<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[FRUIT OF THE LOOM LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 1995
------------------------
To the Stockholders of
FRUIT OF THE LOOM, INC.:
The Annual Meeting of Stockholders of Fruit of the Loom, Inc. will be held
at 10:00 a.m., Chicago time, on Tuesday, May 16, 1995 at The Standard Club, 320
South Plymouth Court, Chicago, Illinois, for the following purposes:
(1) To elect nine directors, three directors to be elected by the
holders of Class A Common Stock and six directors to be elected by the
holders of Class A Common Stock and the holders of Class B Common Stock,
voting together as a single class;
(2) To approve the Fruit of the Loom, Inc. 1995 Executive Incentive
Compensation Plan;
(3) To approve the Fruit of the Loom, Inc. 1995 Non-Employee
Directors' Stock Plan; and
(4) To transact such other business as may properly be brought before
the meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on March 21, 1995 as
the record date for determining stockholders entitled to notice of, and to vote
at, the meeting.
By order of the Board of Directors,
EARL C. SHANKS
Vice President and Assistant Secretary
April 7, 1995
ALL STOCKHOLDERS ARE URGED TO ATTEND THE MEETING IN PERSON OR BY PROXY.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE FURNISHED FOR THAT PURPOSE.
<PAGE> 3
FRUIT OF THE LOOM, INC.
5000 SEARS TOWER
233 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 876-1724
------------------------
PROXY STATEMENT
------------------------
The accompanying proxy is solicited by the Board of Directors of Fruit of
the Loom, Inc. (the "Company") for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held at 10:00 a.m., Chicago time, on Tuesday, May
16, 1995 at The Standard Club, 320 South Plymouth Court, Chicago, Illinois, and
any adjournment thereof. This Proxy Statement and the accompanying proxy card
are being sent to stockholders on or about April 7, 1995.
VOTING SECURITIES; PROXIES
The shares represented by your proxy will be voted and such vote will be in
accordance with the instructions noted on your proxy card. You have the power to
revoke your proxy at any time before it is voted by written notice to the
Assistant Secretary of the Company. In addition, stockholders attending the
Annual Meeting may revoke their proxies at that time and vote in person at the
meeting.
The Company has two classes of capital stock outstanding, Class A Common
Stock ("Class A Common Stock") and Class B Common Stock ("Class B Common
Stock"). Except as otherwise provided by law or the Company's Certificate of
Incorporation, the holders of Class A Common Stock and the holders of Class B
Common Stock vote together as a single class, with each share of Class A Common
Stock having one vote and each share of Class B Common Stock having five votes.
At the close of business on March 21, 1995, the record date for the Annual
Meeting, there were 69,170,456 shares of Class A Common Stock and 6,690,976
shares of Class B Common Stock outstanding, all of which are entitled to vote.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides that holders of Class A
Common Stock, voting as a separate class, are entitled to elect that number of
directors constituting at least 25% of the entire board. The holders of Class A
Common Stock and the holders of Class B Common Stock, voting together as a
single class, with each share of Class A Common Stock having one vote and each
share of Class B Common Stock having five votes, are entitled to elect the
remaining directors. Nine directors will be elected at the Annual Meeting, three
of whom will be elected by the holders of Class A Common Stock and six of whom
will be elected by the holders of Class A Common Stock and Class B Common Stock,
voting together as a single class. Directors hold office until the next annual
meeting of stockholders or until their successors have been duly elected and
qualified.
<PAGE> 4
If no direction to the contrary is given, all proxies received by the Board
of Directors of the Company (the "Board of Directors") from holders of Class A
Common Stock will be voted for the election of the persons shown below as the
nominees of the Board of Directors. The Board of Directors has been advised that
the holders of all shares of Class B Common Stock outstanding intend to vote all
such shares for the election of the persons shown below as the nominees for
election by the holders of Class A Common Stock and the holders of Class B
Common Stock. It is expected that the nominees will be able to stand for
election and be able to serve if elected. In the event that a vacancy in the
slate of nominees should occur before the meeting, proxies will be voted for
another person nominated by the Board of Directors.
INFORMATION AS TO NOMINEES
The following tables set forth information as to the nominees for election
as directors:
NOMINEES FOR ELECTION BY HOLDERS OF CLASS A COMMON STOCK
<TABLE>
<CAPTION>
POSITION(S) WITH THE COMPANY AND PRINCIPAL
NAME OF NOMINEE AGE OCCUPATION
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
Omar Z. Al Askari(1)............... 44 Director; Chairman of the Board of Plaid Holdings
Corp. and Chief Executive Officer of United
Technical Services and United Eastern
Investment Corp.
Dennis S. Bookshester(1)(2)(3)..... 56 Director; Independent Business Consultant; former
Chief Executive Officer of Zale Corp.
Lee W. Jennings(1)................. 66 Director; President of Jennings & Associates;
former Managing Partner, KPMG Peat Marwick LLP
</TABLE>
NOMINEES FOR ELECTION BY HOLDERS OF CLASS A COMMON STOCK AND
HOLDERS OF CLASS B COMMON STOCK
<TABLE>
<CAPTION>
POSITION(S) WITH THE COMPANY AND PRINCIPAL
NAME OF NOMINEE AGE OCCUPATION
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
William Farley(3).................. 52 Director; Chairman of the Board and Chief
Executive Officer of the Company
John B. Holland.................... 63 Director; President and Chief Operating Officer of
the Company
Henry A. Johnson................... 76 Director; President of Henry A. Johnson &
Associates; former President and Chief Executive
Officer of Spiegel, Inc.
Richard C. Lappin(3)............... 50 Director and Vice Chairman of the Company
A. Lorne Weil(2)................... 49 Director; Chairman of the Board and Chief
Executive Officer of Autotote Corporation
Sir Brian G. Wolfson(2)............ 59 Director; Executive Chairman of Wembley plc.
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Executive Committee
2
<PAGE> 5
------------------------
William Farley. Mr. Farley has been Chairman of the Board and Chief
Executive Officer of the Company since May 1985. For more than the past five
years, Mr. Farley has also been Chairman and Chief Executive Officer of Farley
Industries, Inc. ("FII"), a company which provides management services to
companies controlled or managed by Mr. Farley. He has held substantially similar
positions with Farley Inc., a manufacturer of prototype auto parts and railroad
bearings, since 1982, West Point-Pepperell, Inc. ("West Point"), a manufacturer
of household fabrics, from April 1989 through October 1992 and Valley Fashions
Corp. (formerly West Point Acquisition Corp. and currently West Point Stevens,
Inc.) from March 1989 until October 1992. Mr. Farley has also been Chairman and
a director of Acme Boot Company, Inc. ("Acme Boot"), a marketer of Western and
casual boots and Western apparel and accessories, for more than the past five
years.
Omar Z. Al Askari. Mr. Al Askari has been a director of the Company since
October 1993. Mr. Al Askari has been Chairman of the Board of Plaid Clothing
Group Inc., a men's tailored clothing business, since 1991. Since 1980, Mr. Al
Askari has also served as President and Chief Executive Officer of United
Technical Services, which sells and services engineered products for the oil
field and construction industries in the United Arab Emirates. He also serves as
Chief Executive Officer of United Eastern Investment Corp., which holds
investments in privately held companies in the United States and the United
Kingdom.
Dennis S. Bookshester. Mr. Bookshester has been a director of the Company
since May 1992. Mr. Bookshester served as the Chief Executive Officer of Zale
Corp. during 1990 and 1991. Mr. Bookshester currently is an independent business
consultant. He is also a director of AMRE Inc., Evans Inc., Playboy Enterprises,
Inc. and Sundance Homes, Inc.
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 and as a director of West Point from
April 1989 until September 1992, and as Vice Chairman of Valley Fashions Corp.
from March 1989 until June 1990. He is also a director of Dollar General Corp.
and First Kentucky National Corp.
Lee W. Jennings. Mr. Jennings has been a director of the Company since
January 1992. Mr. Jennings has been the President of Jennings & Associates, a
strategic consulting firm, for more than the past five years. Prior to the
formation of Jennings & Associates, Mr. Jennings was a Managing Partner of KPMG
Peat Marwick LLP. He is also a director of Alberto Culver Corp., A.O. Smith
Corp., L&N Housing Corp., Manville Corporation, Prime Capital Corp. and Teppco
Partners, L.P.
Henry A. Johnson. Mr. Johnson has been a director of the Company since July
1988. For more than the last five years, Mr. Johnson has been President of Henry
A. Johnson & Associates, a management consulting firm. Mr. Johnson was
associated with Spiegel, Inc. for over ten years, joining that company as
President and Chief Executive Officer in 1976 and retiring as Vice Chairman in
1987.
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 President and Chief Operating Officer of FII since February 1991. From
October 1989 to February 1991, Mr. Lappin served in various capacities with
Farley Inc., including President and Chief Executive Officer of the
3
<PAGE> 6
Doehler Jarvis and Southern Fastening Systems divisions of Farley Inc. 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.
A. Lorne Weil. Mr. Weil has been a director of the Company since October
1991. Since 1990, Mr. Weil has been Chairman of the Board and Chief Executive
Officer of Autotote Corporation, a manufacturer of products for the gaming
industry. From 1979 to 1991, Mr. Weil was the President of Lorne Weil, Inc., a
management consulting firm. He is also a director of General Growth Properties,
Inc.
Sir Brian G. Wolfson. Sir Brian Wolfson has been a director of the Company
since May 1992. He has been Executive Chairman of Wembley plc., a company
engaged in the sports and entertainment industry, for more than the past five
years.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL OF THE
NOMINEES FOR ELECTION AS DIRECTORS.
BOARD MEETINGS AND COMMITTEES
The Company has an Audit Committee, a Compensation Committee and an
Executive Committee. The Company does not have a standing nominating committee.
The Audit Committee determines the Company's audit policies, reviews audit
reports and recommendations made by the Company's internal auditing staff and
its independent auditors, meets with the Company's independent auditors,
oversees the Company's independent auditors and recommends the engagement of the
Company's independent auditors.
The Compensation Committee establishes, implements and monitors the
Company's strategy, policies and plans for the compensation and benefits of all
executive officers of the Company, including those employed by FII whose
compensation and benefits are provided in part under Company plans and/or are
guaranteed under certain employment agreements entered into by the Company and
FII as of December 18, 1994. Prior to November 1994, Mr. Farley, as Chairman of
FII, established the cash compensation levels for those executive officers who
are directly employed by FII. In November 1994, the Board of Directors of the
Company, with the consent of FII, delegated this responsibility to the
Compensation Committee. The Compensation Committee also administers the
Company's 1987 Stock Option Plan, the 1992 Executive Stock Option Plan and the
Fruit of the Loom, Inc. Executive Incentive Compensation Plan (the "1994 Plan"),
including, among other things, determining the persons to whom stock options,
stock appreciation rights and long term incentives are granted and the price
and/or terms of such options, rights and incentives.
The Executive Committee may exercise the powers of the Board of Directors
(other than certain powers specifically reserved to the full Board of Directors)
in the management of the business and affairs of the Company in the intervals
between meetings of the full Board of Directors.
During 1994, the Board of Directors held six meetings, the Audit Committee
met five times, the Compensation Committee met nine times and the Executive
Committee met twice. During 1994, each of the incumbent directors attended 75%
or more of the total number of meetings of the Board of Directors and of any of
the committees on which he served.
4
<PAGE> 7
COMPENSATION OF DIRECTORS
All directors who are not also executive officers of the Company receive a
retainer of $30,000 per annum for serving on the Board of Directors and $1,000
for each meeting of the Board of Directors and each committee meeting which they
attend. Pursuant to the Fruit of the Loom, Inc. Directors' Stock Option Plan
(the "Directors' Stock Option Plan"), each non-employee director was issued in
1994 an option to purchase 2,500 shares of Class A Common Stock at the market
price of the Class A Common Stock on the date of grant. Directors who are also
employees of the Company receive no additional compensation from the Company for
services rendered in their capacity as directors.
The Board of Directors has adopted, subject to stockholder approval at the
1995 Annual Meeting, the 1995 Non-Employee Directors' Stock Plan (the "1995
Directors' Plan") and determined to discontinue grants of options under the
Directors' Stock Option Plan. (See "PROPOSAL 3 --ADOPTION OF THE FRUIT OF THE
LOOM, INC. 1995 NON-EMPLOYEE DIRECTORS' STOCK PLAN".)
* * *
In July 1991, an involuntary Chapter 7 bankruptcy petition was filed
against Farley Inc. under the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Illinois. In September 1991,
Farley Inc. converted the Chapter 7 proceeding into a Chapter 11 reorganization
and a Plan of Reorganization was confirmed in December 1992. In 1992, an
involuntary Chapter 7 bankruptcy petition was filed against VBQ, Inc. In July
1992, Valley Fashions Corp. filed a petition under Chapter 11 to effect a
"pre-packaged" bankruptcy reorganization, which reorganization was confirmed in
September 1992. Mr. Farley was Chairman, and Messrs. Holland and Lappin were
officers, of Valley Fashions Corp. and Mr. Farley was Chairman of VBQ, Inc. Zale
Corp., a company of which Mr. Bookshester formerly was Chief Executive Officer,
voluntarily filed for protection from creditors under Chapter 11 of the Federal
Bankruptcy Code in January 1992 after an involuntary petition was filed against
Zale Corp. by certain bondholders.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Class A Common Stock
and Class B Common Stock, the percentage of each class and the percentage of
total voting power of the Company beneficially owned as of March 31, 1995 by (i)
each director, (ii) each of the Named Officers (as defined on page 9), (iii) all
directors and executive officers as a group, and to the knowledge of the Board
of Directors, (iv) each person owning more than 5% of a class of the Company's
voting securities. Except as otherwise indicated, each beneficial owner has sole
voting and investment power. This table reflects the effect of shares issuable
upon the exercise of options which are exercisable on or prior to May 30, 1995.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK PERCENT
----------------------- ----------------------- OF TOTAL
PERCENT PERCENT VOTING
NUMBER OF CLASS NUMBER OF CLASS POWER(1)
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Farley Inc. ...................... -- (2) -- 3,176,764 47.5% 15.5%
233 South Wacker Dr.
5000 Sears Tower
Chicago, IL 60606
Oppenheimer Group, Inc. .......... 8,496,824(3) 12.3% -- -- 8.3%
Oppenheimer Tower
World Financial Center
New York, NY 10281
J.P. Morgan & Co. Incorporated.... 5,781,445(4) 8.4% -- -- 5.6%
60 Wall Street
New York, NY 10260
Sanford C. Bernstein & Co.,
Inc. ........................... 4,771,403(5) 6.9% -- -- 4.6%
One State Street Plaza
New York, NY 10004
William Farley.................... 601,333(6) * 6,690,976(7) 100% 33.1%
Omar Z. Al Askari................. 20,000(8) * -- -- *
Dennis S. Bookshester............. 16,500(9) * -- -- *
John B. Holland................... 236,466(10) * -- -- *
Lee W. Jennings................... 13,500(11) * -- -- *
Henry A. Johnson.................. 16,500(11) * -- -- *
Richard C. Lappin................. 176,699(12) * -- -- *
A. Lorne Weil..................... 14,500(11) * -- -- *
Sir Brian G. Wolfson.............. 13,500(11) * -- -- *
Richard M. Cion................... 155,887(13) * -- -- *
Earl C. Shanks.................... 119,444(14) * -- -- *
All directors and executive
officers
as a group (14 persons)......... 1,494,994(15) 2.1% 6,690,976 100% 33.7%
</TABLE>
- ---------------
* Less than 1%
(Footnotes on following page)
6
<PAGE> 9
(Footnotes from preceding page)
(1) Each share of Class A Common Stock has one vote and each share of Class B
Common Stock has five votes. This column shows the combined voting power of
all Class A Common Stock and Class B Common Stock beneficially owned by
each of the listed persons. The percentages shown assume no conversion of
Class B Common Stock into Class A Common Stock. On March 21, 1995, there
were 69,170,456 shares of Class A Common Stock and 6,690,976 shares of
Class B Common Stock outstanding.
(2) Excludes 3,176,764 shares of Class A Common Stock issuable upon conversion
of shares of Class B Common Stock.
(3) As reported on a Schedule 13G filed by Oppenheimer Group, Inc. on February
1, 1995. According to such Schedule 13G, Oppenheimer Group, Inc. has shared
voting and dispositive power with respect to all 8,496,824 of these shares,
including 7,524,442 shares held by Oppenheimer Capital.
(4) As reported on a Schedule 13G filed by J.P. Morgan & Co. Incorporated on
February 15, 1995, as amended. According to such Schedule 13G, J.P. Morgan
& Co., Inc. has sole voting power with respect to 3,168,300 of these
shares, shared voting power with respect to 1,000 of these shares, and has
sole dispositive power with respect to 5,780,445 of these shares and has
shared dispositive power with respect to 1,000 of these shares.
(5) As reported on a Schedule 13G filed by Sanford C. Bernstein & Co., Inc. on
February 3, 1995. According to such Schedule 13G, Sanford C. Bernstein &
Co., Inc. has sole voting power with respect to 2,811,445 of these shares,
and has sole dispositive power with respect to all 4,771,403 of these
shares.
(6) Excludes 6,690,976 shares of Class A Common Stock issuable upon conversion
of shares of Class B Common Stock; includes 250,000 shares of Class A
Common Stock currently issuable upon exercise of options granted under the
Company's 1992 Executive Stock Option Plan and 33,333 shares of Class A
Common Stock currently issuable upon exercise of options granted under the
1994 Plan. Excludes 995,864 shares of Class A Common Stock held by a master
trust, which includes the assets of the pension plans of substantially all
affiliated companies controlled by Mr. Farley, the voting of which shares
is controlled or managed by Mr. Farley in his capacity as the investment
committee with respect to such trust. Mr. Farley disclaims beneficial
ownership of these shares.
(7) Includes 3,176,764 shares of Class B Common Stock owned by Farley Inc. Mr.
Farley has voting control of Farley Inc.
(8) Includes 10,000 shares of Class A Common Stock held by United Technical
Services and 10,000 shares of Class A Common Stock currently issuable upon
exercise of options granted under the Directors' Stock Option Plan (as
defined).
(9) Includes 3,000 shares of Class A Common Stock held as custodian for a minor
child and 12,500 shares of Class A Common Stock currently issuable upon
exercise of options granted under the Directors' Stock Option Plan.
(10) Includes 75,000 shares of Class A Common Stock currently issuable upon
exercise of options granted under the 1992 Executive Stock Option Plan,
140,000 shares of Class A Common Stock currently issuable upon exercise of
options granted under the 1987 Stock Option Plan and 11,666 shares of Class
A Common Stock currently issuable upon exercise of options granted under
the 1994 Plan.
(11) Includes 12,500 shares of Class A Common Stock currently issuable upon
exercise of options granted under the Directors' Stock Option Plan.
(12) Mr. Lappin holds 31,700 shares of Class A Common Stock jointly with his
wife. Includes 50,000 shares of Class A Common Stock currently issuable
upon the exercise of an option granted to him in 1991, 83,333 shares of
Class A Common Stock currently issuable upon exercise of options granted to
him under the 1987 Stock Option Plan and 11,666 shares of Class A Common
Stock currently issuable upon exercise of options granted under the 1994
Plan.
(13) Mr. Cion owns 1,000 shares of Class A Common Stock jointly with his wife.
Includes 148,221 shares of Class A Common Stock currently issuable upon
exercise of options granted to him under the 1987 Stock Option Plan and
6,666 shares of Class A Common Stock currently issuable upon exercise of
options granted under the 1994 Plan.
(14) Mr. Shanks owns 38,774 shares of Class A Common Stock jointly with his
wife. Includes 1,100 shares of Class A Common Stock owned by his wife and
1,000 shares of Class A Common Stock held as custodian for his minor child,
the beneficial ownership of each of which is disclaimed, and includes
73,666 shares of Class A Common Stock currently issuable upon exercise of
options granted to him under the 1987 Stock Plan and 4,000 shares of Class
A Common Stock currently issuable upon exercise of options granted under
the 1994 Plan.
(15) Includes 1,047,716 shares of Class A Common Stock currently issuable upon
the exercise of options granted under the Company's stock option plans and
2,100 shares of Class A Common Stock owned by family members of an
executive officer, beneficial ownership of which is disclaimed by such
officer.
7
<PAGE> 10
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Act"), requires the Company's officers, directors and persons who own greater
than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Based solely on a review of the forms it has received and on written
representations from certain reporting persons that no such forms were required
for them, the Company believes that during 1994 all Section 16(a) filing
requirements applicable to its officers, directors and 10% beneficial owners
were complied with by such persons.
