<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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 13, 1997
------------------------
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 13, 1997 at The Standard Club, 320
South Plymouth Court, Chicago, Illinois, for the following purposes:
(1) To elect nine directors, three directors to be elected by the
holders of Class A Common Stock and six directors to be elected by the
holders of Class A Common Stock and the holders of Class B Common Stock,
voting together as a single class;
(2) To approve the Fruit of the Loom, Inc. 1995 Executive Incentive
Compensation Plan, as Amended and Restated;
(3) To consider and vote upon a stockholder proposal to redeem the
stockholder rights previously issued by the Company; and
(4) To transact such other business as may properly be brought before
the meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on March 18, 1997 as
the record date for determining stockholders entitled to notice of, and to vote
at, the Annual Meeting.
By order of the Board of Directors,
BURGESS D. RIDGE
Senior Vice President--Administration
and Secretary
April 7, 1997
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 Company's Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10:00 a.m., Chicago time, on
Tuesday, May 13, 1997 at The Standard Club, 320 South Plymouth Court, Chicago,
Illinois, and at any adjournment thereof. This Proxy Statement and the
accompanying proxy card are being sent to stockholders on or about April 7,
1997.
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 Annual
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 18, 1997, the record
date for the Annual Meeting, there were 69,529,774 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, voting as a
separate class, 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
<PAGE> 4
hold office until the next annual meeting of stockholders or until their
successors have been duly elected and qualified.
If no direction to the contrary is given, all proxies received by the Board
of Directors of the Company (the "Board of Directors" or "Board") 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 Class B
Common Stock, voting together as a single class. It is expected that all of 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.
2
<PAGE> 5
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>
NAME OF NOMINEE AGE POSITION(S) WITH THE COMPANY AND PRINCIPAL OCCUPATION
--------------- --- -----------------------------------------------------
<S> <C> <C>
Omar Z. Al Askari(1)...................... 46 Director; Chief Executive Officer of United Technical
Services and United Eastern Investment Corp.
Dennis S. Bookshester(1)(2)(3)............ 58 Director; President and Chief Executive Officer of
H(2)O Plus, Inc.; former Chief Executive Officer of
Zale Corp.
Lee W. Jennings(1)........................ 68 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>
NAME OF NOMINEE AGE POSITION(S) WITH THE COMPANY AND PRINCIPAL OCCUPATION
--------------- --- -----------------------------------------------------
<S> <C> <C>
William Farley(3)......................... 54 Director; Chairman of the Board and Chief Executive
Officer of the Company
Henry A. Johnson.......................... 78 Director; President of Henry A. Johnson & Associates;
former President and Chief Executive Officer of
Spiegel, Inc.
Richard C. Lappin(3)...................... 52 Director; President and Chief Operating Officer of
the Company
Larry K. Switzer.......................... 53 Senior Executive Vice President and Chief Financial
Officer of the Company
A. Lorne Weil(2).......................... 51 Director; Chairman of the Board and Chief Executive
Officer of Autotote Corporation
Sir Brian Wolfson(2)...................... 61 Director; Chairman of the Board and Chief Executive
Officer of Global Health Alternatives, Inc.
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Executive Committee
------------------------
William Farley. Mr. Farley has been Chairman of the Board and Chief
Executive Officer of the Company since May 1985. For more than five years, Mr.
Farley has also been Chairman and Chief Executive Officer of Farley Industries,
Inc. ("FII"), a company which provides management services to certain 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
3
<PAGE> 6
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 five years.
Omar Z. Al Askari. Mr. Al Askari has been a director of the Company since
October 1993. Since 1980, Mr. Al Askari has 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. Mr. Al Askari was Chairman of the Board of
Plaid Clothing Group Inc., a men's tailored clothing business, from October 1991
until December 1996.
Dennis S. Bookshester. Mr. Bookshester has been a director of the Company
since May 1992 and has served as a director of Farley Inc. since February 1997.
Mr. Bookshester served as the Chief Executive Officer of Zale Corp. during 1990
and 1991. Mr. Bookshester performed independent consulting services until
January, 1997, at which time he became President and Chief Executive Officer of
H(2)O Plus, Inc., a manufacturer and retailer of bath, body and skin care
products. He is also a director of American Gem Corp., AMRE Inc., Evans Inc.,
Playboy Enterprises, Inc. and Sundance Homes, 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 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 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 from October 1991 until his
appointment as President and Chief Operating Officer in February 1996. Mr.
Lappin served as President and Chief Operating Officer of FII from February 1991
until December 1995. 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 also served as an officer and director of Acme Boot until May
1996.
Larry K. Switzer. Mr. Switzer served as Executive Vice President of the
Company from May 1994 until February 1996 when he was appointed Senior Executive
Vice President. Mr. Switzer has also served as Chief Financial Officer of the
Company since May 1994. Mr. Switzer served as Executive Vice President and Chief
Financial Officer of FII from May 1994 until December 1995 and of Farley Inc.
from May 1994 until February 1996. Mr. Switzer also serves as an officer and
director of Acme Boot. From September 1992 to March 1993, Mr. Switzer was
Executive Vice President and Chief Financial Officer of Alco Standard
Corporation, and served as Senior Vice President and Chief Financial Officer of
S. C. Johnson & Son, Inc. until August 1992.
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
4
<PAGE> 7
manufacturer of products for the gaming industry. He is also a director of
General Growth Properties, Inc.
Sir Brian Wolfson. Sir Brian Wolfson has been a director of the Company
since May 1992. Sir Brian currently serves as Chairman of the Board and Chief
Executive Officer of Global Health Alternatives, Inc., an importer and
distributor of natural health products. 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 Board of Directors has established an Audit Committee, a Compensation
Committee and an Executive Committee. The Board 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. The Compensation Committee 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"), the Fruit of the Loom, Inc. 1995 Executive
Incentive Compensation Plan (the "1995 EICP") and the Fruit of the Loom, Inc.
1996 Incentive Compensation Plan. The Compensation Committee, among other
things, determines 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 1996, the Board of Directors held four meetings, the Audit Committee
met five times and the Compensation Committee met five times. There were no
meetings of the Executive Committee during 1996. During 1996, each of the
incumbent directors attended all meetings of the Board of Directors and all
meetings of any Board committees on which he served.
COMPENSATION OF DIRECTORS
Each director who is not also an employee of the Company receives an annual
cash retainer of $41,000 and $1,000 for each meeting of the Board of Directors
and each committee meeting which he attends. Non-employee directors may elect to
forego all or a portion of their annual cash retainers for a specified period in
exchange for option grants. Effective February 13, 1997, certain non-employee
directors elected to forego one-half of their annual cash retainers for a
four-year period and, in exchange, each received a ten-year non-qualified option
grant to purchase 10,000
5
<PAGE> 8
shares of the Company's Class A Common Stock at $41.00 per share. Such options
vest monthly at the rate of 2.083% per month commencing April 1, 1998.
Under the Fruit of the Loom, Inc. 1995 Non-Employee Directors Stock Plan
(the "1995 Directors Plan"), each new non-employee director receives an initial
grant of 2,500 restricted stock units ("Restricted Stock Units") to be settled
by delivery of shares of the Company's Class A Common Stock, and each continuing
director receives an annual grant of 1,850 Restricted Stock Units. Restricted
Stock Units vest after a two-year service period.
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 served as Chairman of the Board, voluntarily filed for
protection from creditors under Chapter 11 of the Federal Bankruptcy Code in
July 1995.
6
<PAGE> 9
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 26, 1997
(except as otherwise indicated) 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 and Restricted Stock
Units which vest on or prior to May 30, 1997.
<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% 15.4%
5000 Sears Tower
233 South Wacker Dr.
Chicago, IL 60606
FMR Corp, Edward C. Johnson 3d
and Abigail P. Johnson........... 10,374,360(3) 14.9% -- -- 10.1%
82 Devonshire Street
Boston, MA 02109
Sanford C. Bernstein & Co.,
Inc. ............................ 5,036,649(4) 7.2% -- -- 4.9%
One State Street Plaza
New York, NY 10004
William Farley..................... 939,840(5) 1.4% 6,690,976(6) 100% 33.4%
5000 Sears Tower
233 South Wacker Drive
Chicago, IL 60606
Omar Z. Al Askari.................. 22,500(7) * -- -- *
Dennis S. Bookshester.............. 16,000(8) * -- -- *
Bernhard Hansen.................... 0 * -- -- *
John B. Holland.................... 212,760(9) * -- -- *
Lee W. Jennings.................... 16,000(10) * -- -- *
Henry A. Johnson................... 21,000(10) * -- -- *
Richard C. Lappin.................. 241,219(11) * -- -- *
Larry K. Switzer................... 80,868(12) * -- -- *
A. Lorne Weil...................... 17,000(10) * -- -- *
John Wigodsky...................... 90,844(13) * -- -- *
Sir Brian G. Wolfson............... 16,000(10) * -- -- *
All directors and executive
officers as a group (15
persons)......................... 1,723,722(14) 2.5% 6,690,976 100% 34.2%
</TABLE>
- ---------------
* Less than 1%
(Footnotes on following page)
7
<PAGE> 10
(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 26, 1996, there
were 69,520,598 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 FMR Corp., Edward C. Johnson 3d and
Abigail P. Johnson on February 13, 1997. According to such Schedule 13G,
each has sole dispositive power with respect to all 10,374,360 of these
shares and FMR Corp. has sole voting power with respect to 45,100 of these
shares.
(4) As reported on a Schedule 13G filed by Sanford C. Bernstein & Co., Inc. on
January 30, 1997. According to such Schedule 13G, Sanford C. Bernstein &
Co., Inc. has sole voting power with respect to 2,733,122 of these shares,
shared voting power with respect to 484,645 of these shares and sole
dispositive power with respect to all 5,036,649 of these shares.
(5) 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 the shares held in the master
trust.
(6) 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.
(7) Includes 10,000 shares of Class A Common Stock held by United Technical
Services, a company controlled by Mr. Al Askari, 10,000 shares of Class A
Common Stock currently issuable upon exercise of options granted by the
Company and 2,500 vested Restricted Stock Units.
(8) Includes 12,500 shares of Class A Common Stock currently issuable upon
exercise of options granted by the Company and 2,500 vested Restricted
Stock Units.
(9) Includes 187,960 shares of Class A Common Stock currently issuable upon
exercise of options granted by the Company.
(10) Includes 12,500 shares of Class A Common Stock currently issuable upon
exercise of options granted by the Company, 2,500 vested Restricted Stock
Units 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.
(11) Includes 31,700 shares of Class A Common Stock held jointly with his wife.
Includes 209,519 shares of Class A Common Stock currently issuable upon the
exercise of options granted by the Company.
(12) Represents shares of Class A Common Stock currently issuable upon exercise
of options granted by the Company.
(13) Includes 89,215 shares of Class A Common Stock currently issuable upon
exercise of options granted by the Company.
(14) Includes 1,407,956 shares of Class A Common Stock currently issuable upon
the exercise of options granted by the Company 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Act"), requires the Company's officers, directors and persons who beneficially
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 1996 all Section 16(a) filing requirements applicable to its
officers, directors and 10% beneficial owners were complied with by such
persons. William Farley inadvertently failed to timely file a Form 4 to report
an exempt transaction and subsequently reported such exempt transaction.
Bernhard Hansen, President,
8
<PAGE> 11
Europe, failed to timely file a Form 3 upon his becoming an executive officer of
the Company and subsequently filed such Form 3.
EXECUTIVE COMPENSATION
INTRODUCTION
Certain of the Company's executive officers, other than Messrs. Farley,
Hansen and Wigodsky, were employed by FII through March 31, 1996 and received
their salaries, other cash compensation and benefits from FII. FII is
wholly-owned and controlled by Mr. Farley. Until December 31, 1995, FII 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 and 1996 restructuring of its corporate operations,
the Company decided to integrate certain functions historically performed by FII
personnel into its Bowling Green operations. In connection with this effort, the
Board of Directors determined that the functions previously performed by FII
should be assumed directly by the Company. Effective January 1, 1996, the
Company severed its relationship with FII and directly employed certain persons
previously employed by FII. (See "--FII Management Agreement".) Since April 1,
1996, all of the Company's executive officers have received their salaries,
other compensation and benefits directly from the Company. However, certain
officers of the Company, including certain of the Named Officers, continue to
perform services for other companies owned and controlled by Mr. Farley.
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 and benefits of all executive officers
of the Company. 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.
The following table provides information concerning the annual and
long-term compensation amounts for the fiscal years ended December 31, 1996,
1995 and 1994 of those persons who were at December 31, 1996 (i) the Chief
Executive Officer and (ii) the four other most highly compensated (based upon
salary and bonus) executive officers of the Company (collectively, with the
Chief Executive Officer, the "Named Officers"). No other individuals are
required to be included in the table.
For each of Messrs. Lappin and Switzer, the cash compensation figures in
the table for 1995 and 1994 represent the total cash compensation paid by FII to
such person in 1995 and 1994.
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------- RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP
NAME AND SALARY COMPENSATION AWARDS SARS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR ($) BONUS($) ($) ($)(1) (# SHARES) ($)(2) COMPENSATION
------------------ ---- ------ -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William Farley, 1996 $950,000 $1,900,000 $152,786(3) $5,757,000 605,800 $2,317,163 $30,057(4)
Chairman of the Board and 1995 950,000 0 137,584 0 995,230(5) 0 28,509
Chief Executive Officer 1994 850,000 510,000 2,453 0 850,000(6) 0 0
Richard C. Lappin, 1996 $775,000 $ 976,500 $230,926(7) $3,287,550 231,600 $ 834,300 $41,000(8)
President and Chief 1995 643,750 0 19,303 0 220,813(5) 0 18,450
Operating Officer (9) 1994 600,000 100,000 5,837 0 110,000(6) 0 6,750
Larry K. Switzer, 1996 $500,000 $ 585,000 $ 35,513(10) $1,969,500 134,000 $ 605,325 $14,743(8)
Senior Executive Vice 1995 379,167 0 13,395 0 135,267(5) 0 9,154
President and Chief 1994 214,141 100,000 20,613 0 125,000(6) 0 1,313
Financial Officer
Bernhard Hansen, 1996 $400,000 $ 324,000 $ 99,218(11) $ 181,800 39,100 0 $98,036(12)
President, Europe
John Wigodsky, 1996 $290,000 $ 217,500 $ 6,481(10) $ 984,750 56,000 $ 79,538 $ 1,041(8)
Executive Vice President,
Sales and Marketing (13)
</TABLE>
- ---------------
(1) Represents two separate grants in 1996, pursuant to the 1995 EICP, of
performance units having a one-year performance period and two- and
three-year vesting periods, respectively. Both unit grants were earned at
the end of 1996 based upon achievement of earnings goals and were awarded
in the form of restricted stock units equivalent to shares of Class A
Common Stock on December 31, 1996. Such restricted stock units vested on an
accelerated basis on January 22, 1997 based on achievement of stock price
appreciation goals for the Company's Class A Common Stock, and the Company
subsequently paid the cash equivalent for such restricted stock units to
the Named Officers in February 1997 at the then current market value of the
Company's Class A Common Stock. The number and value of restricted stock
units held by the Named Officers on December 31, 1996 based on the closing
price of the Company's Class A Common Stock on such date ($37.875) were as
follows: Mr. Farley (152,000 shares; $5,757,000), Mr. Lappin (86,800
shares; $3,287,550), Mr. Switzer (52,000 shares; $1,969,500), Mr. Hansen
(4,800 shares; $181,800) and Mr. Wigodsky (26,000 shares; $984,750).
