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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 2, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8941
FRUIT OF THE LOOM, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 36-3361804
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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5000 SEARS TOWER,
233 SOUTH WACKER DRIVE,
CHICAGO, ILLINOIS 60606
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (312) 876-1724
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, $.01 par value New York Stock Exchange
7% Debentures Due 2011 American Stock Exchange
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [
]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
As of February 28, 1999, there were outstanding 66,851,070 shares of the
Registrant's Class A Common Stock, par value $.01 per share, and 5,229,421
shares of the Registrant's Class B Common Stock, par value $.01 per share. The
aggregate market value of the Registrant's Class A Common Stock held by
nonaffiliates at February 28, 1999 was approximately $848,173,000. See "ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS."
DOCUMENTS INCORPORATED BY REFERENCE:
Part III incorporates by reference information from the proxy statement for the
Annual Meeting of Shareholders to be held on May 18, 1999.
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FRUIT OF THE LOOM, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item
7a. Qualitative and Quantitative Disclosure about Market Risk... 25
Item 8. Financial Statements and Supplementary Data................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure (None)............................. 71
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 71
Item 11. Executive Compensation...................................... 72
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 72
Item 13. Certain Relationships and Related Transactions.............. 72
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K......................................................... 75
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PART I
FORWARD LOOKING INFORMATION
The Company desires to provide investors with meaningful and useful
information. Therefore, this Annual Report on Form 10-K contains certain
statements that describe the Company's beliefs concerning future business
conditions and the outlook for the Company based on currently available
information. Wherever possible, the Company has identified these "forward
looking" statements (as defined in Section 21E of the Securities Exchange Act of
1934) by words such as "anticipates," "believes," "estimates," "expects," and
similar expressions. These forward looking statements are subject to risks,
uncertainties and other factors that could cause the Company's actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements. These risks, uncertainties and other factors
include, but are not limited to, the following: the financial strength of the
retail industry (particularly the mass merchant channel), the level of consumer
spending for apparel, demand for the Company's activewear screenprint products,
the competitive pricing environment within the basic apparel segment of the
apparel industry, the Company's ability to develop, market and sell new
products, the Company's effective income tax rate, the success of planned
advertising, marketing and promotional campaigns, international activities and
the resolution of legal proceedings and other contingent liabilities. The
Company assumes no obligation to update publicly any forward looking statements,
whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS
The Company is a leading international, vertically integrated basic apparel
company, emphasizing branded products for consumers ranging from infants to
senior citizens. The Company is one of the largest producers of men's and boys'
underwear, activewear for the screenprint T-shirt and fleece market, women's and
girls' underwear, casualwear, women's jeanswear and childrenswear, selling
products principally under the FRUIT OF THE LOOM(R), BVD(R), SCREEN STARS(R),
BEST(TM), MUNSINGWEAR(R), WILSON(R), GITANO(R) and CUMBERLAND BAY(TM) brand
names. In addition to undecorated products, the Company offers underwear,
sportswear and T-shirts decorated with licensed characters, including STAR
WARS(TM), BATMAN(TM), SUPERMAN(TM), SPIDERMAN(TM), LOONEY TUNES(TM), SESAME
STREET(TM), SCOOBY-DOO(TM), WOODY WOODPECKER(TM), CURIOUS GEORGE(TM) and
TELETUBBIES(TM). Under the PRO PLAYER(R) and FANS GEAR(R) brands, the Company
also designs, manufactures and markets licensed sports apparel bearing the
names, tradenames and logos of the National Football League, the National
Basketball Association, Major League Baseball and the National Hockey League,
professional sports teams and many colleges and universities, as well as the
likenesses of certain popular professional athletes.
The Company is a fully integrated manufacturer, performing most of its own
spinning, knitting, cloth finishing, cutting, sewing and packaging. Management
considers the Company's primary strengths to be its excellent brand recognition,
low cost production resulting primarily from the offshore location of
substantially all of its labor-intensive manufacturing operations, and strong
relationships with major discount chains and mass merchandisers. Management
believes that consumer awareness of the value, quality and competitive prices of
the Company products will benefit the Company in any retail environment where
consumers are value conscious.
OPERATING SEGMENTS
The Company manufactures and markets basic family apparel with vertically
integrated operations in the Americas (North America, Central America and the
Caribbean) and in Europe. North America is the Company's principal market,
accounting for more than 80% of consolidated Net sales in each of the last three
years. For the North American market, capital intensive spinning, knitting and
cutting operations are located in the United States. Labor intensive sewing and
finishing operations are located in Central America and the Caribbean. For the
European market, manufacturing operations are concentrated in Ireland, but labor
intensive operations are being relocated to lower cost North African locations.
In North America the Company is organized into three operating segments
based on the products it offers. These segments are Retail Products, Activewear
and Licensed Sportswear. Management allocates
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ITEM 1. BUSINESS -- (CONTINUED)
OPERATING SEGMENTS -- (CONTINUED)
promotional efforts, working capital, and manufacturing and distribution
capacity based on its assessment of segment operating results and market
conditions. In Europe the Company is organized into a single geographic
operating segment. Employing an entirely separate management team, the Company
produces a different mix of garments in Ireland and North Africa for sale in
Europe.
RETAIL PRODUCTS
Men's and Boys' Underwear. The Company offers a broad array of men's and
boys' underwear including briefs, boxer shorts, T-shirts and A-shirts, colored
and "fashion" underwear. These products are primarily sold to major discount
chains and mass merchandisers. A recent survey found that the FRUIT OF THE LOOM
brand was the most recognized of 90 men's apparel brands, with 97% brand
awareness. The Company sells all-cotton and cotton-blend underwear under its
FRUIT OF THE LOOM and BVD brand names. Products sold under the BVD brand name
are generally designed to appeal to a more premium market and are priced higher
than those sold under the FRUIT OF THE LOOM brand name. Under licensing
arrangements, the Company manufactures and markets men's and boys' underwear
bearing the MUNSINGWEAR and KANGAROO(R) trademarks in the United States and
certain overseas markets. The Company is one of the market leaders in men's and
boys' underwear, with a 1998 domestic market share of approximately 32%,
approximately five points behind the market share of its principal competitor.
Women's and Girls' Underwear. The Company offers a variety of women's and
girls' underwear under the FRUIT OF THE LOOM brand name, including cotton, nylon
and lycra panties. These products are primarily sold to major discount chains
and mass merchandisers. In addition, the Company has granted a license to
Warnaco Inc. for the manufacture and sale of bras, slips, camisoles and other
products under the FRUIT OF THE LOOM brand name in North America. The Company
also licenses the use of the FRUIT OF THE LOOM brand name to a manufacturer of
sheer hosiery. The Company is one of the branded market leaders in the
fragmented women's and girls' underwear market, with a 1998 domestic market
share of approximately 15% compared to a market share of 33% for the largest
competing brand. No other competitor had more than a 4% market share in 1998.
Casualwear. The Company markets undecorated T-shirts and fleece tops,
shorts and bottoms to mass merchandisers as casualwear under the FRUIT OF THE
LOOM, BVD and MUNSINGWEAR brands. Casualwear is produced in separate Spring and
Fall lines with updated color selections for each of the men's, women's, boys'
and girls' categories. A national marketing program includes national
advertising and local cooperative advertising, promotions and in-store
merchandising. The casualwear market is fragmented and has no dominant brands.
Women's Jeanswear. The Company designs, manufactures (including contract
manufacturing) and markets women's jeanswear and jeans related sportswear under
the GITANO and other trademarks. In addition to its core GITANO apparel
products, the Company licenses the production and sale of a variety of
accessories and other products bearing the GITANO trademark.
Childrenswear. The Company offers a broad array of childrenswear including
decorated underwear (generally with pictures of licensed movie or cartoon
characters) under the FUNPALS(R), FUNGALS(TM) and UNDEROOS(R) brands.
In November 1996, the Company sold substantially all the operating assets
of its Hosiery Division to an unrelated party and simultaneously entered into a
twenty-year licensing agreement for the purchaser to sell hosiery in a variety
of styles and colors under the FRUIT OF THE LOOM name and pay the Company a
royalty fee based on a percentage of FRUIT OF THE LOOM branded hosiery sales.
Prior to the sale, the Company manufactured and sold socks for men, women, boys
and girls under the FRUIT OF THE LOOM brand. See "SALE OF HOSIERY DIVISION" in
Notes to Consolidated Financial Statements.
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ITEM 1. BUSINESS -- (CONTINUED)
OPERATING SEGMENTS -- (CONTINUED)
ACTIVEWEAR
The Company produces and sells undecorated T-shirts and fleecewear under
the SCREEN STARS brand name and premium fleecewear and T-shirts under the FRUIT
OF THE LOOM, LOFTEEZ and BEST BY FRUIT OF THE LOOM labels. These products are
manufactured in a variety of styles and colors and are sold to distributors,
screenprinters and specialty retailers. Management believes that the Company is
the largest activewear manufacturer and supplier for screenprinters, with a
domestic market share of the screenprint T-shirt market of approximately 28% for
1997, the most recent year for which data is available. The Company believes
that its 1998 market share was substantially the same as its 1997 market share.
LICENSED SPORTSWEAR
The Company designs, manufactures and markets sports apparel under licenses
granted by major professional sports leagues, professional players and many
colleges and universities in the United States. The Company also has licenses
with Walt Disney Company for its ESPN and X-Games properties. The Company sells
a wide variety of quality sportswear, including T-shirts, sweatshirts, shorts
and outerwear primarily under the PRO PLAYER and FANS GEAR brands and the WILSON
trademark. The Company manufactures and markets a wide variety of decorated
sportswear to retail stores and mass merchants. Under its PRO PLAYER brand, the
Company designs and markets heavyweight jackets, lightweight jackets, headwear
and other outerwear and T-shirts and Fleecewear bearing the logos or insignia of
professional sports and college teams and leagues.
EUROPE
European apparel product offerings generally consist of T-shirts,
fleecewear and polo shirts sold to wholesale distributors for resale to the
imprint market (63%) and sold to the retail market (37%). The products are sold
primarily in Western European countries.
BUSINESS STRATEGY
Low Cost Manufacturing. The Company's strategy is to use its automated
textile manufacturing facilities in the United States for yarn spinning,
knitting, bleaching and dying, together with low cost offshore operations for
labor-intensive sewing and finishing activities. This combination allows the
Company to optimize its cost structure and offer continued value to its
customers. As part of this strategy, over the last three years the Company
transferred substantially all of its sewing operations to locations in Mexico,
the Caribbean and Central America. In 1998, over 95% of the Company's garments
were sewn offshore, as compared to approximately 12% at the beginning of 1995.
Based on the Company's selling price points and operating margins on its various
products, management believes that the Company is one of the lowest cost
producers in the markets it serves.
Utilizing Contract Manufacturers. Approximately half of the garments sewn
offshore in 1998 were assembled by contract manufacturers, with the remaining
half, consisting primarily of large volume styles, assembled at Company-owned
and operated facilities. While management believes it has the greatest cost
reduction potential at its Company-owned facilities, the Company uses contract
manufacturers for the following reasons: (i) to balance internal capacity
requirements, (ii) to manufacture low volume specialty garments, (iii) to
accommodate seasonal or one-time programs, and (iv) to bridge capacity in the
move from domestic plant to offshore plant sewing. The Company has increased its
own sewing capacity in Mexico and Central America, and expects to continue to
reduce its reliance on contract manufacturing, resulting in further cost
reductions.
Developing Product Line Extensions and New Products. The Company continues
to expand its existing product lines with variations designed to enhance product
demand and increase revenues. Specifically, the Company has responded to the
popularity of boxers in the men's and boys' underwear product category by
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ITEM 1. BUSINESS -- (CONTINUED)
BUSINESS STRATEGY -- (CONTINUED)
expanding its offerings of boxers and boxer briefs in various patterns and
silhouettes. In the women's and girls' underwear category, the Company is
introducing new products through its FTL Sport and Close Comfort programs, which
feature styles for improved fit and more comfortable feeling fashions. In the
childrenswear category, the Company is introducing an updated line of its
UNDEROOS brand costume underwear sets in a variety of popular character prints,
including new licensing properties such as STAR WARS, SUPERMAN, SPIDERMAN, and
TELETUBBIES. In addition, the Company is introducing new product variations in
its activewear and licensed sportswear categories, including the Company's
authentic program with the National Hockey League for team jerseys and uniforms.
Expanding Marketing Programs. The Company's marketing programs emphasize
the quality and consistency of the brands it owns and those it licenses from
others. Management is increasing its emphasis on marketing programs, with an
enhanced commitment to advertising and promotional programs. In 1996, the
Company signed a ten-year agreement to rename Joe Robbie Stadium (home of the
Miami Dolphins and Florida Marlins, as well as the 1999 Super Bowl) as Pro
Player Stadium. In addition, the Company has launched a new advertising campaign
focusing on Fruit of the Loom, BVD and Pro Player products.
Enhancing Information Systems. The Company has committed additional
resources to enhance its information systems ("IS"). This effort has included
the development of a new order entry system enabling activewear retailers to
order from wholesalers through the Internet and implementation of Electronic
Data Interchange with its major retail customers. In addition, the Company has
implemented its Vendor Managed Inventory ("VMI") program, enabling the Company
to partner with its customers and allowing these customers to maintain optimal
inventory levels. The VMI program and other IS enhancements enable the Company
to improve utilization of its own inventories by matching production more
closely with customer point of sale information. The Company plans to continue
its efforts in the IS area in 1999 and future years to improve its efficiency
and customer service.
MARKETING AND DISTRIBUTION
The Company sells its products to over 10,000 accounts, including all major
discount chains and mass merchandisers, wholesale clubs and screenprinters. The
Company also sells to many department, specialty, drug and variety stores,
national chains, supermarkets and sports specialty stores. In 1998,
approximately 83% of the Company's product sold through domestic retail channels
was sold to major discount chains and mass merchandisers, approximately 10% was
sold to specialty stores, and approximately 7% was sold to department stores.
Management believes that if the Company were to lose any one customer, a large
percentage of these sales would shift to other outlets due to the high degree of
brand awareness and consumer loyalty to the Company's products. Sales to the
Company's largest and second largest customers represented approximately 17% and
12%, respectively, of the Company's net sales in 1998. The Company's products
are principally sold by a nationally organized direct sales force of full-time
employees, while certain of the Company's products are sold though independent
sales representatives. The Company's products are shipped from five primary
distribution centers.
Management believes that among the Company's primary strengths are its
long-standing excellent relationships with major discount chains and mass
merchandisers. These retailers accounted for approximately 64% of the men's and
boys' underwear and approximately 61% of the women's and girls' underwear sold
in the United States in 1998, up from approximately 59% and 55%, respectively,
in 1993. In these channels, the Company supplied approximately 46% of the men's
and boys' underwear compared to 42% for its principal competitor and
approximately 24% of the women's and girls' underwear compared to 46% for its
principal competitor in the United States in 1998. During the last several
years, many of the Company's principal customers have revamped their inventory
and distribution systems, requiring their suppliers to offer more flexible
product deliveries. In response to these demands and to enable the Company to
better monitor and control its own inventory levels, the Company has made
substantial investments in IS and in upgrading its warehousing and distribution
capabilities.
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ITEM 1. BUSINESS -- (CONTINUED)
MARKETING AND DISTRIBUTION -- (CONTINUED)
The Company extensively markets its activewear and, to a lesser extent,
other products outside the United States, principally in Europe, Canada, Japan
and Mexico. In order to serve these markets, the Company has manufacturing
plants in Canada, the Republic of Ireland and Northern Ireland (United Kingdom),
as well as manufacturing operations in Morocco where cut fabrics from the
Republic of Ireland are sewn and returned to Europe for sale.
LICENSING AND TRADEMARKS
The Company owns the FRUIT OF THE LOOM, BVD, SCREEN STARS, BEST,
LOFTEEZ(R), CUMBERLAND BAY and certain other trademarks, which are registered or
protected by common law in the United States and in many foreign countries. The
Company owns the UNDEROOS, FUNPALS and FUNGALS trademarks which are registered
or protected by common law and used on certain childrenswear. These trademarks
are used on men's, women's and children's underwear and activewear marketed by
the Company. The Company owns the GITANO trademark which is registered in the
United States and in many foreign countries for use principally in connection
with women's jeanswear, sportswear and certain other apparel and accessory
items.
WILSON(R) is a trademark of Wilson Sporting Goods, used under license;
MUNSINGWEAR(R) and KANGAROO DESIGN(R) are registered trademarks of Supreme
International Corporation, used under license. BATMAN(TM) and SUPERMAN(TM) are
trademarks of D.C. Comics, care of Warner Bros. Consumer Products, a division of
Time Warner Entertainment Company L.P., used under license. STAR WARS(TM) is a
trademark of Lucasfilm Ltd., used under license. TELETUBBIES(TM) is a trademark
of The itsy bitsy Entertainment Company, used under license. SPIDERMAN(TM) is a
trademark of Marvel Characters, Inc., used under license. SCOOBY-DOO(TM) and all
related characters and elements are trademarks of Hanna Barbera Productions,
Inc., used under license from Warner Bros. Consumer Products, a division of Time
Warner Entertainment Company L.P. SESAME STREET(TM) is a trademark of Children's
Television Workshop, used under license. LOONEY TUNES(TM) is a trademark of
Warner Bros., used under license from Warner Bros. Consumer Products, a division
of Time Warner Entertainment Company. WOODY WOODPECKER(TM) is a trademark of
Walter Lantz Productions, Inc., used under license from MCA/Universal
Merchandising, Inc. CURIOUS GEORGE(TM) is a trademark of Houghton Mifflin
Company, used under license from Universal Studios Licensing, Inc.
In addition, the Company owns the PRO PLAYER and FANS GEAR trademarks for
its licensed sportswear business. The Company licenses properties, including
team insignia, images of professional athletes and college logos from the
National Football League, the National Basketball Association, Major League
Baseball, the National Hockey League, professional players' associations and
certain individual players and many colleges and universities in the United
States. These owned and licensed trademarks are used on sports apparel,
principally T-shirts, shorts, sweatshirts, jerseys and lightweight and
heavyweight jackets marketed by the Company.
INTERNATIONAL OPERATIONS
The Company sells primarily activewear through its foreign operations,
principally in Europe, Canada, Japan and Mexico. The Company's approach has
generally been to establish production in the Company's larger foreign markets
in order to better serve these markets and decrease the impact of foreign
currency fluctuations. The Company has established manufacturing plants in
Canada, the Republic of Ireland and Northern Ireland (United Kingdom) as a means
of accomplishing these objectives. In addition, the Company has established
manufacturing operations in Honduras, El Salvador and Jamaica to assemble
fabrics which have been manufactured and cut in the Company's U.S. operations,
as well as externally sourced fabric, into finished goods for sale principally
in the United States. The Company has established manufacturing operations in
Morocco where cut fabrics from the Republic of Ireland are sewn and returned to
Europe for sale.
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ITEM 1. BUSINESS -- (CONTINUED)
INTERNATIONAL OPERATIONS -- (CONTINUED)
Operations outside the United States are subject to risks inherent in
operating under different legal systems and various political and economic
environments. Among the risks are changes in existing tax laws, possible
limitations on foreign investment and income repatriation, government price or
foreign exchange controls and restrictions on currency exchange. At the present
time, existing limitations, controls and restrictions have not significantly
affected the Company. In addition, currency fluctuations within certain markets
present risk.
Sales from international operations during 1998 were $363,000,000 and were
principally generated from products manufactured at the Company's foreign
facilities. These international sales accounted for approximately 17% of the
Company's net sales in 1998. Management believes international sales will
continue to be a source of growth for the Company, particularly in Europe. See
"OPERATING SEGMENTS" in the Notes to Consolidated Financial Statements.
MANUFACTURING
Principal manufacturing operations consist of spinning, knitting, cloth
finishing, cutting, sewing and packaging. In addition, licensed sportswear
products are generally produced by applying decorative images, most often by
screen printing or embroidery, to blank garments. The Company knits yarn into
fabric using a multiple-knitting technique that produces long tubes of fabric
corresponding in weight and diameter to various sizes and styles required to
make both underwear and activewear. Substantially all of the Company's products
are either bleached to remove the ecru color of natural cotton or dyed for
colored products. To achieve certain colors, the fabric must be bleached and
dyed.
Various cutting methods are used in the U.S. and Mexico to maximize
operating efficiency and minimize cost. Fabric is distributed to employees
operating individual sewing machines. To increase efficiency, each employee
specializes in a particular function, such as sewing waistbands on briefs.
Quality checkpoints occur at many intervals in the manufacturing process, and
each garment is inspected prior to packaging.
In 1998, over 95% of the garments produced by the Company for the domestic
market were sewn in Central America, Mexico, or the Caribbean basin. Of this
total, about half were assembled at contractors and half at
Company-owned/operated facilities. Contract manufacturers have been used by the
Company for the following reasons: 1) to balance internal capacity requirements,
2) for low volume specialty garments, 3) for seasonal or one-time programs, and
4) as a capacity bridge in the move from domestic plant to offshore plant
sewing. The Company chooses to sew large volume styles in its own facilities
where it believes it has the greatest cost reduction potential. The Company is
in the process of increasing its own sewing capacity in Central America and
Mexico, which will reduce its reliance on contract manufacturing, and it is
expected to result in further cost reduction.
Gitano jeans are principally produced in the Company's own facilities.
Denim cloth is woven by contractors from yarn produced in the Company's U.S.
factories, where the product is cut and kitted; garments are then sewn in either
Mexico or Jamaica, with final wash, press, and pack operations in the U.S.
COMPETITION
All of the Company's markets are highly competitive. Competition in the
underwear and activewear markets is generally based upon quality, price and
delivery. The Company's vertically integrated manufacturing structure,
supplemented with offshore sewing of fabrics supplied by the Company's domestic
knitting operations, allows it to produce high quality products at costs which
management believes are among the lowest in the industry. In response to market
conditions, the Company, from time to time, reviews and adjusts its product
offerings and pricing structure.
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ITEM 1. BUSINESS -- (CONTINUED)
IMPORTS
Domestic apparel manufacturers continue to move sewing operations offshore
to reduce costs and compete with enhanced import competition resulting from the
Uruguay Round of the General Agreement on Tariffs and Trade. To maintain the
Company's position as a low cost manufacturer, the Company has increased the
percentage of garments sewn in the Caribbean and Central America and returned to
the United States under Section 9802 of the regulations of the Department of the
Treasury, United States Customs Service. The domestic knitting, bleaching and
dyeing operations continue to provide Fruit of the Loom with a competitive
advantage. Thus, the Company's strategy is to combine low cost textile
manufacturing in the United States with sewing predominantly offshore so that
the Company can continue to offer value to its customers.
Imports from the Caribbean, Central America and Mexico likely will continue
to rise more rapidly than imports from other parts of the world. This is because
Section 9802 (previously Section 807) grants preferential quotas to imported
goods fabricated from fabrics made and cut in the United States, as customs duty
is paid only on the value added outside the United States. United States apparel
and textile manufacturers, including the Company, will continue to use Section
9802 to compete with direct imports.
Direct imports accounted for approximately 19% of the United States men's
and boys' underwear market (93% if Section 9802 imports are included) in 1998
and about 45% (nearly 100% including Section 9802 imports) of the women's and
girls' underwear market. With regard to activewear, imports accounted for
approximately 48% of this market in 1997, the latest period for which data is
available.
Management does not believe that direct imports presently pose a
significant threat to its business. United States tariffs and quotas established
under the international agreement known as the Multifiber Arrangement ("MFA")
limit the growth of imports from certain low-wage foreign suppliers such as
China, India and Pakistan, thus limiting the price pressure on domestic
manufacturers resulting from imports from these countries. However, the Company
believes import competition will continue to increase and accelerate as MFA
quotas are phased out. Quotas will be completely eliminated on January 1, 2005.
EMPLOYEES
The Company employs approximately 31,000 persons. Approximately 3,500
employees, principally international, are covered by collective bargaining
agreements. Management believes that its employee relations are good.
MISCELLANEOUS
MATERIALS AND SUPPLIES. Materials and supplies used by the Company are
available in adequate quantities. The primary raw materials used in the
manufacturing processes are cotton and polyester which are subject to the price
volatility of the commodity markets. The Company contracts in advance to meet
its cotton needs and manages the risk of cotton price volatility through a
combination of fixed and nonfixed price purchase commitments, cotton futures
contracts and call options. As of January 2, 1999 the Company had entered into
contracts that cover a portion of its estimated cotton usage for 1999.
OTHER. The Company was incorporated under the laws of the state of Delaware
in 1985. The principal executive offices of the Company are located at 233 South
Wacker Drive, 5000 Sears Tower, Chicago, Illinois 60606, telephone (312)
876-1724. As used in this Annual Report on Form 10-K, the term "the Company"
refers to Fruit of the Loom, Inc. and its subsidiaries, unless otherwise stated
or indicated by the context. Market share data contained herein are for domestic
markets and are based upon information supplied to the Company by the National
Purchase Diary, which management believes to be reliable.
SPECIAL CHARGES. During the three years ended December 31, 1997, the
Company moved substantially all of its sewing and finishing operations to
locations in the Caribbean and Central America as part of its strategy to reduce
its cost structure and remain a low cost producer in the U.S. markets it serves.
In the fourth
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ITEM 1. BUSINESS -- (CONTINUED)
MISCELLANEOUS -- (CONTINUED)
quarter of 1997, the Company recorded charges for costs related to the closing
and disposal of a number of domestic manufacturing and distribution facilities,
impairment of manufacturing equipment and other assets and certain European
manufacturing and distribution facilities, and other costs associated with the
Company's world-wide restructuring of manufacturing and distribution facilities.
During 1995, the Company took several actions in an effort to substantially
reduce the Company's cost structure, streamline operations and further improve
customer service. These actions included the closing of certain domestic
manufacturing operations, further consolidation of the Company's Gitano and
licensed sportswear operations and the accelerated migration of some sewing
operations to lower cost, offshore locations. In addition, the Company reviewed
the operations of Salem and Gitano, decided to discontinue the use of the
SALEM(R) brand and redeployed the tangible assets relating to the Salem business
to other brands within the Company's licensed sports apparel operations. The
Company also implemented a plan to restructure the Gitano business and to
improve Gitano's profitability. See "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "SPECIAL CHARGES"
in the Notes to Consolidated Financial Statements.
REORGANIZATION
GENERAL
On March 4, 1999, the Company effected a corporate reorganization pursuant
to which Fruit of the Loom, Ltd. ("FTL Ltd."), a Cayman Islands company and
formerly a subsidiary of the Company, became the parent holding company of the
Company. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS". FTL Ltd., initially through the Company, continues to
conduct the businesses in which the Company was engaged immediately prior to the
Reorganization (as defined in ITEM 5.). During the remainder of 1999 and 2000,
substantially all of the businesses and subsidiaries of the Company located
outside of the United States will be transferred to FTL Ltd. (or direct or
indirect foreign subsidiaries of FTL Ltd.), other than certain interests of the
Company in Canada and Mexico and the beneficial ownership of certain trademarks.
The shareholders of FTL Ltd. have the same relative voting rights as the
stockholders of the Company had prior to the Reorganization.
8
<PAGE> 11
ITEM 2. PROPERTIES
The Company's properties and facilities aggregate approximately 14,239,000
square feet, of which approximately 5,331,000 square feet of facilities are
under leases expiring through 2017. Management believes that the Company's
remaining facilities and equipment are in good condition and that the Company's
remaining properties, facilities and equipment are adequate for its current
operations. Capital spending, primarily to establish and support offshore
assembly operations, is expected to approximate $30,000,000 in 1999. Management
believes that the actions referred to in the previous paragraph, together with
planned capital expenditures, will allow the Company to accommodate current and
anticipated sales growth and remain a low cost producer in the next several
years.
Set forth below is a summary of the principal facilities owned or leased by
the Company.
The Company's facilities are located principally in the United States,
Western Europe (principally United Kingdom and Republic of Ireland) and Central
America (including Mexico and Caribbean Basin).
<TABLE>
<CAPTION>
SQUARE FEET
NO. OF ----------------------
LOCATIONS OWNED LEASED
--------- --------- ---------
<S> <C> <C> <C>
UNITED STATES
Manufacturing............................................. 20 4,431,000 1,304,000
Warehouse and distribution................................ 17 3,045,000 1,598,000
Sales and administration.................................. 13 159,000 221,000
WESTERN EUROPE
Manufacturing............................................. 13 773,000 481,000
Warehouse and distribution................................ 6 276,000 359,000
Sales and administration.................................. 21 63,000 136,000
CENTRAL AMERICA
Manufacturing............................................. 15 153,000 1,176,000
Warehouse and distribution................................ 1 -- 51,000
Sales and administration.................................. 3 8,000 5,000
TOTAL
Manufacturing............................................. 48 5,357,000 2,961,000
Warehouse and distribution................................ 24 3,321,000 2,008,000
Sales and administration.................................. 37 230,000 362,000
</TABLE>
See "LEASE COMMITMENTS" in the Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The response to this item is incorporated by reference to the accompanying
Consolidated Financial Statements. See "CONTINGENT LIABILITIES" in the Notes to
Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders was held on November 12, 1998 to consider
the reorganization of the Company. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS." The proposed reorganization of the
Company as described in the Company's Proxy Statement dated September 16, 1998
was submitted to stockholders, voted upon and approved by the stockholders at
the meeting. The table below briefly describes the proposal and results of the
stockholder vote. A total of 81,467,736 votes or 85.9% of the possible votes
based on common shares outstanding at the record date, were represented at the
meeting.
<TABLE>
<CAPTION>
VOTES VOTES AUTHORITY BROKER
IN FAVOR OPPOSED ABSTAIN WITHHELD NONVOTES
---------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Proposal to reorganize the Company............. 80,571,024 774,715 121,997 -- --
</TABLE>
9
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- (CONTINUED)
The annual meeting of stockholders was held on December 18, 1998. Seven
nominees for election as directors as described in the Company's Proxy Statement
dated November 25, 1998 were submitted to stockholders, voted upon and approved
by the stockholders at the meeting. The table below briefly describes the
proposals and results of the stockholder votes. A total of 85,367,179 votes, or
90.0% of the possible vote based on common shares outstanding at the record
date, were represented at the meeting.
<TABLE>
<CAPTION>
VOTES VOTES AUTHORITY BROKER
IN FAVOR OPPOSED ABSTAIN WITHHELD NONVOTES
---------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Proposal to elect the following seven directors:
Elected by holders of Class A Common Stock:
Omar Z. Al Askari............................ 56,359,111 -- -- 586,688 --
Mark H. McCormack............................ 56,312,947 -- -- 632,852 --
Elected by holders of Class A and Class B
Common Stock:
William Farley............................... 84,766,415 -- -- 600,764 --
Dennis S. Bookshester........................ 84,772,114 -- -- 595,065 --
Henry A. Johnson............................. 84,858,951 -- -- 508,228 --
A. Lorne Weil................................ 84,779,693 -- -- 587,486 --
Sir Brian Wolfson............................ 84,773,034 -- -- 594,145 --
</TABLE>
10
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
William Farley, an executive officer and director of the Company, holds
100% of the common stock of Farley Inc. Prior to the Reorganization as defined
below, William Farley and Farley Inc. together owned all 5,229,421 outstanding
shares of the Company's Class B Common Stock entitled to five votes per share.
See "STOCKHOLDERS' EQUITY" in the Notes to Consolidated Financial Statements.
Prior to the Reorganization, Farley Inc. also owned 454,855 shares of the
Company's Class A Common Stock. As of February 28, 1999, there were 1,496
registered holders of record of the Class A Common Stock of the Company.
On March 4, 1999, the Company became a subsidiary of FTL Ltd., pursuant to
a reorganization (the "Reorganization") approved by the stockholders of the
Company on November 12, 1998. See "ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS." In connection with the Reorganization, all outstanding shares
of Class A Common Stock of the Company were automatically converted into Class A
ordinary shares of FTL, Ltd. ("FTL Ltd. Class A Shares"), and all outstanding
shares of Class B Common Stock of the Company were automatically converted into
shares of exchangeable participating preferred stock of the Company ("Company
Preferred Stock"). The holders of the Company Preferred Stock also received, in
the aggregate, four Class B redeemable ordinary shares of FTL, Ltd. ("FTL Ltd.
Class B Shares"). Except as provided by law or FTL Ltd.'s Amended and Restated
Memorandum of Association, the FTL Ltd. Class B Shares, in the aggregate, have
voting rights equal to five times the number of shares of Company Preferred
Stock held by William Farley and his affiliates then outstanding. As of March
22, 1999, the record date for the FTL Ltd. Annual Ordinary General Meeting,
there were 5,229,421 shares of Company Preferred Stock outstanding and
66,851,070 FTL Ltd. Class A Shares outstanding. Each FTL Ltd. Class B Share had
voting rights as of March 22, 1999 equivalent to 6,536,776.3 votes per share.
All of the outstanding FTL Ltd. Class A Shares and FTL Ltd. Class B Shares are
entitled to vote at the meeting.
Holders of the Company's Class A Common Stock are not required to exchange
their current stock certificates. The FTL Ltd. Class A Shares trade on The New
York Stock Exchange.
COMMON STOCK PRICES AND DIVIDENDS PAID
The Company's Class A Common Stock is listed on the New York Stock
Exchange. The following table sets forth the high and low market prices of the
Class A Common Stock for 1998 and 1997:
<TABLE>
<CAPTION>
MARKET PRICES
----------------------------------------
1998 1997
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter..................................... $33 5/8 $22 15/16 $44 7/8 $36 1/8
2nd Quarter..................................... 38 3/16 30 41 3/8 30
3rd Quarter..................................... 33 15/16 13 1/2 31 7/16 25 3/16
4th Quarter..................................... 18 11 7/8 29 5/8 23 3/16
</TABLE>
No dividends were declared on the Company's common stock issues during 1998
or 1997. The Company does not currently anticipate paying any common stock
dividends in 1999. For restrictions on the present or future ability to pay
dividends, see "LONG TERM DEBT" in the Notes to Consolidated Financial
Statements.
11
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
JANUARY 2, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1997 1996 1995 1994
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA(1)(2):
Net sales................................. $2,170.3 $2,139.9 $2,447.4 $2,403.1 $2,297.8
Gross earnings............................ 605.5(3) 495.5(7) 722.9 516.6(12) 683.2
Operating earnings (loss)................. 234.9(4) (287.7)(8) 318.2 (108.9)(13) 271.7(15)
Interest expense.......................... 97.3 84.7 103.6 116.9 95.4
Earnings (loss) from continuing operations
before income tax expense (benefit),
extraordinary items and cumulative
effect of change in accounting
principles.............................. 143.0(5) (451.7)(9) 178.2(10) (247.5)(14) 170.2
Earnings (loss) from continuing operations
before extraordinary items and
cumulative effect of change in
accounting principles................... 135.9 (385.4) 146.6(11) (227.8) 84.2
Earnings (loss) per common share from
continuing operations before
extraordinary items and cumulative
effect of change in accounting
principles(6):
Basic................................. 1.89 (5.18) 1.92 (3.00) 1.11
Diluted............................... 1.88 (5.18) 1.90 (3.00) 1.11
Average common shares outstanding:
Basic................................. 72.0 74.4 76.4 75.9 75.8
Diluted............................... 72.3 74.4 77.1 75.9 76.1
BALANCE SHEET DATA(1)(2):
Total assets.............................. $2,289.8 $2,483.1 $2,593.4 $2,973.1 $3,217.9
Long-term debt, excluding current
maturities.............................. 856.6 1,192.8 867.4 1,427.2 1,440.2
Other noncurrent liabilities.............. 267.4 343.0 271.2 292.9 222.3
Common stockholders' equity............... 548.9 422.1 1,093.8 929.2 1,159.9
</TABLE>
- -------------------------
(1) This information should be read in conjunction with "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
and the Financial Statements and Supplementary Data.
(2) During the fourth quarter of 1997, the Company changed its method of
determining the cost of inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. All previously reported
results have been restated to reflect the retroactive application of this
accounting change. The change increased (decreased) previously reported
results as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gross earnings.............................................. $ (7.1) $ (0.8) $36.7
Earnings (loss) from continuing operations before
extraordinary items and cumulative effect of change in
accounting principles..................................... (4.6) (0.5) 23.9
Earnings (loss) per common share from continuing operations
before extraordinary items and cumulative effect of change
in accounting principles:
Basic.................................................. (0.06) (0.01) 0.31
Diluted................................................ (0.06) (0.01) 0.32
</TABLE>
The accounting change increased the net loss for 1997 by $27.8 or $.37 per
share.
(3) Amounts received for the sale of inventory written down as part of the 1997
special charges exceeded amounts estimated, resulting in a reduction of
$6.9 in cost of sales.
(4) Reflects the reversal of a 1997 pretax charge of $22.0 related to a
compensation agreement at Pro Player and an $8.4 reduction in selling,
general and administrative expense resulting from finalization of certain
estimates recorded in connection with the 1997 special charges.
(5) Reflects a $1.5 increase in other income - net resulting from finalization
of certain estimates recorded in connection with the 1997 special charges.
12
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA -- (CONTINUED)
(6) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
("FAS") 128, "Earnings Per Share". For further discussion of earnings per
share and the impact of FAS 128, see "Earnings Per Share" in the Notes to
Consolidated Financial Statements.
(7) Includes pretax charges of $49.8 related to inventory valuation write
downs.
(8) Includes pretax charges of $409.3 related to costs associated with the
closing or disposal of a number of domestic manufacturing and distribution
facilities and attendant personnel reductions, impairment write downs of a
number of domestic and foreign manufacturing and distribution facilities,
inventory valuation write downs, and a pretax charge of $22.0 relating to
a compensation agreement at Pro Player.
(9) Includes pretax charges of $32.4 principally from retained liabilities
related to former subsidiaries and $32.0 related to the Company's
evaluation of its exposure under the guarantee of the debt of Acme Boot
Company, Inc. ("Acme Boot"), an affiliate.
(10) Includes a pretax charge of $35.0 related to the Company's evaluation of
its exposure under the guarantee of the debt of Acme Boot.
(11) Includes $24.1 related to reversal of excess income tax liabilities for
tax years through December 31, 1991, all of which closed for Federal
income tax purposes effective December 31, 1996.
(12) Includes pretax charges of $146.7 related to costs associated with the
closing or disposal of a number of domestic manufacturing facilities and
attendant personnel reductions and charges related to inventory write
downs and valuations and foreign operations.
(13) Includes pretax charges of approximately $158.5 related principally to the
write-off of Salem Sportswear Corporation and Gitano goodwill and $193.7
related to costs associated with the closing or disposal of a number of
domestic manufacturing facilities and attendant personnel reductions and
charges related to inventory write downs and valuations and foreign
operations.
(14) Includes pretax charges of approximately $20.7 related to certain
obligations and other matters related to former subsidiaries and certain
fees related to the modification of certain agreements.
(15) Includes pretax charges of approximately $40.0 to write inventories down
to net realizable value and a pretax charge of $18.0 related to the
write-off of Artex Manufacturing Co. Inc. intangibles.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATIONS
1998 COMPARED TO 1997
Net sales increased $30,400,000 or 1.4% in 1998. Retail Product sales were
essentially unchanged in total. Growth in men's and boys' underwear, intimate
apparel and casualwear fleece was offset by reductions in other lines,
particularly Gitano. The men's and boys' improvement reflected a price increase
in men's Fruit of the Loom basics and a favorable sales mix. Improved intimate
apparel sales reflected higher volume, while casualwear fleece mix improved.
Activewear sales improved on higher T-shirt sales volume. T-shirt prices
declined from 1997 levels, and fleece volume was affected by the warm fall
weather. Sports & licensing outerwear sales were severely impacted by the warm
fall weather and the NBA strike. European sales reflected improved volume.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
NET SALES
Retail products......................................... $1,095.4 $1,101.9
Activewear.............................................. 589.0 575.4
Sports & licensing...................................... 185.5 208.7
Europe.................................................. 268.7 253.9
Other................................................... 31.7 --
-------- --------
$2,170.3 $2,139.9
======== ========
OPERATING EARNINGS (LOSS)
Retail products......................................... $ 102.8 $ 61.0
Activewear.............................................. 68.1 66.8
Sports & licensing...................................... 7.8 5.9
Europe.................................................. 29.7 35.4
Other................................................... 15.8 14.5
Goodwill amortization................................... (26.6) (26.8)
Nonrecurring items...................................... 37.3 (444.5)
-------- --------
$ 234.9 $ (287.7)
======== ========
</TABLE>
Gross earnings increased $110,000,000 or 22.2% in 1998, and gross margin
improved 4.7 percentage points. In 1997, gross earnings included special charges
totalling $49,800,000 and a charge of $42,700,000 resulting from the change in
the method used by the Company to account for the cost of inventories. The
improvement from 1997 also reflected earnings growth of nearly 14.7% and gross
margin improvement of 4.0 percentage points in retail products propelled by
favorable prices and mix in men's and boys' combined with significantly lower
assembly costs for all product lines except Gitano. The favorable comparison in
assembly costs was diminished, however, by downtime taken in the fourth quarter
to reduce inventories. In activewear, unfavorable pricing actions, higher
closeout sales, unfavorable fleece volume and the effect of manufacturing
downtime combined to exceed the impact of sharply higher T-shirt volume and
assembly cost savings. Sports & licensing gross earnings and margin declined
with lower volume. Gross earnings and margin in Europe reflected increased
pricing allowances and additional costs in 1998, partially offset by the higher
sales volume. Gross earnings in 1998 included $6,900,000 resulting from the sale
of inventories for amounts in excess of estimates incorporated in the 1997
special charges.
Operating earnings totalled $234,900,000 in 1998 compared with an operating
loss of $287,700,000 in 1997. The loss in 1997 included special charges of
$409,300,000 and the charge of $42,700,000 resulting from the change in the
method used by the Company to account for the cost of inventories. In addition,
1997 included the finalization of certain of the estimates recorded in
connection with the special charges taken in 1995 which reduced selling, general
and administrative expenses by $7,500,000 in the first quarter of 1997.
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1998 COMPARED TO 1997-- (CONTINUED)
Further, 1998 included the finalization of certain of the estimates recorded in
connection with the special charges taken in 1997 (most significantly the
reversal of the $22,000,000 Pro Player incentive compensation accrual in the
fourth quarter of 1998) which in total reduced selling, general and
administrative expenses by $30,400,000. See 1997 RESTRUCTURING AND SPECIAL
CHARGES below. Also see "SPECIAL CHARGES" in the Notes to Consolidated Financial
Statements. Consolidated selling, general and administrative expense in 1998
also reflected the benefit of staff reductions at the Company's operating
headquarters and other cost containment measures. Consolidated selling, general
and administrative expense as a percent of sales improved to 15.9% in 1998 from
a special charge distorted 35.1% in 1997.
Interest expense increased $12,600,000 or 14.9% in 1998 compared with 1997.
The increase reflected a higher average debt level. Major factors in the
comparison were a higher average investment in working capital in 1998 (the
favorable cash flow from operations in 1998 occurred principally in the fourth
quarter) and the greater average effect in 1998 of the LMP payments that
occurred in August ($28,600,000) and November ($73,600,000) of 1997. See
"CONTINGENT LIABILITIES" in the Notes to Consolidated Financial Statements and
LIQUIDITY AND CAPITAL RESOURCES below.
Net Other income totalled $5,400,000 in 1998, compared with net Other
expense of $79,300,000 in 1997. Principal components of net other income in 1998
included $8,000,000 recognized on a business interruption insurance claim
stemming from Hurricane Mitch, $6,400,000 from settlement of the Acme Boot debt
guarantees and net gains of $5,800,000 from property disposals, partially offset
by accounts receivable securitization costs of $11,900,000. Net other expense in
1997 consisted principally of special charges totalling $32,400,000, a
$32,000,000 provision for loss based on the Company's analysis of its exposure
under the Acme Boot debt guarantees and accounts receivable securitization costs
of $11,800,000. The Acme Boot debt guarantees are discussed under "CONTINGENT
LIABILITIES," and the Company's receivable securitization program is discussed
under "SALE OF ACCOUNTS RECEIVABLE" in the Notes to Consolidated Financial
Statements.
The effective income tax rate for 1998 differed from the Federal statutory
rate of 35% primarily due to the impact of foreign earnings, certain of which
are taxed at lower rates than in the United States, and to reduction of deferred
tax asset valuation allowances attributable to 1997 special charges. These
favorable factors were partially offset by goodwill amortization, a portion of
which is not deductible for Federal income taxes, and state income taxes. The
effective income tax benefit rate on the loss from continuing operations in 1997
differed from the Federal statutory rate of 35% primarily due to a deferred tax
asset valuation provision, a provision for interest related to prior years'
taxes, the $32,000,000 charge related to the Acme Boot guarantee for which no
tax benefit was recorded and goodwill amortization, portions of which are not
deductible for Federal income tax purposes, partially offset by the impact of
foreign earnings, certain of which are taxed at lower rates than in the United
States.
