<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
- --------------------------------------------------------------------------------
(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 14, 1996
------------------------
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 14, 1996 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 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 19, 1996 as
the record date for determining stockholders entitled to notice of, and to vote
at, the meeting.
By order of the Board of Directors,
BURGESS D. RIDGE
Senior Vice President--Administration
and Secretary
April 9, 1996
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
14, 1996 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 9, 1996.
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 delivering written notice to
the 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"). Each share of Class B Common Stock is convertible at any time into one
share of Class A 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 19, 1996, the record
date for the Annual Meeting, there were 69,275,957 shares of Class A Common
Stock and 6,690,976 shares of Class B Common Stock outstanding, all of which are
entitled to vote at the Annual Meeting.
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)............... 45 Director; Chairman of the Board of Plaid Clothing
Group Inc. and Chief Executive Officer of United
Technical Services and United Eastern Investment
Corp.
Dennis S. Bookshester(1)(2)(3)..... 57 Director; Independent Business Consultant; former
Chief Executive Officer of Zale Corp.
Lee W. Jennings(1)................. 67 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).................. 53 Director; Chairman of the Board and Chief
Executive Officer of the Company
John B. Holland.................... 64 Director; former President and Chief Operating
Officer of the Company
Henry A. Johnson................... 77 Director; President of Henry A. Johnson &
Associates; former President and Chief Executive
Officer of Spiegel, Inc.
Richard C. Lappin(3)............... 51 Director; President and Chief Operating Officer of
the Company
A. Lorne Weil(2)................... 50 Director; Chairman of the Board and Chief
Executive Officer of Autotote Corporation
Sir Brian G. Wolfson(2)............ 60 Director; Chairman of the Board of Global Health
Alternatives
</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 of
the Board 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 American Gem Corp., 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 was President of the Company from May 1992 until his
retirement in January 1996. Until his retirement, Mr. Holland 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. He is also a director of Dollar General Corp. and Camping World,
Inc.
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., 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.
Richard C. Lappin. Mr. Lappin has been a director of the Company since
December 1990 and Vice Chairman of the Company since October 1991 until his
appointment as President and Chief Operating Officer in February 1996. 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 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.
3
<PAGE> 6
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. 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 was Executive Chairman of Wembley plc., a company engaged in
the sports and entertainment industry, from January 1986 until September 1995.
He is also a director of Autotote Corporation and Playboy Enterprises, Inc.
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 oversees the establishment and review of the Company's
internal accounting controls, 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. The Compensation Committee also administers the
Fruit of the Loom, Inc. 1987 Stock Option Plan, the Fruit of the Loom, Inc.
Executive Stock Option Plan, the Fruit of the Loom, Inc. Executive Incentive
Compensation Plan (the "1994 Plan") and the Fruit of the Loom, Inc. 1995
Executive Incentive Compensation Plan (the "1995 EICP"), 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 1995, the Board of Directors held five meetings, the Audit Committee
met six times, the Compensation Committee met six times and the Executive
Committee met once. During 1995, 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.
COMPENSATION OF DIRECTORS
Each director who is not also an executive officer of the Company receives
an annual cash retainer of $35,000 and a grant of 1,850 shares per annum of the
Company's Class A Common Stock which vest after a two year service period
("Restricted Stock Units") under the 1995 Non-Employee Directors' Stock Plan
(the "1995 Directors' Plan") and $1,000 for each meeting of the
4
<PAGE> 7
Board of Directors and each committee meeting which he attends. In 1995, upon
inception of the 1995 Directors' Plan, each non-employee director was issued an
additional 2,500 Restricted Stock Units. Prior to 1995, the Company granted
options to purchase shares of the Company's Class A Common Stock to directors
who were also not executive officers of the Company pursuant to the Fruit of the
Loom, Inc. Directors' Stock Option Plan (the "Directors' Stock Option Plan").
These grants were discontinued upon stockholder approval of the 1995 Directors'
Plan. The Company provides no retirement benefits to non-employee directors.
Directors who are also employees of the Company receive no additional
compensation from the Company for services rendered in their capacity as
directors.
* * *
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 Mr. Lappin was an officer 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. Plaid Clothing Group, Inc., a company of which Mr. Al
Askari serves as Chairman of the Board, voluntarily filed for protection from
creditors under Chapter 11 of the Federal Bankruptcy Code in July 1995.
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, 1996 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 shares issuable upon the
exercise of options which are exercisable on or prior to May 30, 1996.
<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%
5000 Sears Tower
233 South Wacker Dr.
Chicago, IL 60606
J.P. Morgan & Co. Incorporated.... 9,818,500(3) 14.2% -- -- 9.6%
60 Wall Street
New York, NY 10260
FMR Corp, Edward C. Johnson 3d and
Abigail P. Johnson.............. 7,314,260(4) 10.6% -- -- 7.1%
82 Devonshire Street
Boston, MA 02109
Stanford C. Bernstein & Co.,
Inc. ........................... 5,899,889(5) 8.5% -- -- 5.7%
One State Street Plaza
New York, NY 10004
Dodge & Cox....................... 3,932,150(6) 5.7% -- -- 3.8%
One Sansome Street
San Francisco, CA 94104
William Farley.................... 663,484(7) * 6,690,976(8) 100% 33.1%
5000 Sears Tower
233 South Wacker Drive
Chicago, IL 60606
Omar Z. Al Askari................. 20,000(9) * -- -- *
Dennis S. Bookshester............. 16,500(10) * -- -- *
John B. Holland................... 237,931(11) * -- -- *
Lee W. Jennings................... 13,500(12) * -- -- *
Henry A. Johnson.................. 18,500(12) * -- -- *
Richard C. Lappin................. 185,160(13) * -- -- *
A. Lorne Weil..................... 14,500(12) * -- -- *
Sir Brian G. Wolfson.............. 13,500(12) * -- -- *
Richard M. Cion................... 157,882(14) * -- --
Larry K. Switzer.................. 31,264(15) * -- -- *
All directors and executive
officers as a group (13
persons)........................ 1,480,985(16) 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 31, 1996, there
were 69,275,957 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 J.P. Morgan & Co. Incorporated on
February 15, 1996. According to such Schedule 13G, J.P. Morgan & Co.
Incorporated has sole voting power with respect to 5,915,180 of these
shares, shared voting power with respect to 81,870 of these shares, sole
dispositive power with respect to 9,657,030 of these shares and shared
dispositive power with respect to 149,470 of these shares.
(4) As reported on a Schedule 13G filed by FMR Corp., Edward C. Johnson 3d and
Abigail P. Johnson on March 8, 1996. According to such Schedule 13G, each
has sole dispositive power with respect to all 7,314,260 of these shares
and FMR Corp. has sole voting power with respect to 25,600 of these shares.