(2) Includes payouts with respect to performance shares granted under the
Company's 1994 Executive Incentive Compensation Plan for the four-year
performance period ending December 31, 1997. These performance shares were
earned on an accelerated basis in full in 1996 and each performance share
was valued at the market price of the Company's Class A Common Stock on the
date the performance shares were earned. Also includes payouts with respect
to the 1995 grant of performance units pursuant to the 1995 EICP. Such
units were earned at the end of 1995 based upon achievement of earnings per
share goals and were awarded in the form of restricted stock units
equivalent to shares of Class A Common Stock which vested in December 1996
based on achievement of stock price appreciation goals and the shares are
valued on the basis of the closing price of the Company's Class A Common
Stock on December 31, 1996, the date of vesting ($37.875).
(3) Includes tax reimbursements and $51,808 of club expenses paid by the
Company.
(4) Represents the full dollar value of insurance premiums paid by the Company
with respect to a split dollar life insurance plan for the benefit of Mr.
Farley.
(5) Includes replacement options granted on November 7, 1995, in addition to
options granted on May 16, 1995 that were subsequently replaced with a
reduced number of shares on November 7, 1995.
(6) These options were exchanged for replacement options with respect to a
reduced number of shares on November 7, 1995.
10
<PAGE> 13
(7) Represents tax reimbursements, including $199,763 of tax reimbursement
relating to obligations under Mr. Lappin's prior employment agreement with
FII for the purchase of tax-equalized annuities to fund supplemental
pension benefits.
(8) These amounts represent matching contributions pursuant to a 401(k) defined
contribution profit-sharing plan of $6,750 for Mr. Lappin and $5,625 for
Mr. Switzer, and the full dollar value of insurance premiums paid by the
Company for life insurance premiums of $34,250, $9,118 and $1,041 for the
benefit of Messrs. Lappin, Switzer and Wigodsky, respectively.
(9) Mr. Lappin, Vice Chairman of the Company from October 1991 to February
1996, was appointed President and Chief Operating Officer in February 1996.
(10) Represents tax reimbursements to the Named Officer.
(11) Includes $74,568 of housing expenses paid by the Company.
(12) Represents reimbursement of relocation expenses.
(13) Mr. Wigodsky's employment with the Company terminated in March 1997.
11
<PAGE> 14
OPTION GRANTS IN 1996
The following table sets forth certain information concerning stock options
granted during 1996 by the Company to the Named Officers. The hypothetical grant
date present values shown in the last column below for stock options granted in
1996 are presented pursuant to the rules of the SEC and are calculated under the
Modified Black-Scholes Option Pricing Model for pricing options. The Company is
not aware of any model or formula that will determine with reasonable accuracy
present values for stock options. The actual before-tax amount, if any, realized
upon the exercise of any stock option will depend upon the excess, if any, of
the market price of the Company's Class A Common Stock over the exercise price
per share of the stock option at the time the stock option is exercised. There
is no assurance that the hypothetical present values of the stock options
reflected in this table will be realized.
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO GRANT DATE
UNDERLYING EMPLOYEES EXERCISE OR PRESENT
OPTIONS IN FISCAL BASE PRICE VALUE(3)
NAME GRANTED(#)(1) YEAR(2) ($/SHARE) EXPIRATION DATE ($)
---- ------------- ---------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
William Farley........... 605,800 27.3% $25.875 2/21/2006 $7,571,061
Richard C. Lappin........ 231,600 10.5% $25.875 2/21/2006 $2,894,450
Larry K. Switzer......... 134,000 6.0% $25.875 2/21/2006 $1,674,682
Bernhard Hansen.......... 39,100 1.8% $25.875 2/21/2006 $ 488,657
John Wigodsky............ 56,000 2.5% $25.875 2/21/2006 $ 699,867
</TABLE>
- ---------------
(1) The options were granted under the 1995 EICP and become exercisable in three
equal annual installments beginning on February 21, 1997.
(2) Options were granted during 1996 to purchase a total of 2,215,400 shares.
(3) The hypothetical grant date present values 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 1996 option grants include the stock's expected volatility rate (41%),
risk free rate of return (6.0%), projected dividend yield (0%), projected
time of exercise (7 years) and projected risk of forfeiture rate for vesting
period (5% per annum).
12
<PAGE> 15
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND 1996 FISCAL YEAR-END OPTION/SAR
VALUES
The following table sets forth certain information concerning the number
and value of stock options held by the Named Officers at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTION/SARS VALUE OF UNEXERCISED
AT DECEMBER 31, IN-THE-MONEY OPTIONS/SARS
SHARES VALUE 1996(#) AT DECEMBER 31, 1996($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William Farley........ -- -- 436,608 1,554,422(2) $8,786,736 $20,795,618
Richard C. Lappin..... 50,000 $1,284,375 112,573 298,840 2,265,532 4,132,405
Larry K. Switzer...... 20,000 382,500 23,413 201,854 471,187 2,973,562
Bernhard Hansen....... -- -- 7,116 53,334 143,210 755,569
John Wigodsky......... -- -- 40,505 70,710 1,045,976 968,039
</TABLE>
- -------------------------
(1) Values are calculated by subtracting the exercise price from the closing
price of the Company's Class A Common Stock on the New York Stock Exchange
on December 31, 1996, which was $37.875.
(2) Options with respect to 250,000 of these shares do not become exercisable
unless the closing price of the Company's Class A Common Stock reaches or
exceeds $45 per share for a specified period within six years after January
30, 1992, the date of grant, and options with respect to an additional
250,000 of these shares do not become exercisable unless the closing price
of the Company's Class A Common Stock reaches or exceeds $60 per share for a
specified period within six years after January 30, 1992, the date of grant.
PENSION PLANS
Since April 1, 1996, all of the Company's executive officers, except
Bernhard Hansen, have been covered by the qualified pension plan for the
Company's employees (the "Pension Plan") and the nonqualified excess benefit
plan which covers certain employees of the Company (the "Supplemental Benefit
Plan"), collectively referred to as the "FOL Plan". Prior to April 1, 1996, all
executive officers of the Company who were employees of FII, including Messrs.
Lappin and Switzer, were covered by the salaried portion of the Retirement
Program of Farley Inc. (the "RPFI"). All benefits under the RPFI were frozen as
of March 31, 1996. The frozen annual benefits for Messrs. Lappin and Switzer are
$14,000 and $4,000, respectively. The pension benefit payable to Messrs. Lappin
and Switzer will equal the greater of the following benefits: 1) the FOL Plan
formula based on service from the date of hire at FII less the frozen benefit
under the RPFI; or 2) the FOL Plan formula based on service after March 31,
1996.
The 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 FOL Plan to the Company's 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.
These amounts do not assume any offsets under the RPFI. There is no social
security or other offset deducted from the amounts shown.
13
<PAGE> 16
PENSION PLAN TABLE (1)(2)
<TABLE>
<CAPTION>
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ------------ ---------- ---------- ---------- ---------- ----------
<C> <C> <C> <C> <C> <C>
$ 300,000 $ 81,777 $109,036 $136,295 $146,518 $156,740
400,000 110,277 147,036 183,795 197,580 211,365
500,000 138,777 185,036 231,295 248,643 265,990
600,000 167,277 223,036 278,795 299,705 320,615
700,000 195,777 261,036 326,295 350,768 375,240
800,000 224,277 299,036 373,795 401,830 429,865
900,000 252,777 337,036 421,295 452,893 484,490
1,000,000 281,277 375,036 468,795 503,955 539,115
1,100,000 309,777 413,036 516,295 555,018 593,740
1,200,000 338,277 451,036 563,795 606,080 648,365
</TABLE>
- ---------------
(1) Assumes individual retires at age 65 on December 31, 1996 with indicated
years of service and further assumes covered compensation as it was
determined in 1996, which was $27,576, as updated each year by the Internal
Revenue Service for annual covered compensation. The annual covered
compensation for 1997 will increase to $29,304.
(2) Maximum pension limits for 1994, 1995 and 1996 under Section 415 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
were $118,800, $120,000 and $120,000, respectively. The maximum pension
limit for 1997 will increase to $125,000. Amounts in excess of these limits
are paid under the Supplemental Benefit Plan.
Contributions to the 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 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 determine benefits
for each of the Named Officers for 1996 equals the respective amounts shown in
the Salary column of the Summary Compensation Table. The Pension Plan provides
that participants' benefits fully vest after five years of service or the
attainment of age 65.
The 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 was limited to a maximum annual
amount of $150,000 for each of 1994, 1995 and 1996. For 1997, this amount
increases to $160,000. 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
14
<PAGE> 17
wage base. For officers of the Company, any reduction in benefits under the
Pension Plan caused by these limitations will be made up dollar-for-dollar by
benefits under the Supplemental Benefit Plan. Non-officer participants in the
Pension Plan will receive benefits under the Supplemental Benefit Plan in an
amount equal to the reduction in benefits under the 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,
Lappin, Switzer and Wigodsky under the FOL Plan is 6, 7, 3, and 10 years,
respectively. Years of service for Messrs. Lappin and Switzer include their
years of service with FII.
The Company established the Fruit of the Loom, Inc. Supplemental Executive
Retirement Plan (the "FOL SERP") on January 1, 1995 for certain officers,
including Messrs. Farley, Lappin, Switzer and Wigodsky. Prior to April 1, 1996,
Messrs. Lappin and Switzer participated in the Farley Industries, Inc.
Supplemental Executive Retirement Plan (the "FII SERP"). All benefits under the
FII SERP were frozen as of March 31, 1996.
The FOL SERP and the FII SERP provide 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 the participant's Benefit Accrual Years of Service (defined as the sum
of (1) the number of years of service after December 31, 1994 that would be
credited to the participant under the 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 FOL
SERP benefit is offset by a portion of the benefit paid under the FOL Plan and,
in the case of Messrs. Lappin and Switzer, the FOL SERP is offset by the amount
of their frozen FII SERP benefits. The frozen FII SERP benefit for Messrs.
Lappin and Switzer is $105,333 and $13,250, respectively.
The estimated annual benefits payable under the FOL SERP upon retirement at
normal retirement age, assuming pay increases of 5% per year, for Messrs.
Farley, Lappin, Switzer and Wigodsky are $885,441, $531,088, $240,966 and
$114,740, respectively.
Additional years of benefit accrual service were given to selected
participants in the FOL SERP and the FII SERP. The estimated number of Benefit
Accrual Years of Service credited for Messrs. Farley, Lappin, Switzer and
Wigodsky are 14, 9, 4, and 4 years, respectively.
Mr. Holland, who retired as Chief Operating Officer of the Company in
January 1996, received the actuarial equivalency of his life annuity as a single
lump sum benefit in the amount of $1,179,912 under the Pension Plan in February
1996. He received a similar benefit of $1,470,648 under the Supplemental Benefit
Plan in March 1996. Mr. Holland received $869,196 from the FOL SERP. Richard M.
Cion, former Senior Executive Vice President, Corporate Development of the
Company, Earl C. Shanks, former Vice President and Treasurer of the Company, and
Michael F. Bogacki, former Vice President and Controller of the Company, each of
whose employment with the Company was terminated in 1996, each received the
actuarial equivalency of their respective life annuities as single lump sum
payments in the amounts of $420,672, $92,867 and $99,156,
15
<PAGE> 18
respectively, which represented amounts owed to them under their employment
agreements under the FII SERP.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Agreements") with
Messrs. Farley, Lappin, Switzer and Wigodsky (the "Participants"). The
Agreements generally provide for payment of an annual base salary that will be
reviewed each year and may not be decreased from the amount in effect in the
previous year. The Agreements also give each Participant the right to continue
to participate in employee benefit programs at not less than 1995 levels,
including life insurance equal to three times annual salary (ten times for Mr.
Farley and four times for Mr. Lappin), and impose on the Participants certain
post-termination non-competition and confidentiality obligations. Mr. Farley's
Agreement requires him to devote substantial time to the Company's business,
consistent with his duties, but permits him to devote time to other business
interests as well.
The Agreements provide for certain payments and benefits upon termination
of employment in addition to those previously accrued. If employment terminates
due to normal retirement, approved early retirement, death or disability, the
Participant 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 settlement of outstanding long-term incentives such
as performance shares or units, cash calculated assuming maximum performance in
case of death or disability, or target performance in case of retirement, pro
rated to reflect the part of the performance period completed before termination
and with vesting accelerated, and (iii) in case of disability, continued
participation in employee benefit plans until age 65. If employment is
terminated by the Company 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 precedes a change in control, for Mr. Farley an amount equal to
then-current annual salary plus the average of the three highest annual
incentive compensation awards paid or the current maximum opportunity, if
greater ("total cash"), multiplied by the number of years of employment
remaining under the Agreement, for Mr. Lappin two times salary, and for other
Participants one times salary, plus a cash settlement of outstanding performance
shares or units, pro rated and assuming performance is the greater of actual
performance to date or target performance, plus the amount specified in clause
(i) of the preceding sentence, (ii) if termination follows a change in control,
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) and, in lieu of annual incentive compensation for that year, for Mr.
Farley an amount equal to the average of the three highest annual incentive
compensation awards paid or the current maximum opportunity, if greater, without
proration, and, for other Participants, the maximum opportunity without
proration plus, in 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, and (iii) if such termination follows a
change in control, a lump-sum cash payment of the present value of accrued
benefits under any supplemental pension plan if such benefits are not fully
funded or secured, and continued participation in employee benefit plans for two
years (three years for Mr. Farley). If payments following a change in control
are subject to the "golden parachute" excise tax, the Company will pay the
Participant an additional "gross-up" amount so that his after-tax benefits are
the same as if no excise tax had applied. The Company must continue indemnifica-
16
<PAGE> 19
tion and officers' and directors' liability insurance during employment and for
up to six years thereafter, and reimburse a Participant for expenses incurred in
good faith in enforcing the Agreement.