EXECUTIVE COMPENSATION
INTRODUCTION
Messrs. Farley and Holland receive their salaries, other compensation and
benefits directly from the Company. All of the Company's other executive
officers are employed by FII and receive their salaries, other cash compensation
and benefits from FII. FII is wholly-owned and controlled by Mr. Farley. It
provides general management, investment banking, financing and other services,
including the services of certain of the Company's executive officers, to the
Company and other companies owned and controlled by Mr. Farley.
The Compensation Committee establishes, implements and monitors the
Company's strategy, policies and plans for the compensation (cash and non-cash)
and benefits of all executive officers of the Company, including those employed
by FII whose compensation and benefits are provided in part under Company plans
and/or are guaranteed under certain employment agreements entered into by the
Company and FII as of December 18, 1994 (See "EXECUTIVE COMPENSATION--Employment
Agreements"). Prior to November 1994, Mr. Farley, as Chairman of FII,
established the cash compensation levels for those executive officers who are
directly employed by FII. In November 1994, the Board of Directors of the
Company, with the consent of FII, delegated this responsibility to the
Compensation Committee.
The following table provides information concerning the annual and
long-term compensation for the fiscal years ended December 31, 1994, 1993 and
1992 of those persons who were at December 31, 1994 (i) the chief executive
officer and (ii) the four other most highly compensated executive officers of
the Company (collectively, the "Named Officers"). No other individuals are
required to be included in the table.
For each Named Officer, other than Mr. Farley and Mr. Holland, the cash
compensation figures in the table represent the total cash compensation paid to
each of the Named Officers by FII, even though as employees of FII the Named
Officers devote portions of their time to entities other than the Company.
8
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1)
------------------------
AWARDS
---------- PAYOUTS
ANNUAL COMPENSATION SECURITIES --------
----------------------------------------- UNDERLYING LTIP
NAME AND SALARY BONUS OTHER OPTIONS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) (# SHARES) ($) COMPENSATION
- --------------------------------- ---- -------- ---------- ------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William Farley, 1994 $850,000 $ 510,000 $ -- 850,000(2) $ -- $--
Chairman of the Board and 1993 850,000 1,150,000 -- -- -- --
Chief Executive Officer 1992 500,000 3,000,000 -- 750,000(3) -- --
John B. Holland, 1994 $550,000 $ 247,500 $ -- 185,000(2) $ 68,952(4) $--
President and 1993 554,308 236,889 -- -- 543,841(4) --
Chief Operating Officer 1992 468,462 468,462 -- 225,000(3) 915,898(4) --
Richard C. Lappin, 1994 $600,000 $ 100,000 $ -- 110,000(2) $ -- $6,750(5)
Vice Chairman 1993 600,000 912,000 -- 50,000 -- 6,745(5)
1992 562,500 400,000 51,535(6) 50,000 -- 6,546(5)
Richard M. Cion, 1994 $472,438 $ 100,000 $ -- 70,000(2) $ -- $6,750(5)
Senior Executive Vice 1993 457,313 250,000 -- 10,000 -- 6,745(5)
President, Corporate 1992 425,000 800,000 -- 16,000 -- 6,546(5)
Development
Earl C. Shanks, 1994 $247,967 $ 85,000 $ -- 42,000(2) $ -- $6,750(5)
Vice President 1993 237,256 100,000 -- 7,000 -- 6,745(5)
and Treasurer 1992 225,958 200,000 -- 10,000 -- 6,546(5)
</TABLE>
- ---------------
(1) None of the Named Officers had any restricted stock holdings as of December
31, 1994.
(2) Includes options granted under the 1995 EICP (as hereafter defined), subject
to stockholder approval of the 1995 EICP at the Annual Meeting. See
"PROPOSAL 2--ADOPTION OF THE FRUIT OF THE LOOM, INC. 1995 EXECUTIVE
INCENTIVE COMPENSATION PLAN". These options vest and become exercisable with
respect to one-sixth of the underlying shares of Class A Common Stock on
December 18, 1995, 1996, 1997, 1998, 1999 and 2000 with acceleration under
certain circumstances. In addition, the options will vest and become
exercisable to the extent of 50% of the shares when the market value per
share of the Company's Class A Common Stock is $45.00 or greater on any 15
out of 60 consecutive trading days, and to the extent of 100% of the shares
when the market value per share of the Company's Class A Common Stock is
$60.00 or greater for the same period.
(3) The options granted to Messrs. Farley and Holland were made pursuant to the
1992 Executive Stock Option Plan. These options vest (subject to
acceleration under certain circumstances) as follows: (i) one-third of the
options vested immediately upon grant; (ii) one-third of the options granted
vest if the closing price of the Company's Class A Common Stock reaches or
exceeds $45 per share for ninety 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 Company's Class A Common Stock reaches or
exceeds $60 per share for ninety consecutive days within six years from the
date of grant. As of March 21, 1995, none of the options subject to such
delayed vesting provisions had vested.
(4) Payouts under the Fruit of the Loom, Inc. Long Term Incentive Plan (the
"Long Term Bonus Plan") for 1992 and 1993 and under the Fruit of the Loom,
Inc. 1989 Stock Grant Plan for 1992, 1993 and 1994. Except for Mr. Holland,
no director or executive officer of the Company participated in the Long
Term Bonus Plan. The Long Term Bonus Plan consisted of separate four-year
plans beginning each year. Amounts credited to the cash and stock bonus
pools for each four-year plan period depended upon the extent to which the
Company's operating earnings, as defined in the plan, during the four-year
period exceeded a base level of operating earnings established by the
committee responsible for administering the plan at the beginning of the
four-year plan period. No new four-year plan period began subsequent to
December 31, 1990.
(5) These amounts represent matching contributions pursuant to a 401(k) defined
contribution profit-sharing plan.
(6) Represents income tax gross up for certain relocation expenses.
9
<PAGE> 12
OPTION GRANTS IN 1994
The following table provides information on grants of stock options in 1994
to the Named Officers pursuant to the 1994 Plan. The table also provides
information on grants of stock options to the Named Officers on December 18,
1994 which were granted under, and are subject to stockholder approval of, the
proposed 1995 Executive Incentive Compensation Plan (the "1995 EICP"). (See
"PROPOSAL 2--ADOPTION OF THE FRUIT OF THE LOOM, INC. 1995 EXECUTIVE INCENTIVE
COMPENSATION PLAN--Initial Awards.") No stock appreciation rights were granted
to the Named Officers during 1994. The hypothetical present values on date of
grant shown for stock options granted in 1994 are presented pursuant to the
rules of the Securities and Exchange Commission and are calculated under the
modified Black-Scholes model for pricing options. The actual before tax amount,
if any, realized upon the exercise of stock options will depend upon the excess,
if any, of the market price of the Company's Class A Common Stock over the
exercise price per share of Class A Common Stock underlying the stock option at
the time such stock option is exercised. There is no assurance that the
hypothetical present values of the stock options reflected in this table will be
realized.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO GRANT DATE
UNDERLYING EMPLOYEES EXERCISE OR PRESENT
OPTIONS IN FISCAL BASE PRICE VALUE(2)
NAME GRANTED(#) YEAR(1) ($/SHARE) EXPIRATION DATE ($)
- ------------------------------- --------- ------------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
William Farley................. 100,000(3) 4.5% $30.875 05/17/04 $1,553,013
750,000(4) 34.0% 26.125 12/18/04 9,189,469
John B. Holland................ 35,000(3) 1.6% $30.875 05/17/04 $ 543,554
150,000(4) 6.8% 26.125 12/18/04 1,837,894
Richard C. Lappin.............. 35,000(3) 1.6% $30.875 05/17/04 $ 543,554
75,000(4) 3.4% 26.125 12/18/04 918,947
Richard M. Cion................ 20,000(3) 0.9% $30.875 05/17/04 $ 310,603
50,000(4) 2.3% 26.125 12/18/04 612,631
Earl C. Shanks................. 12,000(3) 0.5% $30.875 05/17/04 $ 186,362
30,000(4) 1.4% 26.125 12/18/04 367,579
</TABLE>
- ---------------
(1) During 1994, options to purchase a total of 2,206,100 shares of Class A
Common Stock were granted. Of this total, options to purchase 1,505,000
shares of Class A Common Stock were awarded under the 1995 EICP and are
therefore subject to stockholder approval at the Annual Meeting.
(2) The hypothetical present values on grant date are calculated under the
modified Black-Scholes model, which is a mathematical formula used to value
options traded on stock exchanges. This formula considers a number of
factors in hypothesizing an option's present value. Factors used to value
options granted which expire May 2004 include the stock's expected
volatility rate (42%), risk free rate of return (6.9%), dividend yield (0%),
projected time of exercise (7 years) and projected risk of forfeiture rate
for vesting period (5% per annum). Similar factors were used for the grants
expiring in December 2004, except for the stock's expected volatility rate
(40%) and risk free rate of return (7.8%).
(3) These options vest (subject to acceleration under certain circumstances)
with respect to 1/3 of the underlying shares of Class A Common Stock on May
17, 1995, 1996 and 1997.
(4) These options were granted under the 1995 EICP, subject to stockholder
approval of the 1995 EICP at the Annual Meeting. These options vest and
become exercisable with respect to one-sixth of the underlying shares of
Class A Common Stock on December 18, 1995, 1996, 1997, 1998, 1999 and 2000
with acceleration under certain circumstances. In addition, the options will
vest and become exercisable to the extent of 50% of the shares when the
market value per share of the Company's Class A Common Stock is $45.00 or
greater on any 15 out of 60 consecutive trading days, and to the extent of
100% of the shares when the market value per share of the Company's Class A
Common Stock is $60.00 or greater for the same period.
10
<PAGE> 13
AGGREGATED OPTION EXERCISES IN 1994 AND YEAR-END 1994 OPTION VALUES
The following table provides information on the Named Officers' unexercised
options at December 31, 1994. None of the Named Officers exercised any options
during 1994.
YEAR-END 1994 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1994(#) DECEMBER 31, 1994($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William Farley........................ 250,000 600,000(2) $ -- $ --
750,000(3) 656,250
John B. Holland....................... 215,000 185,000(2) 2,229,375 --
150,000(3) 131,250
Richard C. Lappin..................... 116,666 68,334(3) 837,500 --
75,000 65,625
Richard M. Cion....................... 144,888 26,667(3) 1,797,490 --
50,000 43,750
Earl C. Shanks........................ 71,333 16,667(3) 711,000 --
30,000 26,250
</TABLE>
- ---------------
(1) Values are calculated by subtracting the exercise price from the closing
price of the Company's Class A Common Stock on the New York Stock Exchange
on December 30, 1994 of $27.00.
(2) With respect to Messrs. Farley and Holland, 250,000 and 75,000 of these
options, respectively, do not become exercisable unless the closing price of
the Company's Class A Common Stock reaches or exceeds $45 per share for
ninety consecutive days within six years after January 31, 1992, the date of
grant, and an additional 250,000 and 75,000 of these options, respectively,
do not become exercisable unless the closing price of the Company's Class A
Common Stock reaches or exceeds $60 per share for ninety consecutive days
within six years after the date of grant.
(3) These options were granted under the 1995 EICP, subject to stockholder
approval of the 1995 EICP at the Annual Meeting. These options vest and
become exercisable with respect to one-sixth of the underlying shares of
Class A Common Stock on December 18, 1995, 1996, 1997, 1998, 1999 and 2000
with acceleration under certain circumstances. In addition, the options will
vest and become exercisable to the extent of 50% of the shares when the
market value per share of the Company's Class A Common Stock is $45.00 or
greater on any 15 out of 60 consecutive trading days, and to the extent of
100% of the shares when the market value per share of the Company's Class A
Common Stock is $60.00 or greater for the same period.
11
<PAGE> 14
LONG-TERM INCENTIVE PLANS--AWARDS IN 1994
The following table provides information on long-term incentive plan awards
in 1994 to the Named Officers pursuant to the 1994 Plan.
<TABLE>
<CAPTION>
NUMBER OF SHARES,
UNITS OR PERFORMANCE OR OTHER PERIOD
NAME OTHER RIGHTS(#) UNTIL MATURATION OR PAYOUT
- --------------------------------------------------- ----------------- ---------------------------
<S> <C> <C>
William Farley..................................... 25,000 shares(1) 2 years
John B. Holland.................................... 10,000 shares(1) 2 years
Richard C. Lappin.................................. 10,000 shares(1) 2 years
Richard M. Cion.................................... 2,500 shares(1) 2 years
Earl C. Shanks..................................... 2,500 shares(1) 2 years
</TABLE>
- ---------------
(1) The shares reported are performance shares granted on May 17, 1994 pursuant
to the 1994 Plan. At the end of the two year performance period beginning
January 1, 1994 and ending December 31, 1995, each of the Named Officers
will be entitled to receive payout on the number of performance shares
earned by such Named Officer over the performance period, determined as a
function of the extent to which goals for "total shareholder return"
(calculated as a fraction, the numerator of which is the sum of (a) the fair
market value of a share of Class A Common Stock on the last day of the
performance period and (b) the dividends declared with respect to such share
during the performance period, and the denominator of which is the fair
market value of such share on the first day of the performance period) have
been achieved. Each of the Named Officers shall receive payout on
performance shares earned in cash or shares of Class A Common Stock (or a
combination thereof) which have, as of the close of the performance period,
an aggregate fair market value equal to the value of the earned performance
shares. The numbers of shares reported above represent the numbers of
performance shares to be issued (or their cash equivalent) if target
performance is achieved. The number of shares issuable (or their cash
equivalent) ranges from 0% to 200% of target.
12
<PAGE> 15
PENSION PLANS
FRUIT OF THE LOOM, INC. OPERATING COMPANY PENSION PLAN -- Messrs. Farley
and Holland are covered by the pension plan for Fruit of the Loom operating
company employees (the "Operating Company Pension Plan") and do not currently
participate in the FII Pension Plan (as hereinafter defined) described below.
The Operating Company Pension Plan covers all employees of the Company and
its participating subsidiaries after the completion of one year of service and
the attainment of age 21.
The following table indicates the approximate amounts of annual retirement
income that would be payable under the Operating Company Pension Plan and the
Supplemental Benefit Plan (defined below) based on various assumptions as to
compensation and years of service for certain employees, assuming benefits are
computed under a straight life annuity formula. There is no social security or
other offset deducted from the amounts shown.
PENSION PLAN TABLE (1)(2)
<TABLE>
<CAPTION>
5 YEAR
AVERAGE 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 300,000 $ 82,218 $ 109,624 $ 137,030 $ 147,307 $ 157,584
400,000 110,718 147,624 184,530 198,370 212,209
500,000 139,218 185,624 232,030 249,432 266,834
600,000 167,718 223,624 279,530 300,495 321,459
700,000 196,218 261,624 327,030 351,557 376,084
800,000 224,718 299,624 374,530 402,620 430,709
900,000 253,218 337,624 422,030 453,682 485,334
1,000,000 281,718 375,624 469,530 504,745 539,959
1,100,000 310,218 413,624 517,030 556,807 594,584
</TABLE>
- ---------------
(1) Assumes individual retires at age 65 with indicated years of service but
further assumes covered compensation as it was determined in 1994, which was
$24,312, as updated each year by the Internal Revenue Service for annual
covered compensation.
(2) Maximum pension limits for 1992, 1993 and 1994 under Internal Revenue Code
(as hereinafter defined) Section 415 were $112,221, $115,641 and $118,800,
respectively. The maximum pension limit for 1995 will be $120,000 due to
indexing. Amounts in excess of these limits are paid under the Supplemental
Benefit Plan.
Contributions to the Operating Company Pension Plan, which are made by the
Company and its participating subsidiaries, are computed on an actuarial basis
and, as such, individual employee payments (or accruals) cannot be calculated.
Compensation covered by the Operating Company Pension Plan generally consists of
all compensation paid to a participant for personal services rendered as an
employee of the Company or a participating subsidiary, but excluding bonuses,
deferred compensation and payments under certain benefit programs. Covered
compensation for each of the Named Officers covered by the Operating Company
Pension Plan for 1994 equals the respective amounts shown in the Salary column
of the Summary Compensation Table. The
13
<PAGE> 16
Operating Company Pension Plan provides that participants' benefits fully vest
after five years of service or the attainment of age 65.
The Operating Company Pension Plan retirement benefits are computed at the
rate of 1% of a participant's final average compensation (the average of the
highest five consecutive full plan years of compensation during the last ten
plan years of service) plus either .75%, .70% or .65% (depending on the
participant's social security retirement age) of a participant's final average
earnings in excess of the average social security wage base for the 35-year
period preceding the participant's social security retirement age. The resulting
sum is multiplied by the participant's years of service up to 25 years and is
increased by 1.5% for each year of service over 25 years.
Under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), a participant's covered compensation under a
qualified retirement plan is limited to a maximum annual amount of $228,860 for
1992, $235,840 for 1993 and $150,000 for 1994. For 1995, this amount remains at
$150,000. Amendments made to Sections 401(a)(5) and 401(l) of the Internal
Revenue Code by the Omnibus Budget Reconciliation Act of 1993 reduced the amount
of permitted disparity between benefits provided under a qualified pension plan
with respect to a participant's compensation up to the social security wage base
and the benefits provided with respect to compensation above the social security
wage base. For the executive officers of the Company who participate in the
Operating Company Pension Plan, any reduction in benefits under such plan caused
by these limitations will be made up dollar-for-dollar by benefits under the
supplemental benefit plan for the Fruit of the Loom operating company employees
(the "Supplemental Benefit Plan"). Nonofficer participants in the Operating
Company Pension Plan will receive benefits under the Supplemental Benefit Plan
in an amount equal to the reduction in benefits under the Operating Company
Pension Plan attributable to the Internal Revenue Code Section 401(a)(17)
limitation on compensation and the Internal Revenue Code Section 415 limitation
on annual pension benefits.
The estimated number of years of service credited for Messrs. Farley and
Holland under the Operating Company Pension Plan are 4 years and 33 years,
respectively. No other executive officer of the Company participates in the
Operating Company Pension Plan.
FII PENSION PLAN -- All executive officers of the Company who are FII
employees are covered by the salaried portion of the Retirement Program of
Farley Inc. (the "FII Pension Plan"). The FII Pension Plan covers all salaried
employees of FII and the Metals divisions of Farley Inc. and may include hourly
employees if designated for coverage.
The following table indicates the approximate amounts of annual retirement
income that would be payable under the FII Pension Plan based on various
assumptions as to compensation and years of service for certain employees,
assuming benefits are computed under a straight life annuity formula. There is
no social security or other offset deducted from the amounts shown.
14
<PAGE> 17
PENSION PLAN TABLE(1)(2)
<TABLE>
<CAPTION>
35 YEARS
5 YEAR OF SERVICE
AVERAGE 15 YEARS 20 YEARS 25 YEARS 30 YEARS (MAXIMUM
COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE UNDER PLAN)
- ------------ ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$100,000 $ 21,812 $ 29,083 $ 36,353 $ 43,624 $50,894
125,000 27,812 37,083 46,353 55,624 64,894
150,000 33,812 45,083 56,353 67,624 78,894
</TABLE>
- ---------------
(1) Assumes individual retires at age 65 with indicated years of service but
further assumes covered compensation as it was determined in 1994, which was
$24,312, as updated each year by the Internal Revenue Service for annual
covered compensation.
(2) Maximum pension limits for 1992, 1993 and 1994 under Internal Revenue Code
Section 415 were $112,221, $115,641 and $118,800, respectively. The maximum
pension limit for 1995 will be $120,000 due to indexing. As of December 31,
1994, FII did not have any nonqualified, excess benefit plans.
Contributions to the FII Pension Plan, which are made by FII, are computed
on an actuarial basis and, as such, individual employee payments (or accruals)
cannot be calculated. Compensation covered by the FII Pension Plan consists of
all payments made to a participant for personal services rendered as an employee
of FII which are subject to Federal income tax withholding, excluding imputed
income attributable to certain fringe benefit programs. With respect to
executive officers, covered compensation includes all compensation other than
Section 401(k) salary deferrals which are not recognized by the FII Pension
Plan, up to a maximum of $228,860 for 1992, $235,840 for 1993 and $150,000 for
1994. For 1995, this amount will remain at $150,000. Covered compensation for
each of the Named Officers covered by the FII Pension Plan for 1994 equals the
aggregate of the respective amounts shown in the Salary and Bonus columns of the
Summary Compensation Table, up to the 1994 limit of $150,000. The salaried
portion of the FII Pension Plan provides that participants' benefits fully vest
after five years of service.