(5) As reported on a Schedule 13G filed by Sanford C. Bernstein & Co., Inc. on
February 7, 1996. According to such Schedule 13G, Sanford C. Bernstein &
Co., Inc. has sole voting power with respect to 3,593,295 of these shares,
shared voting power with respect to 383,850 of these shares and sole
dispositive power with respect to all 5,899,889 of these shares.
(6) As reported on a Schedule 13G filed by Dodge & Cox on February 8, 1996.
According to such Schedule 13G, Dodge & Cox has sole voting and dispositive
power with respect to all 3,932,150 of these shares.
(7) Excludes 6,690,976 shares of Class A Common Stock issuable upon conversion
of shares of Class B Common Stock. Includes 345,484 shares of Class A
Common Stock currently issuable upon exercise of options granted to Mr.
Farley under the Company's stock option plans. 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 managed 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 held in the master
trust.
(8) Includes 3,176,764 shares of Class B Common Stock owned by Farley Inc. Mr.
Farley owns 100% of the common stock of Farley Inc.
(9) Includes 10,000 shares of Class A Common Stock held by United Technical
Services, a company controlled by Mr. Al Askari, and 10,000 shares of Class
A Common Stock currently issuable upon exercise of options granted under
the Directors' Stock Option Plan.
(10) 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.
(11) Includes 228,131 shares of Class A Common Stock currently issuable upon
exercise of options granted under the Company's stock option plans.
(12) Includes 12,500 shares of Class A Common Stock currently issuable upon
exercise of options granted under the Directors' Stock Option Plan and, in
the case of Mr. Johnson, also includes 1,000 shares owned by Mr. Johnson's
spouse, the beneficial ownership of which is disclaimed by Mr. Johnson.
(13) 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 and 103,460 shares of
Class A Common Stock currently issuable upon exercise of options granted to
him under the Company's stock option plans.
(14) Mr. Cion owns 1,000 shares of Class A Common Stock jointly with his wife.
Includes 156,882 shares of Class A Common Stock currently issuable upon
exercise of options granted to him under the Company's stock option plans.
(15) Includes 31,264 shares of Class A Common Stock currently issuable upon
exercise of options granted to him under the Company's stock option plans.
(16) Includes 1,073,485 shares of Class A Common Stock currently issuable upon
the exercise of options granted under the Company's stock option plans and
1,000 shares of Class A Common Stock owned by the spouse of a director,
beneficial ownership of which is disclaimed by such director.
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 (the "SEC"). Based solely on a review of the forms it has received
and on representations from certain reporting persons that no such forms were
required for them, the Company believes that, except as set forth below, during
1995 all Section 16(a) filing requirements applicable to its officers, directors
and 10% beneficial owners were complied with by such persons. Henry A. Johnson,
a director of the Company, inadvertently failed to timely file a Form 4 to
report a transaction in the Company's equity securities. Mr. Johnson
subsequently reported such transaction on a year-end Form 5.
EXECUTIVE COMPENSATION
INTRODUCTION
Mr. Farley and, prior to his retirement in January 1996, Mr. Holland,
received their salaries, other compensation and benefits directly from the
Company. All of the Company's other executive officers were employed by FII
through December 1995 and received their salaries, other cash compensation and
benefits from FII. FII is wholly-owned and controlled by Mr. Farley. It provided
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.
As a part of the 1995 restructuring of its corporate operations, the
Company decided to integrate certain functions historically performed by FII
personnel into the Company's Bowling Green operations. In connection with this
effort, the Board of Directors determined that the general management functions
previously performed by FII should be assumed directly by the Company. To this
end, the Company acquired certain assets of FII used in the performance of
management services for the Company, including the FII employees who provide
such services. The Company severed its relationship with FII and directly
employed certain persons previously employed by FII. (See "--FII Management
Agreement".)
The Compensation Committee of the Board of Directors (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 previously employed by FII
whose compensation and benefits have been provided in part under Company plans
and/or are guaranteed under certain employment agreements entered into by the
Company and FII as of December 1994 (See "--Employment Agreements"). Prior to
November 1994, Mr. Farley, as Chairman of FII, established the cash compensation
levels for those executive officers who were 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.
As discussed further under "Compensation Committee Report on Repricing
Options," to enhance the incentive effect of the Company's stock option program,
on November 7, 1995, the Compensation Committee determined to replace previously
granted "underwater" options (options having an exercise price per share which
was above the then current market price per share) to
8
<PAGE> 11
purchase 3,397,200 shares of Class A Common Stock held by key employees of the
Company, including the Chief Executive Officer and other executive officers,
with options to purchase 2,509,138 shares at an exercise price equal to the
market price per share of the Class A Common Stock on such date. The replacement
option grants are reflected as new option grants in the executive compensation
tables appearing in this Proxy Statement.
The following table provides information concerning the annual and
long-term compensation amounts for the fiscal years ended December 31, 1995,
1994 and 1993 of those persons who were at December 31, 1995 (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 devoted portions of their time to entities other than the Company.
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1)
-----------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- --------
---------------------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL OPTIONS/ LTIP
NAME AND SALARY BONUS COMPENSATION SARS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) (# SHARES) ($) COMPENSATION
- --------------------------------- ---- -------- ---------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William Farley, 1995 $950,000 $ 0 $137,584(2) 995,230(3) $ -- $ 28,509(4)
Chairman of the Board and 1994 850,000 510,000 2,453 850,000(5) -- --
Chief Executive Officer 1993 850,000 1,150,000 -- -- -- --
John B. Holland, 1995 $550,000 $ 0 $ 23,084(6) 187,960(3) $ -- $ 42,260(7)
President and 1994 550,000 247,500 -- 185,000(5) -- 68,952
Chief Operating Officer (8) 1993 554,308 236,889 -- -- 465,610 78,231
Richard C. Lappin, 1995 $643,750 $ 0 $ 19,303(6) 220,813(3) $ -- $ 18,450(9)
Vice Chairman (10) 1994 600,000 100,000 5,837 110,000(5) -- 6,750
1993 600,000 912,000 -- 50,000 -- 6,745
Richard M. Cion, 1995 $480,000 $ 0 $ 3,594(6) 86,676(3) $ -- $ 8,944(9)
Senior Executive Vice 1994 472,438 100,000 -- 70,000(5) -- 6,750
President, Corporate 1993 457,313 250,000 -- 10,000 -- 6,745
Development
Larry K. Switzer 1995 $379,167 $ 0 $ 13,395(6) 135,267(3) -- $ 9,154(9)
Executive Vice President 1994 214,141 100,000 20,613 125,000(5) -- 1,313
and Chief Financial Officer
(11)
</TABLE>
- ---------------
(1) None of the Named Officers had any restricted stock holdings as of December
31, 1995.