In connection with his retirement, Mr. Holland received the payments and
benefits provided under his employment agreement in the case of normal
retirement. In connection with the termination of their employment with the
Company, each of Messrs. Cion, Wigodsky, Shanks and Bogacki received the
payments and benefits provided under their employment agreements in the case of
termination by the Company other than for cause preceding a change in control.
17
<PAGE> 20
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 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. 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 each 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 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
for 1996 include (i) seven major apparel companies, five of which are included
in the Value Line Apparel Industry Index appearing in the Performance Graph, and
(ii) 14 other major non-durable
18
<PAGE> 21
consumer products companies of comparable size to the Company (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 by the Company as the
marketplace for critical management talent for the Company.
Total compensation for target performance under the Company's compensation
program for executive officers in 1996 was generally positioned at average or
median up to the 90th percentile of the comparator groups, depending upon each
such executive officer's position or level and the degree of difficulty and
challenge associated with the 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.
1996 COMPENSATION
The Company's 1996 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 two-thirds of the total compensation of
the executive officers as a group for target performance was variable based on
the same factors.
BASE SALARY. Salaries are established in consideration of the competitive
marketplace (as discussed above) at what the Compensation Committee considers to
be an appropriate level relative to the responsibilities, experience 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 four of
the Named Officers, including the Chief Executive Officer, are set at December
1994 levels in employment agreements which are described under "EXECUTIVE
COMPENSATION--Employment Agreements" and which provide for future review and
possible upward adjustment by the Compensation Committee. The salary of the
Chief Executive Officer has not been increased since January 1995. The salaries
of the Company's other executive officers rose in 1996 by an average of 12% from
1995 levels. Such increases were awarded by the Compensation Committee in
recognition of Mr. Lappin's promotion to President and Chief Operating Officer,
as well as the outstanding individual performance by the entire executive
officer group.
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 specified earnings levels in 1996.
Upon achievement of targeted levels of performance, the Chief Executive Officer
was eligible to receive a cash award equal to 100% of his 1996 base salary and
other executive officers were eligible to receive cash awards equal to specified
percentages up to 70% of their base salaries. Upon achievement of maximum
performance levels, the Chief Executive Officer was eligible to receive a cash
award of 200% of his base salary and other executive officers were eligible to
receive cash awards equal to specified percentages up to 126% of their base
salaries.
19
<PAGE> 22
Due to the Company's strategic and structural redirection in 1995 and
accompanying losses experienced in a year of poor business conditions, Messrs.
Farley, Lappin and Switzer received no annual incentive awards for 1995, while
Messrs. Hansen, Wigodsky and other executive officers and bonus eligible
employees were granted discretionary awards by the Compensation Committee with
Board approval based on the importance of their individual efforts in the
downsizing and reorganization of the business.
In contrast, 1996 was a highly profitable year for the Company with
operating earnings of over $325 million, as the Company benefitted from shifting
operations offshore, productivity enhancement, new inventory management systems,
improved asset utilization, debt reduction, international growth, and new
marketing, sales and product initiatives. Based on such outstanding results,
which exceeded maximum profit level requirements for the year as established by
the Compensation Committee, all executive officers were awarded annual
incentives at their maximum levels, including the Chief Executive Officer, whose
award was 200% of his base salary for 1996.
EQUITY INCENTIVES--PERFORMANCE UNITS AND STOCK OPTIONS. Executive officers,
including the Chief Executive Officer and other key executives, received regular
grants of performance units at target level under the 1995 EICP to be earned
based upon 1996 earnings per share goals with two-year vesting on December 31,
1997, unless accelerated by achievement of stock price objectives set by the
Compensation Committee. Each earned performance unit entitles the participant to
receive the value of one share of Class A Common Stock in cash and/or stock as
determined by the Compensation Committee. In addition to the regular annual
grant, the Compensation Committee made a special grant of performance units to
the same executives based on the same performance criteria with three-year
vesting on December 31, 1998, unless accelerated. The special grant was awarded
in recognition of these executives' contributions (discussed above), to motivate
and reward future success, and to encourage retention in a highly competitive
marketplace for proven executive talent. Due to major increases in the Company's
earnings per share, performance far exceeded maximum goals, and both grants were
earned and awarded in the form of restricted stock units equivalent to shares of
Class A Common Stock at the end of 1996 (See "Restricted Stock Awards" in
Summary Compensation Table). The restricted stock units were vested on an
accelerated basis in January 1997 based on stock price performance and were paid
out in February 1997. The two prior outstanding long-term performance award
cycles, which commenced in 1994 and 1995, also vested and were paid out during
1996 based on performance (See "LTIP Payouts" in Summary Compensation Table).
Similarly, the Compensation Committee made both regular and special stock
option grants pursuant to the 1995 EICP to the Chief Executive Officer, other
executive officers and key employees throughout the Company in 1996 to recognize
past progress and encourage the continued creation of stockholder value (See
"Option Grants in 1996--Individual Grants Table").
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 corporate results and
each recipient's performance, contributions and responsibilities without
assigning specific weight to any 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
aggregate performance unit and stock option awards to executive officers as a
group, nor does the Compensation
20
<PAGE> 23
Committee consider stock holdings, prior option grants and other long-term
awards or the appreciation thereon when making future stock option and long-term
award determinations. The Compensation Committee does not have a specific policy
as to the portion of total compensation to be represented by stock options and
other long-term equity awards.
To foster additional "at risk" equity investment, long term stock ownership
and commitment to the future of the Company, the Compensation Committee, with
Board approval, has offered selected senior executive officers the opportunity
to elect to forego receipt of future compensation and/or regular annual stock
option grants in exchange for a current grant at fair market value of ten year
non-qualified options. Such grants will vest pro rata over the same period as
participant compensation is reduced.
To secure the shares needed for grants in future years after implementation
of this new Executive Equity Investment Program (the "Investment Program") under
the 1995 EICP, stockholder approval is being sought at this Annual Meeting of an
increase in the total share authorization and maximum individual annual option
grants permissible under the 1995 EICP (See Proposal 2--Approval of the Fruit of
the Loom, Inc. 1995 Executive Incentive Compensation Plan, as Amended and
Restated). Messrs. Farley, Lappin and Switzer elected to participate in the
Investment Program and received grants in February 1997 in lieu of future
compensation. Mr. Farley has elected to forego receipt of his base salary for
three years and Messrs. Farley, Lappin and Switzer have elected to forego their
regular annual stock option grants for three years. As discussed above under
"Compensation of Directors," certain non-employee directors have also elected to
participate in a similar program.
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, where possible and considered appropriate, 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,
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<PAGE> 24
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
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, Dennis S. Bookshester, A. Lorne Weil and Sir Brian G. Wolfson
served on the Compensation Committee.
William Farley, the Chief Executive Officer and a director of the Company,
is also an executive officer and a director of Acme Boot and establishes
compensation for executive officers of Acme Boot.
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<PAGE> 25
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, 1991 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, 1996)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE COMPANY INDUSTRY INDEX STANDARD &
(FISCAL YEAR COVERED) POOR'S 500 INDEX
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 176.02 122.33 107.79
1993 87.33 91.62 118.66
1994 97.74 85.18 120.56
1995 87.78 91.16 165.78
1996 137.10 122.92 204.32
</TABLE>
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
The Company.............................. 100.00 176.02 87.33 97.74 87.78 137.10
Industry Index........................... 100.00 122.33 91.62 85.18 91.16 122.92
Standard & Poor's 500 Index.............. 100.00 107.79 118.66 120.56 165.78 204.32
</TABLE>
FII MANAGEMENT AGREEMENT
As a part of the 1995 restructuring of its corporate operations, the
Company determined to integrate into the Company's Bowling Green, Kentucky
operations certain functions historically
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<PAGE> 26
performed by FII personnel. In connection with this effort, the Board of
Directors determined that the Company's 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
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
transfer to the Company of such 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 Company's management agreement with
FII.
The Company also paid approximately $3,600,000 to FII in 1996, which
related to the severance of certain FII employees who were not re-employed by
the Company, including severance payments under certain employment agreements to
which the Company was also a party. In addition, during 1996 the Company
reimbursed FII for direct ordinary and reasonable costs and expenses aggregating
approximately $3,600,000 associated with the transition of management functions
from FII to the Company.
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 1993, the Company received approximately $72,900,000 from
Acme Boot, representing the entire unpaid principal and liquidation preference
(including accrued interest and dividends) on its investment in the securities
of the affiliate. The Company recorded a pretax gain of approximately
$67,300,000 in connection with the investment in Acme Boot upon the receipt of
the above mentioned proceeds.
In connection with the Company's transaction with Acme Boot during 1993,
the Company guaranteed, on an unsecured basis, the repayment of debt incurred or
created by Acme Boot under Acme Boot's bank credit facility (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
$34,500,000 at December 31, 1996). Farley Inc. controls Acme Boot and Mr. Farley
owns 100% of the common stock of Farley Inc. At December 31, 1996, approximately
$23,800,000 in loans and letters of credit were outstanding under the Acme Boot
Credit Facility.
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<PAGE> 27
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 1998. 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. At December 31, 1996, approximately $36,700,000 remains
outstanding under the New Acme Credit Agreement.
As a result of the Acme Boot operating performance and management's
assessment of existing facts and circumstances of Acme Boot's financial
condition, the Company recorded a $35,000,000 charge in the fourth quarter of
1996 related to the Company's evaluation of its exposure under the Acme Boot
guarantees.
As part of the Company's normal executive relocation policy and in
connection with the transition of certain executive functions from Chicago,
Illinois to Bowling Green, Kentucky, the Company made an interest-free bridge
loan to Burgess Ridge, the Company's Senior Vice President--Administration and
Secretary, of $325,500 in 1996 for the purchase of a home in Alvaton, Kentucky.
The loan is required to be repaid upon the sale of his former principal
residence.
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<PAGE> 28
PROPOSAL 2
APPROVAL OF THE FRUIT OF THE LOOM, INC. 1995
EXECUTIVE INCENTIVE COMPENSATION PLAN, AS AMENDED AND RESTATED
GENERAL
On February 12, 1997, the Board of Directors of the Company adopted the
1995 EICP, as amended and restated (the "Amended and Restated 1995 EICP"),
subject to approval of the Company's stockholders at the Annual Meeting. The
Amended and Restated EICP increases the number of shares of Class A Common Stock
reserved for issuance under the 1995 EICP by 2,000,000 shares and increases the
number of shares with respect to which options may be granted to any one
participant in any fiscal year by 1,000,000 shares. In addition, the Amended and
Restated 1995 EICP conforms the 1995 EICP to the revised version of Rule 16b-3
adopted by the SEC during 1996.
The 1995 EICP provides for the grant of stock options, stock appreciation
rights ("SARs"), restricted stock, deferred stock, dividend equivalents, other
stock-related awards and performance or annual incentive awards that may be
settled in cash, stock or other property ("Awards"). Stockholder approval of the
Amended and Restated 1995 EICP is being sought in order that, with respect to
awards granted after the 1997 Annual Meeting of Stockholders, (i) compensation
resulting from certain awards will continue to qualify as "performance-based
compensation" that is tax deductible by the Company without limitation under
Section 162(m) of the Internal Revenue Code (the "Code"), (ii) requirements of
the New York Stock Exchange will be met, (iii) certain stock options will
qualify as incentive stock options ("ISOs") under Code Section 422, and (iv)
favorable treatment of the Company or participants under other applicable
federal and state laws conditioned upon stockholder approval will continue to
apply.
The Board of Directors believes that the 1995 EICP has enhanced the
Company's growth and success by providing an effective means to attract, retain
and reward executives and other key employees of high quality and by providing
the Compensation Committee, which administers the 1995 EICP, with the
flexibility to structure executive compensation so as to grant performance
incentives which motivate the Company's executives to expend their maximum
efforts in the creation of long-term stockholder value. Thus, as discussed above
under "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION," stock options
and other stock-related awards have been and will continue to be an important
element of compensation for executives. The Board of Directors has adopted the
Amended and Restated 1995 EICP to authorize additional shares of Class A Common
Stock for awards under the 1995 EICP primarily because the number of shares
remaining available for new grants had fallen to 1,208,000 shares (or 1.56% of
the aggregate issued and outstanding shares of Class A Common Stock and Class B
Common Stock as of March 26, 1997.
The Compensation Committee requested that the 1995 EICP be amended and
restated in connection with its determination to make certain option grants
under the Company's new Executive Equity Investment Program (the "Investment
Program"), a program adopted in February 1997, which draws its shares from the
1995 EICP. The Investment Program was implemented by the Compensation Committee
in 1997 to foster additional executive "at risk" investment in the Company,
long-term equity ownership and commitment to the future of the Company. The
Investment Program achieves these goals by permitting selected executives to
forego receipt of future compensation and/or regular annual target stock option
grants for a specified period in
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<PAGE> 29
exchange for a current grant of non-qualified options with an exercise price
equal to the fair market value of the Class A Common Stock at the date of grant.
Under the Investment Program, participation in which is purely voluntary on the
part of executives selected to participate, options vest and become exercisable
pro rata over the same period as participant compensation is reduced. Such
options have a term of ten years, subject to earlier termination upon certain
terminations of employment or a change in control. The number of options granted
is based on the present value of the foregone compensation, as determined by the
Compensation Committee's valuation of such compensation (including option
opportunities), the terms of the options under the Program and the present value
of such options based on a Modified Black-Scholes Option Valuation Model.
Thus, an executive participating in the Investment Program may elect to
forego receipt of future compensation and/or regular option grants for a period
of years in exchange for a current grant of options. Because the option's
exercise price per share equals the market price of a share of Class A Common
Stock at the date of grant, the executive in effect has agreed to give up
guaranteed and/or reasonably assured compensation (and/or certain annual option
opportunities) for an at-risk form of compensation. The potential amount that
the executive may realize from such options may exceed the amount of
compensation given up, but only if the market price of the Company's Class A
Common Stock appreciates sufficiently from the date of grant; such appreciation
will, of course, benefit all other holders of Class A Common Stock who have
acquired their shares at or below the market price of Class A Common Stock at
the time the executive begins participation in the Investment Program.
