administration
EXECUTIVE
/S/ William Farley
William Farley
<PAGE> 93
CONFORMED COPY
FRUIT OF THE LOOM, INC.
Employment Agreement for John B. Holland
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<PAGE> 94
FRUIT OF THE LOOM, INC.
Employment Agreement for John B. Holland
1. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
3. Offices and Duties . . . . . . . . . . . . . . . . . . . . . . . . . 95
4. Salary and Annual Incentive Compensation . . . . . . . . . . . . . . 96
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement . . . . . . . . . . 97
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability . . . . . . . . . . . . . . . . . . . . . . . . 100
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability . . . . . . . . . . . 102
8. Definitions Relating to Termination Events. . . . . . . . . . . . . 107
9. Excise Tax Gross-Up . . . . . . . . . . . . . . . . . . . . . . . . 109
10. Non-Competition and Non-Disclosure; Executive Cooperation . . . . . 112
11. Governing Law; Disputes; Arbitration . . . . . . . . . . . . . . . . 113
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
13. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 116
<PAGE>
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of the 28th day of March,
1995, by and between FRUIT OF THE LOOM, INC., a Delaware corporation (the
"Company") and John B. Holland ("Executive"), and shall become effective as
of December 18, 1994 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has served as a senior executive of the
Company; and
WHEREAS, the Company desires to continue to employ Executive in a
senior executive capacity in connection with the conduct of its businesses,
and Executive desires to accept such employment by the Company on the terms
and conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the terms
upon which Executive shall be so employed by the Company.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby
acknowledge, the Company and Executive hereby agree as follows:
1. Employment
The Company hereby agrees to employ Executive as a senior
executive and Executive hereby agrees to accept such employment and serve in
such capacity, during the Term as defined in Section 2 and upon the terms and
conditions set forth in this Employment Agreement (this "Agreement").
2. Term.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating
on December 17, 1997 and any period of extension thereof in accordance with
this Section 2, subject to earlier termination in accordance with Section 6 or
7. The Term shall be extended automatically without further action by either
party for the one-year period beginning on December 18, 1997 and each
succeeding December 18 thereafter, unless either party shall have served
written notice in accordance with the provisions of Section 12(d) upon the
other party on or prior to the June 30 preceding a date upon which such
extension would become effective electing not to extend the Term further as of
the December 18 next succeeding the date such notice is served, in which case
the Term shall terminate at the next December 17 (subject to earlier
termination in accordance with Section 6 or 7).
3. Offices and Duties.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as President and Chief
Operating Officer of the Company, and, if elected, to serve as a member of the
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Board of Directors of the Company (the "Board") and for so long as he is
serving on the Board, Executive agrees to serve as a member of any Board
Committee if the Board shall elect Executive to such position. Executive
shall perform such duties and responsibilities and authorities as are
substantially consistent with his duties, responsibilities, authorities, rank
and status as of the Effective Date. Executive shall devote full business
time and attention, and his best efforts, abilities, experience, and talent to
the performance of such duties and responsibilities for the businesses of the
Company and its subsidiaries; provided, however, that nothing in this
Agreement shall preclude or prohibit Executive from engaging in other
activities to the extent that such other activities do not preclude
Executive's employment or otherwise inhibit the performance of Executive's
duties and responsibilities under this Agreement or conflict with the
businesses of the Company or its subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be his present headquarters location or such other
headquarters location as may be assigned by the Company.
4. Salary and Annual Incentive Compensation.
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4.
(a) Base Salary. The Company will pay to Executive during the
Term a base salary at the annual rate in effect at the Effective Date, payable
in cash in substantially equal monthly installments during each calendar year,
or portion thereof, of the Term and otherwise in accordance with the Company's
usual payroll practices with respect to senior executives (except to the
extent deferred under Section 5(d)). Executive's annual base salary shall be
reviewed by the Company at least once in each calendar year and may be
increased above, but may not be reduced below, the then-current rate of such
base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Fruit of the Loom 1995 Executive Incentive Compensation Plan (subject
to stockholder approval thereof) (the "1995 EICP"), the Company's Executive
Incentive Compensation Plan (the "EICP") if the 1995 EICP is not approved by
stockholders, and any successor to the 1995 EICP or the EICP, which shall
offer to Executive an opportunity to earn additional compensation in amounts
determined by and in the sole discretion of the Compensation Committee of the
Company's Board of Directors (the "Committee"), in accordance with the
applicable plan and consistent with past practices of the Company; provided,
however, that the Company will use its best efforts to maintain in effect, for
each year during the Term, the 1995 EICP, the EICP (if the 1995 EICP is not
approved by stockholders), or an equivalent plan under which Executive will be
eligible for an award not less than the opportunity level assigned to him
under the 1995 EICP or the EICP during 1995 (if the 1995 EICP is not approved
by stockholders) to senior executives in similar capacities. Any such annual
incentive compensation payable to Executive shall be paid in accordance with
the Company's usual practices with respect to payment of incentive
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compensation of senior executives (except to the extent deferred under Section
5(d)).
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation
by senior executives of the Company, as presently in effect or as they may be
modified or added to by the Company from time to time, subject to the
eligibility and other requirements of such plans and programs, including
without limitation the long-term incentive features of the 1995 EICP, the EICP
(if the 1995 EICP is not approved by stockholders), any successor to such
plans, and other stock option plans, performance share plans, management
incentive plans, deferred compensation plans, and supplemental retirement
plans; provided, however, that such compensation plans and programs, in the
aggregate, shall provide Executive with benefits and compensation and
incentive award opportunities substantially no less favorable than those
provided by the Company under such plans and programs to senior executives in
similar capacities. For purposes of this Agreement, all references to
"performance share plans" and "performance shares" refer to such arrangements
under the 1995 EICP or the EICP and to any performance shares, performance
units, stock grants, or other long-term incentive arrangements adopted as a
successor or replacement to performance shares under such plans or other plans
of the Company.
(b) Stock Option Grant Upon Signing Agreement. In addition to
the compensation otherwise specified under Sections 4 and 5, the Company has
granted to Executive, as of December 18, 1994 and conditioned upon Executive's
execution of this Agreement, a non-qualified stock option to purchase 150,000
shares of the Company's Class A Common Stock (the "1995 Option"), under the
1995 EICP, subject to stockholder approval of the 1995 EICP at the Company's
1995 Annual Meeting of Stockholders. The 1995 Option shall be evidenced by,
and have the terms set forth in, the option agreement attached as Exhibit A
hereto (the "Option Agreement"), which has been authorized and approved by the
Committee under the 1995 EICP.
Not later than such time as the 1995 Option, becomes exercisable,
the Company will have filed with the Securities and Exchange Commission, and
will thereafter maintain the effectiveness of, a registration statement
registering under the Securities Act of 1933, as amended, the offer and sale
of shares by the Company pursuant to the 1995 Option, which registration
statement shall include a resale prospectus covering the reoffer and resale
(or other disposition) of all shares acquired by Executive upon exercise of
the 1995 Option, and the Company will maintain as current all offering
materials under such registration statement at all times that offers and sales
of such shares could be made by the Company or Executive.
(c) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or
duplication, in all employee and executive benefit plans and programs of the
Company, as presently in effect or as they may be modified or added to by the
Company from time to time, to the extent such plans are available to similarly
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situated senior executives or employees of the Company, subject to the
eligibility and other requirements of such plans and programs, including
without limitation plans providing pensions, other retirement benefits,
medical insurance, life insurance, disability insurance, and accidental death
or dismemberment insurance, and participation in savings, profit-sharing, and
stock ownership plans; provided, however, that such benefit plans and
programs, in the aggregate, shall provide Executive with benefits
substantially no less favorable than those provided by the Company to senior
executives in similar capacities.
In furtherance of and not in limitation of the foregoing, during
the Term:
(i) Executive will participate in all executive and employee vacation
and time-off programs;
(ii) The Company will provide Executive with coverage by long-term
disability insurance and benefits substantially no less favorable
(including any required contributions by Executive) than such
insurance and benefits provided to Executive at January 1, 1995;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit of not less than
four times Executive's annual base salary under Section 4(a);
provided, however, that such insurance may be combined with a
supplementary retirement funding vehicle;
(iv) Under the Company's pension plans (including supplemental plans):
(A) Executive will be entitled to benefits substantially no less
favorable than those under such plans and programs of the Company
as in effect at January 1, 1995; (B) for purposes of calculating
such benefits Executive's compensation covered by such plans will
include 100% of annual base salary paid under Section 4(a) and no
less than 50% of annual incentive compensation paid under Section
4(b), and Executive will be retroactively credited as of January
1, 1995 with 12 years of service under such plans, which shall all
be fully vested upon such crediting, and shall be credited for
each full calendar year of the Term that is completed up to five
years, with one additional year of service up to five additional
years under such plans, which shall be fully vested upon such
crediting; and (C) amounts equal to the present value of
Executive's accrued benefit vested at any time during the Term,
under all supplemental (non-qualified) pension plans of the
Company, will be fully funded by the Company in an irrevocable
"rabbi trust"; and
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior executives,
subject to a lifetime maximum amount of supplemental
reimbursements of $750,000; provided, however, that supplemental
health and medical benefits shall provide for reimbursement of
Executive to the extent that any limitation on maximum lifetime
health and medical benefits and reimbursements under other Company
policies and programs is exceeded.
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(d) Deferral of Compensation. The Company shall implement
deferral arrangements permitting Executive to elect to irrevocably defer
receipt, pursuant to written deferral election terms and forms (the "Deferral
Election Forms"), of all or a specified portion of (i) his annual base salary
and annual incentive compensation under Section 4, (ii) long-term incentive
compensation under Sections 5(a) and 5(b) (including payouts relating to
performance shares), and (iii) shares acquired upon exercise of options
granted under Sections 5(a) and (b) that are acquired in an exercise in which
Executive pays the exercise price by the surrender of previously acquired
shares, to the extent of the net additional shares acquired by Executive in
such exercise; provided, however, that such deferrals shall not reduce Execu-
tive's total cash compensation in any calendar year below the sum of (i) the
FICA maximum taxable wage base plus (ii) 1.45% of Executive's salary, annual
incentive compensation and long-term incentive compensation in excess of such
FICA maximum. In addition, the Committee may require mandatory deferral of
amounts payable as annual incentive compensation under Section 4(b) or
long-term incentive compensation under Sections 5(a) and (b), which deferrals
will otherwise be in accordance with this Section 5(d).
In accordance with such duly executed Deferral Election Forms or
the terms of any mandatory deferral, the Company shall , in lieu of payment by
the Company to Executive, credit to one or more bookkeeping accounts
maintained for Executive, on the respective date or dates payments would
otherwise be due to Executive, amounts equal to the compensation subject to
deferral, such credits to be denominated in cash if the compensation would
have been paid in cash but for the deferral or in shares if the compensation
would have been paid in shares but for the deferral. An amount of cash equal
in value to all cash-denominated amounts credited to Executive's account and a
number of shares of Common Stock equal to the number of shares credited to
Executive's account pursuant to this Section 5(d) shall be transferred as soon
as practicable following such crediting by the Company to, and shall be held
and invested by, an independent trustee selected by the Company (a "Trustee")
pursuant to a "rabbi trust" established by the Company in connection with such
deferral arrangement and as to which the Trustee shall make investments based
on Executive's investment objectives (including possible investment in
publicly traded stocks and bonds, mutual funds, and insurance vehicles).
Thereafter, Executive's deferral accounts will be valued by reference to the
value of the assets of the "rabbi trust"; provided, however, that a portion of
the assets of the "rabbi trust" may be used to reimburse the Company for its
reasonable cost of funds resulting from payment of taxes by the Company
relating to such rabbi trust assets during the period of deferral and prior to
the settlement of Executive's deferral accounts. The Company shall pay all
other costs of administration of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or the terms of any mandatory deferral,
the Company shall promptly pay to Executive cash equal to the cash then
credited to Executive's deferral accounts and cash equal in value to any
shares of Common Stock then credited to Executive's deferral accounts, less
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applicable withholding taxes, and such distribution shall be deemed to fully
settle such accounts; provided, however, that the Company may instead settle
such accounts by directing the Trustee to distribute the assets of the "rabbi
trust." The Company and Executive agree that compensation deferred pursuant
to this Section 5(d) shall be fully vested and nonforfeitable; provided,
however, Executive acknowledges that his rights to the deferred compensation
provided for in this Section 5(d) shall be no greater than those of a general
unsecured creditor of the Company, and that such rights may not be pledged,
collateralized, encumbered, hypothecated, or liable for or subject to any
lien, obligation, or liability of Executive, or be assignable or transferable
by Executive, otherwise than by will or the laws of descent and distribution,
provided that Executive may designate one or more beneficiaries to receive any
payment of such amounts in the event of his death.
(e) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability
Executive may terminate employment with the Company upon
Executive's retirement at or after age 65 ("Normal Retirement") or, if
approved in advance by the Committee, upon Executive's early retirement prior
to age 65 ("Approved Early Retirement"). The Company may terminate the
employment of Executive due to the Disability (as defined in Section 8(c)) of
Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In
the event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred to in the definition
of Disability (set forth in Section 8(c)) absent the actions referred to
therein being taken by Executive to return to service and present to the
Company a certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations
of the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease; provided, however, that subject to the provisions of
Section 12(c), the Company will pay Executive (or his beneficiaries or
estate), and Executive (or his beneficiaries or estate) will be entitled to
receive, the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination of
employment, pro rated through such date of termination, will be
paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination of employment under any compensation and benefit
plans, programs, and arrangements set forth or referred to in
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Sections 4(b) and 5(a) and (c) hereof (including any earned annual
incentive compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated (unless
otherwise payable under (ii) above), Executive will be paid an
amount equal to the average annual incentive compensation paid to
Executive in the three years immediately preceding the year of
termination (or, if Executive was not eligible to receive or did
not receive such incentive compensation for any year in such three
year period, the Executive's target annual incentive compensation
for such year(s) shall be used to calculate average annual
incentive compensation) multiplied by a fraction the numerator of
which is the number of days Executive was employed in the year of
termination and the denominator of which is the total number of
days in the year of termination;
(iv) In lieu of any payment in respect of performance shares granted in
accordance with Section 5(a) for any performance period not
completed at the date Executive's employment terminated (unless
otherwise payable under (ii) above), Executive will be paid in
cash an amount equal to the cash amount payable plus the value of
any shares of Common Stock or other property (valued at the date
of termination) payable upon achievement of (A) the maximum
performance, in the case of death or Disability, or (B) target
performance, in the case of Normal Retirement or Early Retirement,
in respect of each tranche of performance shares, multiplied by a
fraction the numerator of which is the number of days Executive
was employed during the respective performance period and the
denominator of which is the total number of days in such
performance period;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs and the agreements and other documents thereunder
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e); and
(viii) If Executive's employment terminates due to Disability, for the
period extending from such termination until Executive reaches age
65, Executive shall continue to participate in all employee
benefit plans, programs, and arrangements under Section 5(c)
providing health, medical, and life insurance and pension benefits
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in which Executive was participating immediately prior to
termination, the terms of which allow Executive's continued
participation, as if Executive had continued in employment with
the Company during such period or, if such plans, programs, or
arrangements do not allow Executive's continued participation, a
cash payment equivalent on an after-tax basis to the value of the
additional benefits Executive would have received under such
employee benefit plans, programs, and arrangements in which
Executive was participating immediately prior to termination, as
if Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination, with such benefits
payable by the Company at the same times and in the same manner as
such benefits would have been received by Executive under such
plans (it being understood that the value of any
insurance-provided benefits will be based on the premium cost to
Executive, which shall not exceed the highest risk premium charged
by a carrier having an investment grade or better credit rating);
provided further, that, in the case of termination of Executive's employment
due to Disability, Executive must continue to satisfy the conditions set forth
in Section 10 in order to continue receiving the compensation and benefits
under (viii), above. Amounts payable under (i), (ii), (iii), (iv), and (vii)
above will be paid as promptly as practicable after Executive's termination of
employment; provided, however, to the extent that or the Company would not be
entitled to deduct any such payments under Internal Revenue Code Section
162(m), such payments shall be made at the earliest time that the payments
would be deductible by the Company without limitation under Section 162(m)
(unless this provision is waived by the Company).
7. Termination of Employment For Reasons Other Than Normal
Retirement, Approved Early Retirement, Death or Disability
(a) Termination by the Company for Cause and Termination by
Executive. In accordance with the provisions of this Section 7(a), the
Company may terminate the employment of Executive with the Company for Cause
(as defined in Section 8(a)) at any time prior to a Change in Control (as
defined in Section 8(b)), and Executive may terminate his employment with the
Company voluntarily at any time (for reasons other than Good Reason following
a Change in Control as defined in Sections 8(b) and (d)). An election by
Executive not to extend the Term pursuant to Section 2 hereof shall be deemed
to be a voluntary termination of such employment by Executive at the date of
expiration of the Term, unless there occurs a Change in Control prior to the
date of expiration.
Upon a termination of Executive's employment by the Company for
Cause or voluntarily termination by Executive for reasons other than Good
Reason following a Change in Control, the Term will immediately terminate, and
all obligations of the Company under Sections 1 through 5 of this Agreement
will immediately cease; provided, however, that subject to the provisions of
Section 12(c), the Company shall pay Executive, and Executive shall be
entitled to receive, the following:
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(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination of
employment, pro rated through such date of termination, will be
paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination of employment under any compensation and benefit
plans, programs, and arrangements set forth or referred to in
Sections 4(b) and 5(a) and 5(c) hereof (including any earned
annual incentive compensation and performance shares) in which
Executive theretofore participated will be paid under the terms
and conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's deferral
accounts under deferral arrangements authorized under Section 5(d)
hereof at the date of termination of employment (including cash
equal in value at that date to any shares of Common Stock credited
to Executive's deferral accounts), less applicable withholding
taxes under Section 12(i); provided, however, that the Company may
instead settle such accounts by directing the Trustee to
distribute the assets of the "rabbi trust." Such amounts shall be
paid or distributed as promptly as practicable following such date
of termination, without regard to any stated period of deferral
otherwise remaining in respect of such amounts, and the payment of
such amounts shall be deemed to fully settle such accounts; and
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as
promptly as practicable after termination of Executive's employment; provided,
however, to the extent that the Company would not be entitled to deduct any
such payments under Internal Revenue Code Section 162(m), such payments shall
be made at the earliest time that the payments would be deductible by the
Company without limitation under Section 162(m) (unless this provision is
waived by the Company).
(b) Termination by the Company Without Cause and Termination by
Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of the Executive without Cause
(as defined in Section 8(a)), including after a Change in Control (as defined
in Section 8(b)), upon 90 days' written notice to Executive, and Executive may
terminate his employment for Good Reason (as defined in Section 8(d))
following a Change in Control upon 90 days' written notice to the Company;
provided, however, that, if the basis for such Good Reason is correctable, the
Company has not corrected the basis for such Good Reason within 30 days after
receipt of such notice. The foregoing notwithstanding, the Company may, in
lieu of providing 90 days' written notice to Executive, pay Executive his
then-current annual base salary payable under Section 4(a) and credit
Executive with service for 90 days for all purposes hereunder. An election by
the Company not to extend the Term pursuant to Section 2 hereof shall be
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deemed to be a termination of employment by the Company without Cause at the
date of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause prior to or following a Change in Control or termination of
Executive's employment by Executive for Good Reason following a Change in
Control, the Term will immediately terminate and all obligations of the
Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, except that subject to the provisions of Section 12(c) the
Company shall pay Executive, and Executive shall be entitled to receive, the
following:
(i) A lump-sum cash payment will be paid as follows:
(A) In the event such termination is a termination by the
Company without Cause following a Change in Control or a
termination by Executive for Good Reason following a Change
in Control, an amount equal to the sum of Executive's
annual base salary payable under Section 4(a) immediately
prior to termination plus the average annual incentive
compensation paid to Executive in the three years
immediately preceding the year of termination (or, if
Executive was not eligible to receive or did not receive
such incentive compensation for any year in such three year
period, the Executive's target annual incentive
compensation for such year(s) shall be used to calculate
average annual incentive compensation) (such sum being the
"total cash" for purposes of this Section 7(b)(i))
multiplied by a number which is the greater of the number
of years (including any fraction determined based on the
number of days remaining in the year of termination)
remaining in the term without regard to such termination or
2.0, which payment shall be reduced pro rata to the extent
the number of full months remaining until Executive attains
age 65 is less than 24 months, plus, in lieu of any payment
in respect of performance shares or other long term
incentive awards granted in accordance with Section 5(a)
for any performance period not completed at the date of
Executive's termination (unless otherwise payable under
(iii) below), an amount equal to the cash amount payable
plus the value of any shares of Common Stock or other
property (valued at the date of termination) payable upon
the achievement of maximum performance in respect of each
tranche of performance shares without proration; or
(B) In the event such termination is a termination by the
Company without Cause prior to a Change in Control, an
amount equal to then-current annual base salary payable
under Section 4(a) multiplied by 2.0, which payment shall
be reduced pro rata to the extent the number of full months
remaining until Executive attains age 65 is less than 24
months, plus, in lieu of any payment in respect of
performance shares or other long term incentive awards
granted in accordance with Section 5(a) for any performance
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period not completed at the date of Executive's termination
(unless otherwise payable under (iii) below), Executive
will be paid in cash an amount equal to the cash amount
payable plus the value of any shares of Common Stock or
other property (valued at the date of termination) payable
upon achievement of the greater of target performance or
actual performance achieved at the date of termination in
respect of each tranche of performance shares, multiplied
by a fraction the numerator of which is the number of days
Executive was employed during the respective performance
period and the denominator of which is the total number of
days in such performance period;
(ii) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination of
employment, pro rated through such date of termination, will be
paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the date of
termination of employment under any compensation and benefit
plans, programs, and arrangements set forth or referred to in
Sections 4(b) and 5(a) and (c) hereof (including any earned annual
incentive compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment terminated (unless
otherwise payable under (iii) above), Executive will be paid an
amount equal to the average annual incentive compensation paid to
Executive in the three years immediately preceding the year of
termination (or, if Executive was not eligible to receive or did
not receive such incentive compensation for any year in such three
year period, the Executive's target annual incentive compensation
for such year(s) shall be used to calculate average annual
incentive compensation) multiplied by a fraction the numerator of
which is the number of days Executive was employed in the year of
termination and the denominator of which is the total number of
days in the year of termination;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs (and the agreements and other documents thereunder)
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral; provided, however, in the
event of a termination by the Company without Cause prior to a
Change in Control, a cash amount will be paid equal to the amount
credited to Executive's deferral accounts under deferral
arrangements authorized under Section 5(d) hereof at the date of
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termination of employment (including cash equal in value at that
date to any shares of Common Stock credited to Executive's
deferral accounts), less applicable withholding taxes under
Section 12(i); provided, however, that the Company may instead
settle such accounts by directing the Trustee to distribute the
assets of the "rabbi trust." Such amounts shall be paid or
distributed as promptly as practicable following such date of
termination, without regard to any stated period of deferral
otherwise remaining in respect of such amounts, and the payment of
such amounts shall be deemed to fully settle such accounts;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e);
(viii) In the event such termination is a termination by or the Company
without Cause or a termination by Executive for Good Reason, a
lump-sum cash payment will be paid equal to the present value of
Executive's accrued benefit, if any, which shall be fully vested
at date of termination of employment, under all supplemental
(non-qualified) pension plans of the Company, unless such benefits
are fully funded based on assets held in trust for the benefit of
Executive which cannot be reached by creditors of the Company, or
such benefits are otherwise funded and secured in an equivalent
manner; and
(ix) In the event such termination is a termination by the Company
without cause following a Change in Control or a termination by
Executive for Good Reason following a Change in Control, for a
period of two years after such termination, Executive shall
continue to participate in all employee, executive, and special
individual benefit plans, programs, and arrangements under Section
5(c) including but not limited to health, medical, disability,
life insurance, and pension benefits in which Executive was
participating immediately prior to termination, the terms of which
allow Executive's continued participation, as if Executive had
continued in employment with the Company during such period or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an after-tax
basis to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and
arrangements in which Executive was participating immediately
prior to termination, as if Executive had received credit under
such plans, programs, and arrangements for service and age with
the Company during such period following Executive's termination,
with such benefits payable by the Company at the same times and in
the same manner as such benefits would have been received by
Executive under such plans (it being understood that the value of
any insurance-provided benefits will be based on the premium cost
to Executive, which shall not exceed the highest risk premium
charged by a carrier having an investment grade or better credit
rating).
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Amounts payable under (i), (ii), (iii), (iv), (vi), (vii), and (viii) above
will be paid as promptly as practicable after Executive's termination of
employment, and in no event more than 45 days after such termination,
provided, however, that, in the case of a termination by the Company without
Cause prior to a Change in Control, to the extent that the Company would not
be entitled to deduct any such payments under Internal Revenue Code Section
162(m), such payments shall be made at the earliest time that the payments
would be deductible by the Company without limitation under Section 162(m)
(unless this provision is waived by the Company), but in no event later than
twelve months subsequent to the date of termination.
8. Definitions Relating to Termination Events.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition,
"gross misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the
Company or any of its subsidiaries or materially impairs the value of
Executive's services to the Company, or (B) willfully engaging in one or more
acts, or willfully omitting to act in accordance with duties hereunder, which
is demonstrably and materially damaging to the Company or any of its
subsidiaries, including acts and omissions that constitute gross negligence in
the performance of Executive's duties under this Agreement. For purposes of
this Agreement, an act or failure to act on Executive's part shall be
considered "willful" if it was done or omitted to be done by him not in good
faith, and shall not include any act or failure to act resulting from any
incapacity of Executive. Notwithstanding the foregoing, Executive may not be
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by a majority affirmative vote of the
membership of the Board of Directors of the Company (the "Board") (excluding
Executive, if he is then a member) at a meeting of the Board called and held
for such purpose (after giving Executive reasonable notice specifying the
nature of the grounds for such termination and not less than 30 days to
correct the acts or omissions complained of, if correctable, and affording
Executive the opportunity, together with his counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, Executive was
guilty of conduct which constitutes Cause as set forth in this Section 8(a).
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the shares
of Common Stock of the Company then outstanding (the "Company
Common Stock Outstanding") or the voting securities of the Company
then outstanding entitled to vote generally in the election of
directors (the "Company Voting Securities Outstanding"); provided,
however, that such acquisition of Beneficial Ownership would
result in the Person's Beneficially Owning twenty-five percent
(25%) or more of the Company Common Stock Outstanding or
twenty-five percent (25%) or more of the combined voting power of
the Company Voting Securities Outstanding; and provided further,
that immediately prior to such acquisition such Person was not a
direct or indirect Beneficial Owner of twenty-five percent (25%)
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or more of the Company Common Stock Outstanding or twenty-five
percent (25%) or more of the combined voting power of Company
Voting Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this Section
8(b) as a "Corporate Transaction") or, if consummation of such
Corporate Transaction is subject, at the time of such approval by
stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or
implicitly); or
(iii) A change in the composition of the Board such that the individuals
who, as of the Effective Date, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this Section 8(b), that any
individual who becomes a member of the Board subsequent to the
Effective Date whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided,
further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act, including any successor to
such Rule) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board shall
not be so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and
the combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in substan-
tially the same proportions as their ownership, immediately prior to such
acquisition or Corporate Transaction, of the Company Common Stock Outstanding
and Company Voting Securities Outstanding, as the case may be; or (3) any
transaction initiated or controlled, directly or indirectly, by Executive, in
a capacity other than as a senior executive or director of the Company.
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For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning," and
"Beneficial Ownership" shall have the meanings ascribed to such
terms in Rule 13d-3 under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
(C) The term "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including "group" as defined in Section 13(d)
thereof.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of
any physical or mental incapacity or disability as determined by a physician
or physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed termination due to such absence, Executive shall have
returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Company and reasonably acceptable to
Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean the occurrence of a Change in Control and following which
there occurs, without Executive's prior written consent: (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices,
status, rank, nature of responsibilities, or authorities within the Company in
effect prior to a Change in Control, except in connection with the termination
of Executive's employment for Cause, Disability, Normal Retirement or Approved
Early Retirement, as a result of Executive's death, or as a result of action
by Executive, (B) an assignment of any duties to Executive which are
inconsistent with his duties, status, rank, responsibilities, and authorities
in effect prior to a Change in Control, (C) a decrease in annual base salary
or other compensation opportunities and maximums or benefits provided under
this Agreement, (D) any other failure by the Company to perform any material
obligation under, or breach by the Company of any material provision of, this
Agreement, (E) any failure to secure the agreement of any successor
corporation or other entity to the Company to fully assume the Company's
obligations under this Agreement in a form reasonably acceptable to Executive,
and (F) any attempt by the Company to terminate Executive for Cause which does
not result in a valid termination for Cause, except in the case that valid
grounds for termination for Cause exist but are corrected as permitted under
Section 8(a).
9. Excise Tax Gross-Up.
In the event that there shall occur a Change in Control of the
Company, if Executive becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
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<PAGE> 110
non-cash benefit or property), whether pursuant to the terms of this Agreement
or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest
thereon) on the Total Payments and any federal, state and local income or
employment tax and Excise Tax on the Gross-up Payment provided for by this
Section 9, but before reduction for any federal, state, or local income or
employment tax on the Total Payments, shall be equal to the sum of (a) the
Total Payments, and (b) an amount equal to the product of any deductions
disallowed for federal, state, or local income tax purposes because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income
multiplied by the highest applicable marginal rate of federal, state, or local
income taxation, respectively, for the calendar year in which the Gross-up
Payment is to be made.