(2) Includes tax reimbursements and $42,926 in legal fees paid by the Company.
(3) Includes replacement options granted on November 7, 1995 in addition to
options granted on May 16, 1995, which were subsequently replaced. (See TEN
YEAR OPTION/SAR REPRICINGS Table).
(4) Represents a $11,850 payment of term life insurance premiums for Mr. Farley
and a payout of $16,659 under the Fruit of the Loom, Inc. 1989 Stock Grant
Plan for 1995.
(5) These options were exchanged for replacement options on a reduced number of
shares on November 7, 1995 (see TEN YEAR OPTION/SAR REPRICINGS Table).
(6) Represents tax reimbursements to the Named Officer.
(7) Represents a $15,881 payment of term life insurance premiums for Mr.
Holland and a payout of $26,379 under the Fruit of the Loom, Inc. 1989
Stock Grant Plan for 1995.
(8) Mr. Holland retired as President and Chief Operating Officer in January
1996 and currently serves as a member of the Board of Directors.
(9) These amounts represent matching contributions of $6,750 pursuant to a
401(k) defined contribution profit-sharing plan for each of these Named
Officers and a payment of $11,700, $2,194 and $2,404 of term life insurance
premiums for Messrs. Lappin, Cion and Switzer, respectively.
(10) Mr. Lappin was appointed President and Chief Operating Officer in February
1996.
(11) Mr. Switzer, employed by the Company in May 1994, was appointed Senior
Executive Vice President in February 1996.
10
<PAGE> 13
OPTION/SAR GRANTS IN 1995
The following table sets forth certain information concerning stock options
granted during 1995 by the Company to the Named Officers. The hypothetical
present values on date of grant shown in the last column below for stock options
granted in 1995 are presented pursuant to the rules of the SEC and are
calculated under the Modified Black-Scholes Option Pricing Model for pricing
options. The Company is not aware of any model or formula which will determine
with reasonable accuracy a present value for stock options. The actual
before-tax amount, if any, realized upon the exercise of any stock option will
depend upon the excess, if any, of the market price of the Company's Class A
Common Stock over the exercise price per share of the stock option at the time
the stock option is exercised. There is no assurance that the hypothetical
present values of the stock options reflected in this table will be realized.
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO GRANT DATE
UNDERLYING EMPLOYEES EXERCISE OR PRESENT
OPTIONS/SARS IN FISCAL BASE PRICE VALUE(2)
NAME GRANTED(#) YEAR(1) ($/SHARE) EXPIRATION DATE ($)
- ----------------------- ------------ ------------ ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
William Farley......... 110,000(3) 3.5% $ 25.75 5/16/2005 $ 0(3)
175,000(4) 5.6% 17.75 1/30/2002(6) 1,555,099
74,600(4) 2.4% 17.75 5/17/2004(7) 724,588
546,750(4) 17.6% 17.75 12/18/2004(8) 5,483,395
88,880(4)(5) 2.9% 17.75 5/16/2005(9) 909,444
John B. Holland........ 52,500(4) 1.7% $ 17.75 1/30/2002(6) $ 466,530
26,110(4) 0.8% 17.75 5/17/2004(7) 253,606
109,350(4) 3.5% 17.75 12/18/2004(8) 1,096,649
Richard C. Lappin...... 41,000(3) 1.3% $ 25.75 5/16/2005 $ 0(3)
33,050(4) 1.1% 17.75 7/9/2002(6) 303,807
32,850(4) 1.1% 17.75 5/19/2003(10) 303,882
26,110(4) 0.8% 17.75 5/17/2004(7) 253,606
54,675(4) 1.8% 17.75 12/18/2004(8) 548,340
33,128(4)(5) 1.1% 17.75 5/16/2005(9) 338,974
Richard M. Cion........ 18,160(4) 0.6% $ 17.75 10/24/2001(6) $ 151,943
10,576(4) 0.3% 17.75 7/9/2002(6) 97,218
6,570(4) 0.2% 17.75 5/19/2003(10) 60,776
14,920(4) 0.5% 17.75 5/17/2004(7) 144,918
36,450(4) 1.2% 17.75 12/18/2004(8) 365,560
Larry K. Switzer....... 24,000(3) 0.8% $ 25.75 5/16/2005 $ 0(3)
18,975(4) 0.6% 17.75 5/24/2004(11) 184,498
72,900(4) 2.3% 17.75 12/18/2004(8) 731,119
19,392(4)(5) 0.6% 17.75 5/16/2005(9) 198,424
</TABLE>
- ---------------
(Footnotes on following page)
11
<PAGE> 14
(Footnotes from preceding page)
(1) Options were granted during 1995 to purchase a total of 3,105,538 shares
(including 2,509,138 replacement options granted on November 7, 1995).
(2) The hypothetical present values on grant date are calculated under the
Modified Black-Scholes Option Pricing 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.
Range of factors used to value 1995 replacement option grants include the
stock's expected volatility rate (38% to 41%), risk free rate of return
(5.8% to 6.0%), dividend yield (0%), projected time of exercise (6.0 to 9.8
years) and projected risk of forfeiture rate for vesting period (5% per
annum).
(3) These options initially granted on May 17, 1995 were exchanged on November
7, 1995 for replacement stock options to purchase a fewer number of shares
of Class A Common Stock, as indicated in footnote (5) below. These options
vest in three equal annual installments beginning on the first anniversary
of the date of grant. These options include certain tandem cashless
withholding rights and certain tandem rights exercisable for cash at or
following certain change in control events in the nature of a limited stock
appreciation right ("LSAR"). A portion of these options remain outstanding
in tandem with the replacement options until May 7, 1996, at which time
such portion expires unless there is a change in control prior to such
expiration. (See TEN-YEAR OPTION/SAR REPRICINGS Table.)
(4) These options were granted on November 7, 1995 to replace previously
granted options; such replacement options provide for the purchase of a
fewer number of shares of Class A Common Stock than the options which they
replaced. The per share exercise price of the replacement options is the
fair market value of a share of Class A Common Stock on the date of grant.
The original expiration and vesting dates were maintained. The replacement
options carry with them certain tandem cashless withholding rights and
tandem LSARs exercisable for cash in certain circumstances in the event of
a change in control. (See TEN-YEAR OPTION/SAR REPRICINGS Table.)
(5) These options were granted on November 7, 1995 to replace options to
purchase a greater number of shares that were initially granted on May 17,
1995. The original expiration and vesting dates were maintained. (See
footnote (3) above and TEN-YEAR OPTION/SAR REPRICINGS Table.)