Executives participating in the Investment Program likewise face the downside
risk that the amount that may be realized under their options may be less than
the amount of compensation foregone, or that the amount of compensation foregone
may be lost if the market price of the Class A Common Stock is unchanged,
declines or fails to appreciate sufficiently. To date, options to purchase an
aggregate of 1,409,500 shares of Class A Common Stock have been granted under
the Investment Program, consisting of options granted as follows: William
Farley, 940,000 shares in exchange for foregoing base salary and regular annual
stock option grants for three years; Richard Lappin, 293,500 shares in exchange
for foregoing regular annual stock option grants for three years; and Larry
Switzer, 176,000 shares in exchange for foregoing regular annual stock option
grants for three years. All such options are exercisable at $41.00 per share.
(See "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION").
The following is a brief description of the material features of the
Amended and Restated 1995 EICP (noting parenthetically material changes from the
1995 EICP as originally adopted). Such description is qualified in its entirety
by reference to the full text of the Amended and Restated 1995 EICP, a copy of
which is attached as Exhibit A to this Proxy Statement.
ADMINISTRATION
The Amended and Restated 1995 EICP is generally administered by the
Compensation Committee. The Board may, however, itself perform the functions of
the Compensation Committee or may appoint a different committee to administer
the Amended and Restated 1995 EICP. If any member of the Compensation Committee
or other committee administering the Amended and Restated 1995 EICP (the
"Committee") does not qualify as a "non-employee director" under Rule 16b-3 or
an "outside director" under Code Section 162(m), the Committee may function
through a subcommittee composed solely of two or more qualifying members, or the
non-qualifying member of the Committee may abstain or recuse himself or herself
from actions that would be
27
<PAGE> 30
affected by his or her non-qualifying status. (The provisions described in this
paragraph, other than the first sentence, were added.)
Subject to the terms and conditions of the Amended and Restated 1995 EICP,
the Committee is authorized to select participants, determine the type and
number of Awards to be granted and the number of shares to which Awards will
relate, specify times at which Awards will be exercisable or settleable
(including performance conditions that may be required as a condition thereof),
establish trusts, set other terms and conditions of such Awards, prescribe forms
of Award agreements, interpret and specify rules and regulations relating to the
Amended and Restated 1995 EICP and make all other determinations which may be
necessary or advisable for the administration of the Amended and Restated 1995
EICP. The Committee's determinations are binding on all parties. The Amended and
Restated 1995 EICP provides that Committee members shall not be personally
liable, and shall be fully indemnified, in connection with any action,
determination or interpretation taken or made in good faith under the Amended
and Restated 1995 EICP.
SHARES SUBJECT TO THE AMENDED AND RESTATED 1995 EICP; ANNUAL PER-PERSON
LIMITATIONS
Under the Amended and Restated 1995 EICP, the total number of shares of the
Class A Common Stock reserved for delivery to participants in connection with
Awards will be 4,000,000 (increased from 2,000,000 shares), plus any shares
remaining available under three prior stock option plans (the "Preexisting
Plans") and other Preexisting Plan shares that may from time-to-time become
available, plus 5% of the number of shares of Class A Common Stock newly issued
by the Company during the term of the Amended and Restated 1995 EICP, excluding
issuances under the Amended and Restated 1995 EICP, the Preexisting Plans or
plans for directors. Under the Amended and Restated 1995 EICP, shares subject to
an Award or award under a Preexisting Plan that is canceled, expired, forfeited,
settled in cash or otherwise terminated without a delivery of shares to the
participant, including shares withheld or surrendered in payment of any exercise
or purchase price of an Award or taxes relating to an Award, will again be
available for Awards under the Amended and Restated 1995 EICP. The number of
shares to be reserved under the Amended and Restated 1995 EICP (assuming
stockholder approval), together with the shares reserved under other option and
share-based award plans for directors, officers and employees as of December 31,
1996 (but excluding shares previously issued and no longer subject to
outstanding Awards), would represent 12.1 % of the aggregate issued and
outstanding shares of Class A and Class B Common Stock as of March 26, 1997. At
that date, the last reported sale price of Class A Common Stock in New York
Stock Exchange Composite Transactions was $43.375 per share.
In addition, the Amended and Restated 1995 EICP imposes individual
limitations on the amount of certain Awards in order to comply with Code Section
162(m). Under these limitations, the number of shares underlying options granted
during any fiscal year to any one participant shall not exceed 2,000,000
(increased from 1,000,000 shares), and the number of shares underlying SARs,
shares of restricted stock, shares of deferred stock, shares granted as a bonus
or in lieu of other Company obligations and shares related to other stock-based
Awards granted to any one participant in any fiscal year shall not exceed
1,000,000 for each type of Award, subject to adjustment in certain
circumstances. The maximum amount that may be paid out as a final annual
incentive award or other cash Award in any fiscal year to any one participant is
$3,500,000. The Board has concluded that the larger option grants made and
potentially to be made under the Investment Program, together with other
potential grants under the Amended and Restated 1995 EICP, make it advisable to
increase the individual limitation applicable to options.
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<PAGE> 31
The Committee is authorized to adjust the number of shares of Class A
Common Stock subject to the aggregate share limitations and annual limitations
under the Amended and Restated 1995 EICP and subject to outstanding Awards
(including adjustments to exercise prices of options and other affected terms of
Awards) in the event that a dividend or other distribution (whether in cash,
shares of Class A Common Stock or other property), recapitalization, forward or
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase or share exchange, or other similar corporate transaction or event
affects the shares so that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of participants. The Committee is also
authorized to adjust performance conditions and other terms of Awards in
response to these kinds of events, other unusual events or in response to
changes in business conditions, applicable laws, regulations or accounting
principles.
ELIGIBILITY
Executive officers and other officers and salaried employees of the Company
and its subsidiaries, and executive officers and other officers and salaried
employees of any other entity who provide substantial services to the Company or
any subsidiary, including any such person who may also be a director of the
Company, are eligible to be granted Awards under the Amended and Restated 1995
EICP. At present, approximately 200 persons would be considered to be eligible
for Awards under the Amended and Restated 1995 EICP; Awards which are currently
outstanding have been granted to a total of 210 participants under the 1995
EICP.
STOCK OPTIONS AND SARS
The Amended and Restated 1995 EICP authorizes the Committee to grant stock
options, including both ISOs which can result in potentially favorable tax
treatment to the participant and non-qualified stock options (i.e., options not
qualifying as ISOs) and SARs entitling the participant to receive the excess of
the fair market value of a share of Class A Common Stock on the date of exercise
(or defined "change in control price" following a change in control) over the
grant price of the SAR. The exercise price per share of Class A Common Stock
subject to an option and the grant price of an SAR is determined by the
Committee, but must not be less than the fair market value of a share of Class A
Common Stock on the date of grant (except to the extent of in-the-money awards
or cash obligations surrendered by the participant at the time of grant). The
maximum term of each option or SAR, the times at which each option or SAR will
be exercisable, and provisions requiring forfeiture of unexercised options at or
following termination of employment generally are fixed by the Committee, except
no option or SAR may have a term exceeding ten years. Options may be exercised
by payment of the exercise price in cash, shares of Class A Common Stock,
outstanding Awards or other property (possibly including notes or obligations to
make payment on a deferred basis) having a fair market value equal to the
exercise price, as the Committee may determine from time to time. Methods of
exercise and settlement and other terms of the SARs are determined by the
Committee. SARs granted under the Amended and Restated 1995 EICP may include
"limited SARs" exercisable for a stated period of time following a "change in
control" of the Company, as discussed below. The options granted under the 1995
EICP in 1996 are shown and described under the caption "OPTION/SAR GRANTS IN
1996," and the number of options granted under the 1995 EICP to Named Officers
in 1995 and 1996 are reflected in the "SUMMARY COMPENSATION TABLE" above.
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<PAGE> 32
RESTRICTED AND DEFERRED STOCK
The Amended and Restated 1995 EICP authorizes the Committee to grant
restricted stock and deferred stock (restricted stock units). Restricted stock
is a grant of shares of Class A Common Stock which may not be sold or disposed
of, and which may be forfeited in the event of certain terminations of
employment, prior to the end of a restricted period specified by the Committee.
A participant granted restricted stock generally has all of the rights of a
stockholder of the Company, including the right to vote the shares and to
receive dividends thereon, unless otherwise determined by the Committee. An
Award of deferred stock confers upon a participant the right to receive shares
of Class A Common Stock at the end of a specified deferral period, subject to
possible forfeiture of the Award in the event of certain terminations of
employment prior to the end of a specified restricted period (which may be
shorter than the deferral period). Prior to settlement, an Award of deferred
stock carries no voting or dividend rights or other rights associated with share
ownership, although dividend equivalents may be granted, as discussed below.
DIVIDEND EQUIVALENTS
The Amended and Restated 1995 EICP authorizes the Committee to grant
dividend equivalents conferring on participants the right to receive, currently
or on a deferred basis, cash, shares of Class A Common Stock, other Awards or
other property equal in value to dividends paid on a specific number of shares
of Class A Common Stock or other periodic payments. Dividend equivalents may be
granted on a free-standing basis or in connection with another Award, may be
paid currently or on a deferred basis, and, if deferred, may be deemed to have
been reinvested in additional shares of Class A Common Stock, Awards or other
investment vehicles specified by the Committee.
BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS
The Amended and Restated 1995 EICP authorizes the Committee to grant shares
of Class A Common Stock as a bonus free of restrictions, or to grant shares of
Class A Common Stock or other Awards in lieu of Company obligations to pay cash
under other plans or compensatory arrangements, subject to such terms as the
Committee may specify. Thus, for example, the Committee has implemented the
Investment Program under the Amended and Restated 1995 EICP, as discussed above.
OTHER STOCK-BASED AWARDS
The Amended and Restated 1995 EICP authorizes the Committee to grant Awards
that are denominated or payable in, valued by reference to, or otherwise based
on or related to the Class A Common Stock. Such Awards might include convertible
or exchangeable debt securities, other rights convertible or exchangeable into
shares, purchase rights for shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the book value of shares of Class A
Common Stock or the value of securities of, or the performance of, specified
subsidiaries. The Committee determines the terms and conditions of such Awards,
including consideration to be paid to exercise Awards in the nature of purchase
rights, the period during which Awards will be outstanding and forfeiture
conditions and restrictions on Awards.
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<PAGE> 33
PERFORMANCE AWARDS, INCLUDING ANNUAL INCENTIVE AWARDS
The right of a participant to exercise or receive a grant or settlement of
an Award, and the timing thereof, may be subject to such performance conditions
as may be specified by the Committee. In addition, the Amended and Restated 1995
EICP authorizes specific annual incentive awards, which represent a conditional
right to receive cash upon achievement of preestablished performance goals
during a specified one-year period. Performance awards and annual incentive
awards granted to persons the Committee expects will, for the year in which a
deduction arises, be among the Chief Executive Officer and the Named Officers,
will, if so intended by the Committee, be subject to provisions that should
qualify such Awards as "performance-based compensation" not subject to the
limitation on tax deductibility by the Company under Section 162(m) of the Code.
The performance goals to be achieved as a condition of payment or
settlement of any Award under the Amended and Restated 1995 EICP, including
performance awards or annual incentive awards, may consist of (i) one or more
business criteria, and (ii) a targeted level or levels of performance with
respect to each such business criteria. In the case of performance awards
intended to meet the requirements of Section 162(m) of the Code, the business
criteria used must be one of those specified in the 1995 EICP, although for
other participants the Committee may specify any other criteria. The business
criteria specified in the 1995 EICP are total stockholder return; such total
stockholder return as compared to total return (on a comparable basis) of an
index such as, but not limited to, the Standard & Poor's 500 or the Value Line
Apparel Industry Index; net income; pretax earnings; operating earnings;
earnings before interest, taxes, depreciation, and amortization (EBITDA); pretax
operating earnings before or after interest expense and before or after bonuses,
service fees and extraordinary or special items; operating margin; earnings per
share; return on equity; return on capital; return on investment; and working
capital, all on an absolute or relative basis.
In granting annual incentive awards, the Committee may establish an
unfunded annual incentive award "pool," the amount of which will be based upon
the achievement of a performance goal or goals based on one or more of the
business criteria described in the preceding paragraph. During the first 90 days
of a fiscal year (or such other date as required or permitted under Section
162(m)of the Code), the Committee will determine who will potentially receive
annual incentive awards for that fiscal year, either out of the pool or
otherwise. After the end of each fiscal year, the Committee will determine the
amount, if any, of the pool, the maximum amount of potential annual incentive
awards payable to each participant in the pool and the amount of any potential
annual incentive award otherwise payable to a participant. The Committee may, in
its discretion, determine that the amount payable as a final annual incentive
award will be increased or reduced from the amount of any potential Award, but
may not exercise discretion to increase any such amount intended to qualify
under Section 162(m) of the Code.
Subject to the requirements of the Amended and Restated 1995 EICP, the
Committee will determine other performance award and annual incentive award
terms, including the required levels of performance with respect to the business
criteria, the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions and the form of settlement.
As discussed above under "COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION," the Committee has established annual award pools under the 1995
EICP funded based on the Company's operating earnings. The amounts paid out for
1996 and 1995 to the Named Officers are reflected in the "Bonus" column of the
"SUMMARY COMPENSATION TABLE."
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<PAGE> 34
OTHER TERMS OF AWARDS
Awards may be settled in the form of cash, shares, other Awards or other
property, in the discretion of the Committee. The Committee may require or
permit participants to defer the settlement of all or part of an Award in
accordance with such terms and conditions as the Committee may establish,
including payment or crediting of interest or dividend equivalents on deferred
amounts, and the crediting of earnings, gains and losses based on deemed
investment of deferred amounts in specified investment vehicles. The Committee
is authorized to place cash, shares of Class A Common Stock or other property in
trusts or make other arrangements to provide for payment of the Company's
obligations under the Amended and Restated 1995 EICP. The Committee may
condition any payment relating to an Award on the withholding of taxes and may
provide that a portion of any shares of Class A Common Stock or other property
to be distributed will be withheld (or previously acquired shares of Class A
Common Stock or other property surrendered by the participant) to satisfy
withholding and other tax obligations. Awards granted under the Amended and
Restated 1995 EICP generally may not be pledged or otherwise encumbered and are
not transferable except by will or by the laws of descent and distribution, or
to a designated beneficiary upon the participant's death, except that the
Committee may permit transfers of awards for estate-planning or other purposes
deemed not inconsistent with the purposes of the 1995 EICP (this exception was
added in response to changes in Rule 16b-3 of the Act).