For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent compensation
consultants or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and
reasonably acceptable to Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code or are otherwise not subject
to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the total
amount of excess parachute payments within the meaning of
section 280G(b)(1) of the Code (after applying clause (i)
above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
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<PAGE> 111
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time the Gross-up Payment is made,
Executive shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined (but, if previously paid to the
taxing authorities, not prior to the time the amount of such reduction is
refunded to Executive or otherwise realized as a benefit by Executive) the
portion of the Gross-up Payment that would not have been paid if such Excise
Tax had been applied in initially calculating the Gross-up Payment, plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the Gross-up
Payment is made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-up Payment), the Company
shall make an additional Gross-up Payment in respect of such excess (plus any
interest and penalties payable with respect to such excess) at the time that
the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or
any portion thereof) are subject to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to Executive on such
day an estimate, as determined by the Independent Advisors, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as
soon as the amount thereof can be determined. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to Executive, payable
on the fifth day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code). If more than one
Gross-up Payment is made, the amount of each Gross-up Payment shall be
computed so as not to duplicate any prior Gross-up Payment. The Company shall
have the right to control all proceedings with the Internal Revenue Service
that may arise in connection with the determination and assessment of any
Excise Tax and, at its sole option, the Company may pursue or forego any and
all administrative appeals, proceedings, hearings, and conferences with any
taxing authority in respect of such Excise Tax (including any interest or
penalties thereon); provided, however, that the Company's control over any
such proceedings shall be limited to issues with respect to which a Gross-up
Payment would be payable hereunder, and Executive shall be entitled to settle
or contest any other issue raised by the Internal Revenue Service or any other
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<PAGE> 112
taxing authority. Executive shall cooperate with the Company in any
proceedings relating to the determination and assessment of any Excise Tax and
shall not take any position or action that would materially increase the
amount of any Gross-Up Payment hereunder.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive
will not, for a period of two years thereafter, acting alone or in conjunction
with others, directly or indirectly (i) engage (either as owner, investor,
partner, stockholder, employer, employee, consultant, advisor or Director) in
any business in the continental United States in which he has been directly
engaged, or has supervised as an executive, during the last two years prior to
such termination and which is directly in competition with a business then
conducted by the Company or any of its subsidiaries; (ii) induce any customers
of the Company or any of its subsidiaries with whom Executive has had contacts
or relationships, directly or indirectly, during and within the scope of his
employment with the Company or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of the Company or any of its subsidiaries to
terminate employment; provided, however, that the limitation contained in
clause (i) above shall not apply if Executive's employment is terminated as a
result of a termination by the Company without Cause following a Change in
Control or a termination by Executive for Good Reason following a Change in
Control. The provisions of subparagraphs (i), (ii), and (iii) above are
separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent
of the equity securities of any company having securities listed on an
exchange or regularly traded in the over-the-counter market shall not, of
itself, be deemed inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company or any of its subsidiaries so long as
such information has not otherwise been disclosed or is not otherwise in the
public domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including
following Executive's termination of employment for any reason), by making
himself available to testify on behalf of the Company or any subsidiary or
affiliate of the Company, in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, and to assist the Company, or any
subsidiary or affiliate of the Company, in any such action, suit, or pro-
ceeding, by providing information and meeting and consulting with the Board
and its representatives or counsel, or representatives or counsel of or to the
Company, or any subsidiary or affiliate of the Company, as requested. The
Company agrees to reimburse Executive, on an after-tax basis, for all expenses
actually incurred in connection with his provision of testimony or assistance.
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<PAGE> 113
(d) Release of Employment Claims. Executive agrees, as a
condition to receipt of the termination payments and benefits provided for in
Sections 6 and 7 herein, that he will execute a release agreement, in a form
satisfactory to the Company, releasing any and all claims arising out of
Executive's employment (other than enforcement of this Agreement).
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and
regulations may be applicable. If under the governing law, any portion of
this Agreement is at any time deemed to be in conflict with any applicable
statute, rule, regulation, ordinance, or other principle of law, such portion
shall be deemed to be modified or altered to the extent necessary to conform
thereto or, if that is not possible, to be omitted from this Agreement. The
invalidity of any such portion shall not affect the force, effect, and
validity of the remaining portion hereof. If any court determines that any
provision of Section 10 is unenforceable because of the duration or geographic
scope of such provision, it is the parties' intent that such court shall have
the power to modify the duration or geographic scope of such provision, as the
case may be, to the extent necessary to render the provision enforceable and,
in its modified form, such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to enforce rights pursuant to this Agreement
shall be paid on behalf of or reimbursed to Executive promptly by the Company,
whether or not Executive is successful in asserting such rights; provided,
however, that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that Executive's
assertion of such rights was in bad faith or frivolous, as determined by
independent counsel mutually acceptable to Executive and the Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration
in Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts
of the State of Illinois, or (iii) any other court having jurisdiction. The
Company and Executive further agree that any service of process or notice
requirements in any such proceeding shall be satisfied if the rules of such
court relating thereto have been substantially satisfied. The Company and
Executive hereby waive, to the fullest extent permitted by applicable law, any
objection which it may now or hereafter have to such jurisdiction and any
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<PAGE> 114
defense of inconvenient forum. The Company and Executive hereby agree that a
judgment upon an award rendered by the arbitrators may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Subject to Section 11(b), the Company shall bear all costs and expenses
arising in connection with any arbitration proceeding pursuant to this Section
11. Notwithstanding any provision in this Section 11, Executive shall be
entitled to seek specific performance of Executive's right to be paid during
the pendency of any dispute or controversy arising under or in connection with
this Agreement.
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest, payable by the Company, at the prime rate in
effect at the time such payment first becomes payable, as quoted by the
Bankers Trust Company.
12. Miscellaneous.
(a) Integration. This Agreement modifies and supersedes any
and all prior agreements and understandings between the parties hereto with
respect to the employment of Executive by the Company and its subsidiaries,
except for contracts relating to compensation under executive compensation and
employee benefit plans of the Company. This Agreement (together with the
Option Agreement ) constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the
parties hereto. Executive shall not be entitled to any payment or benefit
under this Agreement which duplicates a payment or benefit received or
receivable by Executive under such prior agreements and understandings with
the Company or under any benefit or compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation
of law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a
condition of the succession, require such Successor to agree to assume the
Company's obligations and be bound by this Agreement. For purposes of this
Agreement, "Successor" shall mean any person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
the Company's business directly, by merger or consolidation, or indirectly, by
purchase of the Company's voting securities or all or substantially all of its
assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
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<PAGE> 115
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by
Federal Express or other similar overnight service or by certified or
registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:
If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
John B. Holland
199 Tony Avenue
Bowling Green, Kentucky 42103
If the parties by mutual agreement supply each other with telecopier numbers
for the purposes of providing notice by facsimile, such notice shall also be
proper notice under this Agreement. In the case of Federal Express or other
similar overnight service, such notice or advice shall be effective when sent,
and, in the cases of certified or registered mail, shall be effective 2 days
after deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect
the right of such party to require such performance or to resort to such
remedy at any time thereafter, nor shall the waiver by any party of a breach
of any of the provisions hereof be deemed to be a waiver of any subsequent
breach of such provisions. No such waiver shall be effective unless in
writing and signed by the party against whom such waiver is sought to be
enforced.
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<PAGE> 116
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that
are substantially similar to the benefits referred to in Section 5(c) hereof,
any such benefits to be provided by the Company to Executive following the
Term shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by
the Company to Executive pursuant to this Agreement shall not be subject to
offset other than with respect to any amounts that are owed to the Company by
Executive due to his receipt of funds as a result of his fraudulent activity.
The foregoing and other provisions of this Agreement notwithstanding, all
payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
13. Indemnification.
All rights to indemnification by the Company now existing in favor
of Executive as provided in the Company's Certificate of Incorporation or
By-Laws or pursuant to other agreements in effect on or immediately prior to
the Effective Date shall continue in full force and effect from the Effective
Date (including all periods after the expiration of the Term), and the Company
shall also advance expenses for which indemnification may be ultimately
claimed as such expenses are incurred to the fullest extent permitted under
applicable law, subject to any requirement that Executive provide an
undertaking to repay such advances if it is ultimately determined that
Executive is not entitled to indemnification; provided, however, that any
determination required to be made with respect to whether Executive's conduct
complies with the standards required to be met as a condition of
indemnification or advancement of expenses under applicable law and the
Company's Certificate of Incorporation, By-Laws, or other agreement shall be
made by independent counsel mutually acceptable to Executive and the Company
(except to the extent otherwise required by law). After the date hereof, the
Company shall not amend its Certificate of Incorporation or By-Laws or any
agreement in any manner which adversely affects the rights of Executive to
indemnification thereunder. Any provision contained herein notwithstanding,
this Agreement shall not limit or reduce any rights of Executive to
indemnification pursuant to applicable law. In addition, the Company will
maintain directors' and officers' liability insurance in effect and covering
acts and omissions of Executive, during the Term and for a period of six years
thereafter, on terms substantially no less favorable as those in effect on the
Effective Date.
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<PAGE> 117
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
FRUIT OF THE LOOM, INC.
By: /S/ William Farley
Name: William Farley
Title: Chairman and
Chief Executive Officer
EXECUTIVE
/S/ John B. Holland
John B. Holland
<PAGE> 118
CONFORMED COPY
FARLEY INDUSTRIES, INC.
and
FRUIT OF THE LOOM, INC.
Employment Agreement for Richard C. Lappin
<PAGE>
<PAGE> 119
FARLEY INDUSTRIES, INC.
and
FRUIT OF THE LOOM, INC.
Employment Agreement for Richard C. Lappin
1. Employment and Assignment; Obligations of FOL and Company . . . . . 120
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
3. Offices and Duties . . . . . . . . . . . . . . . . . . . . . . . . . 121
4. Salary and Annual Incentive Compensation . . . . . . . . . . . . . . 122
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement . . . . . . . . . . 122
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability . . . . . . . . . . . . . . . . . . . . . . . . 126
7. Termination For Reasons Other Than Normal Retirement, Approved Early
Retirement, Death or Disability . . . . . . . . . . . . . . . . . . 128
8. Definitions Relating to Termination Events. . . . . . . . . . . . . 133
9. Excise Tax Gross-Up . . . . . . . . . . . . . . . . . . . . . . . . 136
10. Non-Competition and Non-Disclosure; Executive Cooperation . . . . . 138
11. Governing Law; Disputes; Arbitration . . . . . . . . . . . . . . . . 139
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
13. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 143
<PAGE>
<PAGE> 120
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of the 28th day of March,
1995, by and among FARLEY INDUSTRIES, INC., an Illinois corporation (the
"Company"), FRUIT OF THE LOOM, INC., a Delaware corporation ("FOL"), and
Richard C. Lappin ("Executive"), and shall become effective as of December 18,
1994 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has served and is serving as a senior executive
of the Company and, under Service Agreements between the Company and FOL (any
such agreement as may be in effect from time to time being the "Service
Agreement"), as a senior executive of FOL; and
WHEREAS, FOL desires that Executive continue to serve FOL in a
senior executive capacity in connection with the conduct of its businesses,
the Company desires to continue to employ Executive as a senior executive so
that he may continue serve FOL, under the Service Agreement, in such a senior
executive capacity, and Executive desires to accept such employment by the
Company and assignment with FOL on the terms and conditions herein set forth;
and
WHEREAS, the Company, FOL, and Executive desire to set forth the
terms upon which Executive shall be so employed by the Company and assigned to
FOL.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company, FOL, and Executive each hereby
acknowledge, the Company, FOL, and Executive hereby agree as follows:
1. Employment and Assignment; Obligations of FOL and Company.
(a) Employment by the Company and Assignment to FOL. The
Company hereby agrees to employ Executive as a senior executive of the Company
and as a senior executive assigned to serve as a senior executive of FOL, FOL
hereby agrees to the assignment of Executive as a senior executive of FOL, and
Executive hereby agrees to accept such employment and assignment and serve in
such capacities, during the Term as defined in Section 2 and upon the terms
and conditions set forth in this Employment Agreement (this "Agreement").
(b) Obligations of FOL and Company, and Effect on Service
Agreement. FOL guarantees to Executive payment of all obligations hereunder
of the Company to Executive, including obligations under Sections 6 and 7.
FOL and the Company acknowledge and agree that, to the extent that this
Agreement specifies matters relating to the assignment of Executive to FOL and
imposes obligations between FOL and the Company relating thereto, this
Agreement may modify and amend the terms of any Service Agreement. If FOL
makes any payment of cash or property to Executive hereunder, including any
payment under a guarantee by FOL of a direct obligation of the Company to
Executive hereunder, that duplicates a payment made or owing by FOL to the
Company under the Service Agreement, FOL shall have a right of reimbursement
or setoff against the Company in respect of such payment. If Section 6 or 7
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<PAGE> 121
specify a payment, action or other obligation to Executive following
termination of Executive's employment by the Company and service to FOL
without specifying the primary obligor therefor, the obligor therefor shall be
FOL in respect of any obligation that replaces, settles, or otherwise relates
to an obligation of FOL under Sections 4 and 5 and shall be the Company in
respect of any obligation that replaces, settles, or otherwise relates to an
obligation of the Company under Sections 4 and 5, subject to FOL's guarantee
of the obligations of the Company.
2. Term.
The term of employment of Executive and assignment to FOL under
this Agreement (the "Term") shall be the period commencing on the Effective
Date and terminating on December 17, 1997 and any period of extension thereof
in accordance with this Section 2, subject to earlier termination in
accordance with Section 6 or 7. The Term shall be extended automatically
without further action by any party for the one-year period beginning on
December 18, 1997 and each succeeding December 18 thereafter, unless the
Company or FOL shall have served written notice upon Executive (and on the one
of the Company or FOL not serving such notice, if the two are not acting
jointly), or Executive shall have served written notice on the Company and
FOL, in either case in accordance with the provisions of Section 12(d), on or
prior to the June 30 preceding a date upon which such extension would become
effective electing not to extend the Term further as of the December 18 next
succeeding the date such notice is served, in which case the Term shall
terminate at the next December 17 (subject to earlier termination in
accordance with Section 6 or 7).
3. Offices and Duties.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as President and Chief
Operating Officer of the Company assigned, pursuant to the Service Agreement,
to serve as a senior executive of FOL, as specified herein. If elected,
Executive agrees to serve as a member of the Board of Directors of FOL (the
"Board") and, for so long as he is serving on the Board, Executive agrees to
serve as Vice Chairman of the Board and as a member of any other Board
Committee if the Board shall elect or appoint Executive to such positions. If
Executive is at any time during the Term not seated as a Director of FOL, or
not elected or appointed by the Board as Vice Chairman of the Board,
Executive shall serve as a senior executive of FOL in a position substantially
equivalent in rank and responsibilities to those of Vice Chairman of the
Board, and in any event Executive shall perform such duties and
responsibilities with FOL, on behalf of the Company, as are substantially
consistent with his rank and status with the Company and FOL as of the
Effective Date. Executive shall devote substantial business time and
attention, and his best efforts, abilities, experience, and talent, to the
positions as President and Chief Operating Officer of the Company and Vice
Chairman of the Board (or an equivalent senior executive office of FOL, as
specified in this Section 3(a)) and for the businesses of the Company and FOL;
provided, however, that nothing in this Agreement shall preclude or prohibit
Executive from engaging in other activities, including as assigned by the
Company, to the extent that such other activities do not preclude Executive's
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employment and assignment to serve FOL or otherwise inhibit the performance of
Executive's duties under this Agreement or conflict with the businesses of
FOL, the Company, and their subsidiaries and affiliates.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of FOL in Chicago, Illinois. In no
event shall the Executive's principal place of employment be relocated outside
of Chicago, Illinois without his consent.
4. Salary and Annual Incentive Compensation.
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4, and FOL agrees to guarantee the
payment of such compensation to Executive.
(a) Base Salary. The Company will pay to Executive during the
Term a base salary at the annual rate in effect at the Effective Date, payable
in cash in substantially equal monthly installments during each calendar year,
or portion thereof, of the Term and otherwise in accordance with the Company's
usual payroll practices with respect to persons assigned to serve as senior
executives of FOL (except to the extent deferred under Section 5(d)).
Executive's annual base salary shall be reviewed by FOL and the Company at
least once in each calendar year and may be increased above, but may not be
reduced below, the then-current rate of such base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, determined through
Executive's participation in the FOL 1995 Executive Incentive Compensation
Plan (subject to approval thereof by FOL's stockholders) (the "1995 EICP"),
the FOL Executive Incentive Compensation Plan (the "EICP") if the 1995 EICP is
not approved by FOL stockholders, and any successor to the 1995 EICP or the
EICP, which shall offer to Executive an opportunity to earn additional
compensation in amounts determined by and in the sole discretion of the
Compensation Committee of the Board of Directors of FOL (the "Committee"), in
accordance with the applicable plan and consistent with past practices of the
Company; provided, however, that FOL and the Company will use their best
efforts to maintain in effect, for each year during the Term, the 1995 EICP,
the EICP (if the 1995 EICP is not approved by FOL stockholders), or an
equivalent plan under which Executive will be eligible for an award not less
than the opportunity level assigned to him under the 1995 EICP or the EICP
during 1995 (if the 1995 EICP is not approved by FOL stockholders). Any such
annual incentive compensation payable to Executive shall be paid by FOL to the
Company and by the Company (without varying the amount or timing of payment or
otherwise exercising discretion) to Executive in accordance with FOL's
incentive compensation payment practices with respect to senior executives
(except to the extent deferred under Section 5(d)).
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to provide the compensation and benefits to
the extent specified in this Section 5, including Sections 5(a), (c), (d), and
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(e), FOL agrees to guarantee the payment of all such compensation and benefits
to be provided by the Company under this Section 5, and FOL agrees to provide
the compensation and benefits to the extent specified in this Section 5,
including Sections 5(a), (b),(d) and (e).
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation
by senior executives of the Company, including those assigned to FOL and by
senior executives of FOL, as presently in effect or as they may be modified or
added to from time to time, subject to the eligibility and other requirements
of such plans and programs, including without limitation the long-term
incentive features of the 1995 EICP, the EICP (if the 1995 EICP is not
approved by FOL's stockholders), any successor to such plans, and other stock
option plans, performance share plans, management incentive plans, and
deferred compensation plans of FOL, and supplemental retirement plans of the
Company; provided, however, that such compensation plans and programs, in the
aggregate, shall provide Executive with benefits and compensation and
incentive award opportunities substantially no less favorable than those
provided by the Company and FOL under such plans and programs to senior
executives in similar capacities. For purposes of this Agreement, all
references to "performance share plans" and "performance shares" refer to such
arrangements under the 1995 EICP or the EICP and to any performance shares,
performance units, stock grants, or other long-term incentive arrangements
adopted as a successor or replacement to performance shares under such plans
or other plans of the Company.
(b) Stock Option Grant Upon Signing Agreement. In addition to
the compensation otherwise specified under Sections 4 and 5, FOL has granted
to Executive, as of December 18, 1994 and conditioned upon Executive's
execution of this Agreement, a non-qualified stock option to purchase 75,000
shares of FOL's Class A Common Stock (the "1995 Option"), under the 1995 EICP,
subject to stockholder approval of the 1995 EICP at FOL's 1995 Annual Meeting
of Stockholders. The 1995 Option shall be evidenced by, and have the terms
set forth in, the option agreement attached as Exhibit A hereto (the "Option
Agreement"), which has been authorized and approved by the Committee under the
1995 EICP.
Not later than such time as the 1995 Option becomes exercisable,
FOL will have filed with the Securities and Exchange Commission, and will
thereafter maintain the effectiveness of, a registration statement
registering under the Securities Act of 1933, as amended, the offer and sale
of shares by FOL pursuant to the 1995 Option, which registration statement
shall include a resale prospectus covering the reoffer and resale (or other
disposition) of all shares acquired by Executive upon exercise of the 1995
Option, and FOL will maintain as current all offering materials under such
registration statement at all times that offers and sales of such shares
could be made by FOL or Executive.
(c) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or
duplication, in all employee and executive benefit plans and programs of the
Company, as presently in effect or as they may be modified or added to by the
Company from time to time, to the extent such plans are available to similarly
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situated senior executives or employees of the Company, including those
assigned to serve as senior executives of FOL, subject to the eligibility and
other requirements of such plans and programs, including without limitation
plans providing pensions, other retirement benefits, medical insurance, life
insurance, disability insurance, and accidental death or dismemberment
insurance, and participation in savings, profit-sharing, and stock ownership
plans; provided, however, that such benefit plans and programs and any benefit
plans and programs of FOL in which Executive may from time to time participate
shall, in the aggregate, provide Executive with benefits substantially no less
favorable than those provided by the Company and FOL to senior executives in
similar capacities.
In furtherance of and not in limitation of the foregoing, during
the Term:
(i) Executive will participate in all executive and employee vacation
and time-off programs;
(ii) The Company will provide Executive with coverage by long-term
disability insurance and benefits substantially no less favorable
(including any required contributions by Executive) than such
insurance and benefits provided to Executive at January 1, 1995;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit of not less than
four times Executive's annual base salary under Section 4(a);
provided, however, that such insurance may be combined with a
supplementary retirement funding vehicle;
(iv) Under the Company's pension plans (including supplemental plans):
(A) Executive will be entitled to benefits substantially no less
favorable than those under such plans and programs of the Company
as in effect at January 1, 1995; (B) for purposes of calculating
such benefits, (x) Executive's compensation covered by such plans
will include 100% of annual salary paid under Section 4(a) and no
less than 50% of annual incentive compensation paid under Section
4(b), and (y) Executive shall be credited, for each full calendar
year of the Term that is completed up to ten years, with one
additional year of service up to ten additional years under such
plans, which shall all be fully vested upon crediting; and (C)
amounts equal to the present value of Executive's accrued benefit
vested at any time during the Term, under all supplemental (non-
qualified) pension plans of the Company, will be fully funded by
the Company by the purchase of an insured annuity, the ownership
of which shall be transferred to Executive, providing a benefit
equivalent to such accrued benefit on an after-tax basis, and the
Company will pay to Executive an additional amount (or apply such
additional amount to the purchase of an increased insured annuity
if so elected by Executive) equal to the total of Executive's
federal, state, and local income and employment taxes on the
insured annuity and such additional amount; and
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior executives,
including those assigned to serve as senior executives of FOL,
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subject to a lifetime maximum amount of supplemental
reimbursements of $750,000; provided, however, that supplemental
health and medical benefits shall provide for reimbursement of
Executive to the extent that any limitation on maximum lifetime
health and medical benefits and reimbursements under other Company
policies and programs is exceeded.
(d) Deferral of Compensation. The Company and FOL shall
implement deferral arrangements, as obligations of FOL, permitting Executive
to elect to irrevocably defer receipt, pursuant to written deferral election
terms and forms (the "Deferral Election Forms"), of all or a specified portion
of (i) his annual base salary and annual incentive compensation under Section
4, (ii) long-term incentive compensation under Sections 5(a) and 5(b)
(including payouts relating to performance shares), and (iii) shares acquired
upon exercise of options granted under Sections 5(a) and (b) that are acquired
in an exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares
acquired by Executive in such exercise; provided, however, that such deferrals
shall not reduce Executive's total cash compensation in any calendar year
below the sum of (i) the FICA maximum taxable wage base plus (ii) 1.45% of
Executive's salary, annual incentive compensation and long-term incentive
compensation in excess of such FICA maximum. In addition, the Committee may
require mandatory deferral of amounts payable as annual incentive compensation
under Section 4(b) or long-term incentive compensation under Sections 5(a) and
5(b), which deferrals will otherwise be in accordance with this Section 5(d),
and the Company hereby delegates to such Committee full authority to require
such mandatory deferral of annual incentive compensation.
In accordance with such duly executed Deferral Election Forms or
the terms of any mandatory deferral, FOL shall, in lieu of payment by FOL to
the Company (under the Service Agreement in respect of Executive's services)
and in lieu of any direct payment by FOL or the Company to Executive, credit
to one or more bookkeeping accounts maintained by FOL for Executive, on the
respective date or dates payments would otherwise be due to Executive, amounts
equal to the compensation subject to deferral, such credits to be denominated
in cash if the compensation would have been paid in cash but for the deferral
or in shares if the compensation would have been paid in shares but for the
deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Common Stock equal
to the number of shares credited to Executive's account pursuant to this
Section 5(d) shall be transferred as soon as practicable following such
crediting by FOL to, and shall be held and invested by, an independent trustee
selected by FOL (a "Trustee") pursuant to a "rabbi trust" established by FOL
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including
possible investment in publicly traded stocks and bonds, mutual funds, and
insurance vehicles). Thereafter, Executive's deferral accounts will be valued
by reference to the value of the assets of the "rabbi trust"; provided,
however, that a portion of the assets of the "rabbi trust" may be used to
reimburse FOL for its reasonable cost of funds resulting from payment of taxes
by FOL relating to such rabbi trust assets during the period of deferral and
prior to the settlement of Executive's deferral accounts. FOL shall pay all
other costs of administration of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
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Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or termination of
service to FOL or as otherwise determined by the Committee in the event of
hardship on the part of Executive, upon such date(s) or event(s) set forth in
the Deferral Election Forms (including forms filed after deferral but before
settlement in which Executive may elect to further defer settlement) or the
terms of any mandatory deferral, FOL shall promptly pay to Executive cash
equal to the cash then credited to Executive's deferral accounts and cash
equal in value to any shares of Common Stock then credited to Executive's
deferral accounts, less applicable withholding taxes, and such distribution
shall be deemed to fully settle such accounts; provided, however, that FOL may
instead settle such accounts by directing the Trustee to distribute the assets
of the "rabbi trust." FOL, the Company, and Executive agree that compensation
deferred pursuant to this Section 5(d) shall be fully vested and
nonforfeitable; provided, however, Executive acknowledges that his rights to
the deferred compensation provided for in this Section 5(d) shall be no
greater than those of a general unsecured creditor of FOL, and that such
rights may not be pledged, collateralized, encumbered, hypothecated, or liable
for or subject to any lien, obligation, or liability of Executive, or be
assignable or transferable by Executive, otherwise than by will or the laws of
descent and distribution, provided that Executive may designate one or more
beneficiaries to receive any payment of such amounts in the event of his
death.
(e) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability
Executive may terminate employment with the Company and cease to
serve as a senior executive of FOL upon Executive's retirement at or after age
65 ("Normal Retirement") or, if approved in advance by the Company and the
Committee, upon Executive's early retirement prior to age 65 ("Approved Early
Retirement"). FOL may terminate the service of Executive due to the
Disability (as defined in Section 8(c)) of Executive, in which case
Executive's employment by the Company and service to FOL will terminate due to
Disability.
At the time Executive's employment by the Company and service to
FOL terminates due to Normal Retirement, Approved Early Retirement, or death,
the Term will terminate. In the event Executive's employment by the Company
and service to FOL terminates due to Disability, the Term will terminate at
the expiration of the 30-day period referred to in the definition of
Disability (set forth in Section 8(c)) absent the actions referred to therein
being taken by Executive to return to service and present to the Company and
FOL a certificate of good health.
Upon a termination of Executive's employment by the Company and
service to FOL due to Normal Retirement, Approved Early Retirement, death, or
Disability, all obligations of the Company, FOL, and Executive under Sections
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1 through 5 of this Agreement will immediately cease; provided, however, that
subject to the provisions of Section 12(c), the Company and FOL will pay
Executive (or his beneficiaries or estate) (in accordance with Section 1(b)),
and Executive (or his beneficiaries or estate) will be entitled to receive,
the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and (c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year of Executive's termination (unless otherwise payable
under (ii) above), Executive will be paid an amount equal to the
average annual incentive compensation paid to Executive in the
three years immediately preceding the year of termination (or, if
Executive was not eligible to receive or did not receive such
incentive compensation for any year in such three year period, the
Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation)
multiplied by a fraction the numerator of which is the number of
days Executive was employed and served in the year of termination
and the denominator of which is the total number of days in the
year of termination;
(iv) In lieu of any payment in respect of performance shares granted in
accordance with Section 5(a) for any performance period not
completed at the date of Executive's termination (unless otherwise
payable under (ii) above), Executive will be paid in cash an
amount equal to the cash amount payable plus the value of any
shares of Common Stock or other property (valued at the date of
termination) payable upon achievement of (A) the maximum
performance, in the case of death or Disability, or (B) at target
performance, in the case of Normal Retirement or Early Retirement,
in respect of each tranche of performance shares, multiplied by a
fraction the numerator of which is the number of days Executive
was employed and served during the respective performance period
and the denominator of which is the total number of days in such
performance period;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs and the agreements and other documents thereunder
pursuant to which such stock options were granted;
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(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e); and
(viii) If Executive's employment and service terminates due to
Disability, for the period extending from such termination until
Executive reaches age 65, Executive shall continue to participate
in all employee benefit plans, programs, and arrangements under
Section 5(c) providing health, medical, and life insurance and
pension benefits in which Executive was participating immediately
prior to termination, the terms of which allow Executive's
continued participation, as if Executive had continued in
employment with the Company and service to FOL during such period
or, if such plans, programs, or arrangements do not allow
Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit plans,
programs, and arrangements in which Executive was participating
immediately prior to termination, as if Executive had received
credit under such plans, programs, and arrangements for service
and age with the Company and FOL during such period following
Executive's termination, with such benefits payable by the Company
and/or FOL at the same times and in the same manner as such
benefits would have been received by Executive under such plans
(it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which
shall not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided further, that, in the case of termination of Executive's employment
and service due to Disability, Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving the
compensation and benefits under (viii), above. Amounts payable under (i),
(ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after Executive's termination; provided, however, to the extent that FOL would
not be entitled to deduct any such payments under Internal Revenue Code
Section 162(m), such payments shall be made at the earliest time that the
payments would be deductible by FOL without limitation under Section 162(m)
(unless this provision is waived by FOL).