(6) Fully vested.
(7) One-third vested, with an additional one-third vesting on each of May 17,
1996 and 1997.
(8) One-sixth vested, with an additional one-sixth vesting on each of December
18, 1996, 1997, 1998, 1999 and 2000.
(9) Vest in three equal annual installments beginning on May 16, 1996.
(10) Two-thirds vested, with the remaining one-third vesting on May 19, 1996.
(11) One-third vested, with an additional one-third vesting on each of May 24,
1996 and 1997.
12
<PAGE> 15
AGGREGATED OPTION/SAR EXERCISES IN 1995 AND 1995 FISCAL YEAR-END OPTION/SAR
VALUES
The following table sets forth certain information concerning the number
and value of stock options held by Named Officers at December 31, 1995. None of
the Named Officers exercised any options during 1995.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS/SARS VALUE OF UNEXERCISED
AT DECEMBER 31, 1995(#)(1) IN-THE-MONEY OPTIONS/SARS
AT DECEMBER 31, 1995($)(2)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William Farley........................ 290,987 1,094,243(3) $ 1,891,416 $ 3,862,580
John B. Holland....................... 219,427 258,533(3) 2,360,651 705,465
Richard C. Lappin..................... 122,765 107,048 1,172,973 695,812
Richard M. Cion....................... 149,718 42,513 1,659,273 276,335
Larry K. Switzer...................... 18,474 92,793 120,081 603,155
</TABLE>
- ---------------
(1) Excludes an aggregate of 1,450,946 shares of Class A Common Stock currently
issuable upon the exercise of certain options which remained outstanding in
tandem with the replacement stock options but all of which expire on May 7,
1996, unless a change in control occurs prior to such expiration.
(2) 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 29, 1995, which was $24.25.
(3) 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 30, 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. As a result of
Mr. Holland's retirement as President and Chief Operating Officer of the
Company in January 1996, the 150,000 options held by Mr. Holland included
above were forfeited.
LONG-TERM INCENTIVE PLAN--AWARDS IN 1995
The following table sets forth certain information concerning long-term
incentive awards granted to the Named Officers during 1995.
<TABLE>
<CAPTION>
NUMBER OF SHARES,
UNITS OR PERFORMANCE OR OTHER PERIOD
NAME OTHER RIGHTS(#)(1) UNTIL MATURATION OR PAYOUT
- ------------------------------------------------- ------------------- ---------------------------
<S> <C> <C>
William Farley................................... 19,100 2 years
John B. Holland.................................. 7,300 2 years
Richard C. Lappin................................ 7,300 2 years
Richard M. Cion.................................. 2,800 2 years
Larry K. Switzer................................. 4,200 2 years
</TABLE>
- ---------------
(1) Each unit awarded pursuant to the 1995 EICP is equivalent to one share of
Class A Common Stock. Units vest and are payable upon achievement of certain
performance goals established by the Compensation Committee for adjusted
corporate operating earnings and earnings per share.
13
<PAGE> 16
COMPENSATION COMMITTEE REPORT ON REPRICING OPTIONS
As discussed in the Compensation Committee Report on Executive Compensation
which follows, the Compensation Committee believes the replacement of
"underwater" options held by key employees on November 7, 1995 is in the best
interests of the Company and its stockholders. The overwhelming majority of the
Company's outstanding stock options had exercise prices that were substantially
above the then current market price of the Class A Common Stock. The
Compensation Committee concluded that these stock options, which are a key
element in the Company's incentive compensation program, no longer provided
sufficient incentives to the Company's employees nor adequately encouraged key
personnel to remain in the employ of the Company.
Accordingly, on November 7, 1995, the Compensation Committee determined to
offer to 191 key employees of the Company, including the Named Officers, the
opportunity to exchange previously granted options to purchase 3,397,200 shares
for replacement options to purchase 2,509,138 shares, with the original
expiration and vesting dates maintained. All optionees holding such previously
granted options, including the Named Officers, accepted the offer to exchange
their options with an average exercise price of approximately $28.00 per share
for replacement options with an exercise price equal to the closing price of the
Company's Class A Common Stock on the New York Stock Exchange on November 7,
1995. Each previously granted option was replaced with an option having an
equivalent value under the Modified Black-Scholes Option Pricing Model.
Consequently, the replacement options provide for the purchase of a fewer number
of shares of Class A Common Stock than the options which they replaced. A
portion of each of the repriced options remains outstanding in tandem with the
replacement options, but such portion expires on May 7, 1996, unless a change in
control occurs prior to such expiration.
In determining to make the option replacement offer to employees, the
Compensation Committee considered the fairness of such replacement in relation
to the Company's other stockholders. The Compensation Committee concluded that
replacement with a fewer number of shares based on the Modified Black-Scholes
Option Pricing Model (a reduction of 26%) would reduce stockholder dilution
while permitting the Company to more effectively retain and motivate its key
employees.