Awards under the Amended and Restated 1995 EICP are generally granted
without a requirement that the participant pay consideration in the form of cash
or property for the grant (as distinguished from the exercise), except to the
extent required by law. The Committee may, however, grant Awards in exchange for
other Awards under the Amended and Restated 1995 EICP, awards under other
Company plans or other rights to payment or potential payments from the Company,
and may grant Awards in addition to and in tandem with such other Awards, awards
or rights as well.
ACCELERATION OF VESTING
The Committee may, in its discretion, accelerate the exercisability, the
lapsing of restrictions or the expiration of deferral or vesting periods of any
Award, and such accelerated exercisability, lapse, expiration and vesting shall
occur automatically in the case of a "change in control" of the Company
(including cash settlements of certain SARs and "limited SARs" which may be
exercisable only in the event of a change in control). In addition, the
Committee may provide that the performance goals relating to any
performance-based award will be deemed to have been met upon the occurrence of
any "change in control." Subject to certain exceptions, the Amended and Restated
1995 EICP defines a "change in control" as (i) any person acquiring beneficial
ownership of voting securities resulting in such person beneficially owning 25%
or more of the Common Stock or the outstanding voting power of the Company's
voting securities, except this provision will not apply if such person was a
beneficial owner of 25% or more of the Common Stock or the outstanding voting
power of the Company's voting securities before such acquisition; (ii) the
reorganization, merger, consolidation, complete liquidation or dissolution of
the Company, sale or disposition of all or substantially all of the assets of
the Company or similar corporate transaction (other than a merger,
consolidation, sale, disposition or other similar transaction to or with William
Farley or entities controlled by him); or (iii) members of the Board of
Directors serving at the effective date of the Amended and Restated 1995 EICP,
together with members first elected
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thereafter (excluding certain directors elected as a result of an actual or
threatened election contest) with the approval of a majority of the original
members and new members previously so approved, ceasing to constitute a majority
of the Board of Directors. Upon the occurrence of a change in control, SARs and
other Awards may be cashed out based on a defined "change in control price,"
which will be the higher of (i) the cash and fair market value of property that
is the highest price per share paid (including extraordinary dividends) in any
reorganization, merger, consolidation, liquidation or dissolution, or
liquidation of shares following a sale of substantially all assets of the
Company; or (ii) the highest fair market value per share (generally based on
market prices) at any time during the 60 days before and 60 days after the
change in control.
AMENDMENT AND TERMINATION OF THE AMENDED AND RESTATED 1995 EICP
The Board of Directors may amend, alter, suspend, discontinue or terminate
the Amended and Restated 1995 EICP or the Committee's authority to grant Awards
without further stockholder approval, except stockholder approval must be
obtained for any amendment or alteration if required by law or regulation or
under the rules of any stock exchange or automated quotation system on which the
shares of Class A Common Stock are then listed or quoted. No new Award may be
granted under the Amended and Restated 1995 EICP after December 18, 2004. Unless
earlier terminated by the Board of Directors, the Amended and Restated 1995 EICP
will terminate at such time as no shares of Class A Common Stock remain
available for issuance under the Amended and Restated 1995 EICP and the Company
has no further rights or obligations with respect to outstanding Awards under
the Amended and Restated 1995 EICP.
EFFECT ON OUTSTANDING AWARDS
Stockholder approval relates only to Awards that may be granted under the
Amended and Restated 1995 EICP after the 1997 Annual Meeting of Stockholders,
and has no effect on previously granted Awards. The amount and type of such
future Awards cannot presently be determined. Nothing contained in the Amended
and Restated 1995 EICP prevents the Company from adopting or continuing in
effect other or additional compensation arrangements.
For purposes of Code Section 162(m), stockholder approval of the Amended
and Restated 1995 EICP relates particularly to provisions regarding eligibility,
per-person award limitations and the business criteria incorporated in
performance objectives under certain designated performance awards. See
"Eligibility," "Shares Subject to the Amended and Restated 1995 EICP; Annual
Per-Person Limitations," and "Performance Awards, Including Annual Incentive
Awards" above. In the event that stockholders fail to approve the Amended and
Restated 1995 EICP, Awards will not be granted to the extent necessary to meet
the requirements of Treasury Regulation 1.162-27(e)(4).
FEDERAL INCOME TAX IMPLICATIONS OF THE AMENDED AND RESTATED 1995 EICP
The following is a brief description of the federal income tax consequences
generally arising with respect to Awards under the Amended and Restated 1995
EICP.
The grant of an option or SAR will create no tax consequences for the
participant or the Company. A participant will not have taxable income upon
exercising an ISO (except that the
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alternative minimum tax may apply). Upon exercising an option other than an ISO,
the participant must generally recognize ordinary income equal to the difference
between the exercise price and fair market value of the freely transferable and
nonforfeitable shares acquired on the date of exercise. Upon exercising a SAR,
the participant must generally recognize ordinary income equal to the cash or
the fair market value of the freely transferable and nonforfeitable shares
received. Upon a disposition of shares acquired upon exercise of an ISO before
the end of the applicable ISO holding period, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price; or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (including an ISO for which the ISO holding periods are
met) or SAR generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the participant's tax
basis in such shares (the tax basis generally being the exercise price plus any
amount previously recognized as ordinary income in connection with the exercise
of the option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option or SAR. The Company generally is not entitled to a tax deduction relating
to amounts that represent a capital gain to a participant. Accordingly, the
Company will not be entitled to any tax deduction with respect to an ISO if the
participant holds the shares for the ISO holding period prior to disposition of
the shares.
With respect to Awards granted under the Amended and Restated 1995 EICP
that result in the payment or issuance of cash or shares of Class A Common Stock
or other property that is either not restricted as to transferability or not
subject to a substantial risk of forfeiture, the participant must generally
recognize ordinary income equal to the cash or the fair market value of shares
or other property received. Deferral of the time of payment or issuance will
generally result in the deferral of the time the participant will be liable for
income taxes with respect to such payment or issuance. The Company generally
will be entitled to a deduction in an amount equal to the ordinary income
received by the participant. With respect to Awards involving the issuance of
shares of Class A Common Stock or other property that is restricted as to
transferability and subject to a substantial risk of forfeiture, the participant
must generally recognize ordinary income equal to the fair market value of the
shares or other property received at the first time the shares or other property
becomes transferable or not subject to a substantial risk of forfeiture,
whichever occurs earlier (unless the participant files an election with the IRS
to be taxed at the time of grant). The Company will be entitled to a deduction
in an amount equal to the ordinary income received by the participant.
Code Section 162(m) generally disallows the Company's tax deduction for
compensation to certain named executives in excess of $1,000,000 each in any tax
year. Compensation that qualifies as "performance-based compensation" is
excluded from this deductibility cap, and therefore remains fully deductible
regardless of amount. As discussed above, the Company intends that options and
SARs granted with an exercise price or grant price equal to at least 100% of
fair market value of the underlying shares at the date of grant, and annual
incentive awards and certain long-term performance-based awards granted to
employees whom the Committee expects to be Named Officers at the time a
deduction arises in connection with such Awards, qualify as "performance-based
compensation." A number of requirements must be met in order for particular
compensation to so qualify, however, so there can be no assurance that such
compensation under
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the Amended and Restated 1995 EICP will be fully deductible under all
circumstances. In addition, other Awards under the Amended and Restated 1995
EICP, such as restricted stock, other stock-based awards, and performance awards
not designated as qualifying Code Section 162(m) awards, generally will not so
qualify, so that compensation paid to Named Officer in connection with such
Awards could be subject to Code Section 162(m)'s $1 million deductibility cap.
See "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION." Finally, if the
Amended and Restated 1995 EICP is approved by stockholders, under current
regulations, performance awards granted under the Amended and Restated 1995 EICP
more than five years after the 1997 Annual Meeting of Stockholders will require
further stockholder approval in order to qualify as "performance-based
compensation."
The foregoing general discussion is intended for the information of
stockholders considering how to vote at the Annual Meeting and not as tax
guidance to participants in the Amended and Restated 1995 EICP. Different tax
rules may apply to specific participants and transactions under the Amended and
Restated 1995 EICP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDED AND RESTATED 1995 EICP, ATTACHED TO THIS PROXY STATEMENT AS EXHIBIT A.
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PROPOSAL 3
STOCKHOLDER PROPOSAL TO REDEEM STOCKHOLDER RIGHTS
By letter dated December 2, 1996, the Company received a proposal, on
behalf of the Amalgamated Bank of New York LongView Collective Investment Fund
(the "Fund"), to redeem the preferred stock purchase rights distributed to the
holders of Class A Common Stock and the holders of the Class B Common Stock
pursuant to a stockholder rights plan adopted by the Company in March 1996 (the
"Rights Plan"). According to such letter, the Fund has an address of 11-15 Union
Square, New York, New York 10003 and beneficially owns 19,100 shares of Class A
Common Stock.
The Rights Plan provides for Series A Rights and Series B Rights. Each
Series A Right entitles holders of the Company's common stock to buy one
one-hundredth of a share of a new series of preferred stock at an exercise price
of $90. The Series A Rights will be exercisable only if a person or entity
acquires 15% or more of the Company's common stock or announces a tender offer
upon consummation of which such person or entity would own 15% or more of the
common stock. Generally, if any person or entity becomes the beneficial owner of
15% or more of the Company's common stock each Series A Right not owned by such
a person or entity will enable its holder both to (i) purchase Class A Common
Stock of the Company having a value of $180 for a purchase price of $90 and (ii)
receive a Series B Right. In addition, in such case, if the Company is
thereafter involved in a merger or other business combination transaction with
another entity or sells 50% or more of its assets or earning power to another
person or entity, each Series B Right and each Series A Right that has not
previously been exercised will entitle its holder to purchase, at $90 per Series
A and Series B Right, common shares of such other entity having a value of twice
that price.
TEXT OF THE STOCKHOLDER PROPOSAL
RESOLVED: That the stockholders of Fruit of the Loom, Inc. ("Fruit of the
Loom" or the "Company") request the Board of Directors to redeem the stockholder
rights previously issued unless such issuance is approved by the affirmative
vote of stockholders, to be held as soon as may be practicable.
PROPONENT'S STATEMENT IN SUPPORT OF PROPOSAL
In March 1996, the Fruit of the Loom Board of Directors issued, without
stockholder approval, certain stockholder rights (the "rights") pursuant to a
stockholder rights plan. We strongly believe that such rights are a type of
anti-takeover device, commonly known as a poison pill, which injures
stockholders by reducing management accountability and adversely affecting
stockholder value.
The stockholders of the Company believe the terms of the rights are
designed to discourage or thwart an unwanted takeover of the Company. While
management and the Board of Directors should have appropriate tools to ensure
that all stockholders benefit from any proposal to acquire the Company, the
stockholders do not believe that the future possibility of a takeover justifies
the unilateral imposition of such a poison pill.
Rather, we believe that the stockholders should have the right to vote on
the necessity of such a powerful tool, which could be used to entrench existing
management. Rights plans like the Company's have become increasingly unpopular
in recent years.
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The negative effects of poison pill rights plans on the trading value of
companies' stock have been the subject of extensive research. A 1986 study
(covering 245 companies adopting poison pills between 1983 and 1986) was
prepared by the Office of the Chief Economist of the U.S. Securities and
Exchange Commission on the effect of poison pills on the wealth of target
stockholders. It states that "empirical tests, taken together, show that poison
pills are harmful to target stockholders, on net." A 1992 study by Professor
John Pound of Harvard's Corporate Research Project and Lilli A. Gordon of the
Gordon Group found a correlation between high corporate performance and the
absence of poison pills.
We believe that such an important corporate governance practice, one that
can have a significant adverse impact on stockholder value, should be eliminated
or, at the very least, be voted on by stockholders. We therefore submit this
stockholder proposal based on our belief that the unilateral and undeniably
undemocratic adoption of the rights plan by the Company is unjustified, that the
continued existence of such a rights plan by the Company is unjustified and not
in the best interests of the stockholders.
WE URGE YOU TO VOTE FOR THIS RESOLUTION!
STATEMENT BY THE BOARD IN OPPOSITION TO PROPOSAL
The Board of Directors adopted the Rights Plan to protect the interests of
the Company and all of its stockholders, not to entrench management. The Board
determined to adopt the Rights Plan only after careful consideration and the
review of extensive information and advice provided by experienced, independent
financial advisors and legal counsel. The Rights Plan is similar to stockholder
rights plans adopted by well over 1,000 publicly held U.S. corporations.
The Rights Plan is designed to protect against attempts to acquire the
Company for an inadequate price and against abusive practices that do not treat
all stockholders equally. Such practices can, and are often intended to, induce
stockholders into tendering their investments prior to realizing the full value
or total potential of such investments. The Rights Plan is intended to create an
incentive for a potential acquiror to negotiate in good faith with the Board.
The Rights Plan is not intended to, and will not, prevent unsolicited,
non-abusive offers to acquire the Company at a fair price. In deciding whether
to redeem the rights in connection with any unsolicited offer, the Board will be
bound by its fiduciary obligations to act in the best interests of the Company
and its stockholders.
The Rights Plan strengthens the ability of the Board to fulfill its
fiduciary responsibilities to the Company's stockholders because it provides the
Board with additional time and opportunity to evaluate the fairness of any
unsolicited offer to acquire the Company and to consider alternatives.
Furthermore, this additional time and opportunity can enable the Board to
negotiate the most attractive and fair price for all stockholders. Otherwise, a
hostile bidder could rely on the 20 business day tender offer period to pressure
stockholders into accepting its offer at an unfair price. The Board believes
there is strong empirical evidence that companies with stockholder rights plans
are better positioned to maximize stockholder value.
The Board continues to consider the Rights Plan to be in the best interests
of the Company and all of its stockholders. The Board believes that any decision
to redeem the rights should be made in the context of a specific acquisition
proposal. To redeem the rights at this time would strip the
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Company's stockholders of valuable protection in the event of an unsolicited
offer and, in the Board's view, potentially reduce the long-term value for all
stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE
STOCKHOLDER PROPOSAL TO REDEEM THE STOCKHOLDER RIGHTS PREVIOUSLY ISSUED BY THE
COMPANY.