The FII Pension Plan retirement benefits are computed at the rate of 1% of
a participant's highest average covered compensation (the average of five
consecutive full plan years of highest compensation during the last ten plan
years of service) up to the average wage base (i.e. "covered compensation" as
that term is defined in Revenue Ruling 71-446) plus 1.6% of a participant's
highest average covered compensation in excess of the average wage base. The
resulting sum is multiplied by the participant's years of benefit service.
The estimated credited years of benefit service for Messrs. Lappin, Cion
and Shanks are 5 years, 9 years and 11 years, respectively.
Commencing January 1, 1995, the retirement benefits of the Named Officers
will be calculated under the terms of the new employment agreements which are
discussed below.
15
<PAGE> 18
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (each referred to
individually as an "Agreement" and collectively as the "Agreements"), effective
December 18, 1994, with eleven executives, including the Named Officers, to
secure the continued employment of those executives employed directly by the
Company, including Mr. Farley and Mr. Holland, as well as the services of those
executives employed by FII. The Agreements were approved by the Compensation
Committee as discussed in the "COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION" and by the Board of Directors. The following summarizes certain
terms of the Agreements applicable to the executives generally, and describes
certain additional terms of Mr. Farley's Agreement and those of other Named
Officers.
The period of employment or service under the Agreements extends initially
for three years, subject to automatic one-year extensions at the end of the
initial three-year term (at the end of each year in the case of Mr. Farley's
Agreement), unless otherwise elected by either party. The Agreements generally
provide for payment of an annual base salary that will be reviewed each year,
but may not be decreased from the amount in effect in the previous year. The
Agreements also generally provide for (i) non-competition for a period of one
year (two years in the case of Messrs. Farley, Holland and Lappin) subsequent to
termination for any reason other than by the executive for "good reason" or by
the Company without "cause" following a change in control; (ii) other
restrictive covenants including non-disclosure, non-solicitation of employees
and availability for litigation support; (iii) participation in certain benefit
plans and programs (including pension benefits, disability insurance and
benefits and health benefits), generally on a basis not less favorable than
provided in 1995; (iv) annual and long-term incentive compensation opportunities
and participation in certain other compensation plans and programs on a basis
generally not less favorable than provided to other similarly situated
executives or in certain cases, not less favorable than in effect during 1995;
(v) life insurance equal to three times annual salary (ten times in the case of
Mr. Farley's Agreement and four times in the case of Mr. Holland's and Mr.
Lappin's Agreements); (vi) deferred compensation arrangements; (vii) with
respect to pensions, inclusion of 50% of annual incentive compensation and 100%
of salary, and, in some cases, crediting of five to ten years of additional
future service (12 years' past service credit in the case of Mr. Farley's and
Mr. Holland's Agreements) for purposes of determining pension benefits and full
funding of vested pension obligations through the use of trusts or by the
purchase of annuities; and (viii) the grant under the 1995 EICP, subject to
stockholder approval of the 1995 EICP at the Annual Meeting, of
performance-accelerated stock options, as described in "EXECUTIVE
COMPENSATION--Option Grants in 1994" and "PROPOSAL 2--ADOPTION OF THE FRUIT OF
THE LOOM, INC. 1995 EXECUTIVE INCENTIVE COMPENSATION PLAN--Initial Awards".
Although FII is principally obligated to pay certain of the compensation and
benefits to its employees providing executive services to the Company under the
Agreements, the Company has guaranteed payment of such obligations and, in any
event, under the terms of the 1994 Management Agreement (as defined), FII's
employee costs under the Agreements are included in determining the amount of
the management fee payable by the Company to FII. See "EXECUTIVE
COMPENSATION--Certain Relationships and Related Transactions".
The Agreements provide for certain payments and benefits upon termination
of the executive's employment or service in addition to payments and benefits
accrued at the date of termination or otherwise payable thereafter under the
Company's established plans and programs. If employment
16
<PAGE> 19
or service terminates due to normal retirement, approved early retirement, death
or disability, the executive will receive (i) in lieu of annual incentive
compensation for that year, an amount equal to the average annual incentive
compensation paid in the three preceding years, pro rated to reflect the part of
the year completed before termination; (ii) in lieu of settlement of outstanding
long-term incentives such as performance shares or performance accelerated
restricted stock ("PARS"), cash equal to amounts payable upon achievement of
maximum performance with full vesting for termination due to death or
disability, or target performance with full vesting for termination due to
retirement, in respect of each tranche of performance shares or PARS, pro rated
to reflect the part of the performance or vesting period completed before
termination; and (iii) if termination is due to disability, continued
participation in employee benefit plans until the executive reaches age 65,
including health, medical, life insurance and pension benefit plans.
If employment or service is terminated by the Company or FII for cause
prior to a change in control (as defined) or voluntarily by the executive, no
payment will be made for severance or for annual incentive compensation,
performance shares or PARS relating to the year or other uncompleted period in
which the termination occurs. If employment or service is terminated by the
Company or FII not for cause or after a change in control or by the executive
for good reason, the executive will receive (i) if such termination follows a
change in control, an amount equal to the sum of the then current annual salary
plus the average annual incentive compensation paid in the three preceding years
("total cash") multiplied by a number generally ranging from 2.0 to 3.0
(depending on the seniority of the executive and the period remaining in the
employment term under the Agreement) plus, in lieu of settlement of outstanding
performance shares or PARS, cash equal to the amount payable upon achievement of
maximum performance for all performance shares and upon the vesting of PARS;
(ii) if such termination precedes a change in control, total cash multiplied by
a number equal to the number of years of employment remaining under the
Agreement in the case of Mr. Farley, two times salary in the case of Mr. Holland
and Mr. Lappin and one times salary in the case of other executives plus, in
lieu of settlement of outstanding performance shares or PARS, cash equal to the
amount payable based on the actual performance to date or target performance,
whichever is greater, pro rated to reflect the part of the performance or
vesting period completed before termination; (iii) in lieu of annual incentive
compensation for that year, an amount equal to the average annual incentive
compensation paid in the three preceding years, pro rated to reflect the part of
the year completed before termination; (iv) if such termination follows a change
in control, a lump-sum cash payment equal to the present value of any accrued
benefit under supplemental (non-qualified) pension plans of the Company and FII,
unless such benefits are fully funded or secured; and (v) if such termination
follows a change in control, continued participation in employee benefit plans
for two years (three years in the case of Mr. Farley), including health,
medical, disability, life insurance and pension benefit plans. If an executive
has not been employed by the Company or otherwise has not been eligible for
annual incentive compensation for each of the three full years before
termination, any calculation using a three-year average of such compensation
will instead use the annual incentive compensation target amount for each such
year.
A "change in control" is defined in generally the same manner as under the
proposed 1995 EICP. (See "PROPOSAL 2 - ADOPTION OF THE FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN--Acceleration of Vesting".) "Good
reason" is defined generally as the demotion, reassignment, reduction in
compensation or benefits, substantial relocation in the case of Messrs. Farley
and Lappin, attempted termination for cause or other breach of the
17
<PAGE> 20
Agreement by the Company or FII. With the exception of Mr. Farley, "good reason"
is applicable only following a change in control.
If payments under the Agreements following a change in control are subject
to the "golden parachute" excise tax, the Company will make an additional
"gross-up" payment sufficient to ensure that the net after-tax amount retained
by the executive (taking into account all taxes, including those on the gross-up
payment) is the same as would have been the case had such excise tax not
applied. The Agreements obligate the Company to continue to cover executives
with indemnification provisions in effect at the effective date of the
Agreements, including the advancement of expenses, and with officers' and
directors' liability insurance during employment and for claims made up to six
years thereafter, and provides that the Company generally will reimburse an
executive for expenses incurred in seeking enforcement of the Agreement, unless
the executive's assertion of rights was in bad faith or frivolous.
The Agreement with Mr. Farley secures his employment as Chief Executive
Officer and his agreement to serve, if elected, as a Director, as Chairman of
the Board, and on Board committees. The Agreement with Mr. Holland secures his
employment as President and Chief Operating Officer of the Company and his
agreement to serve, if elected, as a Director and on Board committees. The
Agreement with Mr. Lappin secures his agreement to serve, if elected, as a
Director, as Vice Chairman of the Board, and on Board committees. The Agreement
with Mr. Farley permits him to devote time to other business interests,
including FII, although Mr. Farley and the non-employee executives are required
to devote substantial time to the Company's business, consistent with their
duties.
18
<PAGE> 21
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee is composed entirely of outside directors, none
of whom is currently or was formerly an executive officer or employee of the
Company or any of its subsidiaries or affiliates. During all of 1994, the
Compensation Committee was responsible for determining the overall compensation
paid to Messrs. Farley and Holland and for the stock based compensation provided
to other executive officers who are employed directly by FII. The Compensation
Committee has been responsible for determining the overall compensation paid to
the executive officers employed by FII since November 1994. (See "EXECUTIVE
COMPENSATION--Introduction" above.)
The Compensation Committee is responsible for establishing, implementing
and monitoring the Company's strategy, policies and plans for executive
compensation. The Company's strategy is (i) to attract high-caliber management
talent at both the entry and mid-career levels to meet the organization's
executive resource needs; (ii) to retain top-performing executives at the
corporate level and in each of the subsidiaries and business units; (iii) to
provide compensation opportunities that are fair and competitive with those
provided by comparable organizations; (iv) to motivate and reward its executives
based on corporate, subsidiary, business unit and individual annual and long-
term business performance, strategic progress and the creation of stockholder
value; (v) to create a mutuality of interest with the Company's stockholders by
linking a major portion of total compensation to the business and stock
performance of the Company; and (vi) to ensure that the Company's compensation
expenditures are cost and tax-effective and in compliance with applicable
regulatory requirements.
In accordance with the responsibilities delegated by the Board of Directors
in November 1994, at the beginning of each year the Compensation Committee
reviews the Company's overall corporate mission, strategy and objectives which
are subject to Board of Directors approval. These form the basis both for
supporting corporate, subsidiary and business unit annual performance goals
which are subject to Compensation Committee review and approval at the beginning
of the year and for executive officer performance initiatives. Based on this
review, the Compensation Committee in its sole discretion determines the
Company's total compensation structure for the year, including the elements and
level of compensation opportunities and the variable portion of "at risk" pay
for performance and equity participation in light of marketplace pay levels and
practices. At year-end, results achieved and strategic progress at the
corporate, subsidiary, business unit and individual levels are assessed by the
Compensation Committee, relative to previously approved goals and taking into
consideration prevailing economic and business conditions and opportunities,
performance by comparable organizations and stockholder value. No particular
weightings are assigned by the Compensation Committee to any such factors.
The Compensation Committee has been assisted in its review and evaluation
by Pearl Meyer & Partners, Inc., executive compensation consultants retained by
the Compensation Committee in November 1994 to serve as outside experts in the
discharge of its responsibilities. The consultants provide advice to the
Compensation Committee with respect to the effectiveness, appropriateness and
regulatory compliance status of the Company's executive incentive plans, and the
reasonableness, fairness and competitiveness of compensation paid to executive
officers of the Company,
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<PAGE> 22
including the Chief Executive Officer. In so doing, the consultants review with
the Compensation Committee survey data regarding compensation practices and
payments by comparable organizations and the relationship of executive officer
pay to performance and stockholder value. The comparator groups selected by the
Compensation Committee for this purpose include (i) seven major apparel
companies, five of which are included in the Value Line Apparel Industry Index
appearing in the Performance Graph; and (ii) 15 other major growth-oriented
non-durable consumer products companies of comparable size (i.e., companies in
the same size range producing a broad range of products for retail sale to the
general public). The comparator groups in the aggregate have median sales and
earnings in the same ranges as the Company and are regarded as the marketplace
for critical management talent at the Company.
Based on this review and evaluation of internal, marketplace and regulatory
factors, the Compensation Committee and Board of Directors determined to
institute in 1995 a new executive compensation program aligned with the
Company's management organization structure and strategy for the creation of
stockholder value. Elements of the 1995 program include entering into employment
agreements for the services of the five Named Officers and six other members of
the key executive group (See "EXECUTIVE COMPENSATION--Employment Agreements"),
discontinuing awards under the 1994 Plan and adopting the 1995 EICP subject to
stockholder approval at the 1995 Annual Meeting (See "PROPOSAL 2--ADOPTION OF
THE FRUIT OF THE LOOM, INC. 1995 EXECUTIVE INCENTIVE COMPENSATION PLAN".)
Total compensation for target performance under the new program for 1995 is
generally positioned at the average or median up to the 75th percentile of the
comparator groups, depending upon the participant's position or level and the
degree of difficulty and challenge associated with each year's performance
objectives. Under the 1995 EICP, the Compensation Committee is shifting the mix
of compensation to a higher proportion of variable equity-based performance
incentive opportunities so that actual annual and long-term compensation levels
will vary more directly with results achieved from year to year below and above
those of the comparator groups.
1994 COMPENSATION
For 1994, the Company's compensation program for its executive officers,
including the Chief Executive Officer, was comprised primarily of base salary,
annual cash bonuses, stock options and performance shares, with approximately
two-thirds of the total compensation of the Chief Executive Officer variable,
based on annual business and long-term stock performance, and approximately
one-half of total compensation for the executive officers as a group variable
based on the same factors. Total compensation for 1994 for the executive
officers as a group was targeted at approximately the 50th percentile of total
executive compensation paid by the comparator companies.
BASE SALARY. Salaries are established in consideration of the competitive
marketplace (as discussed above) at the appropriate level relative to the
responsibilities, time in position and individual performance of each executive
officer, in addition to overall corporate financial circumstances. Base salaries
are generally subject to annual review for adjustment by the Compensation
Committee. Minimum salaries of the Named Officers are set at December 1994
levels in employment agreements which are described under "EXECUTIVE
COMPENSATION--Employment Agreements" and provide for future review and possible
upward adjustment by the Compensation Committee. The 1994 salaries of the Chief
Executive Officer and two other Named Officers have not
20
<PAGE> 23
increased from 1993 levels. Other executive officers received minimal
adjustments in 1994, averaging 4.7%, as determined by Mr. Farley prior to
November 1994 with regard to those directly employed by FII. Overall, base
salaries were held relatively constant in 1994 in response to corporate
performance.
In 1994, base salary represented approximately one-third of the Chief
Executive Officer's total compensation and one-half for the executive officers
as a group.
ANNUAL CASH BONUSES. Under the 1994 Plan, the Chief Executive Officer and
the other executive officers were granted an opportunity to receive a cash
incentive award based upon the Company's achievement of certain return on equity
levels in 1994 and the increase in earnings per share for 1994 compared to 1993.
Upon achievement of targeted levels of performance, the Chief Executive Officer
would have received a cash award equal to 100% of his 1994 base salary and other
executive officers would have received cash awards equal to specified
percentages up to 70% of base salary. The minimum performance levels for payouts
under the 1994 Plan were not achieved, so no cash awards were made under the
1994 Plan to any executive officer for 1994.
Notwithstanding the foregoing, the Compensation Committee determined, and
the full Board of Directors agreed, to make discretionary bonus awards to all
bonus eligible employees for 1994, including the Chief Executive Officer and
other executive officers. A cash bonus of $510,000, a portion of which was not
tax deductible under Internal Revenue Code Section 162(m), was paid to the Chief
Executive Officer in recognition of the Company's strategic progress under his
leadership in 1994. Such bonus is less than one-half of his 1993 bonus award and
less than one-fifth of his bonus for 1992 in view of the Company's reduced
earnings per share. In granting such bonuses, the Compensation Committee took
account of the fact that, despite the Company's disappointing return on equity
and earnings, the Company achieved operating performance levels and returns
comparable or superior to other major apparel companies. In addition, the
Company was successful in achieving a number of significant strategic goals
during 1994 which are expected to have a substantial positive impact on the
Company's long-term growth, including restructuring and staffing the Company's
management organization structure into business units along product lines,
implementing programs to expand and modernize the Company's distribution and
customer service efforts and generating substantial sales growth in both core
and new business lines. No particular weights were assigned to any of the
factors considered in establishing the discretionary bonuses.
While it is the policy of the Compensation Committee to provide
opportunities for annual incentive compensation for achievement of
preestablished performance goals based on financial measures, the Committee also
retains discretion to pay bonuses reflecting its subjective assessment of the
valuable accomplishments of the Company's executive officers which, in the
Committee's view, cannot as a practical matter always be anticipated in advance
or reflected in such preestablished performance goals. In addition, the terms of
the annual incentive and performance share awards established in early 1994
under the 1994 Plan represented the Company's first response to proposed
regulations under Internal Revenue Code Section 162(m) ("Section 162(m)") issued
in December 1993 and since amended in December 1994. After evaluating the 1994
Plan in its first year of implementation, the Committee has concluded that the
1994 Plan did not adequately serve the Company's compensation strategy or
provide the flexibility needed to attract, retain and motivate top caliber
executives in a highly competitive industry.
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<PAGE> 24
EQUITY INCENTIVES--STOCK OPTIONS AND PERFORMANCE SHARES. The Chief
Executive Officer and the other executive officers each received two separate
option grants for 1994. The first option grant was a regularly scheduled annual
grant in May 1994 pursuant to the 1994 Plan. In determining the number of
options included in this grant, the Compensation Committee considered the
recipient's performance and position held, assigning no specific weight to
either factor. The second option grant in December 1994 was a special grant
generally in connection with entry by the Named Officers and other executives
into employment agreements, primarily for the purpose of providing a significant
performance-based incentive based upon increases in the market price of the
Company's common stock and also to induce the recipients to enter into the
three-year employment agreements, containing non-competition and restrictive
covenants. These special options were granted under the Company's proposed 1995
EICP and are subject to stockholder approval of the 1995 EICP. As discussed
under the caption "PROPOSAL 2--ADOPTION OF THE FRUIT OF THE LOOM, INC. 1995
EXECUTIVE INCENTIVE COMPENSATION PLAN--Initial Awards", each such option has an
exercise price equal to 100% of the fair market value of the underlying shares
at the date of grant, and generally will become cumulatively exercisable as to
one-sixth of such shares on each of the first six anniversaries of the date of
grant. As an added performance-based incentive, each such option will become
exercisable on an accelerated basis for one-half of the shares if the closing
price per share on any 15 out of 60 consecutive trading days is $45 or greater,
and for all of the shares if the closing price per share on any 15 out of 60
consecutive trading days is $60 or greater (subject to adjustment to reflect
extraordinary events).
Each of the executive officers, including the Chief Executive Officer, was
also granted performance shares in 1994, with the period over which performance
is to be measured extending from January 1, 1994 through December 31, 1995. If
the target total stockholder return for this two-year period is achieved, the
Chief Executive Officer will earn 25,000 performance shares, and the other
executive officers will each earn a number of performance shares ranging from
2,500 to 10,000. Each earned performance share will entitle the executive to
receive one share of Class A Common Stock or its cash equivalent at the date of
settlement following the performance period.
The Compensation Committee determined the sizes of performance share grants
and the second option grants to the Company's executive officers on an
individual, discretionary basis in consideration of the recipient's performance
and position held, as well as the Company's historically below average level of
stock option and other equity awards relative to the comparator groups. The
Compensation Committee did not predesignate a specific size for the aggregate
performance share and stock option awards to executive officers as a group. The
Compensation Committee does not consider stock holdings, prior option and other
long-term equity incentive grants or the appreciation thereon when making future
stock option and long-term equity award determinations, nor does the
Compensation Committee have a specific policy as to the portion of total
compensation represented by stock options and other long-term equity awards.
EMPLOYMENT AGREEMENTS AND PROPOSED 1995 EICP
As discussed above, in late 1994, the Compensation Committee, with the
assistance of Pearl Meyer & Partners, Inc., undertook a review of the Company's
executive employment and compensation arrangements. In its review, the
Compensation Committee was seeking ways to enhance the Company's executive
compensation practices (i) to increase the linkage between performance and pay;
(ii) to provide the Company with flexible incentive vehicles responsive to its
need to attract and retain needed executive talent as well as performance
measures responsive to its annual and
22
<PAGE> 25
long-term objectives; (iii) to promote compliance with Section 162(m) to reduce
the extent to which compensation paid to executive officers will be subject to
limitations on tax deductibility; (iv) to ensure more consistent and competitive
compensation practices from year to year, as well as among executives (including
those who provide services to the Company but are directly employed by FII)
within any given year; and (v) to encourage retention of key contributors to the
future creation of stockholder value.