1997 RESTRUCTURING AND SPECIAL CHARGES
In the fourth quarter of 1997, the Company recorded charges for costs
related to the closing and disposal of a number of domestic manufacturing and
distribution facilities, impairment of manufacturing equipment and other assets
and certain European manufacturing and distribution facilities, and other costs
associated with the Company's world-wide restructuring of manufacturing and
distribution facilities. These and other
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1997 RESTRUCTURING AND SPECIAL CHARGES -- (CONTINUED)
special charges totalled $441,700,000 ($372,200,000 after tax) categorized as
follows (in thousands of dollars):
<TABLE>
<S> <C>
Closing and disposal of U.S. manufacturing and distribution
facilities................................................ $251,400
Impairment of European manufacturing and distribution
facilities................................................ 44,100
Pro Player incentive compensation agreement................. 22,000
Other asset write downs and reserves........................ 103,600
Changes in estimates of retained liabilities of former
subsidiaries.............................................. 20,600
--------
$441,700
========
</TABLE>
Each of these categories is discussed below.
During the three years ended December 31, 1997, the Company moved
substantially all of its sewing and finishing operations to locations in the
Caribbean and Central America as part of its strategy to reduce its cost
structure and remain a low cost producer in the U.S. markets it serves. The
Company closed or committed to cease operations at nine sewing facilities in
1997. Accordingly, the Company terminated 176 salaried and 6,975 production
personnel related to closed operations. Terminated personnel were notified of
their separation in 1997 and the plant closings and attendant personnel
reductions were substantially completed in 1997. The decision to move
substantially all of the Company's sewing and finishing operations outside the
United States resulted in the need to realign certain other domestic
manufacturing operations and required the Company to dispose of certain
production equipment. The Company realigned its operations by shifting
production at the remaining domestic and offshore locations (including
contractors) in order to balance its production capabilities. The resulting
redirection of the physical flow of goods in the Company's manufacturing
processes prompted a reassessment of the Company's domestic distribution
network. In addition, the Company's plans for further efficiencies in its
manufacturing operations and its commitment to reduce the capital intensity of
its business resulted in a decision to dispose of certain other U.S. based
manufacturing assets. Statement of Financial Accounting Standards ("FAS") 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, requires that all long-lived assets to be disposed of be
measured at the lower of their carrying amount or estimated fair value, less
estimated selling costs. Charges related to closing and disposal of U.S.
manufacturing and distribution facilities consisted of the following (of which
$175,500,000 were non-cash charges) (in thousands of dollars):
<TABLE>
<S> <C>
Loss on disposal of facilities, improvements and
equipment................................................. $232,600
Severance costs............................................. 8,400
Other....................................................... 10,400
--------
$251,400
========
</TABLE>
Severance costs consisted of salary and fringe benefits (FICA and
unemployment taxes, health insurance, life insurance, dental insurance,
long-term disability insurance and participation in the Company's pension plan).
These charges were recorded in the fourth quarter of 1997 as required by
FAS 121, Emerging Issues Task Force ("EITF") 94-3 or other authoritative
literature. Assets held for sale included in other noncurrent assets in the
accompanying Consolidated Balance Sheet totalled $104,700,000 at December 31,
1997.
As part of its review of its manufacturing, distribution, and logistics
organization, facilities and costs beginning in the third quarter of 1997, the
Company also considered the strategic position and cost effectiveness of its
organization and facilities in Europe where industry trends similar to those in
the U.S.
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1997 RESTRUCTURING AND SPECIAL CHARGES -- (CONTINUED)
(such as movement of certain operations to low cost countries) were emerging.
This review indicated that certain of the Company's European manufacturing and
distribution assets to be held and continued to be used might be impaired.
Estimates of undiscounted cash flows indicated that the carrying amounts of
these assets were not likely to be recovered. Therefore, as required by FAS 121,
these assets were written down to their estimated fair values, less estimated
selling costs, resulting in charges of approximately $44,100,000 in the fourth
quarter of 1997 (of which $42,800,000 are non-cash charges).
The Company recorded charges for other asset write downs and reserves
totalling $103,600,000 (of which $64,400,000 are non-cash charges) comprised of
the following (in millions of dollars).
<TABLE>
<CAPTION>
OTHER
TOTAL ASSET RESERVES AND
CHARGES WRITE DOWN ACCRUALS
------- ---------- ------------
<S> <C> <C> <C>
Inventory obsolescence.......................... $ 10.1 $10.1 $ --
Inventory shrinkage............................. 19.5 19.5 --
Inventory mark down............................. 20.2 20.2 --
Software costs.................................. 7.1 -- 7.1
Severance....................................... 6.1 -- 6.1
Professional fees............................... 6.6 -- 6.6
Various contract commitments.................... 12.1 -- 12.1
Other charges................................... 21.9 8.3 13.6
------ ----- -----
$103.6 $58.1 $45.5
====== ===== =====
</TABLE>
Provisions to inventory reserves largely resulted from conditions
associated with the acceleration of the offshore movement of the Company's
sewing and finishing operations which began late in the third quarter of 1997.
Provisions for inventory obsolescence reflected made in U.S.A. labels and
polybags and other supplies on hand that were made obsolete because remaining
planned domestic production would be insufficient to utilize them.
The provision for inventory shrinkage reflected the greatly extended
pipeline for the Company's in-transit inventories, new freight channels and the
difficulty of accounting for inventories at contractor facilities, as well as
start-up operations at Company-owned facilities, in foreign locations. The
estimated inventory shrinkage provision was based on analyses of in-transit
inventory reconciliations, and in the fourth quarter of 1997, the Company
identified book to physical adjustments related to inventories at foreign
contractor locations. The Company is in the process of upgrading its inventory
control system including computer software, analytical procedures, documentation
and physical controls. These improvements began in mid 1997 and efforts were
intensified with the acceleration of the offshore movement of the Company's
sewing and finishing operations which was substantially completed in 1998.
Inventory shrinkage experienced in 1997 was $26,000,000, compared with
$18,900,000 in 1996 and $17,600,000 in 1995.
The inventory markdown provision reflected quality issues related to
start-up operations resulting from acceleration of the offshore movement of
sewing and finishing operations and, unrelated to the offshore move, a shift in
customer demand to upsized garments as opposed to more traditional sizing.
The Company incurred software costs during 1997 related to business process
reengineering and information technology transformation. Substantially all of
these costs were incurred and expensed in the fourth quarter in accordance with
EITF 97-13 issued November 20, 1997.
Severance costs were accrued for the termination of certain executive
officers with employment agreements as well as other corporate executives.
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1997 RESTRUCTURING AND SPECIAL CHARGES -- (CONTINUED)
Legal, accounting and consulting fees were incurred in connection with the
proposed recapitalization of the Company announced February 11, 1998. The
Company also incurred costs associated with a proposed new venture that was
cancelled in the fourth quarter of 1997 and other matters.
Contract commitment charges consist of lease commitments on office space no
longer occupied, minimum liabilities under royalty agreements whose sales
minimums will not be met, a loss on a firm commitment to purchase cloth in 1998,
estimated fees to amend certain debt and lease covenants and, as a result of the
European restructuring, estimated obligations to repay employment grants in
Europe.
Other charges totalling $21,900,000 consist of an impairment write down of
goodwill along with accruals related to various asset valuation, state and local
tax, financing and other issues related to the Company's world-wide
restructuring efforts.
In the fourth quarter of 1997, the Company recorded a $22,000,000 charge
for incentive compensation anticipated to be earned at its Pro Player subsidiary
(none of which was paid in 1997). The Company recorded charges totalling
$20,600,000 related to changes in estimates of environmental and other retained
liabilities of former subsidiaries (of which $8,000,000 are non-cash charges).
The above charges were recorded as $49,800,000 of increases to cost of
sales, $354,900,000 of increases to selling, general and administrative
expenses, $4,600,000 of impairment write down of goodwill and $32,400,000 of
increases to other expense in the accompanying Consolidated Statement of
Operations. These charges were based on management's best estimates of the
potential market values, timing and costs related to the above actions. Of the
Special Charges, cash charges totalled approximately $151,000,000 to be paid in
1998 and future years, $10,900,000 of which relate to restructuring charges as
defined by EITF No. 94-3. The Company paid $28,200,000 of these cash charges and
finalized its estimate of these special charges in 1998. Approximately
$25,400,000 is estimated to be paid in 1999 and a total of approximately
$61,200,000 is estimated to be paid in future years. The Company estimates that
cost savings from restructuring activities were approximately $90,000,000 in
1998, of which $65,000,000 were cash savings. Anticipated cost savings from
restructuring activities are estimated by management to approximate $80,000,000
in 1999 and annually thereafter, of which $65,000,000 are anticipated cash
savings. However, there can be no assurance that such cost savings will be
realized. See "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- USE OF ESTIMATES"
in the Notes to Consolidated Financial Statements.
During the first quarter of 1998, the Company sold certain inventory which
had been written down as part of the 1997 special charges. Amounts received for
the inventory sold were in excess of amounts estimated, resulting in increases
to earnings before income tax expense of $5,100,000 in the first nine months of
1998, substantially all of which occurred in the first quarter of 1998. In the
fourth quarter of 1998, the Company reversed the $22,000,000 charge as it
determined it was no longer probable it would have to pay the incentive
compensation at its Pro Player subsidiary. Also in the fourth quarter of 1998,
the Company finalized certain other estimates recorded in connection with the
special charges recorded in 1997 which increased earnings before income tax
expense by $11,700,000. The increases to earnings were recorded in the
accompanying Consolidated Statement of Operations as follows (in thousands of
dollars):
<TABLE>
<S> <C>
Cost of sales............................................... $ 6,900
Selling, general and administrative expenses................ 30,400
Other expenses.............................................. 1,500
-------
Total.................................................. $38,800
=======
</TABLE>
18
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1997 RESTRUCTURING AND SPECIAL CHARGES -- (CONTINUED)
The Company continued to operate certain assets held for sale during 1998
so that they may be sold as "ongoing operations". Accordingly, the Company did
not depreciate these facilities during 1998, resulting in lower depreciation
expense of approximately $10,000,000 than if the Company had recorded
depreciation.
The 1997 restructuring activities generally are progressing as expected and
management currently anticipates completion of these activities by the end of
1999. There can be no assurance, however, that all activities will be completed
by the end of 1999.
1997 COMPARED TO 1996
Net sales declined 12.6% in 1997, compared to 1996 due mainly to
significantly lower activewear sales in 1997 and inclusion of hosiery sales
($97,600,000) in 1996. Activewear volume and pricing were substantially
unfavorable to last year with excessive T-shirt inventories at wholesale
activewear accounts and widespread promotional activity in the highly
competitive wholesale activewear market in the first half of 1997. Retail
Product sales were approximately equal to last year before considering hosiery
sales. In the retail division, sales of Gitano products were significantly in
excess of 1996 and substantially offset shortfalls to 1996 in men's and boys'
underwear, casualwear fleece and women's and girls' underwear. The increase in
Gitano sales resulted from increased distribution of its customer base and
additional product offerings. Shortfalls in activewear and casualwear fleece
shipments were hampered by product shortages. Sales declines in men's and boys'
underwear and women's and girls' underwear resulted from widespread promotional
activity. Sports & licensing sales were off modestly on lower outerwear sales,
and European results were impacted by unfavorable currency translation rates.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF
DOLLARS)
<S> <C> <C>
NET SALES
Retail products......................................... $1,101.9 $1,212.0
Activewear.............................................. 575.4 760.0
Sports & licensing...................................... 208.7 211.3
Europe.................................................. 253.9 264.1
Other................................................... -- --
-------- --------
$2,139.9 $2,447.4
======== ========
OPERATING EARNINGS (LOSS)
Retail products......................................... 61.0 151.3
Activewear.............................................. 66.8 125.2
Sports & licensing...................................... 5.9 16.2
Europe.................................................. 35.4 32.3
Other................................................... 14.5 10.1
Goodwill amortization................................... (26.8) (26.7)
Nonrecurring items...................................... (444.5) 9.8
-------- --------
$ (287.7) $ 318.2
======== ========
</TABLE>
Gross earnings decreased 31.5% in 1997 compared to 1996. Gross margin was
23.2% compared with 29.5% in 1996. Major factors were the special charges taken
in the fourth quarter of 1997, lower volume and increased promotional activity
and price reductions, primarily in activewear, men's and boys' underwear and
women's and girls' underwear, and unfavorable currency translation rates
compared with 1996. These negative factors more than offset savings achieved
from moving labor intensive operations to lower cost offshore locations.
19
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1997 COMPARED TO 1996 -- (CONTINUED)
The Company had an operating loss of $287,700,000 in 1997 compared with
operating earnings of $318,200,000 in 1996. Operating margin dropped 26.4
percentage points to a negative 13.4% of sales. The unfavorable comparison to
1996 reflected lower gross earnings combined with higher selling, general and
administrative expenses, largely from special charges in the fourth quarter of
1997. The selling, general and administrative expense increase combined with
lower sales resulted in an increase in the ratio of selling, general and
administrative expense to sales from 15.4% in 1996 to 35.1% in 1997. Before
special charges selling, general and administrative expense increased 5% in 1997
due mainly to higher advertising and promotion, market research and royalty
expense, offset partially by lower compensation and benefits related expenses.
In addition, 1997 included the finalization of certain of the estimates recorded
in connection with the special charges taken in 1995 which reduced selling,
general and administrative expenses by $7,500,000 in the first quarter of 1997.
Interest expense decreased $18,900,000 or 18.2% in 1997 compared to 1996,
due to a lower average debt level. The average level of debt outstanding in 1997
was lower than 1996 despite repurchases of Company stock totalling $173,600,000
and the payment of $102,200,000 to settle the LMP litigation. Much of the
substantial cash in-flows from operations in 1996 (including the sale of
accounts receivable) and the sale of the Hosiery Division occurred in the fourth
quarter, while the LMP payment occurred in August ($28,600,000) and November
($73,600,000) 1997. Excluding the LMP litigation, cash flow from operations was
slightly favorable in 1997. See "SALE OF ACCOUNTS RECEIVABLE", "SALE OF HOSIERY
DIVISION" and "CONTINGENT LIABILITIES" in the Notes to Consolidated Financial
Statements and LIQUIDITY AND CAPITAL RESOURCES.
Other expense-net included charges of $32,000,000 and $35,000,000 in 1997
and 1996, respectively, relating to the Company's evaluation of its exposure
under the guarantee of debt incurred or created by Acme Boot under the Acme Boot
Credit Facilities. See "CONTINGENT LIABILITIES" in the Notes to Consolidated
Financial Statements. Other expense-net in 1997 included $32,400,000 of charges
to provide for certain retained liabilities in connection with the prior sale of
certain operations, fees related to the modification of certain agreements and
other valuation reserves. See "SPECIAL CHARGES" in the Notes to Consolidated
Financial Statements. Included in other expense-net in 1997 and 1996 was
deferred debt fee amortization and bank fees of approximately $4,500,000 and
$5,300,000. Other expense-net in 1997 included expense of $1,600,000 as compared
to $700,000 of income in 1996 related to the settlement of certain foreign
currency denominated transactions. Included in other expense-net was $11,800,000
in 1997 and $1,700,000 in 1996 of losses on sale of accounts receivable. See
"SALE OF ACCOUNTS RECEIVABLE" in the Notes to Consolidated Financial Statements.
The effective income tax benefit rate on the loss from continuing
operations in 1997 differed from the Federal statutory rate of 35% primarily due
to a deferred tax asset valuation provision, a provision for interest related to
prior years' taxes, the $32,000,000 charge related to the Acme Boot guarantee
for which no tax benefit was recorded and goodwill amortization, portions of
which are not deductible for Federal income tax purposes, partially offset by
the impact of foreign earnings, certain of which are taxed at lower rates than
in the United States. The effective income tax rate in 1996 differed from the
Federal statutory rate of 35% primarily due to the impact of higher foreign
earnings, certain of which are taxed at lower rates than in the United States,
goodwill amortization, portions of which are not deductible for Federal income
tax purposes, state income taxes and the reversal of excess income tax
liabilities related to all tax years through December 31, 1991 which were closed
for Federal income tax purposes effective December 31, 1996.
As a result of the migration of certain of its operations to offshore
locations and the planned reorganization of the Company, future operations may
not generate sufficient U.S. sourced income to utilize
20
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
OPERATIONS -- (CONTINUED)
1997 COMPARED TO 1996 -- (CONTINUED)
all of the net deferred tax benefits generated by operations through December
31, 1997. Consequently, the Company recorded a deferred tax asset valuation
provision of $64,100,000 in the fourth quarter of 1997.
In August 1997, the Court of Appeal of the State of California upheld a
1994 judgement of $96,000,000 in the LMP litigation against Universal
Manufacturing Corporation ("Universal"), a former subsidiary of the Company, and
MagneTek, Inc. ("MagneTek"). In accordance with an agreement between the Company
and the plaintiffs, the Company paid $28,600,000 to the plaintiffs on August 18,
1997. The Company's petition for review with the California Supreme Court was
denied and the Company paid an additional $73,600,000 including interest to the
plaintiffs on November 24, 1997. As a result, a charge of $102,200,000 was
recorded in 1997 which is classified as discontinued operations in the
accompanying Consolidated Statement of Operations. See "CONTINGENT LIABILITIES"
in the Notes to Consolidated Financial Statements.
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings per Share, in 1997. Earnings per share for all periods presented has
been restated to conform with Statement 128. The net loss per share in 1997 was
$6.55 per share including the loss of $1.37 from discontinued operations as a
result of settlement of the LMP litigation. Restated net earnings per share were
$1.92 in 1996, or $1.90 assuming dilution.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated from the Company's operations are its major source of
liquidity and are supplemented by funds obtained from capital markets, including
bank facilities. The Company has available for the funding of its operations
approximately $615,000,000 of revolving lines of credit. As of March 31, 1999,
approximately $357,400,000 was available and unused under these facilities.
Cash provided by operating activities totalling $131,900,000 in 1998
benefited principally from higher earnings while cash used for operating
activities totalling $119,400,000 in 1997 reflected $102,200,000 paid to settle
the LMP litigation.
For 1998 primary factors in reconciling from net earnings of $135,900,000
to cash provided by operating activities totalling $131,900,000 were
depreciation and amortization of $111,300,000 and the inventory reduction of
$98,000,000 (excluding the effects of asset sales) which together essentially
offset the reduction of $114,400,000 in trade accounts payable and net other
deductions totalling $98,900,000. The decrease in trade accounts payable
included a reduction of $27,300,000 in excess amounts advanced by the ultimate
purchaser of the Company's receivables. See "SALE OF ACCOUNTS RECEIVABLE" in the
Notes to Consolidated Financial Statements.
For 1997 primary factors in reconciling from the $385,400,000 loss from
continuing operations to $17,200,000 of cash used for operating activities
before LMP payments were addbacks for non-cash special charges related to
long-term items of $261,300,000, the non-cash Acme Boot charge of $32,000,000,
depreciation and amortization of $154,200,000, impairment write down of goodwill
of $4,600,000 and a decrease in working capital of $94,500,000, along with
deductions for a non-cash deferred income tax benefit of $64,600,000 and other
deductions of $113,800,000. In 1997, a decrease in notes and accounts receivable
of $69,200,000, increases in trade accounts payable of $122,200,000 and other
decreases in working capital of $86,100,000 more than offset the increase in
inventories of $183,000,000. The decrease in notes and accounts receivable
principally reflects the adoption of FAS 125 effective January 1, 1997. The
increase in trade accounts payable includes excess amounts advanced to the
Company of $83,100,000 by the ultimate purchaser of the receivables. See "SALE
OF ACCOUNTS RECEIVABLE" in the Notes to Consolidated Financial Statements. The
increase in inventories reflects additional lead time required related to the
offshore movement of production.
21
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
Net cash used for investing activities was $49,400,000 in 1998 compared
with $64,800,000 in 1997. The favorable year-to-year comparison largely resulted
from lower capital expenditures in 1998 ($41,900,000 as compared to $55,400,000
in 1997) and proceeds from asset sales ($86,400,000) which exceeded payments on
the Acme Boot debt guarantees ($65,900,000). Capital spending, primarily to
support offshore assembly operations, is anticipated to approximate $30,000,000
in 1999.
Net cash used for financing activities aggregated $97,200,000 in 1998 as
the favorable cash flow from operating activities resulted in a $101,000,000
reduction in long term debt. Proceeds from Common Stock issued totalled
$6,800,000 while purchases of the Company's Class A Common Stock totalled
$3,000,000.
Net cash provided by financing activities was $181,600,000 in 1997. Net
borrowings on the Company's revolving lines of credit and term loan proceeds
exceeded payments by $344,100,000 and proceeds from Common Stock issued totalled
$11,100,000 while purchases of the Company's Class A Common Stock totalled
$173,600,000. The net financing proceeds went largely for the LMP settlement and
capital expenditures.
In November 1996, the Company's Board of Directors authorized the
repurchase of up to $200,000,000 of the Company's common stock in open market
and privately negotiated transactions. In 1996, the Company repurchased 440,400
shares of its Class A Common Stock at an aggregate cost of $16,600,000. In 1997,
the Company repurchased 5,329,000 shares of its Class A Common Stock at an
aggregate cost of $173,600,000. In early January, 1998, the Company purchased an
additional 120,900 shares of its Class A Common Stock at an aggregate cost of
$3,000,000. Total purchases under the program were 5,890,300 shares at an
aggregate cost of $193,200,000.
In December 1996, the Company entered into a three-year receivables
purchase agreement whereby it can currently sell to a third party up to a
$250,000,000 undivided interest in a defined pool of its trade accounts
receivable. The maximum amount outstanding as defined under the agreement varies
based upon the level of eligible receivables. Under the agreement, approximately
$220,700,000 of eligible receivables at January 2, 1999 and $183,000,000 of
eligible receivables at December 31, 1997 were sold to the Company's
unconsolidated receivable financing subsidiary, reducing consolidated notes and
accounts receivable. Proceeds of approximately $208,800,000 and $214,800,000
from the ultimate purchaser outstanding at the respective balance sheet dates
were used to reduce borrowings under the Company's revolving lines of credit.
Such proceeds included advances from the ultimate purchaser totalling
$55,900,000 as of January 2, 1999 and $83,100,000 as of December 31, 1997, which
were included in trade accounts payable. See "SALE OF ACCOUNTS RECEIVABLE" in
the Notes to Consolidated Financial Statements.
In September 1994, the Company entered into a five-year operating lease
agreement with two annual renewal options, primarily for certain machinery and
equipment. The total cost of the assets to be covered by the lease is limited to
$175,000,000. At January 2, 1999 and December 31, 1997, approximately
$30,400,000 was available and unused under this facility. This availability
expires March 31, 1999. The lease provides for a substantial residual value
guarantee by the Company at the termination of the lease and includes purchase
and renewal options at fair market values. As a result of the migration of its
sewing and finishing operations to the Caribbean and Central America and related
decisions to close or dispose of certain manufacturing and distribution
facilities, the Company evaluated its operating lease structure and the ability
of the lessor to recover its costs in the used equipment market and concluded
that residual values guaranteed by the Company will be substantially in excess
of fair market values. Accordingly, a provision of $61,000,000 was included in
the 1997 special charges.
On March 4, 1999, the Company became a subsidiary of FTL Ltd., pursuant to
the Reorganization. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER'S MATTERS." In connection with the Reorganization, the
Company is required to make an offer, within 90 days of the consummation of the
Merger, to purchase the entire principal amount equal to $250,000,000
22
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
7 7/8% Senior Notes due October 15, 1999 (the "7 7/8% Senior Notes") at a price
equal to 101% of the principal amount thereof plus accrued and unpaid interest.
If all holders of the 7 7/8% Senior Notes accept such a purchase offer, the
aggregate purchase price would be $252,500,000 plus accrued and unpaid interest.
On March 25, 1999, the Company issued $250,000,000 8 7/8% Senior Notes due April
2006 (the "Senior Notes"). Proceeds from the Senior Notes were approximately
$242,700,000 and were initially used to repay outstanding borrowings under the
Company's Bank Credit Agreement. The availability under the Bank Credit
Agreement created through this repayment of outstanding borrowings is expected
to be used to satisfy the Company's repurchase obligations with respect to the
7 7/8% Senior Notes or to repay the 7 7/8% Senior Notes at maturity.
Management believes the funding available to it is sufficient to meet
anticipated requirements for capital expenditures, working capital and other
needs.
The Company's debt instruments, principally its bank agreements, contain
covenants restricting its ability to sell assets, incur debt, pay dividends and
make investments and requiring the Company to maintain certain financial ratios.
See "LONG-TERM DEBT" in the Notes to Consolidated Financial Statements.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt the new Statement effective January 2,
2000. The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of Statement 133 will be on
the earnings and financial position of the Company.
EURO CONVERSION
The adoption of a common currency by countries of the European Economic
Community on January 1, 1999 may ultimately expose the Company's European
operations to certain risk factors such as the resulting cross-border
transparency of pricing differences. Certain system conversion costs will also
necessarily be incurred. Because the Company already competes throughout Western
Europe, however, the emergence of a single market in this region would not
immediately expose the Company to increased competition and may present
opportunities for further economies of scale. Management has not completed its
study of the impact on the Company but anticipates no material adverse effect on
the Company's financial position or results of operations. Sales in the affected
countries totalled less than 10% of the Company's net sales for the fiscal year
ended January 2, 1999.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
23
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
YEAR 2000 -- (CONTINUED)
The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: inventory/assessment, remediation, testing, and implementation. To
date, the Company has completed its assessment of mission-critical systems that
could be affected by the Year 2000 date. The completed assessment indicated that
most of the Company's significant information technology systems could be
affected, particularly the order, billing, and inventory systems. That
assessment also indicated that software and hardware (embedded chips) used in
production and manufacturing systems (hereafter also referred to as operating
equipment) also are at risk. Affected systems include technologies used in
various aspects of the manufacturing/distribution process. In addition, the
Company is gathering information about the Year 2000 compliance status of its
significant customers, suppliers and subcontractors, and continues to monitor
their compliance.
For its information technology exposures of mission critical systems,
through January 2, 1999, the Company is 60% complete on the remediation phase
and expects to complete software testing and deployment no later than September
1999. The Company is 20% complete on the remediation phase of less critical
systems, with completion of testing and redeployment phases for those systems by
September 1999.
The assessment phase of the operating equipment continued through December
1998. Remediation and replacement efforts are now underway for mission critical
and higher priority equipment that is not currently Year 2000 compliant.
Remediation, testing and implementation for these systems are scheduled to
finish by September 1999. Non-compliant equipment that is deemed of lesser
importance will be remediated or replaced by December 1999.
The Company's order entry system interfaces directly with significant
customers. The Company is in the process of working with customers to ensure
that the Company's systems that interface directly with third parties are Year
2000 compliant by September 1999. The Company has completed its assessment and
remediation of these systems. Testing and implementation has begun and is
expected to be completed by June 1999.
The Company has queried its significant suppliers and subcontractors, none
of which share information systems with the Company (external agents). The
Company will continue to solicit Year 2000 compliance responses from suppliers
in an effort to reduce risk. To date, the Company is not aware of any external
agent with a Year 2000 issue that would materially impact the Company's results
of operations, liquidity, or capital resources. However, the Company has no
means of ensuring that external agents will be Year 2000 ready. The inability of
external agents to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company. The effect of non-compliance by
external agents is not determinable.
The Company is utilizing both internal and external resources to reprogram
or replace, test, and implement the software, hardware and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 project is
estimated at $18,400,000 and is being funded through operating cash flows.
Through January 2, 1999, the Company has incurred costs, related to all phases
of the Year 2000 project, totaling approximately $9,200,000, all of which has
been expensed. All remaining expenditures related to repair of hardware and
software will be expensed as incurred.
The management of the Company believes it has an effective program in place
to resolve the Year 2000 Issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. In the
event that the Company does not complete any additional phases, the Company
would consider implementing remediated programs that have not been fully tested,
thus putting or-
24
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
YEAR 2000 -- (CONTINUED)
der/invoicing systems and other mission critical programs in jeopardy.
Additionally, the Company would be unable to fully manufacture or ship product
if no further Year 2000 effort were expended. Finally, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems product failure, for example equipment shutdown or failure to
properly date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company has determined a need for contingency plans to cover loss or
disruption of critical applications, vendors, communication/community systems,
and equipment. These plans will be drafted beginning first quarter 1999 and
finished/approved second quarter 1999. Continuous updates will be made
thereafter as more information is made available by external agents and the
Company can better assess its risks.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign exchange and
interest rates and commodity prices. To reduce such risks, the Company
selectively uses financial instruments. All hedging transactions are authorized
and executed pursuant to clearly defined policies and procedures, which strictly
prohibit the use of financial instruments for trading purposes. Analytical
techniques used to manage and monitor foreign exchange and interest rate risk
include market valuation and sensitivity analysis.
A discussion of the Company's accounting policies for derivative financial
instruments is included in the Summary of Significant Accounting Policies in the
Notes to the Consolidated Financial Statements, and further disclosure relating
to financial instruments is included in "FINANCIAL INSTRUMENTS" in the Notes to
Consolidated Financial Statements.
INTEREST RATES
The fair value of the Company's total long-term debt is estimated at
$1,165,200,000 and $1,267,400,000 at January 2, 1999 and December 31, 1997,
respectively, using quoted market prices and yields obtained through independent
pricing sources for the same or similar types of borrowing arrangements, taking
into consideration the underlying terms of the debt. Such fair value exceeded
the carrying value of debt by $38,200,000 at January 2, 1999 and by $46,400,000
at December 31, 1997. Market risk is estimated as the potential change in fair
value resulting from a hypothetical 10% change in interest rates and amounts to
$25,200,000 at January 2, 1999 and $30,900,000 at December 31, 1997.
The Company had $452,100,000 and $342,600,000 of variable rate debt
outstanding at January 2, 1999 and December 31, 1997, respectively. At these
borrowing levels, a hypothetical 10% adverse change in interest rates would have
had unfavorable impacts of $2,800,000 and $2,100,000 in 1998 and 1997,
respectively, on the Company's pretax earnings and cash flows. The primary
interest rate exposures on floating rate debt are with respect to U.S. and
European interbank rates.
FOREIGN CURRENCY EXCHANGE RATES
Foreign currency exposures arising from transactions include firm
commitments and anticipated transactions denominated in a currency other than an
entity's functional currency. The Company and its subsidiaries generally enter
into transactions denominated in their respective functional currencies.
Therefore foreign currency exposures arising from transactions are not material
to the Company. The Company's primary foreign currency exposure arises from
foreign denominated revenues and profits translated into U.S. dollars. The
primary currencies to which the Company is exposed include the Irish punt, the
British pound and other European currencies.
25
<PAGE> 28
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK --
(CONTINUED)
FOREIGN CURRENCY EXCHANGE RATES -- (CONTINUED)
The Company generally views as long-term its investments in foreign
subsidiaries with a functional currency other than the U.S. dollar. As a result,
the Company does not generally hedge these net investments. However, the Company
uses capital structuring techniques to manage its net investment in foreign
currencies as considered necessary. The net investment in foreign subsidiaries
and affiliates translated into dollars using the year-end exchange rates is
$497,800,000 at January 2, 1999 and $430,500,000 at December 31, 1997. The
potential loss in value of the Company's net investment in foreign subsidiaries
resulting from a hypothetical 10% adverse change in quoted foreign currency
exchange rates amounts to $6,700,000 at January 2, 1999 and $12,300,000 at
December 31, 1997.
COMMODITY PRICES
The availability and price of cotton is subject to wide fluctuations due to
unpredictable factors such as weather conditions, governmental regulations,
economic climate or other unforeseen circumstances. To reduce price risk caused
by market fluctuations, the Company enters into futures contracts to cap prices
on varying proportions of its cotton needs, thereby minimizing the risk of
decreased margins from cotton price increases.
A sensitivity analysis has been prepared to estimate the Company's exposure
to market risk from its cotton position, excluding inventory on hand and fixed
price contracts. The fair value of the Company's position is the fair value
calculated by valuing its net position at quoted futures prices. Market risk is
estimated as the potential loss in fair value resulting from a hypothetical 10%
adverse change in such prices. The potential loss in fair value of the Company's
cotton futures position from a hypothetical 10% decrease in cotton prices was
$10,200,000 at January 2, 1999 and $4,700,000 at December 31, 1997.
FORWARD-LOOKING INFORMATION
The above risk management discussion and the estimated amounts generated
from the sensitivity analyses are forward-looking statements of market risk
assuming certain adverse market conditions occur. Actual results in the future
may differ materially from those projected results due to actual developments in
the global financial markets. The analysis methods used by the Company to assess
and mitigate risks discussed above should not be considered projections of
future events or losses.
26
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF FRUIT OF THE LOOM, INC.
AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 28
Consolidated Balance Sheet -- January 2, 1999 and December
31, 1997.................................................. 29
Consolidated Statement of Operations for Each of the Years
Ended January 2, 1999, December 31, 1997 and December 31,
1996...................................................... 30
Consolidated Statement of Stockholders' Equity for Each of
the Years Ended January 2, 1999, December 31, 1997 and
December 31, 1996......................................... 31
Consolidated Statement of Cash Flows for Each of the Years
Ended January 2, 1999, December 31, 1997 and December 31,
1996...................................................... 32
Notes to Consolidated Financial Statements.................. 33
Supplementary Data (Unaudited).............................. 70
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.......... 77
</TABLE>
Note: All other schedules are omitted because they are not applicable or not
required.
27
<PAGE> 30
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of
Fruit of the Loom, Inc.
We have audited the accompanying consolidated balance sheet of Fruit of the
Loom, Inc. and Subsidiaries as of January 2, 1999 and December 31, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended January 2, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fruit of the Loom, Inc. and Subsidiaries at January 2, 1999 and December 31,
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended January 2, 1999, in conformity with
generally accepting accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for inventories in 1997.
ERNST & YOUNG LLP
Chicago, Illinois
February 16, 1999, except for "Subsequent Events" note,
as to which the date is March 25, 1999
28
<PAGE> 31
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 2, DECEMBER 31,
1999 1997
---------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including restricted cash)..... $ 1,400 $ 16,100
Notes and accounts receivable (less allowance for possible
losses of $12,000,000 and $11,900,000, respectively).... 109,700 98,100
Inventories
Finished goods.......................................... 500,700 570,400
Work in process......................................... 183,100 212,300
Materials and supplies.................................. 58,200 64,800
---------- ----------
742,000 847,500
Other..................................................... 41,100 53,900
---------- ----------
Total current assets.................................. 894,200 1,015,600
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land...................................................... 14,400 14,700
Buildings, structures and improvements.................... 303,300 330,500
Machinery and equipment................................... 862,500 882,800
Construction in progress.................................. 11,900 4,200
---------- ----------
1,192,100 1,232,200
Less accumulated depreciation............................. 758,200 717,800
---------- ----------
Net property, plant and equipment..................... 433,900 514,400
---------- ----------
OTHER ASSETS
Goodwill (less accumulated amortization of $336,200,000
and $309,600,000, respectively)......................... 686,300 712,900
Net deferred income taxes................................. 36,700 30,300
Other..................................................... 238,700 209,900
---------- ----------
Total other assets.................................... 961,700 953,100
---------- ----------
$2,289,800 $2,483,100
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt...................... $ 270,500 $ 28,200
Trade accounts payable.................................... 119,700 234,100
Acme Boot guarantee....................................... -- 67,000
Other accounts payable and accrued expenses............... 226,700 195,900
---------- ----------
Total current liabilities............................. 616,900 525,200
---------- ----------
NONCURRENT LIABILITIES
Long-term debt............................................ 856,600 1,192,800
Other..................................................... 267,400 343,000
---------- ----------
Total noncurrent liabilities.......................... 1,124,000 1,535,800
---------- ----------
COMMON STOCKHOLDERS' EQUITY
Common stock and capital in excess of par value, $.01 par
value; authorized, Class A, 200,000,000 shares, Class B,
30,000,000 shares; issued and outstanding:
Class A Common Stock, 66,465,255 and 66,216,720 shares,
respectively............................................ 323,000 315,300
Class B Common Stock, 5,684,276 Shares.................... 3,700 3,700
Retained earnings......................................... 276,600 140,700
Accumulated other comprehensive income.................... (54,400) (37,600)
---------- ----------
Total common stockholders' equity..................... 548,900 422,100
---------- ----------
$2,289,800 $2,483,100
========== ==========
</TABLE>
See accompanying notes.
29
<PAGE> 32
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................ $2,170,300 $2,139,900 $2,447,400
Cost of sales............................................ 1,564,800 1,644,400 1,724,500
---------- ---------- ----------
Gross earnings......................................... 605,500 495,500 722,900
Selling, general and administrative expenses............. 344,000 751,800 378,000
Goodwill amortization.................................... 26,600 26,800 26,700
Impairment write down of goodwill........................ -- 4,600 --
---------- ---------- ----------
Operating earnings (loss).............................. 234,900 (287,700) 318,200
Interest expense......................................... (97,300) (84,700) (103,600)
Other income (expense)-net............................... 5,400 (79,300) (36,400)
---------- ---------- ----------
Earnings (loss) from continuing operations before
income tax provision................................ 143,000 (451,700) 178,200
Income tax provision..................................... 7,100 (66,300) 31,600
---------- ---------- ----------
Earnings (loss) from continuing operations............. 135,900 (385,400) 146,600
Discontinued operations -- LMP litigation.............. -- (102,200) --
---------- ---------- ----------
Net earnings (loss)...................................... $ 135,900 $ (487,600) $ 146,600
========== ========== ==========
Earnings (loss) per common share:
Continuing operations.................................. $1.89 $(5.18) $1.92
Discontinued operations -- LMP litigation.............. -- (1.37) --
---------- ---------- ----------
Net earnings (loss)...................................... $1.89 $(6.55) $1.92
========== ========== ==========
Earnings (loss) per common share -- assuming dilution:
Continuing operations.................................. $1.88 $(5.18) $1.90
Discontinued operations -- LMP litigation.............. -- (1.37) --
---------- ---------- ----------
Net earnings (loss)...................................... $1.88 $(6.55) $1.90
========== ========== ==========
Average common shares outstanding
Basic.................................................. 72,000 74,400 76,400
========== ========== ==========
Diluted................................................ 72,300 74,400 77,100
========== ========== ==========
</TABLE>
See accompanying notes.
30
<PAGE> 33
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
AND CAPITAL IN OTHER
COMMON EXCESS OF PAR RETAINED COMPREHENSIVE
SHARES VALUE EARNINGS INCOME TOTAL
------ -------------- -------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995........... 75,960 $470,000 $481,700 $(22,500) $ 929,200
----------
Class A shares issued upon exercise
of options...................... 1,059 22,500 22,500
----------
Class A shares issued under stock
grant plan -- net............... 50 1,400 1,400
----------
Class A shares repurchased......... (440) (16,600) (16,600)
----------
Net earnings....................... 146,600 146,600
Foreign currency translation
adjustments -- net.............. 12,500 12,500
Minimum pension liability
adjustment...................... (900) (900)
Unrealized loss on
available-for-sale securities --
net of taxes of $500,000........ (900) (900)
----------
Comprehensive income -- 1996....... 157,300
------ -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1996........... 76,629 477,300 628,300 (11,800) 1,093,800
----------
Class A shares issued upon exercise
of options...................... 564 14,100 14,100
----------
Class A shares issued under stock
grant plan -- net............... 37 1,200 1,200
----------
Class A shares repurchased......... (5,329) (173,600) (173,600)
----------
Net loss........................... (487,600) (487,600)
Foreign currency translation
adjustments -- net.............. (27,600) (27,600)
Minimum pension liability
adjustment...................... 900 900
Reclassify loss on
available-for-sale securities --
net of taxes of $500,000 to net
earnings........................ 900 900
----------
Comprehensive loss -- 1997......... (513,400)
------ -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1997........... 71,901 319,000 140,700 (37,600) 422,100
----------
Class A shares issued upon exercise
of options...................... 332 9,100 9,100
----------
Class A shares issued under stock
grant plan -- net............... 38 1,600 1,600
----------
Class A shares repurchased......... (121) (3,000) (3,000)
----------
Net earnings....................... 135,900 135,900
Foreign currency translation
adjustments -- net.............. (6,400) (6,400)
Minimum pension liability
adjustment...................... (10,400) (10,400)
----------
Comprehensive income -- 1998....... 119,100
------ -------- -------- -------- ----------
BALANCE, JANUARY 2, 1999............. 72,150 $326,700 $276,600 $(54,400) $ 548,900
====== ======== ======== ======== ==========
</TABLE>
See accompanying notes.
31
<PAGE> 34
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
---------- ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss).................................. $ 135,900 $ (487,600) $ 146,600
Adjustments to reconcile net earnings (loss) to net
cash provided by (used for) operating activities:
Impairment write down of goodwill................. -- 4,600 --
Depreciation and amortization..................... 111,300 154,200 155,700
Deferred income tax provision..................... (6,100) (64,600) 23,200
Decrease (increase) in notes and accounts
receivable...................................... (6,600) 69,200 93,700
Decrease (increase) in inventories................ 98,000 (183,000) 60,200
Increase (decrease) in trade accounts payable..... (114,400) 122,200 51,800
Other working capital changes..................... 13,200 86,100 (7,700)
Special charges related to long-term items........ -- 261,300 --
Acme Boot charge.................................. -- 32,000 35,000
Net payments on retained liabilities related to
former subsidiaries............................. (13,400) (19,600) (18,000)
Other-net......................................... (86,000) (94,200) (26,800)
--------- ---------- ---------
Net cash provided by (used for) operating
activities................................. 131,900 (119,400) 513,700
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................. (41,900) (55,400) (44,500)
Proceeds from asset sales............................ 86,400 4,300 17,300
Payment on Acme Boot debt guarantee.................. (65,900) -- --
Proceeds from sale of Hosiery Division............... -- -- 73,800
Other-net............................................ (28,000) (13,700) (15,300)
--------- ---------- ---------
Net cash provided by (used for) investing
activities................................. (49,400) (64,800) 31,300
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt............. -- 97,800 63,000
Proceeds under line-of-credit agreements............. 874,000 1,245,800 488,500
Payments under line-of-credit agreements............. (836,200) (981,900) (979,600)
Principal payments on long-term debt and capital
leases............................................ (138,800) (17,600) (125,500)
Common stock issued.................................. 6,800 11,100 17,400
Common stock repurchased............................. (3,000) (173,600) (16,600)
--------- ---------- ---------
Net cash provided by (used for) financing
activities................................. (97,200) 181,600 (552,800)
--------- ---------- ---------
Net decrease in cash and cash equivalents (including
restricted cash)..................................... (14,700) (2,600) (7,800)
Cash and cash equivalents (including restricted cash)
at beginning of year................................. 16,100 18,700 26,500
--------- ---------- ---------
Cash and cash equivalents (including restricted cash)
at end of year....................................... $ 1,400 $ 16,100 $ 18,700
========= ========== =========
</TABLE>
See accompanying notes.
32
<PAGE> 35
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries other than
its special purpose entity which is not consolidated (see "Sale of Accounts
Receivable"). All material intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates depending upon certain risks and uncertainties. Potential risks and
uncertainties include such factors as the financial strength of the retail
industry (particularly the mass merchant channel), the level of consumer
spending for apparel, demand for the Company's activewear screenprint products,
the competitive pricing environment within the basic apparel segment of the
apparel industry, the Company's ability to develop, market and sell new
products, the success of planned advertising, marketing and promotional
campaigns, international activities, legal proceedings, other contingent
liabilities and the actual fair values of assets held for sale, impaired assets
and leased assets covered by residual value guarantees.
INVENTORIES. Inventory costs include material, labor and factory overhead.
Inventories are stated at the lower of cost (first-in, first-out) or market.
During the fourth quarter of 1997, the Company changed its method of
determining the cost of inventories from the LIFO method to the FIFO method as
it experienced reduced costs from offshore assembly operations and expects
continuing cost reductions. The cost of inventories on a LIFO basis at December
31, 1997 was approximately equal to their replacement cost. Accordingly, the
Company believes that the FIFO method will result in a better measurement of
operating results. All previously reported results were restated to reflect the
retroactive application of this accounting change as required by generally
accepted accounting principles. The accounting change increased the net loss for
1997 by $27,800,000, or $.37 per share. Due principally to the effect of LIFO
reserve liquidations, net earnings previously reported for 1996 were reduced by
$4,600,000 or $.06 per share.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at
cost. Impaired assets are stated at fair value less estimated selling costs.