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 Messrs. Farley and 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 claimed that all of the defendants engaged in conduct violating
Section 10(b) of the Act, and that Messrs. Farley and Holland also violated
Section 20(a) of the Act. In October 1996, the District Court approved the
settlement agreement pursuant to which plaintiffs agreed to drop their claims
against the defendants, defendants' insurers agreed to pay into an escrow
account, for the benefit of plaintiffs, the sum of $7,250,000, and the
settlement proceeds were allocated between the plaintiffs and class counsel. As
part of its approval, the District Court entered a final judgment order
dismissing with prejudice all of the plaintiffs' claims against the defendants.
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. Approval of each of the proposal to approve the Amended and
Restated 1995 EICP and the stockholder proposal to redeem the Rights Plan
previously issued by the Company will require the affirmative vote of a majority
of the shares of Class A Common Stock and Class B Common Stock, voting
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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 ChaseMellon Shareholder Services
to solicit proxies from brokers, banks, nominees and other institutional
holders. The Company will pay ChaseMellon Shareholder Services a fee of $5,000
for its services.
INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
selected Ernst & Young LLP to audit the financial statements of the Company and
its subsidiaries for the year ended December 31, 1997. A representative of Ernst
& Young LLP is expected to be present at the Annual Meeting with the opportunity
to make a statement, if such representative 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 Company's 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 8, 1997.
OTHER BUSINESS
It is not anticipated that any matters will be presented to the
stockholders other than those listed in the accompanying Notice of Annual
Meeting of Stockholders and described in this Proxy Statement. However, if other
matters are brought before the meeting, it is intended that the persons named in
the accompanying proxy will vote as the Board of Directors directs.
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EXHIBIT A
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
AS AMENDED AND RESTATED
- --------------------------------------------------------------------------------
<PAGE> 43
FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
AS AMENDED AND RESTATED
<TABLE>
<S> <S> <C>
1. Purpose..................................................... A-1
2. Definitions................................................. A-1
3. Administration.............................................. A-3
(a) Authority of the Committee.............................. A-3
(b) Manner of Exercise of Committee Authority............... A-4
(c) Limitation of Liability................................. A-4
4. Stock Subject to Plan....................................... A-4
(a) Overall Number of Shares Available for Delivery......... A-4
(b) Application of Limitation to Grants of Awards........... A-5
(c) Availability of Shares Not Delivered Under Awards....... A-5
5. Eligibility; Per-Person Award Limitations................... A-5
6. Specific Terms of Awards.................................... A-5
(a) General................................................. A-5
(b) Options................................................. A-6
(c) Stock Appreciation Rights............................... A-6
(d) Restricted Stock........................................ A-7
(e) Deferred Stock.......................................... A-7
(f) Bonus Stock and Awards in Lieu of Obligations........... A-8
(g) Dividend Equivalents.................................... A-8
(h) Other Stock-Based Awards................................ A-8
7. Certain Provisions Applicable to Awards..................... A-9
(a) Stand-Alone, Additional, Tandem, and Substitute
Awards...................................................... A-9
(b) Term of Awards.......................................... A-9
(c) Form and Timing of Payment Under Awards; Deferrals...... A-9
(d) Exemptions from Section 16(b) Liability................. A-9
8. Performance Awards.......................................... A-10
(a) Performance Conditions.................................. A-10
(b) Performance Awards Granted to Designated Covered
Employees................................................... A-10
(c) Annual Incentive Awards Granted to Designated Covered
Employees................................................... A-11
(d) Written Determinations.................................. A-12
(e) Status of Section 8(b) and Section 8(c) Awards Under
Code Section 162(m)..................................... A-12
9. Change in Control........................................... A-12
(a) Effect of "Change in Control.".......................... A-12
(b) Definition of "Change in Control."...................... A-13
(c) Definition of "Change in Control Price."................ A-14
10. General Provisions.......................................... A-14
(a) Compliance With Legal and Other Requirements............ A-14
(b) Limits on Transferability; Beneficiaries................ A-14
(c) Adjustments............................................. A-15
(d) Taxes................................................... A-15
(e) Changes to the Plan and Awards.......................... A-16
(f) Limitation on Rights Conferred Under Plan............... A-16
(g) Unfunded Status of Awards; Creation of Trusts........... A-16
(h) Nonexclusivity of the Plan.............................. A-17
(i) Payments in the Event of Forfeitures; Fractional
Shares...................................................... A-17
(j) Governing Law........................................... A-17
(k) Awards Under Preexisting Plans.......................... A-17
(l) Plan Effective Date, Stockholder Approval, and
Termination................................................. A-17
</TABLE>
<PAGE> 44
FRUIT OF THE LOOM, INC.
1995 EXECUTIVE INCENTIVE COMPENSATION PLAN
AS AMENDED AND RESTATED
1. Purpose. The purpose of this 1995 Executive Incentive Compensation Plan
(the "Plan") is to assist Fruit of the Loom, Inc., a Delaware corporation (the
"Company"), and its subsidiaries in attracting, retaining, and rewarding high
quality executive officers, other key salaried employees and other persons who
provide services to the Company, enabling such persons to acquire or increase a
proprietary interest in the Company in order to strengthen the mutuality of
interests between such persons and the Company's stockholders, and providing
such persons with performance incentives to expend their maximum efforts in the
creation of long-term stockholder value. The Plan is also intended to qualify
certain compensation awarded under the Plan for tax deductibility under Section
162(m) of the Code (as hereafter defined) to the extent deemed appropriate by
the Compensation Committee (or any successor committee) of the Board of
Directors of the Company.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Annual Incentive Award" means a conditional right granted to a
Participant under Section 8(c) hereof to receive a cash payment, unless
otherwise determined by the Committee, after the end of a specified fiscal year.
(b) "Award" means any Option, SAR (including Limited SAR), Restricted
Stock, Deferred Stock, Stock granted as a bonus or in lieu of another award,
Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or other rights are
transferred if and to the extent permitted under Section 10(b) hereof. If, upon
a Participant's death, there is no designated Beneficiary or surviving
designated Beneficiary, then the term Beneficiary means the person, persons,
trust or trust entitled by will or the laws of descent and distribution to
receive such benefits.
(d) "Beneficial Owner," "Beneficially Owning" and "Beneficial Ownership"
shall have the meanings ascribed to such terms in Rule 13d-3 under the Exchange
Act and any successor to such Rule.
(e) "Board" means the Company's Board of Directors.
(f) "Change in Control" means Change in Control as defined with related
terms in Section 9 of the Plan.
(g) "Change in Control Price" means the amount calculated in accordance
with Section 9(c) of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, including regulations thereunder and successor provisions and regulations
thereto.
A-1
<PAGE> 45
(i) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that Committee action shall be taken by act of such members
specified in, and otherwise in accordance with, Section 3(c). The Committee
shall consist solely of two or more directors of the Company who are not
employees of the Company or any subsidiary. In appointing members of the
Committee, the Board will consider whether a member is or will be a Qualified
Member, but such members are not required to be Qualified Members at the time of
appointment or during their term of service on the Committee.
(j) "Corporate Transaction" means a transaction as defined in Section 9(b)
of the Plan.
(k) "Covered Employee" means an Eligible Person as defined in Section 8(e)
of the Plan.
(l) "Deferred Stock" means a right (a restricted stock unit), granted to a
Participant under Section 6(e) hereof, to receive Stock, cash or a combination
thereof at the end of a specified deferral period.
(m) "Dividend Equivalent" means a right, granted to a Participant under
Section 6(g), to receive cash, Stock, other Awards or other property equal in
value to dividends paid with respect to a specified number of shares of Stock,
or other periodic payments.
(n) "Effective Date" means December 18, 1994, the effective date of the
Plan.
(o) "Eligible Person" means each executive officer of the Company (as
defined under the Exchange Act) and other officers and salaried employees of the
Company or of any subsidiary, including such persons who may also be directors
of the Company, and each executive officer, other officer or employee of any
other entity who provides substantial services to the Company or any subsidiary
pursuant to an arrangement approved by the Board. The foregoing notwithstanding,
no member of the Committee shall be an Eligible Person.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, including rules thereunder and successor provisions and rules
thereto.
(q) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.
(r) "Fair Market Value" means the fair market value of Stock, Awards or
other property as determined by the Committee or under procedures established by
the Committee. Unless otherwise determined by the Committee, the Fair Market
Value of Stock as of any given date shall be the closing sale price per share
reported on a consolidated basis for stock listed on the principal stock
exchange or market on which Stock is traded on the date as of which such value
is being determined or, if there is no sale on that date, then on the last
previous day on which a sale was reported.
(s) "Incentive Stock Option" or "ISO" means any Option intended to be and
designated as an incentive stock option within the meaning of Section 422 of the
Code or any successor provision thereto.
(t) "Incumbent Board" means the Board as defined in Section 9(b) of the
Plan.
(u) "Limited SAR" means a right granted to a Participant under Section 6(c)
thereof.
A-2
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(v) "162(m) Award" means an Award intended by the Committee to constitute
"qualified performance-based compensation" within the meaning of Code Section
162(m) and regulations thereunder. Such Awards would include Options or SARs and
Awards granted in accordance with Sections 8(b) and (c).
(w) "Option" means a right, granted to a Participant under Section 6(b)
hereof, to purchase Stock or other Awards at a specified price during specified
time periods.
(x) "Other Stock-Based Awards" means Awards granted to a Participant under
Section 6(h) hereof.
(y) "Participant" means a person who has been granted an Award under the
Plan, including a person who is no longer an Eligible Person.
(z) "Performance Award" means a right, granted to a Participant under
Section 8 hereof, to receive Awards based upon performance criteria specified by
the Committee.
(aa) "Person" will have the meaning assigned in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, and includes a
"group" as defined in Section 13(d) thereof.
(bb) "Preexisting Plans" means the Company's Executive Incentive
Compensation Plan effective as of January 1, 1994, the 1992 Executive Stock
Option Plan and the 1987 Stock Option Plan, as amended and restated.
(cc) "Qualified Member" means a member of the Committee who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) and an "outside
director" within the meaning of Treasury Regulation 1.162-27(e)(3) under Code
Section 162(m).
(dd) "Restricted Stock" means Stock granted to a Participant under Section
6(d) hereof, that is subject to certain restrictions and to a risk of
forfeiture.
(ee) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(ff) "Stock" means the Company's Class A Common Stock, and such other
securities as may be substituted (or resubstituted) for Stock pursuant to
Section 10(c) hereof.
(gg) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority, in each case
subject to and consistent with the provisions of the Plan, to select Eligible
Persons to become Participants, grant Awards, determine the type, number, and
other terms and conditions of, and all other matters relating to, Awards,
prescribe Award agreements (which need not be identical for each Participant)
and rules and regulations for the administration of the Plan, establish trusts,
construe and interpret the Plan and Award agreements and correct defects, supply
omissions, or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee may deem necessary or advisable
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for the administration of the Plan. The foregoing and other provisions of the
Plan notwithstanding, the Board may perform any function of the Committee under
the Plan, including for the purpose of ensuring that transactions under the Plan
by Participants who are then subject to Section 16 of the Exchange Act in
respect of the Company are exempt under Rule 16b-3. In any case in which the
Board is performing a function of the Committee under the Plan, each reference
to the Committee herein shall be deemed to refer to the Board, except where the
context otherwise requires.
(b) Manner of Exercise of Committee Authority. At any time that a member of
the Committee is not a Qualified Member, any action of the Committee relating to
an Award granted or to be granted to a Participant who is then subject to
Section 16 of the Exchange Act in respect of the Company, or relating to a
162(m) Award, may be taken either (i) by a subcommittee, designated by the
Committee, composed solely of two or more Qualified Members, or (ii) by the
Committee but with each such member who is a not a Qualified Member abstaining
or recusing himself or herself from such action; provided, however, that, upon
such abstention or recusal, the Committee remains composed solely of two or more
Qualified Members. Such action, authorized by such a subcommittee or by the
Committee upon the abstention or recusal of such non-Qualified Member(s), shall
be the action of the Committee for purposes of the Plan. Any action of the
Committee shall be final, conclusive and binding on all persons, including the
Company, its subsidiaries, Participants, Beneficiaries, transferees under
Section 10(b) hereof or other persons claiming rights from or through a
Participant, and stockholders. The express grant of any specific power to the
Committee, and the taking of any action by the Committee, shall not be construed
as limiting any power or authority of the Committee. The Committee may delegate
to officers or employees of the Company or any subsidiary the authority, subject
to such terms as the Committee shall determine, to perform such functions,
including administrative functions, as the Committee may determine, to the
extent that such delegation will not result in the loss of an exemption under
Rule 16b-3(d)(1) or (e) for Awards granted to Participants subject to Section 16
of the Exchange Act in respect of the Company and will not cause Awards intended
to be 162(m) Awards to fail to so qualify. The Committee may appoint agents to
assist it in administering the Plan.
(c) Limitation of Liability. The Committee and each member thereof shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him or her by any executive officer, other officer or employee of
the Company or a subsidiary, the Company's independent auditors, consultants or
any other agents assisting in the administration of the Plan. Members of the
Committee and any officer or employee of the Company or a subsidiary acting at
the direction or on behalf of the Committee shall not be personally liable for
any action or determination taken or made in good faith with respect to the
Plan, and shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to adjustment
as provided in Section 10(c) hereof, the total number of shares of Stock
reserved and available for delivery in connection with Awards under the Plan
shall be (i) 4,000,000, plus (ii) 5% of the number of shares newly issued by the
Company or delivered out of treasury shares during the term of the Plan
(excluding any issuance or delivery in connection with Awards, awards under
Preexisting Plans, or options or other stock features of plans exclusively for
directors of the Company), plus (iii) the number of shares of Stock remaining
available under the Preexisting Plans at the effective date of the Plan plus
shares subject to awards under the Preexisting Plans which become available
after the
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Plan effective date in accordance with Section 4(c) hereof; provided that any
shares of Stock added as a result of clause (ii) of this sentence shall not be
available for grants of ISOs or SARs in tandem with ISOs. Any shares of Stock
delivered under the Plan may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No Award may be granted
if the number of shares of Stock to be delivered in connection with such Award
or, in the case of an Award relating to shares of Stock but settleable only in
cash (such as cash-only SARs), the number of shares to which such Award relates,
exceeds the number of shares of Stock remaining available under the Plan minus
the number of shares of Stock relating to then-outstanding cash-only Awards. The
Committee may adopt reasonable counting procedures to ensure appropriate
counting, avoid double counting (as, for example, in the case of tandem or
substitute awards) and make adjustments if the number of shares of Stock
actually delivered differs from the number of shares previously counted in
connection with an Award.