MEMBERS OF THE COMPENSATION COMMITTEE
Dennis S. Bookshester, Chairman
A. Lorne Weil
Sir Brian G. Wolfson
14
<PAGE> 17
TEN YEAR OPTION / SAR REPRICINGS
The following table sets forth certain information concerning the repricing
of stock options in 1995 granted to the Company's executive officers, which has
been the only repricing of options held by the Company's executive officers.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SECURITIES MARKET
SECURITIES UNDERLYING PRICE OF EXERCISE
UNDERLYING REPLACEMENT STOCK AT PRICE AT NEW LENGTH OF
OPTIONS OPTIONS TIME OF TIME OF EXERCISE ORIGINAL OPTION
REPRICED GRANTED REPRICING REPRICING PRICE TERM REMAINING AT
NAME DATE (#) (#) ($) ($) ($) DATE OF REPRICING
- ---- -------- ---------- ----------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
William Farley........ 11/7/95 250,000 175,000 $ 17.75 $28.88 $17.75 6 years 3 months
11/7/95 100,000 74,600 17.75 30.875 17.75 8 years 6 months
11/7/95 750,000 546,750 17.75 26.125 17.75 9 years 1 month
11/7/95 110,000 88,880 17.75 25.75 17.75 9 years 6 months
John B. Holland....... 11/7/95 75,000 52,500 $ 17.75 $28.88 $17.75 6 years 3 months
11/7/95 35,000 26,110 17.75 30.875 17.75 8 years 6 months
11/7/95 150,000 109,350 17.75 26.125 17.75 9 years 1 month
Richard C. Lappin..... 11/7/95 50,000 33,050 $ 17.75 $31.875 $17.75 6 years 8 months
11/7/95 50,000 32,850 17.75 36.625 17.75 7 years 6 months
11/7/95 35,000 26,110 17.75 30.875 17.75 8 years 6 months
11/7/95 75,000 54,675 17.75 26.125 17.75 9 years 1 month
11/7/95 41,000 33,128 17.75 25.75 17.75 9 years 6 months
Richard M. Cion....... 11/7/95 20,000 18,160 $ 17.75 $20.25 $17.75 6 years 0 months
11/7/95 16,000 10,576 17.75 31.875 17.75 6 years 8 months
11/7/95 10,000 6,570 17.75 36.625 17.75 7 years 6 months
11/7/95 20,000 14,920 17.75 30.875 17.75 8 years 6 months
11/7/95 50,000 36,450 17.75 26.125 17.75 9 years 1 month
Larry K. Switzer...... 11/7/95 25,000 18,975 $ 17.75 $30.125 $17.75 8 years 7 months
11/7/95 100,000 72,900 17.75 26.125 17.75 9 years 1 month
11/7/95 24,000 19,392 17.75 25.75 17.75 9 years 6 months
Michael F. Bogacki.... 11/7/95 17,000 15,436 $ 17.75 $20.25 $17.75 6 years 0 months
11/7/95 10,000 6,610 17.75 31.875 17.75 6 years 8 months
11/7/95 7,000 4,599 17.75 36.625 17.75 7 years 6 months
11/7/95 12,000 8,952 17.75 30.875 17.75 8 years 6 months
11/7/95 25,000 18,225 17.75 26.125 17.75 9 years 1 month
11/7/95 12,000 9,696 17.75 25.75 17.75 9 years 6 months
Burgess D. Ridge...... 11/7/95 17,000 15,436 $ 17.75 $20.25 $17.75 6 years 0 months
11/7/95 10,000 6,610 17.75 31.875 17.75 6 years 8 months
11/7/95 7,000 4,599 17.75 36.625 17.75 7 years 6 months
11/7/95 12,000 8,952 17.75 30.875 17.75 8 years 6 months
11/7/95 25,000 18,225 17.75 26.125 17.75 9 years 1 month
11/7/95 12,000 9,696 17.75 25.75 17.75 9 years 6 months
Earl C. Shanks........ 11/7/95 17,000 15,436 $ 17.75 $20.25 $17.75 6 years 0 months
11/7/95 10,000 6,610 17.75 31.875 17.75 6 years 8 months
11/7/95 7,000 4,599 17.75 36.625 17.75 7 years 6 months
11/7/95 12,000 8,952 17.75 30.875 17.75 8 years 6 months
11/7/95 30,000 21,870 17.75 26.125 17.75 9 years 1 month
11/7/95 12,000 9,696 17.75 25.75 17.75 9 years 6 months
</TABLE>
15
<PAGE> 18
PENSION PLANS
FRUIT OF THE LOOM, INC. OPERATING COMPANY PENSION PLAN -- Messrs. Farley
and Holland are covered by the pension plan for the Company's operating company
employees (the "Operating Company Pension Plan") and do not currently
participate in the FII Pension Plan (as hereinafter defined) described below.
Mr. Holland retired as President and Chief Operating Officer of the Company in
January 1996.
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
Excess Benefit Plan for the Company's operating company employees (the
"Supplemental Benefit Plan") to the Company's operating company employees 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 $ 82,001 $ 109,334 $ 136,668 $ 146,918 $ 157,168
400,000 110,501 147,334 184,168 197,981 211,793
500,000 139,001 185,334 231,668 249,043 266,418
600,000 167,501 223,334 279,168 300,106 321,043
700,000 196,001 261,334 326,668 351,168 375,668
800,000 224,501 299,334 374,168 402,231 430,293
900,000 253,001 337,334 421,668 453,293 484,918
1,000,000 281,501 375,334 469,168 504,356 539,543
1,100,000 310,001 413,334 516,668 555,418 594,168
1,200,000 338,501 451,334 564,168 606,481 648,793
</TABLE>
- ---------------
(1) Assumes individual retires at age 65 on December 31, 1995 with indicated
years of service but further assumes covered compensation as it was
determined in 1995, which was $25,920, as updated each year by the Internal
Revenue Service for annual covered compensation.
(2) Maximum pension limits for 1993, 1994 and 1995 under Section 415 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
were $115,641, $118,800 and $120,000, respectively. The maximum pension
limit for 1996 will remain at $120,000. 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 excludes bonuses,
deferred compensation and payments under certain benefit programs. Compensation
used to
16
<PAGE> 19
determine benefits for each of the Named Officers covered by the Operating
Company Pension Plan for 1995 equals the respective amounts shown in the Salary
column of the Summary Compensation Table. The 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 base compensation (the average of
the highest five consecutive full plan years of base 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
base compensation 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 then increased by 1.5% for each year of service over 25 years.
Under Section 401(a)(17) of the Internal Revenue Code, a participant's
compensation under a qualified retirement plan is limited to a maximum annual
amount of $235,840 for 1993 and $150,000 for 1994 and 1995. For 1996, 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
average social security wage base and the benefits provided with respect to
compensation above the average social security wage base. For the 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. 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 and Supplemental Benefit Plan
are 5 years and 34 years, respectively. Through December 1995, no other
executive officer of the Company participated in the Operating Company Pension
Plan or Supplemental Benefit Plan. Beginning in 1996, all of the Company's
executive officers will participate in the Operating Company Pension Plan and
the Supplemental Benefit Plan.
Mr. Holland received the actuarial equivalency of his life annuity as a
single lump sum benefit in the amount of $1,179,912 under the Operating Company
Pension Plan in February 1996. He received a similar benefit of $1,470,648 under
the Supplemental Benefit Plan in March 1996.
The Company established the Fruit of the Loom, Inc. Supplemental Retirement
Plan (the "SERP") as part of the 1995 EICP on January 1, 1995 for certain
officers, including Messrs. Farley and Holland. The SERP provides for retirement
benefits equal to the excess of (a) over (b), where (a) equals the product of
1.9% of the participant's final average SERP compensation (the average of the
highest five consecutive full plan years of base compensation plus short term
bonuses during the last ten plan years of service without applying the dollar
limitation of Section 401(a)(17) of the Internal Revenue Code) and the number
not in excess of 25 of his Benefit Accrual Years of Service (defined as the sum
of (1) the number of years of service after December 31, 1994 that would be
17
<PAGE> 20
credited to the participant under the Operating Company Pension Plan and (2) the
number of additional years of service credited to the participant by the
Compensation Committee), increased by 1.5% for each Benefit Accrual Year of
Service in excess of 25; and (b) equals the participant's primary social
security benefit. The SERP benefit is offset by a portion of the benefit paid
under the Operating Company Pension Plan and the Supplemental Benefit Plan.