7. Termination For Reasons Other Than Normal Retirement, Approved
Early Retirement, Death or Disability
(a) Termination for Cause and Termination by Executive. In
accordance with the provisions of this Section 7(a), FOL may terminate the
service of Executive as a senior executive of FOL for Cause (as defined in
Section 8(a)) at any time prior to a Change in Control (as defined in Section
8(b)), in which case Executive's employment by the Company and service to FOL
will terminate, the Company may terminate the employment of Executive for
Cause (as defined in Section 8(a)) at any time prior to a Change in Control
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(as defined in Section 8(b)), and Executive may terminate his employment with
the Company and service with FOL voluntarily for reasons other than Good
Reason (as defined in Section 8(d)) at any time. An election by Executive not
to extend the Term pursuant to Section 2 hereof shall be deemed to be a
voluntary termination of such employment and such service by Executive at the
date of expiration of the Term, unless there occurs a Change in Control prior
to the date of expiration.
Upon a termination of Executive's service with FOL for Cause,
termination of Executive's employment by the Company for Cause or voluntarily
termination by the Executive, the Term will immediately terminate, and all
obligations of the Company and FOL under Sections 1 through 5 of this
Agreement will immediately cease; provided, however, that subject to the
provisions of Section 12(c), the Company and FOL shall pay Executive, and
Executive shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and 5(c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's deferral
accounts under deferral arrangements authorized under Section 5(d)
hereof at the date of termination (including cash equal in value
at that date to any shares of Common Stock credited to Executive's
deferral accounts), less applicable withholding taxes under
Section 12(i); provided, however, that FOL may instead settle such
accounts by directing the Trustee to distribute the assets of the
"rabbi trust." Such amounts shall be paid or distributed as
promptly as practicable following such date of termination,
without regard to any stated period of deferral otherwise
remaining in respect of such amounts, and the payment of such
amounts shall be deemed to fully settle such accounts;
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e), and
(v) Under FOL's pension plans (including supplemental plans),
Executive shall be retroactively credited, as of January 1 of the
year of termination, with two additional years of service up to
ten additional years under such plans for the period from January
1, 1995 through the December 31st of the year prior to the year of
termination, such credit to be reduced by the number of additional
years of service previously credited under Section 5(c)(iv)(y).
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Such retroactively credited years of service shall be deemed to be
fully vested as of January 1 of the year of termination.
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as
promptly as practicable after Executive's termination; provided, however, to
the extent that FOL would not be entitled to
deduct any such payments under Internal Revenue Code Section 162(m), such
payments shall be made at the earliest time that the payments would be
deductible by FOL without limitation under Section 162(m) (unless this
provision is waived by FOL).
(b) Termination Without Cause and Termination by Executive for
Good Reason. In accordance with the provisions of this Section 7(b), FOL may
terminate the service by Executive as a senior executive of FOL without Cause
(as defined in Section 8(a)), including after a Change in Control (as defined
in Section 8(b)), upon 90 days' written notice to Executive, in which case
Executive's employment by the Company will terminate, the Company may
terminate Executive's employment without Cause (as defined in Section 8(a)),
including after a Change in Control (as defined in Section 8(b)), upon 90
days' written notice to Executive, and Executive may terminate his employment
by the Company and service with FOL for Good Reason (as defined in Section
8(d)) following a Change in Control upon 90 days' written notice to the
Company and FOL; provided, however, that, if the basis for such Good Reason is
correctable, the Company and/or FOL have not corrected the basis for such Good
Reason within 30 days after both have received such notice. The foregoing
notwithstanding, in lieu of the Company or FOL providing 90 days' written
notice to Executive, the Company and FOL may pay Executive his then-current
annual base salary under Section 4(a) and credit Executive with service for 90
days for all purposes hereunder. An election by the Company or FOL not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a
termination of service with FOL and termination of employment by the
Company without Cause at the date of expiration of the Term.
Upon a termination of Executive's service with FOL without Cause
or termination of Executive's employment by the Company without Cause prior to
or following a Change in Control or termination of Executive's service with
FOL and employment with the Company by Executive for Good Reason following a
Change in Control, the Term will immediately terminate and all obligations of
the Company, FOL, and Executive under Sections 1 through 5 of this Agreement
will immediately cease, except that subject to the provisions of Section 12(c)
the Company and FOL shall pay Executive, and Executive shall be entitled to
receive, the following:
(i) A lump-sum cash payment will be paid as follows:
(A) In the event such termination is a termination by FOL or
the Company without Cause following a Change in Control or
a termination by Executive for Good Reason following a
Change in Control, an amount paid by FOL equal to the sum
of Executive's annual base salary payable under Section
4(a) immediately prior to termination plus the average
annual incentive compensation paid to Executive in the
three years immediately preceding the year of termination
(or, if Executive was not eligible to receive or did not
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receive such incentive compensation for any year in such
three year period, the Executive's target annual incentive
compensation for such year(s) shall be used to calculate
average annual incentive compensation) (such sum being the
"total cash" for purposes of this Section 7(b)(i))
multiplied by a number which is the greater of the number
of years (including any fraction determined based on the
number of days remaining in the year of termination)
remaining in the term without regard to such termination or
2.0, which payment shall be reduced pro rata to the extent
the number of full months remaining until Executive attains
age 65 is less than 24 months, plus, in lieu of any payment
in respect of performance shares or other long term
incentive awards granted in accordance with Section 5(a)
for any performance period not completed at the date of
Executive's termination (unless otherwise payable under
(iii) below), an amount equal to the cash amount payable
plus the value of any shares of Common Stock or other
property (valued at the date of termination) payable upon
the achievement of maximum performance in respect of each
tranche of performance shares without proration; or
(B) In the event such termination is a termination by FOL or
the Company without Cause prior to a Change in Control, an
amount equal to then-current annual base salary payable
under Section 4(a) multiplied by 2.0, which payment shall
be reduced pro rata to the extent the number of full months
remaining until Executive attains age 65 is less than 24
months, plus, in lieu of any payment in respect of
performance shares or other long term incentive awards
granted in accordance with Section 5(a) for any performance
period not completed at the date of Executive's termination
(unless otherwise payable under (iii) below), Executive
will be paid in cash an amount equal to the cash amount
payable plus the value of any shares of Common Stock or
other property (valued at the date of termination) payable
upon achievement of the greater of target performance or
actual performance achieved at the date of termination in
respect of each tranche of performance shares, multiplied
by a fraction the numerator of which is the number of days
Executive was employed and served during the respective
performance period and the denominator of which is the
total number of days in such performance period;
(ii) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and (c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
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conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment and service
terminated (unless otherwise payable under (iii) above), Executive
will be paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive compensation
for any year in such three year period, the Executive's target
annual incentive compensation for such year(s) shall be used to
calculate average annual incentive compensation) multiplied by a
fraction the numerator of which is the number of days Executive
was employed and served in the year of termination and the
denominator of which is the total number of days in the year of
termination;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs (and the agreements and other documents thereunder)
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral; provided, however, in the
event of a termination by FOL or the Company without Cause prior
to a Change in Control, a cash amount will be paid equal to the
amount credited to Executive's deferral accounts under deferral
arrangements authorized under Section 5(d) hereof at the date of
termination (including cash equal in value at that date to any
shares of Common Stock credited to Executive's deferral accounts),
less applicable withholding taxes under Section 12(i); provided,
however, that FOL may instead settle such accounts by directing
the Trustee to distribute the assets of the "rabbi trust." Such
amounts shall be paid or distributed as promptly as practicable
following such date of termination, without regard to any stated
period of deferral otherwise remaining in respect of such amounts,
and the payment of such amounts shall be deemed to fully settle
such accounts;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e);
(viii) In the event such termination is a termination by FOL or the
Company without Cause following a Change in Control or a
termination by Executive for Good Reason following a Change in
Control, a lump-sum cash payment will be paid by FOL equal to the
present value of Executive's accrued benefit, if any, which shall
be fully vested at the date of termination, under all supplemental
(non-qualified) pension plans of the Company, unless such benefits
are fully funded based on assets held in trust for the benefit of
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Executive which cannot be reached by creditors of the Company or
FOL, or such benefits are otherwise funded and secured in an
equivalent manner; and
(ix) In the event such termination is a termination by FOL without
cause or a termination by Executive for Good Reason, for a period
of two years after such termination, Executive shall continue to
participate in all employee, executive, and special individual
benefit plans, programs, and arrangements under Section 5(c)
including but not limited to health, medical, disability, life
insurance, and pension benefits in which Executive was
participating immediately prior to termination, the terms of which
allow Executive's continued participation, as if Executive had
continued in employment with the Company and service to FOL during
such period or, if such plans, programs, or arrangements do not
allow Executive's continued participation, a cash payment
equivalent on an after-tax basis to the value of the additional
benefits Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if Executive
had received credit under such plans, programs, and arrangements
for service and age with the Company during such period following
Executive's termination, with such benefits payable by the Company
and/or FOL at the same times and in the same manner as such
benefits would have been received by Executive under such plans
(it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which
shall not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating).
Amounts payable under (i), (ii), (iii), (iv), (vi), (vii), and (viii) above
will be paid as promptly as practicable after Executive's termination, and in
no event more than 45 days after such termination, provided, however, that, in
the case of a termination by FOL without Cause prior to a Change in Control,
to the extent that FOL would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by FOL without limitation
under Section 162(m) (unless this provision is waived by FOL), but in no event
later than twelve months subsequent to the date of termination.
8. Definitions Relating to Termination Events.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition,
"gross misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the
Company, FOL, or any of their subsidiaries or affiliates or materially impairs
the value of the Executive's services to the Company or FOL, or (B) willfully
engaging in one or more acts, or willfully omitting to act in accordance with
duties hereunder, which is demonstrably and materially damaging to the
Company, FOL, or any of their subsidiaries or affiliates, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or
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failure to act on Executive's part shall be considered "willful" if it was
done or omitted to be done by him not in good faith, and shall not include any
act or failure to act resulting from any incapacity of Executive.
Notwithstanding the foregoing, Executive may not be terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by a majority affirmative vote of the membership of the Board of
Directors of FOL or the Company (excluding Executive, if he is then a member)
at a meeting of such Board called and held for such purpose (after giving
Executive reasonable notice specifying the nature of the grounds for such
termination and not less than 30 days to correct the acts or omissions
complained of, if correctable, and affording Executive the opportunity,
together with his counsel, to be heard before such Board) finding that, in the
good faith opinion of the Board, Executive was guilty of conduct affecting the
Board's corporation or a subsidiary which conduct constitutes Cause as set
forth in this Section 8(a).
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the shares
of Common Stock of FOL then outstanding ("FOL Common Stock
Outstanding") or the voting securities of FOL then outstanding
entitled to vote generally in the election of directors ("FOL
Voting Securities Outstanding"); provided, however, that such
acquisition of Beneficial Ownership would result in the Person's
Beneficially Owning twenty-five percent (25%) or more of FOL
Common Stock Outstanding or twenty-five percent (25%) or more of
the combined voting power of FOL Voting Securities Outstanding;
and provided further, that immediately prior to such acquisition
such Person was not a direct or indirect Beneficial Owner of
twenty-five percent (25%) or more of FOL Common Stock Outstanding
or twenty-five percent (25%) or more of the combined voting power
of FOL Voting Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of FOL of a reorganization,
merger, consolidation, complete liquidation or dissolution of FOL,
the sale or disposition of all or substantially all of the assets
of FOL or similar corporate transaction (in each case referred to
in this Section 8(b) as a "Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time
of such approval by stockholders, to the consent of any government
or governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board of Directors of FOL (the
"FOL Board") such that the individuals who, as of the Effective
Date, constitute the FOL Board (such FOL Board shall be
hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the FOL Board;
provided, however, for purposes of this Section 8(b), that any
individual who becomes a member of the FOL Board subsequent to the
Effective Date whose election, or nomination for election by FOL's
stockholders, was approved by a vote of at least a majority of
those individuals who are members of the Board and who were also
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members of the Incumbent FOL Board (or deemed to be such pursuant
to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A under the Exchange
Act, including any successor to such Rule) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board shall not be so considered as a
member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by FOL or an affiliate; or (2) any acquisition or
consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and
the combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of FOL
Common Stock Outstanding and FOL Voting Securities Outstanding immediately
prior to such acquisition or Corporate Transaction in substantially the same
proportions as their ownership, immediately prior to such acquisition or
Corporate Transaction, of FOL Common Stock Outstanding and FOL Voting
Securities Outstanding, as the case may be; or (3) any transaction initiated
or controlled, directly or indirectly, by Executive, in a capacity other than
as a senior executive or director of FOL or senior executive or director of
the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning," and
"Beneficial Ownership" shall have the meanings ascribed to such
terms in Rule 13d-3 under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
(C) The term "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including "group" as defined in Section 13(d)
thereof.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of
any physical or mental incapacity or disability as determined by a physician
or physicians selected by FOL and reasonably acceptable to Executive, unless,
within 30 days after Executive has received written notice from FOL of a
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proposed termination due to such absence, Executive shall have returned to the
full performance of his duties hereunder and shall have presented to FOL a
written certificate of Executive's good health prepared by a physician
selected FOL and reasonably acceptable to the Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean the occurrence of a Change in Control following which there
occurs, without Executive's prior written consent: (A) a material change,
adverse to Executive, in Executive's positions, titles, or offices, status,
rank, nature of responsibilities, or authority within FOL in effect prior to a
Change in Control, except in connection with the termination of Executive's
service to FOL for Cause, Disability, Normal Retirement or Approved Early
Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive with FOL which are
inconsistent with his status, duties, responsibilities, and authorities in
effect prior to a Change in Control, (C) a decrease in annual base salary or
other compensation opportunities and maximums or benefits provided under this
Agreement, (D) any other failure by FOL or the Company to perform any material
obligation under, or breach by FOL or the Company of any material provision
of, this Agreement, (E) a relocation of the Corporate Offices of FOL more than
35 miles from the latest location of such offices prior to a Change in
Control, (F) any failure to secure the agreement of any successor corporation
or other entity to FOL or to the Company to fully assume the obligations of
FOL or the Company, respectively, under this Agreement in a form reasonably
acceptable to Executive, and (G) any attempt by FOL or the Company to
terminate Executive for Cause which does not result in a valid termination for
Cause, except in the case that valid grounds for termination for Cause exist
but are corrected as permitted under Section 8(a).
9. Excise Tax Gross-Up.
In the event that there shall occur a Change in Control of FOL, if
Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company, FOL, or any affiliated
company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), FOL
shall pay to Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement
for any penalties and interest that may accrue in respect of such Excise Tax)
such that the net amount retained by Executive, after reduction for any Excise
Tax (including any penalties or interest thereon) on the Total Payments and
any federal, state and local income or employment tax and Excise Tax on the
Gross-up Payment provided for by this Section 9, but before reduction for any
federal, state, or local income or employment tax on the Total Payments, shall
be equal to the sum of (a) the Total Payments, and (b) an amount equal to the
product of any deductions disallowed for federal, state, or local income tax
purposes because of the inclusion of the Gross-up Payment in Executive's
adjusted gross income multiplied by the highest applicable marginal rate of
federal, state, or local income taxation, respectively, for the calendar year
in which the Gross-up Payment is to be made.
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For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent compensation
consultants or auditors of nationally recognized standing
("Independent Advisors") selected by FOL and reasonably
acceptable to Executive, the Total Payments (in whole or in
part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in
excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the
Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the total
amount of excess parachute payments within the meaning of
section 280G(b)(1) of the Code (after applying clause (i)
above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local income
tax purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income. In the event that the
Excise Tax is subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Executive shall
repay to FOL at the time that the amount of such reduction in Excise Tax is
finally determined (but, if previously paid to the taxing authorities, not prior
to the time the amount of such reduction is refunded to Executive or otherwise
realized as a benefit by Executive) the portion of the Gross-up Payment that
would not have been paid if such Excise Tax had been applied in initially
calculating the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
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event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-up Payment), FOL shall make an additional Gross-up
Payment in respect of such excess (plus any interest and penalties payable
with respect to such excess) at the time that the amount of such excess is
finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or
any portion thereof) are subject to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, FOL shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon
as the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by FOL to Executive, payable on the
fifth day after demand by FOL (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is
made, the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment. FOL shall have the right to control all
proceedings with the Internal Revenue Service that may arise in connection
with the determination and assessment of any Excise Tax and, at its sole
option, FOL may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with any taxing authority in respect of
such Excise Tax (including any interest or penalties thereon); provided,
however, that FOL's control over any such proceedings shall be limited to
issues with respect to which a Gross-up Payment would be payable hereunder,
and Executive shall be entitled to settle or contest any other issue raised by
the Internal Revenue Service or any other taxing authority. Executive shall
cooperate with FOL in any proceedings relating to the determination and
assessment of any Excise Tax and shall not take any position or action that
would materially increase the amount of any Gross-Up Payment hereunder.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
(a) Non-Competition. Without the consent in writing of the
Board of Directors of FOL, upon termination of Executive's employment and
cessation of service to FOL for any reason, Executive will not, for a period
of two years thereafter, acting alone or in conjunction with others, directly
or indirectly (i) engage (either as owner, investor, partner, stockholder,
employer, employee, consultant, advisor or director) in any business in the
continental United States in which he has been directly engaged on behalf of
FOL or any of its subsidiaries, or has supervised as an executive thereof,
during the last two years prior to such termination and which is directly in
competition with a business then conducted by FOL or any of its subsidiaries;
(ii) induce any customers of FOL or any of its subsidiaries with whom
Executive has had contacts or relationships, directly or indirectly, during
and within the scope of his assignment and service to FOL or any of its
subsidiaries, to curtail or cancel their business with such companies or any
of them; or (iii) induce, or attempt to influence, any employee FOL or any of
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its subsidiaries to terminate employment; provided, however, that the
limitation contained in clause (i) above shall not apply if Executive's
employment is terminated as a result of a termination by FOL without Cause
following a Change in Control or a termination by Executive for Good Reason
following a Change in Control. The provisions of subparagraphs (i), (ii) and
(iii) above are separate and distinct commitments independent of each of the
other subparagraphs. It is agreed that the ownership of not more than one
percent of the equity securities of any company having securities listed on an
exchange or regularly traded in the over-the-counter market shall not, of
itself, be deemed inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment with the Company or service with FOL for any reason), disclose,
use, transfer, or sell, except in the course of employment with or other
service to the Company, FOL, any company or business other than FOL for which
the Company provides management services, and any subsidiary or affiliate
thereof, any confidential or proprietary information of the Company, FOL, any
company or business other than FOL for which the Company provides management
services, and any subsidiary or affiliate thereof so long as such information
has not otherwise been disclosed or is not otherwise in the public domain,
except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company and FOL, during the Term and thereafter (including
following Executive's termination of employment with the Company or service
with FOL for any reason), by making himself available to testify on behalf of
the Company, FOL, any company or business other than FOL for which the Company
provides management services, or any subsidiary or affiliate thereof, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, FOL, any company or business other
than FOL for which the Company provides management services, or any subsidiary
or affiliate thereof, in any such action, suit, or proceeding, by providing
information and meeting and consulting with the Board of Directors of the
Company and the Board of Directors of FOL, and their representatives or
counsel, or representatives or counsel of the Company, FOL, any company or
business other than FOL for which the Company provides management services, or
any subsidiary or affiliate thereof, as requested. The Company and FOL agree
to reimburse Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Release of Employment Claims. Executive agrees, as a
condition to receipt of the termination payments and benefits provided for in
Sections 6 and 7 herein, that he will execute a release agreement, in a form
satisfactory to the Company and FOL, releasing any and all claims arising out
of Executive's employment by the Company and service by FOL (other than
enforcement of this Agreement).
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. Governing Law; Disputes; Arbitration.
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(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and
regulations may be applicable. If under the governing law, any portion of
this Agreement is at any time deemed to be in conflict with any applicable
statute, rule, regulation, ordinance, or other principle of law, such portion
shall be deemed to be modified or altered to the extent necessary to conform
thereto or, if that is not possible, to be omitted from this Agreement. The
invalidity of any such portion shall not affect the force, effect, and
validity of the remaining portion hereof. If any court determines that any
provision of Section 10 is unenforceable because of the duration or geographic
scope of such provision, it is the parties' intent that such court shall have
the power to modify the duration or geographic scope of such provision, as the
case may be, to the extent necessary to render the provision enforceable and,
in its modified form, such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to enforce rights pursuant to this Agreement
shall be paid on behalf of or reimbursed to Executive promptly by the Company,
whether or not Executive is successful in asserting such rights; provided,
however, that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that Executive's
assertion of such rights was in bad faith or frivolous, as determined by
independent counsel mutually acceptable to the Executive and the Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration
in Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company, FOL, and Executive hereby consent to
the jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts
of the State of Illinois, or (iii) any other court having jurisdiction. The
Company, FOL, and Executive further agree that any service of process or
notice requirements in any such proceeding shall be satisfied if the rules of
such court relating thereto have been substantially satisfied. The Company,
FOL, and Executive hereby waive, to the fullest extent permitted by applicable
law, any objection which it may now or hereafter have to such jurisdiction and
any defense of inconvenient forum. The Company, FOL, and Executive hereby
agree that a judgment upon an award rendered by the arbitrators may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Subject to Section 11(b), the Company shall bear all costs
and expenses arising in connection with any arbitration proceeding pursuant to
this Section 11. Notwithstanding any provision in this Section 11, Executive
shall be entitled to seek specific performance of Executive's right to be paid
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
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or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest, payable by the party owing such amounts, at
the prime rate in effect at the time such payment first becomes payable, as
quoted by the Bankers Trust Company.
12. Miscellaneous.
(a) Integration. This Agreement modifies and supersedes any
and all prior agreements and understandings among the parties hereto with
respect to the employment of Executive by the Company (and any affiliate) and
assignment as a senior executive of FOL (and any subsidiary), except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and FOL and subject to the provisions of Section
1(b). This Agreement (together with the Option Agreement ) constitutes the
entire agreement among the parties with respect to the matters herein
provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto. Executive shall
not be entitled to any payment or benefit under this Agreement which
duplicates a payment or benefit received or receivable by Executive under such
prior agreements and understandings with the Company and/or FOL or under any
benefit or compensation plan of the Company and/or FOL.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company and FOL may assign
this Agreement and the Company's and FOL's rights and obligations hereunder,
and shall assign this Agreement, to any Successor (as hereinafter defined)
which, by operation of law or otherwise, continues to carry on substantially
the business of the Company or FOL prior to the event of succession, and the
Company and FOL, if involved in any such event, shall, as a condition of the
succession, require such Successor to agree to assume the obligations of the
predecessor and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical
ability to control (either immediately or with the passage of time), the
business of the Company or FOL directly, by merger or consolidation, or
indirectly, by purchase of the Company's or FOL's voting securities or all or
substantially all of the Company or FOL's assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by
Federal Express or other similar overnight service or by certified or
registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:
If to the Company:
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Farley Industries, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
If to FOL:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
Richard C. Lappin
560 Oak Knoll Road
Barrington Hills, Illinois 60010
If the parties by mutual agreement supply all other parties with telecopier
numbers for the purposes of providing notice by facsimile, such notice shall
also be proper notice under this Agreement. In the case of Federal Express or
other similar overnight service, such notice or advice shall be effective when
sent, and, in the cases of certified or registered mail, shall be effective 2
days after deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect
the right of such party to require such performance or to resort to such
remedy at any time thereafter, nor shall the waiver by any party of a breach
of any of the provisions hereof be deemed to be a waiver of any subsequent
breach of such provisions. No such waiver shall be effective unless in
writing and signed by the party against whom such waiver is sought to be
enforced.
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(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment or service to FOL; provided, however, that, to the
extent Executive receives from a subsequent employer health or other insurance
benefits that are substantially similar to the benefits referred to in Section
5(c) hereof, any such benefits to be provided by the Company or FOL to
Executive following the Term shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by
the Company and/or FOL to Executive pursuant to this Agreement shall not be
subject to offset other than with respect to any amounts that are owed to the
Company or FOL by Executive due to his receipt of funds as a result of his
fraudulent activity. The foregoing and other provisions of this Agreement
notwithstanding, all payments to be made to Executive under this Agreement,
including under Sections 6 and 7, or otherwise by the Company or FOL will be
subject to required withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns and of FOL and its
successors and assigns.
13. Indemnification.
All rights to indemnification by the Company or FOL now existing
in favor of the Executive as provided in the Certificate of Incorporation or
By-Laws of the Company or FOL or pursuant to other agreements in effect on or
immediately prior to the Effective Date shall continue in full force and
effect from the Effective Date (including all periods after the expiration of
the Term), and the Company and FOL shall also advance expenses for which
indemnification may be ultimately claimed as such expenses are incurred to the
fullest extent permitted under applicable law, subject to any requirement that
the Executive provide an undertaking to repay such advances if it is
ultimately determined that the Executive is not entitled to indemnification;
provided, however, that any determination required to be made with respect to
whether the Executive's conduct complies with the standards required to be met
as a condition of indemnification or advancement of expenses under applicable
law and the Company's or FOL's Certificate of Incorporation, By-Laws, or other
agreement shall be made by independent counsel mutually acceptable to the
Executive and the indemnifying party (except to the extent otherwise required
by law). After the date hereof, the Company and FOL shall not amend its
respective Certificate of Incorporation or By-Laws or any agreement in any
manner which adversely affects the rights of the Executive to indemnification
thereunder. Any provision contained herein notwithstanding, this Agreement
shall not limit or reduce any rights of the Executive to indemnification
pursuant to applicable law. In addition, the Company and FOL will maintain
directors' and officers' liability insurance in effect and covering acts and
omissions of Executive (including during the Term and for a period of six
years thereafter) on terms substantially no less favorable as those in effect
on the Effective Date (if any).
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IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company and FOL have each caused this instrument to be duly executed as of the
day and year first above written.
FARLEY INDUSTRIES, INC.
By: /S/ William Farley
Name: William Farley
Title: Chairman and Chief Executive Officer
FRUIT OF THE LOOM, INC.
By: /S/ William Farley
Name: William Farley
Title: Chairman and Chief Executive Officer
EXECUTIVE
/S/ Richard C. Lappin
Richard C. Lappin
<PAGE> 145
CONFORMED COPY
FARLEY INDUSTRIES, INC.
and
FRUIT OF THE LOOM, INC.
Employment Agreement for Richard M. Cion
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<PAGE> 146
FARLEY INDUSTRIES, INC.
and
FRUIT OF THE LOOM, INC.
Employment Agreement for Richard M. Cion
1. Employment and Assignment; Obligations of FOL and Company . . . . . 147
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
3. Offices and Duties . . . . . . . . . . . . . . . . . . . . . . . . . 148
4. Salary and Annual Incentive Compensation . . . . . . . . . . . . . . 149
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement . . . . . . . . . . 149
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability . . . . . . . . . . . . . . . . . . . . . . . . 153
7. Termination For Reasons Other Than Normal Retirement, Approved Early
Retirement, Death or Disability . . . . . . . . . . . . . . . . . . 156
8. Definitions Relating to Termination Events. . . . . . . . . . . . . 160
9. Excise Tax Gross-Up . . . . . . . . . . . . . . . . . . . . . . . . 163
10. Non-Competition and Non-Disclosure; Executive Cooperation . . . . . 165
11. Governing Law; Disputes; Arbitration . . . . . . . . . . . . . . . . 166
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
13. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 170
<PAGE>
<PAGE> 147
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of the 28th day of March,
1995, by and among FARLEY INDUSTRIES, INC., an Illinois corporation (the
"Company"), FRUIT OF THE LOOM, INC., a Delaware corporation ("FOL"), and
Richard M. Cion ("Executive"), and shall become effective as of December 18,
1994 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has served and is serving as a senior executive
of the Company and, under Service Agreements between the Company and FOL (any
such agreement as may be in effect from time to time being the "Service
Agreement"), as a senior executive of FOL; and
WHEREAS, FOL desires that Executive continue to serve FOL in a
senior executive capacity in connection with the conduct of its businesses,
the Company desires to continue to employ Executive as a senior executive so
that he may continue serve FOL, under the Service Agreement, in such a senior
executive capacity, and Executive desires to accept such employment by the
Company and assignment with FOL on the terms and conditions herein set forth;
and
WHEREAS, the Company, FOL, and Executive desire to set forth the
terms upon which Executive shall be so employed by the Company and assigned to
FOL.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company, FOL, and Executive each hereby
acknowledge, the Company, FOL, and Executive hereby agree as follows:
1. Employment and Assignment; Obligations of FOL and Company.
(a) Employment by the Company and Assignment to FOL. The
Company hereby agrees to employ Executive as a senior executive of the Company
and as a senior executive assigned to serve as a senior executive of FOL, FOL
hereby agrees to the assignment of Executive as a senior executive of FOL, and
Executive hereby agrees to accept such employment and assignment and serve in
such capacities, during the Term as defined in Section 2 and upon the terms
and conditions set forth in this Employment Agreement (this "Agreement").