(c) Availability of Shares Not Delivered Under Awards. Shares of Stock
subject to an Award or award under a Preexisting Plan that is cancelled,
expired, forfeited, settled in cash or otherwise terminated without a delivery
of shares to the Participant, including (i) the number of shares withheld in
payment of any exercise or purchase price of an Award or taxes relating to
Awards, and (ii) the number of shares equal to the number of shares surrendered
in payment of any exercise or purchase price of an Award or taxes relating to
Awards, will again be available for Awards under the Plan, except that if any
such shares could not again be available for Awards to a particular Participant
under any applicable law or regulation, such shares shall be available
exclusively for Awards to Participants who are not subject to such limitation.
5. Eligibility; Per-Person Award Limitations. Awards may be granted under
the Plan only to Eligible Persons. In each fiscal year during any part of which
the Plan is in effect, an Eligible Person may not be granted Awards relating to
more than 2,000,000 shares of Stock, subject to adjustment as provided in
Section 10(c), under Sections 6(b), or Awards relating to more than 1,000,000
shares of Stock, subject to adjustment as provided in Section 10(c), under each
of Sections 6(c), 6(d), 6(e), 6(f), 6(h), 8(b) and 8(c). In addition, the
maximum amount that may be paid out as a final Annual Incentive Award or other
cash-denominated Award in any fiscal year to any one Participant shall be
$3,500,000.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth in
this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 10(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of employment by the Participant and terms
permitting a Participant to make elections relating to his or her Award. The
Committee shall retain full power and discretion to accelerate, waive or modify,
at any time, any term or condition of an Award that is not mandatory under the
Plan. Except in cases in which the Committee is authorized to require other
forms of consideration under the Plan, or to the extent other forms of
consideration must by paid to satisfy the requirements of the Delaware General
Corporation Law, no consideration other than services may be required for the
grant (but not the exercise) of any Award.
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(b) Options. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee, provided that such
exercise price shall be not less than the Fair Market Value of a share of
Stock on the date of grant of such Option, except as provided under Section
7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the methods by which
such exercise price may be paid or deemed to be paid, the form of such
payment, including, without limitation, cash, Stock, other Awards or awards
granted under other plans of the Company or any subsidiary, or other
property (including notes or other contractual obligations of Participants
to make payment on a deferred basis), and the methods by or forms in which
Stock will be delivered or deemed to be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code. Anything in
the Plan to the contrary notwithstanding, no term of the Plan relating to
ISOs shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be exercised so as to disqualify either
the Plan or any ISO under Section 422 of the Code, unless the Participant
has first requested the change that will result in such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to grant SAR's
to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the Participant to whom it
is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise (or, in the
case of a "Limited SAR," the Fair Market Value determined by reference to
the Change in Control Price, as defined under Section 9(c) hereof), over
(B) the grant price of the SAR as determined by the Committee, provided
that such grant price shall be not less than the Fair Market Value of a
share of Stock on the date of grant of such SAR, except as provided under
Section 7(a) hereof.
(ii) Other Terms. The Committee shall determine at the date of grant
or thereafter, the time or times at which and the circumstances under which
a SAR may be exercised in whole or in part (including based on achievement
of performance goals and/or future service requirements), the method of
exercise, the method of settlement, form of consideration payable in
settlement, the method by or forms in which Stock will be delivered or
deemed to be delivered to Participants, whether or not a SAR shall be in
tandem or in combination with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised in
connection with a Change in Control or other event as specified by the
Committee may be granted on such terms, not inconsistent with this Section
6(c), as the Committee may determine. SARs and Limited SARs may be either
freestanding or in tandem with other Awards.
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(d) Restricted Stock. The Committee is authorized to grant Restricted Stock
to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions,
if any, as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances
(including based on achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the Committee may
determine at the date of grant or thereafter. Except to the extent
restricted under the terms of the Plan and any Award agreement relating to
the Restricted Stock, a Participant granted Restricted Stock shall have all
of the rights of a stockholder, including the right to vote the Restricted
Stock and the right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee). During the
restricted period applicable to the Restricted Stock, subject to Section
10(b) below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the Committee may
provide, by rule or regulation or in any Award agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating
to Restricted Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, the Committee may require such certificates to bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical
possession of the certificates, or that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee may require that any cash dividends paid on
a share of Restricted Stock be automatically reinvested in additional
shares of Restricted Stock or applied to the purchase of additional Awards
under the Plan. Unless otherwise determined by the Committee, Stock
distributed in connection with a Stock split or Stock dividend, and other
property distributed as a dividend, shall be subject to restrictions and a
risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock
(restricted stock units) to Participants, which are rights to receive Stock,
cash, or a combination thereof at the end of a specified deferral period,
subject to the following terms and conditions:
(i) Award and Restrictions. Satisfaction of an Award of Deferred Stock
will occur upon expiration of the deferral period specified for such
Deferred Stock by the Committee (or, if permitted by the Committee, as
elected by the Participant). In addition, Deferred Stock shall be subject
to such restrictions (which may include a risk of forfeiture) as the
Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier
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specified times (including based on achievement of performance goals and/or
future service requirements), separately or in combination, in installments
or otherwise, as the Committee may determine. Deferred Stock may be
satisfied by delivery of Stock, cash equal to the Fair Market Value of the
specified number of shares of Stock covered by the Deferred Stock, or a
combination thereof, as determined by the Committee at the date of grant or
thereafter.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in the Award
agreement evidencing the Deferred Stock), all Deferred Stock that is at
that time subject to deferral (other than a deferral at the election of the
Participant) shall be forfeited; provided that the Committee may provide,
by rule or regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating to
Deferred Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Deferred Stock.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified number of
shares of Stock covered by an Award of Deferred Stock will be either (A)
paid with respect to such Deferred Stock at the dividend payment date in
cash or in shares of unrestricted Stock having a Fair Market Value equal to
the amount of such dividends, or (B) deferred with respect to such Deferred
Stock and the amount or value thereof automatically deemed reinvested in
additional Deferred Stock, other Awards, or other investment vehicles, as
the Committee shall determine or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash or deliver other property under other plans
or compensatory arrangements. Stock or Awards granted hereunder shall be subject
to such other terms as shall be determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of shares of Stock, or other periodic payments. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents will be paid
or distributed when accrued or will be deemed to have been reinvested in
additional Stock, Awards, or other investment vehicles, and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Stock, purchase rights for Stock, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Committee, and Awards valued by reference to the book value of
Stock or the value of securities of or the performance of specified
subsidiaries. The Committee shall determine the terms and conditions of such
Awards. Stock delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(h) shall be purchased for such
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consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, or other property, as
the Committee shall determine. Cash awards, as an element of or supplement to
any other Award under the Plan, may also be granted pursuant to this Section
6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution or exchange for, any other
Award or any award granted under another plan of the Company, any subsidiary, or
any business entity to be acquired by the Company or a subsidiary, or any other
right of a Participant to receive payment from the Company or any subsidiary.
Such additional, tandem, and substitute or exchange Awards may be granted at any
time. If an Award is granted in substitution or exchange for another Award or
award, the Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be granted
in lieu of cash compensation, including in lieu of cash amounts payable under
other plans of the Company or any subsidiary, in which the value of the Award or
the Stock subject to the Award is equivalent in value to the cash compensation
(for example, Deferred Stock or Restricted Stock), or in which the exercise
price, grant price or purchase price of the Award in the nature of a right that
may be exercised is equal to the Fair Market Value of the underlying Stock minus
the value of the cash compensation surrendered (for example, Options granted
with an exercise price "discounted" by the amount of the cash compensation
surrendered).
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee; provided that in no event shall the term of any
Option or SAR exceed a period of ten years (or such shorter term as may be
required in respect of an ISO under Section 422 of the Code).
(c) Form and Timing of Payment Under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Award agreement, payments to be made by the
Company or a subsidiary upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Stock, other Awards or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. The settlement of any Award may be accelerated, and cash
paid in lieu of Stock in connection with such settlement, in the discretion of
the Committee or upon occurrence of one or more specified events (in addition to
a Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 10(e) of the Plan) or permitted at the election of
the Participant. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the grant or crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. With respect to a Participant
who is then subject to Section 16 of the Exchange Act in respect of the Company,
the Committee shall use its best efforts to implement transactions under the
Plan and administer the Plan in a manner that will ensure that each transaction
by such a Participant is exempt from liability under Rule 16b-3, except that
such a Participant may be permitted to engage in a non-exempt transaction under
the Plan if written notice has been given to the Participant regarding the
non-exempt nature of such transaction. The Committee may authorize the
repurchase of any Award or shares resulting from any Award in order
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to prevent a Participant from incurring or potentially incurring liability under
Section 16(b) of the Exchange Act. Unless otherwise specified by the
Participant, equity securities, including derivative securities, acquired under
the Plan which are disposed of by a Participant shall be deemed to be disposed
of in the order acquired by the Participant.
8. Performance Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee. The
Committee may use such business criteria and other measures of performance as it
may deem appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable under any
Award subject to performance conditions, except as limited under Sections 8(b)
and 8(c) hereof in the case of a Performance Award intended to qualify under
Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees. If the
Committee determines that a Performance Award to be granted to an Eligible
Person who is designated by the Committee as likely to be a Covered Employee
should qualify as "performance-based compensation" for purposes of Code Section
162(m), the grant and/or settlement of such Performance Award shall be
contingent upon achievement of preestablished performance goals and other terms
set forth in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect each to such criteria,
as specified by the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder (including
Treasury Regulation 1.162-27 and any successor thereto), including the
requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such
Performance Awards shall be payable upon achievement of any one performance
goal or that two or more of the performance goals must be achieved as a
condition to settlement of such Performance Awards. Performance goals may
differ for Performance Awards granted to any one Participant or to
different Participants.
(ii) Business Criteria. One or more of the following business criteria
for the Company, on a consolidated basis, and/or for specified subsidiaries
or business units of the Company (except with respect to the total
stockholder return and earnings per share criteria), shall be used
exclusively by the Committee in establishing performance goals for such
Performance Awards: (1) total stockholder return; (2) such total
stockholder return as compared to total return (on a comparable basis) of
an index such as, but not limited to, the Standard & Poor's 500 or the
Value Line Apparel Industry Index; (3) net income; (4) pretax earnings; (5)
earnings before interest, taxes, depreciation and amortization (EBITDA);
(6) pretax operating earnings before or after interest expense and before
or after bonuses, service fees, and extraordinary or special items; (7)
operating margin; (8) earnings per share; (9) return on equity; (10) return
on capital; (11) return on investment; (12) operating earnings; and (13)
working capital, all on an absolute or relative basis. The foregoing
business criteria shall also be exclusively used in establishing
performance goals for Annual Incentive Awards granted to a Covered Employee
under Section 8(c) hereof.
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(iii) Performance Period; Timing For Establishing Performance
Goals. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of not less than one
year nor more than ten years, as specified by the Committee. Performance
goals shall be established not later than 90 days after the beginning of
any performance period applicable to such Performance Awards, or at such
other date as may be required or permitted for "performance-based
compensation" under Code Section 162(m).
(iv) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash or Stock, or other Awards, or other
property, in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not exercise discretion to
increase any such amount payable to a Covered Employee in respect of
Performance Award subject to this Section 8(b). The Committee shall specify
the circumstances in which such Performance Awards shall be forfeited in
the event of termination of employment by the Participant prior to the end
of a performance period or settlement of Performance Awards, and other
terms relating to such Performance Awards in accordance with Section 6 and
this Section 8.
(c) Annual Incentive Awards Granted to Designated Covered Employees. The
Committee may grant Annual Incentive Awards to Eligible Persons including those
designated by the Committee as likely to be Covered Employees, which Awards
shall represent a conditional right to receive a payment in cash, unless
otherwise determined by the Committee, after the end of a specified fiscal year,
in accordance with this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an Annual
Incentive Award pool, which shall be an unfunded pool, for purposes of
measuring Company performance in connection with Annual Incentive Awards.
The amount of such Annual Incentive Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof in the given
performance year, as specified by the Committee in accordance with Section
8(c)(ii) hereof. The Committee may specify the amount of the Annual
Incentive Award pool as a percentage of any of such business criteria, a
percentage thereof in excess of a threshold amount, or as another amount
which need not bear a strictly mathematical relationship to such business
criteria.
(ii) Potential Annual Incentive Awards. Not later than the end of the
90th day of each fiscal year, or at such other date as may be required or
permitted for "qualified performance-based compensation" under Code Section
162(m), the Committee shall determine the Eligible Persons who will
potentially receive Annual Incentive Awards for that fiscal year, either
out of an Annual Incentive Award pool established by such date under
Section 8(c)(i) hereof or as individual Annual Incentive Awards. In the
case of individual Annual Incentive Awards intended to qualify under Code
Section 162(m), the amount potentially payable shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof in the given
performance year, as specified by the Committee; in other cases, such
amount shall be based on such criteria as shall be established by the
Committee. In all cases, the maximum Annual Incentive Award of any
Participant shall be subject to the limitation set forth in Section 5
hereof.
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(iii) Payout of Annual Incentive Awards. After the end of each fiscal
year, the Committee shall determine the amount, if any, of (A) the Annual
Incentive Award pool and the maximum amount of potential Annual Incentive
Award payable to each Participant in the Annual Incentive Award pool, or
(B) the amount of potential Annual Incentive Award otherwise payable to
each Participant. The Committee may, in its discretion, determine that the
amount payable to any Participant as a final Annual Incentive Award shall
be increased or reduced from the amount of his or her potential Annual
Incentive Award, including a determination to make no final Award
whatsoever, but may not exercise discretion to increase any such amount in
the case of an Annual Incentive Award intended to qualify under Code
Section 162(m). The Committee shall specify the circumstances in which an
Annual Incentive Award shall be forfeited in the event of termination of
employment by the Participant prior to the end of a fiscal year or the
payout of such Annual Incentive Award, and other terms relating to such
Annual Incentive Award in accordance with the Plan.