As a result of this review, the Compensation Committee determined to
recommend, and the Board of Directors approved, the offering of Employment
Agreements to the Chief Executive Officer, other Named Officers and six other
executives. The terms of the employment agreements are summarized under the
caption "EXECUTIVE COMPENSATION--Employment Agreements." In addition to
formalizing many of the current terms under which executives are employed or
provide services to the Company (including base salary levels), the agreements
provide for enhanced pension and other employee benefits and severance payments
and benefits more in line with competitive practices. Such benefits were
provided to these executives in recognition of past service and as an inducement
to enter into the three-year employment agreements and agree to the
non-competition terms, other restrictive covenants and related provisions
thereof. The employment agreements also provide for the December 1994 grants of
options described above.
The Compensation Committee also recommended to the Board of Directors the
adoption of the 1995 EICP, which the Board of Directors adopted subject to
stockholder approval. As under the 1994 Plan, the 1995 EICP will provide for
three general types of awards, annual incentive awards, long-term
performance-based awards (such as performance shares) and stock option grants,
although the 1995 EICP gives the Compensation Committee a greater opportunity to
vary the type and terms of awards to promote the Company's objectives. The 1995
EICP provides the Compensation Committee with the flexibility to link executive
compensation to broader measures of performance (including grants of annual and
long-term incentive awards directly linked to the Company's annual and long-term
objectives as well as stockholder value) than are currently permitted under the
1994 Plan. In addition, the 1995 EICP is intended to respond to a number of
changes and proposed changes relating to Rule 16b-3 under the Act and proposed
regulations under Section 162(m) to increase the amount of shares that may be
subject to awards, and otherwise to enable the Compensation Committee to better
promote the Company's compensation strategies, goals and policies. The 1995 EICP
is intended to replace the current 1994 Plan. If the 1995 EICP is approved by
the Company's stockholders, authority to make further grants under the 1994 Plan
will be terminated, although previously granted awards under the 1994 Plan will
remain outstanding in accordance with their terms.
The Compensation Committee currently intends for annual incentive awards,
long-term performance-based awards and stock options under the 1995 EICP to
comply with proposed regulations under Section 162(m) so that compensation
relating to such awards will be deductible by the Company without limitation
under Section 162(m)'s $1,000,000 deductibility cap. Compliance with the
arbitrary and somewhat inflexible conditions of Section 162(m) is not mandatory,
however, nor does the Compensation Committee consider such compliance to be its
principal goal in establishing compensation. Accordingly, the Compensation
Committee may make grants under the 1995 EICP that will not necessarily comply
with Section 162(m), and may make discretionary bonus payments (as described
above) or pay other amounts that may be subject to the $1,000,000 deductibility
cap under Section 162(m) in circumstances in which the Compensation Committee
deems the needs of
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<PAGE> 26
the Company's compensation programs to outweigh the costs of any added tax or of
the measures required to avoid such added tax burden.
As the Company moves forward in its efforts to create stockholder value in
the years ahead, the Compensation Committee will continue to review, monitor and
evaluate the Company's program for executive compensation to assure that it is
internally effective in support of the Company's strategy, competitive in the
marketplace to attract, retain and motivate the talent needed to succeed, and
appropriately rewards performance on behalf of the Company's stockholders.
MEMBERS OF THE COMPENSATION COMMITTEE
Dennis S. Bookshester, Chairman
A. Lorne Weil
Sir Brian G. Wolfson
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<PAGE> 27
PERFORMANCE GRAPH
The graph set forth below compares the cumulative total shareholder return
on the Class A Common Stock for the last five years with the cumulative total
return of the S&P 500 Index and the Value Line Apparel Industry Index ("Industry
Index") over the same period (assuming the investment of $100 in the Class A
Common Stock and in each index on December 31, 1989 and the reinvestment of all
dividends, if any).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
FRUIT OF THE LOOM, INC., S&P 500 INDEX AND VALUE LINE APPAREL INDUSTRY INDEX
(PERFORMANCE RESULTS THROUGH DECEMBER 31, 1994)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INDUSTRY IN-
(FISCAL YEAR COVERED) THE COMPANY S&P 500 DEX
<S> <C> <C> <C>
1989 100.00 100.00 100.00
1990 59.66 96.89 81.92
1991 185.71 126.41 143.61
1992 326.89 136.05 176.66
1993 162.18 149.76 133.18
1994 181.51 151.74 123.09
</TABLE>
FII MANAGEMENT AGREEMENT
Effective January 1, 1994, the Company entered into a new management
agreement (the "1994 Management Agreement") with FII pursuant to which FII
agreed to render general management, investment banking, financing and other
services to the Company, including the services of the Company's executive
officers, excluding William Farley and John B. Holland. Under the terms of the
1994 Management Agreement, the Company paid approximately $8,800,000 to FII in
1994 based upon FII's cost of providing management services. At December 31,
1994, approximately $600,000
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<PAGE> 28
was owed for management services related to 1994, which amount was paid in
February 1995. The Company also paid FII a financing fee for 1994 of
approximately $2,500,000 for financing services related to 1993, which costs
were capitalized as deferred financing costs in 1994. Payments made by the
Company to FII under the 1994 Management Agreement were approved by the Board of
Directors. It is anticipated that the Company will enter into a management
agreement for 1995 under substantially the same terms and conditions as the 1994
Management Agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an option to acquire 50,000 shares of Class A Common Stock at
an exercise price of $13.75 per share, Mr. Cion has the right to require the
Company to purchase the shares subject to the option at a price of $23.75 per
share.
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 $67,300,000 in
connection with the investment in Acme Boot upon the receipt of the above
mentioned proceeds.
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. Acme Boot has a
bank credit facility 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.
OTHER MATTERS
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.
26
<PAGE> 29
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 10(b) of the Act, and that Mr. Farley and Mr. Holland
also violated Section 20(a) 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 in 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 and the Board of Directors believe
that this suit is without merit and the Company and the individual defendants
intend to vigorously defend against this litigation.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1994, Dennis S. Bookshester, A. Lorne Weil and Sir Brian G. Wolfson
served on the Company's Compensation Committee. Until November 1994, William
Farley, Chairman of the Board and Chief Executive Officer of the Company,
established the cash compensation paid to the executive officers of the Company,
other than himself and Mr. Holland.
Mr. Farley and Richard Lappin are executive officers and directors of Acme
Boot and establish compensation for executive officers of Acme Boot. Mr. Farley
is a director of FII and established the cash compensation for the executive
officers of FII up to November 1994, and Messrs. Farley and Lappin are executive
officers of FII. Mr. Farley is also an executive officer and director of Farley
Inc.
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<PAGE> 30
PROPOSAL 2
ADOPTION OF THE FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
GENERAL
The Board of Directors has adopted, subject to stockholder approval, the
1995 Executive Incentive Compensation Plan (the "1995 EICP"), which became
effective December 18, 1994. Stockholder approval of the 1995 EICP is being
sought (i) so that transactions by executive officers and directors under the
1995 EICP will be exempt from liability under Section 16(b) of the Act, by
virtue of Rule 16b-3; (ii) to qualify certain compensation under the 1995 EICP
as "performance-based compensation" that is tax deductible by the Company
without limitation under Section 162(m) of the Internal Revenue Code ("Section
162(m)"); (iii) to comply with requirements of the New York Stock Exchange; (iv)
to qualify certain stock options under the 1995 EICP as incentive stock options
("ISOs") under Code Section 422; and (v) to comply with or secure benefits under
other applicable federal and state laws. For purposes of Section 162(m),
stockholder approval relates particularly to performance goals under the 1995
EICP; in this regard, stockholders' attention is directed particularly to the
information regarding the business criteria incorporated in performance goals,
eligibility and per-person limitations under the captions "Performance Awards,
Including Annual Incentive Awards," "Eligibility," and "Shares Subject to the
1995 EICP; Annual Per-Person Limitations" below.
The Board of Directors believes that attracting and retaining executives
and other key employees of high quality is essential to the Company's growth and
success. In addition, the Board of Directors believes that the long-term success
of the Company is enhanced by a comprehensive compensation program which may
include different types of incentives for motivating executives and rewarding
for outstanding service, including awards that link compensation to applicable
measures of the Company's performance. In this regard, stock options and other
stock-related awards have been and will continue to be a most important element
of compensation for executives. Such awards enable the Company to attract and
retain executives and key employees and enable such persons to increase their
proprietary interest in the Company and thereby align their interests with the
interests of the Company's stockholders. In addition, the Board has concluded
that the Compensation Committee should be given as much flexibility as possible
to provide for annual cash incentive awards contingent on performance,
consistent with the preservation of the tax deductibility of such payments under
Section 162(m).
Accordingly, in December 1994, the Board of Directors adopted, subject to
stockholder approval, the 1995 EICP, as recommended by the Compensation
Committee. The terms of the 1995 EICP provide for grants of stock options, stock
appreciation rights ("SARs"), restricted stock, deferred stock, dividend
equivalents, other stock-related awards and performance or annual incentive
awards that may be settled in cash, stock, or other property ("Awards"). The
1995 EICP is intended to replace the current 1994 Plan. If the 1995 EICP is
approved by the Company's stockholders, authority to make further grants under
the 1994 Plan will be terminated, although previously granted awards under the
1994 Plan will remain outstanding in accordance with their terms.
28
<PAGE> 31
Although the types of Awards authorized under the 1995 EICP are generally
similar to those under the 1994 Plan, the Board of Directors determined to adopt
an entirely new plan in order to respond to a number of changes and proposed
changes relating to Rule 16b-3 under the Act and regulations under Section
162(m), to broaden the types of performance goals that may be set by the
Compensation Committee and otherwise to add flexibility to annual incentive
Awards and other performance-based Awards intended to qualify under Section
162(m), to increase the number of shares that may be subject to Awards, and
otherwise to adopt provisions intended to enable the Compensation Committee to
better promote the goals and policies of the Company's annual and stockbased
long-term incentive programs, as discussed above under the caption "COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION".
The following is a brief description of the material features of the 1995
EICP. Such description is qualified in its entirety by reference to the full
text of the 1995 EICP, a copy of which is attached as Exhibit A to this Proxy
Statement.
SHARES SUBJECT TO THE 1995 EICP; ANNUAL PER-PERSON LIMITATIONS. Under the
1995 EICP, the total number of shares of the Class A Common Stock reserved and
available for delivery to participants in connection with Awards will be
2,000,000, plus any shares of Class A Common Stock remaining available under the
1994 Plan, the 1992 Executive Stock Option Plan, and the 1987 Stock Option Plan,
as amended and restated (collectively, the "Preexisting Plans") (2,996,267
shares of Class A Common Stock as of December 31, 1994) and other Preexisting
Plan shares of Class A Common Stock that may later become available, plus 5% of
the number of shares of Class A Common Stock newly issued by the Company during
the term of the 1995 EICP (excluding issuances under the 1995 EICP, the
Preexisting Plans, or plans for directors). Shares of Class A Common Stock
subject to an Award or award under a Preexisting Plan that is canceled, expired,
forfeited, settled in cash or otherwise terminated without a delivery of shares
of Class A Common Stock to the participant, including shares of Class A Common
Stock withheld or surrendered in payment of any exercise or purchase price of an
Award or taxes relating to an Award, will again be available for Awards under
the 1995 EICP, except that, if any such shares of Class A Common Stock could not
again be available for Awards to a particular participant under any applicable
law or regulation, such shares of Class A Common Stock shall be available
exclusively for Awards to Participants who are not subject to such limitation.
Shares of Class A Common Stock issued under the 1995 EICP may be either newly
issued shares of Class A Common Stock or treasury shares of Class A Common
Stock. On March 21, 1995, the last reported sale price of the shares of Class A
Common Stock on New York Stock Exchange Composite Transactions was $24.625 per
share.
In addition, the 1995 EICP imposes individual limitations on the amount of
certain Awards in order to comply with Section 162(m). Under these limitations,
during any fiscal year the number of shares underlying options or SARs, shares
of restricted stock, shares of deferred stock, shares as a bonus or in lieu of
other Company obligations and shares related to other stock-based Awards granted
to any one participant shall not exceed 1,000,000 for each type of such Award,
subject to adjustment in certain circumstances. The maximum amount that may be
paid out as a final annual incentive award or other cash Award in any fiscal
year to any one participant is $3,500,000.
The Compensation Committee is authorized to adjust the number of shares of
Class A Common Stock subject to the aggregate share limitations and annual
limitations under the 1995 EICP and subject to outstanding Awards (including
adjustments to exercise prices of options and other affected terms of Awards) in
the event that a dividend or other distribution (whether in cash, shares
29
<PAGE> 32
of Class A Common Stock, or other property), recapitalization, forward or
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase or share exchange, or other similar corporate transaction or event
affects the shares so that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of participants. The Compensation
Committee is also authorized to adjust performance conditions and other terms of
Awards in response to these kinds of events, other unusual events or in response
to changes in business conditions, applicable laws, regulations or accounting
principles.
ELIGIBILITY. Executive officers and other officers and salaried employees
of the Company and its subsidiaries, and executive officers and other officers
and salaried employees of any other entity who provide substantial services to
the Company or any subsidiary, including any such person who may also be a
director of the Company, are eligible to be granted Awards under the 1995 EICP.
At present, approximately 200 persons would be considered to be eligible for
Awards under the 1995 EICP.
ADMINISTRATION. The 1995 EICP is administered by the Compensation
Committee, the members of which must each be a "disinterested person" as defined
under Rule 16b-3 under the Act and an "outside director" for purposes of Section
162(m). Subject to the terms and conditions of the 1995 EICP, the Compensation
Committee is authorized to select participants, determine the type and number of
Awards to be granted and the number of Shares to which Awards will relate,
specify times at which Awards will be exercisable or settleable (including
performance conditions that may be required as a condition thereof), set other
terms and conditions of such Awards, prescribe forms of Award agreements,
interpret and specify rules and regulations relating to the 1995 EICP and make
all other determinations which may be necessary or advisable for the
administration of the 1995 EICP. The 1995 EICP provides that Compensation
Committee members shall not be personally liable, and shall be fully
indemnified, in connection with any action, determination or interpretation
taken or made in good faith under the 1995 EICP.
STOCK OPTIONS AND SARS. The Compensation Committee is authorized to grant
stock options, including both ISOs which can result in potentially favorable tax
treatment to the participant and non-qualified stock options (i.e, options not
qualifying as ISOs) and SARs entitling the participant to receive the excess of
the fair market value of a share of Class A Common Stock on the date of exercise
(or defined "change in control price" following a change in control) over the
grant price of the SAR. The exercise price per share of Class A Common Stock
subject to an option and the grant price of an SAR is determined by the
Compensation Committee, but must not be less than the fair market value of a
share of Class A Common Stock on the date of grant (except to the extent of in-
the-money awards or cash obligations surrendered by the participant at the time
of grant). The maximum term of each option or SAR, the times at which each
option or SAR will be exercisable, and provisions requiring forfeiture of
unexercised options at or following termination of employment generally are
fixed by the Compensation Committee, except no option or SAR may have a term
exceeding ten years. Options may be exercised by payment of the exercise price
in cash, shares of Class A Common Stock, outstanding Awards, or other property
(possibly including notes or obligations to make payment on a deferred basis)
having a fair market value equal to the exercise price, as the Compensation
Committee may determine from time to time. Methods of exercise and settlement
and other terms of the SARs are determined by the Compensation Committee. SARs
granted under the 1995 EICP may include "limited SARs" exercisable for a stated
period of time following a "change in control" of the Company, as discussed
below.
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<PAGE> 33
RESTRICTED AND DEFERRED STOCK. The Compensation Committee is authorized to
grant restricted stock and deferred stock. Restricted stock is a grant of shares
of Class A Common Stock which may not be sold or disposed of, and which may be
forfeited in the event of certain terminations of employment, prior to the end
of a restricted period specified by the Compensation Committee. A participant
granted restricted stock generally has all of the rights of a stockholder of the
Company, including the right to vote the shares and to receive dividends
thereon, unless otherwise determined by the Compensation Committee. An Award of
deferred stock confers upon a participant the right to receive shares of Class A
Common Stock at the end of a specified deferral period, subject to possible
forfeiture of the Award in the event of certain terminations of employment prior
to the end of a specified restricted period (which restricted period need not
extend for the entire duration of the deferral period). Prior to settlement, an
Award of deferred stock carries no voting or dividend rights or other rights
associated with share ownership, although dividend equivalents may be granted,
as discussed below.
DIVIDEND EQUIVALENTS. The Compensation Committee is authorized to grant
dividend equivalents conferring on participants the right to receive, currently
or on a deferred basis, cash, shares of Class A Common Stock, other Awards or
other property equal in value to dividends paid on a specific number of shares
of Class A Common Stock or other periodic payments. Dividend equivalents may be
granted on a free-standing basis or in connection with another Award, may be
paid currently or on a deferred basis, and, if deferred, may be deemed to have
been reinvested in additional shares of Class A Common Stock, Awards or other
investment vehicles specified by the Compensation Committee.
BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Compensation
Committee is authorized to grant shares of Class A Common Stock as a bonus free
of restrictions, or to grant shares of Class A Common Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements, subject to such terms as the Compensation Committee may specify.
OTHER STOCK-BASED AWARDS. The 1995 EICP authorizes the Compensation
Committee to grant Awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to the Class A Common Stock. Such
Awards might include convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares, purchase rights for shares, Awards with
value and payment contingent upon performance of the Company or any other
factors designated by the Compensation Committee, and Awards valued by reference
to the book value of shares of Class A Common Stock or the value of securities
of or the performance of specified subsidiaries. The Compensation Committee
determines the terms and conditions of such Awards, including consideration to
be paid to exercise Awards in the nature of purchase rights, the period during
which Awards will be outstanding and forfeiture conditions and restrictions on
Awards.
PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS. The right of a
participant to exercise or receive a grant or settlement of an Award, and the
timing thereof, may be subject to such performance conditions as may be
specified by the Compensation Committee. In addition, the 1995 EICP authorizes
specific annual incentive awards, which represent a conditional right to receive
cash upon achievement of preestablished performance goals during a specified
one-year period. Performance awards and annual incentive awards granted to
persons the Compensation Committee expects will, for the year in which a
deduction arises, be among the Chief Executive Officer and the Named Officers,
will, if so intended by the Compensation Committee, be subject to provisions
that
31
<PAGE> 34
should qualify such Awards as "performance-based compensation" not subject to
the limitation on tax deductibility by the Company under Section 162(m).
The performance goals to be achieved as a condition of payment or
settlement of a performance award or annual incentive award will consist of (i)
one or more business criteria; and (ii) a targeted level or levels of
performance with respect to each such business criteria. In the case of
performance awards intended to meet the requirements of Section 162(m), the
business criteria used must be one of those specified in the 1995 EICP, although
for other participants the Compensation Committee may specify any other
criteria. The business criteria specified in the 1995 EICP are total stockholder
return; such total stockholder return as compared to total return (on a
comparable basis) of a publicly available index such as, but not limited to, the
Standard & Poor's 500 or the Value Line Apparel Industry Index; net income;
pretax earnings; operating earnings; EBITDA; pretax operating earnings after
interest expense and before bonuses, service fees and extraordinary or special
items ("Annual Profits"); operating margin; earnings per share; return on
equity; return on capital; return on investment; and working capital.
In granting annual incentive awards, the Compensation Committee may
establish an unfunded annual incentive award "pool," the amount of which will be
based upon the achievement of a performance goal or goals based on one or more
of the business criteria described in the preceding paragraph. During the first
90 days of a fiscal year, the Compensation Committee will determine who will
potentially receive annual incentive awards for that fiscal year, either out of
the pool or otherwise. After the end of each fiscal year, the Compensation
Committee will determine the amount, if any, of the pool, the maximum amount of
potential annual incentive awards payable to each participant in the pool and
the amount of any potential annual incentive award otherwise payable to a
participant. The Compensation Committee may, in its discretion, determine that
the amount payable as a final annual incentive award will be increased or
reduced from the amount of any potential Award, but may not exercise discretion
to increase any such amount intended to qualify under Section 162(m).
Subject to the requirements of the 1995 EICP, the Compensation Committee
will determine other performance award and annual incentive award terms,
including the required levels of performance with respect to the business
criteria, the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions and the form of settlement.
OTHER TERMS OF AWARDS. Awards may be settled in the form of cash, shares,
other Awards or other property, in the discretion of the Compensation Committee.