The estimated annual benefit payable upon retirement at normal retirement
age assuming pay increases of 5% per year for Mr. Farley under the SERP is
$1,041,000. Mr. Holland received $869,169, representing his benefit under the
SERP, in March 1996.
Additional years of benefit accrual service were given to selected
participants in the SERP. The estimated number of Benefit Accrual Years of
Service credited for Messrs. Farley and Holland under the SERP are 14 years for
each. In 1995, no other executive officer of the Company participated in the
SERP, although certain executive officers participated in the Farley Industries,
Inc. Supplemental Retirement Plan (the "FII SERP"). Beginning in 1996, all of
the executive officers of the Company will participate in the SERP.
The benefits payable under the Operating Company Pension Plan and the
Supplemental Benefit Plan for those executive officers who will be transferred
from FII to the Company, as described below, will be the greater of (a) all
service benefit, offset by the employee's current accrued benefit under the FII
Pension Plan (as hereinafter defined); or (b) a future service only benefit,
without reduction for the employee's current accrued benefit under the FII
Pension Plan.
FII PENSION PLAN -- In 1995, all executive officers of the Company who were
FII employees were 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.
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 $ 21,667 $ 28,890 $ 36,112 $ 43,334 $50,557
125,000 27,667 36,890 46,112 55,334 64,557
150,000 33,667 44,890 56,112 67,334 78,557
</TABLE>
- ---------------
(1) Assumes individual retires at age 65 on December 31, 1995 with indicated
years of service but further assumes covered compensation as it was
determined in 1995, which was $25,920, as updated each year by the Internal
Revenue Service for annual covered compensation.
(2) Maximum pension limits for 1993, 1994 and 1995 under Internal Revenue Code
Section 415 were $115,641, $118,800 and $120,000, respectively. The maximum
pension limit for 1996 will remain at $120,000.
18
<PAGE> 21
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 up to a maximum of
$235,840 for 1993 and $150,000 for 1994 and 1995. For 1996, this amount will
remain at $150,000. Compensation used to determine benefits for each of the
Named Officers covered by the FII Pension Plan for 1995 equals the aggregate of
the respective amounts shown in the Salary and Bonus columns of the Summary
Compensation Table, up to the 1995 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 Internal Revenue Code Section 401(k)(l)) 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 Switzer are 6 years, 10 years and 1 year, respectively.
The Company established the FII SERP as part of the 1995 EICP on January 1,
1995 for certain officers including Messrs. Lappin, Cion and Switzer. The FII
SERP provides for retirement benefits equal to the excess of (a) over (b), where
(a) equals the product of 1.9% of the participant's final average SERP
compensation (the average of the highest five consecutive full plan years of
base compensation plus bonuses during the last ten plan years of service without
applying the dollar limitation of Section 401(a)(17) of the Internal Revenue
Code) and the number not in excess of 25 of his Benefit Accrual Years of Service
(the sum of (1) the number of years of service after December 31, 1994 that
would be credited to the participant under the FII Pension Plan and (2) the
number of additional years of service credited to the participant by the
Compensation Committee), increased by 1.5% for each Benefit Accrual Year of
Service in excess of 25; and (b) equals the participant's primary social
security benefit. The FII SERP benefit is offset by a portion of the benefit
paid under the FII Pension Plan.
The estimated annual benefits payable upon retirement at normal retirement
age under the FII SERP Plan assuming pay increases of 5% per year for Messrs.
Lappin, Cion and Switzer are $867,000, $302,000 and $312,000, respectively.
Additional years of benefit accrual service were given to selected
participants in the FII SERP. The estimated number of Benefit Accrual Years of
Service credited for Messrs. Lappin, Cion and Switzer under the FII SERP are 7
years, 1.5 years and 2 years, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Agreements"), with
certain executives, including the Named Officers, to secure the continued
employment of those executives employed directly by the Company, including Mr.
Farley and certain executives previously employed by FII. The following
summarizes certain terms of the Agreements, as amended in 1995, applicable to
the Named Officers.
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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 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 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; and (vii) with respect to pensions, benefits
based on salary and 100% of annual incentive compensation, and, in some cases,
crediting of five years of additional future service and 12 years of past
service credit in the case of Mr. Farley's and Mr. Holland's Agreements and five
years in the case of Mr. Lappin's Agreement for purposes of determining pension
benefits, and full funding of vested pension obligations through the use of
trusts or by the purchase of annuities. The Agreement with Mr. Farley permits
him to devote time to other business interests, although Mr. Farley is required
to devote substantial time to the Company's business, consistent with his
duties.
The Agreements provide for certain payments and benefits upon termination
of the executive's employment 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 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 units, 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 units, 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 is terminated by the Company or FII for cause prior to a
change in control or voluntarily by the executive, no payment will be made for
severance or for annual incentive compensation, performance shares or units
relating to the year or other uncompleted period in which the termination
occurs. If employment is terminated by the Company or FII other than 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 of the three
highest annual incentive compensation awards paid or
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<PAGE> 23
the current maximum opportunity, if greater ("total cash"), multiplied by a
number generally ranging from two to three (depending on the seniority of the
executive and the period remaining in the employment term under the Agreement)
and in lieu of annual incentive compensation for that year, an amount equal to
the average of the three highest annual incentive compensation awards paid or
the current maximum opportunity, if greater, without proration in the case of
Mr. Farley, and the maximum opportunity without proration in the case of other
executives plus, in lieu of settlement of outstanding performance shares or
units, cash equal to the amount payable upon achievement of maximum performance
and vesting for all performance shares and units; (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 units, 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; and 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; (iii) 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 (iv) 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 or maximum amount, whichever is applicable,
for each such year.
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.
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<PAGE> 24
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee is composed entirely of outside independent
directors, none of whom is currently or was formerly an executive officer or
employee of the Company or any of its subsidiaries or affiliates.
The Compensation Committee is responsible for establishing, implementing
and monitoring the Company's strategy, policies and plans for the compensation
of all executive officers of the Company including, since November 1994,
executive officers employed by FII. 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, and subject to the
oversight of, the Board of Directors, at the beginning of each year the
Compensation Committee reviews the Company's overall corporate strategy and
objectives which are subject to approval by the Board of Directors. 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 executive compensation consultants retained by the Compensation Committee 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, 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
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<PAGE> 25
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 are
regarded as the marketplace for critical management talent at the Company.
Total compensation for target performance under the Company's compensation
program for executive officers 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. The Compensation Committee
has balanced the program with a high proportion of compensation based on
variable performance incentives so that actual annual and long-term compensation
levels will vary from year to year below and above those of the comparator
groups directly with results achieved by the Company and the individual.