Depreciation, which includes amortization of assets under capital leases, is
based on the straight-line method over the estimated useful lives of depreciable
assets. Interest costs incurred in the construction or acquisition of property,
plant and equipment are capitalized. Buildings, structures and improvements are
depreciated over 20 years. Machinery and equipment is depreciated over periods
not exceeding 10 years.
GOODWILL. Goodwill is amortized using the straight-line method over periods
ranging from 20 to 40 years.
DERIVATIVE COMMODITY INSTRUMENTS. Cotton futures contracts are the primary
derivative commodity instruments utilized by the Company. These instruments are
designated and effective as hedges of a portion of the probable periodic cotton
purchases that would otherwise expose the Company to the risk of increases in
the price of cotton consumed in manufacturing the Company's products. The
contract terms match the Company's purchasing cycle. Options (caps and floors)
are also used but are not currently material to the Company's financial
condition or net income. Futures contracts are closed by cash settlement. Open
futures contracts are marked to market. Realized and unrealized gains and losses
are deferred and recognized in earnings as cotton costs are recovered through
sales of the Company's products (the deferral accounting method). Deferred
realized gains and losses are included as a component of inventory. Deferred
unrealized gains and losses are included in other liabilities or assets and in
cash flows from investing activities.
DERIVATIVE FINANCIAL INSTRUMENTS. Interest rate swap agreements are the
primary derivative financial instruments utilized by the Company. These
instruments limit the Company's risk of exposure to increases in interest rates
on selected portions of its variable rate debt. These agreements involve the
exchange of amounts
33
<PAGE> 36
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONCLUDED)
based on a variable interest rate for amounts based on fixed interest rates over
the life of the agreement without an exchange of the notional amount upon which
the payments are based. The differential to be paid or received as interest
rates change is accrued and recognized as an adjustment of interest expense
related to the debt (the accrual accounting method). The related amount payable
to or receivable from counterparties is included in interest payable. The fair
values of the swap agreements are not recognized in the financial statements.
DEFERRED GRANTS. The Company has negotiated grants from the governments of
the Republic of Ireland, Northern Ireland and Germany. The grants are being used
for employee training, the acquisition of property and equipment and other
governmental business incentives such as general employment. Employee training
grants are recognized in income in the year in which the costs to which they
relate are incurred by the Company. Grants for the acquisition of property and
equipment are netted against the related capital expenditure. Grants for
property and equipment under operating leases are amortized to income as a
reduction of rents paid. Unamortized amounts netted against fixed assets under
these grants at January 2, 1999 and December 31, 1997 were $19,400,000 and
$28,000,000, respectively.
SOFTWARE COSTS. Costs associated with the application development stage of
significant new computer software applications for internal use are deferred and
amortized over periods ranging from three to five years. Costs associated with
the preliminary and post implementation stages of these projects are expensed as
incurred.
STOCK-BASED COMPENSATION. The Company accounts for stock based compensation
in accordance with APB 25. The Company typically grants stock options for a
fixed number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. Accordingly, the Company typically
recognizes no compensation expense for these stock option grants.
PENSION PLANS. The Company maintains pension plans which cover
substantially all employees. The plans provide for benefits based on an
employee's years of service and compensation. The Company funds the minimum
contributions required by the Employee Retirement Income Security Act of 1974.
EARNINGS PER SHARE. In 1997, the Financial Accounting Standards Board
issued FAS 128, Earnings per Share. FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the FAS 128
requirements.
IMPAIRMENT. When indicators of impairment are present, the Company
evaluates the carrying value of property, plant and equipment and intangibles in
relation to the operating performance and future undiscounted cash flows of the
underlying businesses. The Company adjusts the net book value of the underlying
assets if the sum of expected future cash flows is less than book value. Assets
to be disposed of are adjusted to fair value less cost to sell if less than book
value.
EMPLOYEE BONUS PLANS AND OTHER INCENTIVE COMPENSATION. The Company has a
performance based management incentive plan for officers and key employees of
the Company based upon performance related criteria determined at the discretion
of the Compensation Committee of the Board of Directors. The Company accrues
amounts based on anticipated performance for the current year and awards are
made in the first quarter of the succeeding year.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform with the current year presentation.
34
<PAGE> 37
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES
1997 Special Charges
In the fourth quarter of 1997, the Company recorded charges for costs
related to the closing and disposal of a number of domestic manufacturing and
distribution facilities, impairment of manufacturing equipment and other assets
and certain European manufacturing and distribution facilities, and other costs
associated with the Company's world-wide restructuring of manufacturing and
distribution facilities. These and other special charges totalled $441,700,000
($372,200,000 after tax) categorized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
FUTURE TOTAL
CASH NONCASH CHARGES
-------- -------- --------
<S> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S. MANUFACTURING AND DISTRIBUTION
FACILITIES
Loss on sale of facilities, improvements and equipment:
Sewing and finishing.................................. $ -- $ 30,500 $ 30,500
Distribution facilities............................... -- 36,100 36,100
Impairment of mills to be sold........................ -- 75,400 75,400
Lease residual guarantees............................. 61,000 -- 61,000
Other equipment....................................... -- 29,600 29,600
-------- -------- --------
61,000 171,600 232,600
Severance costs.......................................... 8,400 -- 8,400
Other accruals........................................... 6,500 3,900 10,400
-------- -------- --------
75,900 175,500 251,400
-------- -------- --------
IMPAIRMENT OF EUROPEAN MANUFACTURING AND DISTRIBUTION
FACILITIES
Impairment of long lived assets.......................... -- 42,800 42,800
Other accruals........................................... 1,300 -- 1,300
-------- -------- --------
1,300 42,800 44,100
-------- -------- --------
PRO PLAYER INCENTIVE COMPENSATION AGREEMENT................ 22,000 -- 22,000
-------- -------- --------
OTHER ASSET WRITE DOWNS AND RESERVES
Inventory valuation provisions........................... -- 49,800 49,800
Other accruals........................................... 39,200 14,600 53,800
-------- -------- --------
39,200 64,400 103,600
-------- -------- --------
CHANGES IN ESTIMATES OF RETAINED LIABILITIES OF FORMER
SUBSIDIARIES............................................. 12,600 8,000 20,600
-------- -------- --------
Total pretax charges............................. $151,000 $290,700 $441,700
======== ======== ========
</TABLE>
Each of these categories is discussed below.
During the three years ended December 31, 1997, the Company moved
substantially all of its sewing and finishing operations to locations in the
Caribbean and Central America as part of its strategy to reduce its cost
structure and remain a low cost producer in the U.S. markets it serves. The
Company closed or committed to cease operations at nine sewing and finishing
facilities in 1997. Accordingly, the Company terminated 176 salaried and 6,975
production personnel related to closed operations. Terminated personnel were
notified of their separation in 1997 and the plant closings and attendant
personnel reductions were substantially completed in 1997. The decision to move
substantially all of the Company's sewing and finishing operations outside the
United States resulted in the need to realign certain other domestic
manufacturing operations and required the Company to dispose of certain
production equipment. The Company realigned its operations by
35
<PAGE> 38
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1997 Special Charges -- (Continued)
shifting production at the remaining domestic and offshore locations (including
contractors) in order to balance its production capabilities. Management
committed to dispose of these sewing and finishing facilities in late November
and December 1997 and has ceased production at eight of the nine facilities by
January 2, 1999. Equipment is being sold or scrapped and real estate is being
sold. The Company expects to complete these asset sales in 1999. Impairment
charges related to sewing and finishing facilities that the Company had not
ceased operating at December 31, 1997 totalled $7,000,000. The redirection of
the physical flow of goods in the Company's manufacturing processes prompted a
reassessment of the Company's domestic distribution network. Management
committed to dispose of certain distribution assets in December 1997. The
Company has ceased operating at four of seven locations. The Company expects to
complete the asset sales in 1999. Impairment charges related to distribution
assets that the Company had not ceased operating at December 31, 1997 totalled
$34,000,000. The Company's plans for further efficiencies in its manufacturing
operations and its commitment to reduce the capital intensity of its business
resulted in a decision to dispose of three of its U.S. based yarn mills.
Management committed to dispose of these assets in December 1997. To avoid
further impairment, the Company continues to operate these impaired mills as
going concerns as efforts to sell them progress. Management expects to complete
these asset sales in 1999. Impairment charges related to these yarn mills
totalled $75,400,000. FAS 121 requires that all long-lived assets to be disposed
of be measured at the lower of their carrying amount or estimated fair value,
less estimated selling costs. It is the Company's intention to dispose of the
facilities and equipment for which impairment charges have been recorded and the
Company believes it has the ability to dispose of the assets in less than 30
days from the time a buyer agrees to purchase the assets and still meet
production and distribution needs. As a result of the offshore migration of its
sewing and finishing operations and related decisions to close or dispose of
certain manufacturing and distribution facilities, the Company evaluated its
operating lease structure and the ability of the lessor to recover its costs in
the used equipment market and concluded that residual values guaranteed by the
Company will be substantially in excess of fair market values. See "LEASE
COMMITMENTS." Charges related to loss on disposal of facilities, improvements
and equipment totalled $232,600,000.
Severance costs consisted of salary and fringe benefits (FICA and
unemployment taxes, health insurance, life insurance, dental insurance,
long-term disability insurance and participation in the Company's pension plan).
These charges were recorded in the fourth quarter of 1997 as required by
FAS 121, EITF 94-3 or other authoritative literature. Assets held for sale
included in other noncurrent assets in the accompanying Consolidated Balance
Sheet totalled $83,600,000 and $104,700,000 at January 2, 1999 and December 31,
1997, respectively.
As part of its review of its manufacturing, distribution, and logistics
organization, facilities and costs beginning in the third quarter of 1997, the
Company also considered the strategic position and cost effectiveness of its
organization and facilities in Europe where industry trends similar to those in
the U.S. (such as movement of certain operations to low cost countries) were
emerging. This review indicated that certain of the Company's European
manufacturing and distribution assets to be held and continued to be used might
be impaired. Estimates of undiscounted cash flows indicated that the carrying
amounts of these assets were not likely to be recovered. Therefore, as required
by FAS 121, these assets were written down to their estimated fair values, less
estimated selling costs.
36
<PAGE> 39
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1997 Special Charges -- (Continued)
The Company recorded charges for other asset write downs and reserves
totalling $103,600,000 comprised of the following (in millions of dollars).
<TABLE>
<CAPTION>
OTHER
TOTAL ASSET RESERVES AND
CHARGES WRITE DOWN ACCRUALS
------- ---------- ------------
<S> <C> <C> <C>
Inventory obsolescence.......................... $ 10.1 $10.1 $ --
Inventory shrinkage............................. 19.5 19.5 --
Inventory mark down............................. 20.2 20.2 --
Software costs.................................. 7.1 -- 7.1
Severance....................................... 6.1 -- 6.1
Professional fees............................... 6.6 -- 6.6
Various contract commitments.................... 12.1 -- 12.1
Other charges................................... 21.9 8.3 13.6
------ ----- -----
$103.6 $58.1 $45.5
====== ===== =====
</TABLE>
Provisions to inventory reserves largely resulted from conditions
associated with the acceleration of the offshore movement of the Company's
sewing and finishing operations which began late in the third quarter of 1997.
Provisions for inventory obsolescence reflected made in U.S.A. labels and
polybags and other supplies on hand that were made obsolete because remaining
planned domestic production would be insufficient to utilize them.
The provision for inventory shrinkage reflected the greatly extended
pipeline for the Company's in-transit inventories, new freight channels and the
difficulty of accounting for inventories at contractor facilities, as well as
start-up operations at Company-owned facilities, in foreign locations. The
estimated inventory shrinkage provision was based on analyses of in-transit
inventory reconciliations, and in the fourth quarter of 1997, the Company
identified book to physical adjustments related to inventories at foreign
contractor locations. Inventory shrinkage experienced in 1997 was $26,000,000,
compared with $18,900,000 in 1996 and $17,600,000 in 1995.
The inventory markdown provision reflected quality issues related to
start-up operations resulting from acceleration of the offshore movement of
sewing and finishing operations and, unrelated to the offshore move, a shift in
customer demand to upsized garments as opposed to more traditional sizing.
The Company incurred software costs during 1997 related to business process
reengineering and information technology transformation. Substantially all of
these costs were incurred and expensed in the fourth quarter in accordance with
EITF 97-13 issued November 20, 1997.
Severance costs were accrued for the termination of certain executive
officers with employment agreements as well as other corporate executives.
Legal, accounting and consulting fees were incurred in connection with the
proposed recapitalization of the Company announced February 11, 1998. See
"SUBSEQUENT EVENTS." The Company also incurred costs associated with a proposed
new venture that was cancelled in the fourth quarter of 1997 and other matters.
Contract commitment charges consist of lease commitments on office space no
longer occupied, minimum liabilities under royalty agreements whose sales
minimums will not be met, a loss on a firm commitment to purchase cloth in 1998,
estimated fees to amend certain debt and lease covenants and, as a result of the
European restructuring, estimated obligations to repay employment grants in
Europe.
37
<PAGE> 40
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1997 Special Charges -- (Continued)
Other charges totalling $21,900,000 consist of an impairment write down of
goodwill along with accruals related to various asset valuation, state and local
tax, financing and other issues related to the Company's world-wide
restructuring efforts.
In the fourth quarter of 1997, the Company recorded a $22,000,000 charge
for incentive compensation anticipated to be earned at its Pro Player subsidiary
(none of which was paid in 1997). The Company recorded charges totalling
$20,600,000 related to changes in estimates of environmental and other retained
liabilities of former subsidiaries. Environmental charges reflected an increase
in estimated environmental costs of $8,600,000 and a reduction in expected
recoveries of $8,000,000. See "CONTINGENT LIABILITIES." The remaining $4,000,000
reflects the projected costs to the Company of pension obligations of certain
former subsidiaries as estimated based on settlement negotiations begun with the
Pension Benefit Guarantee Corporation in late December 1997.
The above charges were recorded in the accompanying Consolidated Statement
of Operations as follows (in thousands of dollars):
<TABLE>
<CAPTION>
SELLING, IMPAIRMENT
GENERAL AND WRITE
COST OF ADMINISTRATIVE DOWN OTHER
SALES EXPENSE OF GOODWILL EXPENSE TOTAL
------- -------------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Closing and disposal of U.S.
manufacturing and distribution
facilities........................... $ -- $251,400 $ -- $ -- $251,400
Impairment of European manufacturing
and distribution facilities.......... -- 44,100 -- -- 44,100
Pro Player incentive compensation
agreement............................ -- 22,000 -- -- 22,000
Other asset write downs and reserves... 49,800 37,400 4,600 11,800 103,600
Changes in estimates of retained
liabilities of former subsidiaries... -- -- -- 20,600 20,600
------- -------- ------ ------- --------
$49,800 $354,900 $4,600 $32,400 $441,700
======= ======== ====== ======= ========
</TABLE>
These charges were based on management's best estimates of the potential
market values, timing and costs related to the above actions. Of the Special
Charges, cash charges totalled approximately $151,000,000 to be paid in 1998 and
future years, $10,900,000 of which relate to restructuring charges as defined by
EITF No. 94-3. The Company paid $28,200,000 of these cash charges and finalized
its estimate of these special charges in 1998. Approximately $25,400,000 is
estimated to be paid in 1999 and a total of approximately $61,200,000 is
estimated to be paid in future years. See "SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- USE OF ESTIMATES."
38
<PAGE> 41
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1997 Special Charges -- (Continued)
Following is a summary of the 1997 special charges and related reserve
balances at December 31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE
1997 OTHER BALANCE AT
SPECIAL CASH ACTIVITY DECEMBER 31,
CHARGES PAYMENTS IN 1997 1997
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S.
MANUFACTURING AND DISTRIBUTION FACILITIES
Loss on sale of facilities, improvements and
equipment:
Sewing, finishing and distribution
facilities............................... $ 66,600 $ -- $ -- $ 66,600
Impairment of mills to be sold............. 75,400 -- -- 75,400
Lease residual guarantees.................. 61,000 -- -- 61,000
Other equipment............................ 29,600 -- 22,100 7,500
-------- ------ ------- --------
232,600 -- 22,100 210,500
Severance costs............................... 8,400 -- -- 8,400
Other accruals................................ 10,400 -- -- 10,400
-------- ------ ------- --------
251,400 -- 22,100 229,300
-------- ------ ------- --------
IMPAIRMENT OF EUROPEAN
MANUFACTURING AND DISTRIBUTION FACILITIES
Impairment of long lived assets............... 42,800 -- 42,800 --
Other accruals................................ 1,300 -- -- 1,300
-------- ------ ------- --------
44,100 -- 42,800 1,300
-------- ------ ------- --------
PRO PLAYER INCENTIVE COMPENSATION AGREEMENT..... 22,000 -- -- 22,000
-------- ------ ------- --------
OTHER ASSET WRITE DOWNS AND RESERVES
Inventory valuation provisions................ 49,800 -- -- 49,800
Other accruals................................ 53,800 7,400 9,200 37,200
-------- ------ ------- --------
103,600 7,400 9,200 87,000
-------- ------ ------- --------
CHANGES IN ESTIMATES OF RETAINED LIABILITIES OF
FORMER SUBSIDIARIES........................... 20,600 -- 8,000 12,600
-------- ------ ------- --------
Total pretax charges.................. $441,700 $7,400 $82,100 $352,200
======== ====== ======= ========
</TABLE>
Other activity in 1997 represents assets written off.
39
<PAGE> 42
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1997 Special Charges -- (Continued)
A rollforward of the 1997 special charges through January 2, 1999 is
presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY JANUARY 2,
1997 IN 1998 IN 1998 IN 1998 1999
------------ -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S.
MANUFACTURING AND DISTRIBUTION
FACILITIES
Loss on sale of facilities,
improvements and equipment:
Sewing, finishing and
distribution facilities.... $ 66,600 $ 100 $ -- $ 6,400 $ 60,100
Impairment of mills to be
sold....................... 75,400 -- -- -- 75,400
Lease residual guarantees.... 61,000 -- -- -- 61,000
Other equipment.............. 7,500 -- -- 1,300 6,200
-------- ------- ------- ------- --------
210,500 100 -- 7,700 202,700
Severance costs................. 8,400 5,100 3,100 -- 200
Other accruals.................. 10,400 5,800 1,000 1,200 2,400
-------- ------- ------- ------- --------
229,300 11,000 4,100 8,900 205,300
-------- ------- ------- ------- --------
IMPAIRMENT OF EUROPEAN
MANUFACTURING AND DISTRIBUTION
FACILITIES
Impairment of long lived
assets....................... -- -- -- -- --
Other accruals.................. 1,300 -- -- 200 1,100
-------- ------- ------- ------- --------
1,300 -- -- 200 1,100
-------- ------- ------- ------- --------
PRO PLAYER INCENTIVE COMPENSATION
AGREEMENT....................... 22,000 -- 22,000 -- --
-------- ------- ------- ------- --------
OTHER ASSET WRITE DOWNS AND
RESERVES
Inventory valuation
provisions................... 49,800 -- 5,900 43,900 --
Other accruals.................. 37,200 16,700 5,300 3,900 11,300
-------- ------- ------- ------- --------
87,000 16,700 11,200 47,800 11,300
-------- ------- ------- ------- --------
CHANGES IN ESTIMATES OF RETAINED
LIABILITIES OF FORMER
SUBSIDIARIES.................... 12,600 500 1,500 -- 10,600
-------- ------- ------- ------- --------
Total pretax charges.... $352,200 $28,200 $38,800 $56,900 $228,300
======== ======= ======= ======= ========
</TABLE>
Other activity in 1998 principally related to inventory reserves
established which were relieved as the inventory was sold and fixed asset
write-offs as the assets were sold.
During the first quarter of 1998, the Company sold certain inventory which
had been written down as part of the 1997 special charges. Amounts received for
the inventory sold were in excess of amounts estimated, resulting in increases
to earnings before income tax expense of $5,100,000 in the first nine months of
1998, substantially all of which occurred in the first quarter of 1998. In the
fourth quarter of 1998, the Company reversed the $22,000,000 charge as it
determined it was no longer probable it would have to pay the incentive
40
<PAGE> 43
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1997 Special Charges -- (Concluded)
compensation at its Pro Player subsidiary. Also in the fourth quarter of 1998,
the Company finalized certain other estimates recorded in connection with the
special charges recorded in 1997 which increased earnings before income tax
expense by $11,700,000. The increases to earnings were recorded in the
accompanying Consolidated Statement of Operations as follows (in thousands of
dollars):
<TABLE>
<S> <C>
Cost of sales............................................... $ 6,900
Selling, general and administrative expenses................ 30,400
Other expenses.............................................. 1,500
-------
Total............................................. $38,800
=======
</TABLE>
The Company continued to operate certain assets held for sale during 1998
so that they may be sold as "ongoing operations". Accordingly, the Company did
not depreciate these facilities during 1998, resulting in lower depreciation
expense of approximately $10,000,000 than if the Company had recorded
depreciation.
1995 Special Charges
In the fourth quarter of 1995, management announced plans to close certain
manufacturing operations and to take other actions to reduce costs and
streamline operations. Accordingly, the Company identified for termination 194
salaried and 5,926 production personnel related to closed operations. Terminated
personnel were notified of their separation in 1995 and the plant closings and
attendant personnel reductions were substantially completed in 1995. Of the
terminated personnel, all production and 180 of the salaried personnel were
terminated in 1995; the remaining 14 salaried personnel were terminated in 1996.
As a result, the Company recorded charges of approximately $372,900,000
($287,400,000 after tax) related to impairment write downs of goodwill, costs
associated with the closing or realignment of certain domestic manufacturing
facilities and attendant personnel reductions and charges related to inventory
write downs and valuations, foreign operations and other corporate issues. These
actions were taken in an effort to substantially reduce the Company's cost
structure, streamline operations and further improve customer service. The
Company realigned its operations by shifting production at the remaining
domestic operations in order to balance its production capabilities.
During 1995, management reviewed the operations of Salem and Gitano and
decided to discontinue the use of the SALEM brand and redeployed the tangible
assets relating to the Salem business to other brands within the Company's
licensed sports apparel business. In addition, the Company determined that
significant changes and investment would be necessary to restructure the Gitano
business and implemented a plan to improve Gitano's profitability. The Company
determined that the carrying value of the intangible assets related to the Salem
and Gitano businesses were not expected to be recovered by their future
undiscounted cash flows. Future cash flows were based on forecasted trends for
the particular businesses and assumed capital spending in line with expected
requirements. Accordingly, impairment write downs of goodwill of $158,500,000
reflect the write-off of all goodwill related to the Salem and Gitano
businesses. See "ACQUISITIONS."
During the fourth quarter of 1995, the Company recorded charges of
approximately $82,800,000 related to the closing or realignment of certain
domestic manufacturing operations, the closing of certain leased facilities, the
write-off of fixed assets related to these facilities and changes in estimates
of the cost of certain
41
<PAGE> 44
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1995 Special Charges -- (Continued)
of the Company's insurance obligations. The detail of these charges is presented
below (in thousands of dollars):
<TABLE>
<S> <C>
Loss on disposal of closed facilities, improvements and
equipment................................................. $29,000
Changes in estimates of insurance liabilities............... 21,800
Costs related to expected increases in workers' compensation
and health and welfare costs.............................. 8,000
Costs related to termination of certain lease agreements.... 7,300
Costs related to the severance of the hourly workforce...... 6,700
Other....................................................... 10,000
-------
$82,800
=======
</TABLE>
These charges were recorded in the fourth quarter of 1995 as required by
EITF No. 94-3 or other authoritative literature. All facilities, improvements
and equipment closed in 1995 were sold to third parties or relinquished in
settlement of lease terminations. Transactions to dispose of substantially all
of these assets occurred in 1995 and 1996.
The Company recorded charges of approximately $5,800,000 related to the
cost of providing severance and benefits to employees affected by the facility
closings as well as certain administrative headcount reductions. The severance
and other benefits provided consisted of salary and fringe benefits (FICA and
unemployment taxes, health insurance, life insurance, dental insurance,
long-term disability insurance and participation in the Company's pension plan).
The Company recorded charges of approximately $91,100,000 related to other asset
write downs, valuation reserves and other reserves as a result of reductions in
its product offerings, changes in its operations and termination or modification
of certain license and other agreements. In addition, the Company recorded
charges of approximately $19,200,000 related to changes in estimates of certain
retained liabilities of former subsidiaries. Also, the Company adopted a plan to
realign certain of its corporate headquarters functions and to terminate its
relationship for management services with FII and, accordingly, recorded charges
of approximately $15,500,000 related to lease termination, severance benefits
and other costs. These charges included certain valuation reserves and the
impact of license agreements which relate specifically to the SALEM and GITANO
brands. The total impact of the charges in 1995 (including the write down of
goodwill) pertaining to the SALEM and GITANO brands was $164,100,000. See
"RELATED PARTY TRANSACTIONS."
The above charges were recorded as $158,500,000 of impairment write down of
goodwill, $146,700,000 of increases to cost of sales, $47,000,000 of increases
to selling general and administrative expenses and $20,700,000 of increases to
other expense in the 1995 Consolidated Statement of Operations. These charges
were based on management's best estimates of the potential costs related to the
aforementioned actions. Finalization of many of the Special Charges estimated at
December 31, 1995 occurred during 1996. Of the Special Charges, approximately
$23,000,000, $4,800,000 and $33,300,000 were paid in 1998, 1997 and 1996 and
$20,200,000 remain to be paid in 1999 and future years.
42
<PAGE> 45
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1995 Special Charges -- (Continued)
A rollforward of the 1995 special charges by year through January 2, 1999
is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE
1995 CASH OTHER BALANCE AT
SPECIAL PAYMENTS ACTIVITY DECEMBER 31,
CHARGES IN 1995 IN 1995 1995
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Impairment write down of goodwill.................. $158,500 $ -- $156,400 $ 2,100
-------- ------- -------- --------
Closing or realignment of manufacturing operations:
Loss on disposal of closed facilities,
improvements and equipment.................... 29,000 -- 27,200 1,800
Changes in estimates of insurance liabilities.... 21,800 -- -- 21,800
Costs related to expected increases in workers'
compensation and health and welfare costs..... 8,000 -- -- 8,000
Costs related to termination of certain lease
obligations................................... 7,300 900 -- 6,400
Costs related to severance of the hourly
workforce..................................... 6,700 6,700 -- --
Other............................................ 10,000 300 -- 9,700
-------- ------- -------- --------
82,800 7,900 27,200 47,700
Severance........................................ 5,800 1,100 -- 4,700
Other asset write downs, valuation reserves and
other reserves................................... 91,100 8,600 19,400 63,100
Changes in estimates of certain retained
liabilities of former subsidiaries............... 19,200 -- -- 19,200
Termination of management agreement................ 15,500 -- -- 15,500
-------- ------- -------- --------
$372,900 $17,600 $203,000 $152,300
======== ======= ======== ========
</TABLE>
43
<PAGE> 46
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1995 Special Charges -- (Continued)
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY DECEMBER 31,
1995 IN 1996 IN 1996 IN 1996 1996
------------ -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill........ $ 2,100 $ -- $ -- $ 2,100 $ --
-------- ------- ------- ------- -------
Closing or realignment of manufacturing
operations:
Loss on disposal of closed facilities,
improvements and equipment.......... 1,800 300 -- 200 1,300
Changes in estimates of insurance
liabilities......................... 21,800 7,800 -- -- 14,000
Costs related to expected increases in
workers' compensation and health and
welfare costs....................... 8,000 1,800 300 -- 5,900
Costs related to termination of certain
lease obligations................... 6,400 5,500 (1,200) -- 2,100
Costs related to severance of the
hourly workforce.................... -- -- -- -- --
Other.................................. 9,700 2,000 4,700 -- 3,000
-------- ------- ------- ------- -------
47,700 17,400 3,800 200 26,300
Severance................................ 4,700 4,400 -- -- 300
Other asset write downs, valuation
reserves and other reserves............ 63,100 2,800 6,600 44,500 9,200
Changes in estimates of certain retained
liabilities of former subsidiaries..... 19,200 -- 3,000 -- 16,200
Termination of management agreement...... 15,500 8,700 -- -- 6,800
-------- ------- ------- ------- -------
$152,300 $33,300 $13,400 $46,800 $58,800
======== ======= ======= ======= =======
</TABLE>
44
<PAGE> 47
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1995 Special Charges -- (Continued)
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY DECEMBER 31,
1996 IN 1997 IN 1997 IN 1997 1997
------------ -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill........ $ -- $ -- $ -- $ -- $ --
-------- ------- ------- ------- -------
Closing or realignment of manufacturing
operations:
Loss on disposal of closed facilities,
improvements and equipment.......... 1,300 700 -- 400 200
Changes in estimates of insurance
liabilities......................... 14,000 -- -- -- 14,000
Costs related to expected increases in
workers' compensation and health and
welfare costs....................... 5,900 700 -- -- 5,200
Costs related to termination of certain
lease obligations................... 2,100 1,100 -- -- 1,000
Costs related to severance of the
hourly workforce.................... -- -- -- -- --
Other.................................. 3,000 300 -- -- 2,700
-------- ------- ------- ------- -------
26,300 2,800 -- 400 23,100
Severance................................ 300 100 -- -- 200
Other asset write downs, valuation
reserves and other reserves............ 9,200 600 2,000 2,700 3,900
Changes in estimates of certain retained
liabilities of former subsidiaries..... 16,200 -- -- -- 16,200
Termination of management agreement...... 6,800 1,300 5,500 -- --
-------- ------- ------- ------- -------
$ 58,800 $ 4,800 $ 7,500 $ 3,100 $43,400
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY JANUARY 2,
1997 IN 1998 IN 1998 IN 1998 1999
------------ -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill........ $ -- $ -- $ -- $ -- $ --
-------- ------- ------- ------- -------
Closing or realignment of manufacturing
operations:
Loss on disposal of closed facilities,
improvements and equipment.......... 200 200 -- -- --
Changes in estimates of insurance
liabilities......................... 14,000 4,500 -- -- 9,500
Costs related to expected increases in
workers' compensation and health and
welfare costs....................... 5,200 5,200 -- -- --
Costs related to termination of certain
lease obligations................... 1,000 900 100 -- --
Costs related to severance of the
hourly workforce.................... -- -- -- -- --
Other.................................. 2,700 2,500 -- -- 200
-------- ------- ------- ------- -------
23,100 13,300 100 -- 9,700
Severance................................ 200 200 -- -- --
Other asset write downs, valuation
reserves and other reserves............ 3,900 3,800 100 -- --
Changes in estimates of certain retained
liabilities of former subsidiaries..... 16,200 5,700 -- -- 10,500
Termination of management agreement...... -- -- -- -- --
-------- ------- ------- ------- -------
$ 43,400 $23,000 $ 200 $ -- $20,200
======== ======= ======= ======= =======
</TABLE>
45
<PAGE> 48
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONCLUDED)
1995 Special Charges -- (Concluded)
Other activity in 1995 principally consisted of goodwill and fixed asset
write offs and sales of inventory which had been written down as part of the
special charges. In 1996 and 1997, other activity of $46,800,000 and $3,100,000
principally related to inventory reserves established which were relieved as the
inventory was sold.
During 1996, the Company finalized certain of the estimates recorded in
connection with the special charges taken in 1995 which reduced cost of sales by
$3,400,000, selling, general and administrative expenses by $6,400,000 and other
expense by $3,600,000. Of this amount, $3,800,000 related to closing or
realignment of manufacturing operations, principally reflecting the favorable
settlement from subletting leased facilities and decreases in actual COBRA costs
incurred over amounts estimated. The favorable settlement from subletting leased
facilities and decreases in actual COBRA costs incurred over amounts estimated
are included in "other" within "Closing or realignment of manufacturing
operations" in the rollforward for the year ended December 31, 1996. In
addition, estimates of other asset write downs and reserves were reduced by
$6,600,000 and primarily resulted from favorable renegotiation of royalty
contracts. Further, changes in estimates of certain retained liabilities of
former subsidiaries were reduced by $3,000,000, reflecting favorable settlement
of product liability lawsuits.
During 1997, the Company finalized certain of the estimates recorded in
connection with the special charges taken in 1995 which reduced selling, general
and administrative expenses by $7,500,000 in the first quarter of 1997. The
adjustments to reserves consisted of $5,500,000 resulting from a favorable lease
renegotiation and $2,000,000 related to a reduction in bad debt reserves due to
improvement in customer financial performance. See "SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES -- USE OF ESTIMATES."
The remaining reserve balance of $20,200,000 at January 2, 1999 will be
relieved as costs are incurred and consists principally of insurance liabilities
of $9,500,000 and environmental charges of $10,500,000, both of which are
expected to be utilized in 1999 and 2000. The remaining reserve balance is
expected to be completely utilized by the end of 2000.
SALE OF HOSIERY DIVISION
In November 1996, the Company completed the sale of a substantial portion
of its hosiery manufacturing operations and related assets for $73,800,000 in
cash. The sale resulted in a pretax gain of $4,200,000 or $.03 per share --
assuming dilution after tax. The purchaser also entered into a ten year
licensing agreement with the Company granting the purchaser an exclusive
royalty-bearing license to use the Fruit of the Loom tradename and trademark for
the manufacture, sale and distribution of athletic, casual and dress socks for
adults and children.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Short-term
investments (consisting primarily of certificates of deposit, overnight deposits
or Eurodollar deposits) totalling $1,400,000 and $1,300,000 were included in
cash and cash equivalents at January 2, 1999 and December 31, 1997, respectively
as restricted cash. These investments were carried at cost, which approximated
quoted market value.
SALE OF ACCOUNTS RECEIVABLE
Under a three-year receivables purchase agreement entered into in December
1996, the Company, through a wholly-owned, bankruptcy remote, special purpose
entity ("SPE"), can sell up to a $250,000,000
46
<PAGE> 49
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SALE OF ACCOUNTS RECEIVABLE -- (CONCLUDED)
undivided interest in a defined pool of its trade accounts receivable. The
maximum amount outstanding as defined under the agreement varies based upon the
level of eligible receivables.
Prior to January 1, 1997, the Company accounted for these sales in
accordance with FAS 77 Reporting by Transferors for Transfers of Receivables
with Recourse, under which accounts of the SPE were consolidated. Effective
January 1, 1997, the Company adopted FAS 125 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, for sales of
trade accounts receivable. Adoption of FAS 125 had no impact on net income in
1997 or 1998. Under FAS 125 and EITF 97-6, however, the Company no longer
consolidates the SPE. Rather, the SPE is reflected as an equity basis investment
as of December 31, 1997, in the accompanying Consolidated Balance Sheet.
At January 2, 1999 and December 31, 1997, $220,700,000 and $183,000,000,
respectively, of trade accounts receivable were sold to the unconsolidated SPE.
Receivables purchased by the SPE are pooled for later sale to the ultimate
purchaser under the agreement. Proceeds of $208,800,000 and $214,800,000
remained outstanding as of the respective balance sheet dates from prior sales
of undivided interests in receivables owned by the SPE. Due to collections on
the Company's receivables after the sale date, a portion of the proceeds
remaining outstanding at each year end from sales by the SPE represented
advances from the ultimate purchaser in excess of amounts allowable under the
agreement. These advances, totalling $55,900,000 and $83,100,000, respectively,
were included in Trade accounts payable in the accompanying Consolidated Balance
Sheet.
Sales of trade accounts receivable are reflected as a reduction of notes
and accounts receivable in the accompanying Consolidated Balance Sheet, and the
proceeds received from sales to the ultimate purchaser are included in cash
flows from operating activities in the accompanying Consolidated Statement of
Cash Flows. Proceeds from receivable sales are less than the face amount of
trade accounts receivable sold by a discounted amount which closely approximates
the purchaser's financing cost of issuing its own commercial paper backed by
these and other accounts receivable.
The full amount of the allowance for possible losses has been retained by
the SPE and classified as a recourse liability because the SPE, as agent for the
purchaser, retains the same risk of credit loss, including collection and
administrative responsibilities, as if the receivables had not been sold. The
fair value of the recourse liabilities transferred to the SPE totalled
$15,000,000 and $29,800,000 at January 2, 1999 and December 31, 1997,
respectively, and approximated the allocated allowance for possible losses given
the short-term nature of the transferred receivables.
The discount and fees under this agreement are variable based on the
general level of interest rates. Rates ranged from 4.73% to 6.11% during 1998
and from 5.14% to 5.92% during 1997 on the amount of the undivided interest sold
plus certain administrative and servicing fees typical in such transactions.
These costs were approximately $11,900,000 and $11,800,000 in 1998 and 1997 and
were charged to Other expense -- net in the accompanying Consolidated Statement
of Operations. The Company receives compensation for servicing that is
approximately equal to its cost of servicing the accounts receivable.
Accordingly, no servicing asset or liability is recorded.
47
<PAGE> 50
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JANUARY 2, DECEMBER 31,
INTEREST RATE 1999 1997
------------- ---------- ------------
<S> <C> <C> <C>
Senior Secured
Capitalized lease obligations, maturing
1999-2017(1)...................................... 4.25 - 11.13% $ 50,900 $ 50,300
---------- ----------
Senior Unsecured
Fixed rate Canadian debt (11)........................ 6.97% -- 105,900
Foreign Credit Facilities, maturing 2000............. Variable(2) 11,900 7,000
Term Loan, maturing 1999-2002(7)..................... Variable(3) 80,000 100,000
Irish Term Loan...................................... Variable(4) 12,700 23,400
Fixed rate debt, maturing 1999(6).................... 7.97% 249,800 249,600
Bank Credit Agreement, maturing 2002(7).............. Variable(5) 347,500 312,200
Nonredeemable fixed rate debt, maturing 2003(7)(8)... 6.61% 149,300 149,200
Fixed rate debt, maturing 2011(9).................... 12.6 76,900 75,400
Nonredeemable fixed rate debt, maturing
2023(7)(10)....................................... 7.49 148,100 148,000
---------- ----------
Total Senior Unsecured............................ 1,076,200 1,170,700
---------- ----------
Total.................................................. 1,127,100 1,221,000
Less current maturities................................ (270,500) (28,200)
---------- ----------
Total long-term debt................................... $ 856,600 $1,192,800
========== ==========
</TABLE>
- -------------------------
(1) Represents the principal portion on capitalized lease obligations. The
capitalized leases are secured by the related property under lease.
(2) Interest ranged from 5.59% to 7.24% during 1998 and 5.24% to 6.44% during
1997. The weighted average interest rate for borrowings outstanding at
January 2, 1999 was approximately 5.71%.
(3) Interest ranged from 6.05% to 7.75% during 1998 and 6.11% to 6.39% during
1997.
(4) Interest ranged from 6.35% to 6.82% during 1998 and 6.30% to 6.82% during
1997. The weighted average interest rate for borrowings outstanding at
January 2, 1999 was approximately 6.60%.
(5) Interest ranged from 5.58% to 8.50% during 1998 and 5.93% to 8.50% during
1997.
(6) Net of unamortized discount of $200 and $400 in fiscal 1998 and 1997,
respectively (nominal rate 7.875%).
(7) The obligations of the Company under the Bank Credit Agreement, the Foreign
Credit Facilities and the Irish Term Loan are guaranteed by certain of the
Company's subsidiaries and as long as the Company's senior unsecured debt
rating is below BBB- by S&P and Baa3 by Moody's, this fixed rate debt will
share the guarantees of the certain subsidiaries and the additional
collateral granted under the Bank Credit Agreement. At January 2, 1999, the
Company's senior unsecured debt ratings were BB+ by S&P and Ba1 by Moody's.
On March 11, 1999 S&P reduced the Company's senior unsecured debt ratings
to BB.
(8) Net of unamortized discount of $700 and $800 in fiscal 1998 and 1997,
respectively (nominal rate 6.5%).
(9) Net of unamortized discount of $48,100 and $49,600 in fiscal 1998 and 1997,
respectively (nominal rate 7%). This fixed rate obligation ranks pari passu
with the Company's Bank Credit Agreement.
(10) Net of unamortized discount of $1,900 and $2,000 in fiscal 1998 and 1997
(nominal rate 7.375%).
(11) The Canadian Debt was repaid in March 1998.
The Bank Credit Agreement provides the Company with a $680,000,000 line of
credit which consists of a $600,000,000 revolving line of credit and an
$80,000,000 Term Loan. In addition to the borrowed amounts
48
<PAGE> 51
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT -- (CONCLUDED)
reflected above, at January 2, 1999 and December 31, 1997, $22,100,000 and
$22,200,000, respectively of letters of credit were outstanding under the Bank
Credit Agreement. The letters of credit were issued to secure various insurance,
debt and other obligations and all such obligations are reflected in the
accompanying Consolidated Balance Sheet. Borrowings under the Bank Credit
Agreement bear interest at a rate approximating the prime rate (7.75% at January
2, 1999) plus a specified number of basis points (ranging from 0 to 50) or, at
the election of the Company, at rates approximating LIBOR (5.06% at January 2,
1999) plus a specified number of basis points (ranging from 67.5 to 200). The
Company also pays a facility fee under the Bank Credit Agreement (ranging from
20 to 50 basis points) on the aggregate commitments thereunder. The interest
rate spreads and the facility fee are based on the Company's senior unsecured
debt ratings and subject to increase or decrease by amendment to the Bank Credit
Agreement. The weighted average interest rate for borrowings outstanding under
the Bank Credit Agreement at January 2, 1999 was approximately 6.28%. Borrowings
under the Bank Credit Agreement are guaranteed by certain of the Company's
subsidiaries. The Bank Credit Agreement provides that, as long as the senior
unsecured debt rating of the Company continues to be below BBB- by S&P and Baa3
by Moody's, the obligations of the Company under the Bank Credit Agreement will
be secured by (i) a pledge of 100% of the capital stock of the material domestic
subsidiaries of the Company and 65% of the stock of the material foreign
subsidiaries of the Company and (ii) additional collateral in the form of
industrial development bonds issued and owned by certain of the subsidiaries of
the Company. If the Company's senior unsecured debt rating is BB- or below by
S&P and Ba3 or below by Moody's, the Company has agreed to further secure its
obligations under the Bank Credit Agreement by a pledge of all its assets.
The Company has an additional $115,000,000 of letter of credit facilities
from its bank lenders. At January 2, 1999 and December 31, 1997, approximately
$60,500,000 and $77,500,000, respectively, of letters of credit were issued
under these facilities, to secure various insurance, debt, trade and other
obligations, of which $31,500,000 and $67,100,000 of these obligations are
reflected in the accompanying Consolidated Balance Sheet as of January 2, 1999
and December 31, 1997, respectively.
The Bank Credit Agreement imposes certain limitations on, and requires
compliance with covenants from, the Company and its subsidiaries including,
among other things: (i) maintenance of certain financial ratios and compliance
with certain financial tests and limitations; (ii) limitations on incurrence of
additional indebtedness and granting of certain liens and guarantees; (iii)
restrictions on mergers, sale and leaseback transactions, asset sales,
investments and transactions with affiliates; (iv) limitations on dividend
payments, and (v) provisions for the acceleration of the amounts outstanding
thereunder should a change in ownership occur, unless waived by the required
lenders. The Bank Credit Agreement also allows the Company to pay dividends on
its common stock so long as, among other things, the aggregate amount of such
dividends paid since September 19, 1997 through January 2, 1999 does not exceed
$350,000,000.
The aggregate amount of scheduled annual maturities of long-term debt for
each of the next five years is: $270,500,000 in 1999; $45,400,000 in 2000;
$21,000,000 in 2001; $368,600,000 in 2002; and $151,300,000 in 2003.
Cash payments of interest on debt were $100,500,000, $86,700,000, and
$101,600,000 in 1998, 1997, and 1996, respectively. These amounts exclude
immaterial amounts of interest capitalized in each year.
FINANCIAL INSTRUMENTS
During 1996, the Company entered into interest rate swaps to help manage
its interest rate exposures and its mix of fixed and floating interest rates.
The Company is party to interest rate swap contracts for $50,000,000 which
expired in 1998 and $50,000,000 expiring in 1999 that have the effect of
converting floating rate debt based on three month LIBOR rates into fixed rate
debt. The average annual variable rate received in
49
<PAGE> 52
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL INSTRUMENTS -- (CONCLUDED)
1998 and 1997 was 5.62% and 5.70%, respectively. The average annual fixed rate
paid in 1998 and 1997 was 5.20% and 5.05%, respectively.
The fair values of financial guarantees and letters of credit approximate
the face value of the underlying instruments.
The fair values of the Company's non-publicly traded long-term debt were
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. Fair
values for publicly traded long-term debt were based on quoted market prices
when available. At January 2, 1999 and December 31, 1997, the fair value of the
Company's long-term debt was approximately $1,165,200,000 and $1,267,400,000,
respectively.