The Compensation Committee may require or permit participants to defer the
settlement of all or part of an Award in accordance with such terms and
conditions as the Compensation Committee may establish, including payment or
crediting of interest or dividend equivalents on deferred amounts, and the
crediting of earnings, gains and losses based on deemed investment of deferred
amounts in specified investment vehicles. The Compensation Committee is
authorized to place cash, shares of Class A Common Stock or other property in
trusts or make other arrangements to provide for payment of the Company's
obligations under the 1995 EICP. The Compensation Committee may condition any
payment relating to an Award on the withholding of taxes and may provide that a
portion of any shares of Class A Common Stock or other property to be
distributed will be withheld (or previously acquired shares of Class A Common
Stock or other property surrendered by the participant) to satisfy withholding
and other tax obligations. Awards granted under the 1995 EICP generally may
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<PAGE> 35
not be pledged or otherwise encumbered and are not transferable except by will
or by the laws of descent and distribution, or to a designated beneficiary upon
the participant's death, except that the Compensation Committee may, in its
discretion, permit transfers for estate planning purposes.
Awards under the 1995 EICP are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Compensation Committee may, however, grant Awards in exchange for other Awards
under the 1995 EICP, awards under other Company plans or other rights to payment
from the Company, and may grant Awards in addition to and in tandem with such
other Awards, awards or rights as well.
ACCELERATION OF VESTING. The Compensation Committee may, in its discretion,
accelerate the exercisability, the lapsing of restrictions or the expiration of
deferral or vesting periods of any Award, and such accelerated exercisability,
lapse, expiration and vesting shall occur automatically in the case of a "change
in control" of the Company (including cash settlements of SARs and "limited
SARs" which may be exercisable only in the event of a change in control). In
addition, the Compensation Committee may provide that the performance goals
relating to any performance-based award will be deemed to have been met upon the
occurrence of any "change in control." Subject to certain exceptions, the 1995
EICP defines a "change in control" as (i) any person acquiring beneficial
ownership of voting securities resulting in such person beneficially owning 25%
or more of the Common Stock or the outstanding voting power of the Company's
voting securities, except this provision will not apply if such person was a
beneficial owner of 25% or more of the Common Stock or the outstanding voting
power of the Company's voting securities before such acquisition; (ii) the
reorganization, merger, consolidation, complete liquidation or dissolution of
the Company, sale or disposition of all or substantially all of the assets of
the Company or similar corporate transaction (other than a merger,
consolidation, sale, disposition or other similar transaction to or with William
Farley or entities controlled by him); or (iii) members of the Board of
Directors serving at the effective date of the 1995 EICP, together with members
first elected thereafter (excluding certain directors elected as a result of an
actual or threatened election contest) with the approval of a majority of the
original members and new members previously so approved, ceasing to constitute a
majority of the Board of Directors. Upon the occurrence of a change in control,
SARs and other Awards may be cashed out based on a defined "change in control
price," which will be the higher of (i) the cash and fair market value of
property that is the highest price per share paid (including extraordinary
dividends) in any reorganization, merger, consolidation, liquidation or
dissolution, or liquidation of shares following a sale of substantially all
assets of the Company; or (ii) the highest fair market value per share
(generally based on market prices) at any time during the 60 days before and 60
days after change in control.
AMENDMENT AND TERMINATION OF THE 1995 EICP. The Board of Directors may
amend, alter, suspend, discontinue or terminate the 1995 EICP or the
Compensation Committee's authority to grant Awards without further stockholder
approval, except stockholder approval must be obtained for any amendment or
alteration if required by law or regulation or under the rules of any stock
exchange or automated quotation system on which the shares of Class A Common
Stock are then listed or quoted. No new Award may be granted under the 1995 EICP
after December 18, 2004. Unless earlier terminated by the Board of Directors,
the 1995 EICP will terminate at such time as no shares of Class A Common Stock
remain available for issuance under the 1995 EICP and the Company has no further
rights or obligations with respect to outstanding Awards under the 1995 EICP.
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<PAGE> 36
INITIAL AWARDS. Subject to stockholder approval of the 1995 EICP, the
Compensation Committee made initial grants of performance accelerated
non-qualified stock options under the 1995 EICP on December 18, 1994. Each such
option has an exercise price of $26.125 per share of Class A Common Stock,
representing 100% of the fair market value (as defined in the 1995 EICP) of the
shares of Class A Common Stock at the date of grant. Each such option generally
will become cumulatively exercisable as to one-sixth of the shares subject to
the option on each of the first six anniversaries of the date of grant, except
that the option will become exercisable on an accelerated basis for one-half of
the shares if the closing price per share of Class A Common Stock on any 15 out
of 60 consecutive trading days is $45 or greater, and for all of the shares if
the closing price per share of Class A Common Stock on any 15 out of 60
consecutive trading days is $60 or greater (subject to adjustment to reflect
extraordinary events). Certain other acceleration provisions applicable to the
initially granted options are discussed under the caption "Acceleration of
Vesting" above. Each such option expires ten years after the date of grant or
earlier at or following termination of the participant's employment in specified
circumstances.
Also subject to stockholder approval of the 1995 EICP, the Compensation
Committee made discretionary initial grants of performance accelerated deferred
stock ("PARS") under the 1995 EICP on March 28, 1995. Each such share of PARS
was granted at the closing price of the Class A Common Stock on the New York
Stock Exchange on March 28, 1995 of $24.875. Each such grant of PARS is subject
to forfeiture contingent upon achievement of the Company's operating earnings
goal for 1995 established by the Compensation Committee. Shares of Class A
Common Stock earned will vest and be deliverable on December 31, 1996 subject to
accelerated vesting and delivery upon achievement of the 1995 earnings per share
goal established by the Compensation Committee.
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<PAGE> 37
The following table sets forth the number of options and PARS granted to
the persons who were Named Officers for fiscal 1994 and specified groups of
executive officers and employees under the 1995 EICP to date:
NEW PLAN BENEFITS
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
PERFORMANCE
ACCELERATED
NUMBER OF SHARES DEFERRED
NAME AND POSITION UNDERLYING OPTIONS STOCK (PARS)
- ---------------------------------------------------------- ------------------ ----------------
<S> <C> <C>
William Farley, Chairman of the Board and
Chief Executive Officer................................. 750,000 19,100
John B. Holland, President and Chief Operating Officer.... 150,000 7,300
Richard C. Lappin, Vice Chairman.......................... 75,000 7,300
Richard M. Cion, Senior Executive Vice President,
Corporate Development................................... 50,000 2,800
Earl C. Shanks, Vice President and Treasurer.............. 30,000 2,100
All executive officers as a group (8 persons)............. 1,205,000 47,000
All other employees (including current officers who are
not executive officers)................................. 300,000 17,800
</TABLE>
None of the options granted under the 1995 EICP to date will be exercisable
nor may any potential annual incentive or performance accelerated deferred stock
award granted under the 1995 EICP to date be paid out unless the stockholders
approve the 1995 EICP. In the event that stockholders do not approve the 1995
EICP, the initial grants of options, performance accelerated deferred stock and
potential annual incentive awards under the 1995 EICP will be cancelled.
In addition, subject to stockholder approval of the 1995 EICP, the
Compensation Committee established an annual incentive award pool under the 1995
EICP on March 28, 1995, which pool will be funded based on the Company's return
on equity and Annual Profits. Had such pool been authorized in 1994, the funding
of the pool would have amounted to $3.6 million for approximately 200 employees.
The final amounts of annual incentive awards to be received by participants in
1995 are not currently determinable.
FEDERAL INCOME TAX IMPLICATIONS OF THE 1995 EICP. The following is a brief
description of the federal income tax consequences generally arising with
respect to Awards under the 1995 EICP.
The grant of an option or SAR will create no tax consequences for the
participant or the Company. A participant will not have taxable income upon
exercising an ISO (except that the alternative minimum tax may apply). Upon
exercising an option other than an ISO, the participant must generally recognize
ordinary income equal to the difference between the exercise price and fair
market value of the freely transferable and nonforfeitable shares acquired on
the date of exercise. Upon exercising a SAR, the participant must generally
recognize ordinary income equal to the cash or the fair market value of the
freely transferable and nonforfeitable shares received.
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<PAGE> 38
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding period, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price; or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (including an ISO for which the ISO holding periods are
met) or SAR generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the participant's tax
basis in such shares (the tax basis generally being the exercise price plus any
amount previously recognized as ordinary income in connection with the exercise
of the option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option or SAR. The Company generally is not entitled to a tax deduction relating
to amounts that represent a capital gain to a participant. Accordingly, the
Company will not be entitled to any tax deduction with respect to an ISO if the
participant holds the shares for the ISO holding period prior to disposition of
the shares.
With respect to Awards granted under the 1995 EICP that result in the
payment or issuance of cash or shares of Class A Common Stock or other property
that is either not restricted as to transferability or not subject to a
substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the cash or the fair market value of shares or other
property received. Thus, deferral of the time of payment or issuance will
generally result in the deferral of the time the participant will be liable for
income taxes with respect to such payment or issuance. The Company generally
will be entitled to a deduction in an amount equal to the ordinary income
received by the participant. With respect to Awards involving the issuance of
shares of Class A Common Stock or other property that is restricted as to
transferability and subject to a substantial risk of forfeiture, the participant
must generally recognize ordinary income equal to the fair market value of the
shares or other property received at the first time the shares or other property
becomes transferable or not subject to a substantial risk of forfeiture,
whichever occurs earlier. The Company will be entitled to a deduction in an
amount equal to the ordinary income received by the participant. A participant
may elect to be taxed at the time of receipt of shares or other property rather
than upon lapse of restrictions on transferability or the substantial risk of
forfeiture, but if the participant subsequently forfeits such shares or property
he would not be entitled to any tax deduction, including as a capital loss, for
the value of the shares or property on which he previously paid tax. The
participant must file such election with the Internal Revenue Service within 30
days of the receipt of the shares or other property.
The foregoing discussion, which is general in nature, is intended for the
information of stockholders considering how to vote at the Annual Meeting and
not as tax guidance to participants in the 1995 EICP. Different tax rules may
apply, including in the case of variations in transactions that are permitted
under the 1995 EICP (such as payment of the exercise price of an option by
surrender of previously acquired shares), and with respect to a participant who
is subject to Section 16 of the Act when he or she acquires shares in a
transaction that would otherwise result in taxation within six months after the
grant of the Award. This discussion does not address the effects of other
federal taxes (including possible "golden parachute" excise taxes) or taxes
imposed under state, local or foreign tax laws. Participants in the 1995 EICP
should consult a tax advisor as to the tax consequences of participation.
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<PAGE> 39
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code, which generally disallows a public company's tax
deduction for compensation to the Named Officers in excess of $1,000,000 in any
tax year beginning on or after January 1, 1994. Compensation that qualifies as
"performance-based compensation" is excluded from the $1,000,000 deductibility
cap, and therefore remains fully deductible by the company that pays it.
As discussed above, the Company intends that options and SARs granted with
an exercise price or grant price equal to at least 100% of fair market value of
the underlying shares at the date of grant, and annual incentive awards and
certain long-term performance-based awards granted to employees whom the
Compensation Committee expects to be Named Officers at the time a deduction
arises in connection with such Awards, qualify as "performance-based
compensation." Accordingly, such Awards will not be subject to the Section
162(m) deductibility cap of $1,000,000. Final regulations under Section 162(m),
which have not yet been adopted by the Internal Revenue Service, and future
regulations may adversely affect the ability of the Company to ensure that
options, SARs, annual incentive awards and long-term performance-based awards
under the 1995 EICP will qualify as "performance-based compensation" that is
fully deductible by the Company under Section 162(m). Other Awards may be
granted under the 1995 EICP which will not so qualify, so that compensation paid
to persons who are Named Officers in connection with such Awards will, to the
extent such compensation and other compensation subject to the Section 162(m)
deductibility cap in a given year exceeds $1,000,000, be subject to the Section
162(m) deductibility cap. A principal objective of the Compensation Committee
and Board of Directors in recommending the 1995 EICP for stockholder approval is
to secure corporate tax deductions under Section 162(m) while preserving the
flexibility to approve, when appropriate, compensation arrangements which the
Compensation Committee deems in the best interests of the Company and its
stockholders, but which may not always qualify for tax deductibility under
Section 162(m) or other sections of the Internal Revenue Code.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
1995 EICP.
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<PAGE> 40
PROPOSAL 3
ADOPTION OF THE FRUIT OF THE LOOM, INC.
1995 DIRECTORS' STOCK PLAN
GENERAL
The Board of Directors has adopted, subject to stockholder approval, the
1995 Non-Employee Directors' Stock Plan (the "1995 Directors' Plan"). The 1995
Directors' Plan is intended to attract and retain highly qualified persons to
serve as non-employee directors (meaning directors who are neither employees nor
executive officers of the Company) and to ensure an immediate and direct
proprietary interest in the Company by such non-employee directors by providing
a significant portion of their total compensation in the form of actual
ownership of Company stock rather than continuing the use of stock options,
thereby more closely aligning such directors' current and ongoing interests with
those of the stockholders of the Company.
In connection with its adoption of the 1995 Directors' Plan, the Board of
Directors determined to discontinue grants of options under the Company's
Directors' Stock Option Plan (the "Prior Plan"). (See "PROPOSAL 1--ELECTION OF
DIRECTORS--Compensation of Directors.") The Prior Plan provided for an automatic
annual grant to each director who is not an executive officer of the Company of
an option to purchase 2,500 shares of Class A Common Stock, together with an
initial grant to any new non-executive officer director of an option to purchase
7,500 shares of Class A Common Stock. The Board of Directors determined that,
under the 1995 Directors' Plan, non-employee directors should be automatically
granted restricted Stock Units (as described below) which vest upon completion
of two years' future service, instead of options. In addition, the Board of
Directors concluded to provide non-employee directors, under the 1995 Directors'
Plan, with the opportunity to defer receipt of cash fees and receipt of shares
otherwise deliverable upon the vesting of restricted Stock Units, and to permit
each director to elect to have such deferred fees be deemed to be invested in
Class A Common Stock ("Stock Units").
The following summary of the material terms of the 1995 Directors' Plan is
qualified in its entirety by reference to the full text of the 1995 Directors'
Plan, attached hereto as Exhibit B.
ELIGIBILITY; INITIAL AND ANNUAL GRANTS. Under the 1995 Directors' Plan,
only directors who are not employees of the Company, any subsidiary or parent
corporation, or FII are "non-employee directors" who are eligible to
participate. The 1995 Directors' Plan provides for an initial grant of 2,500
restricted Stock Units to each non-employee director at the close of business on
the effective date of the 1995 Directors' Plan and to each person who, at the
close of business on the date of any annual meeting of stockholders, is a
non-employee director who has not yet received such initial grant. In addition,
the 1995 Directors' Plan provides for automatic annual grants of 1,250
restricted Stock Units to each non-employee director at the close of business on
the date 120 days after the annual meeting of stockholders. If the nominees for
election as director named in this Proxy Statement are reelected, six directors
would qualify as non-employee directors under the 1995 Directors' Plan.
DEFERRAL. The 1995 Directors' Plan permits a non-employee director to elect
to defer receipt of all or a portion of the shares otherwise deliverable upon
the vesting of restricted Stock Units (as described below) in the form of Stock
Units. The 1995 Directors' Plan also permits a non-employee director to elect to
defer receipt of fees otherwise payable in cash, with such deferred amounts
38
<PAGE> 41
deemed invested in Stock Units. The director may make such election for up to
100% of the fees otherwise payable to him or her, including annual retainer
fees, fees for attendance at meetings of the Board of Directors or any committee
and any other fees for service as director. (See "EXECUTIVE
COMPENSATION--Compensation of Directors.") If a director elects to defer fees in
the form of Stock Units, the Company will credit a deferral account established
for the director with a number of shares of Stock Units equal to the number of
shares of Class A Common Stock (including fractional shares) having an aggregate
fair market value at that date equal to the amount of fees deferred by the
director.
Both a restricted Stock Unit and a Stock Unit represent a right of the
non-employee director to receive, at the end of a specified period, one share of
the Company's Class A Common Stock. In the case of a restricted Stock Unit, the
right to receive stock in settlement of the restricted Stock Unit is subject to
forfeiture in the event that the recipient ceases to serve as a director prior
to the second anniversary of the date of grant for any reason other than death,
disability, resignation to enter government or eleemosynary service, or
retirement, except that restricted Stock Units will not be forfeitable upon the
occurrence of a change in control or thereafter. For purposes of the 1995
Directors' Plan, a "change in control" has the same meaning as defined in the
Company's proposed 1995 EICP (or the 1994 Plan if the 1995 EICP is not approved
by stockholders). Stock Units other than restricted Stock Units are
non-forfeitable.
The deferral period applicable to Stock Units will be as elected by the
director. However, all vesting and deferral periods will end upon a change in
control of the Company, unless waived by the director, and directors may be
permitted to further defer settlement of accounts.
A director's Stock Unit account, including restricted Stock Units after
lapse of any risk of forfeiture, will be settled by delivery of one share of
Class A Common Stock for each Stock Unit then credited to the account, together
with cash in lieu of any fractional share.
DIVIDENDS. When, as, and if dividends are declared and paid on Class A
Common Stock, dividend equivalents equal to the amount or value of any per share
dividend will be credited on each then outstanding restricted Stock Unit and
Stock Unit then credited to a director's account. In the case of restricted
Stock Units, such dividend amounts will be deemed invested in non-forfeitable
Stock Units, based on the then-current fair market value of Class A Common
Stock. In the case of Stock Units (including Stock Units previously credited as
a result of dividend equivalents), such dividend equivalents will be deemed
invested in additional Stock Units.
SHARES AVAILABLE FOR ISSUANCE. A total of 200,000 shares of Class A Common
Stock are reserved and available for issuance under the 1995 Directors' Plan.
Such shares may be authorized but unissued shares, treasury shares or shares
acquired in the market for the account of a director. If any restricted Stock
Unit is forfeited, the share subject thereto will again be available for
issuance under the 1995 Directors' Plan. The aggregate number of shares of Class
A Common Stock issuable under the 1995 Directors' Plan, the number of shares
subject to each automatic annual grant of restricted Stock Units and the number
of shares subject to delivery in settlement of restricted Stock Units and Stock
Units will be appropriately adjusted by the Board of Directors or the Executive
Committee in the event of a recapitalization, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of shares or other
securities of the Company, stock split or reverse split, stock dividend, certain
other extraordinary dividends, liquidation, dissolution, or other similar
39
<PAGE> 42
corporate transaction or event affecting Class A Common Stock, in order to
prevent dilution or enlargement of directors' rights under the 1995 Directors'
Plan.
On March 21, 1995, the reported closing price of Class A Common Stock in
New York Stock Exchange Composite Transactions was $24.625 per share.
ADMINISTRATION. The 1995 Directors' Plan will be administered by the Board
of Directors or the Executive Committee, provided that any action by the Board
of Directors or such Committee shall be taken only if approved by vote of a
majority of the directors who are not then eligible to participate in the 1995
Directors' Plan. The 1995 Directors' Plan may be amended, altered, suspended,
discontinued or terminated by the Board of Directors without further stockholder
approval, unless such approval is required by law or regulation or under the
rules of the New York Stock Exchange (or other stock exchange or automated
quotation system on which the Class A Common Stock is then listed or quoted).
Stockholder approval will not be deemed to be required under laws or regulations
that condition favorable treatment of participating directors on such approval,
whether or not the amendment would increase the cost of the 1995 Directors' Plan
to the Company, although the Board of Directors may, in its discretion, seek
stockholder approval in any circumstance in which it deems such approval
advisable.
EFFECTIVE AND TERMINATION DATES. The 1995 Directors' Plan will become
effective upon its approval by stockholders. Unless earlier terminated by the
Board of Directors, the 1995 Directors' Plan will terminate when no shares
remain available under the 1995 Directors' Plan and the Company and directors
have no further rights and obligations under the 1995 Directors' Plan.
NEW PLAN BENEFITS TABLE. The following table sets forth the number of
restricted Stock Units that would have been automatically granted to
non-employee directors as a group under the 1995 Directors' Plan in 1994 had the
1995 Directors' Plan been in effect during that year:
NEW PLAN BENEFITS
1995 DIRECTORS' PLAN
<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED STOCK
NAME AND POSITION UNITS
- ------------------------------------------------------------------------- ---------------------
<S> <C>
Non-employee directors (6 persons) 22,500
</TABLE>
It is not possible at present to predict the number of shares of Class A
Common Stock that will be issuable under the 1995 Directors' Plan to
non-employee directors in connection with Stock Units credited in lieu of fees
or as dividend equivalents under the 1995 Directors' Plan.