1995 COMPENSATION
The Company's 1995 compensation program at target performance for its
executive officers, including the Chief Executive Officer, was comprised of base
salary, annual cash incentives, stock options and performance units.
Approximately three-quarters of the total compensation of the Chief Executive
Officer for target performance was variable, based on annual business and
long-term stock performance, and over one-half of total compensation of the
executive officers as a group for target performance was variable based on the
same factors. Total compensation for 1995 for the executive officers as a group
was positioned at approximately the 50th to the 75th percentile of total
executive compensation paid by the comparator groups.
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. Executive officer salaries were
adjusted for 1995 in consideration of marketplace pay levels for similar
positions among the comparator groups. The 1995 salary of the Chief Executive
Officer was increased by 12% and the 1995 salaries of the other Named Officers
were increased by an average of 7.2% from 1994 levels. The remaining executive
officers did not receive any salary adjustments in 1995.
ANNUAL CASH INCENTIVES. Under the 1995 EICP, the Chief Executive Officer
and the other executive officers were granted the opportunity to receive cash
incentive awards based upon achievement of certain annual profit levels in 1995.
Upon achievement of targeted levels of performance, the Chief Executive Officer
was eligible to receive a cash award equal to 100% of his 1995 base salary and
other executive officers were eligible to receive cash awards equal to specified
percentages up to 60% of their base salaries. The minimum performance levels for
payouts under the 1995 EICP were not achieved in 1995, and no awards were made
under the 1995 EICP to the Chief Executive Officer and other Named Officers,
irrespective of their individual performance and contributions to the successful
strategic redirection of the Company.
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<PAGE> 26
While it is the policy of the Compensation Committee to provide
opportunities for annual incentive compensation for achievement of
preestablished performance goals based primarily on financial measures, the
Compensation Committee also retains discretion to pay bonuses reflecting its
subjective assessment of the valuable accomplishments of the Company's executive
officers and other key employees which, in the Compensation Committee's view,
cannot as a practical matter always be anticipated in advance or reflected in
such preestablished performance goals. Therefore, the Compensation Committee
determined, and the full Board of Directors agreed, to make discretionary
recognition awards to bonus-eligible employees for 1995, including certain
executive officers (other than the Chief Executive Officer and other Named
Officers) in recognition of the importance of their individual efforts in the
strategic and structural redirection of the Company, including downsizing and
reorganization of corporate and operating staffs, productivity improvements,
cost reduction, distribution and product line rationalization, development of
new marketing strategies and strengthening of international operations.
EQUITY INCENTIVES--PERFORMANCE UNITS AND STOCK OPTIONS. Executive officers,
including the Chief Executive Officer, and other senior managers were granted
performance units under the 1995 EICP at the beginning of 1995, with the period
over which performance is to be measured extending from January 1, 1995 through
December 31, 1996, the vesting and payment of which are based upon achievement
of adjusted operating earnings and earnings per share objectives as determined
by the Compensation Committee. Each earned performance unit entitles the
participant to receive one share of Class A Common Stock. In addition, key
employees including the Chief Executive Officer and other executive officers
received regularly scheduled annual stock option grants in May 1995 pursuant to
the 1995 EICP.
The Compensation Committee determined the size of performance unit and
stock option grants to the Company's executive officers and other recipients on
an individual, discretionary basis in consideration of the recipient's
performance and responsibilities without assigning specific weight to either
factor. In addition, the Compensation Committee considered long term incentive
and equity grant levels among the comparator groups.
The Compensation Committee does not predesignate a specific size for the
aggregate performance unit 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.
In 1995, the Company experienced a reversal in business conditions,
including weak domestic apparel demand, intensified competition, pricing
pressures and decreased margins. Management instituted a restructuring plan with
strategies to strengthen the Company's ongoing core business units. Significant
staff reductions, coupled with the need for concentrated effort to successfully
implement the restructuring plan, made enhancement of the retention and
motivational impact of the compensation program for key employees, including
executive officers, especially critical.
Therefore, the Compensation Committee, with approval of the full Board of
Directors, instituted a replacement program in November 1995 to exchange
outstanding "underwater" options which had been granted since October 1991
having exercise prices above the then current market prices for the Company's
Class A Common Stock, with replacement options having a per share exercise
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<PAGE> 27
price equal to the market price of a share of Class A Common Stock on the date
of grant. The replacement options maintain the original exercise periods and
vesting schedules. The Compensation Committee instituted the replacement program
to remove the negative morale impact of the "underwater" options, and because it
believes that meaningful equity interests in the Company are significant factors
in the organization's long term success by creating a strong incentive to
rebuild the value of the Company and thereby increase the market value of the
Company. The replacement formula, based on the Modified Black-Scholes Option
Pricing Model, reduced the number of options and potential stockholder dilution
by 26%, but re-established incentives at the then current market price for the
Company's Class A Common Stock in keeping with the Company's motivational and
retention needs during the critical downsizing and restructuring period. (See
"Compensation Committee Report on Repricing Options.")
In addition, for technical and incentive purposes, the Compensation
Committee amended the terms of outstanding performance share grants. Performance
shares were granted in 1994 for a two-year period from January 1, 1994 to
December 31, 1995 with performance measured by the percentage increase in the
market price of the Company's Class A Common Stock. The grants made at $24.125
per share require a stock price rise of 10% for the award of 50% of the grant,
20% for 100% of the grant and 30% for 200% of the grant. In September 1995, the
Compensation Committee extended the performance period by two years to December
31, 1997. If the shares are not earned in 1996 under the original performance
schedule, a new performance schedule will require a 20% increase in stock price
for the award of 50% of the grant, 30% for the award of 100% of the grant and
40% for the award of 200% of the grant.
For Section 16(b) purposes, the Compensation Committee also amended the
performance share grants to provide for automatic payment in either shares or
cash at the maximum level in the event of a change in control (as defined in the
1995 EICP). For the same reason, the Compensation Committee amended stock option
grants outstanding under the 1987 Stock Option Plan and the 1992 Executive Stock
Option Plan to provide in the event of a change in control for automatic
acceleration and cashout at the change in control price (as defined in the 1995
EICP).
TAX CONSIDERATIONS
As noted above, the Compensation Committee's executive compensation
strategy is designed to be cost and tax effective. Therefore, the Compensation
Committee's policy is to preserve corporate tax deductions, including the
deductibility of compensation paid to the Named Officers pursuant to Section
162(m) of the Internal Revenue Code, while maintaining the flexibility to
approve compensation arrangements which it deems to be in the best interests of
the Company and its stockholders, but which may not always qualify for full tax
deductibility.