(b) Obligations of FOL and Company, and Effect on Service
Agreement. FOL guarantees to Executive payment of all obligations hereunder
of the Company to Executive, including obligations under Sections 6 and 7.
FOL and the Company acknowledge and agree that, to the extent that this
Agreement specifies matters relating to the assignment of Executive to FOL and
imposes obligations between FOL and the Company relating thereto, this
Agreement may modify and amend the terms of any Service Agreement. If FOL
makes any payment of cash or property to Executive hereunder, including any
payment under a guarantee by FOL of a direct obligation of the Company to
Executive hereunder, that duplicates a payment made or owing by FOL to the
Company under the Service Agreement, FOL shall have a right of reimbursement
or setoff against the Company in respect of such payment. If Section 6 or 7
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specify a payment, action or other obligation to Executive following
termination of Executive's employment by the Company and service to FOL
without specifying the primary obligor therefor, the obligor therefor shall be
FOL in respect of any obligation that replaces, settles, or otherwise relates
to an obligation of FOL under Sections 4 and 5 and shall be the Company in
respect of any obligation that replaces, settles, or otherwise relates to an
obligation of the Company under Sections 4 and 5, subject to FOL's guarantee
of the obligations of the Company.
2. Term.
The term of employment of Executive and assignment to FOL under
this Agreement (the "Term") shall be the period commencing on the Effective
Date and terminating on December 17, 1997 and any period of extension thereof
in accordance with this Section 2, subject to earlier termination in
accordance with Section 6 or 7. The Term shall be extended automatically
without further action by any party for the one-year period beginning on
December 18, 1997 and each succeeding December 18 thereafter, unless the
Company or FOL shall have served written notice upon Executive (and on the one
of the Company or FOL not serving such notice, if the two are not acting
jointly), or Executive shall have served written notice on the Company and
FOL, in either case in accordance with the provisions of Section 12(d), on or
prior to the June 30 preceding a date upon which such extension would become
effective electing not to extend the Term further as of the December 18 next
succeeding the date such notice is served, in which case the Term shall
terminate at the next December 17 (subject to earlier termination in
accordance with Section 6 or 7).
3. Offices and Duties.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as Senior Executive Vice
President-Corporate Development assigned, pursuant to the Service Agreement,
to serve as Senior Executive Vice President-Corporate Development of FOL.
Executive shall have and perform such duties, responsibilities and authorities
with FOL, on behalf of the Company, as are substantially consistent with his
duties, responsibilities, authorities, rank and status with the Company and
FOL as of the Effective Date. Executive shall devote substantial business
time and attention, and his best efforts, abilities, experience, and talent,
to the position of Senior Executive Vice President-Corporate Development of
the Company and of FOL and for the businesses of the Company and FOL;
provided, however, that nothing in this Agreement shall preclude or prohibit
Executive from engaging in other activities, including as assigned by the
Company, to the extent that such other activities do not preclude Executive's
employment and assignment to serve FOL or otherwise inhibit the performance of
Executive's duties under this Agreement or impair the businesses of the FOL,
the Company and their subsidiaries and affiliates.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Fairfield,
Connecticut or such other headquarters location as may be assigned by FOL,
subject to the consent of the Company which shall not be reasonably withheld.
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4. Salary and Annual Incentive Compensation.
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4, and FOL agrees to guarantee the
payment of such compensation to Executive.
(a) Base Salary. The Company will pay to Executive during the
Term a base salary at the annual rate in effect at the Effective Date, payable
in cash in substantially equal monthly installments during each calendar year,
or portion thereof, of the Term and otherwise in accordance with the Company's
usual payroll practices with respect to persons assigned to serve as senior
executives of FOL (except to the extent deferred under Section 5(d)).
Executive's annual base salary shall be reviewed by FOL and the Company at
least once in each calendar year and may be increased above, but may not be
reduced below, the then-current rate of such base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, determined through
Executive's participation in the FOL 1995 Executive Incentive Compensation
Plan (subject to approval thereof by FOL's stockholders) (the "1995 EICP"),
the FOL Executive Incentive Compensation Plan (the "EICP") if the 1995 EICP is
not approved by FOL stockholders, and any successor to the 1995 EICP or the
EICP, which shall offer to Executive an opportunity to earn additional
compensation in amounts determined by and in the sole discretion of the
Compensation Committee of the Board of Directors of FOL (the "Committee"), in
accordance with the applicable plan and consistent with past practices of the
Company; provided, however, that FOL and the Company will use their best
efforts to maintain in effect, for each year during the Term, the 1995 EICP,
the EICP (if the 1995 EICP is not approved by FOL stockholders), or an
equivalent plan under which Executive will be eligible for an award not less
than the opportunity level available under the 1995 EICP or the EICP during
1995 (if the 1995 EICP is not approved by FOL stockholders) to senior
executives of FOL in similar capacities. Any such annual incentive compensa-
tion payable to Executive shall be paid by FOL to the Company and by the
Company (without varying the amount or timing of payment or otherwise
exercising discretion) to Executive in accordance with FOL's incentive
compensation payment practices with respect to senior executives (except to
the extent deferred under Section 5(d)).
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to provide the compensation and benefits to
the extent specified in this Section 5, including Sections 5(a), (c), (d), and
(e), FOL agrees to guarantee the payment of all such compensation and benefits
to be provided by the Company under this Section 5, and FOL agrees to provide
the compensation and benefits to the extent specified in this Section 5,
including Sections 5(a), (b),(d) and (e).
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(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation
by senior executives of the Company, including those assigned to FOL and by
senior executives of FOL, as presently in effect or as they may be modified or
added to from time to time, subject to the eligibility and other requirements
of such plans and programs, including without limitation the long-term
incentive features of the 1995 EICP, the EICP (if the 1995 EICP is not
approved by FOL's stockholders), any successor to such plans, and other stock
option plans, performance share plans, management incentive plans, and
deferred compensation plans of FOL, and supplemental retirement plans of the
Company; provided, however, that such compensation plans and programs, in the
aggregate, shall provide Executive with benefits and compensation and
incentive award opportunities substantially no less favorable than those
provided by the Company and FOL under such plans and programs to senior
executives in similar capacities. For purposes of this Agreement, all
references to "performance share plans" and "performance shares" refer to such
arrangements under the 1994 EICP or the EICP and to any performance shares,
performance units, stock grants, or other long-term incentive arrangements
adopted as a successor or replacement to performance shares under such plans
or other plans of the Company
(b) Stock Option Grant Upon Signing Agreement. In addition to
the compensation otherwise specified under Sections 4 and 5, FOL has granted
to Executive, as of December 18, 1994 and conditioned upon Executive's
execution of this Agreement, a non-qualified stock option to purchase 50,000
shares of FOL's Class A Common Stock (the "1995 Option"), under the 1995 EICP,
subject to stockholder approval of the 1995 EICP at FOL's 1995 Annual Meeting
of Stockholders. The 1995 Option shall be evidenced by, and have the terms
set forth in, the option agreement attached as Exhibit A hereto (the "Option
Agreement"), which has been authorized and approved by the Committee under the
1995 EICP.
Not later than such time as the 1995 Option becomes exercisable,
FOL will have filed with the Securities and Exchange Commission, and will
thereafter maintain the effectiveness of, a registration statement registering
under the Securities Act of 1933, as amended, the offer and sale of shares by
FOL pursuant to the 1995 Option, which registration statement shall include a
resale prospectus covering the reoffer and resale (or other disposition) of
all shares acquired by Executive upon exercise of the 1995 Option, and FOL
will maintain as current all offering materials under such registration
statement at all times that offers and sales of such shares could be made by
FOL or Executive.
(c) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or
duplication, in all employee and executive benefit plans and programs of the
Company, as presently in effect or as they may be modified or added to by the
Company from time to time, to the extent such plans are available to similarly
situated senior executives or employees of the Company, including those
assigned to serve as senior executives of FOL, subject to the eligibility and
other requirements of such plans and programs, including without limitation
plans providing pensions, other retirement benefits, medical insurance, life
insurance, disability insurance, and accidental death or dismemberment
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insurance, and participation in savings, profit-sharing, and stock ownership
plans; provided, however, that such benefit plans and programs and any benefit
plans and programs of FOL in which Executive may from time to time participate
shall, in the aggregate, provide Executive with benefits substantially no less
favorable than those provided by the Company and FOL to senior executives in
similar capacities.
In furtherance of and not in limitation of the foregoing, during
the Term:
(i) Executive will participate in all executive and employee vacation
and time-off programs;
(ii) The Company will provide Executive with coverage by long-term
disability insurance and benefits substantially no less favorable
(including any required contributions by Executive) than such
insurance and benefits provided to Executive at January 1, 1995;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit of not less than
three times Executive's annual base salary under Section 4(a);
provided, however, that such insurance may be combined with a
supplementary retirement funding vehicle;
(iv) Under the Company's pension plans (including supplemental plans):
(A) Executive will be entitled to benefits substantially no less
favorable than those under such plans and programs of the Company
as in effect at January 1, 1995; (B) for purposes of calculating
such benefits, (x) Executive's compensation covered by such plans
will include 100% of annual salary paid under Section 4(a) and no
less than 50% of annual incentive compensation paid under Section
4(b), and (y) Executive shall be credited, for each full calendar
year of the Term that is completed up to ten years, with one-half
additional year of service up to five additional years under such
plans, which shall be fully vested upon crediting; and (C) amounts
equal to the present value of Executive's accrued benefit vested
at any time during the Term, under all supplemental (non-
qualified) pension plans of the Company, will be fully funded by
the Company by the purchase of an insured annuity, the ownership
of which shall be transferred to Executive, providing a benefit
equivalent to such accrued benefit on an after-tax basis, and the
Company will pay to Executive an additional amount (or apply such
additional amount to the purchase of an increased insured annuity
if so elected by Executive) equal to the total of Executive's
federal, state, and local income and employment taxes on the
insured annuity and such additional amount; and
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior executives,
including those assigned to serve as senior executives of FOL,
subject to a lifetime maximum amount of supplemental
reimbursements of $750,000; provided, however, that supplemental
health and medical benefits shall provide for reimbursement of
Executive to the extent that any limitation on maximum lifetime
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health and medical benefits and reimbursements under other Company
policies and programs is exceeded.
(d) Deferral of Compensation. The Company and FOL shall
implement deferral arrangements, as obligations of FOL, permitting Executive
to elect to irrevocably defer receipt, pursuant to written deferral election
terms and forms (the "Deferral Election Forms"), of all or a specified portion
of (i) his annual base salary and annual incentive compensation under Section
4, (ii) long-term incentive compensation under Sections 5(a) and 5(b)
(including payouts relating to performance shares), and (iii) shares acquired
upon exercise of options granted under Sections 5(a) and (b) that are acquired
in an exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares
acquired by Executive in such exercise; provided, however, that such deferrals
shall not reduce Executive's total cash compensation in any calendar year
below the sum of (i) the FICA maximum taxable wage base plus (ii) 1.45% of
Executive's salary, annual incentive compensation and long-term incentive
compensation in excess of such FICA maximum. In addition, the Committee may
require mandatory deferral of amounts payable as annual incentive compensation
under Section 4(b) or long-term incentive compensation under Sections 5(a) and
5(b), which deferrals will otherwise be in accordance with this Section 5(d),
and the Company hereby delegates to such Committee full authority to require
such mandatory deferral of annual incentive compensation.
In accordance with such duly executed Deferral Election Forms or
the terms of any mandatory deferral, FOL shall, in lieu of payment by FOL to
the Company (under the Service Agreement in respect of Executive's services)
and in lieu of any direct payment by FOL or the Company to Executive, credit
to one or more bookkeeping accounts maintained by FOL for Executive, on the
respective date or dates payments would otherwise be due to Executive, amounts
equal to the compensation subject to deferral, such credits to be denominated
in cash if the compensation would have been paid in cash but for the deferral
or in shares if the compensation would have been paid in shares but for the
deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Common Stock equal
to the number of shares credited to Executive's account pursuant to this
Section 5(d) shall be transferred as soon as practicable following such
crediting by FOL to, and shall be held and invested by, an independent trustee
selected by FOL (a "Trustee") pursuant to a "rabbi trust" established by FOL
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including
possible investment in publicly traded stocks and bonds, mutual funds, and
insurance vehicles). Thereafter, Executive's deferral accounts will be valued
by reference to the value of the assets of the "rabbi trust"; provided,
however, that a portion of the assets of the "rabbi trust" may be used to
reimburse FOL for its reasonable cost of funds resulting from payment of taxes
by FOL relating to such rabbi trust assets during the period of deferral and
prior to the settlement of Executive's deferral accounts. FOL shall pay all
other costs of administration of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or termination of
service to FOL or as otherwise determined by the Committee in the event of
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hardship on the part of Executive, upon such date(s) or event(s) set forth in
the Deferral Election Forms (including forms filed after deferral but before
settlement in which Executive may elect to further defer settlement) or the
terms of any mandatory deferral, FOL shall promptly pay to Executive cash
equal to the cash then credited to Executive's deferral accounts and cash
equal in value to any shares of Common Stock then credited to Executive's
deferral accounts, less applicable withholding taxes, and such distribution
shall be deemed to fully settle such accounts; provided, however, that FOL may
instead settle such accounts by directing the Trustee to distribute the assets
of the "rabbi trust." FOL, the Company, and Executive agree that compensation
deferred pursuant to this Section 5(d) shall be fully vested and
nonforfeitable; provided, however, Executive acknowledges that his rights to
the deferred compensation provided for in this Section 5(d) shall be no
greater than those of a general unsecured creditor of FOL, and that such
rights may not be pledged, collateralized, encumbered, hypothecated, or liable
for or subject to any lien, obligation, or liability of Executive, or be
assignable or transferable by Executive, otherwise than by will or the laws of
descent and distribution, provided that Executive may designate one or more
beneficiaries to receive any payment of such amounts in the event of his
death.
(e) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability
Executive may terminate employment with the Company and cease to
serve as a senior executive of FOL upon Executive's retirement at or after age
65 ("Normal Retirement") or, if approved in advance by the Company and the
Committee, upon Executive's early retirement prior to age 65 ("Approved Early
Retirement"). FOL may terminate the service of Executive due to the
Disability (as defined in Section 8(c)) of Executive, in which case
Executive's employment by the Company and service to FOL will terminate due to
Disability.
At the time Executive's employment by the Company and service to
FOL terminates due to Normal Retirement, Approved Early Retirement, or death,
the Term will terminate. In the event Executive's employment by the Company
and service to
FOL terminates due to Disability, the Term will terminate at the expiration of
the 30-day period referred to in the definition of Disability (set forth in
Section 8(c)) absent the actions referred to therein being taken by Executive
to return to service and present to the Company and FOL a certificate of good
health.
Upon a termination of Executive's employment by the Company and
service to FOL due to Normal Retirement, Approved Early Retirement, death, or
Disability, all obligations of the Company, FOL, and Executive under Sections
1 through 5 of this Agreement will immediately cease; provided, however, that
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subject to the provisions of Section 12(c), the Company and FOL will pay
Executive (or his beneficiaries or estate) (in accordance with Section 1(b)),
and Executive (or his beneficiaries or estate) will be entitled to receive,
the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and (c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year of Executive's termination (unless otherwise payable
under (ii) above), Executive will be paid an amount equal to the
average annual incentive compensation paid to Executive in the
three years immediately preceding the year of termination (or, if
Executive was not eligible to receive or did not receive such
incentive compensation for any year in such three year period, the
Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation)
multiplied by a fraction the numerator of which is the number of
days Executive was employed and served in the year of termination
and the denominator of which is the total number of days in the
year of termination;
(iv) In lieu of any payment in respect of performance shares granted in
accordance with Section 5(a) for any performance period not
completed at the date of Executive's termination (unless otherwise
payable under (ii) above), Executive will be paid in cash an
amount equal to the cash amount payable plus the value of any
shares of Common Stock or other property (valued at the date of
termination) payable upon achievement of (A) the maximum
performance, in the case of death or Disability, or (B) at target
performance, in the case of Normal Retirement or Early Retirement,
in respect of each tranche of performance shares, multiplied by a
fraction the numerator of which is the number of days Executive
was employed and served during the respective performance period
and the denominator of which is the total number of days in such
performance period;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs and the agreements and other documents thereunder
pursuant to which such stock options were granted;
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(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e);
(viii) Under FOL's pension plans (including supplemental plans),
Executive shall be retroactively credited, as of January 1 of the
year of termination, with one additional year of service up to
five additional years under such plans for the period from January
1, 1995 through the December 31st of the year prior to the year of
termination, such credit to be reduced by the number of additional
years of service previously credited under Section 5(c)(iv)(y).
Such retroactively credited years of service shall be deemed to be
fully vested as of January 1 of the year of termination; and
(ix) If Executive's employment and service terminates due to
Disability, for the period extending from such termination until
Executive reaches age 65, Executive shall continue to participate
in all employee benefit plans, programs, and arrangements under
Section 5(c) providing health, medical, and life insurance and
pension benefits in which Executive was participating immediately
prior to termination, the terms of which allow Executive's
continued participation, as if Executive had continued in
employment with the Company and service to FOL during such period
or, if such plans, programs, or arrangements do not allow
Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit plans,
programs, and arrangements in which Executive was participating
immediately prior to termination, as if Executive had received
credit under such plans, programs, and arrangements for service
and age with the Company and FOL during such period following
Executive's termination, with such benefits payable by the Company
and/or FOL at the same times and in the same manner as such
benefits would have been received by Executive under such plans
(it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which
shall not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided further, that, in the case of termination of Executive's employment
and service due to Disability, Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving the
compensation and benefits under (viii), above. Amounts payable under (i),
(ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after Executive's termination; provided, however, to the extent that FOL would
not be entitled to deduct any such payments under Internal Revenue Code
Section 162(m), such payments shall be made at the earliest time that the
payments would be deductible by FOL without limitation under Section 162(m)
(unless this provision is waived by FOL).
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7. Termination For Reasons Other Than Normal Retirement, Approved
Early Retirement, Death or Disability
(a) Termination for Cause and Termination by Executive. In
accordance with the provisions of this Section 7(a), FOL may terminate the
service of Executive as a senior executive of FOL for Cause (as defined in
Section 8(a)) at any time prior to a Change in Control (as defined in Section
8(b)), in which case Executive's employment by the Company and service to FOL
will terminate, the Company may terminate the employment of Executive for
Cause (as defined in Section 8(a)) at any time prior to a Change in Control
(as defined in Section 8(b)), and Executive may terminate his employment with
the Company and service with FOL voluntarily for reasons other than Good
Reason (as defined in Section 8(d)) at any time. An election by Executive not
to extend the Term pursuant to Section 2 hereof shall be deemed to be a
voluntary termination of such employment and such service by Executive at the
date of expiration of the Term, unless there occurs a Change in Control prior
to the date of expiration.
Upon a termination of Executive's service with FOL for Cause,
termination of Executive's employment by the Company for Cause or voluntarily
termination by the Executive, the Term will immediately terminate, and all
obligations of the Company and FOL under Sections 1 through 5 of this
Agreement will immediately cease; provided, however, that subject to the
provisions of Section 12(c), the Company and FOL shall pay Executive, and
Executive shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and 5(c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's deferral
accounts under deferral arrangements authorized under Section 5(d)
hereof at the date of termination (including cash equal in value
at that date to any shares of Common Stock credited to Executive's
deferral accounts), less applicable withholding taxes under
Section 12(i); provided, however, that FOL may instead settle such
accounts by directing the Trustee to distribute the assets of the
"rabbi trust." Such amounts shall be paid or distributed as
promptly as practicable following such date of termination,
without regard to any stated period of deferral otherwise
remaining in respect of such amounts, and the payment of such
amounts shall be deemed to fully settle such accounts; and
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(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as
promptly as practicable after Executive's termination; provided, however, to
the extent that FOL would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by FOL without limitation
under Section 162(m) (unless this provision is waived by FOL).
(b) Termination Without Cause and Termination by Executive for
Good Reason. In accordance with the provisions of this Section 7(b), FOL may
terminate the service by Executive as a senior executive of FOL without Cause
(as defined in Section 8(a)), including after a Change in Control (as defined
in Section 8(b)), upon 90 days' written notice to Executive, in which case
Executive's employment by the Company will terminate, the Company may
terminate Executive's employment without Cause (as defined in Section 8(a)),
including after a Change in Control (as defined in Section 8(b)), upon 90
days' written notice to Executive, and Executive may terminate his employment
by the Company and service with FOL for Good Reason (as defined in Section
8(d)) following a Change in Control upon 90 days' written notice to the
Company and FOL; provided, however, that, if the basis for such Good Reason is
correctable, the Company and/or FOL have not corrected the basis for such Good
Reason within 30 days after both have received such notice. The foregoing
notwithstanding, in lieu of the Company or FOL providing 90 days' written
notice to Executive, the Company and FOL may pay Executive his then-current
annual base salary under Section 4(a) and credit Executive with service for 90
days for all purposes hereunder. An election by the Company or FOL not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a
termination of service with FOL and termination of employment by the Company
without Cause at the date of expiration of the Term.
Upon a termination of Executive's service with FOL without Cause
or termination of Executive's employment by the Company without Cause prior to
or following a Change in Control or termination of Executive's service with
FOL and employment with the Company by Executive for Good Reason following a
Change in Control, the Term will immediately terminate and all obligations of
the Company, FOL, and Executive under Sections 1 through 5 of this Agreement
will immediately cease, except that subject to the provisions of Section 12(c)
the Company and FOL shall pay Executive, and Executive shall be entitled to
receive, the following:
(i) A lump-sum cash payment will be paid as follows:
(A) In the event such termination is a termination by FOL or
the Company without Cause following a Change in Control or
a termination by Executive for Good Reason following a
Change in Control, an amount paid by FOL equal to the sum
of Executive's annual base salary payable under Section
4(a) immediately prior to termination plus the average
annual incentive compensation paid to Executive in the
three years immediately preceding the year of termination
(or, if Executive was not eligible to receive or did not
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receive such incentive compensation for any year in such
three year period, the Executive's target annual incentive
compensation for such year(s) shall be used to calculate
average annual incentive compensation) (such sum being the
"total cash" for purposes of this Section 7(b)(i))
multiplied by a number which is the greater of the number
of years (including any fraction determined based on the
number of days remaining in the year of termination)
remaining in the term without regard to such termination or
2.0, which payment shall be reduced pro rata to the extent
the number of full months remaining until Executive attains
age 65 is less than 24 months, plus, in lieu of any payment
in respect of performance shares or other long term
incentive awards granted in accordance with Section 5(a)
for any performance period not completed at the date of
Executive's termination (unless otherwise payable under
(iii) below), an amount equal to the cash amount payable
plus the value of any shares of Common Stock or other
property (valued at the date of termination) payable upon
the achievement of maximum performance in respect of each
tranche of performance shares without proration; or
(B) In the event such termination is a termination by FOL or
the Company without Cause prior to a Change in Control, an
amount equal to then-current annual base salary payable
under Section 4(a) multiplied by 1.0, which payment shall
be reduced pro rata to the extent the number of full months
remaining until Executive attains age 65 is less than 12
months, plus, in lieu of any payment in respect of
performance shares or other long term incentive awards
granted in accordance with Section 5(a) for any performance
period not completed at the date of Executive's termination
(unless otherwise payable under (iii) below), Executive
will be paid in cash an amount equal to the cash amount
payable plus the value of any shares of Common Stock or
other property (valued at the date of termination) payable
upon achievement of the greater of target performance or
actual performance achieved at the date of termination in
respect of each tranche of performance shares, multiplied
by a fraction the numerator of which is the number of days
Executive was employed and served during the respective
performance period and the denominator of which is the
total number of days in such performance period;
(ii) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and (c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
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conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment and service
terminated (unless otherwise payable under (iii) above), Executive
will be paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive compensation
for any year in such three year period, the Executive's target
annual incentive compensation for such year(s) shall be used to
calculate average annual incentive compensation) multiplied by a
fraction the numerator of which is the number of days Executive
was employed and served in the year of termination and the
denominator of which is the total number of days in the year of
termination;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs (and the agreements and other documents thereunder)
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral; provided, however, in the
event of a termination by FOL or the Company without Cause prior
to a Change in Control, a cash amount will be paid equal to the
amount credited to Executive's deferral accounts under deferral
arrangements authorized under Section 5(d) hereof at the date of
termination (including cash equal in value at that date to any
shares of Common Stock credited to Executive's deferral accounts),
less applicable withholding taxes under Section 12(i); provided,
however, that FOL may instead settle such accounts by directing
the Trustee to distribute the assets of the "rabbi trust." Such
amounts shall be paid or distributed as promptly as practicable
following such date of termination, without regard to any stated
period of deferral otherwise remaining in respect of such amounts,
and the payment of such amounts shall be deemed to fully settle
such accounts;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e);
(viii) In the event such termination is a termination by FOL or the
Company without Cause following a Change in Control or a
termination by Executive for Good Reason following a Change in
Control, a lump-sum cash payment will be paid by FOL equal to the
present value of Executive's accrued benefit, if any, which shall
be fully vested at the date of termination, under all supplemental
(non-qualified) pension plans of the Company, unless such benefits
are fully funded based on assets held in trust for the benefit of
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Executive which cannot be reached by creditors of the Company or
FOL, or such benefits are otherwise funded and secured in an
equivalent manner; and
(ix) In the event such termination is a termination by FOL without
cause or a termination by Executive for Good Reason, for a period
of two years after such termination, Executive shall continue to
participate in all employee, executive, and special individual
benefit plans, programs, and arrangements under Section 5(c)
including but not limited to health, medical, disability, life
insurance, and pension benefits in which Executive was
participating immediately prior to termination, the terms of which
allow Executive's continued participation, as if Executive had
continued in employment with the Company and service to FOL during
such period or, if such plans, programs, or arrangements do not
allow Executive's continued participation, a cash payment
equivalent on an after-tax basis to the value of the additional
benefits Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if Executive
had received credit under such plans, programs, and arrangements
for service and age with the Company during such period following
Executive's termination, with such benefits payable by the Company
and/or FOL at the same times and in the same manner as such
benefits would have been received by Executive under such plans
(it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which
shall not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating).
Amounts payable under (i), (ii), (iii), (iv), (vi), (vii), and (viii) above
will be paid as promptly as practicable after Executive's termination, and in
no event more than 45 days after such termination, provided, however, that, in
the case of a termination by FOL without Cause prior to a Change in Control,
to the extent that FOL would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by FOL without limitation
under Section 162(m) (unless this provision is waived by FOL), but in no event
later than twelve months subsequent to the date of termination.
8. Definitions Relating to Termination Events.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition,
"gross misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the
Company, FOL, or any of their subsidiaries or affiliates or materially impairs
the value of the Executive's services to the Company or FOL, or (B) willfully
engaging in one or more acts, or willfully omitting to act in accordance with
duties hereunder, which is demonstrably and materially damaging to the
Company, FOL, or any of their subsidiaries or affiliates, including acts and
omissions that constitute gross negligence in the performance of Executive's
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duties under this Agreement. For purposes of this Agreement, an act or
failure to act on Executive's part shall be considered "willful" if it was
done or omitted to be done by him not in good faith, and shall not include any
act or failure to act resulting from any incapacity of Executive.
Notwithstanding the foregoing, Executive may not be terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by a majority affirmative vote of the membership of the Board of
Directors of FOL or the Company (excluding Executive, if he is then a member)
at a meeting of such Board called and held for such purpose (after giving
Executive reasonable notice specifying the nature of the grounds for such
termination and not less than 30 days to correct the acts or omissions
complained of, if correctable, and affording Executive the opportunity,
together with his counsel, to be heard before such Board) finding that, in the
good faith opinion of the Board, Executive was guilty of conduct affecting the
Board's corporation or a subsidiary which conduct constitutes Cause as set
forth in this Section 8(a).