FEDERAL TAX IMPLICATIONS OF THE 1995 DIRECTORS' PLAN. A director will be
deemed to receive ordinary income, taxable as such, equal to the fair market
value of any Class A Common Stock delivered and the amount of any cash paid for
fractional shares under the 1995 Directors' Plan, and the Company will generally
be entitled to a tax deduction in the amount of, and with respect to, the year
in which such director recognizes such ordinary income. Deferral of the receipt
of shares of Class A Common Stock deliverable upon the vesting of restricted
Stock Units and deferral of dividend equivalents and fees otherwise payable in
cash will delay recognition of taxable ordinary
40
<PAGE> 43
income by the director and the Company's corresponding tax deduction until
receipt of shares representing such deferrals by the director at the end of the
specified deferral period.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
1995 DIRECTORS' PLAN.
VOTE REQUIRED
Three directors of the Company will be elected by a plurality of the shares
of Class A Common Stock, voting as a separate class, present in person or
represented by proxy and entitled to vote at the Annual Meeting. Six directors
will be elected by the holders of a plurality of the voting power of the shares
of Class A Common Stock and Class B Common Stock, voting together as a single
class, present in person or represented by proxy and entitled to vote at the
Annual Meeting.
Approval of each of the 1995 EICP and the 1995 Directors' Plan requires the
affirmative vote of the holders of a majority of the voting power of the shares
of Class A Common Stock and the Class B Common Stock, voting together as single
class, present in person or represented by proxy and entitled to vote at the
Annual Meeting, a quorum being present.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether or
not a quorum is present. The election inspectors will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum and will also count abstentions for purposes of voting on
any proposal presented at the meeting or any adjournment thereof. Abstentions
will have the same effect as votes against a proposal. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
SOLICITATION
This solicitation is made by the Company and the cost of this proxy
solicitation will be paid by the Company. The Company may use the services of
its directors, officers and employees (who will receive no additional
compensation) to solicit proxies personally or by telephone. The Company may
also request brokers, fiduciaries, custodians and nominees to send proxies,
proxy statements and other material to their principals at the Company's
expense. In addition, the Company has engaged Chemical Bank to solicit proxies
from brokers, banks, nominees and other institutional holders. The Company will
pay Chemical Bank a fee of $4,500 for its services. This Proxy Statement and the
accompanying proxy card are being sent to stockholders on or about April 7,
1995.
INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
selected Ernst & Young LLP to audit the financial statements of the Company and
its subsidiaries for the year ended December 31, 1995. A representative of Ernst
& Young LLP is expected to be present at the Annual Meeting with the opportunity
to make a statement, if he desires, and will be available to respond to
appropriate questions with respect to that firm's examination of the Company's
consolidated financial statements.
41
<PAGE> 44
PROPOSALS OF SECURITY HOLDERS
Proposals of stockholders intended to be included in proxy materials for
presentation at the 1996 Annual Meeting of Stockholders must be received by the
Secretary of the Company, 5000 Sears Tower, 233 South Wacker Drive, Chicago,
Illinois 60606, no later than December 8, 1995.
OTHER BUSINESS
It is not anticipated that any matters will be presented to the
stockholders other than those mentioned in the accompanying Notice of Annual
Meeting of Stockholders. However, if other matters are brought before the
meeting, it is intended that the persons named in the proxy will vote as the
Board of Directors directs.
42
<PAGE> 45
EXHIBIT A
FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
<PAGE> 46
FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
1. Purpose.......................................................................... A-4
2. Definitions...................................................................... A-4
3. Administration................................................................... A-6
(a) Authority of the Committee.................................................. A-6
(b) Manner of Exercise of Committee Authority................................... A-6
(c) Limitation of Liability..................................................... A-7
4. Stock Subject to Plan............................................................ A-7
(a) Overall Number of Shares Available for Delivery............................. A-7
(b) Application of Limitation to Grants of Awards............................... A-7
(c) Availability of Shares Not Delivered Under Awards........................... A-7
5. Eligibility; Per-Person Award Limitations........................................ A-7
6. Specific Terms of Awards......................................................... A-8
(a) General..................................................................... A-8
(b) Options..................................................................... A-8
(c) Stock Appreciation Rights................................................... A-8
(d) Restricted Stock............................................................ A-9
(e) Deferred Stock.............................................................. A-10
(f) Bonus Stock and Awards in Lieu of Obligations............................... A-10
(g) Dividend Equivalents........................................................ A-11
(h) Other Stock-Based Awards.................................................... A-11
7. Certain Provisions Applicable to Awards.......................................... A-11
(a) Stand-Alone, Additional, Tandem, and Substitute Awards...................... A-11
(b) Term of Awards.............................................................. A-12
(c) Form and Timing of Payment Under Awards; Deferrals.......................... A-12
(d) Exemptions from Section 16(b) Liability..................................... A-12
8. Performance Awards............................................................... A-12
(a) Performance Conditions...................................................... A-12
(b) Performance Awards Granted to Designated "Covered Employees"................ A-13
(c) Annual Incentive Awards Granted to Designated "Covered Employees"........... A-14
(d) Written Determinations...................................................... A-15
(e) Status of Section 8(b) and 8(c) Awards Under Code Section 162(m)............ A-15
9. Change in Control................................................................ A-15
(a) Effect of "Change in Control"............................................... A-15
(b) Definition of "Change in Control"........................................... A-16
(c) Definition of "Change in Control Price"..................................... A-17
10. General Provisions............................................................... A-17
(a) Compliance With Legal and Other Requirements................................ A-17
(b) Limits on Transferability; Beneficiaries.................................... A-17
(c) Adjustments................................................................. A-18
(d) Taxes....................................................................... A-18
(e) Changes to the Plan and Awards.............................................. A-19
(f) Limitation on Rights Conferred Under Plan................................... A-19
(g) Unfunded Status of Awards; Creation of Trusts............................... A-19
</TABLE>
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<PAGE> 47
FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
(h) Nonexclusivity of the Plan.................................................. A-19
(i) Payments in the Event of Forfeitures; Fractional Shares..................... A-19
(j) Governing Law............................................................... A-20
(k) Awards Under Preexisting Plans.............................................. A-20
(l) Plan Effective Date, Stockholder Approval, and Termination.................. A-20
</TABLE>
A-3
<PAGE> 48
FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
1. Purpose. The purpose of this 1995 Executive Incentive Compensation Plan
(the "Plan") is to assist Fruit of the Loom, Inc., a Delaware corporation (the
"Company"), and its subsidiaries in attracting, retaining, and rewarding high
quality executive officers, other key salaried employees and other persons who
provide services to the Company, enabling such persons to acquire or increase a
proprietary interest in the Company in order to strengthen the mutuality of
interests between such persons and the Company's stockholders, and providing
such persons with performance incentives to expend their maximum efforts in the
creation of long-term stockholder value. The Plan is also intended to qualify
certain compensation awarded under the Plan for tax deductibility under Section
162(m) of the Code (as hereafter defined) to the extent deemed appropriate by
the Compensation Committee (or any successor committee) of the Board of
Directors of the Company.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Annual Incentive Award" means a conditional right granted to a
Participant under Section 8(c) hereof to receive a cash payment, unless
otherwise determined by the Committee, after the end of a specified fiscal
year.
(b) "Award" means any Option, SAR (including Limited SAR), Restricted
Stock, Deferred Stock, Stock granted as a bonus or in lieu of another
award, Dividend Equivalent, Other Stock-Based Award, Performance Award or
Annual Incentive Award, together with any other right or interest granted
to a Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards
or other rights are transferred if and to the extent permitted under
Section 10(b) hereof. If, upon a Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means person, persons, trust or trust entitled by will or the
laws of descent and distribution to receive such benefits.
(d) "Beneficial Owner", "Beneficially Owning" and "Beneficial
Ownership" shall have the meanings ascribed to such terms in Rule 13d-3
under the Exchange Act and any successor to such Rule.
(e) "Board" means the Company's Board of Directors.
(f) "Change in Control" means Change in Control as defined with
related terms in Section 9 of the Plan.
(g) "Change in Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor provisions and
regulations thereto.
(i) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the
Plan; provided, however, that
A-4
<PAGE> 49
the Committee shall consist solely of two or more directors, each of whom
is a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act; provided further, that the Committee shall at all times be
comprised solely of two or more directors satisfying the requirements of
Section 162(m) of the Code.
(j) "Corporate Transaction" means a transaction as defined in Section
9(b) of the Plan.
(k) "Covered Employee" means an Eligible Person as defined in Section
8(e) of the Plan.
(l) "Deferred Stock" means a right, granted to a Participant under
Section 6(e) hereof, to receive Stock, cash or a combination thereof at the
end of a specified deferral period.
(m) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g), to receive cash, Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of
shares of Stock, or other periodic payments.
(n) "Effective Date" means December 18, 1994, the effective date of
the Plan.
(o) "Eligible Person" means each executive officer of the Company (as
defined under the Exchange Act) and other officers and salaried employees
of the Company or of any subsidiary, including such persons who may also be
directors of the Company, and each executive officer, other officer or
employee of any other entity who provides substantial services to the
Company or any subsidiary pursuant to an arrangement approved by the Board.
The foregoing notwithstanding, no member of the Committee shall be an
Eligible Person.
(p) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(r) "Fair Market Value" means the fair market value of Stock, Awards,
or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock as of any given date shall be the closing
sale price per share reported on a consolidated basis for stock listed on
the principal stock exchange or market on which Stock is traded on the date
as of which such value is being determined or, if there is no sale on that
date, then on the last previous day on which a sale was reported.
(s) "Incentive Stock Option" or "ISO" means any Option intended to be
and designated as an incentive stock option within the meaning of Section
422 of the Code or any successor provision thereto.
(t) "Incumbent Board" means the Board as defined in Section 9(b) of
the Plan.
(u) "Limited SAR" means a right granted to a Participant under Section
6(c) thereof.
(v) "Option" means a right, granted to a Participant under Section
6(b) hereof, to purchase Stock or other Awards at a specified price during
specified time periods.
(w) "Other Stock Based Awards" means Awards granted to a Participant
under Section 6(h) hereof.
(x) "Participant" means a person who has been granted an Award under
the Plan, including a person who is no longer an Eligible Person.
A-5
<PAGE> 50
(y) "Performance Award" means a right, granted to a Participant under
Section 8 hereof, to receive Awards based upon performance criteria
specified by the Committee.
(z) "Person" will have the meaning assigned in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, and includes a
"group" as defined in Section 13(d) thereof.
(aa) "Preexisting Plans" means the Company's Executive Incentive
Compensation Plan effective as of January 1, 1994, the 1992 Executive Stock
Option Plan and the 1987 Stock Option Plan, as amended and restated.
(bb) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) hereof, that is subject to certain restrictions and to a risk
of forfeiture.
(cc) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16-b3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
(dd) "Stock" means the Company's Class A Common Stock, and such other
securities as may be substituted (or resubstituted) for Stock pursuant to
Section 10(c) hereof.
(ee) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority, in each case
subject to and consistent with the provisions of the Plan, to select
Eligible Persons to become Participants, grant Awards, determine the type,
number, and other terms and conditions of, and all other matters relating
to, Awards, prescribe Award agreements (which need not be identical for
each Participant) and rules and regulations for the administration of the
Plan, construe and interpret the Plan and Award agreements and correct
defects, supply omissions, or reconcile inconsistencies therein, and to
make all other decisions and determinations as the Committee may deem
necessary or advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. The Committee shall
exercise sole and exclusive discretion on any matter relating to a
Participant then subject to Section 16 of the Exchange Act with respect to
the Company to the extent necessary in order that transactions by such
Participant shall be exempt under Rule 16b-3 under the Exchange Act. Any
action of the Committee shall be final, conclusive and binding on all
persons, including the Company, its subsidiaries, Participants,
Beneficiaries, transferees under Section 10(b) hereof or other persons
claiming rights from or through a Participant, and stockholders. The
express grant of any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any power or
authority of the Committee. The Committee may delegate to officers or
managers of the Company or any subsidiary, or committees thereof, the
authority, subject to such terms as the Committee shall determine, to
perform administrative functions and, with respect to Participants not
subject to Section 16 of the Exchange Act, to perform such other functions
as the Committee may determine, to the extent permitted under Rule 16b-3
and applicable law. The Committee may appoint agents to assist it in
administering the Plan.
A-6
<PAGE> 51
(c) Limitation of Liability. The Committee and each member thereof
shall be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any executive officer, other officer
or employee of the Company or a subsidiary, the Company's independent
auditors, consultants or any other agents assisting in the administration
of the Plan. Members of the Committee and any officer or employee of the
Company or a subsidiary acting at the direction or on behalf of the
Committee shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and shall, to the
extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to
adjustment as provided in Section 10(c) hereof, the total number of shares
of Stock reserved and available for delivery in connection with Awards
under the Plan shall be (i) 2,000,000, plus (ii) 5% of the number of shares
newly issued by the Company or delivered out of treasury shares during the
term of the Plan (excluding any issuance or delivery in connection with
Awards, awards under Preexisting Plans, or options or other stock features
of plans exclusively for directors of the Company), plus (iii) the number
of shares of Stock remaining available under the Preexisting Plans at the
effective date of the Plan plus shares subject to awards under the
Preexisting Plans which become available after the Plan effective date in
accordance with Section 4(c) hereof; provided that any shares of Stock
added as a result of clause (ii) of this sentence shall not be available
for grants of ISOs or SARs in tandem with ISOs. Any shares of Stock
delivered under the Plan may consist, in whole or in part, of authorized
and unissued shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No Award may be
granted if the number of shares of Stock to be delivered in connection with
such Award or, in the case of an Award relating to shares of Stock but
settleable only in cash (such as cash-only SARs), the number of shares to
which such Award relates, exceeds the number of shares of Stock remaining
available under the Plan minus the number of shares of Stock relating to
then-outstanding cash-only Awards. The Committee may adopt reasonable
counting procedures to ensure appropriate counting, avoid double counting
(as, for example, in the case of tandem or substitute awards) and make
adjustments if the number of shares of Stock actually delivered differs
from the number of shares previously counted in connection with an Award.
(c) Availability of Shares Not Delivered Under Awards. Shares of
Stock subject to an Award or award under a Preexisting Plan that is
cancelled, expired, forfeited, settled in cash or otherwise terminated
without a delivery of shares to the Participant, including (i) the number
of shares withheld in payment of any exercise or purchase price of an Award
or taxes relating to Awards, and (ii) the number of shares equal to the
number of shares surrendered in payment of any exercise or purchase price
of an Award or taxes relating to Awards, will again be available for Awards
under the Plan, except that if any such shares could not again be available
for Awards to a particular Participant under any applicable law or
regulation, such shares shall be available exclusively for Awards to
Participants who are not subject to such limitation.
5. Eligibility; Per-Person Award Limitations. Awards may be granted under
the Plan only to Eligible Persons. In each fiscal year during any part of which
the Plan is in effect, an Eligible Person may not be granted Awards relating to
more than 1,000,000 shares of Stock, subject to adjustment
A-7
<PAGE> 52
as provided in Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e),
6(f), 6(h), 8(b) and 8(c). In addition, the maximum amount that may be paid out
as a final Annual Incentive Award or other cash Award in any fiscal year to any
one Participant shall be $3,500,000.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to
Section 10(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Awards in the event of termination of
employment by the Participant and terms permitting a Participant to make
elections relating to his or her Award. The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term
or condition of an Award that is not mandatory under the Plan. Except in
cases in which the Committee is authorized to require other forms of
consideration under the Plan, or to the extent other forms of consideration
must by paid to satisfy the requirements of the Delaware General
Corporation Law, no consideration other than services may be required for
the grant (but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee,
provided that such exercise price shall be not less than the Fair Market
Value of a share of Stock on the date of grant of such Option except as
provided under Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall determine
the time or times at which or the circumstances under which an Option
may be exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the methods by
which such exercise price may be paid or deemed to be paid, the form of
such payment, including, without limitation, cash, Stock, other Awards
or awards granted under other plans of the Company or any subsidiary, or
other property (including notes or other contractual obligations of
Participants to make payment on a deferred basis), and the methods by or
forms in which Stock will be delivered or deemed to be delivered to
Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to ISOs shall be interpreted, amended or altered, nor
shall any discretion or authority granted under the Plan be exercised so
as to disqualify either the Plan or any ISO under Section 422 of the
Code, unless the Participant has first requested the change that will
result in such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SAR's to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess
of (A) the Fair Market Value of one share of Stock on the date of
exercise (or, in the case of a "Limited SAR," the Fair Market
A-8
<PAGE> 53
Value determined by reference to the Change in Control Price, as defined
under Section 9(c) hereof), over (B) the grant price of the SAR as
determined by the Committee, provided that such grant price shall be not
less than the Fair Market Value of a share of Stock on the date of grant
of such SAR except as provided under Section 7(a) hereof.
(ii) Other Terms. The Committee shall determine at the date of
grant or thereafter, the time or times at which and the circumstances
under which a SAR may be exercised in whole or in part (including based
on achievement of performance goals and/or future service requirements),
the method of exercise, method of settlement, form of consideration
payable in settlement, method by or forms in which Stock will be
delivered or deemed to be delivered to Participants, whether or not a
SAR shall be in tandem or in combination with any other Award, and any
other terms and conditions of any SAR. Limited SARs that may only be
exercised in connection with a Change in Control or other event as
specified by the Committee may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may determine.
SARs and Limited SARs may be either freestanding or in tandem with other
Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or otherwise,
as the Committee may determine at the date of grant or thereafter.
Except to the extent restricted under the terms of the Plan and any
Award agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder,
including the right to vote the Restricted Stock and the right to
receive dividends thereon (subject to any mandatory reinvestment or
other requirement imposed by the Committee). During the restricted
period applicable to the Restricted Stock, subject to Section 10(b)
below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the Committee may
provide, by rule or regulation or in any Award agreement, or may
determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in
part in the event of terminations resulting from specified causes, and
the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Stock are registered in the name
of the Participant, the Committee may require such certificates to bear
an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock, that the Company
retain physical possession
A-9
<PAGE> 54
of the certificates, or that the Participant deliver a stock power to
the Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award
of Restricted Stock, the Committee may require that any cash dividends
paid on a share of Restricted Stock be automatically reinvested in
additional shares of Restricted Stock or applied to the purchase of
additional Awards under the Plan. Unless otherwise determined by the
Committee, Stock distributed in connection with a Stock split or Stock
dividend, and other property distributed as a dividend, shall be subject
to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other property has
been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred
Stock to Participants, which are rights to receive Stock, cash, or a
combination thereof at the end of a specified deferral period, subject to
the following terms and conditions:
(i) Award and Restrictions. Satisfaction of an Award of Deferred
Stock will occur upon expiration of the deferral period specified for
such Deferred Stock by the Committee (or, if permitted by the Committee,
as elected by the Participant). In addition, Deferred Stock shall be
subject to such restrictions (which may include a risk of forfeiture) as
the Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or future
service requirements), separately or in combination, in installments or
otherwise, as the Committee may determine. Deferred Stock may be
satisfied by delivery of Stock, cash equal to the Fair Market Value of
the specified number of shares of Stock covered by the Deferred Stock,
or a combination thereof, as determined by the Committee at the date of
grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the
Award agreement evidencing the Deferred Stock), all Deferred Stock that
is at that time subject to deferral (other than a deferral at the
election of the Participant) shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award agreement,
or may determine in any individual case, that restrictions or forfeiture
conditions relating to Deferred Stock will be waived in whole or in part
in the event of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture of
Deferred Stock.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified number
of shares of Stock covered by an Award of Deferred Stock will be either
(A) paid with respect to such Deferred Stock at the dividend payment
date in cash or in shares of unrestricted Stock having a Fair Market
Value equal to the amount of such dividends, or (B) deferred with
respect to such Deferred Stock and the amount or value thereof
automatically deemed reinvested in additional Deferred Stock, other
Awards, or other investment vehicles, as the Committee shall determine
or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash
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or deliver other property under other plans or compensatory arrangements,
provided that, in the case of Participants subject to Section 16 of the
Exchange Act, the amount of such grants remains within the discretion of
the Committee to the extent necessary to ensure that acquisitions of Stock
or other Awards are exempt from liability under Section 16(b) of the
Exchange Act. Stock or Awards granted hereunder shall be subject to such
other terms as shall be determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Stock, other Awards, or other property equal in value to dividends
paid with respect to a specified number of shares of Stock, or other
periodic payments. Dividend Equivalents may be awarded on a free-standing
basis or in connection with another Award. The Committee may provide that
Dividend Equivalents will be paid or distributed when accrued or will be
deemed to have been reinvested in additional Stock, Awards, or other
investment vehicles, and subject to such restrictions on transferability
and risks of forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including,
without limitation, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Stock, purchase rights for Stock,
Awards with value and payment contingent upon performance of the Company or
any other factors designated by the Committee, and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine the
terms and conditions of such Awards. Stock delivered pursuant to an Award
in the nature of a purchase right granted under this Section 6(h) shall be
purchased for such consideration, paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Stock, other
Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may also
be granted pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of
the Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is
granted in substitution or exchange for another Award or award, the
Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be
granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any subsidiary, in which the
value of Stock subject to the Award is equivalent in value to the cash
compensation (for example, Deferred Stock or Restricted Stock), or in which
the exercise price, grant price or purchase price of the Award in the
nature of a right that may be exercised is equal to the Fair Market Value
of the underlying Stock minus the value of the cash compensation
surrendered
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(for example, Options granted with an exercise price "discounted" by the
amount of the cash compensation surrendered).