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 the creation of value 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> 28
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, Dennis S. Bookshester, A. Lorne Weil and Sir Brian G. Wolfson
served on the Compensation Committee.
William Farley and Richard Lappin, both of whom are executive officers and
directors of the Company, are also executive officers and directors of Acme Boot
and establish compensation for executive officers of Acme Boot.
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PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Class A Common Stock for the last five years with the cumulative total
return of the Standard & Poor's 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, 1990 and the
reinvestment of all dividends, if any).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
FRUIT OF THE LOOM, INC., STANDARD & POOR'S 500 INDEX AND VALUE LINE APPAREL
INDUSTRY INDEX
(PERFORMANCE RESULTS THROUGH DECEMBER 31, 1995)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
The Company............................. 100.00 311.27 547.89 271.83 304.23 273.24
Standard & Poor's 500 Index............. 100.00 130.55 140.72 154.91 157.39 216.42
Industry Index.......................... 100.00 175.16 215.29 161.90 149.46 159.99
</TABLE>
FII MANAGEMENT AGREEMENT
Effective January 1995, the Company entered into a new management agreement
(the "1995 Management Agreement") with FII pursuant to which FII (which is
wholly-owned by Mr. Farley)
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<PAGE> 30
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
1995 Management Agreement, the Company paid approximately $8,100,000 to FII in
1995 based upon FII's cost of providing management services. Payments made by
the Company to FII under the 1995 Management Agreement were approved by the
Board of Directors.
As a part of the 1995 restructuring of its corporate operations, the
Company decided to integrate into the Company's Bowling Green operations certain
functions historically performed by FII personnel. In connection with this
effort, the Board of Directors determined that the management agreement with FII
should not be renewed for 1996 and that the general management functions
previously performed by FII should be assumed directly by the Company.
Accordingly, effective January 1996, the Company severed its relationship with
FII and by agreement with FII acquired substantially all of the assets
(exclusive of a cash balance at December 31, 1995 of approximately $1,500,000)
used in its performance of management services for the Company and directly
employed certain persons previously employed by FII who provide such services.
Pursuant to a determination by the non-management members of the Board of
Directors, the Company agreed to pay $3,500,000 to FII in consideration of the
purchase of such assets and personnel and the release of the Company from
further obligations to FII. The non-management members of the Board of Directors
determined that such fee was fair and reasonable to the Company, basing their
determination, in part, upon the anticipated cost savings to the Company in 1996
and beyond from the integration of FII functions into the Company, the
assistance of FII in effecting the transition of functions and personnel
(including certain executive officers) to the Company and the release of the
Company from further obligations under the 1995 Management Agreement.
The Company has agreed to pay up to approximately $4,000,000 to FII in
1996, all of which relates to the severance of certain FII employees who were
not re-employed by the Company, including severance payments under certain
employment agreements that were guaranteed by the Company. The Company also
agreed to reimburse FII for any direct ordinary and reasonable costs and
expenses associated with the transition of management functions from FII to the
Company in 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 receives 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. 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.
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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 (the "Acme Boot
Credit Facility"). The Acme Boot Credit Facility provides for up to $30,000,000
of loans and letters of credit and is secured by first liens on substantially
all of the assets of Acme Boot and its subsidiaries (which are approximately
$61,000,000 at December 31, 1995). Farley Inc. controls Acme Boot and Mr. Farley
owns 100% of the common stock of Farley Inc. At December 31, 1995, approximately
$21,000,000 in loans and letters of credit were outstanding under the Acme Boot
Credit Facility.
Also, in April 1995, Acme Boot entered into an additional secured credit
facility with its bank lender (the "New Acme Credit Agreement"). The New Acme
Credit Agreement provides for up to $37,000,000 in borrowings and expires in
January 1997. In April 1995, Acme Boot used approximately $25,400,000 under this
facility to repurchase certain of its debt, preferred stock and common stock. In
November 1995, Acme Boot used approximately $11,300,000 under this facility to
repurchase substantially all of the remaining portions of its publicly held
debt, preferred stock and common stock issues. The New Acme Credit Agreement is
secured by a second lien on substantially all of the assets of Acme Boot and its
subsidiaries. In addition, the Company has guaranteed, on an unsecured basis,
repayment of debt incurred or created under the New Acme Credit Agreement. In
exchange for the additional guarantee, the Company received $6,000,000 of
initial liquidation preference of Acme Boot's Series C 10% Redeemable Junior
Preferred Stock. The Company has fully reserved for the amount of such Junior
Preferred Stock.
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.
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,
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<PAGE> 32
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.
VOTE REQUIRED; QUORUM
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.
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 holders of one-third of the shares entitled to vote
at the Annual Meeting, present in person or represented by proxy, shall
constitute a quorum. Abstentions and broker non-votes will be included in
determining the presence of a quorum. Abstentions will be considered present and
entitled to vote with respect to any proposal presented at the Annual Meeting or
any adjournment thereof and will have the same effect as votes against a
proposal. Broker non-votes with respect to any proposal will not be considered
present and entitled to vote with respect to such proposal and will have no
effect on the voting on such proposal.
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 9,
1996.
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
30
<PAGE> 33
December 31, 1996. 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.
PROPOSALS OF SECURITY HOLDERS
Proposals of stockholders intended to be included in proxy materials for
presentation at the 1997 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 10, 1996.
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.
31
<PAGE> 34
["RECYCLED" LOGO]
Printed on Recycled Paper
<PAGE> 35
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 14, 1996
O
X The undersigned hereby appoints William Farley and Richard C. Lappin as
proxies, each with power of substitution, and hereby authorizes them to
Y represent the undersigned and to vote, as designated below, all the shares
of CLASS A COMMON STOCK held of record by the undersigned on March 19, 1996
at the Annual Meeting of Stockholders of Fruit of the Loom, Inc. to be held
on May 14, 1996, 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.)
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FOLD AND DETACH HERE
Please mark your [X]
votes as indicated
in this example
1. ELECTION OF DIRECTORS--NOTE: Holders of Class A Common Stock vote in
Sections A and B below.
A. Directors elected by holders of Class A FOR WITHHELD FOR ALL
Common Stock voting as a separate class:
Omar Z. Al Askari, 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) ___________________________
B. Directors elected by holders of Class A FOR WITHHELD FOR ALL
Common Stock and holders of Class B Common
Stock voting together as a single class: [ ] [ ]
William Farley, John B. Holland, Richard
C. Lappin, A. Lorne Weil, Sir Brian G.
Wolfson
(To withhold authority to vote for an
individual nominee, write that nominee's
name on the space provided to the right) ___________________________
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournments
thereof.
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.
Signature-----------------------Signature---------------------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.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