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the shares
of Common Stock of FOL then outstanding ("FOL Common Stock
Outstanding") or the voting securities of FOL then outstanding
entitled to vote generally in the election of directors ("FOL
Voting Securities Outstanding"); provided, however, that such
acquisition of Beneficial Ownership would result in the Person's
Beneficially Owning twenty-five percent (25%) or more of FOL
Common Stock Outstanding or twenty-five percent (25%) or more of
the combined voting power of FOL Voting Securities Outstanding;
and provided further, that immediately prior to such acquisition
such Person was not a direct or indirect Beneficial Owner of
twenty-five percent (25%) or more of FOL Common Stock Outstanding
or twenty-five percent (25%) or more of the combined voting power
of FOL Voting Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of FOL of a reorganization,
merger, consolidation, complete liquidation or dissolution of FOL,
the sale or disposition of all or substantially all of the assets
of FOL or similar corporate transaction (in each case referred to
in this Section 8(b) as a "Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time
of such approval by stockholders, to the consent of any government
or governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board of Directors of FOL (the
"FOL Board") such that the individuals who, as of the Effective
Date, constitute the FOL Board (such FOL Board shall be
hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the FOL Board;
provided, however, for purposes of this Section 8(b), that any
individual who becomes a member of the FOL Board subsequent to the
Effective Date whose election, or nomination for election by FOL's
stockholders, was approved by a vote of at least a majority of
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those individuals who are members of the Board and who were also
members of the Incumbent FOL Board (or deemed to be such pursuant
to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A under the Exchange
Act, including any successor to such Rule) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board shall not be so considered as a
member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by FOL or an affiliate; or (2) any acquisition or
consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and
the combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of FOL
Common Stock Outstanding and FOL Voting Securities Outstanding immediately
prior to such acquisition or Corporate Transaction in substantially the same
proportions as their ownership, immediately prior to such acquisition or
Corporate Transaction, of FOL Common Stock Outstanding and FOL Voting
Securities Outstanding, as the case may be; or (3) any transaction initiated
or controlled, directly or indirectly, by Executive, in a capacity other than
as a senior executive or director of FOL or senior executive or director of
the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning," and
"Beneficial Ownership" shall have the meanings ascribed to such
terms in Rule 13d-3 under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
(C) The term "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including "group" as defined in Section 13(d)
thereof.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of
any physical or mental incapacity or disability as determined by a physician
or physicians selected by FOL and reasonably acceptable to Executive, unless,
within 30 days after Executive has received written notice from FOL of a
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proposed termination due to such absence, Executive shall have returned to the
full performance of his duties hereunder and shall have presented to FOL a
written certificate of Executive's good health prepared by a physician
selected FOL and reasonably acceptable to the Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean the occurrence of a Change in Control following which there
occurs, without Executive's prior written consent: (A) a material change,
adverse to Executive, in Executive's positions, titles, or offices, status,
rank, nature of responsibilities, or authority within FOL in effect prior to a
Change in Control, except in connection with the termination of Executive's
service to FOL for Cause, Disability, Normal Retirement or Approved Early
Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive with FOL which are
inconsistent with his status, duties, responsibilities, and authorities in
effect prior to a Change in Control, (C) a decrease in annual base salary or
other compensation opportunities and maximums or benefits provided under this
Agreement, (D) any other failure by FOL or the Company to perform any material
obligation under, or breach by FOL or the Company of any material provision
of, this Agreement, (E) any failure to secure the agreement of any successor
corporation or other entity to FOL or to the Company to fully assume the
obligations of FOL or the Company, respectively, under this Agreement in a
form reasonably acceptable to Executive, and (F) any attempt by FOL or the
Company to terminate Executive for Cause which does not result in a valid
termination for Cause, except in the case that valid grounds for termination
for Cause exist but are corrected as permitted under Section 8(a).
9. Excise Tax Gross-Up.
In the event that there shall occur a Change in Control of FOL, if
Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company, FOL, or any affiliated
company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), FOL
shall pay to Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement
for any penalties and interest that may accrue in respect of such Excise Tax)
such that the net amount retained by Executive, after reduction for any Excise
Tax (including any penalties or interest thereon) on the Total Payments and
any federal, state and local income or employment tax and Excise Tax on the
Gross-up Payment provided for by this Section 9, but before reduction for any
federal, state, or local income or employment tax on the Total Payments, shall
be equal to the sum of (a) the Total Payments, and (b) an amount equal to the
product of any deductions disallowed for federal, state, or local income tax
purposes because of the inclusion of the Gross-up Payment in Executive's
adjusted gross income multiplied by the highest applicable marginal rate of
federal, state, or local income taxation, respectively, for the calendar year
in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax:
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(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent compensation
consultants or auditors of nationally recognized standing
("Independent Advisors") selected by FOL and reasonably
acceptable to Executive, the Total Payments (in whole or in
part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in
excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the
Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the total
amount of excess parachute payments within the meaning of
section 280G(b)(1) of the Code (after applying clause (i)
above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time the Gross-up Payment is made,
Executive shall repay to FOL at the time that the amount of such reduction in
Excise Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction is refunded to
Executive or otherwise realized as a benefit by Executive) the portion of the
Gross-up Payment that would not have been paid if such Excise Tax had been
applied in initially calculating the Gross-up Payment, plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time the Gross-up Payment is made
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-up Payment), FOL shall make an additional
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Gross-up Payment in respect of such excess (plus any interest and penalties
payable with respect to such excess) at the time that the amount of such
excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or
any portion thereof) are subject to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, FOL shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon
as the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by FOL to Executive, payable on the
fifth day after demand by FOL (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is
made, the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment. FOL shall have the right to control all
proceedings with the Internal Revenue Service that may arise in connection
with the determination and assessment of any Excise Tax and, at its sole
option, FOL may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with any taxing authority in respect of
such Excise Tax (including any interest or penalties thereon); provided,
however, that FOL's control over any such proceedings shall be limited to
issues with respect to which a Gross-up Payment would be payable hereunder,
and Executive shall be entitled to settle or contest any other issue raised by
the Internal Revenue Service or any other taxing authority. Executive shall
cooperate with FOL in any proceedings relating to the determination and
assessment of any Excise Tax and shall not take any position or action that
would materially increase the amount of any Gross-Up Payment hereunder.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
(a) Non-Competition. Without the consent in writing of the
Board of Directors of FOL, upon termination of Executive's employment and
cessation of service to FOL for any reason, Executive will not, for a period
of one year thereafter, acting alone or in conjunction with others, directly
or indirectly (i) engage (either as owner, investor, partner, stockholder,
employer, employee, consultant, advisor or director) in any business in the
continental United States in which he has been directly engaged on behalf of
FOL, or any of its subsidiaries, or has supervised as an executive thereof,
during the last two years prior to such termination and which is directly in
competition with a business then conducted by FOL or any of its subsidiaries;
(ii) induce any customers of FOL, or any of its subsidiaries with whom
Executive has had contacts or relationships, directly or indirectly, during
and within the scope of his assignment and service to FOL or any of its
subsidiaries, to curtail or cancel their business with such companies or any
of them; or (iii) induce, or attempt to influence, any employee of FOL or any
of its subsidiaries to terminate employment; provided, however, that the
limitation contained in clause (i) above shall not apply if Executive's
employment is terminated as a result of a termination by FOL without Cause
following a Change in Control or a termination by Executive for Good Reason
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following a Change in Control. The provisions of subparagraphs (i), (ii) and
(iii) above are separate and distinct commitments independent of each of the
other subparagraphs. It is agreed that the ownership of not more than one
percent of the equity securities of any company having securities listed on an
exchange or regularly traded in the over-the-counter market shall not, of
itself, be deemed inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment with the Company or service with FOL for any reason), disclose,
use, transfer, or sell, except in the course of employment with or other
service to the Company, FOL, any company or business other than FOL for which
the Company provides management services, and any subsidiary or affiliate
thereof, any confidential or proprietary information of the Company, FOL, any
company or business other than FOL for which the Company provides management
services, and any subsidiary or affiliate thereof so long as such information
has not otherwise been disclosed or is not otherwise in the public domain,
except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company and FOL, during the Term and thereafter (including
following Executive's termination of employment with the Company or service
with FOL for any reason), by making himself available to testify on behalf of
the Company, FOL, any company or business other than FOL for which the Company
provides management services, or any subsidiary or affiliate thereof, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, FOL, any company or business other
than FOL for which the Company provides management services, or any subsidiary
or affiliate thereof, in any such action, suit, or proceeding, by providing
information and meeting and consulting with the Board of Directors of the
Company and the Board of Directors of FOL, and their representatives or
counsel, or representatives or counsel of the Company, FOL, any company or
business other than FOL for which the Company provides management services, or
any subsidiary or affiliate thereof, as requested. The Company and FOL agree
to reimburse Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Release of Employment Claims. Executive agrees, as a
condition to receipt of the termination payments and benefits provided for in
Sections 6 and 7 herein, that he will execute a release agreement, in a form
satisfactory to the Company and FOL, releasing any and all claims arising out
of Executive's employment by the Company and service by FOL (other than
enforcement of this Agreement).
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and
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<PAGE> 167
regulations may be applicable. If under the governing law, any portion of
this Agreement is at any time deemed to be in conflict with any applicable
statute, rule, regulation, ordinance, or other principle of law, such portion
shall be deemed to be modified or altered to the extent necessary to conform
thereto or, if that is not possible, to be omitted from this Agreement. The
invalidity of any such portion shall not affect the force, effect, and
validity of the remaining portion hereof. If any court determines that any
provision of Section 10 is unenforceable because of the duration or geographic
scope of such provision, it is the parties' intent that such court shall have
the power to modify the duration or geographic scope of such provision, as the
case may be, to the extent necessary to render the provision enforceable and,
in its modified form, such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to enforce rights pursuant to this Agreement
shall be paid on behalf of or reimbursed to Executive promptly by the Company,
whether or not Executive is successful in asserting such rights; provided,
however, that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that Executive's
assertion of such rights was in bad faith or frivolous, as determined by
independent counsel mutually acceptable to the Executive and the Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration
in Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company, FOL, and Executive hereby consent to
the jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts
of the State of Illinois, or (iii) any other court having jurisdiction. The
Company, FOL, and Executive further agree that any service of process or
notice requirements in any such proceeding shall be satisfied if the rules of
such court relating thereto have been substantially satisfied. The Company,
FOL, and Executive hereby waive, to the fullest extent permitted by applicable
law, any objection which it may now or hereafter have to such jurisdiction and
any defense of inconvenient forum. The Company, FOL, and Executive hereby
agree that a judgment upon an award rendered by the arbitrators may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Subject to Section 11(b), the Company shall bear all costs
and expenses arising in connection with any arbitration proceeding pursuant to
this Section 11. Notwithstanding any provision in this Section 11, Executive
shall be entitled to seek specific performance of Executive's right to be paid
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest, payable by the party owing such amounts, at
the prime rate in effect at the time such payment first becomes payable, as
quoted by the Bankers Trust Company.
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12. Miscellaneous.
(a) Integration. This Agreement modifies and supersedes any
and all prior agreements and understandings among the parties hereto with
respect to the employment of Executive by the Company (and any affiliate) and
assignment as a senior executive of FOL (and any subsidiary), except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and FOL and subject to the provisions of Section
1(b). This Agreement (together with the Option Agreement ) constitutes the
entire agreement among the parties with respect to the matters herein
provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto. Executive shall
not be entitled to any payment or benefit under this Agreement which
duplicates a payment or benefit received or receivable by Executive under such
prior agreements and understandings with the Company and/or FOL or under any
benefit or compensation plan of the Company and/or FOL.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company and FOL may assign
this Agreement and the Company's and FOL's rights and obligations hereunder,
and shall assign this Agreement, to any Successor (as hereinafter defined)
which, by operation of law or otherwise, continues to carry on substantially
the business of the Company or FOL prior to the event of succession, and the
Company and FOL, if involved in any such event, shall, as a condition of the
succession, require such Successor to agree to assume the obligations of the
predecessor and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical
ability to control (either immediately or with the passage of time), the
business of the Company or FOL directly, by merger or consolidation, or
indirectly, by purchase of the Company's or FOL's voting securities or all or
substantially all of the Company or FOL's assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by
Federal Express or other similar overnight service or by certified or
registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:
If to the Company:
Farley Industries, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
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<PAGE> 169
Attention: Secretary
If to FOL:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
Richard M. Cion
28 Little Fox Lane
Westport, Connecticut 06880
If the parties by mutual agreement supply all other parties with telecopier
numbers for the purposes of providing notice by facsimile, such notice shall
also be proper notice under this Agreement. In the case of Federal Express or
other similar overnight service, such notice or advice shall be effective when
sent, and, in the cases of certified or registered mail, shall be effective 2
days after deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect
the right of such party to require such performance or to resort to such
remedy at any time thereafter, nor shall the waiver by any party of a breach
of any of the provisions hereof be deemed to be a waiver of any subsequent
breach of such provisions. No such waiver shall be effective unless in
writing and signed by the party against whom such waiver is sought to be
enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment or service to FOL; provided, however, that, to the
extent Executive receives from a subsequent employer health or other insurance
benefits that are substantially similar to the benefits referred to in Section
5(c) hereof, any such benefits to be provided by the Company or FOL to
Executive following the Term shall be correspondingly reduced.
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<PAGE> 170
(i) Offsets; Withholding. The amounts required to be paid by
the Company and/or FOL to Executive pursuant to this Agreement shall not be
subject to offset other than with respect to any amounts that are owed to the
Company or FOL by Executive due to his receipt of funds as a result of his
fraudulent activity. The foregoing and other provisions of this Agreement
notwithstanding, all payments to be made to Executive under this Agreement,
including under Sections 6 and 7, or otherwise by the Company or FOL will be
subject to required withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns and of FOL and its
successors and assigns.
13. Indemnification.
All rights to indemnification by the Company or FOL now existing
in favor of the Executive as provided in the Certificate of Incorporation or
By-Laws of the Company or FOL or pursuant to other agreements in effect on or
immediately prior to the Effective Date shall continue in full force and
effect from the Effective Date (including all periods after the expiration of
the Term), and the Company and FOL shall also advance expenses for which
indemnification may be ultimately claimed as such expenses are incurred to the
fullest extent permitted under applicable law, subject to any requirement that
the Executive provide an undertaking to repay such advances if it is
ultimately determined that the Executive is not entitled to indemnification;
provided, however, that any determination required to be made with respect to
whether the Executive's conduct complies with the standards required to be met
as a condition of indemnification or advancement of expenses under applicable
law and the Company's or FOL's Certificate of Incorporation, By-Laws, or other
agreement shall be made by independent counsel mutually acceptable to the
Executive and the indemnifying party (except to the extent otherwise required
by law). After the date hereof, the Company and FOL shall not amend its
respective Certificate of Incorporation or By-Laws or any agreement in any
manner which adversely affects the rights of the Executive to indemnification
thereunder. Any provision contained herein notwithstanding, this Agreement
shall not limit or reduce any rights of the Executive to indemnification
pursuant to applicable law. In addition, the Company and FOL will maintain
directors' and officers' liability insurance in effect and covering acts and
omissions of Executive (including during the Term and for a period of six
years thereafter) on terms substantially no less favorable as those in effect
on the Effective Date (if any).
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<PAGE> 171
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company and FOL have each caused this instrument to be duly executed as of the
day and year first above written.
FARLEY INDUSTRIES, INC.
By: /S/ William Farley
Name: William Farley
Title: Chairman and Chief Executive Officer
FRUIT OF THE LOOM, INC.
By: /S/ William Farley
Name: William Farley
Title: Chairman and Chief Executive Officer
EXECUTIVE
/S/ Richard M. Cion
Richard M. Cion
<PAGE> 172
CONFORMED COPY
FARLEY INDUSTRIES, INC.
and
FRUIT OF THE LOOM, INC.
Employment Agreement for Earl C. Shanks
<PAGE>
<PAGE> 173
FARLEY INDUSTRIES, INC.
and
FRUIT OF THE LOOM, INC.
Employment Agreement for Earl C. Shanks
1. Employment and Assignment; Obligations of FOL and Company . . . . . 174
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
3. Offices and Duties . . . . . . . . . . . . . . . . . . . . . . . . . 175
4. Salary and Annual Incentive Compensation . . . . . . . . . . . . . . 175
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement . . . . . . . . . . 176
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability . . . . . . . . . . . . . . . . . . . . . . . . 180
7. Termination For Reasons Other Than Normal Retirement, Approved Early
Retirement, Death or Disability . . . . . . . . . . . . . . . . . . 182
8. Definitions Relating to Termination Events. . . . . . . . . . . . . 187
9. Excise Tax Gross-Up . . . . . . . . . . . . . . . . . . . . . . . . 190
10. Non-Competition and Non-Disclosure; Executive Cooperation . . . . . 192
11. Governing Law; Disputes; Arbitration . . . . . . . . . . . . . . . . 193
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
13. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 197
<PAGE>
<PAGE> 174
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of the 28th day of March,
1995, by and among FARLEY INDUSTRIES, INC., an Illinois corporation (the
"Company"), FRUIT OF THE LOOM, INC., a Delaware corporation ("FOL"), and Earl
C. Shanks ("Executive"), and shall become effective as of December 18, 1994
(the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has served and is serving as a senior executive
of the Company and, under Service Agreements between the Company and FOL (any
such agreement as may be in effect from time to time being the "Service
Agreement"), as a senior executive of FOL; and
WHEREAS, FOL desires that Executive continue to serve FOL in a
senior executive capacity in connection with the conduct of its businesses,
the Company desires to continue to employ Executive as a senior executive so
that he may continue serve FOL, under the Service Agreement, in such a senior
executive capacity, and Executive desires to accept such employment by the
Company and assignment with FOL on the terms and conditions herein set forth;
and
WHEREAS, the Company, FOL, and Executive desire to set forth the
terms upon which Executive shall be so employed by the Company and assigned to
FOL.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company, FOL, and Executive each hereby
acknowledge, the Company, FOL, and Executive hereby agree as follows:
1. Employment and Assignment; Obligations of FOL and Company.
(a) Employment by the Company and Assignment to FOL. The
Company hereby agrees to employ Executive as a senior executive of the Company
and as a senior executive assigned to serve as a senior executive of FOL, FOL
hereby agrees to the assignment of Executive as a senior executive of FOL, and
Executive hereby agrees to accept such employment and assignment and serve in
such capacities, during the Term as defined in Section 2 and upon the terms
and conditions set forth in this Employment Agreement (this "Agreement").
(b) Obligations of FOL and Company, and Effect on Service
Agreement. FOL guarantees to Executive payment of all obligations hereunder
of the Company to Executive, including obligations under Sections 6 and 7.
FOL and the Company acknowledge and agree that, to the extent that this
Agreement specifies matters relating to the assignment of Executive to FOL and
imposes obligations between FOL and the Company relating thereto, this
Agreement may modify and amend the terms of any Service Agreement. If FOL
makes any payment of cash or property to Executive hereunder, including any
payment under a guarantee by FOL of a direct obligation of the Company to
Executive hereunder, that duplicates a payment made or owing by FOL to the
Company under the Service Agreement, FOL shall have a right of reimbursement
or setoff against the Company in respect of such payment. If Section 6 or 7
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<PAGE> 175
specify a payment, action or other obligation to Executive following
termination of Executive's employment by the Company and service to FOL
without specifying the primary obligor therefor, the obligor therefor shall be
FOL in respect of any obligation that replaces, settles, or otherwise relates
to an obligation of FOL under Sections 4 and 5 and shall be the Company in
respect of any obligation that replaces, settles, or otherwise relates to an
obligation of the Company under Sections 4 and 5, subject to FOL's guarantee
of the obligations of the Company.
2. Term.
The term of employment of Executive and assignment to FOL under
this Agreement (the "Term") shall be the period commencing on the Effective
Date and terminating on December 17, 1997 and any period of extension thereof
in accordance with this Section 2, subject to earlier termination in
accordance with Section 6 or 7. The Term shall be extended automatically
without further action by any party for the one-year period beginning on
December 18, 1997 and each succeeding December 18 thereafter, unless the
Company or FOL shall have served written notice upon Executive (and on the one
of the Company or FOL not serving such notice, if the two are not acting
jointly), or Executive shall have served written notice on the Company and
FOL, in either case in accordance with the provisions of Section 12(d), on or
prior to the June 30 preceding a date upon which such extension would become
effective electing not to extend the Term further as of the December 18 next
succeeding the date such notice is served, in which case the Term shall
terminate at the next December 17 (subject to earlier termination in
accordance with Section 6 or 7).
3. Offices and Duties.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as a senior executive
assigned, pursuant to the Service Agreement, to serve as a senior executive of
FOL and shall perform such duties and responsibilities, as are substantially
consistent with his duties, responsibilities, rank and status with the Company
and FOL as of the Effective Date. Executive shall devote substantial business
time and attention, and his best efforts, abilities, experience, and talent,
to the position of senior executive of the Company and of FOL and for the
businesses of the Company and FOL; provided, however, that nothing in this
Agreement shall preclude or prohibit Executive from engaging in other
activities, including as assigned by the Company, to the extent that such
other activities do not preclude Executive's employment and assignment to
serve FOL or otherwise inhibit the performance of Executive's duties under
this Agreement or impair the businesses of the FOL, the Company and their
subsidiaries and affiliates.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of FOL in Chicago, Illinois or such
other headquarters location as may be assigned by FOL, subject to the consent
of the Company which shall not be reasonably withheld.
4. Salary and Annual Incentive Compensation.
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<PAGE> 176
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4, and FOL agrees to guarantee the
payment of such compensation to Executive.
(a) Base Salary. The Company will pay to Executive during the
Term a base salary at the annual rate in effect at the Effective Date, payable
in cash in substantially equal monthly installments during each calendar year,
or portion thereof, of the Term and otherwise in accordance with the Company's
usual payroll practices with respect to persons assigned to serve as senior
executives of FOL (except to the extent deferred under Section 5(d)).
Executive's annual base salary shall be reviewed by FOL and the Company at
least once in each calendar year and may be increased above, but may not be
reduced below, the then-current rate of such base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, determined through
Executive's participation in the FOL 1995 Executive Incentive Compensation
Plan (subject to approval thereof by FOL's stockholders) (the "1995 EICP"),
the FOL Executive Incentive Compensation Plan (the "EICP") if the 1995 EICP is
not approved by FOL stockholders, and any successor to the 1995 EICP or the
EICP, which shall offer to Executive an opportunity to earn additional
compensation in amounts determined by and in the sole discretion of the
Compensation Committee of the Board of Directors of FOL (the "Committee"), in
accordance with the applicable plan and consistent with past practices of the
Company; provided, however, that FOL and the Company will use their best
efforts to maintain in effect, for each year during the Term, the 1995 EICP,
the EICP (if the 1995 EICP is not approved by FOL stockholders), or an
equivalent plan under which Executive will be eligible for an award not less
than the opportunity level available under the 1995 EICP or the EICP during
1995 (if the 1995 EICP is not approved by FOL stockholders) to senior
executives of FOL in similar capacities. Any such annual incentive compensa-
tion payable to Executive shall be paid by FOL to the Company and by the
Company (without varying the amount or timing of payment or otherwise
exercising discretion) to Executive in accordance with FOL's incentive
compensation payment practices with respect to senior executives (except to
the extent deferred under Section 5(d)).
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to provide the compensation and benefits to
the extent specified in this Section 5, including Sections 5(a), (c), (d), and
(e), FOL agrees to guarantee the payment of all such compensation and benefits
to be provided by the Company under this Section 5, and FOL agrees to provide
the compensation and benefits to the extent specified in this Section 5,
including Sections 5(a), (b),(d) and (e).
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation
by senior executives of the Company, including those assigned to FOL and by
senior executives of FOL, as presently in effect or as they may be modified or
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<PAGE> 177
added to from time to time, subject to the eligibility and other requirements
of such plans and programs, including without limitation the long-term
incentive features of the 1995 EICP, the EICP (if the 1995 EICP is not
approved by FOL's stockholders), any successor to such plans, and other stock
option plans, performance share plans, management incentive plans, and
deferred compensation plans of FOL, and supplemental retirement plans of the
Company; provided, however, that such compensation plans and programs, in the
aggregate, shall provide Executive with benefits and compensation and
incentive award opportunities substantially no less favorable than those
provided by the Company and FOL under such plans and programs to senior
executives in similar capacities. For purposes of this Agreement, all
references to "performance share plans" and "performance shares" refer to such
arrangements under the 1994 EICP or the EICP and to any performance shares,
performance units, stock grants, or other long-term incentive arrangements
adopted as a successor or replacement to performance shares under such plans
or other plans of the Company
(b) Stock Option Grant Upon Signing Agreement. In addition to
the compensation otherwise specified under Sections 4 and 5, FOL has granted
to Executive, as of December 18, 1994 and conditioned upon Executive's
execution of this Agreement, a non-qualified stock option to purchase 30,000
shares of FOL's Class A Common Stock (the "1995 Option"), under the 1995 EICP,
subject to stockholder approval of the 1995 EICP at FOL's 1995 Annual Meeting
of Stockholders. The 1995 Option shall be evidenced by, and have the terms
set forth in, the option agreement attached as Exhibit A hereto (the "Option
Agreement"), which has been authorized and approved by the Committee under the
1995 EICP.
Not later than such time as the 1995 Option becomes exercisable,
FOL will have filed with the Securities and Exchange Commission, and will
thereafter maintain the effectiveness of, a registration statement registering
under the Securities Act of 1933, as amended, the offer and sale of shares by
FOL pursuant to the 1995 Option, which registration statement shall include a
resale prospectus covering the reoffer and resale (or other disposition) of
all shares acquired by Executive upon exercise of the 1995 Option, and FOL
will maintain as current all offering materials under such registration
statement at all times that offers and sales of such shares could be made by
FOL or Executive.
(c) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or
duplication, in all employee and executive benefit plans and programs of the
Company, as presently in effect or as they may be modified or added to by the
Company from time to time, to the extent such plans are available to similarly
situated senior executives or employees of the Company, including those
assigned to serve as senior executives of FOL, subject to the eligibility and
other requirements of such plans and programs, including without limitation
plans providing pensions, other retirement benefits, medical insurance, life
insurance, disability insurance, and accidental death or dismemberment
insurance, and participation in savings, profit-sharing, and stock ownership
plans; provided, however, that such benefit plans and programs and any benefit
plans and programs of FOL in which Executive may from time to time participate
shall, in the aggregate, provide Executive with benefits substantially no less
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<PAGE> 178
favorable than those provided by the Company and FOL to senior executives in
similar capacities.
In furtherance of and not in limitation of the foregoing, during
the Term:
(i) Executive will participate in all executive and employee vacation
and time-off programs;
(ii) The Company will provide Executive with coverage by long-term
disability insurance and benefits substantially no less favorable
(including any required contributions by Executive) than such
insurance and benefits provided to Executive at January 1, 1995;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit of not less than
three times Executive's annual base salary under Section 4(a);
provided, however, that such insurance may be combined with a
supplementary retirement funding vehicle;
(iv) Under the Company's pension plans (including supplemental plans):
(A) Executive will be entitled to benefits substantially no less
favorable than those under such plans and programs of the Company
as in effect at January 1, 1995; (B) for purposes of calculating
such benefits Executive's compensation covered by such plans will
include 100% of annual salary paid under Section 4(a) and no less
than 50% of annual incentive compensation paid under Section 4(b),
and Executive shall be credited, for each full calendar year of
the Term that is completed up to five years, with one additional
year of service up to five additional years under such plans,
which shall be fully vested upon crediting; and (C) amounts equal
to the present value of Executive's accrued benefit vested at any
time during the Term, under all supplemental (non-qualified)
pension plans of the Company, will be fully funded by the Company
by the purchase of an insured annuity, the ownership of which
shall be transferred to Executive, providing a benefit equivalent
to such accrued benefit on an after-tax basis, and the Company
will pay to Executive an additional amount (or apply such
additional amount to the purchase of an increased insured annuity
if so elected by Executive) equal to the total of Executive's
federal, state, and local income and employment taxes on the
insured annuity and such additional amount; and
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior executives,
including those assigned to serve as senior executives of FOL,
subject to a lifetime maximum amount of supplemental
reimbursements of $750,000; provided, however, that supplemental
health and medical benefits shall provide for reimbursement of
Executive to the extent that any limitation on maximum lifetime
health and medical benefits and reimbursements under other Company
policies and programs is exceeded.
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<PAGE> 179
(d) Deferral of Compensation. The Company and FOL shall
implement deferral arrangements, as obligations of FOL, permitting Executive
to elect to irrevocably defer receipt, pursuant to written deferral election
terms and forms (the "Deferral Election Forms"), of all or a specified portion
of (i) his annual base salary and annual incentive compensation under Section
4, (ii) long-term incentive compensation under Sections 5(a) and 5(b)
(including payouts relating to performance shares), and (iii) shares acquired
upon exercise of options granted under Sections 5(a) and (b) that are acquired
in an exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares
acquired by Executive in such exercise; provided, however, that such deferrals
shall not reduce Executive's total cash compensation in any calendar year
below the sum of (i) the FICA maximum taxable wage base plus (ii) 1.45% of
Executive's salary, annual incentive compensation and long-term incentive
compensation in excess of such FICA maximum. In addition, the Committee may
require mandatory deferral of amounts payable as annual incentive compensation
under Section 4(b) or long-term incentive compensation under Sections 5(a) and
5(b), which deferrals will otherwise be in accordance with this Section 5(d),
and the Company hereby delegates to such Committee full authority to require
such mandatory deferral of annual incentive compensation.
In accordance with such duly executed Deferral Election Forms or
the terms of any mandatory deferral, FOL shall, in lieu of payment by FOL to
the Company (under the Service Agreement in respect of Executive's services)
and in lieu of any direct payment by FOL or the Company to Executive, credit
to one or more bookkeeping accounts maintained by FOL for Executive, on the
respective date or dates payments would otherwise be due to Executive, amounts
equal to the compensation subject to deferral, such credits to be denominated
in cash if the compensation would have been paid in cash but for the deferral
or in shares if the compensation would have been paid in shares but for the
deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Common Stock equal
to the number of shares credited to Executive's account pursuant to this
Section 5(d) shall be transferred as soon as practicable following such
crediting by FOL to, and shall be held and invested by, an independent trustee
selected by FOL (a "Trustee") pursuant to a "rabbi trust" established by FOL
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including
possible investment in publicly traded stocks and bonds, mutual funds, and
insurance vehicles). Thereafter, Executive's deferral accounts will be valued
by reference to the value of the assets of the "rabbi trust"; provided,
however, that a portion of the assets of the "rabbi trust" may be used to
reimburse FOL for its reasonable cost of funds resulting from payment of taxes
by FOL relating to such rabbi trust assets during the period of deferral and
prior to the settlement of Executive's deferral accounts. FOL shall pay all
other costs of administration of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or termination of
service to FOL or as otherwise determined by the Committee in the event of
hardship on the part of Executive, upon such date(s) or event(s) set forth in
the Deferral Election Forms (including forms filed after deferral but before
settlement in which Executive may elect to further defer settlement) or the
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terms of any mandatory deferral, FOL shall promptly pay to Executive cash
equal to the cash then credited to Executive's deferral accounts and cash
equal in value to any shares of Common Stock then credited to Executive's
deferral accounts, less applicable withholding taxes, and such distribution
shall be deemed to fully settle such accounts; provided, however, that FOL may
instead settle such accounts by directing the Trustee to distribute the assets
of the "rabbi trust." FOL, the Company, and Executive agree that compensation
deferred pursuant to this Section 5(d) shall be fully vested and
nonforfeitable; provided, however, Executive acknowledges that his rights to
the deferred compensation provided for in this Section 5(d) shall be no
greater than those of a general unsecured creditor of FOL, and that such
rights may not be pledged, collateralized, encumbered, hypothecated, or liable
for or subject to any lien, obligation, or liability of Executive, or be
assignable or transferable by Executive, otherwise than by will or the laws of
descent and distribution, provided that Executive may designate one or more
beneficiaries to receive any payment of such amounts in the event of his
death.