(b) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided that in no event shall the
term of any Option or SAR exceed a period of ten years (or such shorter
term as may be required in respect of an ISO under Section 422 of the
Code).
(c) Form and Timing of Payment Under Awards; Deferrals. Subject to
the terms of the Plan and any applicable Award agreement, payments to be
made by the Company or a subsidiary upon the exercise of an Option or other
Award or settlement of an Award may be made in such forms as the Committee
shall determine, including, without limitation, cash, Stock, other Awards
or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or upon occurrence of one or
more specified events (in addition to a Change in Control). Installment or
deferred payments may be required by the Committee (subject to Section
10(e) of the Plan) or permitted at the election of the Participant.
Payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the intent of the
Company that this Plan comply in all respects with applicable provisions of
Rule 16b-3 or Rule 16a-1(c)(3) in connection with any grant of Awards to or
other transaction by a Participant who is subject to Section 16 of the
Exchange Act (except for transactions exempted under alternative Exchange
Act rules or acknowledged in writing to be non-exempt by such Participant).
Accordingly, if any provision of this Plan or any Award agreement does not
comply with the requirements of Rule 16b-3 or Rule 16a-1(c)(3) as then
applicable to any such transaction, such provision will be construed or
deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant
shall avoid liability under Section 16(b). In addition, the purchase price
of any Award conferring a right to purchase Stock shall be not less than
any specified percentage of the Fair Market Value of Stock at the date of
grant of the Award then required in order to comply with Rule 16b-3.
8. Performance Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures
of performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the
amounts payable under any Award subject to performance conditions, except
as limited under Sections 8(b) and 8(c) hereof in the case of a Performance
Award intended to qualify under Code Section 162(m).
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(b) Performance Awards Granted to Designated Covered Employees. If
the Committee determines that a Performance Award to be granted to an
Eligible Person who is designated by the Committee as likely to be a
Covered Employee should qualify as "performance-based compensation" for
purposes of Code Section 162(m), the grant and/or settlement of such
Performance Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect each to such
criteria, as specified by the Committee consistent with this Section
8(b). Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder
(including Proposed Regulation 1.162-27 and successor proposed and final
regulations thereto), including the requirement that the level or levels
of performance targeted by the Committee result in the achievement of
performance goals being "substantially uncertain." The Committee may
determine that such Performance Awards shall be payable upon achievement
of any one performance goal or that two or more of the performance goals
must be achieved as a condition to settlement of such Performance
Awards. Performance goals may differ for Performance Awards granted to
any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or business units of the Company (except with respect to
the total stockholder return and earnings per share criteria), shall be
used exclusively by the Committee in establishing performance goals for
such Performance Awards: (1) total stockholder return; (2) such total
stockholder return as compared to total return (on a comparable basis)
of a publicly available index such as, but not limited to, the Standard
& Poor's 500 or the Value Line Apparel Industry Index; (3) net income;
(4) pretax earnings; (5) EBITDA; (6) pretax operating earnings after
interest expense and before bonuses, service fees, and extraordinary or
special items; (7) operating margin; (8) earnings per share; (9) return
on equity; (10) return on capital; (11) return on investment; (12)
operating earnings; and (13) working capital. The foregoing business
criteria shall also be exclusively used in establishing performance
goals for Annual Incentive Awards granted to a Covered Employee under
Section 8(c) hereof.
(iii) Performance Period; Timing For Establishing Performance
Goals. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of not less than one
year nor more than ten years, as specified by the Committee. Performance
goals shall be established not later than 90 days after the beginning of
any performance period applicable to such Performance Awards, or at such
other date as may be required or permitted for "performance-based
compensation" under Code Section 162(m).
(iv) Settlement of Performance Awards; Other Terms. Settlement of
such Performance Awards shall be in cash or Stock, or other Awards, or
other property, in the discretion of the Committee. The Committee may,
in its discretion, reduce the amount of a settlement otherwise to be
made in connection with such Performance Awards, but may not exercise
discretion to increase any such amount payable to a Covered Employee in
respect of a
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Performance Award subject to this Section 8(b). The Committee shall
specify the circumstances in which such Performance Awards shall be
forfeited in the event of termination of employment by the Participant
prior to the end of a performance period or settlement of Performance
Awards, and other terms relating to such Performance Awards in
accordance with Section 6 and this Section 8.
(c) Annual Incentive Awards Granted to Designated Covered
Employees. The Committee may grant Annual Incentive Awards to Eligible
Persons including those designated by the Committee as likely to be Covered
Employees, which Awards shall represent a conditional right to receive a
payment in cash, unless otherwise determined by the Committee, after the
end of a specified fiscal year, in accordance with this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an
Annual Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring Company performance in connection with Annual
Incentive Awards. The amount of such Annual Incentive Award pool shall
be based upon the achievement of a performance goal or goals based on
one or more of the business criteria set forth in Section 8(b)(ii)
hereof in the given performance year, as specified by the Committee in
accordance with Section 8(c)(ii) hereof. The Committee may specify the
amount of the Annual Incentive Award pool as a percentage of any of such
business criteria, a percentage thereof in excess of a threshold amount,
or as another amount which need not bear a strictly mathematical
relationship to such business criteria.
(ii) Potential Annual Incentive Awards. Not later than the end of
the 90th day of each fiscal year, or at such other date as may be
required or permitted for "qualified performance-based compensation"
under Code Section 162(m), the Committee shall determine the Eligible
Persons who will potentially receive Annual Incentive Awards for that
fiscal year, either out of an Annual Incentive Award pool established by
such date under Section 8(c)(i) hereof or as individual Annual Incentive
Awards. In the case of individual Annual Incentive Awards intended to
qualify under Code Section 162(m), the amount potentially payable shall
be based upon the achievement of a performance goal or goals based on
one or more of the business criteria set forth in Section 8(b)(ii)
hereof in the given performance year, as specified by the Committee; in
other cases, such amount shall be based on such criteria as shall be
established by the Committee. In all cases, the maximum Annual Incentive
Award of any Participant shall be subject to the limitation set forth in
Section 5 hereof.
(iii) Payout of Annual Incentive Awards. After the end of each
fiscal year, the Committee shall determine the amount, if any, of (A)
the Annual Incentive Award pool, and the maximum amount of potential
Annual Incentive Award payable to each Participant in the Annual
Incentive Award pool, or (B) the amount of potential Annual Incentive
Award otherwise payable to each Participant. The Committee may, in its
discretion, determine that the amount payable to any Participant as a
final Annual Incentive Award shall be increased or reduced from the
amount of his or her potential Annual Incentive Award, including a
determination to make no final Award whatsoever, but may not exercise
discretion to increase any such amount in the case of an Annual
Incentive Award intended to qualify under Code Section 162(m). The
Committee shall specify the circumstances in which an Annual Incentive
Award shall be forfeited in the event of termination of employment by
the
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Participant prior to the end of a fiscal year or the payout of such
Annual Incentive Award, and other terms relating to such Annual
Incentive Award in accordance with the Plan.
(d) Written Determinations. All determinations by the Committee as to
the establishment of performance goals and the potential Awards related to
such performance goals and as to the achievement of performance goals
relating to such Performance Awards under Section 8(b), and the amount of
any Annual Incentive Award pool and the amount of final Annual Incentive
Awards under Section 8(c), shall be made in writing in the case of any
Award intended to qualify under Code Section 162(m). The Committee may not
delegate any responsibility relating to such Performance Awards or Annual
Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards Under Code Section
162(m). It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Sections 8(b) and 8(c) hereof granted to persons who
are designated by the Committee as likely to be Covered Employees within
the meaning of Code Section 162(m) and regulations thereunder (including
Proposed Regulation 1.162-27 and successor proposed and final regulations
thereto) shall, if so designated by the Committee, constitute "qualified
performance-based compensation" within the meaning of Code Section 162(m)
and regulations thereunder. Accordingly, the terms of Sections 8(b), (c),
(d) and (e), including the definitions of Covered Employee and other terms
used therein, shall be interpreted in a manner consistent with Code Section
162(m) and regulations thereunder. The foregoing notwithstanding, because
the Committee cannot determine with certainty whether a given Participant
will be a Covered Employee with respect a fiscal year that has not yet been
completed, the term Covered Employee as used herein shall mean only a
person designated by the Committee, at the time of grant of Performance
Awards or an Annual Incentive Award, as likely to be a Covered Employee
with respect to that fiscal year. If any provision of the Plan or any
agreement relating to such Performance Awards or Annual Incentive Awards
does not comply or is inconsistent with the requirements of Code Section
162(m) or regulations thereunder, such provision shall be construed or
deemed amended to the extent necessary to conform to such requirements.
9. Change in Control
(a) Effect of "Change in Control." In the event of a "Change in
Control," as defined in Section 9(b), the following provisions shall apply:
(i) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of
the time of the Change in Control and shall remain exercisable and
vested for the balance of the stated term of such Award without regard
to any termination of employment by the Participant, subject only to the
restrictions set forth in Section 10(a) hereof;
(ii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other Award granted under the Plan shall
lapse and such Awards shall be deemed fully vested as of the time of the
Change in Control, except to the extent of any waiver by the Participant
and subject to the restrictions set forth in Section 10(a) hereof; and
(iii) With respect to any outstanding Award subject to achievement
of performance goals and conditions under the Plan, such performance
goals and other conditions will be
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deemed to be met if and to the extent so provided by the Committee in
the Award agreement relating to such Award.
(b) Definition of "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 25% or more of the Company Common Stock Outstanding
or 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 25% or more of the Company Common Stock Outstanding or 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, 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 9(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); provided, however, that any merger, consolidation, sale,
disposition or other similar transaction to or with William Farley or
entities controlled by him shall not constitute a Corporate Transaction;
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 9(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 9(b), the following shall not constitute a Change in Control
for purposes of the Plan: (1) any acquisition by or consummation of a
Corporate Transaction with any subsidiary of the Company 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
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more than 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 substantially 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.
(c) Definition of "Change in Control Price." The "Change in Control
Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share
paid (including extraordinary dividends) in any transaction triggering the
Change in Control under Section 9(b)(ii) hereof or any liquidation of
shares following a sale of substantially all assets of the Company, or (ii)
the highest Fair Market Value per share at any time during the 60-day
period preceding and 60-day period following the Change in Control.
10. General Provisions.
(a) Compliance With Legal and Other Requirements. The Company may, to
the extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Stock or payment of other benefits under any Award
until completion of such registration or qualification of such Stock or
other required action under any federal or state law, rule, or regulation,
listing or other required action with respect to any stock exchange or
automated quotation system upon which the Stock or other Company securities
are listed or quoted, or compliance with any other obligation of the
Company, as the Committee may consider appropriate, and may require any
Participant to make such representations, furnish such information and
comply with or be subject to such other conditions as it may consider
appropriate in connection with the issuance or delivery of Stock or payment
of other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations.
(b) Limits on Transferability; Beneficiaries. No Award or other right
or interest of a Participant under the Plan, including any Award or right
which constitutes a derivative security as generally defined in Rule
16a-1(c) under the Exchange Act, shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of
such Participant to any party (other than the Company or a subsidiary), or
assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative, except that Awards and other
rights (other than ISOs and SARs in tandem therewith) may be transferred to
one or more Beneficiaries or other transferees during the lifetime of the
Participant in connection with the Participant's estate planning, and may
be exercised by such transferees in accordance with the terms of such
Award, but only if and to the extent such transfers are then permitted
under Rule 16b-3, consistent with the registration of the offer and sale of
Stock on Form S-8 or a successor registration form of the Securities and
Exchange Commission or such other form of registration statement as has in
fact been filed in connection
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with the Plan, and permitted by the Committee (subject to any terms and
conditions which the Committee may impose thereon). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the
Plan and any Award agreement applicable to such Participant, except as
otherwise determined by the Committee, and to any additional terms and
conditions deemed necessary or appropriate by the Committee.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an
adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the rights of Participants under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock which may
be delivered in connection with Awards granted thereafter, (ii) the number
and kind of shares of Stock by which annual per-person Award limitations
are measured under Section 5 hereof, (iii) the number and kind of shares of
Stock subject to or deliverable in respect of outstanding Awards, and (iv)
the exercise price, grant price, or purchase price relating to any Award
and/or make provision for payment of cash or other property in respect of
any outstanding Award; provided, in each case, that, with respect to ISOs
and SARs relating thereto, no such adjustment shall be authorized or made
to the extent that such authority or the making of such adjustment would
cause the Plan or the ISO not to comply with Section 422 of the Code. In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including Performance
Awards and performance goals, and Annual Incentive Awards and any Annual
Incentive Award pool or performance goals relating thereto) in recognition
of unusual or nonrecurring events (including, without limitation, events
described in the preceding sentence, as well as acquisitions and
dispositions of businesses and assets) affecting the Company, any
subsidiary, or any business unit, or the financial statements of the
Company or any subsidiary, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations, or business
conditions or in view of the Committee's assessment of the business
strategy of the Company, any subsidiary or business unit thereof,
performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if
and to the extent that such authority or the making of such adjustment
would cause Options, SARs, Performance Awards granted under Section 8(b)
hereof, or Annual Incentive Awards granted under Section 8(c) hereof to
Participants designated by the Committee as Covered Employees as defined in
Section 8(e) hereof to otherwise fail to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder.
(d) Taxes. The Company and any subsidiary is authorized to withhold
from any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take
such other action as the Committee may deem advisable to enable the Company
and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other
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property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations, either on a mandatory or elective basis in
the discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter,
suspend, discontinue or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Company's stockholders not later than the
annual meeting next following such Board action if such stockholder
approval is required by any federal or state law or regulation or the rules
of any stock exchange or automated quotation system on which the Stock may
then be listed or quoted, and the Board may otherwise, in its discretion,
determine to submit other such changes to the Plan to stockholders for
approval; provided that, without the consent of an affected Participant, no
such Board action may materially and adversely affect the rights of such
Participant under any previously granted and outstanding Award. The
Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue or terminate any Award theretofore granted and any
Award agreement relating thereto, except as otherwise provided in the Plan;
provided that, without the consent of an affected Participant, no such
Committee action may materially and adversely affect the rights of such
Participant under such Award. Notwithstanding anything in the Plan to the
contrary, if any right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may
modify or adjust the right so that pooling of interest accounting shall be
available, including the substitution of Stock having a Fair Market Value
equal to the cash otherwise payable hereunder for the right which caused
the transaction to be ineligible for pooling of interest accounting.
(f) Limitation on Rights Conferred Under Plan. Neither the Plan nor
any action taken hereunder shall be construed as (i) giving any Eligible
Person or Participant the right to continue as an Eligible Person or
Participant or in the employ of the Company or a subsidiary, (ii)
interfering in any way with the right of the Company or a subsidiary to
terminate any Eligible Person's or Participant's employment at any time,
(iii) giving an Eligible Person or Participant any claim to be granted any
Award under the Plan or to be treated uniformly with other Participants and
employees, or (iv) conferring on a Participant any of the rights of a
stockholder of the Company unless and until the Participant has validly
exercised an Option or is otherwise duly issued or transferred shares of
Stock in accordance with the terms of the Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company; provided that the
Committee may authorize the creation of trusts and deposit therein cash,
Stock, other Awards or other property, or make other arrangements to meet
the Company's obligations under the Plan. Such trusts or other arrangements
shall be consistent with the "unfunded" status of the Plan unless the
Committee otherwise determines with the consent of each affected
Participant. The trustee of such trusts may be authorized to dispose of
trust assets and reinvest the proceeds in alternative
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investments, subject to such terms and conditions as the Committee may
specify and in accordance with applicable law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements as
it may deem desirable including incentive arrangements and awards which do
not qualify under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration,
the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether
cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect of the Plan,
any rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the Delaware General Corporation Law, to the
extent applicable, other laws (including those governing contracts) of the
State of Illinois, without giving effect to principles of conflicts of
laws, and applicable federal law.
(k) Awards Under Preexisting Plans. Upon approval of the Plan by
stockholders of the Company, as required under Section 10(l) hereof, no
further Awards shall be granted under any Preexisting Plan, and awards that
are outstanding under the Company's Executive Incentive Compensation Plan
effective as of January 1, 1994 shall be deemed to be Awards under the
Plan, provided that all terms and conditions of such Awards shall be as set
forth under such Executive Incentive Compensation Plan and agreements
thereunder, except if and to the extent such terms and conditions are
specifically modified in a writing executed by the Company and the affected
Participant.
(l) Plan Effective Date, Stockholder Approval, and Termination. The
Plan shall become effective on December 18, 1994, subject to subsequent
approval at the Company's 1995 Annual Meeting of Stockholders, by
stockholders of the Company eligible to vote in the election of directors,
by a vote sufficient to meet the requirements of Code Sections 162(m) and
422, Rule 16b-3 under the Exchange Act, Section 312.03 of the Listed
Company Manual of the New York Stock Exchange, and other laws, regulations,
and obligations of the Company applicable to the Plan. Subject to earlier
termination by action of the Board in accordance with Section 10(e) hereof,
no Award may be newly granted under the Plan after December 18, 2004, and
the Plan will terminate thereafter at such time that the Company has no
further obligations or rights in respect of Awards granted under the Plan.
A-20
<PAGE> 65
EXHIBIT B
FRUIT OF THE LOOM, INC.
1995 NON-EMPLOYEE DIRECTORS' STOCK PLAN
<PAGE> 66
FRUIT OF THE LOOM, INC.
1995 NON-EMPLOYEE DIRECTORS' STOCK PLAN
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
1. Purposes.................................................................... B-3
2. Definitions................................................................. B-3
3. Shares Available Under the Plan............................................. B-3
4. Administration of the Plan.................................................. B-4
5. Eligibility................................................................. B-4
6. Grants of Restricted Stock Units............................................ B-4
7. Deferral of Cash Fees in the Form of Stock Units............................ B-5
8. Crediting of Dividend Equivalents........................................... B-6
9. Adjustment Provisions....................................................... B-6
10. Changes to the Plan......................................................... B-6
11. General Provisions.......................................................... B-7
</TABLE>
B-2
<PAGE> 67
FRUIT OF THE LOOM, INC.
1995 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. Purposes. The purposes of this 1995 Non-Employee Directors' Stock Plan
(the "Plan") of Fruit of the Loom, Inc. (the "Company") are to attract and
retain highly qualified persons to serve as non-employee directors and to ensure
an immediate and direct proprietary interest in the Company by such non-employee
directors by providing a significant portion of their compensation in the form
of Company stock, thereby closely aligning such directors' interests with the
interests of stockholders of the Company.
2. Definitions. In addition to terms defined elsewhere in the Plan, the
following terms are defined as set forth below:
(a) "Board" means the Company's Board of Directors.
(b) "Change in Control" shall be defined in the manner set forth in
the Company's 1995 Executive Incentive Compensation Plan (or its
predecessor Executive Incentive Compensation Plan if the 1995 Executive
Incentive Compensation Plan is not approved by stockholders), as of the
effective date of the Plan.
(c) "Committee" means the Executive Committee of the Board.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act include rules
thereunder and successor provisions and rules thereto.
(e) "Fair Market Value" of Stock means, as of any given date, the
closing sale price per share of Stock on that date reported on a
consolidated basis for securities listed on the principal stock exchange or
market on which Stock is traded or, if there is no sale on that date, then
on the last previous day on which a sale was reported.