The Company monitors its positions with, and the credit quality of, the
financial institutions which are counter parties to its off-balance sheet
financial instruments and does not anticipate nonperformance of the counter
parties. The Company does not require collateral from its counter parties and
management believes that the Company would not realize a material loss in the
event of nonperformance by the counter parties.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to most major discount and mass merchandisers,
wholesale clubs and screen printers as well as many department, specialty, drug
and variety stores, national chains, supermarkets and sports specialty stores.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral or other security to support customer receivables.
The Company's ten largest customers accounted for approximately 44.3% of net
sales in 1998 and approximately 34.4% of accounts receivable (including accounts
receivable sold) at January 2, 1999. The Company routinely assesses the
financial strength of its customers and, as a consequence, management believes
that its trade receivable credit risk exposure is limited.
CONTINGENT LIABILITIES
The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities such
as those under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, its regulations and similar state statutes
("Superfund Legislation"), in connection with the sale of certain operations.
The Company is responsible for several sites that require varying levels of
inspection, maintenance, environmental monitoring and remedial or corrective
action. Reserves for estimated losses from environmental remediation obligations
generally are recognized no earlier than the completion of the remedial
feasibility study. The Company has established procedures to evaluate its
potential remedial liabilities and routinely reviews and evaluates sites
requiring remediation, giving consideration to the nature, extent and number of
years of the Company's alleged connection with the site. The Company's retained
liability reserves at January 2, 1999 are set forth in the table below. The
reserves consist primarily of certain environmental and product liability
reserves of $34,400,000 and $4,000,000, respectively. The Company's retained
liability reserves principally pertain to eight specifically identified
environmental sites and product liabilities. Anticipated expenditures associated
with four sites and the total product liabilities each individually represent
10% or more of the reserves and in aggregate represent approximately 62% of the
total reserves. The Company has certain amounts of environmental and other
insurance which may cover expenditures in connection with environmental sites
and product liabilities. The Company, on October 28, 1997, filed suit against
numerous insurance carriers seeking reimbursement for past and future remedial,
defense and tort claim costs at a number of sites. Carriers in this matter have
denied coverage and are defending against the Company's claims. During 1998, the
Company purchased insurance coverage for potential cleanup cost expenditures
from approximately the level of the current environmental reserves up to
$100,000,000 for certain sites with on-going remediation, pollution liability
coverage for claims
50
<PAGE> 53
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
arising out of pollution conditions at owned locations including continuing
operations, sold facilities and non-owned sites and product liability coverage
for claims arising out of products manufactured by the sold operations. Where
the Company believes that both the amount of a particular environmental
liability and the timing of the payments are reliably determinable, the cost in
current dollars is inflated at 2.5% until the expected time of payment and then
discounted to present value at 7.5%. The undiscounted aggregate costs to be paid
subsequent to January 2, 1999 for environmental liabilities are approximately
$44,100,000. None of the product liability reserves for future expenditures have
been inflated or discounted. Management believes that adequate reserves have
been established to cover potential claims based on facts currently available
and current Superfund and CERCLA Legislation. However, determination of the
Company's responsibility at a particular site and the method and ultimate cost
of remediation require a number of assumptions which make estimates inherently
difficult, and the ultimate outcome may differ from current estimates. Current
estimates of payments before recoveries by year for the next five years and
thereafter are noted below (in thousands of dollars). The reserves are reduced
by cash expenditures incurred at specific sites or product cases.
<TABLE>
<CAPTION>
YEAR ENVIRONMENTAL PRODUCT TOTAL
- ---- ------------- ------- -------
<S> <C> <C> <C>
1999...................................................... $ 9,200 $ 500 $ 9,700
2000...................................................... 5,400 500 5,900
2001...................................................... 2,500 500 3,000
2002...................................................... 2,900 500 3,400
2003...................................................... 3,700 500 4,200
Thereafter................................................ 10,700 1,500 12,200
------- ------ -------
Total:.................................................... $34,400 $4,000 $38,400
======= ====== =======
</TABLE>
The Company has provided the foregoing information in accordance with Staff
Accounting Bulletin 92. In addition, in 1996 the Company elected to early adopt
Statement of Position 96-1, Environmental Remediation Liabilities, the impact of
which was not material to the Company. Owners and operators of hazardous waste
sites, generators and transporters of hazardous wastes are subject to claims
brought by State and Federal regulatory agencies under Superfund Legislation and
by private citizens under Superfund Legislation and common law theories. Since
1982, the United States Environmental Protection Agency (the "EPA") has actively
sought compensation for response costs and remedial action at disposal locations
from liable parties under the Superfund Legislation, which authorizes such
action by the EPA regardless of fault, legality of original disposal or
ownership of a disposal site. The EPA's activities under the Superfund
Legislation can be expected to continue during 1999 and future years.
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. William Farley, the Company's Chairman 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.
In November 1997, the Board of Directors, excluding Mr. Farley and other
employee Directors, upon recommendation of a Special Committee of the Board of
Directors, comprised of Messrs. Al Askari and Wolfson, guaranteed a bank loan to
Mr. Farley in the amount of $26,000,000. The proceeds of this loan were used by
Mr. Farley to purchase all of the Zero Coupon Convertible Subordinated
Debentures due 2012 of Farley Inc. held by non-affiliated third parties. Mr.
Farley owns 100% of Farley Inc. In consideration of the guarantee, which is
scheduled to expire in November 2000, Mr. Farley pays the Company an annual
guarantee fee equal to 1 1/8% of the outstanding principal balance of the loan.
The loan is secured by a second lien on 2,507,512 shares of Class B Common Stock
of the Company held by Mr. Farley and the assets held for the
51
<PAGE> 54
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
benefit of Mr. Farley under the Company's Senior Executive Officer Deferred
Compensation Trust. The Special Committee received an opinion from an
independent financial advisor that the terms of the transaction are commercially
reasonable. See "SUBSEQUENT EVENTS."
The Company has negotiated grants from the governments of the Republic of
Ireland, Northern Ireland and Germany. The grants are being used for employee
training, the acquisition of property and equipment and other governmental
business incentives such as general employment. At January 2, 1999, the Company
had a contingent liability to repay, in whole or in part, grants received of
approximately $37,800,000 in the event that the Company does not meet defined
average employment levels or terminates operations in the Republic of Ireland,
Northern Ireland and Germany. See "SUBSEQUENT EVENTS".
In connection with the Company's transaction with Acme Boot Company, Inc.
("Acme Boot") during 1993, the Company guaranteed, on an unsecured basis, the
repayment of debt incurred by Acme Boot under Acme Boot's bank credit facility
which was secured by substantially all the assets of Acme Boot and its
subsidiaries and provided for up to $30,000,000 of loans and letters of credit.
Farley Inc. owns 100% of the common stock of Acme Boot.
Also, in April 1995, Acme Boot entered into an additional secured credit
facility with its bank which provided for up to $37,000,000 in borrowings. The
Company guaranteed, on an unsecured basis, repayment of debt incurred or created
under this new credit facility. In exchange for the additional guarantee, the
Company received $6,000,000 of initial liquidation preference of Acme Boot
Series C Redeemable Junior Preferred Stock.
As a result of the operating performance of Acme Boot and management's
assessment of existing facts and circumstances of Acme Boot's financial
condition, the Company provided a reserve of $35,000,000 at the end of 1996 for
loss on the Acme Boot debt guarantees and increased its reserve by $32,000,000
at the end of the third quarter of 1997 to fully reserve the Company's
$67,000,000 exposure under the Acme Boot guarantees.
In addition, through July 1998, the Company loaned Acme Boot $9,000,000 to
provide Acme Boot with supplemental working capital. These loans were made in
the form of demand notes payable and were senior to all other outstanding
indebtedness of Acme Boot. These loans were repaid by Acme Boot upon the sale of
its business in the third quarter of 1998.
In June 1998, Acme Boot entered into agreements with unrelated parties for
the sale of certain assets and its business. Financing for the sale of the
business was completed in the third quarter of 1998, at which time the Company
paid $65,900,000 to satisfy the Acme Boot guarantees in full. Other income
(expense) -- net for 1998 in the accompanying Consolidated Statement of
Operations includes income of $6,400,000 from the sale of Acme Boot and the
settlement of this liability. See "RELATED PARTY TRANSACTIONS."
On July 1, 1998, the New England Health Care Employees Pension Fund filed a
purported class action on behalf of all those who purchased Fruit of the Loom,
Inc. Class A Common Stock and publicly traded options between July 24, 1996 and
September 5, 1997 (the "Class Period") against the Company and William Farley,
Bernhard Hansen, Richard C. Lappin, G. William Newton, Burgess D. Ridge, Larry
K. Switzer and John D. Wigodsky, each of whom is a current or former officer of
the Company, in the United States District Court for the Western District of
Kentucky (the "New England Action"). The plaintiff claims that the defendants
engaged in conduct violating Section 10(b) of the Securities Exchange Act of
1934, as amended (the "Act"), and that the Company and Mr. Farley are also
liable under Section 20(a) of the Act. According to the plaintiff, the Company,
with the knowledge and assistance of the individual defendants, made certain
material misrepresentations and failed to disclose certain material facts about
the Company's condition and prospects during the Class Period, causing the
plaintiff and the class to buy Company stock or options at
52
<PAGE> 55
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONCLUDED)
artificially inflated prices. The plaintiff also alleges that during the Class
Period, the individual defendants sold stock of the Company while possessing
material non-public information. The plaintiff asks for unspecified amounts as
damages, interest and costs and ancillary relief. The defendants filed a motion
to dismiss the action, which is fully briefed and awaiting court action. The
defendants filed a motion to change venue from Bowling Green, Kentucky, and such
motion is not yet fully briefed.
Management believes that the suit is without merit, and management and the
Company intend to defend it vigorously. Management believes, based on
information currently available, that the ultimate resolution of this litigation
will not have a material adverse effect on the financial condition or results of
the operations of the Company, but the ultimate resolution of the suit, if
unfavorable, could be material to the results of operations of a particular
future period.
On August 26, 1998, Carol Bradley filed a purported derivative action on
behalf of the Company, against William Farley, Richard C. Lappin, Omar Z. Al
Askari, Dennis S. Bookshester, Henry A. Johnson, Mark H. McCormack, Larry K.
Switzer, A. Lorne Weil and Sir Brian Wolfson, each of whom is a current or
former director of the Company, and the Company, as a nominal defendant, in the
Warren Circuit Court of the State of Kentucky. The plaintiff asserts various
common law claims against the individual defendants including, inter alia,
breach of fiduciary duty, waste of corporate assets, breach of contract and
constructive fraud claims. The plaintiff also asserts an insider trading claim
against defendants Farley, Lappin and Switzer. The claims asserted against the
individual defendants are based on the same alleged misrepresentations and
omissions which form the basis of the claims asserted by the plaintiff in the
New England Action as described above. The plaintiff seeks unspecified
compensatory and punitive damages, attorney's fees and costs and ancillary
relief. On September 18, 1998, defendant Farley, with the consent of the
Company, removed the action from state court to the United States District Court
for the Western District of Kentucky. Those defendants subsequently filed a
motion to dismiss on the ground that the plaintiff failed to make an appropriate
demand on the Company prior to filing the action. That motion is currently being
briefed.
In August 1994, the Company acquired Pro Player, Inc. ("Pro Player") for
approximately $55,700,000, including approximately $14,200,000 of Pro Player
debt which was repaid by the Company. The Company had compensation agreements
with the former principals of Pro Player who became employees of the business
upon the Company's acquisition. The compensation agreements provided for these
former employees to receive compensation up to a maximum of $47,100,000, based
in part on the attainment of certain levels of operating performance by the
acquired entity in 1998 and 1999. In the fourth quarter of 1997, the Company
recorded a $22,000,000 charge related to this compensation agreement, based on
its assessment of the probability that Pro Player's operating performance would
result in such amount being earned. During the fourth quarter of 1998, the
Company determined that it was no longer probable that the $22,000,000 would be
paid and reversed the 1997 charge, resulting in a $22,000,000 reduction in
selling, general and administrative expense in 1998.
LEASE COMMITMENTS
The Company and its subsidiaries lease certain manufacturing, warehousing
and other facilities and equipment. The leases generally provide for the lessee
to pay taxes, maintenance, insurance and certain other operating costs of the
leased property. The leases on most of the properties contain renewal
provisions.
In September 1994, the Company entered into a five year operating lease
agreement with two automatic annual renewal options, primarily for certain
machinery and equipment. The total cost of the assets to be covered by the lease
is limited to $175,000,000. At January 2, 1999 and December 31, 1997,
approximately $30,400,000 was available and unused under this facility. This
availability expires March 31, 1999. The lease provides for a substantial
residual value guarantee by the Company at the end of the initial lease term and
53
<PAGE> 56
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASE COMMITMENTS -- (CONCLUDED)
includes purchase and renewal options at fair market values. The table of future
minimum operating lease payments which follows excludes any payment related to
the residual value guarantee which is due upon termination of the lease. The
Company has the right to exercise a purchase option with respect to the leased
equipment or the equipment can be sold to a third party. The Company is
obligated to pay the difference between the maximum amount of the residual value
guarantee and the fair market value of the equipment at the termination of the
lease. As a result of the migration of its sewing and finishing operations to
the Caribbean and Central America and related decisions to close or dispose of
certain manufacturing and distribution facilities, the Company evaluated its
operating lease structure and the ability of the lessor to recover its costs in
the used equipment market and concluded that residual values guaranteed by the
Company will be substantially in excess of fair market values. Accordingly, a
provision of $61,000,000 was included in the 1997 special charges.
Following is a summary of future minimum payments under capitalized leases
and under operating leases that have initial or remaining noncancelable lease
terms in excess of one year at January 2, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
<S> <C> <C>
FISCAL YEAR
1999.................................................... $ 3,900 $32,500
2000.................................................... 3,900 26,000
2001.................................................... 3,900 8,600
2002.................................................... 3,900 5,300
2003.................................................... 3,900 3,000
Years subsequent to 2003................................ 63,200 19,600
------- -------
Total minimum lease payments.............................. 82,700 $95,000
=======
Imputed interest.......................................... 31,800
-------
Present value of minimum capitalized lease payments....... 50,900
Current portion........................................... 500
-------
Long-term capitalized lease obligations................... $50,400
=======
</TABLE>
Assets recorded under capital leases are included in Property, Plant and
Equipment as follows (in thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 2, DECEMBER 31,
1999 1997
---------- ------------
<S> <C> <C>
Land................................................... $ 8,300 $ 7,800
Buildings, structures and improvements................. 23,500 22,800
Machinery and equipment................................ 3,800 3,800
--------- --------
35,600 34,400
Accumulated amortization............................... (17,000) (15,800)
--------- --------
$ 18,600 $ 18,600
========= ========
</TABLE>
Rental expense for operating leases amounted to $38,100,000, $36,500,000
and $35,900,000 in 1998, 1997 and 1996, respectively.
54
<PAGE> 57
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS
The Company has a number of compensation plans that provide a variety of
stock-based incentive awards to Directors, officers and key employees. Various
plans provide for granting non-qualified stock options, stock appreciation
rights, restricted stock, deferred stock, bonus stock awards in lieu of
obligations, dividend equivalents, other stock-based awards and performance or
annual incentive awards that may be settled in cash, stock or other property. As
of January 2, 1999 a total of 11,850,000 shares of the Company's Class A Common
Stock were reserved for issuance under these plans, including option and other
awards outstanding totalling 8,381,000 shares. Each plan is administered by the
Compensation Committee of the Board of Directors (the "Compensation Committee").
Under the Company's stock-based compensation plans, stock options may be
granted to eligible employees of the Company and its subsidiaries, at a price
not less than the market price on the date of grant. Options granted vest, may
be exercised and expire at such time as prescribed by the Compensation
Committee. No option granted is exercisable beyond ten years from the grant
date. The Compensation Committee may, at its discretion, accelerate the
exercisability, the lapsing of restrictions or the expiration of deferral or
vesting periods of any award. Such accelerated exercisability, lapse, expiration
and vesting occurs automatically under certain plans in the event of a change of
control of the Company.
Following is a summary of option activity for the three years ended January
2, 1999.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year....... 6,015,400 $29.04 5,079,400 $23.63 4,169,900 $19.80
Granted.............................. 4,037,100 21.00 2,086,800 39.61 2,215,400 27.62
Exercised............................ (332,100) 20.59 (563,800) 19.69 (1,050,500) 16.33
Cancelled/expired.................... (1,502,800) 33.66 (587,000) 28.81 (255,400) 25.98
---------- ---------- ----------
Outstanding, end of year............. 8,217,600 24.53 6,015,400 29.04 5,079,400 23.63
========== ========== ==========
Exercisable:
At end of year..................... 3,097,100 24.61 2,071,100 22.17 1,391,900 19.60
Upon completion of additional
service.......................... 5,120,500 24.48 3,944,300 32.65 3,187,500 24.57
Upon completion of additional
service and achievement of
specified performance targets.... -- -- -- -- 500,000 28.88
---------- ---------- ----------
Total outstanding.................. 8,217,600 24.53 6,015,400 29.04 5,079,400 23.63
========== ========== ==========
Weighted average fair value of
options granted during the
year............................. $ 7.89 $15.79 $11.36
====== ====== ======
</TABLE>
The following information is as of January 2, 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REMAINING WEIGHTED
OPTIONS AVERAGE CONTRACTUAL OPTIONS AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
------------------------ ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 6.38 to $14.50............................... 43,500 $13.18 5.5 Years 23,000 $12.79
$15.13 to $19.19............................... 4,705,300 18.14 5.6 Years 1,468,100 17.51
$23.88 to $27.06............................... 1,509,000 25.84 7.5 Years 927,700 25.87
$30.13 to $42.00............................... 1,959,800 39.10 8.1 Years 678,300 39.69
--------- ---------
8,217,600 3,097,100
========= =========
</TABLE>
55
<PAGE> 58
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
In 1998, the Company's Board of Directors approved the repricing of certain
of the Company's stock options that had been granted to employees other than
executive officers and that had exercise prices higher than the then market
price of Class A Common Stock. The Company took this action as a means of
reestablishing the long-term incentive benefits for which the stock option plans
were originally designed. In exchange for the previously granted stock options
the Company granted fewer new stock options at an exercise price equal to the
market price of the Class A Common Stock on the date of the exchange using a
replacement formula based on the modified Black-Scholes Option Pricing Model.
Consequently, the repricing resulted in no additional compensation expense to
the Company. Options granted in 1998 included 720,992 options granted in the
exchange.
Following is a summary of activity in nonvested stock under the Company's
compensation plans for the three years ended January 2, 1999. Nonvested stock
includes restricted stock units and performance shares granted under the plans.
Nonvested stock grants generally vest over periods ranging from two to three
years. The Compensation Committee may, at its discretion, accelerate the vesting
of any award. Vested awards under certain plans may be settled either by
issuance of Class A Common Stock or in cash based on the market price of Class A
Common Stock on the vesting date.
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Outstanding, beginning of year............................ 147,300 558,100 270,700
Granted................................................... 111,800 142,100 474,400
Earned upon completion of service......................... (55,900) (56,200) (16,200)
Earned upon completion of service and achievement of
specified performance targets........................... -- (392,800) (139,700)
Forfeited................................................. (39,800) (103,900) (31,100)
------- -------- --------
Outstanding, end of year.................................. 163,400 147,300 558,100
======= ======== ========
Weighted average grant date fair value of nonvested stock
granted during the year................................. $ 15.37 $ 38.98 $ 25.69
======= ======== ========
</TABLE>
The Company has elected to follow APB 25 and related Interpretations in
accounting for its stock compensation plans because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, the Company records no compensation expense for
options granted under any of its stock plans because the exercise price of the
stock options is equal to or less than the market price of the underlying Class
A Common Stock on the date granted. For other stock-based compensation awards,
the Company recognized compensation costs under APB 25 totaling $1,900,000,
$2,200,000 and $15,700,000 in 1998, 1997 and 1996 respectively.
FAS 123 requires the Company to disclose pro forma net earnings and
earnings per share determined as if the Company had accounted for stock-based
compensation awards granted after December 31, 1994, under the fair value method
of that statement. The fair values of options under FAS 123 were estimated at
each grant date using a Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rates of 4.81% in 1998, 6.13%
in 1997, and 5.65% in 1996, a dividend yield of zero, a volatility factor of the
expected market price of the Company's common stock of .45 in 1998, .33 in 1997
and .36 in 1996, and an expected option life of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the
56
<PAGE> 59
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONCLUDED)
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For the following pro forma disclosures, the estimated fair value of
options and other stock-based awards is amortized to expense over the award's
vesting period (in thousands of dollars, except per share information):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net earnings (loss)............................ 123,300 $(503,800) $141,500
Pro forma earnings (loss) per share:
Basic.................................................. $ 1.71 $ (6.77) $ 1.85
Assuming dilution...................................... $ 1.71 $ (6.77) $ 1.84
</TABLE>
STOCKHOLDERS' EQUITY
Holders of Class A Common Stock are entitled to receive, on a cumulative
basis, the first dollar per share of dividends declared. Thereafter, holders of
Class A Common Stock and Class B Common Stock will share ratably in any
dividends declared. Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to five votes. The Class B
Common Stock is convertible into the Class A Common Stock on a share for share
basis. During 1997, 1,006,700 Class B shares were converted to Class A shares.
The components of other comprehensive income are as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
UNREALIZED
MINIMUM CURRENCY LOSSES ON
PENSION TRANSLATION AVAILABLE-FOR-
LIABILITY ADJUSTMENTS SALE SECURITIES TOTAL
--------- ----------- --------------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1995...................... $ (600) $(21,900) $ -- $(22,500)
Minimum pension liability adjustment............ (900) (900)
Currency translation adjustment................. 12,500 12,500
Unrealized losses on available-for-sale
securities.................................... (1,400) (1,400)
Deferred taxes relating to unrealized losses on
available-for-sale securities................. 500 500
-------- -------- ------- --------
Balance, December 31, 1996...................... (1,500) (9,400) (900) (11,800)
Minimum pension liability adjustment............ 900 900
Currency translation adjustment................. (27,600) (27,600)
Reclassification of available-for-sale
securities to trading......................... 1,400 1,400
Reclassification of deferred taxes on
available-for-sale securities to trading...... (500) (500)
-------- -------- ------- --------
Balance, December 31, 1997...................... (600) (37,000) -- (37,600)
Minimum pension liability adjustment............ (10,400) (10,400)
Currency translation adjustment................. (6,400) (6,400)
-------- -------- ------- --------
Balance, January 2, 1999........................ $(11,000) $(43,400) $ -- $(54,400)
======== ======== ======= ========
</TABLE>
In November 1996 the Company's Board of Directors authorized the repurchase
of up to $200,000,000 of the Company's common stock in open market and privately
negotiated transactions. In December 1996, the
57
<PAGE> 60
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDERS' EQUITY -- (CONCLUDED)
Company repurchased 440,400 shares of its Class A Common Stock at an aggregate
cost of $16,600,000. In 1997, the Company repurchased 5,329,000 shares of its
Class A Common Stock at an aggregate cost of $173,600,000. In early January,
1998, the Company purchased an additional 120,900 shares of its Class A Common
Stock at an aggregate cost of $3,000,000. Total purchases under the program were
5,890,300 shares at an aggregate cost of $193,200,000.
In March 1996 the Company adopted a stockholder rights plan (the "Rights
Plan") by which preferred stock purchase rights were distributed for each
outstanding share of the Company's Class A Common Stock and Class B 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.
The Company generally will be entitled to amend the Rights Plan and redeem
the Series A Rights at $.01 per Series A Right at any time prior to the time a
person or group has acquired 15% of the Company's common stock. The Series B
Rights cannot be redeemed after the time they are issued. The foregoing
description of the Rights Plan does not purport to be complete and is qualified
in its entirety by reference to the Rights Plan.
Approximately 7.9% of the Company's common stock at January 2, 1999 was
held by Farley Inc. and Mr. Farley. Because these affiliates held all of the
Class B Common Stock of the Company outstanding, which has five votes per share,
they controlled approximately 30.0% of all voting rights of the Company. All
actions submitted to a vote of stockholders are voted on by holders of Class A
Common Stock and Class B Common Stock voting together as a single class, except
for the election of directors. With respect to the election of directors,
holders of the Class A Common Stock vote as a separate class and are entitled to
elect 25% of the total number of directors constituting the entire Board of
Directors and, if not a whole number, then the holders of the Class A Common
Stock are entitled to elect the nearest higher whole number of directors that is
at least 25% of the total number of directors. If, at the record date for any
stockholder meeting at which directors are elected, the number of shares of
Class B Common Stock outstanding is less than 12.5% of the total number of
shares of both classes of common stock outstanding, then the holders of Class A
Common Stock would vote together with the holders of Class B Common Stock to
elect the remaining directors to be elected at such meeting, with the holders of
Class A Common Stock having one vote per share and the holders of Class B Common
Stock having five votes per share. At January 2, 1999 Farley Inc. and Mr.
Farley's combined ownership of Class B Common Stock is approximately 7.9% of the
total common stock of the Company outstanding. As a result, Mr. Farley does not
have the sole ability to elect those members of the Company's Board of Directors
who are not separately elected by the holders of the Company's Class A Common
Stock.
At January 2, 1999 and December 31, 1997, 35,000,000 shares of Preferred
Stock with a par value of $.01 per share were authorized, none of which have
been issued.
58
<PAGE> 61
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENTS
The Company manufactures and markets basic family apparel with vertically
integrated operations in the Americas (North America, Central America and the
Caribbean) and in Europe. North America is the Company's principal market,
accounting for more than 80% of consolidated Net sales in each of the last three
years. For the North American market, capital intensive spinning, knitting and
cutting operations are located in the United States. Labor intensive sewing and
finishing operations are located in Central America and the Caribbean. For the
European market, manufacturing operations are concentrated in Ireland, but labor
intensive operations are being relocated to lower cost North African locations.
In North America the Company is organized into three operating segments
based on the products it offers. These segments are Retail Products and
Activewear, the Company's historic core businesses, and Licensed Sportswear.
Management allocates promotional efforts, working capital, and manufacturing and
distribution capacity based on its assessment of segment operating results and
market conditions. In Europe the Company is organized into a single geographic
operating segment. Employing an entirely separate management team, the Company
produces a different mix of garments in Ireland and North Africa for sale in
Europe.
Retail Products are offered principally under the Fruit of the Loom, BVD,
Munsingwear and Gitano brand names, through major discount and mass
merchandisers, wholesale clubs and other retailers. The Company offers a broad
array of men's and boys' underwear including briefs, boxer shorts, T-shirts and
A-shirts, colored and fashion underwear. Casualwear offerings include a
selection of basic styles of jersey and fleece tops, shorts and bottoms
selections for each of the men's, women's, boys' and girls' categories. The
Company designs, manufactures (including contract manufacturing) and markets
women's jeanswear and jeans related sportswear. Women's and girls' underwear
products include a variety of cotton, nylon and lycra panties and thongs.
Childrenswear offerings include decorated underwear (generally with pictures of
licensed movie or cartoon characters) and layette sets.
The Company's Activewear segment produces and sells blank T-shirts and
fleecewear under the SCREEN STARS brand name and premium fleecewear and T-shirts
under the FRUIT OF THE LOOM, LOFTEEZ and BEST BY FRUIT OF THE LOOM labels. These
products are manufactured in a variety of styles and colors and are sold to
distributors, screen printers and specialty retailers, who generally apply a
decoration prior to sale at retail.
The Company's Licensed Sportswear segment sells a wide variety of quality
decorated sportswear, including T-shirts, sweatshirts, shorts and outerwear to
retail stores and mass merchants, primarily under the PRO PLAYER and FANS GEAR
brands. Under its PRO PLAYER brand, the Company designs and markets heavyweight
jackets, lightweight jackets, headwear and other outerwear and T-shirts and
fleecewear bearing logos or insignia under licenses granted by major
professional sports leagues, professional players and many colleges and
universities in the United States.
European product offerings consist of T-shirts, fleecewear and polo shirts
sold to the imprint market, with distribution similar to the Company's
Activewear segment, and also to the retail market, primarily under the FRUIT OF
THE LOOM label.
Consolidated revenues and operating earnings (loss) in the following tables
correspond to Net sales and Operating earnings (loss) in the Company's
Consolidated Statement of Operations. Segment and other detail is derived from
the Company's internal management reporting system. Other revenues consist of
external sales of yarn and cloth. Other operating earnings consist of margin on
external sales of yarn and cloth and net external royalty income. Nonrecurring
items relate to the 1997 special charges and finalization of certain estimates
included in special charges. See "SPECIAL CHARGES." Nonrecurring items in 1997
include the effect of the change in the Company's method of determining the cost
of inventories. See "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- INVENTORIES."
59
<PAGE> 62
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENTS -- (CONTINUED)
The accounting policies of the reportable segments are the same as those
described in "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." The Company evaluates
performance and allocates resources based on operating income. The Company does
not allocate interest expense to reportable segments.
Total foreign revenues as a percent of consolidated revenues totalled 16.7%
in 1998, 16.6% in 1997 and 15.0% in 1996. No individual foreign country
accounted for as much as 5% of consolidated revenues in any of the periods
reported. Sales to one Retail Products customer amounted to approximately 16.7%,
18.8% and 16.8% of consolidated net sales in 1998, 1997 and 1996, respectively.
Additionally, sales to a second Retail Products customer amounted to
approximately 12.0%, 14.7% and 12.2% of consolidated net sales in 1998, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
OPERATING
REVENUES EARNINGS (LOSS)
------------------------------ ------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
$ IN MILLIONS
<S> <C> <C> <C> <C> <C> <C>
Retail Products....................... $1,095.4 $1,101.9 $1,212.0 $ 102.8 $ 61.0 $ 151.3
Activewear............................ 589.0 575.4 760.0 68.1 66.8 125.2
Sports & Licensing.................... 185.5 208.7 211.3 7.8 5.9 16.2
Europe................................ 268.7 253.9 264.1 29.7 35.4 32.3
Other................................. 31.7 -- -- 15.8 14.5 10.1
Goodwill amortization................. -- -- -- (26.6) (26.8) (26.7)
Nonrecurring items.................... -- -- -- 37.3 (444.5) 9.8
-------- -------- -------- -------- -------- --------
Consolidated.......................... $2,170.3 $2,139.9 $2,447.4 $ 234.9 $ (287.7) $ 318.2
======== ======== ======== ======== ======== ========
</TABLE>
Assets reported for Retail Products and for Activewear consist of accounts
receivable and finished goods inventories. Unallocated Retail Products and
Activewear assets consist primarily of property, plant and equipment and
goodwill. Depreciation expense is allocated to Retail Products and to Activewear
operating earnings even though property, plant and equipment is not identifiable
or allocable to those operating segments.
Consolidated long-lived assets, consisting of property, plant and
equipment, goodwill and other noncurrent assets, excluding deferred tax assets
and financial instruments, totalled $1,310,900,000 at January 2, 1999,
$1,401,800,000 at December 31, 1997 and $1,698,200,000 at December 31, 1996.
Long-lived assets in foreign countries (consisting of property, plant and
equipment) as a percent of consolidated totalled 12.9% at January 2, 1999, 11.3%
at December 31, 1997 and 13.2% at December 31, 1996. Long-lived assets in the
Republic of Ireland as a percent of consolidated totalled 4.2% at January 2,
1999, 3.9% at December 31, 1997 and 5.6% at December 31, 1996.
<TABLE>
<CAPTION>
TOTAL ASSETS CAPITAL EXPENDITURES
------------------------------ ---------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ----- ----- -----
$ IN MILLIONS
<S> <C> <C> <C> <C> <C> <C>
Retail Products.............................. $ 327.1 $ 327.9 $ 339.3 $ -- $ -- $ --
Activewear................................... 264.9 289.0 263.6 -- -- --
Unallocated Retail Products and Activewear... 1,506.3 1,648.5 1,756.3 33.4 51.4 40.6
Sports & Licensing........................... 121.2 103.6 94.1 .9 .3 .4
Europe....................................... 276.0 267.5 340.1 7.6 3.7 3.5
Sale of accounts receivable.................. (205.7) (153.4) (200.0) -- -- --
-------- -------- -------- ----- ----- -----
Consolidated................................. $2,289.8 $2,483.1 $2,593.4 $41.9 $55.4 $44.5
======== ======== ======== ===== ===== =====
</TABLE>
60
<PAGE> 63
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENTS -- (CONCLUDED)
<TABLE>
<CAPTION>
DEPRECIATION
-----------------------
1998 1997 1996
----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Retail Products............................................. $39.6 $ 70.3 $ 64.5
Activewear.................................................. 24.0 35.7 42.7
Sports & Licensing.......................................... 1.7 .8 .8
Europe...................................................... 8.9 11.0 13.8
----- ------ ------
Consolidated................................................ $74.2 $117.8 $121.8
===== ====== ======
</TABLE>
PENSION PLANS
The following table sets forth the changes in the pension benefit
obligation and fair value of plan assets, the amounts recognized in the
Company's Consolidated Balance Sheet and the funded status of the plans (in
thousands of dollars):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year........... $239,400 $226,600
Service cost................................................ 9,700 11,100
Interest cost............................................... 17,900 17,700
Plan participants' contributions............................ 400 400
Amendments.................................................. (100) 800
Actuarial loss.............................................. 25,000 4,000
Foreign currency translation................................ 100 (1,000)
Benefits paid............................................... (25,500) (20,200)
-------- --------
Projected benefit obligation at end of year................. $266,900 $239,400
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year.............. $207,100 $196,100
Actual return on plan assets................................ 14,300 13,900
Employer contribution....................................... 5,700 17,700
Plan participants' contributions............................ 400 400
Foreign currency translation................................ 100 (900)
Benefits paid............................................... (25,500) (20,200)
-------- --------
Fair value of plan assets at end of year.................... $202,100 $207,000
======== ========
Funded status............................................... $(64,800) $(32,400)
Unrecognized net actuarial loss............................. 44,800 15,000
Unrecognized prior service cost............................. 2,500 3,100
Accrued unrecognized net transition asset................... (2,800) (3,700)
-------- --------
Net amount recognized....................................... $(20,300) $(18,000)
======== ========
Amounts recognized in the statement of financial position
consist of:
Prepaid pension cost........................................ $ 700 $ 300
Accrued benefit liability................................... (33,900) (29,000)
Intangible asset............................................ 1,900 2,600
Accumulated other comprehensive income...................... 11,000 8,100
-------- --------
Net amount recognized....................................... $(20,300) $(18,000)
======== ========
</TABLE>
61
<PAGE> 64
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 2, DECEMBER 31,
1999 1997
---------- ------------
<S> <C> <C>
Weighted-average assumptions:
Discount rate............................................. 7.125% 7.50%
Rates of increase in compensation levels.................. 4-7% 4-7%
Expected long-term rate of return on assets............... 10% 10%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost -- benefits earned during the period......... $ 9,700 $ 11,100 $ 12,100
Interest cost on projected benefit obligation............. 17,900 14,400 13,500
Expected return on plan assets............................ (19,300) (15,600) (13,700)
Amortization of unrecognized net loss..................... 600 1,300 700
Amortization of prior service cost........................ 500 300 200
Amortization of unrecognized January 1, 1987 net
transition asset....................................... (900) (1,300) (1,300)
Curtailment loss.......................................... (100) -- 400
-------- -------- --------
Net periodic pension cost................................. $ 8,400 $ 10,200 $ 11,900
Effect of assumption of Acme Boot Pension Plan............ -- (100) 1,500
-------- -------- --------
Restated net periodic pension cost........................ $ 8,400 $ 10,100 $ 13,400
======== ======== ========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for those pension plans with accumulated benefit
obligations in excess of plan assets were $260,700,000, $229,200,000 and
$195,700,000, respectively, as of January 2, 1999, and $51,700,000, $51,200,000
and $39,400,000, respectively, as of December 31, 1997.
In April of 1998, Acme Boot Company, Inc. ("Acme") and the Company signed
an agreement with the Pension Benefit Guaranty Corporation (the "PBGC") which
settled a dispute between Acme and the PBGC as to whether Acme was a member of
the Company's "Control Group" for ERISA purposes as of May 21, 1993 and thus
liable to the PBGC for the unfunded benefit liabilities of the Acme Boot
Company, Inc. Pension Plan (the "Acme Plan"). Under the terms of the agreement,
the Company assumed the Acme Plan on June 26, 1998. All prior years have been
restated to reflect the assumption of the Acme Plan.
Plan assets for the Company's funded plans, which are primarily invested in
domestic debt securities, international and domestic equity securities, real
estate and venture capital funds, are commingled in a master trust which
includes the assets of the pension plan sponsored by the Company and a pension
plan sponsored by Farley Inc. (the "Master Trust"). The Company and Farley Inc.
are separate control groups for purposes of ERISA.
Included in the Master Trust assets at January 2, 1999 and December 31,
1997 were 647,852 shares (with a cost of $5,100,000 and a market value of
$8,900,000 and $16,600,000, respectively) of the Company's Class A Common Stock.
Of these shares 426,843 shares are allocated to the Plan and 221,009 shares are
allocated to the Farley Inc. Retirement Plan.
As of January 2, 1999 and December 31, 1997, the Master Trust holds 348,012
shares (with a cost of $7,700,000 and a market value of $4,800,000 and
$8,900,000, respectively) of the Company's Class A Common Stock (these shares
are in addition to the 647,852 shares noted in the immediately preceding
paragraph) that are specifically identified to the retirement plan of Farley
Inc. Any change in market value
62
<PAGE> 65
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION PLANS -- (CONCLUDED)
associated with these shares is allocated entirely to the Farley Inc. plan and
does not affect the Master Trust Allocated Assets.
The Company sponsors a 401(k) defined contribution plan for all non-highly
compensated domestic salaried employees. Eligible participants may contribute up
to 15% of their annual compensation subject to maximum amounts established by
the United States Internal Revenue Service (the "IRS"). The Company makes
matching contributions which equal 50% of the first 6% of annual compensation
contributed to the plan by each employee, subject to maximum amounts established
by the IRS. The Company's contributions under this Plan amounted to $800,000,
$900,000 and $800,000 during 1998, 1997 and 1996, respectively.
DEPRECIATION EXPENSE
Depreciation expense, including amortization of capital leases,
approximated $74,200,000, $117,800,000 and $121,800,000 in 1998, 1997 and 1996,
respectively.
ADVERTISING EXPENSE
Advertising, which is expensed as incurred, approximated $64,600,000,
$80,800,000, and $81,600,000 in 1998, 1997 and 1996, respectively.
INCOME TAXES
Income taxes are included in the Consolidated Statement of Operations as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Income tax provision on earnings (loss) from
continuing operations............................ $7,100 $(66,300) $31,600
Discontinued operations............................. -- -- --
------ -------- -------
Total income tax provision.......................... $7,100 $(66,300) $31,600
====== ======== =======
</TABLE>
Included in earnings (loss) from continuing operations before income tax
provision are foreign earnings of $146,700,000, $57,900,000 and $92,800,000 in
1998, 1997 and 1996, respectively. These amounts include foreign taxable
earnings of $1,600,000 in 1996 and foreign taxable losses of $3,400,000 and
$46,400,000 in 1998 and 1997, respectively.
63
<PAGE> 66
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONTINUED)
The components of income tax provision related to earnings (loss) from
continuing operations were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................................. $ 10,200 $ (1,700) $ 6,500
State............................................... 1,200 -- 1,900
Foreign............................................. 1,800 -- --
-------- -------- -------
Total current......................................... 13,200 (1,700) 8,400
-------- -------- -------
Deferred:
Federal............................................. (6,500) (64,300) 19,200
State............................................... -- -- 3,700
Foreign............................................. 400 (300) 300
-------- -------- -------
Total deferred........................................ (6,100) (64,600) 23,200
-------- -------- -------
Total income tax provision............................ $ 7,100 $(66,300) $31,600
======== ======== =======
</TABLE>
The income tax rate on earnings (loss) from continuing operations before
cumulative effect of change in accounting principle differed from the Federal
statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Federal statutory rate................... 35.0% (35.0)% 35.0%
Deferred tax asset valuation allowance... (11.3) 14.2 --
Reversal of income tax accruals.......... -- -- (13.5)
Interest on prior years' taxes........... -- 5.4 --
Foreign operating earnings............... (30.3) (3.3) (10.5)
Goodwill amortization.................... 6.5 2.4 5.3
State income taxes, net of Federal tax
benefit................................ 3.5 -- 2.0
Other-net................................ 1.6 1.6 (0.6)
----- ----- -----
Effective rate......................... 5.0% (14.7)% 17.7%
===== ===== =====
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $379,300,000 at January 2, 1999. $259,200,000 of those earnings
are considered to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state income taxes has been provided thereon. Upon distribution
of those earnings in the form of dividends or otherwise, the Company would be
subject to both U.S. income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries. In the
event that the other foreign entities' earnings were distributed, it is
estimated that U.S. federal and state income taxes, net of foreign credits, of
approximately $90,700,000 would be due, a portion of which may be offset for
financial statement reporting purposes by the reduction of the valuation
allowance provided against deferred tax assets.
64
<PAGE> 67
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONCLUDED)
Deferred income taxes are provided for temporary differences between income
tax and financial statement recognition of revenues and expenses. Deferred tax
liabilities (assets) are comprised of the following (in thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 2, DECEMBER 31,
1999 1997
---------- -------------
<S> <C> <C>
Depreciation and amortization............................... $ 164,500 $ 155,800
Items includible in future tax years........................ 102,400 81,100
--------- ---------
Gross deferred tax liabilities............................ 266,900 236,900
--------- ---------
Inventory valuation reserves................................ (33,600) (35,600)
Accrued employee benefit expenses........................... (31,400) (47,400)
Acquired tax benefits and basis differences................. (38,900) (49,600)
Allowance for possible losses on receivables................ (4,500) (5,400)
Fixed asset impairment...................................... (59,400) (60,300)
Residual value guarantees of leased equipment............... (22,900) (22,900)
NOL and tax credit carryforwards............................ (67,400) (4,500)
Items deductible in future tax years........................ (93,600) (105,600)
--------- ---------
Gross deferred tax assets................................. (351,700) (331,300)
--------- ---------
Valuation allowance....................................... 48,100 64,100
--------- ---------
Net deferred tax (asset) liability........................ $ (36,700) $ (30,300)
========= =========
</TABLE>
As a result of the migration of certain of its operations to offshore
locations and the planned reorganization of the Company, future operations may
not generate sufficient U.S. sourced income to utilize all of the net deferred
tax benefits generated by operations through January 2, 1999. Consequently, the
Company recorded a deferred tax asset valuation allowance of $48,100,000 as of
January 2, 1999. The deferred tax asset valuation allowance decreased by
$16,000,000 during 1998 as a result of taxable earnings in 1998.
The Company has net operating loss carryforwards of approximately
$140,300,000 that expire in 2018. The Company also has alternative minimum tax
credit carryforwards of approximately $15,400,000 that have an unlimited
carryforward period. Finally, the Company has approximately $500,000 of research
and development and foreign tax credit carryforwards that expire in 2000.
In March 1992 the Company received a refund of approximately $60,000,000
relating to Federal income taxes paid by Northwest plus interest thereon
applicable to the tax years 1964-1968. However, in September 1992 the IRS issued
a statutory notice of deficiency in the amount of approximately $7,300,000 for
the taxable years from which the March 1992 refund arose, exclusive of interest
which would accrue from the date the IRS asserted the tax was due until payment.
In October 1994, the United States Tax Court ruled in favor of the Company in
the above case. On January 5, 1996, the United States Court of Appeals for the
Seventh Circuit affirmed the decision of the United States Tax Court. The IRS
had a period of 90 days from the date of the decision to petition for review by
the United States Supreme Court. The IRS did not petition for a review and,
accordingly, the case is now closed. Effective December 31, 1996, for Federal
income tax purposes, all years through December 31, 1991, were closed. As a
result, excess income tax liabilities totaling $24,100,000 for tax years through
December 31, 1991 were reversed and reduced income tax expense in 1996.
Cash refunds of income taxes totalled $60,000,000 in 1998. Cash payments
for income taxes were $11,200,000 and $13,600,000 in 1997 and 1996,
respectively.
65
<PAGE> 68
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INCOME (EXPENSE)-NET
Principal components of net other income in 1998 included $8,000,000
recognized on a business interruption insurance claim stemming from Hurricane
Mitch, $6,400,000 from settlement of the Acme Boot debt guarantees and net gains
of $5,800,000 from property disposals, partially offset by accounts receivable
securitization costs of $11,900,000. Net other expense in 1997 consisted
principally of special charges totalling $32,400,000, a $32,000,000 provision
for loss based on the Company's analysis of its exposure under the Acme Boot
debt guarantees and accounts receivable securitization costs of $11,800,000. Net
other expense in 1996 consisted principally of a $35,000,000 provision for loss
based on the Company's analysis of its exposure under the Acme Boot debt
guarantees and accounts receivable securitization costs of $1,700,000. The Acme
Boot debt guarantees are discussed under "CONTINGENT LIABILITIES." Special
charges recorded in 1997 are discussed under "SPECIAL CHARGES." The Company's
receivable securitization program is discussed under "SALE OF ACCOUNTS
RECEIVABLE."