(e) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability
Executive may terminate employment with the Company and cease to
serve as a senior executive of FOL upon Executive's retirement at or after age
65 ("Normal Retirement") or, if approved in advance by the Company and the
Committee, upon Executive's early retirement prior to age 65 ("Approved Early
Retirement"). FOL may terminate the service of Executive due to the
Disability (as defined in Section 8(c)) of Executive, in which case
Executive's employment by the Company and service to FOL will terminate due to
Disability.
At the time Executive's employment by the Company and service to
FOL terminates due to Normal Retirement, Approved Early Retirement, or death,
the Term will terminate. In the event Executive's employment by the Company
and service to FOL terminates due to Disability, the Term will terminate at
the expiration of the 30-day period referred to in the definition of Disability
(set forth in Section 8(c)) absent the actions referred to therein being taken
by Executive to return to service and present to the Company and FOL a
certificate of good health.
Upon a termination of Executive's employment by the Company and
service to FOL due to Normal Retirement, Approved Early Retirement, death, or
Disability, all obligations of the Company, FOL, and Executive under Sections
1 through 5 of this Agreement will immediately cease; provided, however, that
subject to the provisions of Section 12(c), the Company and FOL will pay
Executive (or his beneficiaries or estate) (in accordance with Section 1(b)),
and Executive (or his beneficiaries or estate) will be entitled to receive,
the following:
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(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and (c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year of Executive's termination (unless otherwise payable
under (ii) above), Executive will be paid an amount equal to the
average annual incentive compensation paid to Executive in the
three years immediately preceding the year of termination (or, if
Executive was not eligible to receive or did not receive such
incentive compensation for any year in such three year period, the
Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation)
multiplied by a fraction the numerator of which is the number of
days Executive was employed and served in the year of termination
and the denominator of which is the total number of days in the
year of termination;
(iv) In lieu of any payment in respect of performance shares granted in
accordance with Section 5(a) for any performance period not
completed at the date of Executive's termination (unless otherwise
payable under (ii) above), Executive will be paid in cash an
amount equal to the cash amount payable plus the value of any
shares of Common Stock or other property (valued at the date of
termination) payable upon achievement of (A) the maximum
performance, in the case of death or Disability, or (B) at target
performance, in the case of Normal Retirement or Early Retirement,
in respect of each tranche of performance shares, multiplied by a
fraction the numerator of which is the number of days Executive
was employed and served during the respective performance period
and the denominator of which is the total number of days in such
performance period;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs and the agreements and other documents thereunder
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral;
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(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e); and
(viii) If Executive's employment and service terminates due to
Disability, for the period extending from such termination until
Executive reaches age 65, Executive shall continue to participate
in all employee benefit plans, programs, and arrangements under
Section 5(c) providing health, medical, and life insurance and
pension benefits in which Executive was participating immediately
prior to termination, the terms of which allow Executive's
continued participation, as if Executive had continued in
employment with the Company and service to FOL during such period
or, if such plans, programs, or arrangements do not allow
Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit plans,
programs, and arrangements in which Executive was participating
immediately prior to termination, as if Executive had received
credit under such plans, programs, and arrangements for service
and age with the Company and FOL during such period following
Executive's termination, with such benefits payable by the Company
and/or FOL at the same times and in the same manner as such
benefits would have been received by Executive under such plans
(it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which
shall not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided further, that, in the case of termination of Executive's employment
and service due to Disability, Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving the
compensation and benefits under (viii), above. Amounts payable under (i),
(ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after Executive's termination; provided, however, to the extent that FOL would
not be entitled to deduct any such payments under Internal Revenue Code
Section 162(m), such payments shall be made at the earliest time that the
payments would be deductible by FOL without limitation under Section 162(m)
(unless this provision is waived by FOL).
7. Termination For Reasons Other Than Normal Retirement, Approved
Early Retirement, Death or Disability
(a) Termination for Cause and Termination by Executive. In
accordance with the provisions of this Section 7(a), FOL may terminate the
service of Executive as a senior executive of FOL for Cause (as defined in
Section 8(a)) at any time prior to a Change in Control (as defined in Section
8(b)), in which case Executive's employment by the Company and service to FOL
will terminate, the Company may terminate the employment of Executive for
Cause (as defined in Section 8(a)) at any time prior to a Change in Control
(as defined in Section 8(b)), and Executive may terminate his employment with
the Company and service with FOL voluntarily for reasons other than Good
Reason (as defined in Section 8(d)) at any time. An election by Executive not
to extend the Term pursuant to Section 2 hereof shall be deemed to be a
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voluntary termination of such employment and such service by Executive at the
date of expiration of the Term, unless there occurs a Change in Control prior
to the date of expiration.
Upon a termination of Executive's service with FOL for Cause,
termination of Executive's employment by the Company for Cause or voluntarily
termination by the Executive, the Term will immediately terminate, and all
obligations of the Company and FOL under Sections 1 through 5 of this
Agreement will immediately cease; provided, however, that subject to the
provisions of Section 12(c), the Company and FOL shall pay Executive, and
Executive shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and 5(c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's deferral
accounts under deferral arrangements authorized under Section 5(d)
hereof at the date of termination (including cash equal in value
at that date to any shares of Common Stock credited to Executive's
deferral accounts), less applicable withholding taxes under
Section 12(i); provided, however, that FOL may instead settle such
accounts by directing the Trustee to distribute the assets of the
"rabbi trust." Such amounts shall be paid or distributed as
promptly as practicable following such date of termination,
without regard to any stated period of deferral otherwise
remaining in respect of such amounts, and the payment of such
amounts shall be deemed to fully settle such accounts; and
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as
promptly as practicable after Executive's termination; provided, however, to
the extent that FOL would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by FOL without limitation
under Section 162(m) (unless this provision is waived by FOL).
(b) Termination Without Cause and Termination by Executive for
Good Reason. In accordance with the provisions of this Section 7(b), FOL may
terminate the service by Executive as a senior executive of FOL without Cause
(as defined in Section 8(a)), including after a Change in Control (as defined
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in Section 8(b)), upon 90 days' written notice to Executive, in which case
Executive's employment by the Company will terminate, the Company may
terminate Executive's employment without Cause (as defined in Section 8(a)),
including after a Change in Control (as defined in Section 8(b)), upon 90
days' written notice to Executive, and Executive may terminate his employment
by the Company and service with FOL for Good Reason (as defined in Section
8(d)) following a Change in Control upon 90 days' written notice to the
Company and FOL; provided, however, that, if the basis for such Good Reason is
correctable, the Company and/or FOL have not corrected the basis for such Good
Reason within 30 days after both have received such notice. The foregoing
notwithstanding, in lieu of the Company or FOL providing 90 days' written
notice to Executive, the Company and FOL may pay Executive his then-current
annual base salary under Section 4(a) and credit Executive with service for 90
days for all purposes hereunder. An election by the Company or FOL not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a
termination of service with FOL and termination of employment by the Company
without Cause at the date of expiration of the Term.
Upon a termination of Executive's service with FOL without Cause
or termination of Executive's employment by the Company without Cause prior to
or following a Change in Control or termination of Executive's service with
FOL and employment with the Company by Executive for Good Reason following a
Change in Control, the Term will immediately terminate and all obligations of
the Company, FOL, and Executive under Sections 1 through 5 of this Agreement
will immediately cease, except that subject to the provisions of Section 12(c)
the Company and FOL shall pay Executive, and Executive shall be entitled to
receive, the following:
(i) A lump-sum cash payment will be paid as follows:
(A) In the event such termination is a termination by FOL or
the Company without Cause following a Change in Control or
a termination by Executive for Good Reason following a
Change in Control, an amount paid by FOL equal to the sum
of Executive's annual base salary payable under Section
4(a) immediately prior to termination plus the average
annual incentive compensation paid to Executive in the
three years immediately preceding the year of termination
(or, if Executive was not eligible to receive or did not
receive such incentive compensation for any year in such
three year period, the Executive's target annual incentive
compensation for such year(s) shall be used to calculate
average annual incentive compensation) (such sum being the
"total cash" for purposes of this Section 7(b)(i))
multiplied by a number which is the greater of the number
of years (including any fraction determined based on the
number of days remaining in the year of termination)
remaining in the term without regard to such termination or
2.0, which payment shall be reduced pro rata to the extent
the number of full months remaining until Executive attains
age 65 is less than 24 months, plus, in lieu of any payment
in respect of performance shares or other long term
incentive awards granted in accordance with Section 5(a)
for any performance period not completed at the date of
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Executive's termination (unless otherwise payable under
(iii) below), an amount equal to the cash amount payable
plus the value of any shares of Common Stock or other
property (valued at the date of termination) payable upon
the achievement of maximum performance in respect of each
tranche of performance shares without proration; or
(B) In the event such termination is a termination by FOL or
the Company without Cause prior to a Change in Control, an
amount equal to then-current annual base salary payable
under Section 4(a) multiplied by 1.0, which payment shall
be reduced pro rata to the extent the number of full months
remaining until Executive attains age 65 is less than 12
months, plus, in lieu of any payment in respect of
performance shares or other long term incentive awards
granted in accordance with Section 5(a) for any performance
period not completed at the date of Executive's termination
(unless otherwise payable under (iii) below), Executive
will be paid in cash an amount equal to the cash amount
payable plus the value of any shares of Common Stock or
other property (valued at the date of termination) payable
upon achievement of the greater of target performance or
actual performance achieved at the date of termination in
respect of each tranche of performance shares, multiplied
by a fraction the numerator of which is the number of days
Executive was employed and served during the respective
performance period and the denominator of which is the
total number of days in such performance period;
(ii) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and (c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment and service
terminated (unless otherwise payable under (iii) above), Executive
will be paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive compensation
for any year in such three year period, the Executive's target
annual incentive compensation for such year(s) shall be used to
calculate average annual incentive compensation) multiplied by a
fraction the numerator of which is the number of days Executive
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was employed and served in the year of termination and the
denominator of which is the total number of days in the year of
termination;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs (and the agreements and other documents thereunder)
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral; provided, however, in the
event of a termination by FOL or the Company without Cause prior
to a Change in Control, a cash amount will be paid equal to the
amount credited to Executive's deferral accounts under deferral
arrangements authorized under Section 5(d) hereof at the date of
termination (including cash equal in value at that date to any
shares of Common Stock credited to Executive's deferral accounts),
less applicable withholding taxes under Section 12(i); provided,
however, that FOL may instead settle such accounts by directing
the Trustee to distribute the assets of the "rabbi trust." Such
amounts shall be paid or distributed as promptly as practicable
following such date of termination, without regard to any stated
period of deferral otherwise remaining in respect of such amounts,
and the payment of such amounts shall be deemed to fully settle
such accounts;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e);
(viii) In the event such termination is a termination by FOL or the
Company without Cause following a Change in Control or a
termination by Executive for Good Reason following a Change in
Control, a lump-sum cash payment will be paid by FOL equal to the
present value of Executive's accrued benefit, if any, which shall
be fully vested at the date of termination, under all supplemental
(non-qualified) pension plans of the Company, unless such benefits
are fully funded based on assets held in trust for the benefit of
Executive which cannot be reached by creditors of the Company or
FOL, or such benefits are otherwise funded and secured in an
equivalent manner; and
(ix) In the event such termination is a termination by FOL without
cause or a termination by Executive for Good Reason, for a period
of two years after such termination, Executive shall continue
to participate in all employee, executive, and special individual
benefit plans, programs, and arrangements under Section 5(c)
including but not limited to health, medical, disability, life
insurance, and pension benefits in which Executive was
participating immediately prior to termination, the terms of which
allow Executive's continued participation, as if Executive had
continued in employment with the Company and service to FOL during
such period or, if such plans, programs, or arrangements do not
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allow Executive's continued participation, a cash payment
equivalent on an after-tax basis to the value of the additional
benefits Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if Executive
had received credit under such plans, programs, and arrangements
for service and age with the Company during such period following
Executive's termination, with such benefits payable by the Company
and/or FOL at the same times and in the same manner as such
benefits would have been received by Executive under such plans
(it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which
shall not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating).
Amounts payable under (i), (ii), (iii), (iv), (vi), (vii), and (viii) above
will be paid as promptly as practicable after Executive's termination, and in
no event more than 45 days after such termination, provided, however, that, in
the case of a termination by FOL without Cause prior to a Change in Control,
to the extent that FOL would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by FOL without limitation
under Section 162(m) (unless this provision is waived by FOL), but in no event
later than twelve months subsequent to the date of termination.
8. Definitions Relating to Termination Events.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition,
"gross misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the
Company, FOL, or any of their subsidiaries or affiliates or materially impairs
the value of the Executive's services to the Company or FOL, or (B) willfully
engaging in one or more acts, or willfully omitting to act in accordance with
duties hereunder, which is demonstrably and materially damaging to the
Company, FOL, or any of their subsidiaries or affiliates, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or
failure to act on Executive's part shall be considered "willful" if it was
done or omitted to be done by him not in good faith, and shall not include any
act or failure to act resulting from any incapacity of Executive.
Notwithstanding the foregoing, Executive may not be terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by a majority affirmative vote of the membership of the Board of
Directors of FOL or the Company (excluding Executive, if he is then a member)
at a meeting of such Board called and held for such purpose (after giving
Executive reasonable notice specifying the nature of the grounds for such
termination and not less than 30 days to correct the acts or omissions
complained of, if correctable, and affording Executive the opportunity,
together with his counsel, to be heard before such Board) finding that, in the
good faith opinion of the Board, Executive was guilty of conduct affecting the
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Board's corporation or a subsidiary which conduct constitutes Cause as set
forth in this Section 8(a).
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the shares
of Common Stock of FOL then outstanding ("FOL Common Stock
Outstanding") or the voting securities of FOL then outstanding
entitled to vote generally in the election of directors ("FOL
Voting Securities Outstanding"); provided, however, that such
acquisition of Beneficial Ownership would result in the Person's
Beneficially Owning twenty-five percent (25%) or more of FOL
Common Stock Outstanding or twenty-five percent (25%) or more of
the combined voting power of FOL Voting Securities Outstanding;
and provided further, that immediately prior to such acquisition
such Person was not a direct or indirect Beneficial Owner of
twenty-five percent (25%) or more of FOL Common Stock Outstanding
or twenty-five percent (25%) or more of the combined voting power
of FOL Voting Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of FOL of a reorganization,
merger, consolidation, complete liquidation or dissolution of FOL,
the sale or disposition of all or substantially all of the assets
of FOL or similar corporate transaction (in each case referred to
in this Section 8(b) as a "Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time
of such approval by stockholders, to the consent of any government
or governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board of Directors of FOL (the
"FOL Board") such that the individuals who, as of the Effective
Date, constitute the FOL Board (such FOL Board shall be
hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the FOL Board;
provided, however, for purposes of this Section 8(b), that any
individual who becomes a member of the FOL Board subsequent to the
Effective Date whose election, or nomination for election by FOL's
stockholders, was approved by a vote of at least a majority of
those individuals who are members of the Board and who were also
members of the Incumbent FOL Board (or deemed to be such pursuant
to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A under the Exchange
Act, including any successor to such Rule) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board shall not be so considered as a
member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
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purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by FOL or an affiliate; or (2) any acquisition or
consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and
the combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of FOL
Common Stock Outstanding and FOL Voting Securities Outstanding immediately
prior to such acquisition or Corporate Transaction in substantially the same
proportions as their ownership, immediately prior to such acquisition or
Corporate Transaction, of FOL Common Stock Outstanding and FOL Voting
Securities Outstanding, as the case may be; or (3) any transaction initiated
or controlled, directly or indirectly, by Executive, in a capacity other than
as a senior executive or director of FOL or senior executive or director of
the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning," and
"Beneficial Ownership" shall have the meanings ascribed to such
terms in Rule 13d-3 under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
(C) The term "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including "group" as defined in Section 13(d)
thereof.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of
any physical or mental incapacity or disability as determined by a physician
or physicians selected by FOL and reasonably acceptable to Executive, unless,
within 30 days after Executive has received written notice from FOL of a
proposed termination due to such absence, Executive shall have returned to the
full performance of his duties hereunder and shall have presented to FOL a
written certificate of Executive's good health prepared by a physician
selected FOL and reasonably acceptable to the Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean the occurrence of a Change in Control following which there
occurs, without Executive's prior written consent: (A) a material change,
adverse to Executive, in Executive's positions, titles, or offices, status,
rank, nature of responsibilities, or authority within FOL in effect prior to a
Change in Control, except in connection with the termination of Executive's
service to FOL for Cause, Disability, Normal Retirement or Approved Early
Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive with FOL which are
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inconsistent with his status, duties, responsibilities, and authorities in
effect prior to a Change in Control, (C) a decrease in annual base salary or
other compensation opportunities and maximums or benefits provided under this
Agreement, (D) any other failure by FOL or the Company to perform any material
obligation under, or breach by FOL or the Company of any material provision
of, this Agreement, (E) any failure to secure the agreement of any successor
corporation or other entity to FOL or to the Company to fully assume the
obligations of FOL or the Company, respectively, under this Agreement in a
form reasonably acceptable to Executive, and (F) any attempt by FOL or the
Company to terminate Executive for Cause which does not result in a valid
termination for Cause, except in the case that valid grounds for termination
for Cause exist but are corrected as permitted under Section 8(a).
9. Excise Tax Gross-Up.
In the event that there shall occur a Change in Control of FOL, if
Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company, FOL, or any affiliated
company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), FOL
shall pay to Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement
for any penalties and interest that may accrue in respect of such Excise Tax)
such that the net amount retained by Executive, after reduction for any Excise
Tax (including any penalties or interest thereon) on the Total Payments and
any federal, state and local income or employment tax and Excise Tax on the
Gross-up Payment provided for by this Section 9, but before reduction for any
federal, state, or local income or employment tax on the Total Payments, shall
be equal to the sum of (a) the Total Payments, and (b) an amount equal to the
product of any deductions disallowed for federal, state, or local income tax
purposes because of the inclusion of the Gross-up Payment in Executive's
adjusted gross income multiplied by the highest applicable marginal rate of
federal, state, or local income taxation, respectively, for the calendar year
in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent compensation
consultants or auditors of nationally recognized standing
("Independent Advisors") selected by FOL and reasonably
acceptable to Executive, the Total Payments (in whole or in
part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in
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excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the
Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the total
amount of excess parachute payments within the meaning of
section 280G(b)(1) of the Code (after applying clause (i)
above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time the Gross-up Payment is made,
Executive shall repay to FOL at the time that the amount of such reduction in
Excise Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction is refunded to
Executive or otherwise realized as a benefit by Executive) the portion of the
Gross-up Payment that would not have been paid if such Excise Tax had been
applied in initially calculating the Gross-up Payment, plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time the Gross-up Payment is made
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-up Payment), FOL shall make an additional
Gross-up Payment in respect of such excess (plus any interest and penalties
payable with respect to such excess) at the time that the amount of such
excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or
any portion thereof) are subject to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, FOL shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon
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as the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by FOL to Executive, payable on the
fifth day after demand by FOL (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is
made, the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment. FOL shall have the right to control all
proceedings with the Internal Revenue Service that may arise in connection
with the determination and assessment of any Excise Tax and, at its sole
option, FOL may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with any taxing authority in respect of
such Excise Tax (including any interest or penalties thereon); provided,
however, that FOL's control over any such proceedings shall be limited to
issues with respect to which a Gross-up Payment would be payable hereunder,
and Executive shall be entitled to settle or contest any other issue raised by
the Internal Revenue Service or any other taxing authority. Executive shall
cooperate with FOL in any proceedings relating to the determination and
assessment of any Excise Tax and shall not take any position or action that
would materially increase the amount of any Gross-Up Payment hereunder.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
(a) Non-Competition. Without the consent in writing of the
Board of Directors of FOL, upon termination of Executive's employment and
cessation of service to FOL for any reason, Executive will not, for a period
of one year thereafter, acting alone or in conjunction with others, directly
or indirectly (i) engage (either as owner, investor, partner, stockholder,
employer, employee, consultant, advisor or director) in any business in the
continental United States in which he has been directly engaged on behalf of
FOL or any of its subsidiaries; or has supervised as an executive thereof,
during the last two years prior to such termination and which is directly in
competition with a business then conducted by FOL or any of its subsidiaries;
(ii) induce any customers of FOL or any of its subsidiaries with whom
Executive has had contacts or relationships, directly or indirectly, during
and within the scope of his assignment and service to FOL or any of its
subsidiaries, to curtail or cancel their business with such companies or any
of them; or (iii) induce, or attempt to influence, any employee FOL or any of
its subsidiaries to terminate employment; provided, however, that the
limitation contained in clause (i) above shall not apply if Executive's
employment is terminated as a result of a termination by FOL without Cause
following a Change in Control or a termination by Executive for Good Reason
following a Change in Control. The provisions of subparagraphs (i), (ii) and
(iii) above are separate and distinct commitments independent of each of the
other subparagraphs. It is agreed that the ownership of not more than one
percent of the equity securities of any company having securities listed on an
exchange or regularly traded in the over-the-counter market shall not, of
itself, be deemed inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment with the Company or service with FOL for any reason), disclose,
use, transfer, or sell, except in the course of employment with or other
service to the Company, FOL, any company or business other than FOL for which
the Company provides management services, and any subsidiary or affiliate
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<PAGE> 193
thereof, any confidential or proprietary information of the Company, FOL, any
company or business other than FOL for which the Company provides management
services, and any subsidiary or affiliate thereof so long as such information
has not otherwise been disclosed or is not otherwise in the public domain,
except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company and FOL, during the Term and thereafter (including
following Executive's termination of employment with the Company or service
with FOL for any reason), by making himself available to testify on behalf of
the Company, FOL, any company or business other than FOL for which the Company
provides management services, or any subsidiary or affiliate thereof, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, FOL, any company or business other
than FOL for which the Company provides management services, or any subsidiary
or affiliate thereof, in any such action, suit, or proceeding, by providing
information and meeting and consulting with the Board of Directors of the
Company and the Board of Directors of FOL, and their representatives or
counsel, or representatives or counsel of the Company, FOL, any company or
business other than FOL for which the Company provides management services, or
any subsidiary or affiliate thereof, as requested. The Company and FOL agree
to reimburse Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Release of Employment Claims. Executive agrees, as a
condition to receipt of the termination payments and benefits provided for in
Sections 6 and 7 herein, that he will execute a release agreement, in a form
satisfactory to the Company and FOL, releasing any and all claims arising out
of Executive's employment by the Company and service by FOL (other than
enforcement of this Agreement).
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and
regulations may be applicable. If under the governing law, any portion of
this Agreement is at any time deemed to be in conflict with any applicable
statute, rule, regulation, ordinance, or other principle of law, such portion
shall be deemed to be modified or altered to the extent necessary to conform
thereto or, if that is not possible, to be omitted from this Agreement. The
invalidity of any such portion shall not affect the force, effect, and
validity of the remaining portion hereof. If any court determines that any
provision of Section 10 is unenforceable because of the duration or geographic
scope of such provision, it is the parties' intent that such court shall have
the power to modify the duration or geographic scope of such provision, as the
case may be, to the extent necessary to render the provision enforceable and,
in its modified form, such provision shall be enforced.
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<PAGE> 194
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to enforce rights pursuant to this Agreement
shall be paid on behalf of or reimbursed to Executive promptly by the Company,
whether or not Executive is successful in asserting such rights; provided,
however, that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that Executive's
assertion of such rights was in bad faith or frivolous, as determined by
independent counsel mutually acceptable to the Executive and the Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration
in Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company, FOL, and Executive hereby consent to
the jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts
of the State of Illinois, or (iii) any other court having jurisdiction. The
Company, FOL, and Executive further agree that any service of process or
notice requirements in any such proceeding shall be satisfied if the rules of
such court relating thereto have been substantially satisfied. The Company,
FOL, and Executive hereby waive, to the fullest extent permitted by applicable
law, any objection which it may now or hereafter have to such jurisdiction and
any defense of inconvenient forum. The Company, FOL, and Executive hereby
agree that a judgment upon an award rendered by the arbitrators may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Subject to Section 11(b), the Company shall bear all costs
and expenses arising in connection with any arbitration proceeding pursuant to
this Section 11. Notwithstanding any provision in this Section 11, Executive
shall be entitled to seek specific performance of Executive's right to be paid
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest, payable by the party owing such amounts, at
the prime rate in effect at the time such payment first becomes payable, as
quoted by the Bankers Trust Company.
12. Miscellaneous.
(a) Integration. This Agreement modifies and supersedes any
and all prior agreements and understandings among the parties hereto with
respect to the employment of Executive by the Company (and any affiliate) and
assignment as a senior executive of FOL (and any subsidiary), except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and FOL and subject to the provisions of Section
1(b). This Agreement (together with the Option Agreement) constitutes the
entire agreement among the parties with respect to the matters herein
provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto. Executive shall
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<PAGE> 195
not be entitled to any payment or benefit under this Agreement which
duplicates a payment or benefit received or receivable by Executive under such
prior agreements and understandings with the Company and/or FOL or under any
benefit or compensation plan of the Company and/or FOL.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company and FOL may assign
this Agreement and the Company's and FOL's rights and obligations hereunder,
and shall assign this Agreement, to any Successor (as hereinafter defined)
which, by operation of law or otherwise, continues to carry on substantially
the business of the Company or FOL prior to the event of succession, and the
Company and FOL, if involved in any such event, shall, as a condition of the
succession, require such Successor to agree to assume the obligations of the
predecessor and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical
ability to control (either immediately or with the passage of time), the
business of the Company or FOL directly, by merger or consolidation, or
indirectly, by purchase of the Company's or FOL's voting securities or all or
substantially all of the Company or FOL's assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by
Federal Express or other similar overnight service or by certified or
registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:
If to the Company:
Farley Industries, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
If to FOL:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
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Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
Earl C. Shanks
170 Dover Circle
Lake Forest, Illinois 60045
If the parties by mutual agreement supply all other parties with telecopier
numbers for the purposes of providing notice by facsimile, such notice shall
also be proper notice under this Agreement. In the case of Federal Express or
other similar overnight service, such notice or advice shall be effective when
sent, and, in the cases of certified or registered mail, shall be effective 2
days after deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect
the right of such party to require such performance or to resort to such
remedy at any time thereafter, nor shall the waiver by any party of a breach
of any of the provisions hereof be deemed to be a waiver of any subsequent
breach of such provisions. No such waiver shall be effective unless in
writing and signed by the party against whom such waiver is sought to be
enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment or service to FOL; provided, however, that, to the
extent Executive receives from a subsequent employer health or other insurance
benefits that are substantially similar to the benefits referred to in Section
5(c) hereof, any such benefits to be provided by the Company or FOL to
Executive following the Term shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by
the Company and/or FOL to Executive pursuant to this Agreement shall not be
subject to offset other than with respect to any amounts that are owed to the
Company or FOL by Executive due to his receipt of funds as a result of his
fraudulent activity. The foregoing and other provisions of this Agreement
notwithstanding, all payments to be made to Executive under this Agreement,
including under Sections 6 and 7, or otherwise by the Company or FOL will be
subject to required withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
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<PAGE> 197
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns and of FOL and its
successors and assigns.
13. Indemnification.
All rights to indemnification by the Company or FOL now existing
in favor of the Executive as provided in the Certificate of Incorporation or
By-Laws of the Company or FOL or pursuant to other agreements in effect on or
immediately prior to the Effective Date shall continue in full force and
effect from the Effective Date (including all periods after the expiration of
the Term), and the Company and FOL shall also advance expenses for which
indemnification may be ultimately claimed as such expenses are incurred to the
fullest extent permitted under applicable law, subject to any requirement that
the Executive provide an undertaking to repay such advances if it is
ultimately determined that the Executive is not entitled to indemnification;
provided, however, that any determination required to be made with respect to
whether the Executive's conduct complies with the standards required to be met
as a condition of indemnification or advancement of expenses under applicable
law and the Company's or FOL's Certificate of Incorporation, By-Laws, or other
agreement shall be made by independent counsel mutually acceptable to the
Executive and the indemnifying party (except to the extent otherwise required
by law). After the date hereof, the Company and FOL shall not amend its
respective Certificate of Incorporation or By-Laws or any agreement in any
manner which adversely affects the rights of the Executive to indemnification
thereunder. Any provision contained herein notwithstanding, this Agreement
shall not limit or reduce any rights of the Executive to indemnification
pursuant to applicable law. In addition, the Company and FOL will maintain
directors' and officers' liability insurance in effect and covering acts and
omissions of Executive (including during the Term and for a period of six
years thereafter) on terms substantially no less favorable as those in effect
on the Effective Date (if any).