(f) "Participant" means a director who has been granted or acquired
Stock Units which have not yet been settled or forfeited under the Plan.
(g) "Restricted Stock Unit" or "RSU" means a Stock Unit granted under
Section 6 hereof and subject to the risk of forfeiture and other terms of
Section 6 hereof.
(h) "Stock" means the Company's Class A Common Stock, and such other
securities as may be substituted (or resubstituted) for Stock pursuant to
Section 9 hereof.
(i) "Stock Unit" means the credit to a Participant's account under
Sections 6, 7, and 8 hereof, which credit is denominated in shares and
represents the right to receive one share of Stock upon settlement of the
Stock Unit account for each such credited Stock Unit, subject to such
conditions as are imposed under the Plan.
3. Shares Available Under the Plan. Subject to adjustment as provided in
Section 9 hereof, the total number of shares of Stock reserved and available for
issuance under the Plan is 200,000. Such shares may be authorized but unissued
shares, treasury shares or shares acquired in the market for the account of the
Participant. For purposes of the Plan, shares that are subject to future
issuance in settlement of Stock Units will not be considered to be available
after such Stock Units have been credited to an account, except for purposes of
issuance in settlement of Stock Units; provided that if
B-3
<PAGE> 68
any RSUs are forfeited for any reason, the shares subject to issuance in
settlement thereof will again be available for issuance under the Plan.
4. Administration of the Plan. The Plan will be administered by the Board
and the Committee; provided that any action by the Board or the Committee
relating to the Plan will be taken only if, in addition to any other required
vote, such action is approved by the affirmative vote of a majority of the
directors who are not then eligible to participate in the Plan.
5. Eligibility. Each director of the Company who, on any date on which
RSUs are to be granted under Section 6 hereof or on which fees are to be paid
which could be deferred under Section 7 hereof, is not an executive officer or
employee, either full-time or part-time, of (i) the Company, (ii) any parent of
the Company, (iii) any subsidiary of the Company, or (iv) Farley Industries,
Inc. will be eligible, at such date, to be granted RSUs under Section 6 hereof
or to defer fees in the form of Stock Units under Section 7 hereof. No person
other than those specified in this Section 5 will be eligible to participate in
the Plan.
6. Grants of Restricted Stock Units.
(a) Initial Grants. Each person who, at the close of business on the
effective date of the Plan, is then a director eligible under Section 5
hereof shall be granted 2,500 RSUs, subject to adjustment as provided in
Section 9 hereof. In addition, each person who, after such effective date
and during the term of the Plan, is elected or appointed to the Board and
has not theretofore received a grant of RSUs under this Section 6(a),
shall, at the close of business on the date of the first annual meeting of
stockholders coincident with or following such election or appointment at
which such person is then a director eligible under Section 5 hereof, be
granted 2,500 RSUs, subject to adjustment as provided in Section 9 hereof.
(b) Annual Grants. At the close of the first business day that is at
least 120 days after the Company's annual meeting of stockholders in each
year during the term of the Plan, each director who is then eligible under
Section 5 hereof shall be granted 1,250 RSUs, subject to adjustment as
provided in Section 9 hereof.
(c) Vesting of Restricted Stock Units. Any RSUs granted under Section
6(a) or 6(b) hereof (including any RSUs resulting from an adjustment in
accordance with Section 9 hereof) shall be forfeited by a Participant who
ceases to serve as a director of the Company prior to the second
anniversary of the date of grant for any reason other than death,
disability, resignation to enter government or eleemosynary service, or
retirement under established policies of the Board, except that RSUs shall
not be forfeited or forfeitable upon the occurrence of a Change in Control
and thereafter. For purposes of this Section 6(c), a disability shall mean
a physical or mental incapacity of long duration which, in the reasonable
determination of the Board or Committee, renders the Participant unable to
perform the duties of a director of the Company.
(d) Dividend Equivalents. A Participant to whom any RSU or Stock Unit
resulting from RSUs and dividend equivalents under this Section 6 is
credited in a Stock Unit account shall be entitled to receive dividend
equivalents, in the form of additional Stock Units, in accordance with
Section 8 hereof. Such additional Stock Units shall be nonforfeitable.
(e) Settlement and Elective Deferral. The Company will settle Stock
Units credited to the Participant's Stock Unit account resulting from RSUs
and dividend equivalents under this Section 6 by delivering to the
Participant (or his or her beneficiary), as promptly as practicable
B-4
<PAGE> 69
after the end of the applicable deferral period, the number of shares of
Stock equal to the number of whole Stock Units then credited to such
account as to which the deferral period has expired, together with cash in
lieu of any fractional share at a time that less than one whole Stock Unit
remains credited to such account. The deferral period shall end at the time
the risk of forfeiture lapses under Section 6(c) hereof, unless the
Participant shall have filed an irrevocable written election with the
Secretary of the Company by such date as may be specified by the Committee
electing to extend the period of deferral of settlement of Stock Units
resulting from RSUs and dividend equivalents under this Section 6, provided
that, other provisions of the Plan notwithstanding, all such deferral
periods will end upon the occurrence of a Change in Control, unless such
acceleration is waived by the Participant. Electively deferred Stock Units
resulting from RSUs and dividend equivalents under this Section 6 shall be
non-forfeitable.
7. Deferral of Cash Fees in the Form of Stock Units.
(a) Deferral of Fees Generally. Each director of the Company may, in
lieu of current receipt of fees in his or her capacity as a director in
cash, defer receipt of such fees in the form of Stock Units in accordance
with this Section 7, provided that such director is eligible under Section
5 hereof to defer fees at the date any such fee is otherwise payable. Fees
that may be deferred include annual retainer fees for service on the Board,
fees for attendance at meetings of the Board and committees of the Board,
and other fees for services payable under then-current policies of the
Board.
(b) Deferral Elections. Each director who elects to defer fees in the
form of Stock Units for any calendar year must file an irrevocable written
election with the Secretary of the Company by such date as may be specified
by the Committee. The election shall specify the percentage of fees to be
deferred and the period or periods of deferral (subject to Section 7(e)
hereof). If a deferral of fees would take place within six months after the
filing of the election and at a time that the Company's employee benefit
plans are being operated under Rule 16b-3 under the Exchange Act as in
effect on and after May 1, 1991, the Committee shall either delay the
effectiveness of such deferral election, or shall permit the deferral of
fees as a cash obligation to the Participant but shall delay the date upon
which Stock Units are credited to the Participant's Stock Unit account,
until a date, as specified by the Committee, at least six months after the
date of filing of the election (without interest on the cash obligation).
An election by a director shall be deemed to be continuing and therefore
applicable to Plan years after the year in respect of which the election is
filed, unless the director revokes or changes such election by filing a new
election form in accordance with this Section 7(b).
(c) Crediting of Stock Units. At any date on which fees are payable
to a Participant who has elected to defer fees in the form of Stock Units,
the Company will credit such Participant's Stock Unit account with a number
of Stock Units equal to the number of shares of Stock having an aggregate
Fair Market Value at that date equal to the fees that otherwise would have
been payable at such date but for the Participant's election to defer
receipt of such fees in the form of Stock Units. Such Stock Units shall be
nonforfeitable.
(d) Dividend Equivalents. A Participant to whom any Stock Unit is
credited under this Section 7 to a Stock Unit account shall be entitled to
receive dividend equivalents, in the form of additional Stock Units, in
accordance with Section 8 hereof. Such additional Stock Units shall be
nonforfeitable.
B-5
<PAGE> 70
(e) Settlement of Stock Units. The Company will settle Stock Units
credited to the Participant's Stock Unit account under this Section 7 by
delivering to the Participant (or his or her beneficiary), as promptly as
practicable after the end of the applicable deferral period, the number of
shares of Stock equal to the number of whole Stock Units then credited to
such account as to which the deferral period has expired, together with
cash in lieu of any fractional share at a time that less than one whole
Stock Unit remains credited to such account. Other provisions of the Plan
notwithstanding, all deferral periods will end upon the occurrence of a
Change in Control, unless such acceleration is waived by the Participant.
8. Crediting of Dividend Equivalents. A Participant shall be entitled to
receive dividend equivalents, as of the payment date for any dividend or
distribution on Stock, in an amount equal to the cash or fair market value of
any property other than Stock paid as a dividend or distribution on a single
share of Stock at that date multiplied by the number of RSUs and Stock Units
(including any fractional shares) credited to his or her Stock Unit account as
of the record date for such dividend or distribution. Such dividend equivalents
shall be credited as a number of Stock Units determined by dividing the
aggregate amount of such dividend equivalents by the Fair Market Value of a
share of Stock at the payment date of the dividend or distribution. Dividends in
the form of additional shares of Stock shall not result in the crediting of
dividend equivalents, but will instead result in an adjustment in the number of
shares credited as RSUs or Stock Units, in accordance with Section 9 hereof.
9. Adjustment Provisions. In the event any recapitalization,
reorganization, merger, consolidation, spinoff, combination, repurchase,
exchange of shares or other securities of the Company, stock split or reverse
split, stock dividend, other extraordinary dividend having a value in excess of
150% of the aggregate quarterly dividends paid during the 12-month period
preceding the record date therefor, liquidation, dissolution or other similar
corporate transaction or event affects the Stock such that an adjustment is
determined by the Board or Committee to be appropriate in order prevent dilution
or enlargement of Participants' rights under the Plan, then the Board or
Committee will, in a manner that is proportionate to the change to the Stock and
is otherwise equitable, adjust (i) the number and kind of shares of Stock
reserved for issuance under the Plan, (ii) the number and kind of shares of
Stock to be subject to each automatic grant of RSUs under Section 6 hereof, and
(iii) the number and kind of shares of Stock to be issued and delivered in
settlement of outstanding Stock Units (including RSUs). The foregoing
notwithstanding, no adjustment may be made hereunder except as shall be
necessary to maintain the proportionate interest of a Participant under the Plan
and to preserve, without exceeding, the value of outstanding Stock Units
(including RSUs) and potential grants of Stock Units.
If at any date an insufficient number of shares of Stock are available
under the Plan for the automatic grant of RSUs or the deferral of fees in the
form of Stock Units at that date, RSUs will first be automatically granted
proportionately to Participants, to the extent shares are then available and
otherwise as provided under Section 6 hereof, and then, if any shares remain
available, Stock Units shall be credited under Section 7 hereof proportionately
among Participants deferring fees in the form of Stock Units to the extent
shares are then available and otherwise as provided under Section 7 hereof.
10. Changes to the Plan. The Board may amend, alter, suspend, discontinue,
or terminate the Plan or authority to grant Stock Units under Section 6 hereof
or defer fees under Section 7 hereof of the Plan without the consent of
stockholders or Participants, except that any such action will be
B-6
<PAGE> 71
subject to the approval of the Company's stockholders at the next annual meeting
of stockholders having a record date after the date such action was taken if
such stockholder approval is required by any federal or state law or regulation
or the rules of any stock exchange or automated quotation system on which the
Stock may then be listed or quoted, or if the Board determines in its discretion
to seek or obtain stockholder approval; provided that, without the consent of an
affected Participant, no such action may impair the rights of such Participant
in respect of any previously granted or outstanding Stock Units or Stock Unit
account; and provided further that any Plan provision that specifies the
directors who may receive grants of Stock Units, the amount and price of
securities to be granted to such directors, and the timing of grants to such
directors, or is otherwise a "plan provision" referred to in Rule
16b-3(c)(2)(ii)(B) under the Exchange Act (or any successor provision), shall
not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code of 1986, as amended, or the rules
thereunder.
11. General Provisions.
(a) Unfunded Nature of Plan; Agreements. Stock Unit accounts, and
RSUs and Stock Units credited thereto, are maintained solely as bookkeeping
entries by the Company evidencing unfunded obligations of the Company.
Accordingly, Participants will not have rights to specific property of the
Company or otherwise have rights other than as unsecured creditors in
respect of such Stock Unit accounts or RSUs and Stock Units. The Committee
may, however, authorize the creation of trusts and deposit Stock therein,
or make other arrangements, to meet the Company's obligations under the
Plan; provided, however, that such actions shall be consistent with Section
11(d) hereof. Such trusts or other arrangements shall be consistent with
the "unfunded" status of the Plan unless the Committee otherwise determines
with the consent of each affected Participant. The Company's obligations
under the Plan will be evidenced by agreements or other documents executed
by the Company and the Participant incorporating the terms and conditions
set forth in the Plan, together with such other terms and conditions not
inconsistent with the Plan as the Board or Committee may from time to time
approve.
(b) Compliance with Laws and Obligations. The Company will not be
obligated to issue or deliver shares of Stock in settlement of Stock Units
in a transaction subject to the registration requirements of the Securities
Act of 1933, as amended, or any other federal or state securities law, any
requirement under any listing agreement between the Company and any stock
exchange or automated quotation system, or any other law, regulation or
contractual obligation of the Company, until such laws, regulations and
other obligations of the Company have been complied with to the
satisfaction of the Company. Certificates representing shares of Stock
issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and
other obligations of the Company, including any requirement that a legend
or legends be placed thereon.
(c) Limitations on Transferability. No Stock Units or right under the
Plan which constitutes a derivative security as generally defined in Rule
16a-1(c) under the Exchange Act shall be pledged, hypothecated, or
otherwise encumbered or subject to any lien, obligation or liability of a
Participant to any party (other than the Company or a subsidiary), or
assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a designated beneficiary upon the
death of the Participant, except that rights relating to Stock Units may be
transferred to one or more beneficiaries or other transferees during the
lifetime of
B-7
<PAGE> 72
the Participant in connection with the Participant's estate planning, but
only if and to the extent such transfers are then permitted under Rule
16b-3 under the Exchange Act and consistent with the registration of the
offer and sale of Stock on Form S-8 or a successor registration form of the
Securities and Exchange Commission or such other form of registration
statement as has in fact been filed in connection with the Plan. A
beneficiary, transferee, or other person claiming any rights under the Plan
from or through any Participant shall be subject to all terms and
conditions of the Plan and any agreement applicable to such Participant.
(d) Compliance with Rule 16b-3. It is the intent of the Company that
this Plan comply in all respects with applicable provisions of Rule 16b-3
under the Exchange Act. Accordingly, if any provision of this Plan or any
agreement hereunder does not comply with the requirements of Rule 16b-3 as
then applicable to a Participant, or would cause any Participant to no
longer be deemed a "disinterested person" within the meaning of Rule 16b-3,
such provision will be construed or deemed amended to the extent necessary
to conform to the applicable requirements with respect to such Participant.
In addition, the Board shall have no authority to make any amendment,
alteration, suspension, discontinuation or termination of the Plan and the
Board and the Committee shall have no authority to make any adjustment
under Section 9 hereof, amend any agreement hereunder or take other action
if and to the extent such authority would cause a transaction under the
Plan by a Participant not to be exempt, or would cause a Participant no
longer to be deemed a "disinterested person," under Rule 16b-3 under the
Exchange Act.
(e) Designation of Beneficiary. Each Participant may designate one or
more beneficiaries to receive the amounts distributable from the
Participant's deferral account under the Plan in the event of such
Participant's death, on forms provided by the Company. The Company may rely
upon the beneficiary designation last filed in accordance with the terms of
the Plan.
(f) Crediting of Fractional Shares. The amount of Stock Units
(including RSUs) credited to a Stock Unit shall include any fractional
share, calculated to at least three decimal places.
(g) No Right To Continue as a Director. Nothing contained in the Plan
or any agreement hereunder will confer upon any Participant any right to
continue to serve as a director of the Company.
(h) No Stockholder Rights Conferred. Nothing contained in the Plan or
any agreement hereunder, including the crediting of Stock Units to a
Participant's Stock Unit account, will confer upon any Participant (or
beneficiary or transferee) any rights of a stockholder of the Company
unless and until shares of Stock are in fact issued and delivered to such
Participant or his or her nominee (or beneficiary or transferee or a
nominee thereof).
(i) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations under the Plan, and any Award agreement
shall be determined in accordance with the Delaware General Corporation
Law, to the extent applicable, other laws (including those governing
contracts) of the State of Illinois without giving effect to principles of
conflicts of laws, and applicable federal law.
(j) Termination of Authorization for Further Option Grants Under the
Fruit of the Loom, Inc. Directors' Stock Option Plan. Upon approval of the
effectiveness of the Plan as provided in Section 11(k), no further Stock
options shall be granted under the Fruit of the Loom, Inc.
B-8
<PAGE> 73
Directors' Stock Option Plan. This provision shall be deemed an amendment
to the Fruit of the Loom, Inc. Directors' Stock Option Plan, and the effect
of such amendment shall be that no options that otherwise would be
grantable under Section 5(a) of the Fruit of the Loom, Inc. Directors'
Stock Option Plan on any date of the Company's Annual Meeting of
Stockholders at which meeting the Plan (including this amendment to the
Fruit of the Loom, Inc. Directors' Stock Option Plan) is approved by the
Company's stockholders shall be granted under the Fruit of the Loom, Inc.
Directors' Stock Option Plan.
(k) Stockholder Approval, Effective Date, and Plan Termination. The
Plan will become effective if, and at such time as, the stockholders of the
Company eligible to vote in the election of directors have approved the
Plan at the Company's 1995 Annual Meeting of Stockholders by the
affirmative votes of the holders of a majority of the voting securities of
the Company present, or represented, and entitled to vote on the subject
matter. Unless earlier terminated by action of the Board, the Plan will
remain in effect until such time as no shares of Stock remain available for
issuance under the Plan and the Company and Participants have no further
rights or obligations under the Plan in respect of outstanding RSUs or
other Stock Units under the Plan.
B-9
<PAGE> 74
<TABLE>
<S><C>
Please mark
[X] your votes
as this
_________________
COMMON
1. ELECTION OF DIRECTORS--NOTE: Holders of Class A Common
Stock vote in Sections A and B below.
FOR WITHHELD
FOR ALL FOR AGAINST ABSTAIN
A. Directors elected by holders of Class A [ ] [ ] 2. APPROVAL OF THE FRUIT OF THE LOOM, INC. 1995 [ ] [ ] [ ]
Common Stock voting as a separate class: EXECUTIVE INCENTIVE COMPENSATION PLAN
Omar Z. Al Askan, Dennis S. Bookshester,
Lee W. Jennings
(To withhold authority to vote for an
individual nominee, write that nominee's
name on the space provided to the right) ______________
FOR WITHHELD
FOR ALL FOR AGAINST ABSTAIN
B. Directors elected by holders of Class A [ ] [ ] 3. APPROVAL OF THE FRUIT OF THE LOOM, INC. 1995 [ ] [ ] [ ]
Common Stock and holders of Class B Common NON-EMPLOYEE DIRECTORS' STOCK PLAN
Stock voting together as a single class:
William Farley, John B. Holland, Henry A.
Johnson, Richard C. Lappin, A. Lome Weil, 4. In their discretion, the proxies are authorized to vote upon such
Sir Brian G. Wolfson other business as may properly come before the meeting or any
adjournments thereof.
(To withhold authority to vote for an
individual nominee, write that nominee's
name on the space provided to the right) ______________
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL
BE VOTED "FOR" THE NOMINEES AS LISTED ABOVE, "FOR"
THE PROPOSAL TO APPROVE THE FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN AND
"FOR" THE PROPOSAL TO APPROVE THE FRUIT OF THE
LOOM, INC. 1995 NON-EMPLOYEE DIRECTORS' STOCK PLAN.
Signature(s)________________________________________________________________________ Date ____________________
NOTE: Please date your proxy and sign exactly as the name or names appear on your stock certificate. All joint owners
of stock should sign above. Sign your full title when signing as an executor, administrator, personal representative,
trustee, etc. Please return your proxy in the enclosed postage paid envelope.
- -----------------------------------------------------------------------------------------------------------------------------------
PROXY SOLICITATION
FRUIT OF THE LOOM, INC.
P
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 1995
O
X The undersigned hereby appoints William Farley and Richard C. Lappin as proxies, each with power of substitution,
and hereby authorizes them to represent the undersigned and to vote, as designated below, all the shares of CLASS A
Y COMMON STOCK held of record by the undersigned on March 21, 1995 at the Annual Meeting of Stockholders of Fruit of the
Loom, Inc. to be held on May 16, 1995, or at any adjournments thereof, upon the matters set forth in the Notice of Annual
Meeting of Stockholders and Proxy Statement, receipt of which is hereby acknowledged.
(Continued and to be signed on reverse side.)
</TABLE>