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NUMERATOR:
Earnings (loss) from continuing operations............. $ 135,900 $(385,400) $ 146,600
Discontinued operations -- LMP litigation.............. -- (102,200) --
--------- --------- ---------
Net earnings (loss).................................... $ 135,900 $(487,600) $ 146,600
========= ========= =========
DENOMINATOR:
Denominator for basic earnings per share -- weighted
average shares outstanding........................... 72,000 74,400 76,400
Effect of dilutive employee stock options.............. 300 -- 700
--------- --------- ---------
Denominator for diluted earnings per share -- weighted
average shares outstanding and assumed conversions... 72,300 74,400 77,100
========= ========= =========
Earnings (loss) per common share:
Continuing operations................................ $1.89 $(5.18) $1.92
Discontinued operations -- LMP litigation............ -- (1.37) --
--------- --------- ---------
Net earnings (loss)............................... $1.89 $(6.55) $1.92
========= ========= =========
Earnings (loss) per common share -- assuming dilution:
Continuing operations................................ $1.88 $(5.18) $1.90
Discontinued operations -- LMP litigation............ -- (1.37) --
--------- --------- ---------
Net earnings (loss).................................. $1.88 $(6.55) $1.90
========= ========= =========
</TABLE>
Because diluted EPS increases in 1997 from a loss of $6.55 to a loss of
$6.49, the effect of employee stock options (700,000 shares) are antidilutive
and are ignored in the computation of diluted EPS. Therefore, diluted EPS is
reported as a loss of $6.55 in 1997.
RELATED PARTY TRANSACTIONS
As a part of the 1995 special charge, the Company decided to integrate into
the Company's Bowling Green, Kentucky operations certain functions historically
performed by Farley Industries, Inc. ("FII") personnel. In connection with this
effort, the Board of Directors determined that the Company's management
66
<PAGE> 69
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RELATED PARTY TRANSACTIONS -- (CONTINUED)
agreement with FII should not be renewed for 1996 and that the general
management functions previously performed by FII under the agreement should be
assumed directly by the Company. Accordingly, effective January 1, 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 FII's
transfer of its personnel and settlement of all obligations the Company owed to
FII. The non-management members of the Board of Directors determined that such
payment 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 cost of otherwise
creating the workforce necessary to provide the management services previously
provided by FII and the assistance of FII in effecting the transition of
functions and personnel (including certain executive officers) to the Company.
The Company agreed to pay up to approximately $4,000,000 to FII in 1996
($3,600,000 was actually paid in 1996), all of which relates to the severance of
certain FII employees who were not re-employed by the Company, including
severance payments under certain employment agreements to which the Company was
a party. The Company also agreed to reimburse FII for any direct ordinary and
reasonable costs and expenses associated with the transition of management
functions from FII into the Company in 1996. The severance and asset purchase
amounts were included in the Company's special charge accrued in the fourth
quarter of 1995. See "SPECIAL CHARGES."
Under the terms of the management agreement between FII and the Company,
FII provided the Company, to the extent that the Company requested, (i) general
management services which included, but were not limited to, financial
management, legal, tax, accounting, corporate development, human resource and
personnel advice; (ii) investment banking services in connection with the
acquisition or disposition of the assets or operations of a business or entity;
(iii) financing services in connection with the arrangement by FII of public or
private debt (including letter of credit facilities); and (iv) other financial,
accounting, legal and advisory services rendered outside the ordinary course of
the Company's business. FII is owned and controlled by Mr. Farley; its employees
provide services to companies owned or controlled by Mr. Farley, including,
prior to 1996, the Company. Certain of the executive officers of the Company
were employed by, and received their compensation from, FII. These officers
devoted their time as needed to those companies owned and controlled by Mr.
Farley and, accordingly, did not devote full time to any single company,
including the Company.
In consideration for investment banking and financing services, the Company
paid FII fees established by FII and determined to be reasonable by FII in
relation to (i) the size and complexity of the transaction; and (ii) the fees
customarily charged by other advisors for similar investment banking and
financing services; provided, such fees did not exceed two percent of the total
consideration paid or received by the Company or two percent of the aggregate
amount available for borrowing or use under the subject agreement or facility.
Fees for investment banking and financing services were generally payable to FII
upon the closing of the subject transaction or agreement.
Under the terms of the management agreement, the Company paid a fee to FII
based on FII's cost of providing management services. The Company paid
management fees to FII of approximately $8,100,000 in 1995.
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated debentures
of the affiliate. In the fourth quarter of 1993, the Company received
approximately $72,900,000 from Acme Boot representing the entire unpaid
principal and liquidation preference (including accrued interest and dividends)
on its investment in the securities of the affiliate. The Company recorded a
pretax gain of approximately $67,300,000 in connection with the investment in
Acme Boot upon the receipt of
67
<PAGE> 70
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RELATED PARTY TRANSACTIONS -- (CONCLUDED)
the above mentioned proceeds. In connection with the 1993 transaction the
Company guaranteed, on an unsecured basis, the repayment of debt incurred by
Acme under the Acme Boot Credit Facility and the New Acme Credit Agreement.
Farley Inc. owns 100% of the common stock of Acme Boot. Mr. Farley holds 100% of
the common stock of Farley Inc. Other expense-net includes charges of
$32,000,000 and $35,000,000 in 1997 and 1996, respectively, related to the
Company's evaluation of its exposure under the guarantee.
In addition, through July 1998, the Company loaned Acme Boot $9,000,000 to
provide Acme Boot with supplemental working capital. These loans were made in
the form of demand notes payable and were senior to all other outstanding
indebtedness of Acme Boot. These loans were repaid by Acme Boot upon the sale of
its business in the third quarter of 1998.
In June 1998, Acme Boot entered into agreements with unrelated parties for
the sale of certain assets and its business. Financing for the sale of the
business was completed in the third quarter of 1998, at which time the Company
paid $65,900,000 to satisfy the Acme Boot guarantees in full. Other income
(expense) -- net for 1998 in the accompanying Consolidated Statement of
Operations includes income of $6,400,000 from the sale of Acme Boot and the
settlement of this liability. See "CONTINGENT LIABILITIES."
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. 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.
On November 20, 1997, the Board of Directors, excluding Mr. Farley and
other employee Directors, upon recommendation of a Special Committee of the
Board of Directors, comprised of Messrs. Al Askari and Wolfson, guaranteed a
bank loan to Mr. Farley in the amount of $26,000,000. The proceeds of this loan
were used by Mr. Farley to purchase all of the Zero Coupon Convertible
Subordinated Debentures due 2012 of Farley Inc. held by non-affiliated third
parties. In consideration of the guarantee, Mr. Farley pays the Company an
annual guarantee fee equal to 1 1/8% of the outstanding principal balance of the
loan. The loan is secured by a second lien on 2,507,512 shares of Class B Common
Shares of the Company held by Mr. Farley and the assets held for the benefit of
Mr. Farley under the Company's Senior Executive Officer Deferred Compensation
Trust. The Special Committee received an opinion from an independent financial
advisor that the terms of the transaction are commercially reasonable. See
"CONTINGENT LIABILITIES."
SUBSEQUENT EVENTS
On March 4, 1999, the Company became a subsidiary of Fruit of the Loom,
Ltd. ("FTL Ltd."), a Cayman Islands holding company, pursuant to a
reorganization (the "Reorganization") approved by the stockholders of the
Company on November 12, 1998. In connection with the Reorganization, all
outstanding shares of Class A Common Stock of the Company were automatically
converted into Class A ordinary shares of FTL, Ltd. ("FTL Ltd. Class A Shares")
and all outstanding shares of Class B Common Stock of the Company were
automatically converted into shares of exchangeable participating preferred
stock of the Company ("Company Preferred Stock"). The holders of the Company
Preferred Stock also received, in the aggregate, four Class B redeemable
ordinary shares of FTL, Ltd. ("FTL Ltd. Class B Shares"). Except as provided by
law or FTL Ltd.'s Amended and Restated Memorandum of Association, the FTL Ltd.
Class B Shares, in the aggregate, have voting rights equal to five times the
number of shares of Company Preferred Stock held by William Farley and his
affiliates then outstanding. As of March 22, 1999, the record date for the FTL
Ltd. annual meeting, there were 5,229,421 shares of Company Preferred Stock
outstanding and 66,851,070 FTL Ltd. Class A Shares outstanding. Each FTL Ltd.
Class B Share had voting rights as of March 22, 1999 equivalent to 6,536,776.3
votes per share. All of the outstanding FTL Ltd. Class A Shares and
68
<PAGE> 71
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUBSEQUENT EVENTS -- (CONCLUDED)
FTL Ltd. Class B Shares are entitled to vote at the meeting. In connection with
the Reorganization, the Rights Plan has been amended and the existing rights
expired immediately prior to the Merger. FTL, Ltd. does not presently intend to
adopt a plan similar to the Rights Plan.
In connection with the Reorganization, the Company is required to make an
offer, within 90 days of the consummation of the Merger, to purchase the entire
principal amount equal to $250,000,000 7 7/8% Senior Notes due October 15, 1999
(the "7 7/8% Senior Notes") at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest. If all holders of the 7 7/8% Senior
Notes accept such a purchase offer, the aggregate purchase price would be
$252,500,000 plus accrued and unpaid interest. On March 25, 1999, the Company
issued $250,000,000 8 7/8% Senior Notes due April 2006 (the "Senior Notes").
Proceeds from the Senior Notes were approximately $242,700,000 and were
initially used to repay outstanding borrowings under the Company's Bank Credit
Agreement. The availability under the Bank Credit Agreement created through this
repayment of outstanding borrowings is expected to be used to satisfy the
Company's repurchase obligations with respect to the 7 7/8% Senior Notes or to
repay the 7 7/8% Senior Notes at maturity.
On February 24, 1999, the Board of Directors, excluding Mr. Farley,
increased the guarantee to $65,000,000 in connection with Mr. Farley's
refinancing and retirement of the $26,000,000 and $12,000,000 loans and other
indebtedness of Mr. Farley. See "RELATED PARTY TRANSACTIONS." The Company's
obligations under the guarantee are secured by 2,507,512 shares of Company
Preferred Stock (issued subsequent to year end in connection with the
Reorganization) and all of Mr. Farley's assets. In consideration of the
guarantee, which is scheduled to expire in September 2000, Mr. Farley pays an
annual guarantee fee equal to 2% of the outstanding principal balance of the
loan. The Board of Directors received an opinion from an independent financial
advisor that the terms of the transaction are commercially reasonable. In
addition, in October 1998, the Company advanced $3,500,000 to Mr. Farley which
was repaid in March 1999.
Subsequent to year-end, the Company has held negotiations with the
Industrial Development Agency of the Republic of Ireland. As a result of these
negotiations, the amount of the contingent liability the Company has to repay,
in whole or in part, for grants received has been reduced to approximately
$27,300,000 in the event that the Company does not meet revised defined average
employment levels or terminates operations in the Republic of Ireland, Northern
Ireland and Germany.
69
<PAGE> 72
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH YEAR
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1998
Net sales...................... $457.2 $628.0 $ 593.7 $ 491.4 $2,170.3
Gross earnings................. 147.7 206.6 179.1 72.1 605.5
Operating earnings............. 58.0 102.7 71.7 2.5(1) 234.9(1)
Net earnings (loss)............ 31.2 65.3 50.4 (11.0) 135.9
Earnings per common share:
Basic........................ .43 .91 .70 (.15) 1.89
Assuming Dilution............ .43 .90 .70 (.15) 1.88
1997
Net sales...................... $501.0 $640.7 $ 569.7 $ 428.5 $2,139.9
Gross earnings(4).............. 142.8 166.2 163.7 22.8 495.5
Operating earnings (loss)...... 52.4 52.3 40.2 (432.6) (287.7)
Earnings (loss) from continuing
operations................... 22.6 20.0 (24.1)(2) (403.9)(5) (385.4)(2,5)
Net earnings (loss)............ 22.6 20.0 (125.3)(3) (404.9) (487.6)(3)
Earnings per common share from
continuing operations(6):
Basic........................ .30 .27 (.33) (5.56) (5.18)
Assuming Dilution............ .29 .26 (.33) (5.56) (5.18)
</TABLE>
- -------------------------
(1) Reflects the reversal of a pretax charge of $22.0 related to a compensation
agreement at Pro Player and an $8.4 reduction in selling, general and
administrative expense resulting from finalization of certain estimates
recorded in connection with the 1997 special charges.
(2) Includes a pretax charge of $32.0 related to the Company's evaluation of its
expense under the guarantee of the debt of Acme Boot.
(3) Includes pretax charges of $101.2 for the third quarter and $102.2 for the
year related to discontinued operations for a litigation judgement.
(4) In the fourth quarter of 1997, the Company changed its method of determining
the cost of inventories from the LIFO method to the FIFO method. All
previously reported results have been restated to reflect the retroactive
application of this accounting change. The change increased (decreased)
previously reported results as follows:
<TABLE>
<CAPTION>
QUARTER
-------------------------
FIRST SECOND THIRD
----- ------ -----
<S> <C> <C> <C>
1997
Gross earnings............................................ $ 2.2 $ (5.0) $ 21.6
Earnings (loss) from continuing operations................ 1.4 (3.2) 14.0
Earnings per common share from continuing operations
Basic.................................................. 0.02 (0.04) 0.19
Diluted................................................ 0.02 (0.04) 0.19
</TABLE>
The accounting change increased the net loss for the fourth quarter of 1997
by $40.0 or $.55 per share.
(5) In the fourth quarter of 1997, the Company recorded charges totaling $441.7
($372.2 after tax) for costs related to the closing and disposal of a number
of domestic manufacturing and distribution facilities, impairment of
manufacturing equipment and other assets and certain European manufacturing
and
70
<PAGE> 73
distribution facilities, and other costs associated with the Company's
world-wide restructuring of manufacturing and distribution facilities.
(6) Earnings per share amounts for the first three quarters of 1997 have been
restated to comply with FAS 128 "Earnings per Share".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of January 2, 1999, were as
follows. All executive officers retained the same positions with FTL Ltd. after
the Reorganization.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William Farley....................... 56 Chairman of the Board, Chief Executive Officer,
President and Chief Operating Officer
G. William Newton.................... 46 Vice President -- Finance, Acting Chief Financial
Officer
John W. Salisbury, Jr................ 50 President -- Retail
Felix Sulzberger..................... 47 President -- European Operations
Vincent J. Tyra...................... 33 President -- Activewear
Edgar F. Turner...................... 55 Executive Vice President -- Operations
Brian J. Hanigan..................... 40 Vice President -- Treasurer
John J. Ray III...................... 40 Vice President, General Counsel and Secretary
</TABLE>
WILLIAM FARLEY. Mr. Farley has been Chairman of the Board and Chief
Executive Officer of the Company since May 1985. In February 1998, Mr. Farley
was appointed to the positions of President and Chief Operating Officer. For
more than five years, Mr. Farley has also been Chairman and Chief Executive
Officer of Farley Industries, Inc. He has held substantially similar positions
with Farley Inc. for more than the past five years. Mr. Farley has also been
Chairman of the Board of Acme Boot, a subsidiary of Farley Inc., for more than
the past five years.
G. WILLIAM NEWTON. Mr. Newton has served as Vice President -- Finance of
the Company since August 1994 and as acting Chief Financial Officer since August
1998. From before 1993 until April 1994, Mr. Newton was Vice President and Chief
Financial Officer of Allegro MicroSystems, a manufacturer of semiconductors
supplying the automotive, electronic and telecommunications industries
worldwide.
JOHN W. SALISBURY, JR. Mr. Salisbury has served as President -- Retail
Products since September 1997. From 1994 to 1996, Mr. Salisbury was President
and Chief Executive Officer of the Aris Isotoner Division of Sara Lee
Corporation, a consumer products company. From 1993 to 1994, Mr. Salisbury
served as Vice President and General Manager of the Vanity Fair Division of VF
Corporation, an apparel company.
FELIX SULZBERGER. Mr. Sulzberger has served as President -- European
Operations since December 1997. Prior to December 1997, Mr. Sulzberger served as
General Manager of Levi Strauss and Co., an apparel company.
VINCENT J. TYRA. Mr. Tyra has served as President -- Activewear since April
1998 and since September 1997 as Executive Vice President -- Activewear. Before
September 1997, Mr. Tyra was Executive Vice President of T-Shirts & More, a
wholesale distributor of activewear.
71
<PAGE> 74
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -- (CONCLUDED)
EDGAR F. TURNER. Mr. Turner has served as Executive Vice President --
Operations since March 1998. Mr. Turner was Senior Vice President of Operations
and Senior Vice President of Manufacturing for Warnaco -- Intimate Apparel
Worldwide, an apparel company, from 1992 to 1998.
BRIAN J. HANIGAN. Mr. Hanigan was appointed Vice President and Treasurer of
the Company in February 1997. Mr. Hanigan was Assistant Treasurer of the Company
from before 1993 until February 1997.
JOHN J. RAY III. Mr. Ray was appointed Vice President and Assistant
Secretary of the Company in February 1998. Mr. Ray was appointed Secretary in
November 1998 and General Counsel in December 1998. From before 1993 until
January 1998, Mr. Ray was Vice President and General Counsel of various
operating groups of Waste Management, Inc. and its affiliates, providers of
waste management and environmental services.
Information relating to the directors of the Company is set forth in the
Registrant's proxy statement for its Annual Meeting of Stockholders to be held
on May 18, 1999 (the "Proxy Statement") to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth in the Proxy
Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, and is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to the security ownership of certain beneficial owners
and management is set forth in the Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a part of the 1995 special charge, the Company decided to integrate into
the Company's Bowling Green, Kentucky operations certain functions historically
performed by FII personnel. In connection with this effort, the Board of
Directors determined that the Company's management agreement with FII under the
agreement 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 1, 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 FII's
transfer to the Company of its personnel and in settlement of all obligations
the Company owed to FII. The non-management members of the Board of Directors
determined that such payment 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
cost of otherwise creating the workforce necessary to provide the management
services previously provided by FII and the assistance of FII in effecting the
transition of functions and personnel (including certain executive officers) to
the Company. The Company agreed to pay up to approximately $4,000,000 to FII in
1996 ($3,600,000 was actually paid in 1996), all of 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 a party. The Company also agreed to reimburse FII for any direct
ordinary and reasonable costs and expenses associated with the transition of
management functions from FII into the Company in 1996. The severance and
settlement amounts were included in the Company's special charge accrued in the
fourth quarter of 1995.
72
<PAGE> 75
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- (CONTINUED)
Under the terms of the management agreement between FII and the Company,
FII provided the Company, to the extent that the Company requested, (i) general
management services which included, but were not limited to, financial
management, legal, tax, accounting, corporate development, human resource and
personnel advice; (ii) investment banking services in connection with the
acquisition or disposition of the assets or operations of any business or
entity; (iii) financing services in connection with the arrangement by FII of
public or private debt (including letter of credit facilities); and (iv) other
financial, accounting, legal and advisory services rendered outside the ordinary
course of the Company's business. FII is owned and controlled by Mr. Farley; its
employees provide services to companies owned or controlled by Mr. Farley,
including, prior to 1996, the Company. Certain of the executive officers of the
Company were employed by, and received their compensation from, FII. These
officers devote their time as needed to those companies owned and controlled by
Mr. Farley and, accordingly, did not devote full time to any single company,
including the Company.
In consideration for investment banking and financing services, the Company
paid FII fees established by FII and determined to be reasonable by FII in
relation to (i) the size and complexity of the transaction; and (ii) the fees
customarily charged by other advisors for similar investment banking and
financing services; provided, such fees did not exceed two percent of the total
consideration paid or received by the Company or two percent of the aggregate
amount available for borrowing or use under the subject agreement or facility.
Fees for investment banking and financing services were generally payable to FII
upon the closing of the subject transaction or agreement.
Under the terms of the management agreement, the Company paid a fee to FII
based on FII's cost of providing management services. The Company paid
management fees to FII of approximately $8,100,000 in 1995.
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. 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. See "CONTINGENT
LIABILITIES" and "RELATED PARTY TRANSACTIONS" in the Notes to Consolidated
Financial Statements.
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated debentures
of the affiliate. In the fourth quarter of 1993, the Company received
approximately $72,900,000 from Acme Boot representing the entire unpaid
principal and liquidation preference (including accrued interest and dividends)
on its investment in the securities of the affiliate. The Company recorded a
pretax gain of approximately $67,300,000 in connection with the investment in
Acme Boot upon the receipt of the above mentioned proceeds. In connection with
the 1993 transaction, the Company guaranteed, on an unsecured basis, the
repayment of debt incurred by Acme Boot under the Acme Boot Credit Facility and
the New Acme Credit Agreement. Other expense-net includes charges of $32,000,000
and $35,000,000 in 1997 and 1996, respectively, related to the Company's
evaluation of its exposure under the guarantee. See "CONTINGENT LIABILITIES" in
the Notes to Consolidated Financial Statements.
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
73
<PAGE> 76
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- (CONCLUDED)
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.
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 increased its reserve relating to the Company's guarantee
of debt secured under the Acme Boot guarantees from $35,000,000 to $67,000,000
in the third quarter of 1997 related to the Company's evaluation of its exposure
under the Acme Boot guarantees.
In addition, through July 1998, the Company loaned Acme Boot $9,000,000 to
provide Acme Boot with supplemental working capital. These loans were made in
the form of demand notes payable and were senior to all other outstanding
indebtedness of Acme Boot. These loans were repaid by Acme Boot upon the sale of
its business in the third quarter of 1998.
In June 1998, Acme Boot entered into agreements with unrelated parties for
the sale of certain assets and its business. Financing for the sale of the
business was completed in the third quarter of 1998, at which time the Company
paid $65,900,000 to satisfy the Acme Boot guarantees in full. Other income
(expense) -- net for 1998 in the accompanying Consolidated Statement of
Operations includes income of $6,400,000 from the sale of Acme Boot and the
settlement of this liability.
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. 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.
On November 20, 1997, the Board of Directors, excluding Mr. Farley and
other employee Directors, upon recommendation of a Special Committee of the
Board of Directors, comprised of Messrs. Al Askari and Wolfson, guaranteed a
bank loan to Mr. Farley in the amount of $26,000,000. The proceeds of this loan
were used by Mr. Farley to purchase all of the Zero Coupon Convertible
Subordinated Debentures due 2012 of Farley Inc. held by non-affiliated third
parties. In consideration of the guarantee, Mr. Farley pays the Company an
annual guarantee fee equal to 1 1/8% of the outstanding principal balance of the
loan. The loan is secured by a second lien on 2,507,512 shares of Class B Common
Shares of the Company held by Mr. Farley and the assets held for the benefit of
Mr. Farley under the Company's Senior Executive Officer Deferred Compensation
Trust. The Special Committee received an opinion from an independent financial
advisor that the terms of the transaction are commercially reasonable.
On February 24, 1999, the Board of Directors, excluding Mr. Farley,
increased the guarantee to $65,000,000 in connection with Mr. Farley's
refinancing and retirement of the $26,000,000 and $12,000,000 loans described
above and other indebtedness of Mr. Farley. The Company's obligations under the
guarantee are secured by 2,507,512 shares of Company Preferred Stock and all of
Mr. Farley's assets. In consideration of the guarantee, which is scheduled to
expire in September 2000, Mr. Farley pays an annual guarantee fee equal to 2% of
the outstanding principal balance of the loan. The Board of Directors received
an opinion from an independent financial advisor that the terms of the
transaction are commercially reasonable. In addition, in October 1998, the
Company advanced $3,500,000 to Mr. Farley which was repaid in March 1999.
74
<PAGE> 77
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedule and exhibits
1. Financial Statements
The financial statements listed in the Index to Financial Statements and
Supplementary Data on page 27 are filed as part of this Annual Report.
2. Financial Statement Schedule
The schedule listed in the Index to Financial Statements and Supplementary
Data on page 27 is filed as part of this Annual Report.
3. Exhibits
The exhibits listed in the Index to Exhibits on pages 78 and 79 are filed
as part of this Annual Report.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the fourth quarter of fiscal 1998.
75
<PAGE> 78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on April 2, 1999.
FRUIT OF THE LOOM, INC.
By: /s/ G. WILLIAM NEWTON
------------------------------------
(G. William Newton
Vice President-Finance, Acting
Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
April 2, 1999.
<TABLE>
<CAPTION>
NAME CAPACITY
---- --------
<C> <S>
/s/ WILLIAM FARLEY Chairman of the Board and Chief Executive Officer,
- --------------------------------------------- President and Chief Operating Officer (Principal
(William Farley) Executive Officer) and Director
/s/ G. WILLIAM NEWTON Vice President-Finance, Acting Chief Financial Officer
- --------------------------------------------- (Principal Financial and Accounting Officer)
(G. William Newton)
/s/ OMAR Z. AL ASKARI Director
- ---------------------------------------------
(Omar Z. Al Askari)
/s/ DENNIS S. BOOKSHESTER Director
- ---------------------------------------------
(Dennis S. Bookshester)
/s/ HENRY A. JOHNSON Director
- ---------------------------------------------
(Henry A. Johnson)
/s/ MARK H. MCCORMACK Director
- ---------------------------------------------
(Mark H. McCormack)
/s/ A. LORNE WEIL Director
- ---------------------------------------------
(A. Lorne Weil)
/s/ SIR BRIAN G. WOLFSON Director
- ---------------------------------------------
(Sir Brian G. Wolfson)
</TABLE>
76
<PAGE> 79
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 2, 1999 AND DECEMBER 31, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS AT END
DESCRIPTION: OF PERIOD EXPENSES (1)(2) DEDUCTIONS(3) OF PERIOD
- ------------ ---------- ---------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 2, 1999:
Reserves deducted from assets to which
they apply:
Accounts receivable allowances:
Doubtful accounts..................... $ 5,700 $ -- $ 2,700 $ 1,700 $ 6,700
Sales discounts, returns, and
allowances......................... 6,200 27,700 5,700 34,300 5,300
------- ------- -------- ------- -------
$11,900 $27,700 $ 8,400 $36,000 $12,000
======= ======= ======== ======= =======
YEAR ENDED DECEMBER 31, 1997:
Reserves deducted from assets to which
they apply:
Accounts receivable allowances:
Doubtful accounts..................... $ 9,100 $ 2,300 $ (2,300) $ 3,400 $ 5,700
Sales discounts, returns, and
allowances......................... 11,500 52,200 (17,400) 40,100 6,200
------- ------- -------- ------- -------
$20,600 $54,500 $(19,700) $43,500 $11,900
======= ======= ======== ======= =======
Reserves included in Other accounts
payable and accrued expenses.......... $20,900 $ -- $(20,900) $ -- $ --
======= ======= ======== ======= =======
YEAR ENDED DECEMBER 31, 1996:
Reserves deducted from assets to which
they apply:
Accounts receivable allowances:
Doubtful accounts..................... $15,200 $ 5,900 $ (1,100) $10,900 $ 9,100
Sales discounts, returns, and
allowances......................... 11,400 51,200 (15,500) 35,600 11,500
------- ------- -------- ------- -------
$26,600 $57,100 $(16,600) $46,500 $20,600
======= ======= ======== ======= =======
Reserves included in Other accounts
payable and accrued expenses.......... $ -- $ -- $ 20,900 $ -- $20,900
======= ======= ======== ======= =======
</TABLE>
- -------------------------
(1) Reserves included in Other accounts payable and accrued expenses represents
a recourse liability retained in connection with Sale of Accounts Receivable
in December 1996. Corresponding amounts of $5,400 and $15,500 were deducted
from accounts receivable allowances at time of sale.
(2) Recoveries of bad debts and foreign currency translation.
(3) Bad debts written off and allowances and discounts taken by customers.
77
<PAGE> 80
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
(ITEM 14(A)(3) AND 14(C))
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C> <C>
3(a)* -- Restated Certificate of Incorporation of the Company and
Certificate of Amendment of the Restated Certificate of
Incorporation of the Company (incorporated herein by
reference to Exhibit 3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
3(b)* -- By-Laws of the Company (incorporated herein by reference to
Exhibit 4(b) to the Company's Registration Statement on Form
S-2, Reg. No. 33-8303 (the "S-2")).
4(a)* -- $900,000,000 Credit Agreement dated as of September 19, 1997
(the "Credit Agreement"), among the several banks and other
financial institutions from time to time parties thereto
(the "Lenders"), NationsBank, N.A., as administrative agent
for the Lenders thereunder, Chase Manhattan Bank, Bankers
Trust Company, The Bank of New York and the Bank of Nova
Scotia, as co-agents (incorporated herein by reference to
Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997).
4(b)* -- Rights Agreement, dated as of March 8, 1996 between Fruit
the Loom, Inc. and Chemical Mellon Shareholder Services,
L.L.C., Rights Agent (incorporated herein by reference to
Exhibit 4(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
4(c) -- First Amendment to Credit Agreement dated March 26, 1998;
Second Amendment to Credit Agreement dated July 2, 1998;
Third Amendment to Credit Agreement dated December 31, 1998;
Fourth Amendment to Credit Agreement dated March 10, 1999;
Second Amended and Restated Pledge Agreement dated March 10,
1999 related to the Credit Agreement; and Bond Pledge
Agreement dated March 10, 1999 related to the Credit
Agreement.
10(a)* -- Fruit of the Loom 1989 Stock Grant Plan dated January 1,
1989 (incorporated herein by reference to Exhibit 10(b) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1988).
10(b)* -- Fruit of the Loom 1987 Stock Option Plan (incorporated
herein by reference to Exhibit 10(b) to the S-2).
10(c)* -- Fruit of the Loom Stock Option Agreement for Richard C.
Lappin (incorporated herein by reference to Exhibit 10(d) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991).
10(d)* -- Fruit of the Loom 1992 Executive Stock Option Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, Reg. No. 33-57472).
10(e)* -- Fruit of the Loom, Inc. Directors' Stock Option Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, Reg. No. 33-50499).
10(f)* -- Fruit of the Loom, Inc. 1995 Non-Employee Directors' Stock
Plan (incorporated by reference to Exhibit B to the
Company's Proxy Statement for its annual meeting on May 16,
1995 (the "1995 Proxy Statement").
10(g)* -- Fruit of the Loom, Inc. 1995 Executive Incentive
Compensation Plan (incorporated herein by reference to
Exhibit A to the 1995 Proxy Statement).
10(h)* -- Fruit of the Loom, Inc. Executive Incentive Compensation
Plan (incorporated herein by reference to Exhibit A to the
Company's Proxy Statement for its annual meeting on May 17,
1994).
10(i)* -- Stock Pledge Agreement dated as of June 27, 1994 between
William F. Farley and Fruit of the Loom, Inc. (incorporated
herein by reference to Exhibit 10(b) to the 10-Q).
10(j)* -- Asset Purchase and Transitional Services Agreement between
Farley Industries, Inc. and Fruit of the Loom, Inc.
(incorporated herein by reference to Exhibit 10(l) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
</TABLE>
78
<PAGE> 81
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS -- (CONCLUDED)
(ITEM 14(A)(3) AND 14(C))
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C> <C>
10(k) -- Employment Agreement between Fruit of the Loom, Inc. and
William Farley.
10(l) -- Employment Agreement between Fruit of the Loom, Inc. and
Brian J. Hanigan.
10(m) -- Employment Agreement between Fruit of the Loom, Inc. and G.
William Newton.
10(n) -- Employment Agreement between Fruit of the Loom, Inc. and
John J. Ray III.
10(o) -- Employment Agreement between Fruit of the Loom, Inc. and
John W. Salisbury, Jr.
10(p) -- Employment Agreement between Fruit of the Loom, Inc. and
Edgar F. Turner.
10(q) -- Employment Agreement between Fruit of the Loom, Inc. and
Vincent J. Tyra.
10(r)* -- Fruit of the Loom, Inc. 1996 Incentive Compensation Plan
(incorporated herein by reference to the Company's
Registration Statement on Form S-8, Reg. No. 333-09203).
10(s)* -- Purchase and Contribution Agreement dated as of December 18,
1996 among Union Underwear Company, Inc., Pro Player, Inc.
and Salem Sportswear, Inc., as the Originators and FTL
Receivables Company, as the Purchaser (incorporated herein
by reference to Exhibit 10(t) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996).
10(t)* -- Receivables Purchase Agreement dated as of December 18, 1996
among FTL Receivables Company, as Seller, Union Underwear
Company, Inc., as initial Servicer, Barton Capital
Corporation, as Purchaser, and Societe Generale, as Agent
(incorporated herein by reference to Exhibit 10(u) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10(u) -- Guaranty of Payment dated March 24, 1999 between Fruit of
the Loom, Inc. and Nationsbank, N.A. as administrative
agent.
18* -- Letter re change in accounting principle (incorporated
herein by reference to Exhibit 18 to the Company's 1997
10-K).
21 -- Subsidiaries of the Company (incorporated herein by
reference to Exhibit 21 to the Company's 1997 10-K).
23 -- Consent of Ernst & Young LLP.
27 -- Financial Data Schedule.
</TABLE>
- -------------------------
* Document is available at the Public Reference Section of the Securities and
Exchange Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 (Commission file #1-8941).
The Registrant has not listed or filed as Exhibits to this Annual Report
certain instruments with respect to long-term debt representing indebtedness of
the Company and its subsidiaries which do not individually exceed 10% of the
total assets of the Registrant and its subsidiaries on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant agrees to
furnish such instruments to the Securities and Exchange Commission upon request.
79
<PAGE> 1
EXHIBIT 4(c)
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of March 26, 1998 among FRUIT OF THE LOOM, INC., a Delaware corporation
(the "Borrower"), certain Subsidiaries of the Borrower as Guarantors, the
Lenders party hereto and NATIONSBANK, N.A., as Administrative Agent for the
Lenders (the "Administrative Agent"). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in the Credit
Agreement (as defined below).
RECITALS
WHEREAS, the Borrower, the Guarantors, the Lenders and the
Administrative Agent entered into that certain Credit Agreement, dated as of
September 19, 1997, whereby the Lenders provided to the Borrower a $900 million
credit facility (as amended or modified from time to time, the "Credit
Agreement");
WHEREAS, the Borrower has proposed a reorganization of its ownership
structure, as set forth in the Form S-4 filed with the Securities and Exchange
Commission on February 10, 1998, whereby, among other things, Fruit of the Loom,
Ltd., a Cayman Islands corporation will become the owner of all of the shares of
the common stock of the Borrower (the "Reorganization");
WHEREAS, the Borrower has requested that the Lenders (a) consent to the
Reorganization and (b) amend certain terms and conditions of the Credit
Agreement as more fully described below; and
WHEREAS, the required Lenders have agreed to consent to the terms of
the Reorganization and amend certain terms of the Credit Agreement, subject to
the terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Definitions.
(a) The following definitions are added to Section 1.1 of the
Credit Agreement in the appropriate alphabetical order:
"Parent" means Fruit of the Loom, Ltd., a Cayman
Islands company.
"Reorganization" means the proposed reorganization of
the Borrower and its Subsidiaries whereby, among other things,
the Parent will become the owner of all of the common shares
of the Borrower, as more fully described in the Form S-
<PAGE> 2
4 filed by the Parent with the Securities and Exchange
Commission on February 10, 1998.
(b) The pricing grid set forth in the definition of
"Applicable Percentage" in Section 1.1 of the Credit Agreement is
amended and restated in its entirety to read as follows:
<TABLE>
<CAPTION>
Applicable Applicable
Unsecured Percentage Percentage for
Pricing Leverage Senior for Revolving-A Revolving-B Applicable
Level Ratio Debt Eurocurrency Eurocurrency Percentage for
Rating Loans Loans Term Loans
<S> <C> <C> <C> <C> <C>
I N/A => BBB+ .250% .275% .35%
from S&P or
Baa1 from
Moody's
II N/A => BBB from .325% .350% .45%
S&P or Baa2
from Moody's
but < BBB+
from S&P or
Baa1 from
Moody's
III => 2.0 to => BBB- .40% .425% .55%
1.0 but < from S&P or
2.5 to 1.0 Baa3 from
Moody's but
< BBB from
S&P or Baa2
from Moody's
IV => 2.5 to => BB+ from .55% .60% .75%
1.0 but < S&P or Ba1
3.25 to 1.0 from
Moody's but
< BBB- from
S&P or Baa3
from Moody's
V => 3.25 to => BB from .75% .80% 1.00%
1.0 but < S&P or Ba2
4.0 to 1.0 from
Moody's but
< BB+ from
S&P or Ba1
from Moody's
VI => 4.0 to 1.0 <= BB- from 1.00% 1.125% 1.375%
S&P or Ba3
from Moody's
<CAPTION>
Applicable Applicable
Pricing Percentage for Percentage for Applicable
Level Revolving-A Revolving-B Percentage For
Facility Fees Facility Fees Base Rate Loans
<S> <C> <C> <C>
I .10% .075% 0%
II .125% .10% 0%
III .15% .125% 0%
IV .20% .15% 0%
V .25% .20% 0%
VI .375% .25% 0%
</TABLE>
2
<PAGE> 3
(c) The definition of "Change of Control" in Section 1.1 of
the Credit Agreement is amended and restated in its entirety to read as
follows:
"Change of Control" means:
(a) prior to the Reorganization, any of the following
events: (i) other than as a result of the share repurchases
permitted pursuant to Sections 7.10(e) and 8.8(iii), any
"person" or "group" (within the meaning of Section 13(d) or
14(d) of the Exchange Act) has become, directly or indirectly,
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed
to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), by
way of merger, consolidation or otherwise, of 35% or more of
the voting power of the Voting Stock of the Borrower on a
fully-diluted basis, after giving effect to the conversion and
exercise of all outstanding warrants, options and other
securities of the Borrower (whether or not such securities are
then currently convertible or exercisable), or (ii) during any
period of two consecutive calendar years, individuals who at
the beginning of such period constituted the board of
directors of the Borrower cease for any reason to constitute a
majority of the directors of the Borrower then in office
unless such new directors were elected by the directors of the
Borrower who constituted the board of directors of the
Borrower at the beginning of such period.
(b) subsequent to the Reorganization, any of the
following events: (i) the Parent fails to own 100% of the
Voting Stock of the Borrower, (ii) other than as a result of
the share repurchases permitted pursuant to Sections 7.10(e)
and 8.8(iii), any "person" or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act) has become,
directly or indirectly, the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the
passage of time), by way of merger, consolidation or
otherwise, of 35% or more of the voting power of the Voting
Stock of the Parent on a fully-diluted basis, after giving
effect to the conversion and exercise of all outstanding
warrants, options and other securities of the Parent (whether
or not such securities are then currently convertible or
exercisable), or (iii) during any period of two consecutive
calendar years, individuals who at the beginning of such
period constituted the board of directors of the Parent cease
for any reason to constitute a majority of the directors of
the Parent then in office unless such new directors were
elected by the directors of the Parent who constituted the
board of directors of the Parent at the beginning of such
period.
(d) The definition of "EBIT" in Section 1.1 of the Credit
Agreement is amended by adding the following clauses at the end of such
definition:
,(vi) cash charges incurred during the fourth fiscal
quarter of 1997 not to exceed $126 million in the aggregate
and (vii) noncash charges incurred during the fourth fiscal
quarter of 1997 not to exceed $338 million in the aggregate.
3
<PAGE> 4
(e) The definition of "Fixed Charge Coverage Ratio" in Section
1.1 of the Credit Agreement is amended and restated in its entirety to
read as follows:
"Fixed Charge Coverage Ratio" means the ratio of (a)
EBITDA minus Capital Expenditures to (b) Interest Expense plus
Scheduled Funded Debt Payments plus, subsequent to the
Reorganization, dividends paid on preferred stock of the
Borrower.
(f) Clause (o) of the definition of Permitted Investments in
Section 1.1 of the Credit Agreement is amended and restated in its
entirety as follows:
(o) other Investments not to exceed, in the
aggregate, $25,000,000 at any one time outstanding.
2. Information Covenants. Subsequent to the Reorganization, all
references to the "Borrower" in Sections 7.1(a), 7.1(b) and 7.1(e) of the Credit
Agreement shall instead be references to the "Parent".
3. Financial Covenants. Section 7.2 of the Credit Agreement is amended
and restated in its entirety to read as follows:
As of the end of each fiscal quarter set forth below, the
Leverage Ratio, Interest Coverage Ratio and Fixed Charge Coverage Ratio
shall satisfy the following minimum and maximum requirements:
<TABLE>
<CAPTION>
Minimum Fixed
Minimum Interest Charge Coverage
Coverage Ratio Ratio
Maximum (for the twelve-month (for the twelve-month
Fiscal Quarter Ending: Leverage Ratio period ending on such date) period ending on such date)
---------------------- -------------- --------------------------- ---------------------------
<S> <C> <C> <C>
September 30, 1997 4.0 to 1.0 1.75 to 1.0 2.0 to 1.0
December 31, 1997 4.5 to 1.0 1.50 to 1.0 2.0 to 1.0
March 31, 1998 5.5 to 1.0 1.25 to 1.0 2.0 to 1.0
June 30, 1998 5.0 to 1.0 1.50 to 1.0 2.0 to 1.0
September 30, 1998 4.0 to 1.0 2.00 to 1.0 2.0 to 1.0
December 31, 1998 3.5 to 1.0 2.50 to 1.0 2.25 to 1.0
March 31, 1999 3.5 to 1.0 3.0 to 1.0 2.25 to 1.0
June 30, 1999 3.5 to 1.0 3.0 to 1.0 2.25 to 1.0
September 30, 1999 3.25 to 1.0 3.0 to 1.0 2.25 to 1.0
December 31, 1999 3.25 to 1.0 3.0 to 1.0 2.25 to 1.0
March 31, 2000 3.25 to 1.0 3.0 to 1.0 2.25 to 1.0
June 30, 2000 3.25 to 1.0 3.0 to 1.0 2.25 to 1.0
September 30, 2000 3.0 to 1.0 3.0 to 1.0 2.25 to 1.0
December 31, 2000 3.0 to 1.0 3.0 to 1.0 2.25 to 1.0
and thereafter
</TABLE>
4. Use of Proceeds. Clause (a) of Section 7.10 of the Credit Agreement
is amended and restated in its entirety as follows:
(a) (i) to refinance existing Indebtedness owing under the
Existing Credit Agreement and at maturity other existing Indebtedness
described on Schedule 6.10, (ii) to repurchase up to $105 million of
the Senior Notes issued by Fruit of the Loom Canada, Inc. due August
19, 2008 and (iii) to the extent new public notes are issued in
4
<PAGE> 5
replacement thereof, to repurchase up to $250 million of the 7.875%
Senior Notes issued by the Borrower due October 15, 1999.
5. Restricted Payments. Section 8.8 of the Credit Agreement is amended
and restated in its entirety to read as follows:
No Credit Party will, nor will it permit its Subsidiaries to,
directly or indirectly, do the following (collectively, "Restricted
Payments") (a) declare or pay any dividends or make any other
distribution upon any shares of its capital stock of any class or (b)
purchase, redeem or otherwise acquire or retire or make any provisions
for redemption, acquisition or retirement of any shares of its capital
stock of any class or any warrants or options to purchase any such
shares; provided that (i) any Subsidiary of the Borrower may pay
dividends to its parent, (ii) subsequent to the Reorganization, the
Borrower may pay dividends on its preferred stock in an amount not to
exceed, in the aggregate, $15 million per year, and (iii) as long as
(A) no Event of Default exists or is caused as a result thereof, (B)
after giving effect thereto, the Borrower is in pro forma compliance
with the financial covenants set forth in Section 7.2, and (C) after
giving effect thereto the Leverage Ratio, on a pro forma basis, will be
less than or equal to 3.5 to 1.0, the Borrower or any of its
Subsidiaries may make Restricted Payments in an aggregate amount for
all such Persons not to exceed (x) from the Closing Date until December
31, 1998, $300 million, (y) from the Closing Date until September 30,
1999, $350 million, and (z) from the Closing Date until the Revolving-A
Loan Maturity Date, $400 million. It is understood and agreed that the
Borrower may pay dividends within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have
otherwise complied with this Section 8.8
6. Consent to Reorganization. Subject to the conditions set forth
below, the Lenders consent to the Reorganization (including any amendment to
articles of incorporation or other formation documents and any intercompany
transactions in the ordinary course, in each case consistent with the terms of
the Reorganization):
(a) The Reorganization occurs on or before December 31, 1998.