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IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company and FOL have each caused this instrument to be duly executed as of the
day and year first above written.
FARLEY INDUSTRIES, INC.
By: /S/ William Farley
Name: William Farley
Title: Chairman and
Chief Executive Officer
FRUIT OF THE LOOM, INC.
By: /S/ William
Name: William Farley
Title: Chairman and
Chief Executive Officer
EXECUTIVE
/S/ Earl C. Shanks
Earl C. Shanks
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CONFORMED COPY
FARLEY INDUSTRIES, INC.
and
FRUIT OF THE LOOM, INC.
Employment Agreement for Larry K. Switzer
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<PAGE> 200
FARLEY INDUSTRIES, INC.
and
FRUIT OF THE LOOM, INC.
Employment Agreement for Larry K. Switzer
1. Employment and Assignment; Obligations of FOL and Company . . . . . 201
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
3. Offices and Duties . . . . . . . . . . . . . . . . . . . . . . . . . 202
4. Salary and Annual Incentive Compensation . . . . . . . . . . . . . . 203
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement . . . . . . . . . . 203
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability . . . . . . . . . . . . . . . . . . . . . . . . 207
7. Termination For Reasons Other Than Normal Retirement, Approved Early
Retirement, Death or Disability . . . . . . . . . . . . . . . . . . 209
8. Definitions Relating to Termination Events. . . . . . . . . . . . . 214
9. Excise Tax Gross-Up . . . . . . . . . . . . . . . . . . . . . . . . 217
10. Non-Competition and Non-Disclosure; Executive Cooperation . . . . . 219
11. Governing Law; Disputes; Arbitration . . . . . . . . . . . . . . . . 220
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
13. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . 224
<PAGE>
<PAGE> 201
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is dated as of the 28th day of March,
1995, by and among FARLEY INDUSTRIES, INC., an Illinois corporation (the
"Company"), FRUIT OF THE LOOM, INC., a Delaware corporation ("FOL"), and Larry
K. Switzer ("Executive"), and shall become effective as of December 18, 1994
(the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has served and is serving as a senior executive
of the Company and, under Service Agreements between the Company and FOL (any
such agreement as may be in effect from time to time being the "Service
Agreement"), as a senior executive of FOL; and
WHEREAS, FOL desires that Executive continue to serve FOL in a
senior executive capacity in connection with the conduct of its businesses,
the Company desires to continue to employ Executive as a senior executive so
that he may continue serve FOL, under the Service Agreement, in such a senior
executive capacity, and Executive desires to accept such employment by the
Company and assignment with FOL on the terms and conditions herein set forth;
and
WHEREAS, the Company, FOL, and Executive desire to set forth the
terms upon which Executive shall be so employed by the Company and assigned to
FOL.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company, FOL, and Executive each hereby
acknowledge, the Company, FOL, and Executive hereby agree as follows:
1. Employment and Assignment; Obligations of FOL and Company.
(a) Employment by the Company and Assignment to FOL. The
Company hereby agrees to employ Executive as a senior executive of the Company
and as a senior executive assigned to serve as a senior executive of FOL, FOL
hereby agrees to the assignment of Executive as a senior executive of FOL, and
Executive hereby agrees to accept such employment and assignment and serve in
such capacities, during the Term as defined in Section 2 and upon the terms
and conditions set forth in this Employment Agreement (this "Agreement").
(b) Obligations of FOL and Company, and Effect on Service
Agreement. FOL guarantees to Executive payment of all obligations hereunder
of the Company to Executive, including obligations under Sections 6 and 7.
FOL and the Company acknowledge and agree that, to the extent that this
Agreement specifies matters relating to the assignment of Executive to FOL and
imposes obligations between FOL and the Company relating thereto, this
Agreement may modify and amend the terms of any Service Agreement. If FOL
makes any payment of cash or property to Executive hereunder, including any
payment under a guarantee by FOL of a direct obligation of the Company to
Executive hereunder, that duplicates a payment made or owing by FOL to the
Company under the Service Agreement, FOL shall have a right of reimbursement
or setoff against the Company in respect of such payment. If Section 6 or 7
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<PAGE> 202
specify a payment, action or other obligation to Executive following
termination of Executive's employment by the Company and service to FOL
without specifying the primary obligor therefor, the obligor therefor shall be
FOL in respect of any obligation that replaces, settles, or otherwise relates
to an obligation of FOL under Sections 4 and 5 and shall be the Company in
respect of any obligation that replaces, settles, or otherwise relates to an
obligation of the Company under Sections 4 and 5, subject to FOL's guarantee
of the obligations of the Company.
2. Term.
The term of employment of Executive and assignment to FOL under
this Agreement (the "Term") shall be the period commencing on the Effective
Date and terminating on December 17, 1997 and any period of extension thereof
in accordance with this Section 2, subject to earlier termination in
accordance with Section 6 or 7. The Term shall be extended automatically
without further action by any party for the one-year period beginning on
December 18, 1997 and each succeeding December 18 thereafter, unless the
Company or FOL shall have served written notice upon Executive (and on the one
of the Company or FOL not serving such notice, if the two are not acting
jointly), or Executive shall have served written notice on the Company and
FOL, in either case in accordance with the provisions of Section 12(d), on or
prior to the June 30 preceding a date upon which such extension would become
effective electing not to extend the Term further as of the December 18 next
succeeding the date such notice is served, in which case the Term shall
terminate at the next December 17 (subject to earlier termination in
accordance with Section 6 or 7).
3. Offices and Duties.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as Executive Vice
President and Chief Financial Officer of the Company assigned, pursuant to the
Service Agreement, to serve as Executive Vice President and Chief Financial
Officer of FOL. Executive shall have and perform such duties,
responsibilities and authorities with FOL, on behalf of the Company, as are
substantially consistent with his duties, responsibilities, authorities, rank
and status with the Company and FOL as of the Effective Date. Executive shall
devote substantial business time and attention, and his best efforts,
abilities, experience, and talent, to the position of Executive Vice President
and Chief Financial Officer of the Company and of FOL and for the businesses
of the Company and FOL; provided, however, that nothing in this Agreement
shall preclude or prohibit Executive from engaging in other activities,
including as assigned by the Company, to the extent that such other activities
do not preclude Executive's employment and assignment to serve FOL or
otherwise inhibit the performance of Executive's duties under this Agreement
or impair the businesses of the FOL, the Company and their subsidiaries and
affiliates.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of FOL in Chicago, Illinois. In no
event shall the Executive's principal place of employment be relocated outside
of Chicago, Illinois without his consent.
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4. Salary and Annual Incentive Compensation.
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to pay to Executive during the Term the
compensation set forth in this Section 4, and FOL agrees to guarantee the
payment of such compensation to Executive.
(a) Base Salary. The Company will pay to Executive during the
Term a base salary at the annual rate in effect at the Effective Date, payable
in cash in substantially equal monthly installments during each calendar year,
or portion thereof, of the Term and otherwise in accordance with the Company's
usual payroll practices with respect to persons assigned to serve as senior
executives of FOL (except to the extent deferred under Section 5(d)).
Executive's annual base salary shall be reviewed by FOL and the Company at
least once in each calendar year and may be increased above, but may not be
reduced below, the then-current rate of such base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, determined through
Executive's participation in the FOL 1995 Executive Incentive Compensation
Plan (subject to approval thereof by FOL's stockholders) (the "1995 EICP"),
the FOL Executive Incentive Compensation Plan (the "EICP") if the 1995 EICP is
not approved by FOL stockholders, and any successor to the 1995 EICP or the
EICP, which shall offer to Executive an opportunity to earn additional
compensation in amounts determined by and in the sole discretion of the
Compensation Committee of the Board of Directors of FOL (the "Committee"), in
accordance with the applicable plan and consistent with past practices of the
Company; provided, however, that FOL and the Company will use their best
efforts to maintain in effect, for each year during the Term, the 1995 EICP,
the EICP (if the 1995 EICP is not approved by FOL stockholders), or an
equivalent plan under which Executive will be eligible for an award not less
than the opportunity level available under the 1995 EICP or the EICP during
1995 (if the 1995 EICP is not approved by FOL stockholders) to senior
executives of FOL in similar capacities. Any such annual incentive compensa-
tion payable to Executive shall be paid by FOL to the Company and by the
Company (without varying the amount or timing of payment or otherwise
exercising discretion) to Executive in accordance with FOL's incentive
compensation payment practices with respect to senior executives (except to
the extent deferred under Section 5(d)).
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement
As partial compensation for the services to be rendered hereunder
by Executive, the Company agrees to provide the compensation and benefits to
the extent specified in this Section 5, including Sections 5(a), (c), (d), and
(e), FOL agrees to guarantee the payment of all such compensation and benefits
to be provided by the Company under this Section 5, and FOL agrees to provide
the compensation and benefits to the extent specified in this Section 5,
including Sections 5(a), (b),(d) and (e).
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation
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by senior executives of the Company, including those assigned to FOL and by
senior executives of FOL, as presently in effect or as they may be modified or
added to from time to time, subject to the eligibility and other requirements
of such plans and programs, including without limitation the long-term
incentive features of the 1995 EICP, the EICP (if the 1995 EICP is not
approved by FOL's stockholders), any successor to such plans, and other stock
option plans, performance share plans, management incentive plans, and
deferred compensation plans of FOL, and supplemental retirement plans of the
Company; provided, however, that such compensation plans and programs, in the
aggregate, shall provide Executive with benefits and compensation and
incentive award opportunities substantially no less favorable than those
provided by the Company and FOL under such plans and programs to senior
executives in similar capacities. For purposes of this Agreement, all
references to "performance share plans" and "performance shares" refer to such
arrangements under the 1995 EICP or the EICP and to any performance shares,
performance units, stock grants, or other long-term incentive arrangements
adopted as a successor or replacement to performance shares under such plans
or other plans of the Company.
(b) Stock Option Grant Upon Signing Agreement. In addition to
the compensation otherwise specified under Sections 4 and 5, FOL has granted
to Executive, as of December 18, 1994 and conditioned upon Executive's
execution of this Agreement, a non-qualified stock option to purchase 100,000
shares of FOL's Class A Common Stock (the "1995 Option"), under the 1995 EICP,
subject to stockholder approval of the 1995 EICP at FOL's 1995 Annual Meeting
of Stockholders. The 1995 Option shall be evidenced by, and have the terms
set forth in, the option agreement attached as Exhibit A hereto (the "Option
Agreement"), which has been authorized and approved by the Committee under the
1995 EICP.
Not later than such time as the 1995 Option becomes exercisable,
FOL will have filed with the Securities and Exchange Commission, and will
thereafter maintain the effectiveness of, a registration statement registering
under the Securities Act of 1933, as amended, the offer and sale of shares by
FOL pursuant to the 1995 Option, which registration statement shall include a
resale prospectus covering the reoffer and resale (or other disposition) of
all shares acquired by Executive upon exercise of the 1995, and FOL will
maintain as current all offering materials under such registration statement
at all times that offers and sales of such shares could be made by FOL or
Executive.
(c) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or
duplication, in all employee and executive benefit plans and programs of the
Company, as presently in effect or as they may be modified or added to by the
Company from time to time, to the extent such plans are available to similarly
situated senior executives or employees of the Company, including those
assigned to serve as senior executives of FOL, subject to the eligibility and
other requirements of such plans and programs, including without limitation
plans providing pensions, other retirement benefits, medical insurance, life
insurance, disability insurance, and accidental death or dismemberment
insurance, and participation in savings, profit-sharing, and stock ownership
plans; provided, however, that such benefit plans and programs and any benefit
plans and programs of FOL in which Executive may from time to time participate
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shall, in the aggregate, provide Executive with benefits substantially no less
favorable than those provided by the Company and FOL to senior executives in
similar capacities.
In furtherance of and not in limitation of the foregoing, during
the Term:
(i) Executive will participate in all executive and employee vacation
and time-off programs;
(ii) The Company will provide Executive with coverage by long-term
disability insurance and benefits substantially no less favorable
(including any required contributions by Executive) than such
insurance and benefits provided to Executive at January 1, 1995;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit of not less than
three times Executive's annual base salary under Section 4(a);
provided, however, that such insurance may be combined with a
supplementary retirement funding vehicle;
(iv) Under the Company's pension plans (including supplemental plans):
(A) Executive will be entitled to benefits substantially no less
favorable than those under such plans and programs of the Company
as in effect at January 1, 1995; (B) for purposes of calculating
such benefits Executive's compensation covered by such plans will
include 100% of annual salary paid under Section 4(a) and no less
than 50% of annual incentive compensation paid under Section 4(b),
and Executive shall be credited, for each full calendar year of
the Term that is completed up to five years, with one additional
year of service up to five additional years under such plans,
which shall be fully vested upon crediting; and (C) amounts equal
to the present value of Executive's accrued benefit vested at any
time during the Term, under all supplemental (non-qualified)
pension plans of the Company, will be fully funded by the Company
by the purchase of an insured annuity, the ownership of which
shall be transferred to Executive, providing a benefit equivalent
to such accrued benefit on an after-tax basis, and the Company
will pay to Executive an additional amount (or apply such
additional amount to the purchase of an increased insured annuity
if so elected by Executive) equal to the total of Executive's
federal, state, and local income and employment taxes on the
insured annuity and such additional amount; and
(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior executives,
including those assigned to serve as senior executives of FOL,
subject to a lifetime maximum amount of supplemental
reimbursements of $750,000; provided, however, that supplemental
health and medical benefits shall provide for reimbursement of
Executive to the extent that any limitation on maximum lifetime
health and medical benefits and reimbursements under other Company
policies and programs is exceeded.
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(d) Deferral of Compensation. The Company and FOL shall
implement deferral arrangements, as obligations of FOL, permitting Executive
to elect to irrevocably defer receipt, pursuant to written deferral election
terms and forms (the "Deferral Election Forms"), of all or a specified portion
of (i) his annual base salary and annual incentive compensation under Section
4, (ii) long-term incentive compensation under Sections 5(a) and 5(b)
(including payouts relating to performance shares), and (iii) shares acquired
upon exercise of options granted under Sections 5(a) and (b) that are acquired
in an exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares
acquired by Executive in such exercise; provided, however, that such deferrals
shall not reduce Executive's total cash compensation in any calendar year
below the sum of (i) the FICA maximum taxable wage base plus (ii) 1.45% of
Executive's salary, annual incentive compensation and long-term incentive
compensation in excess of such FICA maximum. In addition, the Committee may
require mandatory deferral of amounts payable as annual incentive compensation
under Section 4(b) or long-term incentive compensation under Sections 5(a) and
5(b), which deferrals will otherwise be in accordance with this Section 5(d),
and the Company hereby delegates to such Committee full authority to require
such mandatory deferral of annual incentive compensation.
In accordance with such duly executed Deferral Election Forms or
the terms of any mandatory deferral, FOL shall, in lieu of payment by FOL to
the Company (under the Service Agreement in respect of Executive's services)
and in lieu of any direct payment by FOL or the Company to Executive, credit
to one or more bookkeeping accounts maintained by FOL for Executive, on the
respective date or dates payments would otherwise be due to Executive, amounts
equal to the compensation subject to deferral, such credits to be denominated
in cash if the compensation would have been paid in cash but for the deferral
or in shares if the compensation would have been paid in shares but for the
deferral. An amount of cash equal in value to all cash-denominated amounts
credited to Executive's account and a number of shares of Common Stock equal
to the number of shares credited to Executive's account pursuant to this
Section 5(d) shall be transferred as soon as practicable following such
crediting by FOL to, and shall be held and invested by, an independent trustee
selected by FOL (a "Trustee") pursuant to a "rabbi trust" established by FOL
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including
possible investment in publicly traded stocks and bonds, mutual funds, and
insurance vehicles). Thereafter, Executive's deferral accounts will be valued
by reference to the value of the assets of the "rabbi trust"; provided,
however, that a portion of the assets of the "rabbi trust" may be used to
reimburse FOL for its reasonable cost of funds resulting from payment of taxes
by FOL relating to such rabbi trust assets during the period of deferral and
prior to the settlement of Executive's deferral accounts. FOL shall pay all
other costs of administration of the deferral arrangement, without deduction
or reimbursement from the assets of the "rabbi trust."
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or termination of
service to FOL or as otherwise determined by the Committee in the event of
hardship on the part of Executive, upon such date(s) or event(s) set forth in
the Deferral Election Forms (including forms filed after deferral but before
settlement in which Executive may elect to further defer settlement) or the
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terms of any mandatory deferral, FOL shall promptly pay to Executive cash
equal to the cash then credited to Executive's deferral accounts and cash
equal in value to any shares of Common Stock then credited to Executive's
deferral accounts, less applicable withholding taxes, and such distribution
shall be deemed to fully settle such accounts; provided, however, that FOL may
instead settle such accounts by directing the Trustee to distribute the assets
of the "rabbi trust." FOL, the Company, and Executive agree that compensation
deferred pursuant to this Section 5(d) shall be fully vested and
nonforfeitable; provided, however, Executive acknowledges that his rights to
the deferred compensation provided for in this Section 5(d) shall be no
greater than those of a general unsecured creditor of FOL, and that such
rights may not be pledged, collateralized, encumbered, hypothecated, or liable
for or subject to any lien, obligation, or liability of Executive, or be
assignable or transferable by Executive, otherwise than by will or the laws of
descent and distribution, provided that Executive may designate one or more
beneficiaries to receive any payment of such amounts in the event of his
death.
(e) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability
Executive may terminate employment with the Company and cease to
serve as a senior executive of FOL upon Executive's retirement at or after age
65 ("Normal Retirement") or, if approved in advance by the Company and the
Committee, upon Executive's early retirement prior to age 65 ("Approved Early
Retirement"). FOL may terminate the service of Executive due to the
Disability (as defined in Section 8(c)) of Executive, in which case Executive's
employment by the Company and service to FOL will terminate due to Disability.
At the time Executive's employment by the Company and service to
FOL terminates due to Normal Retirement, Approved Early Retirement, or death,
the Term will terminate. In the event Executive's employment by the Company
and service to FOL terminates due to Disability, the Term will terminate at
the expiration of the 30-day period referred to in the definition of Disability
(set forth in Section 8(c)) absent the actions referred to therein being taken
by Executive to return to service and present to the Company and FOL a
certificate of good health.
Upon a termination of Executive's employment by the Company and
service to FOL due to Normal Retirement, Approved Early Retirement, death, or
Disability, all obligations of the Company, FOL, and Executive under Sections
1 through 5 of this Agreement will immediately cease; provided, however, that
subject to the provisions of Section 12(c), the Company and FOL will pay
Executive (or his beneficiaries or estate) (in accordance with Section 1(b)),
and Executive (or his beneficiaries or estate) will be entitled to receive,
the following:
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(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and (c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) In lieu of any annual incentive compensation under Section 4(b)
for the year of Executive's termination (unless otherwise payable
under (ii) above), Executive will be paid an amount equal to the
average annual incentive compensation paid to Executive in the
three years immediately preceding the year of termination (or, if
Executive was not eligible to receive or did not receive such
incentive compensation for any year in such three year period, the
Executive's target annual incentive compensation for such year(s)
shall be used to calculate average annual incentive compensation)
multiplied by a fraction the numerator of which is the number of
days Executive was employed and served in the year of termination
and the denominator of which is the total number of days in the
year of termination;
(iv) In lieu of any payment in respect of performance shares granted in
accordance with Section 5(a) for any performance period not
completed at the date of Executive's termination (unless otherwise
payable under (ii) above), Executive will be paid in cash an
amount equal to the cash amount payable plus the value of any
shares of Common Stock or other property (valued at the date of
termination) payable upon achievement of (A) the maximum
performance, in the case of death or Disability, or (B) at target
performance, in the case of Normal Retirement or Early Retirement,
in respect of each tranche of performance shares, multiplied by a
fraction the numerator of which is the number of days Executive
was employed and served during the respective performance period
and the denominator of which is the total number of days in such
performance period;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs and the agreements and other documents thereunder
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral;
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(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e); and
(viii) If Executive's employment and service terminates due to
Disability, for the period extending from such termination until
Executive reaches age 65, Executive shall continue to participate
in all employee benefit plans, programs, and arrangements under
Section 5(c) providing health, medical, and life insurance and
pension benefits in which Executive was participating immediately
prior to termination, the terms of which allow Executive's
continued participation, as if Executive had continued in
employment with the Company and service to FOL during such period
or, if such plans, programs, or arrangements do not allow
Executive's continued participation, a cash payment equivalent on
an after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit plans,
programs, and arrangements in which Executive was participating
immediately prior to termination, as if Executive had received
credit under such plans, programs, and arrangements for service
and age with the Company and FOL during such period following
Executive's termination, with such benefits payable by the Company
and/or FOL at the same times and in the same manner as such
benefits would have been received by Executive under such plans
(it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which
shall not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided further, that, in the case of termination of Executive's employment
and service due to Disability, Executive must continue to satisfy the
conditions set forth in Section 10 in order to continue receiving the
compensation and benefits under (viii), above. Amounts payable under (i),
(ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after Executive's termination; provided, however, to the extent that FOL would
not be entitled to deduct any such payments under Internal Revenue Code
Section 162(m), such payments shall be made at the earliest time that the
payments would be deductible by FOL without limitation under Section 162(m)
(unless this provision is waived by FOL).
7. Termination For Reasons Other Than Normal Retirement, Approved
Early Retirement, Death or Disability
(a) Termination for Cause and Termination by Executive. In
accordance with the provisions of this Section 7(a), FOL may terminate the
service of Executive as a senior executive of FOL for Cause (as defined in
Section 8(a)) at any time prior to a Change in Control (as defined in Section
8(b)), in which case Executive's employment by the Company and service to FOL
will terminate, the Company may terminate the employment of Executive for
Cause (as defined in Section 8(a)) at any time prior to a Change in Control
(as defined in Section 8(b)), and Executive may terminate his employment with
the Company and service with FOL voluntarily for reasons other than Good
Reason (as defined in Section 8(d)) at any time. An election by Executive not
to extend the Term pursuant to Section 2 hereof shall be deemed to be a
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voluntary termination of such employment and such service by Executive at the
date of expiration of the Term, unless there occurs a Change in Control prior
to the date of expiration.
Upon a termination of Executive's service with FOL for Cause,
termination of Executive's employment by the Company for Cause or voluntarily
termination by the Executive, the Term will immediately terminate, and all
obligations of the Company and FOL under Sections 1 through 5 of this
Agreement will immediately cease; provided, however, that subject to the
provisions of Section 12(c), the Company and FOL shall pay Executive, and
Executive shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and 5(c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's deferral
accounts under deferral arrangements authorized under Section 5(d)
hereof at the date of termination (including cash equal in value
at that date to any shares of Common Stock credited to Executive's
deferral accounts), less applicable withholding taxes under
Section 12(i); provided, however, that FOL may instead settle such
accounts by directing the Trustee to distribute the assets of the
"rabbi trust." Such amounts shall be paid or distributed as
promptly as practicable following such date of termination,
without regard to any stated period of deferral otherwise
remaining in respect of such amounts, and the payment of such
amounts shall be deemed to fully settle such accounts; and
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as
promptly as practicable after Executive's termination; provided, however, to
the extent that FOL would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by FOL without limitation
under Section 162(m) (unless this provision is waived by FOL).
(b) Termination Without Cause and Termination by Executive for
Good Reason. In accordance with the provisions of this Section 7(b), FOL may
terminate the service by Executive as a senior executive of FOL without Cause
(as defined in Section 8(a)), including after a Change in Control (as defined
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in Section 8(b)), upon 90 days' written notice to Executive, in which case
Executive's employment by the Company will terminate, the Company may
terminate Executive's employment without Cause (as defined in Section 8(a)),
including after a Change in Control (as defined in Section 8(b)), upon 90
days' written notice to Executive, and Executive may terminate his employment
by the Company and service with FOL for Good Reason (as defined in Section
8(d)) following a Change in Control upon 90 days' written notice to the
Company and FOL; provided, however, that, if the basis for such Good Reason is
correctable, the Company and/or FOL have not corrected the basis for such Good
Reason within 30 days after both have received such notice. The foregoing
notwithstanding, in lieu of the Company or FOL providing 90 days' written
notice to Executive, the Company and FOL may pay Executive his then-current
annual base salary under Section 4(a) and credit Executive with service for 90
days for all purposes hereunder. An election by the Company or FOL not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a
termination of service with FOL and termination of employment by the Company
without Cause at the date of expiration of the Term.
Upon a termination of Executive's service with FOL without Cause
or termination of Executive's employment by the Company without Cause prior to
or following a Change in Control or termination of Executive's service with
FOL and employment with the Company by Executive for Good Reason following a
Change in Control, the Term will immediately terminate and all obligations of
the Company, FOL, and Executive under Sections 1 through 5 of this Agreement
will immediately cease, except that subject to the provisions of Section 12(c)
the Company and FOL shall pay Executive, and Executive shall be entitled to
receive, the following:
(i) A lump-sum cash payment will be paid as follows:
(A) In the event such termination is a termination by FOL or
the Company without Cause following a Change in Control or
a termination by Executive for Good Reason following a
Change in Control, an amount paid by FOL equal to the sum
of Executive's annual base salary payable under Section
4(a) immediately prior to termination plus the average
annual incentive compensation paid to Executive in the
three years immediately preceding the year of termination
(or, if Executive was not eligible to receive or did not
receive such incentive compensation for any year in such
three year period, the Executive's target annual incentive
compensation for such year(s) shall be used to calculate
average annual incentive compensation) (such sum being the
"total cash" for purposes of this Section 7(b)(i))
multiplied by a number which is the greater of the number
of years (including any fraction determined based on the
number of days remaining in the year of termination)
remaining in the term without regard to such termination or
2.0, which payment shall be reduced pro rata to the extent
the number of full months remaining until Executive attains
age 65 is less than 24 months, plus, in lieu of any payment
in respect of performance shares or other long term
incentive awards granted in accordance with Section 5(a)
for any performance period not completed at the date of
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Executive's termination (unless otherwise payable under
(iii) below), an amount equal to the cash amount payable
plus the value of any shares of Common Stock or other
property (valued at the date of termination) payable upon
the achievement of maximum performance in respect of each
tranche of performance shares without proration; or
(B) In the event such termination is a termination by FOL or
the Company without Cause prior to a Change in Control, an
amount equal to then-current annual base salary payable
under Section 4(a) multiplied by 1.0, which payment shall
be reduced pro rata to the extent the number of full months
remaining until Executive attains age 65 is less than 12
months, plus, in lieu of any payment in respect of
performance shares or other long term incentive awards
granted in accordance with Section 5(a) for any performance
period not completed at the date of Executive's termination
(unless otherwise payable under (iii) below), Executive
will be paid in cash an amount equal to the cash amount
payable plus the value of any shares of Common Stock or
other property (valued at the date of termination) payable
upon achievement of the greater of target performance or
actual performance achieved at the date of termination in
respect of each tranche of performance shares, multiplied
by a fraction the numerator of which is the number of days
Executive was employed and served during the respective
performance period and the denominator of which is the
total number of days in such performance period;
(ii) The unpaid portion of annual base salary at the rate payable, in
accordance with Section 4(a) hereof, at the date of termination,
pro rated through such date of termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the date of
termination under any compensation and benefit plans, programs,
and arrangements set forth or referred to in Sections 4(b) and
5(a) and (c) hereof (including any earned annual incentive
compensation and performance shares) in which Executive
theretofore participated will be paid under the terms and
conditions of the plans, programs, and arrangements (and
agreements and documents thereunder) pursuant to which such
compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section 4(b)
for the year in which Executive's employment and service
terminated (unless otherwise payable under (iii) above), Executive
will be paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive compensation
for any year in such three year period, the Executive's target
annual incentive compensation for such year(s) shall be used to
calculate average annual incentive compensation) multiplied by a
fraction the numerator of which is the number of days Executive
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was employed and served in the year of termination and the
denominator of which is the total number of days in the year of
termination;
(v) Stock options then held by Executive will be exercisable to the
extent and for such periods, and otherwise governed, by the plans
and programs (and the agreements and other documents thereunder)
pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(d) will be settled in
accordance with Executive's duly executed Deferral Election Forms
or the terms of any mandatory deferral; provided, however, in the
event of a termination by FOL or the Company without Cause prior
to a Change in Control, a cash amount will be paid equal to the
amount credited to Executive's deferral accounts under deferral
arrangements authorized under Section 5(d) hereof at the date of
termination (including cash equal in value at that date to any
shares of Common Stock credited to Executive's deferral accounts),
less applicable withholding taxes under Section 12(i); provided,
however, that FOL may instead settle such accounts by directing
the Trustee to distribute the assets of the "rabbi trust." Such
amounts shall be paid or distributed as promptly as practicable
following such date of termination, without regard to any stated
period of deferral otherwise remaining in respect of such amounts,
and the payment of such amounts shall be deemed to fully settle
such accounts;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination will be reimbursed, as
authorized under Section 5(e);
(viii) In the event such termination is a termination by FOL or the
Company without Cause following a Change in Control or a
termination by Executive for Good Reason following a Change in
Control, a lump-sum cash payment will be paid by FOL equal to the
present value of Executive's accrued benefit, if any, which shall
be fully vested at the date of termination, under all supplemental
(non-qualified) pension plans of the Company, unless such benefits
are fully funded based on assets held in trust for the benefit of
Executive which cannot be reached by creditors of the Company or
FOL, or such benefits are otherwise funded and secured in an
equivalent manner; and
(ix) In the event such termination is a termination by FOL without
cause or a termination by Executive for Good Reason, for a period
of two years after such termination, Executive shall continue to
participate in all employee, executive, and special individual
benefit plans, programs, and arrangements under Section 5(c)
including but not limited to health, medical, disability, life
insurance, and pension benefits in which Executive was
participating immediately prior to termination, the terms of which
allow Executive's continued participation, as if Executive had
continued in employment with the Company and service to FOL during
such period or, if such plans, programs, or arrangements do not
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allow Executive's continued participation, a cash payment
equivalent on an after-tax basis to the value of the additional
benefits Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if Executive
had received credit under such plans, programs, and arrangements
for service and age with the Company during such period following
Executive's termination, with such benefits payable by the Company
and/or FOL at the same times and in the same manner as such
benefits would have been received by Executive under such plans
(it being understood that the value of any insurance-provided
benefits will be based on the premium cost to Executive, which
shall not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating).