(d) Written Determinations. All determinations by the Committee as to the
establishment of performance goals and the potential Awards related to such
performance goals and as to the achievement of performance goals relating to
such Performance Awards under Section 8(b), and the amount of any Annual
Incentive Award pool and the amount of final Annual Incentive Awards under
Section 8(c), shall be made in writing in the case of any Award intended to
qualify under Code Section 162(m). The Committee may not delegate any
responsibility relating to such Performance Awards or Annual Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards Under Code Section
162(m). It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Sections 8(b) and 8(c) hereof granted to persons who are
designated by the Committee as likely to be Covered Employees within the meaning
of Code Section 162(m) and regulations thereunder (including Treasury Regulation
1.162-27 and any successor thereto) shall, if so designated by the Committee,
constitute "qualified performance-based compensation" within the meaning of Code
Section 162(m) and regulations thereunder. Accordingly, the terms of Sections
8(b), (c), (d) and (e), including the definitions of Covered Employee and other
terms used therein, shall be interpreted in a manner consistent with Code
Section 162(m) and regulations thereunder. The foregoing notwithstanding,
because the Committee cannot determine with certainty whether a given
Participant will be a Covered Employee with respect a fiscal year that has not
yet been completed, the term Covered Employee as used herein shall mean only a
person designated by the Committee, at the time of grant of Performance Awards
or an Annual Incentive Award, as likely to be a Covered Employee with respect to
that fiscal year. If any provision of the Plan or any agreement relating to such
Performance Awards or Annual Incentive Awards does not comply or is inconsistent
with the requirements of Code Section 162(m) or regulations thereunder, such
provision shall be construed or deemed amended to the extent necessary to
conform to such requirements.
9. Change in Control
(a) Effect of "Change in Control." In the event of a "Change in Control,"
as defined in Section 9(b), the following provisions shall apply:
(i) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of the
time of the Change in Control and shall remain exercisable and vested for
the balance of the stated term of such Award without regard
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to any termination of employment by the Participant, subject only to the
restrictions set forth in Section 10(a) hereof;
(ii) The restrictions, deferral of settlement and forfeiture
conditions applicable to any other Award granted under the Plan shall lapse
and such Awards shall be deemed fully vested as of the time of the Change
in Control, except to the extent of any waiver by the Participant and
subject to the restrictions set forth in Section 10(a) hereof; and
(iii) With respect to any outstanding Award subject to achievement of
performance goals and conditions under the Plan, such performance goals and
other conditions will be deemed to be met if and to the extent so provided
by the Committee in the Award agreement relating to such Award.
(b) Definition of "Change in Control." A "Change in Control" shall be
deemed to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the shares
of Common Stock of the Company then outstanding (the "Company Common Stock
Outstanding") or the voting securities of the Company then outstanding
entitled to vote generally in the election of directors (the "Company
Voting Securities Outstanding"); provided, however, that such acquisition
of Beneficial Ownership would result in the Person's Beneficially Owning
25% or more of the Company Common Stock Outstanding or 25% or more of the
combined voting power of the Company Voting Securities Outstanding; and
provided further, that immediately prior to such acquisition such Person
was not a direct or indirect Beneficial Owner of 25% or more of the Company
Common Stock Outstanding or 25% or more of the combined voting power of
Company Voting Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or dissolution
of the Company, sale or disposition of all or substantially all of the
assets of the Company, or similar corporate transaction (in each case
referred to in this Section 9(b) as a "Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly);
provided, however, that any merger, consolidation, sale, disposition or
other similar transaction to or with William Farley or entities controlled
by him shall not constitute a Corporate Transaction; or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however,
for purposes of this Section 9(b), that any individual who becomes a member
of the Board subsequent to the Effective Date whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at
least a majority of those individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed to be such pursuant to
this proviso) shall be considered as though such individual were a member
of the Incumbent Board; but, provided, further, that any such individual
whose initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act, including any successor to such
Rule) or other actual or threatened solicitation of proxies or consents by
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or on behalf of a Person other than the Board shall not be so considered as
a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of
this Section 9(b), the following shall not constitute a Change in Control for
purposes of the Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any subsidiary of the Company or an employee benefit plan (or
related trust) sponsored or maintained by the Company or an affiliate; or (2)
any acquisition or consummation of a Corporate Transaction following which more
than 50% of, respectively, the shares then outstanding of common stock of the
corporation resulting from such acquisition or Corporate Transaction and the
combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in substantially
the same proportions as their ownership, immediately prior to such acquisition
or Corporate Transaction, of the Company Common Stock Outstanding and Company
Voting Securities Outstanding, as the case may be.
(c) Definition of "Change in Control Price." The "Change in Control Price"
means an amount in cash equal to the higher of (i) the amount of cash and fair
market value of property that is the highest price per share paid (including
extraordinary dividends) in any transaction triggering the Change in Control
under Section 9(b)(ii) hereof or any liquidation of shares following a sale of
substantially all assets of the Company, or (ii) the highest Fair Market Value
per share at any time during the 60-day period preceding and 60-day period
following the Change in Control.
10. General Provisions.
(a) Compliance With Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the issuance or
delivery of Stock or payment of other benefits under any Award until completion
of such registration or qualification of such Stock or other required action
under any federal or state law, rule or regulation, listing or other required
action with respect to any stock exchange or automated quotation system upon
which the Stock or other Company securities are listed or quoted, or compliance
with any other obligation of the Company, as the Committee may consider
appropriate, and may require any Participant to make such representations,
furnish such information and comply with or be subject to such other conditions
as it may consider appropriate in connection with the issuance or delivery of
Stock or payment of other benefits in compliance with applicable laws, rules,
and regulations, listing requirements, or other obligations.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party (other than the Company or a subsidiary), or assigned
or transferred otherwise than by will or the laws of descent and distribution or
to a Beneficiary upon the death of a Participant, and such Awards or rights that
may be exercisable shall be exercised during the lifetime of the Participant
only by the Participant or his or her guardian or legal representative. The
foregoing notwithstanding, the Committee may provide that Awards (or rights or
interests therein), other than ISOs and SARs in tandem therewith, shall be
transferable (and otherwise not subject to limitations under this Section
10(b)), including permitting transfers to
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a Participant's immediate family members (i.e., spouse, children, grandchildren,
or siblings, as well as the Participant), to trusts for the benefit of such
immediate family members, and to partnerships in which such family members are
the only parties, or other transfers deemed by the Committee to be not
inconsistent with the purposes of the Plan, subject to any terms and conditions
which the Committee may impose thereon. A Beneficiary, transferee, or other
person claiming any rights under the Plan from or through any Participant shall
be subject to all terms and conditions of the Plan and any Award agreement
applicable to such Participant, except as otherwise determined by the Committee,
and to any additional terms and conditions deemed necessary or appropriate by
the Committee.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an adjustment
is determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the rights of Participants under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all of (i) the
number and kind of shares of Stock which may be delivered in connection with
Awards granted thereafter, (ii) the number and kind of shares of Stock by which
annual per-person Award limitations are measured under Section 5 hereof, (iii)
the number and kind of shares of Stock subject to or deliverable in respect of
outstanding Awards, and (iv) the exercise price, grant price or purchase price
relating to any Award and/or make provision for payment of cash or other
property in respect of any outstanding Award; provided, in each case, that, with
respect to ISOs and SARs relating thereto, no such adjustment shall be
authorized or made to the extent that such authority or the making of such
adjustment would cause the Plan or the ISO not to comply with Section 422 of the
Code. In addition, the Committee is authorized to make adjustments in the terms
and conditions of, and the criteria included in, Awards (including Performance
Awards and performance goals, and Annual Incentive Awards and any Annual
Incentive Award pool or performance goals relating thereto) in recognition of
unusual or nonrecurring events (including, without limitation, events described
in the preceding sentence, as well as acquisitions and dispositions of
businesses and assets) affecting the Company, any subsidiary, or any business
unit, or the financial statements of the Company or any subsidiary, or in
response to changes in applicable laws, regulations, accounting principles, tax
rates and regulations, or business conditions or in view of the Committee's
assessment of the business strategy of the Company, any subsidiary or business
unit thereof, performance of comparable organizations, economic and business
conditions, personal performance of a Participant, and any other circumstances
deemed relevant; provided that no such adjustment shall be authorized or made if
and to the extent that such authority or the making of such adjustment would
cause Options, SARs, Performance Awards granted under Section 8(b) hereof, or
Annual Incentive Awards granted under Section 8(c) hereof to Participants
designated by the Committee as Covered Employees as defined in Section 8(e)
hereof, to otherwise fail to qualify as "performance-based compensation" under
Code Section 162(m) and regulations thereunder.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan, including
from a distribution of Stock, or any payroll or other payment to a Participant,
amounts of withholding and other taxes due or potentially payable in connection
with any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and Participants to satisfy
obligations for the payment of withholding taxes and other tax obligations
relating to any Award.
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<PAGE> 59
This authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any amendment or alteration to the Plan shall be subject to the approval of the
Company's stockholders not later than the annual meeting next following such
Board action if such stockholder approval is required by any federal or state
law or regulation or the rules of any stock exchange or automated quotation
system on which the Stock may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such changes to the Plan
to stockholders for approval; provided that, without the consent of an affected
Participant, no such Board action may materially and adversely affect the rights
of such Participant under any previously granted and outstanding Award. The
Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue or terminate any Award theretofore granted and any Award agreement
relating thereto, except as otherwise provided in the Plan; provided that,
without the consent of an affected Participant, no such Committee action may
materially and adversely affect the rights of such Participant under such Award.
Notwithstanding anything in the Plan to the contrary, if any right under this
Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee may modify or adjust the right so that
pooling of interest accounting shall be available, including the substitution of
Stock having a Fair Market Value equal to the cash otherwise payable hereunder
for the right which caused the transaction to be ineligible for pooling of
interest accounting.
(f) Limitation on Rights Conferred Under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in the
employ of the Company or a subsidiary, (ii) interfering in any way with the
right of the Company or a subsidiary to terminate any Eligible Person's or
Participant's employment at any time, (iii) giving an Eligible Person or
Participant any claim to be granted any Award under the Plan or to be treated
uniformly with other Participants and employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until
the Participant has validly exercised an Option or is otherwise duly issued or
transferred shares of Stock in accordance with the terms of the Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to deliver
Stock pursuant to an Award, nothing contained in the Plan or any Award shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize the creation
of trusts and deposit therein cash, Stock, other Awards or other property, or
make other arrangements to meet the Company's obligations under the Plan. Such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan, unless the Committee otherwise determines with the consent of each
affected Participant. The trustee of such trusts may be authorized to dispose of
trust assets and reinvest the proceeds in alternative investments, subject to
such terms and conditions as the Committee may specify and in accordance with
applicable law.
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<PAGE> 60
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem
desirable, including incentive arrangements and awards which do not qualify
under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an Award
with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other consideration. No
fractional shares of Stock shall be issued or delivered pursuant to the Plan or
any Award. The Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
(j) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the Delaware General Corporation Law, to the
extent applicable, other laws (including those governing contracts) of the State
of Illinois, without giving effect to principles of conflicts of laws, and
applicable federal law.
(k) Awards Under Preexisting Plans. From and after May 16, 1995 (the date
of initial approval of the Plan by stockholders of the Company), no further
Awards shall be granted under any Preexisting Plan, and awards that are
outstanding under the Company's Executive Incentive Compensation Plan effective
as of January 1, 1994 shall be deemed to be Awards under the Plan, provided that
all terms and conditions of such Awards shall be as set forth under such
Executive Incentive Compensation Plan and agreements thereunder, except if and
to the extent such terms and conditions are specifically modified in a writing
executed by the Company and the affected Participant.
(l) Plan Effective Date, Stockholder Approval and Termination. The Plan
became effective on December 18, 1994, subject to the subsequent approval of
stockholders which was obtained May 16, 1995, by a vote sufficient to meet the
requirements of Code Sections 162(m) and 422, Rule 16b-3 under the Exchange Act,
Section 312.03 of the Listed Company Manual of the New York Stock Exchange, and
other laws, regulations, and obligations of the Company applicable to the Plan.
Subject to earlier termination by action of the Board in accordance with Section
10(e) hereof, no Award may be newly granted under the Plan after December 18,
2004, and the Plan will terminate thereafter at such time that the Company has
no further obligations or rights in respect of Awards granted under the Plan.
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<PAGE> 61
P PROXY SOLICITATION
R FRUIT OF THE LOOM, INC.
O PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
X TO BE HELD ON MAY 13, 1997
Y
The undersigned hereby appoints William Farley and Richard C. Lappin as
proxies, each with power of substitution, and hereby authorizes them to
represent the undersigned and to vote, as designated below, all the shares of
CLASS A COMMON STOCK held of record by the undersigned on March 18, 1997 at the
Annual Meeting of Stockholders of Fruit of the Loom, Inc. to be held on May 13,
1997, and 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.)
- FOLD AND DETACH HERE -
<TABLE>
<S><C>
The Board of Directors unanimously recommends that stockholders vote FOR all the nominees listed below Please mark
(Proposal 1), FOR the proposal to approve the Fruit of the Loom, Inc. 1995 Executive Incentive Compensation your vote as X
Plan, as Amended and Restated (Proposal 2), and AGAINST the stockholder proposal to redeem the stockholder indicated in
rights previously issued by the Company (Proposal 3). this example
1. ELECTION OF DIRECTORS-NOTE: Holders of Class A Common Stock vote in Sections A and B below.
FOR WITHHOLD FOR ALL FOR AGAINST ABSTAIN
A. Directors elected by holders of Class A 2. Approval of the Fruit of the Loom,
Common Stock voting as a separate class: Inc. 1995 Executive Incentive
Omar Z. Al Askari, Dennis S. Bookshester, Compensation Plan, as Amended and
Lee W. Jennings Restated.
(To withhold authority to vote for an 3. Stockholder proposal to redeem the
individual nominee, write that nominee's stockholder rights previously issued
name on the space provided to the right) _______________________ by the Company.
FOR WITHHOLD FOR ALL
B. Directors elected by holders of Class A 4. In their discretion, the proxies are authorized to vote
Common Stock and holders of Class B Common upon such other business as may properly be brought
Stock voting together as a single class: before the meeting and any adjournment thereof.
William Farley, Henry A. Johnson, Richard
C. Lappin, Larry K. Switzer, A. Lorne Weil,
Sir Brian Wolfson
(To withhold authority to vote for an
individual nominee, write that nominee's
name on the space provided to the right) _______________________
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
______________ VOTED IN THE MANNER DIRECTED HEREIN BY THE
| UNDERSIGNED STOCKHOLDER. IF NO DIRECTION
| IS MADE, THE PROXY WILL BE VOTED "FOR" ALL
| THE NOMINEES LISTED ABOVE, "FOR" THE
PROPOSAL TO APPROVE THE FRUIT OF THE LOOM,
INC. 1995 EXECUTIVE INCENTIVE COMPENSATION
PLAN, AS AMENDED AND RESTATED, AND "AGAINST"
THE STOCKHOLDER PROPOSAL TO REDEEM THE
STOCKHOLDER RIGHTS PREVIOUSLY ISSUED BY THE
COMPANY.
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 -
</TABLE>