(b) The Reorganization occurs on terms substantially identical
to those set forth in the Form S-4 filed by the Parent with the
Securities and Exchange Commission on February 10, 1998.
(c) Simultaneously with the Reorganization, the Parent (i)
unconditionally guarantees the Credit Party Obligations on terms
reasonably acceptable to the Administrative Agent and (ii) executes a
Pledge Agreement on similar terms (including its periods of
effectiveness) to the Pledge Agreement executed by the Credit Parties
on the Closing Date.
(d) Simultaneously with the Reorganization, the Credit Parties
(including the Parent) provide to the Lenders such authority documents
and opinions, including foreign counsel opinions, as reasonably
requested by the Administrative Agent and comply with the terms of
Section 8.4 of the Credit Agreement as appropriate.
5
<PAGE> 6
(e) Simultaneous with the Reorganization, the Credit Parties
provide updated schedules to the Credit Agreement, including, without
limitation Schedules 6.15 and 6.21, as appropriate.
7. Pricing. Notwithstanding anything in the Credit Agreement to the
contrary, the Applicable Percentage for Loans, the Letter of Credit Fees and the
Facility Fees shall be based on Pricing Level IV (as set forth in the definition
of Applicable Percentage), from the date of this Amendment until the Unsecured
Senior Debt Rating has been changed or reaffirmed by S&P, and thereafter the
Pricing Level shall be determined by the then current Leverage Ratio or
Unsecured Senior Debt Rating, as applicable.
8. Conditions Precedent. The effectiveness of this Amendment is subject
to receipt by the Administrative Agent of the following:
(a) copies of this Amendment duly executed by the Credit
Parties and the Lenders.
(b) certified copies of resolutions or authorization of each
Credit Party approving and adopting this Amendment, the transactions
contemplated herein and authorizing execution and delivery hereof.
(c) an opinion or opinions from counsel to the Credit Parties,
in form and substance satisfactory to the Administrative Agent,
addressed to the Administrative Agent on behalf of the Lenders and
dated as of the date hereof.
(d) the payment of an amendment fee to each Lender who
executes this Amendment of .125% of its total Commitment and the
payment of such other fees as agreed to between the Borrower and the
Administrative Agent.
9. Ratification of Credit Agreement. The term "Credit Agreement" as
used in each of the Credit Documents shall hereafter mean the Credit Agreement
as amended by this Amendment. Except as herein specifically agreed, the Credit
Agreement is hereby ratified and confirmed and shall remain in full force and
effect according to its terms.
10. Authority/Enforceability. Each of the Credit Parties, the
Administrative Agent and the Lenders represents and warrants as follows:
(a) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(b) This Amendment has been duly executed and delivered by
such Person and constitutes such Person's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
6
<PAGE> 7
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by such Person of this Amendment.
11. No Default. The Credit Parties represent and warrant to the Lenders
that (a) the representations and warranties of the Credit Parties set forth in
Section 6 of the Credit Agreement are true and correct as of the date hereof and
(b) no event has occurred and is continuing which constitutes a Default or an
Event of Default except as is being cured by the execution and delivery of this
Amendment.
12. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of
executed counterparts by telecopy shall be effective as an original and shall
constitute a representation that an original will be delivered.
13. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
[remainder of page intentionally left blank]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
BORROWER:
- ---------
FRUIT OF THE LOOM, INC.,
a Delaware corporation
By:
------------------------------------------
Name: Brian J. Hanigan
Title: Vice President and Treasurer
GUARANTORS:
- -----------
UNION UNDERWEAR COMPANY, INC.,
a New York corporation
ALICEVILLE COTTON MILL, INC.,
an Alabama corporation
THE B.V.D. LICENSING CORPORATION,
a Delaware corporation
FAYETTE COTTON MILL, INC.,
an Alabama corporation
FOL CARIBBEAN CORPORATION,
a Delaware corporation
FRUIT OF THE LOOM ARKANSAS, INC.,
an Arkansas corporation
FRUIT OF THE LOOM CARIBBEAN, INC.,
a Delaware corporation
FRUIT OF THE LOOM, INC.,
a New York corporation
<PAGE> 9
FRUIT OF THE LOOM TEXAS, INC.,
a Texas corporation
FTL SALES COMPANY, INC.,
a New York corporation
GITANO FASHIONS LIMITED,
a Delaware corporation
GREENVILLE MANUFACTURING, INC.,
a Mississippi corporation
JET SEW TECHNOLOGIES, INC.,
a New York corporation
MARTIN MILLS, INC.,
a Louisiana corporation
PRO PLAYER, INC.,
a New York corporation
RABUN APPAREL, INC.,
a Georgia corporation
RUSSELL HOSIERY MILLS, INC.,
a North Carolina corporation
SALEM SPORTSWEAR CORPORATION,
a Delaware corporation
SHERMAN WAREHOUSE CORPORATION,
a Mississippi corporation
UNION SALES, INC.,
a Delaware corporation
<PAGE> 10
UNION YARN MILLS, INC.,
an Alabama corporation
WHITMIRE MANUFACTURING, INC.,
a South Carolina corporation
WINFIELD COTTON MILL, INC.,
an Alabama corporation
FTL REGIONAL SALES COMPANY, INC.,
a Delaware corporation
LEESBURG YARN MILLS, INC.,
an Alabama corporation
SALEM SPORTSWEAR, INC.,
a New Hampshire corporation
FRUIT OF THE LOOM TRADING COMPANY,
a Delaware corporation
DEKALB KNITTING CORPORATION,
an Alabama corporation
By:
-----------------------------------------
Name: Brian J. Hanigan
Title: Vice President and a Financial Officer
of each of the foregoing entities
identified as a Guarantor
<PAGE> 11
LENDERS:
- --------
NATIONSBANK, N.A.,
individually in its capacity as a Lender and
in its capacity as Administrative
Agent and Collateral Agent
By:
-------------------------------------
Name: Lisa S. Donoghue
Title: Vice President
<PAGE> 12
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
BANKERS TRUST COMPANY
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 13
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE BANK OF NEW YORK
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 14
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE BANK OF NOVA SCOTIA
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 15
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE CHASE MANHATTAN BANK
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 16
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
ABN AMRO BANK N.V.
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 17
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
BANK AUSTRIA AG, NEW YORK BRANCH
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 18
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
BANK OF AMERICA NT & SA
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 19
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
CREDIT AGRICOLE INDOSEUZ
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 20
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
CREDIT LYONNAIS CHICAGO BRANCH
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 21
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
CREDIT SUISSE FIRST BOSTON
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 22
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 23
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE FUJI BANK, LIMITED
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 24
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
GULF INTERNATIONAL BANK B.S.C.
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 25
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
HIBERNIA NATIONAL BANK
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 26
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:
---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE> 27
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 28
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE NORTHERN TRUST COMPANY
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 29
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
CO_PERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 30
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
SOCIETE GENERALE
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 31
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
TORONTO DOMINION (TEXAS), INC.
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 32
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 33
SIGNATURE PAGE TO FIRST AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF MARCH 26, 1998
THE ASAHI BANK, LTD., NEW YORK BRANCH
By:
---------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 34
SECOND AMENDMENT TO THE CREDIT AGREEMENT
THIS SECOND AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment") is
entered into as of July 2, 1998 among FRUIT OF THE LOOM, INC., a Delaware
corporation (the "Borrower"), certain Subsidiaries of the Borrower as
Guarantors, the Lenders party hereto and NATIONSBANK, N.A., as Administrative
Agent for the Lenders (the "Administrative Agent"). Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in the
Credit Agreement (as defined below).
RECITALS
WHEREAS, the Borrower, the Guarantors, the Lenders and the
Administrative Agent entered into that certain Credit Agreement, dated as of
September 19, 1997, whereby the Lenders provided to the Borrower a $900 million
credit facility (as amended by that certain First Amendment to the Credit
Agreement dated as of March 26, 1998 and as further amended or modified from
time to time, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Lenders agree to amend the
terms of the Credit Agreement to, among other things, permit the sharing of
Collateral with certain other creditors of the Borrower;
WHEREAS, the Required Lenders have agreed to amend certain terms of the
Credit Agreement as more fully set forth below:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Definitions.
(a) The definition of "Applicable Percentage" set forth in
Section 1.1 of the Credit Agreement is amended by amending and
restating in its entirety Pricing Level IV of the pricing grid set
forth in such definition to read as follows:
<TABLE>
<CAPTION>
Applicable Applicable Applicable
Percentage Percentage Applicable Percentage Applicable Applicable
Unsecured for for Applicable Percentage for Percentage Percentage
Senior Revolving-A Revolving-B Percentage for Letter Revolving-A for for
Pricing Leverage Debt Eurocurrency Eurocurrency for Term of Credit Facility Revolving-B Base Rate
Level Ratio Rating Loans Loans Loans Fees Fees Facility Fees Loans
- ------- -------- --------- ------------ ------------ ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IV >= 2.5 to >= BB+ from .625% .675% .825% .625% .20% .15% 0%
1.0 but < S&P or Ba1
3.25 to 1.0 from S&P or
Moody's but
< BBB- from
S&P or Baa3
from Moody's
</TABLE>
<PAGE> 35
(b) A new definition is added to Section 1.1 of the Credit
Agreement to read as follows:
"Noteholders" means the holders of the Indebtedness
evidenced by the Senior Note Indentures.
(c) The definition of "Permitted Liens" in Section 1.1 of the
Credit Agreement is amended and restated in its entirety to read as
follows:
"Permitted Liens" means (a) Liens securing Credit
Party Obligations, (b) Liens for taxes not yet due or Liens
for taxes being contested in good faith by appropriate
proceedings for which adequate reserves determined in
accordance with GAAP have been established (and as to which
the property subject to any such Lien is not yet subject to
foreclosure, sale, collection, levy or loss on account
thereof), (c) Liens in respect of property imposed by law
arising in the ordinary course of business such as
materialmen's, mechanics', warehousemen's, carrier's,
landlords' and other nonconsensual statutory Liens which are
not yet due and payable or which are being contested in good
faith by appropriate proceedings for which adequate reserves
determined in accordance with GAAP have been established (and
as to which the property subject to any such Lien is not yet
subject to foreclosure, sale or loss on account thereof), (d)
pledges or deposits made in the ordinary course of business to
secure payment of workers' compensation insurance,
unemployment insurance, pensions or social security programs,
(e) Liens arising from good faith deposits in connection with
or to secure performance of tenders, bids, leases, government
contracts, performance and return-of-money bonds and other
similar obligations incurred in the ordinary course of
business (other than obligations in respect of the payment of
borrowed money), (f) Liens arising from good faith deposits in
connection with or to secure performance of statutory
obligations and surety and appeal bonds, (g) easements,
rights-of-way, restrictions (including zoning restrictions),
matters of plat, minor defects or irregularities in title and
other similar charges or encumbrances not, in any material
respect, impairing the use of the encumbered property for its
intended purposes, (h) judgment Liens that would not
constitute an Event of Default, (i) liens in connection with
Indebtedness permitted by Section 8.1(f),(j) Liens arising by
virtue of any statutory or common law provision relating to
banker's liens, rights of setoff or similar rights as to
deposit accounts or other funds maintained with a creditor
depository institution, (k) Liens on Receivables Facility
Assets transferred (i) to a Receivables Subsidiary or (ii) by
a Receivables Subsidiary to the purchaser of such receivables
(and the filing of financing statements in connection
therewith), (l) Liens existing on the Closing Date and
identified on Schedule 8.2 and any renewals and extensions
thereof or amendments thereto not otherwise prohibited by the
provisions of this definition; provided that no such Lien
shall extend to any property other than the property subject
thereto on the Closing Date and any additions thereto in the
ordinary course of business (so long as the amount of
Indebtedness secured thereby is not increased other than as
permitted hereunder), (m) pro rata Liens in favor of the
Noteholders as set forth in the terms of any Pledge Agreement
executed and delivered by the Credit Parties to the Collateral
Agent, for the benefit of the
2
<PAGE> 36
Lenders and the Noteholders and (n) Liens not described in
clauses (a) through (m) above; provided, however, that the
aggregate amount of Indebtedness secured by Liens permitted
under this clause (n), when added (without duplication) to (i)
the aggregate amount of Indebtedness then outstanding and
permitted under Section 8.1(1) and (ii) the aggregate amount
of sale leaseback transactions then outstanding and permitted
under Section 8.6, shall not exceed 10% of Consolidated Net
Tangible Assets (it being understood that the calculation of
each such aggregate amount will not include Indebtedness
outstanding and permitted under Section 8.1(a)-(k), including
Indebtedness listed on Schedule 6.10 and refinancings thereof
permitted pursuant to Section 8.1(c)).
(d) The definition of "Pledge Agreements" in Section 1.1 of
the Credit Agreement is amended and restated in its entirety to read as
follows:
"Pledge Agreements" means any Pledge Agreement (or
any amended and restated pledge agreement) executed and
delivered by the Credit Parties either (a) in favor of the
Collateral Agent, for the benefit of the Lenders and some or
all of the Noteholders, to secure the obligations under the
Credit Documents and the Senior Note Indentures or (b) in
favor of the Collateral Agent, for the benefit of the Lenders,
to secure the obligations under the Credit Documents, as such
Pledge Agreements may be amended, modified, extended, renewed
or replaced from time to time; provided that it is understood
that the Pledge Agreements will be effective only during a
Collateral Period.
(e) A new definition is added to Section 1.1 of the Credit
Agreement to read as follows:
"Senior Note Indentures" means (a) that certain
Indenture dated March 15, 1981 evidencing 7% Debentures issued
by Northwest Industries, Inc. (predecessor in interest to the
Borrower) due March 15, 2011 in the original face amount of
$125,000,000, (b) that certain Indenture dated November 30,
1993 evidencing 6 1/2% Notes due 2003 issued by the Borrower
in the original face amount of $150,000,000 and (c) that
certain Indenture dated November 30, 1993 evidencing 7 3/8%
Debentures due 2023 issued by the Borrower in the original
face amount of $150,000,000.
(f) The definition of "Unsecured Senior Debt Rating" in
Section 1.1 of the Credit Agreement is amended and restated in its
entirety to read as follows:
"Unsecured Senior Debt Rating" means the debt rating
provided by S&P and/or Moody's with respect to the unsecured public
senior long term debt of the Borrower.
(g) A new definition is added to Section 1.1 of the Credit
Agreement to read as follows:
"Year 2000 Problem" means any risk that any computer
hardware, software or other equipment used by a Credit Party
or any of its Subsidiaries (or
3
<PAGE> 37
by any of its suppliers, vendors or customers that is material
to its business) will not function as effectively and reliably
with respect to recognition of dates and times on and after
January 1, 2000 as it does prior to January 1, 2000, to the
extent such risk would cause or be reasonably expected to
cause a Material Adverse Effect.
2. Year 2000 Compliance.
(a) A new Section 6.25 is added to the Credit Agreement to
read as follows:
Each Credit Party has (a) reviewed and
assessed all areas within its and each of its
Subsidiaries' businesses and operation (including
those affected by suppliers, vendors and customers)
that reasonably would be expected to be adversely
affected by the Year 2000 Problem, (b) developed a
plan and timeline, as necessary, to address the Year
2000 Problem and (c) implemented such plan in
accordance with its timetable. Each Credit Party
reasonably believes that the Year 2000 Problem has
been appropriately addressed by it and the Year 2000
Problem will not exist with respect to it or any of
its Subsidiaries on or after January 1, 2000.
(b) Section 7.1 of the Credit Agreement is amended by adding a
new subsection (j) to read as follows:
(j) Year 2000 Information. Upon the written
request of the Administrative Agent, such
information, assurances and documentation (including,
but not limited to, the results of internal and
external audit reports prepared in connection
therewith) reasonably acceptable to the
Administrative Agent that the Credit Parties and
their Subsidiaries will not have a Year 2000 Problem
on or after January 1, 2000.
3. Conditions Precedent. The effectiveness of this Amendment is subject
to receipt by the Administrative Agent of the following:
(a) copies of this Amendment duly executed by the Credit
Parties and the Required Lenders.
(b) certified copies of resolutions or authorization of each
Credit Party approving and adopting this Amendment, the transactions
contemplated herein and authorizing execution and delivery hereof.
(c) an opinion or opinions from counsel to the Credit Parties,
in form and substance satisfactory to the Administrative Agent,
addressed to the Administrative Agent on behalf of the Lenders and
dated as of the date hereof.
(d) an amended and restated Pledge Agreement (or Pledge
Agreements, as appropriate) duly executed by the Credit Parties, in
form and substance acceptable to the Required Lenders.
4
<PAGE> 38
4. Ratification of Credit Agreement. The term "Credit Agreement" as
used in each of the Credit Documents shall hereafter mean the Credit Agreement
as amended by this Amendment. Except as herein specifically agreed, the Credit
Agreement is hereby ratified and confirmed and shall remain in full force and
effect according to its terms.
5. Authority/Enforceability. Each of the Credit Parties, the
Administrative Agent and the Lenders represents and warrants as follows:
(a) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(b) This Amendment has been duly executed and delivered by
such Person and constitutes such Person's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by such Person of this Amendment.
6. No Default. The Credit Parties represent and warrant to the Lenders
that (a) the representations and warranties of the Credit Parties set forth in
Section 6 of the Credit Agreement are true and correct as of the date hereof and
(b) no event has occurred and is continuing which constitutes a Default or an
Event of Default except as is being cured by the execution and delivery of this
Amendment.
7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of
executed counterparts by telecopy shall be effective as an original and shall
constitute a representation that an original will be delivered.
8. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
[remainder of page intentionally left blank]
5
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
BORROWER:
FRUIT OF THE LOOM, INC.,
a Delaware corporation
By:
---------------------------------
Name: Brian J. Hanigan
Title: Vice President and Treasurer
GUARANTORS:
UNION UNDERWEAR COMPANY, INC.,
a New York corporation
ALICEVILLE COTTON MILL, INC.,
an Alabama corporation
THE B.V.D. LICENSING CORPORATION,
a Delaware corporation
FAYETTE COTTON MILL, INC.,
an Alabama corporation
FOL CARIBBEAN CORPORATION,
a Delaware corporation
FRUIT OF THE LOOM ARKANSAS, INC.,
an Arkansas corporation
FRUIT OF THE LOOM CARIBBEAN, INC.,
a Delaware corporation
FRUIT OF THE LOOM, INC.,
a New York corporation
<PAGE> 40
FRUIT OF THE LOOM TEXAS, INC.,
a Texas corporation
FTL SALES COMPANY, INC.,
a New York corporation
GITANO FASHIONS LIMITED,
a Delaware corporation
GREENVILLE MANUFACTURING, INC.,
a Mississippi corporation
JET SEW TECHNOLOGIES, INC.,
a New York corporation
MARTIN MILLS, INC.,
a Louisiana corporation
PRO PLAYER, INC.,
a New York corporation
RABUN APPAREL, INC.,
a Georgia corporation
RUSSELL HOSIERY MILLS, INC.,
a North Carolina corporation
SALEM SPORTSWEAR CORPORATION,
a Delaware corporation
SHERMAN WAREHOUSE CORPORATION,
a Mississippi corporation
UNION SALES, INC.,
a Delaware corporation
UNION YARN MILLS, INC.,
an Alabama corporation
WHITMIRE MANUFACTURING, INC.,
a South Carolina corporation
WINFIELD COTTON MILL, INC.,
an Alabama corporation
FTL REGIONAL SALES COMPANY, INC.,
a Delaware corporation
LEESBURG YARN MILLS, INC.,
an Alabama corporation
SALEM SPORTSWEAR, INC.,
a New Hampshire corporation
FRUIT OF THE LOOM TRADING COMPANY,
a Delaware corporation
DEKALB KNITTING CORPORATION,
an Alabama corporation
By:
---------------------------------
Name: Brian J. Hanigan
Title: Vice President and a
Financial Officer of each of
the foregoing entities
identified as a Guarantor
<PAGE> 41
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as
Administrative Agent and Collateral
Agent
By:
---------------------------------
Name: Lisa S. Donoghue
Title: Senior Vice President
<PAGE> 42
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
BANKERS TRUST COMPANY
By:
---------------------------------
Name:
-------------------------------
Title
-------------------------------
<PAGE> 43
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE BANK OF NEW YORK
By:
---------------------------------
Name:
-------------------------------
Title
-------------------------------
<PAGE> 44
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE BANK OF NOVA SCOTIA
By:
---------------------------------
Name:
-------------------------------
Title
-------------------------------
<PAGE> 45
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE CHASE MANHATTAN BANK
By:
---------------------------------
Name:
-------------------------------
Title
-------------------------------
<PAGE> 46
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
ABN AMRO BANK N.V.
By:
---------------------------------
Name:
--------------------------------
Title
-------------------------------
By:
---------------------------------
Name:
--------------------------------
Title
-------------------------------
<PAGE> 47
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
BANK AUSTRIA AG, NEW YORK BRANCH
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 48
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
BANK OF AMERICA NT & SA
By:
----------------------------------
Name:
--------------------------------
Title
-------------------------------
<PAGE> 49
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
CREDIT AGRICOLE INDOSEUZ
By:
----------------------------------
Name:
--------------------------------
Title
-------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 50
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
CREDIT LYONNAIS CHICAGO BRANCH
By:
-------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
<PAGE> 51
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 52
<PAGE> 53
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE FIRST NATIONAL BANK OF CHICAGO
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 54
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE FUJI BANK, LIMITED
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 55
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
GULF INTERNATIONAL BANK B.S.C.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 56
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
HIBERNIA NATIONAL BANK
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 57
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 58
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 59
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE NORTHERN TRUST COMPANY
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE> 60
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
CO_PERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE> 61
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
SOCIETE GENERALE
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE> 62
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
TORONTO DOMINION (TEXAS), INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE> 63
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
UNION BANK OF CALIFORNIA, N.A.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
<PAGE> 64
SIGNATURE PAGE TO SECOND AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF JULY 2, 1998
THE ASAHI BANK, LTD., NEW YORK BRANCH
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 65
THIRD AMENDMENT TO THE CREDIT AGREEMENT
THIS THIRD AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment") is
entered into as of December 31, 1998 among FRUIT OF THE LOOM, INC., a Delaware
corporation (the "Borrower"), certain Subsidiaries of the Borrower as
Guarantors, the Lenders party hereto and NATIONSBANK, N.A., as Administrative
Agent for the Lenders (the "Administrative Agent"). Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in the
Credit Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrower, the Guarantors, the Lenders and the
Administrative Agent entered into that certain Credit Agreement, dated as of
September 19, 1997 (as amended by that certain First Amendment to the Credit
Agreement dated as of March 26, 1998 (the "First Amendment"), that certain
Second Amendment to the Credit Agreement dated as of July 2, 1998 and as further
amended or modified from time to time, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Lenders agree to amend
certain terms of the Credit Agreement;
WHEREAS, the Required Lenders have agreed to such amendments to the
Credit Agreement as more fully set forth below:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
A G R E E M E N T
1. Euro Conversion. A new Section 3.17 is added to the Credit Agreement
to read as follows:
3.17. Euro Conversion
(a) If, as a result of the implementation of the
European economic and monetary union ("EMU"), (i) any currency
available for borrowing under this Credit Agreement (a
"national currency") ceases to be lawful currency of the state
issuing the same and is replaced by a European single or
common currency (the "Euro") or (ii) any national currency and
the Euro are at the same time both recognized by the central
bank or comparable governmental authority of the state issuing
such currency as lawful currency of such state, then any
amount payable hereunder by any party hereto in such national
currency (including,
<PAGE> 66
without limitation, any Loan to be made under this Credit
Agreement) shall instead be payable in the Euro and the amount
so payable shall be determined by redenominating or converting
such amount into the Euro at the exchange rate officially
fixed by the European Central Bank for the purpose of
implementing the EMU; provided, that to the extent any EMU
legislation provides that an amount denominated either in the
Euro or in the applicable national currency can be paid either
in Euros or in the applicable national currency, each Credit
Party shall be entitled to pay or repay such amount in Euros
or in the applicable national currency. Prior to the
occurrence of the event or events described in clause (i) or
(ii) of the preceding sentence, each amount payable hereunder
in any such national currency will, except as otherwise
provided herein, continue to be payable only in that national
currency.
(b) The Borrower shall, from time to time, at the
request of the Administrative Agent, pay to the Administrative
Agent for the account of each Lender the amount of any cost or
increased cost incurred by, or of any reduction in any amount
payable to or in the effective return on its capital to, or of
interest or other return foregone by, such Lender or any
holding company of such Lender as a result of the introduction
of, changeover to or operation of the Euro in any applicable
state.
(c) In addition, this Credit Agreement (including,
without limitation, the definition of London Interbank Offered
Rate) will be amended to the extent determined by the
Administrative Agent (acting reasonably and in consultation
with the Borrower) to be necessary to reflect such
implementation of the EMU and change in currency and to put
the Lenders and the Borrower in the same position, so far as
possible, that they would have been in if such implementation
and change in currency had not occurred. Except as provided in
the foregoing provisions of this Section 3.17, no such
implementation or change in currency nor any economic
consequences resulting therefrom shall (i) give rise to any
right to terminate prematurely, contest, cancel, rescind,
alter, modify or renegotiate the provisions of this Credit
Agreement or (ii) discharge, excuse or otherwise affect the
performance of any obligations of any Credit Party under this
Credit Agreement, the Notes or any of the other Credit
Documents.
2. Sections 3.15 and 3.16. Each of Section 3.15 and Section 3.16 of the
Credit Agreement is amended to add the words "or 3.17" after the word "3.14" in
the second line of each of those Sections.
3. Reorganization. Pursuant to the First Amendment, the Lenders
consented to the Reorganization if, among other things, the Reorganization
occurred on or before December 31, 1998 and the Reorganization occurred on terms
substantially identical to those set forth in the
2
<PAGE> 67
Form S-4 filed by the Parent with the Securities and Exchange Commission on
February 10, 1998. Subject to the other conditions set forth in paragraph 6 of
the First Amendment, the Lenders reaffirm their consent to the Reorganization if
(a) the Reorganization occurs on or before December 31, 1999 and (b) the
Reorganization occurs on terms substantially identical to those set forth in the
Amended and Restated Form S-4 filed by the Parent with the Securities and
Exchange Commission on September 16, 1998.
4. Conditions Precedent. The effectiveness of this Amendment is subject
to receipt by the Administrative Agent of the following:
(a) copies of this Amendment duly executed by the Credit
Parties and the Required Lenders.
(b) certified copies of resolutions or authorization of each
Credit Party approving and adopting this Amendment, the transactions
contemplated herein and authorizing execution and delivery hereof.
(c) an opinion or opinions from counsel to the Credit Parties,
in form and substance satisfactory to the Administrative Agent,
addressed to the Administrative Agent on behalf of the Lenders and
dated as of the date hereof.
5. Ratification of Credit Agreement. The term "Credit Agreement" as
used in each of the Credit Documents shall hereafter mean the Credit Agreement
as amended by this Amendment. Except as herein specifically agreed, the Credit
Agreement is hereby ratified and confirmed and shall remain in full force and
effect according to its terms.
6. Authority/Enforceability. Each of the Credit Parties, the
Administrative Agent and the Lenders represents and warrants as follows:
(a) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(b) This Amendment has been duly executed and delivered by
such Person and constitutes such Person's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by such Person of this Amendment.
3
<PAGE> 68
7. No Default. The Credit Parties represent and warrant to the Lenders
that (a) the representations and warranties of the Credit Parties set forth in
Section 6 of the Credit Agreement are true and correct as of the date hereof and
(b) no event has occurred and is continuing which constitutes a Default or an
Event of Default except as is being cured by the execution and delivery of this
Amendment.
8. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of
executed counterparts by telecopy shall be effective as an original and shall
constitute a representation that an original will be delivered.
9. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
[remainder of page intentionally left blank]
4
<PAGE> 69
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
BORROWER:
- ---------
FRUIT OF THE LOOM, INC.,
a Delaware corporation
By:
----------------------------------------
Name: Brian J. Hanigan
Title: Vice President and Treasurer
GUARANTORS:
- -----------
UNION UNDERWEAR COMPANY, INC.,
a New York corporation
ALICEVILLE COTTON MILL, INC.,
an Alabama corporation
THE B.V.D. LICENSING CORPORATION,
a Delaware corporation
FAYETTE COTTON MILL, INC.,
an Alabama corporation
FOL CARIBBEAN CORPORATION,
a Delaware corporation
FRUIT OF THE LOOM ARKANSAS, INC.,
an Arkansas corporation
FRUIT OF THE LOOM CARIBBEAN, INC.,
a Delaware corporation
FRUIT OF THE LOOM, INC.,
<PAGE> 70
a New York corporation
FRUIT OF THE LOOM TEXAS, INC.,
a Texas corporation
FTL SALES COMPANY, INC.,
a New York corporation
GITANO FASHIONS LIMITED,
a Delaware corporation
GREENVILLE MANUFACTURING, INC.,
a Mississippi corporation
JET SEW TECHNOLOGIES, INC.,
a New York corporation
MARTIN MILLS, INC.,
a Louisiana corporation
PRO PLAYER, INC.,
a New York corporation
RABUN APPAREL, INC.,
a Georgia corporation
RUSSELL HOSIERY MILLS, INC.,
a North Carolina corporation
SALEM SPORTSWEAR CORPORATION,
a Delaware corporation
SHERMAN WAREHOUSE CORPORATION,
a Mississippi corporation
<PAGE> 71
UNION SALES, INC.,
a Delaware corporation
UNION YARN MILLS, INC.,
an Alabama corporation
WHITMIRE MANUFACTURING, INC.,
a South Carolina corporation
WINFIELD COTTON MILL, INC.,
an Alabama corporation
FTL REGIONAL SALES COMPANY, INC.,
a Delaware corporation
LEESBURG YARN MILLS, INC.,
an Alabama corporation
SALEM SPORTSWEAR, INC.,
a New Hampshire corporation
FRUIT OF THE LOOM TRADING COMPANY,
a Delaware corporation
DEKALB KNITTING CORPORATION,
an Alabama corporation
By:
-----------------------------------------
Name: Brian J. Hanigan
Title: Vice President and a Financial Officer
of each of the foregoing entities
identified as a Guarantor
<PAGE> 72
LENDERS:
- --------
NATIONSBANK, N.A.,
individually in its capacity as a Lender and
in its capacity as Administrative Agent and
Collateral Agent
By:
----------------------------------------
Name: Lisa S. Donoghue
Title: Senior Vice President
<PAGE> 73
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
BANKERS TRUST COMPANY
By:
Name:
Title:
<PAGE> 74
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE BANK OF NEW YORK
By:
Name:
Title:
<PAGE> 75
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE BANK OF NOVA SCOTIA
By:
Name:
Title:
<PAGE> 76
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE CHASE MANHATTAN BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 77
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
ABN AMRO BANK N.V.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 78
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
BANK AUSTRIA AG, NEW YORK BRANCH
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 79
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
BANK OF AMERICA NT & SA
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 80
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
CREDIT AGRICOLE INDOSEUZ
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 81
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
CREDIT LYONNAIS CHICAGO BRANCH
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 82
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 83
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE FIRST NATIONAL BANK OF CHICAGO
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 84
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE FUJI BANK, LIMITED
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 85
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
GULF INTERNATIONAL BANK B.S.C.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 86
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
HIBERNIA NATIONAL BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 87
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 88
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 89
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE NORTHERN TRUST COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 90
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
CO_PERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 91
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
SOCIETE GENERALE
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 92
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
TORONTO DOMINION (TEXAS), INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 93
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
UNION BANK OF CALIFORNIA, N.A.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 94
SIGNATURE PAGE TO THIRD AMENDMENT TO FRUIT OF THE LOOM
CREDIT AGREEMENT DATED AS OF DECEMBER 31, 1998
THE ASAHI BANK, LTD., NEW YORK BRANCH
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 95
FOURTH AMENDMENT TO THE CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO THE CREDIT AGREEMENT (this "Amendment") is
entered into as of March 10, 1999 among FRUIT OF THE LOOM, INC., a Delaware
corporation (the "Borrower"), Fruit of the Loom, Ltd., a Cayman Islands company
(the "Parent") and certain Subsidiaries of the Borrower as Guarantors, the
Lenders party hereto and NATIONSBANK, N.A., as Administrative Agent for the
Lenders (the "Administrative Agent"). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in the Credit
Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrower, the Guarantors (other than the Parent), the
Lenders and the Administrative Agent entered into that certain Credit Agreement,
dated as of September 19, 1997 (as amended by that certain First Amendment to
the Credit Agreement dated as of March 26, 1998, that certain Second Amendment
to the Credit Agreement dated as of July 2, 1998, that certain Third Amendment
to the Credit Agreement dated as of December 31, 1998 and as further amended or
modified from time to time, the "Credit Agreement");
WHEREAS, by execution of a joinder agreement dated as of the date
hereof, the Parent has been added as a Guarantor and Credit Party to the Credit
Agreement;
WHEREAS, the Borrower has requested that the Lenders agree to amend
certain terms of the Credit Agreement;
WHEREAS, the Required Lenders have agreed to such amendments to the
Credit Agreement as more fully set forth below:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
A G R E E M E N T
1. Definitions.
(a) New Definitions. The following definitions are added to
Section 1.1 of the Credit Agreement, in the appropriate alphabetical order, to
read as follows:
"Bond Pledge Agreement" means that certain Bond Pledge
Agreement (as amended, modified, extended, renewed or restated from
time to time) executed
<PAGE> 96
and delivered by the Credit Parties in favor of the Collateral Agent
for the benefit of the Lenders, the Noteholders and the Farley
Creditors.
"Bridge Facility" means that certain Indebtedness, if any,
incurred by the Borrower, in an aggregate amount up to $250 million, to
repurchase the 7.875% Senior Notes due October 15, 1999.
"Farley Creditors" means the holders of that certain
Indebtedness, in an aggregate amount up to $65 million, to William
Farley that is unconditionally guaranteed in full by the Borrower and
its Material Domestic Subsidiaries.
"Security Agreement" means that certain Security Agreement (as
amended, modified, extended, renewed or restated from time to time)
executed and delivered by the Credit Parties in favor of the Collateral
Agent for the benefit of the Lenders, the Noteholders and the Farley
Creditors; provided that it is understood that the Security Agreement
will only be effective subsequent to any date that the Unsecured Senior
Debt Rating is BB- or worse from S&P and Ba3 or worse from Moody's, as
more fully described in the Security Agreement.
(b) Applicable Percentage. The pricing grid set forth in the
definition of "Applicable Percentage" in Section 1.1 of the Credit Agreement is
amended and restated in its entirety to read as follows:
2
<PAGE> 97
<TABLE>
<CAPTION>
Applicable Applicable Applicable
Percentage for Applicable Percentage Percentage Applicable
Unsecured Revolving-A Percentage for Letter for Revolving-A Percentage
Pricing Leverage Senior Eurocurrency for Term of Credit for Facility Base Rate
Level Ratio Debt Loans Loans Fees Fees Loans
Rating
<S> <C> <C> <C> <C> <C> <C> <C>
I N/A => BBB+ .675% .875% .675% .20% 0%
from S&P
or Baa1
from
Moody's
II N/A => BBB .775% 1.00% .775% .225% 0%
from S&P
or Baa2
from
Moody's
but <
BBB+ from
S&P or
Baa1 from
Moody's
III => 2.0 => BBB- 1.00% 1.25% 1.00% .25% 0%
to 1.0 from S&P
but < or Baa3
2.5 to from
1.0 Moody's
but < BBB
from S&P
or Baa2
from
Moody's
IV => 2.5 => BB+ 1.125% 1.50% 1.125% .375% 0%
to 1.0 from S&P
but < or Ba1
3.25 to from
1.0 Moody's
but <
BBB- from
S&P or
Baa3 from
Moody's
V => 3.25 => BB 1.375% 1.75% 1.375% .375% .25%
to 1.0 from S&P
but < or Ba2
4.0 to from
1.0 Moody's
but < BB+
from S&P
or Ba1
from
Moody's
VI => 4.0 <= BB- 1.50% 2.00% 1.50% .50% .50%
to 1.0 from S&P
or Ba3
from
Moody's
</TABLE>
3
<PAGE> 98
(c) The definition of "Collateral Documents" set forth in
Section 1.1 of the Credit Agreement is amended and restated in its
entirety to read as follows:
Collateral Documents means the Pledge Agreements, the
Bond Pledge Agreement, the Security Agreement and such other
documents executed and delivered in connection with the
attachment and perfection of the Lenders' security interest in
the Collateral, including, without limitation, UCC financing
statements; provided, however, it is understood that certain
Collateral Documents will only be effective as set forth in
the terms thereof.
(d) Interest Expense. The definition of "Interest Expense" set
forth in Section 1.1 of the Credit Agreement is amended and restated in
its entirety to read as follows:
"Interest Expense" means, for any period, with
respect to the Credit Parties and their Subsidiaries on a
consolidated basis, all net interest expense (defined as
interest expense less interest income), including the interest
component under Capital Leases, as determined in accordance
with GAAP.
(e) Permitted Liens. Clause (n) set forth in the definition of
"Permitted Liens" in Section 1.1 of the Credit Agreement is amended and
restated in its entirety to read as follows:
(n) Liens in connection with Indebtedness permitted by Section
8.1(l)
(f) The definition of "Pledge Agreements" in Section 1.1 of
the Credit Agreement is amended and restated in its entirety to read as
follows:
"Pledge Agreements" means any Pledge Agreement (or
any amended and restated pledge agreement) executed and
delivered by the Credit Parties in favor of the Collateral
Agent, for the benefit of the Lenders, some or all of the
Noteholders and the Farley Creditors; provided that it is
understood that the Pledge Agreements will be effective only
during a Collateral Period.
4
<PAGE> 99
2. Financial Covenants. Section 7.2 of the Credit Agreement is amended
and restated in its entirety to read as follows:
As of the end of each fiscal quarter set forth below, the
Leverage Ratio, Interest Coverage Ratio and Fixed Charge Coverage Ratio
shall satisfy the following minimum and maximum requirements:
<TABLE>
<CAPTION>
Minimum Fixed
Minimum Interest Charge Coverage
Coverage Ratio Ratio
Maximum (for the twelve-month (for the twelve-month
Fiscal Quarter Ending: Leverage Ratio period ending on such date) period ending on such date)
<S> <C> <C> <C>
March 31, 1999 4.5 to 1.0 1.75 to 1.0 2.00 to 1.0
June 30, 1999 4.75 to 1.0 1.75 to 1.0 2.00 to 1.0
September 30, 1999 4.0 to 1.0 1.75 to 1.0 2.00 to 1.0
December 31, 1999 3.25 to 1.0 2.0 to 1.0 2.25 to 1.0
March 31, 2000 3.25 to 1.0 2.25 to 1.0 2.25 to 1.0
June 30, 2000 3.25 to 1.0 2.25 to 1.0 2.25 to 1.0
September 30, 2000 3.0 to 1.0 2.50 to 1.0 2.25 to 1.0
December 31, 2000 3.0 to 1.0 2.50 to 1.0 2.25 to 1.0
and thereafter
</TABLE>
3. Use of Proceeds. Clause (a) of Section 7.10 of the Credit Agreement
is amended and restated in its entirety to read as follows:
(a)(i) to refinance, at or after maturity, existing
Indebtedness described on Schedule 6.10 (or permitted refinancings
thereof), (ii) to refinance any amounts outstanding under the Bridge
Facility at the maturity thereof or thereafter and (iii) to repurchase
any of the 7.875% Senior Notes due October 15, 1999 that a holder
thereof requires the Borrower to purchase if the Borrower has
successfully issued unsecured notes in an amount not less than the
amount to be repurchased.
4. Real Estate Collateral. A new Section 7.14 is added to the Credit
Agreement to read as follows:
7.14 REAL ESTATE COLLATERAL.
If the Unsecured Senior Debt Rating is BB- or worse from S&P
and Ba3 or worse from Moody's, then the Borrower agrees to pledge all
of its domestic real property as collateral for the Credit Party
Obligations and shall deliver such mortgages, deeds of trust, title
insurance policies, surveys, appraisals, flood certificates,
environmental reports, opinions and other documents with respect
thereto as requested by the Collateral Agent or the Required Lenders.
5. Indebtedness.
(a) Clause (i) of Section 8.1 of the Credit Agreement is amended and
restated in its entirety to read as follows:
5
<PAGE> 100
(i) Indebtedness in the form of unsecured notes as long as,
substantially concurrently with the issuance thereof, the proceeds are
used (A) first to repay any amounts outstanding under the Bridge
Facility and (B) second, to repay Revolving-A Loans (without any
reduction in the Revolving-A Committed Amount).
(b) Clause (l) of Section 8.1 of the Credit Agreement is amended and
restated in its entirety to read as follows:
(l) other Indebtedness; provided, however, that the aggregate
amount of Indebtedness permitted under this Section 8.1(l), when added
(without duplication) to the aggregate amount of sale leaseback
transactions then outstanding and permitted under Section 8.6, shall
not exceed 10% of Consolidated Net Tangible Assets (it being understood
that the calculation of each such aggregate amount will not include
Indebtedness outstanding and permitted under Sections 8.1(a)-(k),
including Indebtedness listed on Schedule 6.10 and refinancings thereof
permitted pursuant to Section 8.1(c)).
6. Restricted Payments. Clause (c) of Section 8.8 of the Credit
Agreement shall be amended to delete the words "3.5 to 1.0" set forth therein
and to insert the words "3.25 to 1.0" in substitution therefor.
7. Events of Default. Section 9.1(g) of the Credit Agreement is amended
by adding the following at the end of such Section:
provided, however, that a default under the terms of those certain
7.875% Senior Notes issued by the Borrower due October 15, 1999, solely
as a result of the Reorganization, shall not be considered to be a
Default or an Event of Default hereunder.
8. Conditions Precedent. The effectiveness of this Amendment is subject
to receipt by the Administrative Agent of the following:
(a) copies of this Amendment duly executed by the Credit
Parties and the Required Lenders.
(b) certified copies of resolutions or authorization of each
Credit Party approving and adopting this Amendment, the transactions
contemplated herein and authorizing execution and delivery hereof.
(c) an opinion or opinions from counsel to the Credit Parties,
in form and substance satisfactory to the Administrative Agent,
addressed to the Administrative Agent on behalf of the Lenders and
dated as of the date hereof.
6
<PAGE> 101
(d) an amended and restated Pledge Agreement duly executed by
the Credit Parties, in form and substance acceptable to the Collateral
Agent.
(e) a Security Agreement duly executed by the Credit Parties,
in form and substance acceptable to the Collateral Agent.
(f) a Bond Pledge Agreement duly executed by the Credit
Parties, in form and substance acceptable to the Collateral Agent.
(g) the execution and delivery of such UCC financing
statements or the taking of such other actions as the Collateral Agent
may reasonably request in order to perfect the Lenders' security
interest in the Collateral .
(h) the payment of an amendment fee to each Lender who
executes this Amendment of .25% of its current total Commitment and the
payment of such other fees as agreed to between the Borrower and the
Administrative Agent.
9. Ratification of Credit Agreement. The term "Credit Agreement" as
used in each of the Credit Documents shall hereafter mean the Credit Agreement
as amended by this Amendment. Except as herein specifically agreed, the Credit
Agreement is hereby ratified and confirmed and shall remain in full force and
effect according to its terms.
10. Authority/Enforceability. Each of the Credit Parties, the
Administrative Agent and the Lenders represents and warrants as follows:
(a) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(b) This Amendment has been duly executed and delivered by
such Person and constitutes such Person's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by such Person of this Amendment.
11. No Default/Release. The Credit Parties represent and warrant to the
Lenders that (a) the representations and warranties of the Credit Parties set
forth in Section 6 of the Credit Agreement are true and correct as of the date
hereof, (b) no event has occurred and is continuing which constitutes a Default
or an Event of Default except as is being cured by the execution and delivery of
this Amendment and (c) they have no claims, counterclaims, offsets, credits or
7
<PAGE> 102
defenses to their obligations under the Credit Documents or to the extent they
have any they are hereby released in consideration of the Required Lenders
entering into this Amendment.
12. Counterparts/Telecopy. This Amendment may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
Delivery of executed counterparts by telecopy shall be effective as an original
and shall constitute a representation that an original will be delivered.
13. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
[remainder of page intentionally left blank]
8
<PAGE> 103
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
BORROWER:
- ---------
FRUIT OF THE LOOM, INC.,
a Delaware corporation
By:
---------------------------------------
Name: Brian J. Hanigan
Title: Vice President and Treasurer
GUARANTORS:
- -----------
FRUIT OF THE LOOM, LTD.,
a Cayman Islands company
UNION UNDERWEAR COMPANY, INC.,
a New York corporation
ALICEVILLE COTTON MILL, INC.,
an Alabama corporation
THE B.V.D. LICENSING CORPORATION,
a Delaware corporation
FAYETTE COTTON MILL, INC.,
an Alabama corporation
FOL CARIBBEAN CORPORATION,
a Delaware corporation
FRUIT OF THE LOOM ARKANSAS, INC.,
an Arkansas corporation
FRUIT OF THE LOOM CARIBBEAN, INC.,
a Delaware corporation
<PAGE> 104
FRUIT OF THE LOOM, INC.,
a New York corporation
FRUIT OF THE LOOM TEXAS, INC.,
a Texas corporation
FTL SALES COMPANY, INC.,
a New York corporation
GITANO FASHIONS LIMITED,
a Delaware corporation
GREENVILLE MANUFACTURING, INC.,
a Mississippi corporation
JET SEW TECHNOLOGIES, INC.,
a New York corporation
MARTIN MILLS, INC.,
a Louisiana corporation
PRO PLAYER, INC.,
a New York corporation
RABUN APPAREL, INC.,
a Georgia corporation
RUSSELL HOSIERY MILLS, INC.,
a North Carolina corporation
<PAGE> 105
SALEM SPORTSWEAR CORPORATION,
a Delaware corporation
SHERMAN WAREHOUSE CORPORATION,
a Mississippi corporation
UNION SALES, INC.,
a Delaware corporation
UNION YARN MILLS, INC.,
an Alabama corporation
WHITMIRE MANUFACTURING, INC.,
a South Carolina corporation
WINFIELD COTTON MILL, INC.,
an Alabama corporation
FTL REGIONAL SALES COMPANY, INC.,
a Delaware corporation
LEESBURG YARN MILLS, INC.,
an Alabama corporation
SALEM SPORTSWEAR, INC.,
a New Hampshire corporation
FRUIT OF THE LOOM TRADING COMPANY,
a Delaware corporation
<PAGE> 106
DEKALB KNITTING CORPORATION,
an Alabama corporation
By:
-----------------------------------------------
Name: Brian J. Hanigan
Title: Vice President and a Financial Officer
of each of the foregoing entities
identified as a Guarantor
<PAGE> 107
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a Lender and in
its capacity as Administrative Agent and Collateral
Agent
By:
------------------------------------------
Name: Lisa S. Donoghue
Title: Senior Vice President
<PAGE> 108
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
BANKERS TRUST COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 109
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE BANK OF NEW YORK
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 110
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE BANK OF NOVA SCOTIA
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 111
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE CHASE MANHATTAN BANK
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 112
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
ABN AMRO BANK N.V.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 113
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 114
SIGNATURE PAGE TO FOURTH AMENDMENT
TO FRUIT OF THE LOOM CREDIT AGREEMENT
BANK OF AMERICA NT & SA
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 115
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
CREDIT AGRICOLE INDOSEUZ
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 116
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
CREDIT LYONNAIS CHICAGO BRANCH
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 117
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
CREDIT SUISSE FIRST BOSTON
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 118
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE FIRST NATIONAL BANK OF CHICAGO
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 119
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE FUJI BANK, LIMITED
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 120
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
GULF INTERNATIONAL BANK B.S.C.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 121
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
HIBERNIA NATIONAL BANK
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 122
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 123
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 124
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE NORTHERN TRUST COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 125
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
CO_PERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 126
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
SOCIETE GENERALE
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 127
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
TORONTO DOMINION (TEXAS), INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 128
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
UNION BANK OF CALIFORNIA, N.A.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 129
SIGNATURE PAGE TO FOURTH AMENDMENT TO
FRUIT OF THE LOOM CREDIT AGREEMENT
THE ASAHI BANK, LTD., NEW YORK BRANCH
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 130
SECOND AMENDED AND RESTATED
PLEDGE AGREEMENT
THIS SECOND AMENDED AND RESTATED PLEDGE AGREEMENT (this "Pledge
Agreement") is entered into as of March 10, 1999 among FRUIT OF THE LOOM, INC.,
a Delaware corporation ("Fruit of the Loom"), Fruit of the Loom, Ltd., a Cayman
Islands company (the "Parent") and certain Subsidiaries of Fruit of the Loom as
set forth on the signature pages hereto and as may from time to time become a
party hereto (together with Fruit of the Loom, individually a "Pledgor," and
collectively the "Pledgors") and NATIONSBANK, N.A., in its capacity as
collateral agent (in such capacity, the "Collateral Agent") for the Secured
Parties (as defined below).
RECITALS
WHEREAS, pursuant to that certain Credit Agreement dated as of
September 19, 1997 (as amended, modified, extended, renewed or replaced from
time to time and to which the Parent, by execution of a joinder agreement dated
as of March 10, 1999, has been added as a guarantor, the "Fruit of the Loom
Agreement") among Fruit of the Loom as borrower, the guarantors thereunder, the
lenders party thereto (the "Fruit of the Loom Lenders") and the Collateral
Agent, the Fruit of the Loom Lenders agreed to extend credit to Fruit of the
Loom upon the terms and subject to the conditions set forth therein; and
WHEREAS, pursuant to (a) that certain Indenture dated March 15, 1981
evidencing 7% Debentures issued by Northwest Industries, Inc. (predecessor in
interest to Fruit of the Loom) due March 15, 2011 in the original face amount of
$125,000,000, (b) that certain Indenture dated November 30, 1993 evidencing 6
1/2% Notes due 2003 issued by Fruit of the Loom in the original face amount of
$150,000,000 and (c) that certain Indenture dated November 30, 1993 evidencing 7
3/8% Debentures due 2023 issued by Fruit of the Loom in the original face amount
of $150,000,000 (collectively, the "Senior Note Indentures"), the holders of the
Senior Note Indentures (collectively, the "Noteholders") extended credit to
Fruit of the Loom upon the terms and subject to the conditions set forth
therein; and
WHEREAS, pursuant to that certain Credit Agreement to be entered into
as of March 24, 1999 (as amended, modified, extended, renewed or replaced from
time to time, the "Farley Agreement") among William Farley as borrower,
NationsBank, N.A. as administrative agent, Credit Suisse First Boston as
syndication agent and the lenders party thereto (the "Farley Lenders"), the
Farley Lenders are agreeing to extend credit to William Farley; provided, among
other conditions, that Fruit of the Loom, certain of its Subsidiaries and the
Parent execute that certain Guaranty of Payment (the "Farley Guaranty") to be
entered into as of March 24, 1999 in favor of NationsBank, N.A. as
Administrative Agent for the Farley Lenders, for the benefit of William Farley;
and
WHEREAS, pursuant to the terms of the Fruit of the Loom Agreement, the
Senior Note Indentures and the Farley Guaranty, the Pledgors are obligated to
secure their obligations to the Fruit of the Loom Lenders, the Noteholders and
the Farley Lenders, respectively, in accordance with the terms of this Pledge
Agreement; and
<PAGE> 131
WHEREAS, NationsBank, N.A. is acting as collateral agent for the
Secured Parties pursuant to the terms of this Pledge Agreement.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Fruit of the Loom Agreement or,
if the context so requires, in the respective Senior Credit Documents. As used
in this Pledge Agreement, the following terms shall have the meanings specified
below unless the context otherwise requires:
"Bank Credit Documents" means, collectively, the Credit Documents as
defined in the Fruit of the Loom Agreement and the Credit Documents, including,
without limitation, the Farley Guaranty, as defined in the Farley Agreement.
"Hedging Agreements" means, collectively, all interest rate protection
agreements, foreign currency exchange agreements, commodity purchase or option
agreements or other interest or exchange rate or commodity price hedging
agreements, in each case, entered into or purchased by Pledgor.
"Permitted Liens" means, collectively, all Permitted Liens as defined
in the Fruit of the Loom Agreement, all Permitted Liens as defined in the Farley
Agreement and all Permitted Liens as defined in any Senior Note Indenture.
"Required Lenders" has the meaning ascribed to such term in the Fruit
of the Loom Agreement.
"Secured Parties" means, collectively, the Noteholders, the Fruit of
the Loom Lenders, the Farley Lenders and any Affiliate of a Fruit of the Loom
Lender or a Farley Lender which has entered into a Hedging Agreement with a
Pledgor and "Secured Party" means any one of them.
"Senior Credit Documents" means the collective reference to the Bank
Credit Documents, the Senior Note Indentures and the Hedging Agreements.
2. Pledge and Grant of Security Interest. Subject to Sections 27, 28
and 30 hereof, to secure the prompt payment and performance in full when due,
whether by lapse of time or otherwise, of the Pledgor Obligations (as defined in
Section 3 hereof), each Pledgor hereby pledges and assigns to the Collateral
Agent, for the benefit of the Secured Parties, and grants to the Collateral
Agent, for the benefit of the Secured Parties, a continuing security interest in
any and all right, title and interest of such Pledgor in and to the following,
whether now owned or existing or owned, acquired, or arising hereafter
(collectively, the "Pledged Collateral"):
(a) Pledged Shares. (i) 100% (or, if less, the full
amount owned by such Pledgor) of the issued and outstanding shares of
capital stock owned by such Pledgor of each Material Domestic
Subsidiary as more fully described on Schedule 2(a) attached hereto and
(ii) 65% (or, if less, the full amount owned by such Pledgor) of the
issued and
2
<PAGE> 132
outstanding shares of each class of capital stock or other ownership
interests entitled to vote (within the meaning of Treas. Reg. Section
1.956-2(c)(2)) ("Voting Equity") owned by such Pledgor of each Material
First Tier Foreign Subsidiary as more fully described on Schedule 2(a)
attached hereto, in each case together with the certificates (or other
agreements or instruments), if any, representing such shares, and all
options and other rights, contractual or otherwise, with respect
thereto (collectively, together with the shares of capital stock
described in Sections 2(b) and 2(c) below, the "Pledged Shares"),
including, but not limited to, the following:
(A) all shares or securities representing a dividend
on any of the Pledged Shares, or representing a distribution
or return of capital upon or in respect of the Pledged Shares,
or resulting from a stock split, revision, reclassification or
other exchange therefor, and any subscriptions, warrants,
rights or options issued to the holder of, or otherwise in
respect of, the Pledged Shares; and
(B) without affecting the obligations of such Pledgor
under any provision prohibiting such action hereunder, in the
event of any consolidation or merger in which a Subsidiary of
a Pledgor is not the surviving corporation, 100% (or, if less,
the full amount owned by such Pledgor) of the issued and
outstanding shares of capital stock owned by such Pledgor of
the successor corporation of a Material Domestic Subsidiary
formed by or resulting from such consolidation or merger and
65% (or, if less, the full amount owned by such Pledgor) of
the Voting Equity owned by such Pledgor of the successor
corporation of a Material First Tier Foreign Subsidiary formed
by or resulting from such consolidation or merger.
(b) Additional Shares. 100% (or, if less, the full amount
owned by such Pledgor) of the issued and outstanding shares of capital
stock owned by such Pledgor of any Person which hereafter becomes a
Material Domestic Subsidiary and 65% (or, if less, the full amount
owned by such Pledgor) of the Voting Equity owned by such Pledgor of
any Person which hereafter becomes a Material First Tier Foreign
Subsidiary, including, without limitation, the certificates
representing such shares (provided, however, that no Person that is a
Foreign Subsidiary shall be required to pledge any shares hereunder).
(c) Other Equity Interests. Any and all other equity interests
of each Pledgor in any Material Domestic Subsidiary or any Material
First Tier Foreign Subsidiary.
(d) Proceeds. All proceeds and products of the foregoing,
however and whenever acquired and in whatever form.
Without limiting the generality of the foregoing, it is hereby
specifically understood and agreed that a Pledgor may from time to time
hereafter deliver additional shares of stock to the Collateral Agent as
collateral security for the Pledgor Obligations. Upon delivery to the Collateral
Agent, such additional shares of stock shall be deemed to be part of the Pledged
Collateral of such Pledgor and shall be subject to the terms of this Pledge
Agreement whether or not Schedule 2(a) is amended to refer to such additional
shares.
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3. Security for Pledgor Obligations. The security interest created
hereby in the Pledged Collateral of each Pledgor constitutes continuing
collateral security for all of the following, whether now existing or hereafter
incurred (the "Pledgor Obligations"):
(a) The prompt performance and observance by each Pledgor of
all of its obligations under the Senior Credit Documents, including,
without limitation, all guaranty obligations arising out of Section 4
of the Fruit of the Loom Agreement, all obligations under the Farley
Guaranty, all obligations under the Senior Note Indentures and all
obligations arising under any Hedging Agreement; and
(b) All other indebtedness, liabilities and obligations of any
kind or nature, now existing or hereafter arising, owing from any
Pledgor to any Secured Party or the Collateral Agent pursuant to or in
connection with a transaction contemplated by the Senior Credit
Documents, howsoever evidenced, created, incurred or acquired, whether
primary, secondary, direct, contingent, or joint and several,
including, without limitation, all obligations and liabilities incurred
in connection with collecting and enforcing the Pledgor Obligations.
4. Delivery of the Pledged Collateral. Each Pledgor hereby agrees that:
(a) Delivery. (i) The Collateral Agent has received, on or
before the date hereof, all certificates representing the Pledged
Shares of such Pledgor and (ii) for so long as any Collateral Period
shall be in effect, each Pledgor shall, promptly upon the receipt
thereof by or on behalf of a Pledgor, all other certificates and
instruments constituting Pledged Collateral of a Pledgor. Prior to
delivery to the Collateral Agent, all such certificates and instruments
constituting Pledged Collateral of a Pledgor shall be held in trust by
such Pledgor for the benefit of the Collateral Agent pursuant hereto.
All such certificates shall be delivered in suitable form for transfer
by delivery or shall be accompanied by duly executed instruments of
transfer or assignment in blank, substantially in the form provided in
Exhibit 4(a) attached hereto.
(b) Additional Securities. For so long as any Collateral
Period shall be in effect, if such Pledgor shall receive by virtue of
its being or having been the owner of any Pledged Collateral, any (i)
stock certificate, including without limitation, any certificate
representing a stock dividend or distribution in connection with any
increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock splits,
spin-off or split-off, promissory notes or other instrument; (ii)
option or right, whether as an addition to, substitution for, or an
exchange for, any Pledged Collateral or otherwise; (iii) dividends
payable in securities; or (iv) distributions of securities in
connection with a partial or total liquidation, dissolution or
reduction of capital, capital surplus or paid-in surplus, then such
Pledgor shall receive such stock certificate, instrument, option, right
or distribution in trust for the benefit of the Collateral Agent, shall
segregate it from such Pledgor's other property and shall deliver it
forthwith to the Collateral Agent in the exact form received together
with any necessary endorsement and/or appropriate stock power duly
executed in blank, substantially in the form provided in Exhibit 4(a),
to be held by the Collateral Agent as Pledged Collateral and as further
collateral security for the Pledgor Obligations.
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(c) Financing Statements. Upon the occurrence of any
Collateral Effective Date and so long as any Collateral Period shall be
in effect, each Pledgor shall execute and deliver to the Collateral
Agent such Uniform Commercial Code or other applicable financing
statements or other documents as may be reasonably requested by the
Collateral Agent in order to perfect and protect the security interest
created hereby in the Pledged Collateral of such Pledgor.
5. Representations and Warranties. Each Pledgor hereby represents and
warrants to the Collateral Agent, for the benefit of the Secured Parties, that
so long as any Collateral Period shall be in effect:
(a) Authorization of Pledged Shares. The Pledged Shares are
duly authorized and validly issued, are fully paid and nonassessable,
except as set forth on Schedule 6.15 to the Fruit of the Loom
Agreement, and are not subject to the preemptive rights of any Person.
All other shares of stock constituting Pledged Collateral will be duly
authorized and validly issued, fully paid and nonassessable, except as
set forth on Schedule 6.15 to the Fruit of the Loom Agreement, and not
subject to the preemptive rights of any Person.
(b) Title. Each Pledgor has good and indefeasible title to the
Pledged Collateral of such Pledgor and will at all times be the legal
and beneficial owner of such Pledged Collateral free and clear of any
Lien, other than Permitted Liens. There exists no "adverse claim"
within the meaning of Section 8-302 of the Uniform Commercial Code as
in effect in the State of North Carolina (the "UCC") with respect to
the Pledged Shares of such Pledgor.
(c) Exercising of Rights. To its knowledge, the exercise by
the Collateral Agent of its rights and remedies hereunder will not
violate any law or governmental regulation or any material contractual
restriction binding on or affecting a Pledgor or any of its property.
(d) Pledgor's Authority. Except for authorizations, approvals
or actions which have been obtained, or notices or filings which have
been made, and unless the failure to obtain any such authorization,
approval or action, or to make any such notice or filing, would not
have or be reasonably expected to impair the validity of the pledges
and grants of security interests pursuant to Section 2 hereof, no
authorization, approval or action by, and no notice or filing with any
Governmental Authority or with the issuer of any Pledged Stock is
required either (i) for the pledge made by a Pledgor or for the
granting of the security interest by a Pledgor pursuant to this Pledge
Agreement or (ii) for the exercise by the Collateral Agent or the
Secured Parties of their rights and remedies hereunder (except as may
be required by laws affecting the offering and sale of securities).
(e) Security Interest/Priority. This Pledge Agreement creates
a valid security interest in favor of the Collateral Agent, for the
benefit of the Secured Parties, in the Pledged Collateral. The taking
possession by the Collateral Agent of the certificates representing the
Pledged Shares and all other certificates and instruments constituting
Pledged Collateral will perfect and establish the first priority of the
Collateral Agent's security interest in the Pledged Shares and, when
properly perfected by filing, registration
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or otherwise pursuant to the applicable laws of all relevant
jurisdictions, in all other Pledged Collateral represented by such
Pledged Shares and instruments securing the Pledgor Obligations. Except
as set forth in this Section 5(e), no action is necessary to perfect or
otherwise protect such security interest.
(f) No Other Shares. No Pledgor owns any shares of stock
required to be pledged hereunder other than as set forth on Schedule
2(a) attached hereto.
(g) Name; Chief Executive Office; Books and Records. Each
Pledgor's legal name is as shown in this Pledge Agreement and no
Pledgor has in the past four months changed its name or been a party to
a merger, consolidation or other change in structure other than as set
forth on Schedule 5(g)(i) attached hereto. Each Pledgor's chief
executive office and chief place of business are (and for the prior
four months have been) located at the locations set forth on Schedule
5(g)(ii) attached hereto, and each Pledgor keeps its books and records
at such locations.
(h) Binding Agreement. This Pledge Agreement has been duly
authorized, executed and delivered by the Pledgors and constitutes a
legal, valid and binding obligation of the Pledgors enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy or insolvency laws or by general principles of
equity;
6. Covenants. Each Pledgor hereby covenants that, so long as any
Collateral Period shall be in effect, such Pledgor shall:
(a) Books and Records. Mark its books and records (and shall
cause the issuer of the Pledged Shares of such Pledgor to mark its
books and records) to reflect the security interest granted to the
Collateral Agent, for the benefit of the Secured Parties, pursuant to
this Pledge Agreement.
(b) Defense of Title. Warrant and defend title to and he
claims and demands of all other parties claiming an interest therein,
keep the Pledged Collateral free from all Liens, except for Permitted
Liens, and not sell, exchange, transfer, assign, lease or, otherwise
dispose of Pledged Collateral of such Pledgor or any interest therein,
except as permitted under the respective Senior Credit Documents.
(c) Further Assurances. Promptly execute and deliver at its
expense all further instruments and documents and take all further
action that may be necessary and desirable or that the Collateral Agent
may reasonably request in order to (i) perfect and protect the security
interest created hereby in the Pledged Collateral of such Pledgor
(including without limitation any and all action necessary to satisfy
the Collateral Agent that the Collateral Agent has obtained a first
priority perfected security interest in any capital stock); (ii) enable
the Collateral Agent to exercise and enforce its rights and remedies
hereunder in respect of the Pledged Collateral of such Pledgor; and
(iii) otherwise effect the purposes of this Pledge Agreement,
including, without limitation and if requested by the Collateral Agent
upon the occurrence and during the continuation of an Event of Default,
delivering to the Collateral Agent irrevocable proxies in respect of
the Pledged Collateral of such Pledgor.
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(d) Amendments. Not make or consent to any amendment or other
modification or waiver with respect to any of the Pledged Collateral of
such Pledgor or enter into any agreement or allow to exist any
restriction with respect to any of the Pledged Collateral of such
Pledgor other than pursuant hereto or as may be permitted under the
Senior Credit Documents.
(e) Compliance with Securities Laws. File all reports and
other information now or hereafter required to be filed by such Pledgor
with the United States Securities and Exchange Commission and any other
state, federal or foreign agency in connection with the ownership of
the Pledged Collateral of such Pledgor.
(f) Change in Location. Not, without providing 30 days prior
written notice to the Collateral Agent and without filing such
amendments to any previously filed financing statements as the
Collateral Agent may require, (a) change the location of its chief
executive office and chief place of business (as well as its books and
records) from the locations set forth on Schedule 5(g) hereto or (b)
change its name or be party to a merger, consolidation or other change
in structure; provided, however, that subclause (b) hereof shall not
prevent consummation of the transactions permitted under the Fruit of
the Loom Agreement so long as (i) such Pledgor remains in compliance
with the provisions of subclause (a) above and (ii) in any such event,
notice to the Collateral Agent of any such name change or merger,
consolidation or other change in structure is given, and the filing of
any such amendments to previously filed financing statements occurs,
prior to such consummation.
7. Advances by Secured Parties. On failure of any Pledgor to perform
any of the covenants and agreements contained herein, and provided that either
(a) 10 Business Days have elapsed after notice of such failure was given by the
Collateral Agent to such Pledgor or (b) prompt action by the Collateral Agent is
necessary to protect the rights of the Secured Parties in the Pledged
Collateral, the Collateral Agent may, at its sole option and in its sole
discretion, perform the same and in so doing may expend such sums as the
Collateral Agent may reasonably deem advisable in the performance thereof,
including, without limitation, the payment of any insurance premiums, the
payment of any taxes, a payment to obtain a release of a Lien or potential Lien,
expenditures made in defending against any adverse claim and all other
expenditures which the Collateral Agent or the Secured Parties may make for the
protection of the security hereof or which it or they may be compelled to make
by operation of law. All such sums and amounts so expended shall be repayable by
the Pledgors on a joint and several basis promptly upon timely notice thereof
and demand therefor, shall constitute additional Pledgor Obligations and shall
bear interest from the date said amounts are expended at the default rate
specified in Section 3.1(b) of the Fruit of the Loom Agreement for Revolving
Loans that are Base Rate Loans. No such performance of any covenant or agreement
by the Collateral Agent or the Secured Parties on behalf of any Pledgor, and no
such advance or expenditure therefor, shall relieve the Pledgors of any default
under the terms of this Pledge Agreement or any Senior Credit Document. The
Secured Parties may make any payment hereby authorized in accordance with any
bill, statement or estimate procured from the appropriate public office or
holder of the claim to be discharged without inquiry into the accuracy of such
bill, statement or estimate or into
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the validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent such payment is being contested in good faith by a Pledgor
in appropriate proceedings and against which adequate reserves are being
maintained in accordance with GAAP.
8. Events of Default.
The occurrence and continuation of an event which under any Senior
Credit Document would constitute an Event of Default shall be an Event of
Default hereunder (an "Event of Default").
9. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during the continuation thereof, the Collateral Agent and
the Secured Parties shall have, in respect of the Pledged Collateral of
any Pledgor, in addition to the rights and remedies provided herein, in
the Senior Credit Documents, or by law, the rights and remedies of a
secured party under the UCC or any other applicable law.
(b) Sale of Pledged Collateral. Upon the occurrence of an
Event of Default and during the continuation thereof, without limiting
the generality of this Section and without notice, the Collateral Agent
may, in its sole discretion, sell or otherwise dispose of or realize
upon the Pledged Collateral, or any part thereof, in one or more
parcels, at public or private sale, at any exchange or broker's board
or elsewhere, at such price or prices and on such other terms as the
Collateral Agent may deem commercially reasonable, for cash, credit or
for future delivery or otherwise in accordance with applicable law. To
the extent permitted by law, any Secured Party may in such event bid
for the purchase of such securities. Each Pledgor agrees that, to the
extent notice of sale shall be required by law and has not been waived
by such Pledgor, any requirement of reasonable notice shall be met if
notice, specifying the place of any public sale or the time after which
any private sale is to be made, is personally served on or mailed,
postage prepaid, to such Pledgor, in accordance with the notice
provisions of Section 17 hereof at least 10 Business Days before the
time of such sale. The Collateral Agent shall not be obligated to make
any sale of Pledged Collateral of such Pledgor regardless of notice of
sale having been given. The Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(c) Private Sale. Upon the occurrence of an Event of Default
and during the continuation thereof, the Pledgors recognize that the
Collateral Agent may deem it impracticable to effect a public sale of
all or any part of the Pledged Shares or any of the securities
constituting Pledged Collateral and that the Collateral Agent may,
therefore, determine to make one or more private sales of any such
securities to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire such securities for their own
account, for investment and not with a view to the distribution or
resale thereof. Each Pledgor acknowledges that any such private sale
may be at prices and on terms less favorable to the seller than the
prices and other terms which might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that such private sale shall
be deemed to have been made in a commercially reasonable manner and
that the
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Collateral Agent shall have no obligation to delay sale of any such
securities for the period of time necessary to permit the issuer of
such securities to register such securities for public sale under the
Securities Act of 1933. Each Pledgor further acknowledges and agrees
that any offer to sell such securities which has been (i) publicly
advertised on a bona fide basis in a newspaper or other publication of
general circulation in the financial community of New York, New York or
Chicago, Illinois (to the extent that such offer may be advertised
without prior registration under the Securities Act of 1933), or (ii)
made privately in the manner described above shall be deemed to involve
a "public sale" under the UCC, notwithstanding that such sale may not
constitute a "public offering" under the Securities Act of 1933, and
the Collateral Agent may, in such event, bid for the purchase of such
securities.
(d) Retention of Pledged Collateral. In addition to the rights
and remedies hereunder, upon the occurrence and during the continuance
of an Event of Default, the Collateral Agent may, after providing the
notices required by Section 9-505(2) of the UCC or otherwise complying
with the requirements of applicable law of the relevant jurisdiction,
retain all or any portion of the Pledged Collateral in satisfaction of
the Pledgor Obligations. Unless and until the Collateral Agent shall
have provided such notices, however, the Collateral Agent shall not be
deemed to have retained any Pledged Collateral in satisfaction of any
Pledgor Obligations for any reason.
(e) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which
the Collateral Agent or the Secured Parties are legally entitled, the
Pledgors shall be jointly and severally liable for the deficiency,
together with interest thereon at the default rate specified in Section
3.1(b) of the Fruit of the Loom Agreement for Revolving Loans that are
Base Rate Loans, together with the costs of collection and the
reasonable, documented fees of any attorneys employed by the Collateral
Agent to collect such deficiency. Any surplus remaining after the full
payment and satisfaction of the Pledgor Obligations shall be returned
to the Pledgors or to whomsoever a court of competent jurisdiction
shall determine to be entitled thereto.
10. Rights of the Collateral Agent.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Pledgor hereby designates and appoints the
Collateral Agent, on behalf of the Secured Parties, and each of its
designees or agents as attorney-in-fact of such Pledgor, irrevocably
and with power of substitution, with authority to take any or all of
the following actions upon the occurrence and during the continuance of
an Event of Default:
(i) to demand, collect, settle, compromise,
adjust and give discharges and releases concerning the Pledged
Collateral of such Pledgor, all as the Collateral Agent may
reasonably determine;
(ii) to commence and prosecute any actions at
any court for the purposes of collecting any of the Pledged
Collateral of such Pledgor and enforcing any other right in
respect thereof;
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(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Collateral Agent may deem reasonably
appropriate;
(iv) to pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on or
threatened against the Pledged Collateral of such Pledgor;
(v) to direct any parties liable for any payment
under any of the Pledged Collateral to make payment of any and
all monies due and to become due thereunder directly to the
Collateral Agent or as the Collateral Agent shall direct;
(vi) to receive payment of and receipt for any
and all monies, claims, and other amounts due and to become
due at any time in respect of or arising out of any Pledged
Collateral of such Pledgor;
(vii) to sign and endorse any drafts,
assignments, proxies, stock powers, verifications, notices and
other documents relating to the Pledged Collateral of such
Pledgor;
(viii) to settle, compromise or adjust any suit,
action or proceeding described above and, in connection
therewith, to give such discharges or releases as the
Collateral Agent may deem reasonably appropriate;
(ix) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, pledge agreements, affidavits, notices
and other agreements, instruments and documents that the
Collateral Agent may determine necessary in order to perfect
and maintain the security interests and liens granted in this
Pledge Agreement and in order to fully consummate all of the
transactions contemplated therein;
(x) to exchange any of the Pledged Collateral of
such Pledgor or other property upon any merger, consolidation,
reorganization, recapitalization or other readjustment of the
issuer thereof and, in connection therewith, deposit any of
the Pledged Collateral of such Pledgor with any committee,
depository, transfer agent, registrar or other designated
agency upon such terms as the Collateral Agent may determine;
(xi) to vote for a shareholder resolution, or to
sign an instrument in writing, sanctioning the transfer of any
or all of the Pledged Shares of such Pledgor into the name of
the Collateral Agent or one or more of the Secured Parties or
into the name of any transferee to whom the Pledged Shares of
such Pledgor or any part thereof may be sold pursuant to
Section 9 hereof; and
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(xii) to do and perform all such other acts and
things as the Collateral Agent may reasonably deem to be
necessary, proper or convenient in connection with the Pledged
Collateral of such Pledgor.
This power of attorney is a power coupled with an interest and shall be
irrevocable for so long as any Collateral Period shall be in effect.
The Collateral Agent shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges and options expressly
or implicitly granted to the Collateral Agent in this Pledge Agreement,
and shall not be liable for any failure to do so or any delay in doing
so. The Collateral Agent shall not be liable for any act or omission or
for any error of judgment or any mistake of fact or law in its
individual capacity or its capacity as attorney-in-fact except acts or
omissions resulting from its gross negligence or willful misconduct.
This power of attorney is conferred on the Collateral Agent solely to
protect, preserve and realize upon its security interest in Pledged
Collateral.
(b) Performance by the Collateral Agent of Pledgor's
Obligations. If any Pledgor fails to perform any agreement or
obligation contained herein and either (i) 10 Business Days have
elapsed after notice of such failure was given by the Collateral Agent
to such Pledgor or (ii) prompt action by the Collateral Agent is
necessary to protect the rights of the Secured Parties in the Pledged
Collateral, the Collateral Agent itself may perform, or cause
performance of, such agreement or obligation, and the reasonable,
documented expenses of the Collateral Agent incurred in connection
therewith shall be payable by the Pledgors on a joint and several basis
pursuant to Section 27 hereof.
(c) Assignment by the Collateral Agent. The Collateral Agent
may from time to time, subject to the provisions of the respective
Senior Credit Documents, assign the Pledgor Obligations and any portion
thereof and/or the Pledged Collateral and any portion thereof, and the
assignee shall be entitled to all of the rights and remedies of the
Collateral Agent under this Pledge Agreement in relation thereto.
(d) The Collateral Agent's Duty of Care. Other than the
exercise of reasonable care to assure the safe custody of the Pledged
Collateral while being held by the Collateral Agent hereunder, the
Collateral Agent shall have no duty or liability to preserve rights
pertaining thereto, it being understood and agreed that each of the
Pledgors shall be responsible for preservation of all rights in the
Pledged Collateral of such Pledgor, and the Collateral Agent shall be
relieved of all responsibility for Pledged Collateral upon surrendering
it or tendering the surrender of it to the Pledgors. The Collateral
Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Pledged Collateral in its possession if such
Pledged Collateral is accorded treatment substantially equal to that
which the Collateral Agent accords its own property, which shall be no
less than the treatment employed by a reasonable and prudent agent in
the industry, it being understood that the Collateral Agent shall not
have responsibility for (i) ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters
relating to any Pledged Collateral, whether or not the Collateral Agent
has or is deemed to have knowledge of such matters; or (ii) taking any
necessary steps to preserve rights against any parties with respect to
any Pledged Collateral.
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(e) Voting Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing, to the extent permitted by law,
each Pledgor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral of such
Pledgor or any part thereof for any purpose not inconsistent
with the terms of this Pledge Agreement or any Senior Credit
Document; and
(ii) Upon the occurrence and during the
continuance of an Event of Default, all rights of a Pledgor to
exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to paragraph (i) of
this Section shall cease and all such rights shall thereupon
become vested in the Collateral Agent which shall then have
the sole right to exercise such voting and other consensual
rights.
(f) Dividend Rights in Respect of the Pledged Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing and subject to Section 4(b) hereof,
each Pledgor may receive and retain any and all dividends
(other than stock dividends and other dividends constituting
Pledged Collateral which are addressed hereinabove) or
interest paid in respect of the Pledged Collateral to the
extent they are allowed under the respective Senior Credit
Documents.
(ii) Upon the occurrence and during the
continuance of an Event of Default:
(A) all rights of a Pledgor to receive the
dividends and interest payments which it would
otherwise be authorized to receive and retain
pursuant to paragraph (i) of this Section shall cease
and all such rights shall thereupon be vested in the
Collateral Agent which shall then have the sole right
to receive and hold as Pledged Collateral such
dividends and interest payments; and
(B) all dividends and interest payments
which are received by a Pledgor contrary to the
provisions of paragraph (A) of this Section shall be
received in trust for the benefit of the Collateral
Agent, shall be segregated from other property or
funds of such Pledgor, and shall be forthwith paid
over to the Collateral Agent as Pledged Collateral in
the exact form received, to be held by the Collateral
Agent as Pledged Collateral and as further collateral
security for the Pledgor Obligations.
(g) Release of Pledged Collateral. The Collateral Agent may
release any of the Pledged Collateral from this Pledge Agreement or may
substitute any of the Pledged Collateral for other Pledged Collateral
without altering, varying or diminishing in any way the force, effect,
lien, pledge or security interest of this Pledge Agreement as to any
Pledged Collateral
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not expressly released or substituted, and this Pledge Agreement shall
continue as a first priority lien on all Pledged Collateral not
expressly released or substituted.
11. Rights of Collateral Agent and Required Lenders. Following the
occurrence of an Event of Default, the Collateral Agent shall be entitled to
enforce the rights of the Secured Parties hereunder or shall take such action as
requested in writing by the Required Lenders. In the event the Collateral Agent
refuses or fails to comply with written instructions from the Required Lenders
for a period of thirty days after such written instructions shall have been
received by the Collateral Agent, any Secured Party shall (after having received
written instructions from the Required Lenders) have the right to carry out such
written instructions on behalf of the Secured Parties as a whole. No Secured
Party (other than the Collateral Agent) shall have any right in any manner
whatsoever to enforce any right under this Pledge Agreement, except as herein
provided.
12. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Pledgor
Obligations and any proceeds of any Pledged Collateral, when received by the
Collateral Agent or any of the Secured Parties in cash or its equivalent, will
be applied in reduction of the Pledgor Obligations as follows:
(a) FIRST, to the payment of all reasonable, documented
out-of-pocket costs and expenses (including without limitation
reasonable, documented attorneys' fees) of the Collateral Agent or a
Secured Party in connection with enforcing the rights of the Secured
Parties under the Senior Credit Documents and any protective advances
made by the Collateral Agent or a Secured Party, pro rata as set forth
below;
(b) SECOND, to the payment of all accrued fees and interest
payable to the Collateral Agent, the Secured Parties under the Senior
Credit Documents, pro rata as set forth below;
(c) THIRD, to the payment of the outstanding principal amount
of the Loans and unreimbursed drawings under Letters of Credit and to
the payment or cash collateralization of the outstanding LOC
Obligations under the Bank Credit Documents and the payment of all
outstanding principal amounts under the Senior Note Indentures, pro
rata as set forth below;
(d) FOURTH, to any principal amounts outstanding under Hedging
Agreements, pro rata as set forth below;
(e) FIFTH, to all other obligations which shall have become
due and payable under the Senior Credit Documents and not repaid
pursuant to clauses "FIRST" through "FOURTH" above, pro rata as set
forth below; and
(f) SIXTH, to the payment of the surplus, if any, to whomever
may be lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Secured Parties shall receive an amount
equal to its pro rata share of amounts available to be
13
<PAGE> 143
applied above (based on the proportion that the then outstanding obligations
owed by the Pledgors to such Secured Party under the Senior Credit Documents
bears to the aggregate outstanding obligations of the Pledgors to the Secured
Parties under the Senior Credit Documents); and (iii) to the extent that any
amounts available for distribution pursuant to clause "THIRD" above are
attributable to the issued but undrawn amount of outstanding Letters of Credit
under any Bank Credit Document, such amounts shall be held by the Collateral
Agent in a cash collateral account and applied (x) first, to reimburse the
Issuing Lenders under each such Bank Credit Document from time to time for any
drawings under such Letters of Credit and (y) then, following the expiration of
all such Letters of Credit, without duplication, to all other obligations of the
types described in clauses "THIRD" and "FIFTH" above. Each Pledgor irrevocably
waives the right to direct the application of such payments and proceeds and
acknowledges and agrees that the Collateral Agent shall have the continuing and
exclusive right to apply and reapply any and all such payments and proceeds in
the Collateral Agent's sole discretion, notwithstanding any entry to the
contrary upon any of its books and records.
13. Costs of Counsel/Expenses. At all times hereafter, the Pledgors
agree to promptly pay upon demand any and all reasonable, documented costs and
expenses of the Collateral Agent or the Secured Parties as necessary to protect
the Pledged Collateral or to exercise any rights or remedies under this Pledge
Agreement or with respect to any Pledged Collateral, including, without
limitation, the costs of counsel to the Collateral Agent or the Lenders. All of
the foregoing costs and expenses shall constitute Pledgor Obligations hereunder.
14. Continuing Agreement.
(a) This Pledge Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect during each
Collateral Period so long as any of the Pledgor Obligations remain
outstanding or any Senior Credit Document is in effect, and until all
of the commitments thereunder shall have terminated (other than any
obligations with respect to the indemnities and the representations and
warranties set forth in the Senior Credit Documents). Upon a Collateral
Termination Date or upon such payment and termination, this Pledge
Agreement shall no longer be effective until another Collateral
Effective Date occurs and the Collateral Agent and the Secured Parties
shall, upon the request and at the expense of the Pledgors, forthwith
release all of its liens and security interests hereunder and shall
execute and deliver all Uniform Commercial Code termination statements
and/or other documents reasonably requested by the Pledgors evidencing
such termination. Notwithstanding the foregoing, all releases and
indemnities provided hereunder shall survive termination of this Pledge
Agreement or any period which is not a Collateral Period, subject to
the provisions of the respective Senior Credit Documents.
(b) Provided a Collateral Period is then in effect, this
Pledge Agreement shall continue to be effective or be automatically
reinstated, as the case may be, if at any time payment, in whole or in
part, of any of the Pledgor Obligations is rescinded or must otherwise
be restored or returned by the Collateral Agent or any Secured Party as
a preference, fraudulent conveyance or otherwise under any bankruptcy,
insolvency or similar law, all as though such payment had not been
made; provided that in the event payment of all or any part of the
Pledgor Obligations is rescinded or must be restored or returned, all
reasonable, documented costs and expenses (including without limitation
any
14
<PAGE> 144
reasonable, documented legal fees and disbursements) incurred by the
Collateral Agent or any Secured Party in defending and enforcing such
reinstatement shall be deemed to be included as a part of the Pledgor
Obligations.
15. Amendments; Waivers; Modifications. This Pledge Agreement and the
provisions hereof may not be amended, waived, modified, changed, discharged or
terminated except by a written instrument executed by the Pledgors and the
Collateral Agent; provided that the Collateral Agent may only execute such
written instrument upon the consent of the Required Lenders (or the Fruit of the
Loom Lenders, as may be required by the terms of the Fruit of the Loom
Agreement).
16. Successors in Interest. This Pledge Agreement shall create a
continuing security interest in the Pledged Collateral and shall be binding upon
each Pledgor, its successors and assigns and shall inure, together with the
rights and remedies of the Collateral Agent and the Secured Parties hereunder,
to the benefit of the Collateral Agent and the Secured Parties and their
successors and permitted assigns; provided, however, that none of the Pledgors
may assign its rights or delegate its duties hereunder without the prior written
consent of the Required Lenders (or the Fruit of the Loom Lenders as may be
required by the terms of the Fruit of the Loom Agreement). To the fullest extent
permitted by law, each Pledgor hereby releases the Collateral Agent and each
Secured Party , and its successors and assigns, from any liability for any act
or omission relating to this Pledge Agreement or the Pledged Collateral, except
for any liability arising from the gross negligence or willful misconduct of the
Collateral Agent, or such Secured Party, or its officers, employees or agents.
17. Notices. All notices required or permitted to be given under this
Pledge Agreement shall be as follows:
to a Pledgor: [Name of Pledgor]
c/o Fruit of the Loom, Inc.
233 S. Wacker Drive, Suite 5000
Sears Tower
Chicago, Illinois 60606
Attn: Vice President and General Counsel
Telephone: (312) 876-1724
Facsimile: (312) 993-1888
with a copy to: [Name of Pledgor]
c/o Fruit of the Loom, Inc.
233 S. Wacker Drive, Suite 5000
Sears Tower
Chicago, Illinois 60606
Attn: Vice President and Treasurer
Telephone: (312) 876-1724
Facsimile: (312) 993-1888
to the
Collateral Agent: NationsBank, N.A.
Agency Services
Independence Center
15th Floor
Charlotte, North Carolina 28255
Attn: Herb Boyd
15
<PAGE> 145
Telephone: (704) 388-3225
Facsimile: (704) 386-9923
with a copy to: NationsBank, N.A.
231 South LaSalle Street
9th Floor
Chicago, Illinois 60697
Attn: Lisa Donoghue
Telephone: (312) 828-3898
Facsimile: (312) 987-0303
18. Counterparts. This Pledge Agreement may be executed in any number
of counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Pledge Agreement to produce or
account for more than one such counterpart.
19. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Pledge Agreement.
20. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
Any legal action or proceeding with respect to this Pledge Agreement
may be brought in the courts of the State of North Carolina, or of the
United States for the Western District of North Carolina, and, by
execution and delivery of this Pledge Agreement, each Pledgor hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Pledgor further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage
prepaid, to it at the address for notices pursuant to Section 17
hereof, such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of the Collateral Agent to serve
process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against any Pledgor in any other
jurisdiction.
(b) Each Pledgor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Pledge Agreement brought in the courts referred to in
16
<PAGE> 146
subsection (a) hereof and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an
inconvenient forum.
21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
22. Severability. If any provision of any of the Pledge Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
23. Entirety. This Pledge Agreement and the Senior Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Senior Credit Documents, or
the transactions contemplated herein and therein.
24. Survival. Subject to the provisions of the respective Senior Credit
Documents, all representations and warranties of the Pledgors hereunder shall
survive the execution and delivery of this Pledge Agreement and the Senior
Credit Documents, the delivery of the Notes and the making of the Loans and the
issuance of the Letters of Credit under the Fruit of the Loom Agreement, the
incurrence of obligations under the Farley Guaranty and the incurrence of
indebtedness under the Senior Note Indentures.
25. Other Security. To the extent that any of the Pledgor Obligations
are now or hereafter secured by property other than the Pledged Collateral
(including, without limitation, real and other personal property owned by a
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Collateral Agent and the Secured Parties shall have the right to proceed
against such other property, guarantee or endorsement upon the occurrence of any
Event of Default, and the Collateral Agent and the Secured Parties have the
right, in their sole discretion, to determine which rights, security, liens,
security interests or remedies the Collateral Agent and the Secured Parties
shall at any time pursue, relinquish, subordinate, modify or take with respect
thereto, without in any way modifying or affecting any of them or any of the
Collateral Agent's and the Secured Parties' rights or the Pledgor Obligations
under this Pledge Agreement, or under any of the Senior Credit Documents.
26. Other Pledge Agreements. The Pledgors hereby agree that all other
Pledge Agreements (including, without limitation, that certain Deed of Charge
Over Shares Re: FOL International dated as of October 15, 1998 between Union
Underwear Company, Inc. and NationsBank, N.A.) shall be deemed to be amended as
of the date hereof to give effect to the modifications herein, including,
without limitation, the addition of the Farley Lenders as Secured Parties under
such other Pledge Agreements.
17
<PAGE> 147
27. Joint and Several Obligations of Pledgors.
(a) Each of the Pledgors is accepting joint and several
liability hereunder in consideration of the financial accommodation to
be provided by the Secured Parties under the Senior Credit Documents,
for the mutual benefit, directly and indirectly, of each of the
Pledgors and in consideration of the undertakings of each of the
Pledgors to accept joint and several liability for the obligations of
each of them.