Amounts payable under (i), (ii), (iii), (iv), (vi), (vii), and (viii) above
will be paid as promptly as practicable after Executive's termination, and in
no event more than 45 days after such termination, provided, however, that, in
the case of a termination by FOL without Cause prior to a Change in Control,
to the extent that FOL would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by FOL without limitation
under Section 162(m) (unless this provision is waived by FOL), but in no event
later than twelve months subsequent to the date of termination.
8. Definitions Relating to Termination Events.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition,
"gross misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the
Company, FOL, or any of their subsidiaries or affiliates or materially impairs
the value of the Executive's services to the Company or FOL, or (B) willfully
engaging in one or more acts, or willfully omitting to act in accordance with
duties hereunder, which is demonstrably and materially damaging to the
Company, FOL, or any of their subsidiaries or affiliates, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or
failure to act on Executive's part shall be considered "willful" if it was
done or omitted to be done by him not in good faith, and shall not include any
act or failure to act resulting from any incapacity of Executive.
Notwithstanding the foregoing, Executive may not be terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by a majority affirmative vote of the membership of the Board of
Directors of FOL or the Company (excluding Executive, if he is then a member)
at a meeting of such Board called and held for such purpose (after giving
Executive reasonable notice specifying the nature of the grounds for such
termination and not less than 30 days to correct the acts or omissions
complained of, if correctable, and affording Executive the opportunity,
together with his counsel, to be heard before such Board) finding that, in the
good faith opinion of the Board, Executive was guilty of conduct affecting the
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Board's corporation or a subsidiary which conduct constitutes Cause as set
forth in this Section 8(a).
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the shares
of Common Stock of FOL then outstanding ("FOL Common Stock
Outstanding") or the voting securities of FOL then outstanding
entitled to vote generally in the election of directors ("FOL
Voting Securities Outstanding"); provided, however, that such
acquisition of Beneficial Ownership would result in the Person's
Beneficially Owning twenty-five percent (25%) or more of FOL
Common Stock Outstanding or twenty-five percent (25%) or more of
the combined voting power of FOL Voting Securities Outstanding;
and provided further, that immediately prior to such acquisition
such Person was not a direct or indirect Beneficial Owner of
twenty-five percent (25%) or more of FOL Common Stock Outstanding
or twenty-five percent (25%) or more of the combined voting power
of FOL Voting Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of FOL of a reorganization,
merger, consolidation, complete liquidation or dissolution of FOL,
the sale or disposition of all or substantially all of the assets
of FOL or similar corporate transaction (in each case referred to
in this Section 8(b) as a "Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time
of such approval by stockholders, to the consent of any government
or governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board of Directors of FOL (the
"FOL Board") such that the individuals who, as of the Effective
Date, constitute the FOL Board (such FOL Board shall be
hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the FOL Board;
provided, however, for purposes of this Section 8(b), that any
individual who becomes a member of the FOL Board subsequent to the
Effective Date whose election, or nomination for election by FOL's
stockholders, was approved by a vote of at least a majority of
those individuals who are members of the Board and who were also
members of the Incumbent FOL Board (or deemed to be such pursuant
to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A under the Exchange
Act, including any successor to such Rule) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board shall not be so considered as a
member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
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purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by FOL or an affiliate; or (2) any acquisition or
consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and
the combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of FOL
Common Stock Outstanding and FOL Voting Securities Outstanding immediately
prior to such acquisition or Corporate Transaction in substantially the same
proportions as their ownership, immediately prior to such acquisition or
Corporate Transaction, of FOL Common Stock Outstanding and FOL Voting
Securities Outstanding, as the case may be; or (3) any transaction initiated
or controlled, directly or indirectly, by Executive, in a capacity other than
as a senior executive or director of FOL or senior executive or director of
the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning," and
"Beneficial Ownership" shall have the meanings ascribed to such
terms in Rule 13d-3 under the Exchange Act (including any
successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
(C) The term "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including "group" as defined in Section 13(d)
thereof.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of
any physical or mental incapacity or disability as determined by a physician
or physicians selected by FOL and reasonably acceptable to Executive, unless,
within 30 days after Executive has received written notice from FOL of a
proposed termination due to such absence, Executive shall have returned to the
full performance of his duties hereunder and shall have presented to FOL a
written certificate of Executive's good health prepared by a physician
selected FOL and reasonably acceptable to the Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean the occurrence of a Change in Control following which there
occurs, without Executive's prior written consent: (A) a material change,
adverse to Executive, in Executive's positions, titles, or offices, status,
rank, nature of responsibilities, or authority within FOL in effect prior to a
Change in Control, except in connection with the termination of Executive's
service to FOL for Cause, Disability, Normal Retirement or Approved Early
Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive with FOL which are
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inconsistent with his status, duties, responsibilities, and authorities in
effect prior to a Change in Control, (C) a decrease in annual base salary or
other compensation opportunities and maximums or benefits provided under this
Agreement, (D) any other failure by FOL or the Company to perform any material
obligation under, or breach by FOL or the Company of any material provision
of, this Agreement, (E) a relocation of the Corporate Offices of FOL more than
35 miles from the latest location of such offices prior to a Change in
Control, (F) any failure to secure the agreement of any successor corporation
or other entity to FOL or to the Company to fully assume the obligations of
FOL or the Company, respectively, under this Agreement in a form reasonably
acceptable to Executive, and (G) any attempt by FOL or the Company to
terminate Executive for Cause which does not result in a valid termination for
Cause, except in the case that valid grounds for termination for Cause exist
but are corrected as permitted under Section 8(a).
9. Excise Tax Gross-Up.
In the event that there shall occur a Change in Control of FOL, if
Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company, FOL, or any affiliated
company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), FOL
shall pay to Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement
for any penalties and interest that may accrue in respect of such Excise Tax)
such that the net amount retained by Executive, after reduction for any Excise
Tax (including any penalties or interest thereon) on the Total Payments and
any federal, state and local income or employment tax and Excise Tax on the
Gross-up Payment provided for by this Section 9, but before reduction for any
federal, state, or local income or employment tax on the Total Payments, shall
be equal to the sum of (a) the Total Payments, and (b) an amount equal to the
product of any deductions disallowed for federal, state, or local income tax
purposes because of the inclusion of the Gross-up Payment in Executive's
adjusted gross income multiplied by the highest applicable marginal rate of
federal, state, or local income taxation, respectively, for the calendar year
in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that,
in the written opinion of independent compensation
consultants or auditors of nationally recognized standing
("Independent Advisors") selected by FOL and reasonably
acceptable to Executive, the Total Payments (in whole or in
part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) represent
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reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in
excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the
Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the total
amount of excess parachute payments within the meaning of
section 280G(b)(1) of the Code (after applying clause (i)
above); and
(iii) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Advisors
in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment,
Executive shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year in which the
Gross-up Payment is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of Executive's adjusted gross income); and
(C) to have otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In
the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time the Gross-up Payment is made,
Executive shall repay to FOL at the time that the amount of such reduction in
Excise Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction is refunded to
Executive or otherwise realized as a benefit by Executive) the portion of the
Gross-up Payment that would not have been paid if such Excise Tax had been
applied in initially calculating the Gross-up Payment, plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time the Gross-up Payment is made
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-up Payment), FOL shall make an additional
Gross-up Payment in respect of such excess (plus any interest and penalties
payable with respect to such excess) at the time that the amount of such
excess is finally determined.
The Gross-up Payment provided for above shall be paid on the 30th
day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or
any portion thereof) are subject to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, FOL shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
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such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon
as the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by FOL to Executive, payable on the
fifth day after demand by FOL (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is
made, the amount of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment. FOL shall have the right to control all
proceedings with the Internal Revenue Service that may arise in connection
with the determination and assessment of any Excise Tax and, at its sole
option, FOL may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with any taxing authority in respect of
such Excise Tax (including any interest or penalties thereon); provided,
however, that FOL's control over any such proceedings shall be limited to
issues with respect to which a Gross-up Payment would be payable hereunder,
and Executive shall be entitled to settle or contest any other issue raised by
the Internal Revenue Service or any other taxing authority. Executive shall
cooperate with FOL in any proceedings relating to the determination and
assessment of any Excise Tax and shall not take any position or action that
would materially increase the amount of any Gross-Up Payment hereunder.
10. Non-Competition and Non-Disclosure; Executive Cooperation.
(a) Non-Competition. Without the consent in writing of the
Board of Directors of FOL, upon termination of Executive's employment and
cessation of service to FOL for any reason, Executive will not, for a period
of one year thereafter, acting alone or in conjunction with others, directly
or indirectly (i) engage (either as owner, investor, partner, stockholder,
employer, employee, consultant, advisor or director) in any business in which
he has been directly engaged on behalf of FOL or any of its subsidiaries, or
has supervised as an executive thereof, during the last two years prior to
such termination and which is directly in competition with a business then
conducted by FOL or any of its subsidiaries; (ii) induce any customers of FOL
or any of its subsidiaries with whom Executive has had contacts or
relationships, directly or indirectly, during and within the scope of his
assignment and service to FOL or any of its subsidiaries, to curtail or cancel
their business with such companies or any of them; or (iii) induce, or attempt
to influence, any employee of FOL or any of its subsidiaries to terminate
employment; provided, however, that the limitation contained in clause (i)
above shall not apply if Executive's employment is terminated as a result of a
termination by FOL without Cause following a Change in Control or a
termination by Executive for Good Reason following a Change in Control. The
provisions of subparagraphs (i), (ii) and (iii) above are separate and
distinct commitments independent of each of the other subparagraphs. It is
agreed that the ownership of not more than one percent of the equity securi-
ties of any company having securities listed on an exchange or regularly
traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment with the Company or service with FOL for any reason), disclose,
use, transfer, or sell, except in the course of employment with or other
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service to the Company, FOL, any company or business other than FOL for which
the Company provides management services, and any subsidiary or affiliate
thereof, any confidential or proprietary information of the Company, FOL, any
company or business other than FOL for which the Company provides management
services, and any subsidiary or affiliate thereof so long as such information
has not otherwise been disclosed or is not otherwise in the public domain,
except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company and FOL, during the Term and thereafter (including
following Executive's termination of employment with the Company or service
with FOL for any reason), by making himself available to testify on behalf of
the Company, FOL, any company or business other than FOL for which the Company
provides management services, or any subsidiary or affiliate thereof, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and to assist the Company, FOL, any company or business other
than FOL for which the Company provides management services, or any subsidiary
or affiliate thereof, in any such action, suit, or proceeding, by providing
information and meeting and consulting with the Board of Directors of the
Company and the Board of Directors of FOL, and their representatives or
counsel, or representatives or counsel of the Company, FOL, any company or
business other than FOL for which the Company provides management services, or
any subsidiary or affiliate thereof, as requested. The Company and FOL agree
to reimburse Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Release of Employment Claims. Executive agrees, as a
condition to receipt of the termination payments and benefits provided for in
Sections 6 and 7 herein, that he will execute a release agreement, in a form
satisfactory to the Company and FOL, releasing any and all claims arising out
of Executive's employment by the Company and service by FOL (other than
enforcement of this Agreement).
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and
regulations may be applicable. If under the governing law, any portion of
this Agreement is at any time deemed to be in conflict with any applicable
statute, rule, regulation, ordinance, or other principle of law, such portion
shall be deemed to be modified or altered to the extent necessary to conform
thereto or, if that is not possible, to be omitted from this Agreement. The
invalidity of any such portion shall not affect the force, effect, and
validity of the remaining portion hereof. If any court determines that any
provision of Section 10 is unenforceable because of the duration or geographic
scope of such provision, it is the parties' intent that such court shall have
the power to modify the duration or geographic scope of such provision, as the
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case may be, to the extent necessary to render the provision enforceable and,
in its modified form, such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to enforce rights pursuant to this Agreement
shall be paid on behalf of or reimbursed to Executive promptly by the Company,
whether or not Executive is successful in asserting such rights; provided,
however, that no reimbursement shall be made of such expenses relating to any
unsuccessful assertion of rights if and to the extent that Executive's
assertion of such rights was in bad faith or frivolous, as determined by
independent counsel mutually acceptable to the Executive and the Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration
in Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company, FOL, and Executive hereby consent to
the jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts
of the State of Illinois, or (iii) any other court having jurisdiction. The
Company, FOL, and Executive further agree that any service of process or
notice requirements in any such proceeding shall be satisfied if the rules of
such court relating thereto have been substantially satisfied. The Company,
FOL, and Executive hereby waive, to the fullest extent permitted by applicable
law, any objection which it may now or hereafter have to such jurisdiction and
any defense of inconvenient forum. The Company, FOL, and Executive hereby
agree that a judgment upon an award rendered by the arbitrators may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Subject to Section 11(b), the Company shall bear all costs
and expenses arising in connection with any arbitration proceeding pursuant to
this Section 11. Notwithstanding any provision in this Section 11, Executive
shall be entitled to seek specific performance of Executive's right to be paid
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest, payable by the party owing such amounts, at
the prime rate in effect at the time such payment first becomes payable, as
quoted by the Bankers Trust Company.
12. Miscellaneous.
(a) Integration. This Agreement modifies and supersedes any
and all prior agreements and understandings among the parties hereto with
respect to the employment of Executive by the Company (and any affiliate) and
assignment as a senior executive of FOL (and any subsidiary), except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and FOL and subject to the provisions of Section
1(b). This Agreement (together with the Option Agreement) constitutes the
entire agreement among the parties with respect to the matters herein
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provided, and no modification or waiver of any provision hereof shall be
effective unless in writing and signed by the parties hereto. Executive shall
not be entitled to any payment or benefit under this Agreement which
duplicates a payment or benefit received or receivable by Executive under such
prior agreements and understandings with the Company and/or FOL or under any
benefit or compensation plan of the Company and/or FOL.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company and FOL may assign
this Agreement and the Company's and FOL's rights and obligations hereunder,
and shall assign this Agreement, to any Successor (as hereinafter defined)
which, by operation of law or otherwise, continues to carry on substantially
the business of the Company or FOL prior to the event of succession, and the
Company and FOL, if involved in any such event, shall, as a condition of the
succession, require such Successor to agree to assume the obligations of the
predecessor and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical
ability to control (either immediately or with the passage of time), the
business of the Company or FOL directly, by merger or consolidation, or
indirectly, by purchase of the Company's or FOL's voting securities or all or
substantially all of the Company or FOL's assets, or otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by
Federal Express or other similar overnight service or by certified or
registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:
If to the Company:
Farley Industries, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
If to FOL:
Fruit of the Loom, Inc.
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5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
Larry K. Switzer
2080 Augusta Terrace
Coral Springs, FL 33071
If the parties by mutual agreement supply all other parties with telecopier
numbers for the purposes of providing notice by facsimile, such notice shall
also be proper notice under this Agreement. In the case of Federal Express or
other similar overnight service, such notice or advice shall be effective when
sent, and, in the cases of certified or registered mail, shall be effective 2
days after deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect
the right of such party to require such performance or to resort to such
remedy at any time thereafter, nor shall the waiver by any party of a breach
of any of the provisions hereof be deemed to be a waiver of any subsequent
breach of such provisions. No such waiver shall be effective unless in
writing and signed by the party against whom such waiver is sought to be
enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment or service to FOL; provided, however, that, to the
extent Executive receives from a subsequent employer health or other insurance
benefits that are substantially similar to the benefits referred to in Section
5(c) hereof, any such benefits to be provided by the Company or FOL to
Executive following the Term shall be correspondingly reduced.
(i) Offsets; Withholding. The amounts required to be paid by
the Company and/or FOL to Executive pursuant to this Agreement shall not be
subject to offset other than with respect to any amounts that are owed to the
Company or FOL by Executive due to his receipt of funds as a result of his
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<PAGE> 224
fraudulent activity. The foregoing and other provisions of this Agreement
notwithstanding, all payments to be made to Executive under this Agreement,
including under Sections 6 and 7, or otherwise by the Company or FOL will be
subject to required withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company and its successors and assigns and of FOL and its
successors and assigns.
13. Indemnification.
All rights to indemnification by the Company or FOL now existing
in favor of the Executive as provided in the Certificate of Incorporation or
By-Laws of the Company or FOL or pursuant to other agreements in effect on or
immediately prior to the Effective Date shall continue in full force and
effect from the Effective Date (including all periods after the expiration of
the Term), and the Company and FOL shall also advance expenses for which
indemnification may be ultimately claimed as such expenses are incurred to the
fullest extent permitted under applicable law, subject to any requirement that
the Executive provide an undertaking to repay such advances if it is
ultimately determined that the Executive is not entitled to indemnification;
provided, however, that any determination required to be made with respect to
whether the Executive's conduct complies with the standards required to be met
as a condition of indemnification or advancement of expenses under applicable
law and the Company's or FOL's Certificate of Incorporation, By-Laws, or other
agreement shall be made by independent counsel mutually acceptable to the
Executive and the indemnifying party (except to the extent otherwise required
by law). After the date hereof, the Company and FOL shall not amend its
respective Certificate of Incorporation or By-Laws or any agreement in any
manner which adversely affects the rights of the Executive to indemnification
thereunder. Any provision contained herein notwithstanding, this Agreement
shall not limit or reduce any rights of the Executive to indemnification
pursuant to applicable law. In addition, the Company and FOL will maintain
directors' and officers' liability insurance in effect and covering acts and
omissions of Executive (including during the Term and for a period of six
years thereafter) on terms substantially no less favorable as those in effect
on the Effective Date (if any).
<PAGE>
<PAGE> 225
IN WITNESS WHEREOF, Executive has hereunto set his hand and the
Company and FOL have each caused this instrument to be duly executed as of the
day and year first above written.
FARLEY INDUSTRIES, INC.
By: /S/ William Farley
Name: William Farley
Title: Chairman and
Chief Executive Officer
FRUIT OF THE LOOM, INC.
By: /S/ William Farley
Name: William Farley
Title: Chairman and
Chief Executive Officer
EXECUTIVE
/S/ Larry K. Switzer
Larry K. Switzer
<PAGE> 226
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES EXHIBIT 11
Computation of Earnings Per Common Share
(In thousands, except per share data)
<TABLE>
<CAPTION> Year Ended December 31,
1994 1993 1992 1991 1990
Primary:
<S> <C> <C> <C> <C> <C>
Earnings available to common shares:
Earnings before extraordinary items and cumulative
effect of change in accounting principle $ 60,300 $ 212,800 $ 188,500 $ 111,000 $ 77,100
Extraordinary items -- (8,700) (9,900) -- --
Cumulative effect of change in accounting
for income taxes -- 3,400 -- -- --
Net earnings $ 60,300 $ 207,500 $ 178,600 $ 111,000 $ 77,100
Average common shares outstanding 76,000 76,000 76,000 69,400 61,900
Per Share:
Earnings before extraordinary items and cumulative
effect of change in accounting principle $ .79 $ 2.80 $ 2.48 $ 1.60 $ 1.25
Extraordinary items -- (.11) (.13) -- --
Cumulative effect of change in accounting
for income taxes -- .04 -- -- --
Net earnings $ .79 $ 2.73 $ 2.35 $ 1.60 $ 1.25
Fully Diluted:
Earnings available to common shares:
Earnings before extraordinary items and cumulative
effect of change in accounting principle $ 60,300 $ 212,800 $ 188,500 $ 111,000 $ 77,100
Add-interest on 6-3/4% convertible subordinated
debentures, net of tax -- -- -- 1,500 2,700
Adjusted earnings before extraordinary
items and cumulative effect of change
in accounting principle 60,300 212,800 188,500 112,500 79,800
Extraordinary items -- (8,700) (9,900) -- --
Cumulative effect of change in accounting
for income taxes -- 3,400 -- -- --
Adjusted net earnings $ 60,300 $ 207,500 $ 178,600 $ 112,500 $ 79,800
Common shares outstanding per primary computation 76,000 76,000 76,000 69,400 61,900
Add: shares issuable from assumed exercise of 6-3/4%
convertible debentures -- -- -- 3,000 5,300
Additional effect of outstanding options as determined
by the application of the treasury stock method -- -- -- 400 100
Total 76,000 76,000 76,000 72,800 67,300
Per Share:
<PAGE>
<PAGE> 227
Earnings before extraordinary items and cumulative
effect of change in accounting principle $ .79 $ 2.80 $ 2.48 $ 1.55 $ 1.18
Extraordinary items -- (.11) (0.13) -- --
Cumulative effect of change in accounting
for income taxes -- .04 -- -- --
Net earnings $ .79 $ 2.73 $ 2.35 $ 1.55 $ 1.18
</TABLE>
<PAGE> 228
SUBSIDIARIES* OF EXHIBIT 22
FRUIT OF THE LOOM, INC.
Jurisdiction of
Incorporation
Union Underwear Company, Inc. New York
NWI Land Management Corporation Delaware
Subsidiaries of Union Underwear Company, Inc.
Aliceville Cotton Mill, Inc. Alabama
Apparel Outlet Stores, Inc. Delaware
Artex Manufacturing Co., Inc. Delaware
Brundidge Shirt Corp. Alabama
The B.V.D. Licensing Corporation Delaware
Camp Hosiery Company, Inc. Tennessee
Fayette Cotton Mill, Inc. Alabama
Fruit of the Loom, Inc. (a New York corporation) New York
FTL Sales Company, Inc. New York
Gitano Fashions Limited Delaware
Greenville Manufacturing, Inc. Mississippi
Jet Sew Technologies, Inc. New York
Leesburg Knitting Mills, Inc. Alabama
Martin Mills, Inc. Louisiana
Panola Mills, Inc. Mississippi
Pro Player, Inc. New York
Rabun Apparel, Inc. Georgia
Russell Hosiery Mills, Inc. North Carolina
Salem Sportswear Corporation Delaware
Sherman Warehouse Corporation Mississippi
Union Sales, Inc. Delaware
Union Yarn Mills, Inc. Alabama
Woodville Apparel Corporation Mississippi
Winfield Cotton Mill, Inc. Alabama
Whitmire Manufacturing, Inc. South Carolina
Fruit of the Loom Caribbean, Inc. Delaware
Fruit of the Loom Canada, Inc. Ontario
Fruit of the Loom Arkansas, Inc. Arkansas
Fruit of the Loom Texas, Inc. Texas
Fruit of the Loom Italy, S.r.l. Italy
AVX Management Co., Inc. Kentucky
* Excludes some subsidiaries which, if considered in the aggregate as a
single subsidiary, would not constitute a "significant subsidiary" at
December 31, 1994.
<PAGE>
<PAGE> 229
EXHIBIT 22
SUBSIDIARIES* OF (Continued)
FRUIT OF THE LOOM, INC.-(Continued)
Jurisdiction of
Incorporation
Subsidiaries of Fruit of the Loom, Inc. (a New York corporation)
Fruit of the Loom GmbH Germany
Subsidiaries of Union Underwear Company, Inc.
Superior Acquisition Corporation Delaware
Superior Underwear Mill, Inc. New York
FOL International Republic of Ireland
Subsidiaries of Artex Manufacturing Co., Inc. (a Delaware Corporation)
Union Manufacturing Co., Inc. Alabama
Subsidiaries of Russell Hosiery Mills, Inc. (a North Carolina corporation)
Leesburg Yarn Mills, Inc. Alabama
Subsidiaries of Camp Hosiery Company, Inc. (a Tennessee corporation)
Russmont Hosiery Mill, Inc. North Carolina
Subsidiaries of Union Sales, Inc. (a Delaware corporation)
Fruit of the Loom Trading Company Delaware
Subsidiaries of Union Yarn Mills, Inc. (an Alabama corporation)
DeKalb Knitting Corporation Alabama
Subsidiaries of Superior Acquisition Corporation (a Delaware corporation)
Prendas Tejidas de Mexico, S.A. de C.V. Mexico
Tejidos de Valle Hermosa, S.A. de C.V. Mexico
Confecciones dos Caminos, S.A. Honduras
Confecciones De Lourdes, S.A. de C.V. El Salvador
Subsidiaries of FOL International (a Republic of Ireland corporation)
W.P. McCarter & Co., Ltd. Republic of Ireland
Fruit of the Loom France, S.a.r.l. France
FOL International GmbH Germany
Fruit of the Loom International, Ltd. Republic of Ireland
Fruit of the Loom Investments, Ltd. United Kingdom
Fruit of the Loom Spain, S.A. Spain
Fruit of the Loom Benelux, S.A. Belgium
Fruit of the Loom Nordic, AB Sweden
Fruit of the Loom-Maroc Morocco
* Excludes some subsidiaries which, if considered in the aggregate as a
single subsidiary, would not constitute a "significant subsidiary" at
December 31, 1994.
<PAGE>
<PAGE> 230
EXHIBIT 22
SUBSIDIARIES* OF (Concluded)
FRUIT OF THE LOOM, INC.-(Concluded)
Jurisdiction of
Incorporation
Subsidiaries of Fruit of the Loom International, Ltd. (a Republic of Ireland
corporation)
McCarters Ireland, Ltd. Republic of Ireland
Subsidiaries of Fruit of the Loom Investments, Ltd. (a United Kingdom
corporation)
Fruit of the Loom, Ltd. United Kingdom
Fruit of the Loom Management Co., Ltd. United Kingdom
Fruit of the Loom Manufacturing Co., Ltd. United Kingdom
Subsidiaries of The Fruit of the Loom Trading Company (a Delaware corporation)
Controladora Fruit of the Loom, S.A. de C.V. Mexico
Subsidiaries of Controladora Fruit of the Loom, S.A. de C.V. (a Mexico
corporation)
Distribuidora Fruit of the Loom, S.A. de C.V. Mexico
Distribuidora FTL, SA. de C.V. Mexico
Fruit of the Loom de Mexico, S.A. de C.V. Mexico
Subsidiaries of Salem Sportswear Corporation
Rienzi Manufacturing, Inc. Mississippi
Rogersville Apparel, Inc. Alabama
Salem Screen South, Inc. Alabama
All Star Manufacturing, Inc. Alabama
Salem Sportswear, Inc. New Hampshire
Subsidiaries of Salem Sportswear, Inc.
Salem International, Inc. (FSC) U.S. Virgin Islands
Subsidiaries of Gitano Fashions Limited
Noel of Jamaica Limited Jamaica
Dutton II Trading Limited Hong Kong
Subsidiaries of Dutton II Trading Limited
P.S. Garment Limited Hong Kong
* Excludes some subsidiaries which, if considered in the aggregate as a
single subsidiary, would not constitute a "significant subsidiary" at
December 31, 1994.
<PAGE> 231
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 Nos. 33-18250, 33-56214, 33-57472 and 33-50499 and Forms
S-3 Nos. 33-56376, 33-56378 and 33-52023) pertaining to the Fruit of the Loom,
Inc. 1987 Stock Option Plan, the Richard C. Lappin Stock Option Plan, the 1992
Executive Stock Option Plan, the Fruit of the Loom, Inc. Directors' Stock
Option Plan, the registration of 800,000 shares of Class A Common Stock,
1,550,391 shares of Class A Common Stock and 1,800,000 shares of Class A
Common Stock and in the related Prospectuses of our report dated February 14,
1995 with respect to the consolidated financial statements of Fruit of the
Loom, Inc. and subsidiaries included in the Annual Report (Form 10-K) for the
year ended December 31, 1994.
ERNST & YOUNG LLP
Chicago, Illinois
March 24, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Company's annual report on Form 10-K and is qualified
in its entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<CAPTION>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
<S> <C>
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> 12-MOS
<CASH> 49,400
<SECURITIES> 0
<RECEIVABLES> 316,300
<ALLOWANCES> 20,700
<INVENTORY> 676,800
<CURRENT-ASSETS> 1,076,600
<PP&E> 1,531,400
<DEPRECIATION> 473,200
<TOTAL-ASSETS> 3,163,500
<CURRENT-LIABILITIES> 331,800
<BONDS> 1,440,200
0
0
<COMMON> 463,700
<OTHER-SE> 662,100
<TOTAL-LIABILITY-AND-EQUITY> 3,163,500
<SALES> 2,297,800
<TOTAL-REVENUES> 2,297,800
<CGS> 1,651,300
<TOTAL-COSTS> 1,651,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,400
<INCOME-PRETAX> 133,500
<INCOME-TAX> 73,200
<INCOME-CONTINUING> 60,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,300
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
</TABLE>