(b) Each of the Pledgors jointly and severally hereby
irrevocably and unconditionally accepts, not merely as a surety but
also as a co-debtor, joint and several liability with the other
Pledgors with respect to the payment and performance of all of the
Pledgor Obligations arising under this Pledge Agreement and the Senior
Credit Documents, it being the intention of the parties hereto that all
the Pledgor Obligations shall be the joint and several obligations of
each of the Pledgors without preferences or distinction among them.
(c) Notwithstanding any provision to the contrary contained
herein or in any other of the Senior Credit Documents, to the extent
the obligations of a Pledgor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of
any applicable state or federal law relating to fraudulent conveyances
or transfers) then the obligations of each Pledgor hereunder shall be
limited to the maximum amount that is permissible under applicable law
(whether federal or state and including, without limitation, the
Bankruptcy Code).
28. Effective Period. It is understood and agreed that, as of the date
hereof, a Collateral Effective Date has occurred and a Collateral Period is in
effect. However, notwithstanding anything in this Pledge Agreement to the
contrary, the pledges and grants of security interests pursuant to Section 2
hereof, and the covenants and other agreements contained herein, shall be
effective only so long as a Collateral Period is in effect and is continuing,
and upon any Collateral Termination Date such pledges, grants of security
interests, covenants and other agreements shall cease to be effective
immediately and without any further action on the part of any of the parties
hereto and shall remain without effect for so long as no subsequent Collateral
Effective Date shall occur; provided that on any such subsequent Collateral
Effective Date, such pledges, grants of security interests, covenants and other
agreements shall again become effective immediately and without any further
action on the part of any of the parties hereto and shall remain effective for
the duration of any such subsequent Collateral Period.
29. Duties of Collateral Agent.
(a) The Collateral Agent shall not have any duty or obligation
to manage, control, use, sell, dispose of or otherwise deal with the
Pledged Collateral, or, to otherwise take or refrain from taking any
action under, or in connection with, this Pledge Agreement, except, as
expressly provided by the terms and conditions of this Pledge
Agreement. The Collateral Agent may take, but shall have no obligation
to take, any and all such actions under this Pledge Agreement or
otherwise as it shall deem to be in the best interests of the Secured
Parties in order to maintain the Pledged Collateral and protect and
preserve the Pledged Collateral and the rights of the Secured Parties.
18
<PAGE> 148
(b) The Collateral Agent shall not be responsible in any
manner whatsoever for the correctness of any recitals, statements,
representations or warranties contained herein. The Collateral Agent
makes no representation as to the value or condition of the Pledged
Collateral or any part thereof, as to the title of any of the Pledgors
or any of their Subsidiaries to the Pledged Collateral, as to the
security afforded by this Pledge Agreement or, as to the validity,
execution, enforceability, legality or sufficiency of this Pledge
Agreement, and the Collateral Agent shall incur no liability or
responsibility in respect of any such matters. The Collateral Agent
shall not be required to ascertain or inquire as to the performance by
any of the Pledgors or any of their Subsidiaries of their respective
Pledgor Obligations.
(c) The Collateral Agent shall not be responsible for insuring
the Pledged Collateral, for the payment of taxes, charges, assessments
or liens upon the Pledged Collateral or otherwise as to the maintenance
of the Pledged Collateral. The Pledged Collateral Agent shall have no
duty to any of the Pledgors or any of their Subsidiaries or to the
Secured Parties as to any Pledged Collateral in its possession or
control or in the possession or control of any agent or nominee of the
Collateral Agent or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto,
except the duty to accord such of the Pledged Collateral as may be in
its possession substantially the same care as it accords its own assets
and the duty to account for monies received by it.
(d) The Collateral Agent may execute any of the powers granted
under this Pledge Agreement and perform any duty hereunder either
directly or by or through agents or attorneys-in-fact, and shall not be
responsible for the gross negligence or willful misconduct of any
agents or attorneys-in-fact selected by it with reasonable care and
without gross negligence or willful misconduct.
(e) The Collateral Agent shall not be deemed to have actual,
constructive, direct or indirect notice or knowledge of the occurrence
of any Event of Default unless and until the Collateral Agent shall
have received a notice of Event of Default or a notice from any of the
Pledgors to the Collateral Agent in its capacity as Collateral Agent
indicating that an Event of Default has occurred. The Collateral Agent
shall have no obligation either prior to or after receiving such notice
to inquire whether an Event of Default has, in fact, occurred and shall
be entitled to rely conclusively, and shall be fully protected in so
relying, on any notice so furnished to it.
30. Limitation on Security Interest in Assets of Fruit of the Loom,
Ltd. Notwithstanding any provision in this Pledge Agreement to the contrary,
Fruit of the Loom, Ltd. is not pledging or granting a security interest in its
assets, including any capital stock owned by it, to secure the obligations under
the Farley Agreement and, unless (a) the Farley Lenders request that the assets
of Fruit of the Loom, Ltd. secure the obligations under the Farley Agreement and
(b) at the time of such request, such pledge would not violate any other
agreement to which Fruit of the Loom, Ltd. may be a party, Fruit of the Loom,
Ltd. shall not be deemed to have pledged or granted a security interest in its
assets in favor of the Farley Lenders, and the Farley Lenders shall
19
<PAGE> 149
have no rights in the assets of Fruit of the Loom, Ltd. This provision shall not
affect the rights of the Fruit of the Loom Lenders or the Noteholders in the
assets of Fruit of the Loom, Ltd.
31. Termination of Pledge Agreement. Notwithstanding any provision in
this Pledge Agreement to the contrary, in the event all of the Bank Credit
Documents and all obligations thereunder shall have terminated (other than such
obligations that by their terms are stated to survive termination of the Bank
Credit Documents) and no Loans, Letters of Credit or Commitments thereunder
shall remain outstanding, this Pledge Agreement shall immediately terminate and
cease to be effective and the Pledgors shall be released from all obligations
hereunder (other than such obligations that by their terms are stated to survive
the termination of this Pledge Agreement).
20
<PAGE> 150
Each of the parties hereto has caused a counterpart of this Pledge
Agreement to be duly executed and delivered as of the date first above written.
FRUIT OF THE LOOM, INC.,
a Delaware corporation
By:
----------------------------------
Name: Brian J. Hanigan
Title: Vice President and Treasurer
FRUIT OF THE LOOM, LTD.,
a Cayman Islands company
UNION UNDERWEAR COMPANY, INC.,
a New York corporation
ALICEVILLE COTTON MILL, INC.,
an Alabama corporation
THE B.V.D. LICENSING CORPORATION,
a Delaware corporation
FAYETTE COTTON MILL, INC.,
an Alabama corporation
FOL CARIBBEAN CORPORATION,
a Delaware corporation
FRUIT OF THE LOOM ARKANSAS, INC.,
an Arkansas corporation
FRUIT OF THE LOOM CARIBBEAN, INC.,
a Delaware corporation
FRUIT OF THE LOOM, INC.,
a New York corporation
FRUIT OF THE LOOM TEXAS, INC.,
a Texas corporation
FTL SALES COMPANY, INC.,
a New York corporation
<PAGE> 151
GITANO FASHIONS LIMITED,
a Delaware corporation
GREENVILLE MANUFACTURING, INC.,
a Mississippi corporation
JET SEW TECHNOLOGIES, INC.,
a New York corporation
MARTIN MILLS, INC.,
a Louisiana corporation
PRO PLAYER, INC.,
a New York corporation
RABUN APPAREL, INC.,
a Georgia corporation
RUSSELL HOSIERY MILLS, INC.,
a North Carolina corporation
SALEM SPORTSWEAR CORPORATION,
a Delaware corporation
SHERMAN WAREHOUSE CORPORATION,
a Mississippi corporation
UNION SALES, INC.,
a Delaware corporation
UNION YARN MILLS, INC.,
an Alabama corporation
WHITMIRE MANUFACTURING, INC.,
a South Carolina corporation
WINFIELD COTTON MILL, INC.,
an Alabama corporation
FTL REGIONAL SALES COMPANY, INC.,
a Delaware corporation
LEESBURG YARN MILLS, INC.,
an Alabama corporation
SALEM SPORTSWEAR, INC.,
a New Hampshire corporation
<PAGE> 152
FRUIT OF THE LOOM TRADING COMPANY,
a Delaware corporation
DEKALB KNITTING CORPORATION,
an Alabama corporation
By:
-----------------------------------
Name: Brian J. Hanigan
Title: Vice President and a
Financial Officer
of each of the foregoing
entities.
<PAGE> 153
Accepted and agreed to in Charlotte, North Carolina as of the date
first above written.
NATIONSBANK, N.A.,
as Collateral Agent
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
<PAGE> 154
Schedule 2(a)
to
Pledge Agreement
dated as of March 10, 1999
in favor of NationsBank, N.A.
as Collateral Agent
PLEDGED STOCK
<TABLE>
<CAPTION>
STATE (COUNTRY) NUMBER OF CERTIFICATE DATE OF
PLEDGOR NAME OF SUBSIDIARY OF INCORPORATION SHARES NUMBER CERTIFICATE
<S> <C> <C> <C> <C> <C>
FRUIT OF THE LOOM, INC. Union Underwear Company, Inc. New York 100 2 7/25/85*
FRUIT OF THE LOOM, LTD. Fruit of the Loom, Inc. Delaware 66,851,070 1 3/4/99
UNION UNDERWEAR COMPANY, INC.
Aliceville Cotton Mill, Inc. Alabama 2,000 2 7/2/98
The BVD Licensing Corporation Delaware 1,000 3 7/2/98
Daniel Young International
Corporation (Pro Player) New York 200 8 8/5/94
Fayette Cotton Mill, Inc. Alabama 2,000 2 7/2/98
FOL Caribbean Corporation Delaware 10 1 5/25/95
Fruit of the Loom Arkansas, Inc. Arkansas 10 2 7/2/98
Fruit of the Loom Caribbean, Inc. Delaware 10 2 7/2/98
Fruit of the Loom, Inc. New York 100 3 7/2/98
Fruit of the Loom Texas, Inc. Texas 10 2 7/2/98
FTL Sales Company, Inc. New York 100 12 7/2/98
Gitano Fashions Limited Delaware 1,000 1 3/11/94
Greenville Manufacturing, Inc. Mississippi 1,000 2 7/2/98
Jet Sew Technologies, Inc. New York 1,000 2 7/2/98
Leesburg Yarn Mills, Inc. Alabama 10 2 7/2/98
Martin Mills, Inc. Louisiana 100,000 2 7/2/98
Rabun Apparel, Inc. Georgia 1,000 2 7/2/98
Russell Hosiery Mills, Inc. North Carolina 769,978 187 7/2/98
Salem Sportswear Corporation Delaware 1,000 1 1/4/94
Sherman Warehouse Corporation Mississippi 1,000 2 7/2/98
Union Sales, Inc. Delaware 100 2 7/2/98
Union Yarn Mills, Inc. Alabama 2,500 5 7/2/98
UNION UNDERWEAR COMPANY, INC. Whitmire Manufacturing, Inc. South Carolina 10 1 2/9/93
Winfield Cotton Mill, Inc. Alabama 2,000 2 7/2/98
</TABLE>
- --------------
*Replaced by Certificate No, 3 dated 7/27/98.
<PAGE> 155
<TABLE>
<CAPTION>
STATE (COUNTRY) NUMBER OF CERTIFICATE DATE OF
PLEDGOR NAME OF SUBSIDIARY OF INCORPORATION SHARES NUMBER CERTIFICATE
<S> <C> <C> <C> <C> <C>
FTL SALES COMPANY, INC. FTL Regional Sales Company, Inc. Delaware 1,000 2 7/2/98
SALEM SPORTSWEAR CORPORATION Salem Sportswear Inc. New Hampshire 120 2 7/2/98
UNION SALES, INC. Fruit of the Loom Trading Company Delaware 10 2 7/2/98
UNION YARN MILLS, INC. DeKalb Knitting Corporation Alabama 1,000 2 7/2/98
</TABLE>
<PAGE> 156
Schedule 5(g)(i)
to
Pledge Agreement
dated as of March 10, 1999
in favor of NationsBank, N.A.
as Collateral Agent
Changes of Name/Changes of Structure
On March 4, 1999, Fruit of the Loom, Inc. effected a corporate
reorganization pursuant to which Fruit of the Loom, Ltd., a Cayman Islands
company, became the parent holding company of Fruit of the Loom, Inc.
<PAGE> 157
Schedule 5(g)(ii)
to
Pledge Agreement
dated as of March 10, 1999
in favor of NationsBank, N.A.
as Collateral Agent
Chief Executive Office
<PAGE> 158
Exhibit 4(a)
to
Pledge Agreement
dated as of March 10, 1999
in favor of NationsBank, N.A.
as Collateral Agent
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the following shares of capital stock of , a corporation:
------------ ----------
No. of Shares Certificate No.
------------- ---------------
and irrevocably appoints __________________________________ its agent and
attorney-in-fact to transfer all or any part of such capital stock and to take
all necessary and appropriate action to effect any such transfer. The agent and
attorney-in-fact may substitute and appoint one or more persons to act for him.
The effectiveness of a transfer pursuant to this stock power shall be subject to
any and all transfer restrictions referenced on the face of the certificates
evidencing such interest or in the certificate of incorporation or bylaws of the
subject corporation, to the extent they may from time to time exist.
----------------------------------
a corporation
--------------
By:-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 159
BOND PLEDGE AGREEMENT
THIS BOND PLEDGE AGREEMENT (this "Bond Pledge Agreement") is entered
into as of March 10, 1999 among UNION UNDERWEAR COMPANY, INC., a New York
corporation, (the "Pledgor") and NATIONSBANK, N.A., in its capacity as
collateral agent (in such capacity, the "Collateral Agent") for the Secured
Parties (as defined below).
W I T N E S S E T H
WHEREAS, pursuant to that certain Credit Agreement dated as of
September 19, 1997 (as amended, modified, extended, renewed or replaced from
time to time, the "Fruit of the Loom Agreement") among Fruit of the Loom, Inc.,
a Delaware corporation ("Fruit of the Loom") as borrower, the guarantors
thereunder, the lenders party thereto (the "Fruit of the Loom Lenders") and the
Collateral Agent, the Fruit of the Loom Lenders agreed to extend credit to Fruit
of the Loom upon the terms and subject to the conditions set forth therein; and
WHEREAS, pursuant to (a) that certain Indenture dated March 15, 1981
evidencing 7% Debentures issued by Northwest Industries, Inc. (predecessor in
interest to Fruit of the Loom) due March 15, 2011 in the original face amount of
$125,000,000, (b) that certain Indenture dated November 30, 1993 evidencing 6
1/2% Notes due 2003 issued by Fruit of the Loom in the original face amount of
$150,000,000 and (c) that certain Indenture dated November 30, 1993 evidencing 7
3/8% Debentures due 2023 issued by Fruit of the Loom in the original face amount
of $150,000,000 (collectively, the "Senior Note Indentures"), the holders of the
Senior Note Indentures (collectively, the "Noteholders") extended credit to
Fruit of the Loom upon the terms and subject to the conditions set forth
therein; and
WHEREAS, pursuant to that certain Credit Agreement to be entered into
as of March 24, 1999 (as amended, modified, extended, renewed or replaced from
time to time, the "Farley Agreement") among William Farley as borrower,
NationsBank, N.A. as administrative agent, Credit Suisse First Boston as
syndication agent and the lenders party thereto (the "Farley Lenders"), the
Farley Lenders are agreeing to extend credit to William Farley; provided, among
other conditions, that Fruit of the Loom and certain of its Subsidiaries execute
that certain Guaranty of Payment (the "Farley Guaranty") to be entered into as
of March 24, 1999 in favor of NationsBank, N.A. as Administrative Agent for the
Farley Lenders, for the benefit of William Farley; and
WHEREAS, pursuant to the terms of the Fruit of the Loom Agreement, the
Senior Note Indentures and the Farley Guaranty, the Pledgor is obligated to
secure its obligations to the Fruit of the Loom Lenders, the Noteholders and the
Farley Lenders, respectively, in accordance with the terms of this Bond Pledge
Agreement; and
WHEREAS, NationsBank, N.A. is acting as collateral agent for the
Secured Parties pursuant to the terms of this Bond Pledge Agreement.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE> 160
1. Defined Terms. (a) All capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Fruit of the Loom
Agreement or, if the context so requires, in the respective Senior Credit
Documents, and, if not defined therein, terms defined in the applicable
Indenture relating to the Bonds and used herein shall have the meanings given to
them in such Indenture.
(b) The following terms shall have the following meanings:
"Bank Credit Documents" means, collectively, the Credit
Documents as defined in the Fruit of the Loom Agreement and the Credit
Documents, including, without limitation, the Farley Guaranty, as
defined in the Farley Agreement.
"Bond Documents" means, collectively, all trust indentures,
agreements and other documents evidencing, executed in connection with
or relating to the Bonds, including, without limitation, all Mortgage
and Trust Indentures and all Equipment Mortgage and Trust Indentures
relating to the Bonds (collectively, the "Indentures").
"Bonds" means, collectively, those certain Industrial Revenue
or Equipment Revenue Bonds set forth on Schedule 2(a) attached hereto
owned by the Pledgor and any and all additions thereto, substitutions
thereof and exchanges therefor.
"Hedging Agreements" means, collectively, all interest rate
protection agreements, foreign currency exchange agreements, commodity
purchase or option agreements or other interest or exchange rate or
commodity price hedging agreements, in each case, entered into or
purchased by the Pledgor.
"Issuers" means, collectively, the respective issuers of each
of the Bonds.
"Permitted Liens" means, collectively, all Permitted Liens as
defined in the Fruit of the Loom Agreement, all Permitted Liens as
defined in the Farley Agreement and all Permitted Liens as defined in
any Senior Note Indenture.
"Proceeds" means all proceeds as such term is defined in the
UCC in effect on the date hereof.
"Required Lenders" has the meaning ascribed to such term in
the Fruit of the Loom Agreement.
"Secured Obligations" means, collectively, (i) all of the
obligations, now existing or hereafter arising pursuant to the Senior
Credit Documents, owing from the Pledgor to any Secured Party or the
Collateral Agent, including, without limitation, all guaranty
obligations arising out of Section 4 of the Fruit of the Loom
Agreement, all obligations under the Farley Guaranty, all obligations
under the Senior Note Indentures and all obligations arising under any
Hedging Agreement; and (ii) all other indebtedness, liabilities and
obligations of any kind or nature, now existing or hereafter arising,
owing from the Pledgor to any Secured Party or the Collateral Agent
pursuant to or in connection with a transaction contemplated by the
Senior
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Credit Documents, howsoever evidenced, created, incurred or acquired,
whether primary, secondary, direct, contingent, or joint and several,
and all obligations and liabilities incurred in connection with
collecting and enforcing the foregoing.
"Secured Parties" means, collectively, the Noteholders, the
Fruit of the Loom Lenders, the Farley Lenders and any Affiliate of a
Fruit of the Loom Lender or a Farley Lender which has entered into a
Hedging Agreement with the Pledgor and "Secured Party" means any one of
them.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Documents" means, collectively, the Bank Credit
Documents, the Senior Note Indentures and the Hedging Agreements.
"Trustees" means, collectively, the trustees, registrars and
transfer agents with respect to the Bond Collateral under the terms of
the Indentures and the other Bond Documents.
"UCC" means the Uniform Commercial Code from time to time in
effect in the State of North Carolina.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and section and paragraph references are to this Agreement
unless otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. Pledge and Grant of Security Interest. To secure the prompt payment
and performance in full when due, whether by lapse of time or otherwise, of the
Secured Obligations, the Pledgor hereby pledges and assigns to the Collateral
Agent, for the benefit of the Secured Parties, and grants to the Collateral
Agent, for the benefit of the Secured Parties, a continuing security interest
in, any and all right, title and interest of the Pledgor in and to the following
(collectively, the "Bond Collateral"):
(a) the Bonds set forth on Schedule 2(a) attached hereto
(collectively, the "Pledged Bonds");
(b) the Bond Documents; and
(c) all Proceeds of the Pledged Bonds, however and whenever
acquired and in whatever form, including, without limitation, all
payments of interest or principal on the Pledged Bonds.
3. Delivery of the Bond Collateral. The Pledgor hereby agrees that:
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(a) Delivery. The Pledgor shall deliver to the Collateral
Agent, as soon as practicable but in any event no later than March 31,
1999, all certificates and instruments representing the Pledged Bonds
and all Bond Documents. Prior to delivery to the Collateral Agent, all
such certificates and instruments constituting Bond Collateral shall be
held in trust by the Pledgor for the benefit of the Collateral Agent
pursuant hereto. Each such certificate shall be accompanied by a Bond
Pledge Certificate, duly executed in blank with guarantee of signature
acceptable to the respective Trustees, substantially in the form
provided in Exhibit 3(a) attached hereto. If, while this Bond Pledge
Agreement is in effect, the Pledgor shall receive any certificate or
debt instrument (including, without limitation, any certificate
representing an interest payment), option or rights, whether as an
addition to, in substitution of or in exchange for any Bond Collateral,
the Pledgor shall accept and hold the same in trust for the Collateral
Agent, for the benefit of the Secured Parties, and shall immediately
deliver the same to the Collateral Agent in the exact form received,
together with a Bond Pledge Certificate or other appropriate
assignment, duly executed in blank with guarantee of signature
acceptable to the respective Trustees, to be held by the Collateral
Agent, subject to the terms of this Bond Pledge Agreement, as
additional Bond Collateral.
(b) Financing Statements. The Pledgor shall execute and
deliver to the Collateral Agent such UCC or other applicable financing
statements as may be reasonably requested by the Collateral Agent in
order to perfect and protect the security interest created hereby in
the Bond Collateral.
4. Representations and Warranties. The Pledgor hereby represents and
warrants to the Collateral Agent, for the benefit of the Secured Parties, that
so long as any of the Secured Obligations remain outstanding or any Senior
Credit Document is in effect or any amounts remain outstanding under the Senior
Credit Documents or the Secured Parties have any obligations remaining under the
Senior Credit Documents:
(a) Authorization/Ownership of Bond Collateral. To the best of
its knowledge, the Pledged Bonds have been validly authorized and
issued by their respective Issuers. The Pledgor has purchased and fully
paid for the Pledged Bonds, has good and indefeasible title to the Bond
Collateral and will at all times be the legal and beneficial owner of
such Bond Collateral free and clear of any Lien, security interest or
rights of any other Person, other than Permitted Liens.
(b) No Conflicts. To its knowledge, the pledge and grant of
security interest in the Bond Collateral pursuant to Section 2, and the
exercise by the Collateral Agent of its rights and remedies hereunder,
(i) will not violate (A) any law or governmental regulation applicable
to the Pledgor or (B) any material contractual restriction, including,
without limitation, the terms of Article V of each of the Indentures or
the terms of the other Bond Documents, binding on or affecting the
Pledgor, its property or the Bond Collateral and (ii) will not result
in the creation or imposition of any Lien, charge or encumbrance on or
security interest in any of the assets of the Pledgor except as
contemplated by this Bond Pledge Agreement.
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(c) Pledgor's Authority. The Pledgor has full corporate power,
authority and legal right to pledge the Bond Collateral hereunder.
Except for authorizations, approvals or actions which have been
obtained, or notices or filings which have been made, and unless the
failure to obtain any such authorization, approval or action, or to
make any such notice or filing, would not have or be reasonably
expected to impair the validity of the pledges and grants of security
interests pursuant to Section 2, no authorization, approval or action
by, and no notice or filing with any Governmental Authority, any Issuer
of any Bond Collateral or any other Person is required either (i) for
the pledge made by the Pledgor or for the granting of the security
interest by the Pledgor pursuant to this Bond Pledge Agreement or (ii)
for the exercise by the Collateral Agent or the Secured Parties of
their rights and remedies hereunder (except as may be required by laws
affecting the offering and sale of securities pursuant to a public
sale, as more fully described in Section 8).
(d) Binding Agreement. This Bond Pledge Agreement has been
duly authorized, executed and delivered by the Pledgor and constitutes
a legal, valid and binding obligation of the Pledgor enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy or insolvency laws or by general principles of
equity;
(e) Security Interest/Priority/Recordation. This Bond Pledge
Agreement creates a valid security interest in favor of the Collateral
Agent, for the benefit of the Secured Parties, in the Bond Collateral.
The taking possession by the Collateral Agent of the certificates
representing the Pledged Bonds and all other certificates and
instruments constituting Bond Collateral will perfect and establish the
first priority of the Collateral Agent's security interest in the
Pledged Bonds and, when properly perfected by filing or otherwise, in
all other Bond Collateral represented by such Pledged Bonds and
instruments securing the Secured Obligations. A Bond Pledge Certificate
substantially in the form of Exhibit 3(a) attached hereto, when
properly executed and attached to the respective Bonds, is (i) a
writing sufficient under the terms of the respective Indentures to
permit the Trustees to record the pledge and grant of security interest
hereunder in their respective books and records relating to the Bond
Collateral; and (ii) a writing sufficient under the terms of the
respective Indentures to permit the Trustees, upon the occurrence of an
Event of Default, to record and effect the transfer of ownership of the
Pledged Bonds to the Collateral Agent. Except as set forth in this
Section 4(e), no action is necessary to perfect or otherwise protect
such security interest.
(f) No Other Shares. The Pledgor owns no other industrial
revenue or other bonds required to be pledged hereunder other than as
set forth on Schedule 2(a) attached hereto.
(g) Name; Chief Executive Office; Books and Records. The
Pledgor's legal name is as shown in this Bond Pledge Agreement and the
Pledgor has not, in the past four months, changed its name or been a
party to a merger, consolidation or other change in structure. The
Pledgor's chief executive office and chief place of business are (and
for the prior four months have been) located at the location(s) set
forth on Schedule 4(g) attached hereto, and the Pledgor keeps its books
and records at such locations. The name and
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location of each Trustee with respect to each of the Pledged Bonds are
set forth on Schedule 2(a) attached hereto, and, to the best knowledge
of the Pledgor, each such Trustee keeps its books and records relating
to the Bond Collateral at such location.
(h) Principal and Interest Payments. The outstanding principal
amount of each of the Pledged Bonds as of the date hereof is set forth
on Schedule 2(a) attached hereto. Payments of interest on each of the
Pledged Bonds are made annually on the dates and in the amounts set
forth on Schedule 2(a) attached hereto.
5. Covenants. The Pledgor hereby covenants that, so long as any of the
Secured Obligations remain outstanding or any Senior Credit Document is in
effect or any amounts remain outstanding under the Senior Credit Documents or
the Secured Parties have any obligations remaining under the Senior Credit
Documents, the Pledgor shall:
(a) Books and Records. Mark its books and records (and ensure
that the respective Trustees mark their books and records) to reflect
the security interest granted to the Collateral Agent, for the benefit
of the Secured Parties, pursuant to this Bond Pledge Agreement.
(b) Defense of Title. (i) Warrant and defend title to and
ownership of the Bond Collateral at its own expense against the claims
and demands of all other parties claiming an interest therein, keep the
Bond Collateral free from all Liens and security interests, except for
the security interest granted herein and Permitted Liens; (ii) not
sell, exchange, transfer, assign, lease or otherwise dispose of Bond
Collateral or any interest therein, except as permitted under the
respective Senior Credit Documents; and (iii) not enter into any
agreement or undertaking restricting the right or ability of the
Pledgor or the Collateral Agent to sell, assign or transfer any of the
Bond Collateral.
(c) Further Assurances. Promptly execute and deliver at its
expense all further instruments and documents and take all further
action that may be necessary and desirable or that the Collateral Agent
may reasonably request in order to (i) perfect and protect the security
interest in the Bond Collateral created hereby (including, without
limitation, any and all action necessary to satisfy the Collateral
Agent that the Collateral Agent has obtained a first priority perfected
security interest in any Bond Collateral); (ii) enable the Collateral
Agent to exercise and enforce its rights and remedies hereunder in
respect of the Bond Collateral; and (iii) otherwise effect the purposes
of this Bond Pledge Agreement.
(d) Compliance with Bond Documents. Maintain itself, and cause
each of its Subsidiaries to remain, in compliance with all terms of the
respective Bond Documents for each for the Bonds and with all other
material contractual restrictions relating to the Bond Collateral.
(e) Amendments. Not make or consent to any amendment or other
modification or waiver with respect to any of the Bond Documents or
other Bond Collateral or enter into any agreement for or allow to exist
any restriction with respect to any of the Bond Documents or other Bond
Collateral other than pursuant hereto or as may be permitted under the
Senior Credit Documents.
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(f) Compliance with Securities Laws. File all reports and
other information when and if required to be filed by the Pledgor with
the United States Securities and Exchange Commission and any other
state, federal or foreign agency in connection with the ownership of
the Bond Collateral or with the public sale thereof pursuant to Section
8.
(g) Change in Location. Not, without providing 30 days prior
written notice to the Collateral Agent and without filing such
amendments to any previously filed financing statements as the
Collateral Agent may require, (a) change the location of its chief
executive office and chief place of business (as well as its books and
records) from the locations set forth on Schedule 4(g) attached hereto
or (b) change its name or be party to a merger, consolidation or other
change in structure; provided, however, that subclause (b) hereof shall
not prevent consummation of the transactions permitted under the Fruit
of the Loom Agreement so long as (i) the Pledgor remains in compliance
with the provisions of subclause (a) above and (ii) in any such event,
notice to the Collateral Agent of any such name change or merger,
consolidation or other change in structure is given, and the filing of
any such amendments to previously filed financing statements occurs,
prior to such consummation.
(h) Opinion of Counsel. Upon the occurrence of an Event of
Default and during the continuation thereof, deliver to the Collateral
Agent such opinions of counsel, in form and substance acceptable to the
Collateral Agent, as are required by Section 5.4 of the respective
Indentures or by the other terms thereof to permit the Trustees to
record and effect the transfer of ownership of the Pledged Bonds to the
Collateral Agent.
6. Advances by Secured Parties. On failure of the Pledgor to perform
any of the covenants and agreements contained herein, and provided that either
(a) 10 Business Days have elapsed after notice of such failure was given by the
Collateral Agent to the Pledgor or (b) prompt action by the Collateral Agent is
necessary to protect the rights of the Secured Parties in the Bond Collateral,
the Collateral Agent may, at its sole option and in its sole discretion, perform
the same and in so doing may expend such sums as the Collateral Agent may
reasonably deem advisable in the performance thereof, including, without
limitation, the payment of any insurance premiums, the payment of any taxes, a
payment to obtain a release of a Lien or potential Lien, expenditures made in
defending against any adverse claim and all other expenditures which the
Collateral Agent or the Secured Parties may make for the protection of the
security hereof or which it or they may be compelled to make by operation of
law. All such sums and amounts so expended shall be repayable by the Pledgor
promptly upon timely notice thereof and demand therefor, shall constitute
additional Secured Obligations and shall bear interest from the date said
amounts are expended at the default rate specified in Section 3.1(b) of the
Fruit of the Loom Agreement for Revolving Loans that are Base Rate Loans. No
such performance of any covenant or agreement by the Collateral Agent or the
Secured Parties on behalf of the Pledgor, and no such advance or expenditure
therefor, shall relieve the Pledgor of any default under the terms of this Bond
Pledge Agreement or any Senior Credit Document. The Collateral Agent may make
any payment hereby authorized in accordance with any bill, statement or estimate
procured from the appropriate public office or holder of the claim to be
discharged without inquiry into the accuracy of such bill, statement or estimate
or into the validity of any tax assessment, sale, forfeiture, tax lien, title or
claim except to the extent such payment is being contested in good faith
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by the Pledgor in appropriate proceedings and against which adequate reserves
are being maintained in accordance with GAAP.
7. Events of Default.
The occurrence and continuation of an event which under any Senior
Credit Document would constitute an Event of Default shall be an Event of
Default hereunder (an "Event of Default").
8. Remedies.
(a) General Remedies. Upon the occurrence of an Event of
Default and during the continuation thereof, the Collateral Agent and
the Secured Parties shall have, in respect of the Bond Collateral, in
addition to the rights and remedies provided herein, in the Senior
Credit Documents, or by law, the rights and remedies of a secured party
under the UCC or any other applicable law.
(b) Sale of Bond Collateral. Upon the occurrence of an Event
of Default and during the continuation thereof, without limiting the
generality of the this Section, the Collateral Agent, without demand of
performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to
below) to or upon the Pledgor or any other Person (all and each of
which demands, defenses, advertisements and notices are hereby waived),
may in such circumstances, and in its sole discretion, forthwith
request that the Trustees record and effect a transfer of ownership of
the Pledged Bonds to the Collateral Agent and collect, receive,
appropriate and realize upon the Pledged Bonds and the other Bond
Collateral, or any part thereof, and/or may forthwith sell, assign,
give an option or options to purchase or otherwise dispose of and
deliver the Bond Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange, broker's board
or office of the Collateral Agent or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption
of any credit risk. The Collateral Agent or any Secured Party shall
have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to bid for the
purchase of the whole or any part of the Bond Collateral so sold, free
of any right or equity of redemption in the Pledgor, which right or
equity of redemption is hereby waived or released to extent permitted
by applicable law. The Pledgor agrees that, to the extent notice of
sale shall be required by law and has not been waived by the Pledgor,
any requirement of reasonable notice shall be met if notice, specifying
the place of any public sale or the time after which any private sale
is to be made, is personally served on or mailed, postage prepaid, to
the Pledgor, in accordance with the notice provisions of Section 16 at
least 10 Business Days before the time of such sale. The Collateral
Agent shall not be obligated to make any sale of Bond Collateral
regardless of notice of sale having been given. The Collateral Agent
may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was
so adjourned.
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(c) Registration Prior to Public Sale. Upon the written
request of the Collateral Agent prior to a public sale as contemplated
in subsection (b) above the Pledgor shall (i) use its best efforts, at
its own expense, to cause any registration, qualification or compliance
under any Federal or state securities laws, including, without
limitation, the Securities Act as then in effect (or other similar
Federal statute as then in effect) to be effected (and to be kept
effective) with respect to all or any part of the Bond Collateral as
would permit or facilitate the registration and sale of all or such
part of the Bond Collateral under such Federal or state laws, (ii)
provide to the Collateral Agent reports on the progress of such
registration, qualification or compliance, inform the Collateral Agent
immediately upon the completion thereof, and provide to the Collateral
Agent such number of prospectuses, offering circulars or other
documents incident thereto as the Collateral Agent may from time to
time request in order to effect such public sale of all or such part of
the Bond Collateral, and (iii) indemnify the Collateral Agent and any
other Person participating in such public sale of all or such part of
the Bond Collateral against all claims, losses, damages and liabilities
caused by any misstatement (or alleged misstatement) of a material fact
contained in any related registration statement, notification or the
like or omission of a material fact necessary to make the statements
therein not misleading, except insofar as the same may have been caused
by a misstatement or omission based upon information furnished in
writing to the Pledgor by the Collateral Agent expressly for use
therein. The Collateral Agent shall furnish to the Pledgor such
information regarding the Collateral Agent or the terms of this Bond
Pledge Agreement or the Senior Credit Documents as the Pledgor may
request in writing in connection with any such registration,
qualification or compliance.
(d) Private Sale. Upon the occurrence of an Event of Default
and during the continuation thereof, the Pledgor recognizes that the
Collateral Agent may deem it impracticable to effect a public sale of
all or any part of the Bond Collateral and that the Collateral Agent
may, therefore, determine to make one or more private sales of any such
Bond Collateral to a purchaser or restricted group of purchasers who
will be obligated to agree, among other things, to acquire such Bond
Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. The Pledgor acknowledges that any
such private sale may be at prices and on terms less favorable to the
seller than the prices and other terms which might have been obtained
at a public sale and, notwithstanding the foregoing, agrees that such
private sale shall be deemed to have been made in a commercially
reasonable manner and that the Collateral Agent shall have no
obligation to sell such Bond Collateral at public sale notwithstanding
the fact that a registration for public sale has been obtained pursuant
to subsection (c) hereof or to delay any such sale for the period of
time necessary to permit the Pledgor to obtain such registration. The
Pledgor further acknowledges and agrees that any offer to sell such
Bond Collateral which has been (i) publicly advertised on a bona fide
basis in a newspaper or other publication of general circulation in the
financial community of New York, New York or Chicago, Illinois (to the
extent that such offer may be advertised without prior registration
under the Securities Act), or (ii) made privately in the manner
described above shall be deemed to involve a "public sale" under the
UCC, notwithstanding that such sale may not constitute a "public
offering" under the Securities Act, and the Collateral Agent may, in
such event, bid for the purchase of such Bond Collateral.
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(e) Retention of Bond Collateral. In addition to the rights
and remedies hereunder, upon the occurrence and during the continuance
of an Event of Default, the Collateral Agent may, after providing the
notices required by Section 9-505(2) of the UCC or otherwise complying
with the requirements of applicable law of the relevant jurisdiction,
retain all or any portion of the Bond Collateral in satisfaction of the
Secured Obligations. Unless and until the Collateral Agent shall have
provided such notices, however, the Collateral Agent shall not be
deemed to have retained any Bond Collateral in satisfaction of any
Secured Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which
the Collateral Agent or the Secured Parties are legally entitled, the
Pledgor shall be liable for the deficiency, together with interest
thereon at the default rate specified in Section 3.1(b) of the Fruit of
the Loom Agreement for Revolving Loans that are Base Rate Loans, the
costs of collection and the reasonable, documented fees of any
attorneys employed by the Collateral Agent to collect such deficiency.
Any surplus remaining after the full payment and satisfaction of the
Secured Obligations shall be returned to the Pledgor or to whomsoever a
court of competent jurisdiction shall determine to be entitled thereto.
9. Rights of the Collateral Agent.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, the Pledgor hereby designates and appoints the
Collateral Agent, on behalf of the Secured Parties, and each of its
designees or agents as attorney-in-fact of the Pledgor, irrevocably and
with power of substitution, with authority to take any or all of the
following actions upon the occurrence and during the continuance of an
Event of Default:
(i) to demand, collect, settle, compromise,
adjust and give discharges and releases concerning the Bond
Collateral, all as the Collateral Agent may reasonably
determine;
(ii) to commence and prosecute any actions at
any court for the purposes of collecting any of the Bond
Collateral and enforcing any other right in respect thereof;
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Collateral Agent may deem reasonably
appropriate;
(iv) to pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on or
threatened against the Bond Collateral;
(v) to direct any parties liable for any
payment under any of the Bond Collateral to make payment of
any and all monies due and to become due thereunder directly
to the Collateral Agent or as the Collateral Agent shall
direct;
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(vi) to receive payment of and receipt for any
and all monies, claims, and other amounts due and to become
due at any time in respect of or arising out of any Bond
Collateral;
(vii) to sign and endorse any drafts,
assignments, bond pledge certificates, verifications, notices
and other documents relating to the Bond Collateral;
(viii) to settle, compromise or adjust any suit,
action or proceeding described above and, in connection
therewith, to give such discharges or releases as the
Collateral Agent may deem reasonably appropriate;
(ix) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, pledge agreements, affidavits, notices
and other agreements, instruments and documents that the
Collateral Agent may determine necessary in order to perfect
and maintain the security interests and liens granted in this
Bond Pledge Agreement and in order to fully consummate all of
the transactions contemplated therein;
(x) to exchange any of the Bond Collateral or
other property upon any reorganization or change in structure
of the Issuer thereof upon such terms as the Collateral Agent
may determine;
(xi) to sign an instrument in writing,
sanctioning the transfer of any or all of the Pledged Bonds of
the Pledgor into the name of the Collateral Agent or one or
more of the Secured Parties or into the name of any transferee
to whom the Pledged Bonds of the Pledgor or any part thereof
may be sold pursuant to Section 8; and
(xii) to do and perform all such other acts and
things as the Collateral Agent may reasonably deem to be
necessary, proper or convenient in connection with the Bond
Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Secured Obligations remain
outstanding, any Senior Credit Document is in effect or any Loan or
Letter of Credit under any Bank Credit Document shall remain
outstanding and (ii) until all of the Commitments under all of the Bank
Credit Documents shall have been terminated. The Collateral Agent shall
be under no duty to exercise or withhold the exercise of any of the
rights, powers, privileges and options expressly or implicitly granted
to the Collateral Agent in this Bond Pledge Agreement, and shall not be
liable for any failure to do so or any delay in doing so. The
Collateral Agent shall not be liable for any act or omission or for any
error of judgment or any mistake of fact or law in its individual
capacity or its capacity as attorney-in-fact except acts or omissions
resulting from its gross negligence or willful misconduct. This power
of attorney is conferred on the Collateral Agent solely to protect,
preserve and realize upon its security interest in Bond Collateral.
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(b) Performance by the Collateral Agent of Pledgor's
Obligations. If the Pledgor fails to perform any agreement or
obligation contained herein and either (i) 10 Business Days have
elapsed after notice of such failure was given by the Collateral Agent
to the Pledgor or (ii) prompt action by the Collateral Agent is
necessary to protect the rights of the Secured Parties in the Bond
Collateral, the Collateral Agent itself may perform, or cause
performance of, such agreement or obligation, and the reasonable,
documented expenses of the Collateral Agent incurred in connection
therewith shall be payable by the Pledgor.
(c) Assignment by the Collateral Agent. The Collateral Agent
may from time to time, subject to the provisions of the respective
Senior Credit Documents, assign the Secured Obligations and any portion
thereof and/or the Bond Collateral and any portion thereof, and the
assignee shall be entitled to all of the rights and remedies of the
Collateral Agent under this Bond Pledge Agreement in relation thereto.
(d) The Collateral Agent's Duty of Care. Other than the
exercise of reasonable care to assure the safe custody of the Bond
Collateral while being held by the Collateral Agent hereunder, the
Collateral Agent shall have no duty or liability to preserve rights
pertaining thereto, it being understood and agreed that the Pledgor
shall be responsible for preservation of all rights in the Bond
Collateral, and the Collateral Agent shall be relieved of all
responsibility for the Bond Collateral upon surrendering it or
tendering the surrender of it to the Pledgor. The Collateral Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of the Bond Collateral in its possession if such Bond
Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords its own property, which shall be no less than
the treatment employed by a reasonable and prudent agent in the
industry, it being understood that the Collateral Agent shall not have
responsibility for (i) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters
relating to any Bond Collateral, whether or not the Collateral Agent
has or is deemed to have knowledge of such matters; or (ii) taking any
necessary steps to preserve rights against any parties with respect to
any Bond Collateral.
(e) Rights to Interest, Principal and Other Payments in
Respect of the Bond Collateral.
(i) So long as no Event of Default shall have
occurred and be continuing, the Pledgor may receive and retain
any and all interest, principal or other payments in respect
of the Bond Collateral to the extent they are allowed under
the respective Senior Credit Documents.
(ii) Upon the occurrence and during the continuance
of an Event of Default:
(A) all rights of the Pledgor to receive
such interest, principal or other payments which it
would otherwise be authorized to receive and retain
pursuant to paragraph (i) of this Section shall cease
and all such rights shall thereupon be vested in the
Collateral Agent which shall then
12
<PAGE> 171
have the sole right to receive and hold as Bond
Collateral such interest, principal or other
payments; and
(B) all interest, principal or other
payments which are received by the Pledgor contrary
to the provisions of paragraph (A) of this Section
shall be received in trust for the benefit of the
Collateral Agent, shall be segregated from other
property or funds of the Pledgor, and shall be
forthwith paid over to the Collateral Agent as Bond
Collateral in the exact form received, to be held by
the Collateral Agent as Bond Collateral and as
further collateral security for the Secured
Obligations.
(f) Release of Bond Collateral. The Collateral Agent may
release any of the Bond Collateral from this Bond Pledge Agreement or
may substitute any of the Bond Collateral for other Bond Collateral
without altering, varying or diminishing in any way the force, effect,
lien, pledge or security interest of this Bond Pledge Agreement as to
any Bond Collateral not expressly released or substituted, and this
Bond Pledge Agreement shall continue as a first priority lien on all
Bond Collateral not expressly released or substituted.
10. Rights of Collateral Agent and Required Lenders. Following the
occurrence and during the continuation of an Event of Default, the Collateral
Agent shall be entitled to enforce the rights of the Secured Parties hereunder
or shall take such action as requested in writing by the Required Lenders. In
the event the Collateral Agent refuses or fails to comply with written
instructions from the Required Lenders for a period of thirty days after such
written instructions shall have been received by the Collateral Agent, any
Secured Party shall (after having received written instructions from the
Required Lenders) have the right to carry out such written instructions on
behalf of the Secured Parties as a whole. No Secured Party (other than the
Collateral Agent) shall have any right in any manner whatsoever to enforce any
right under this Bond Pledge Agreement, except as herein provided.
11. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Secured
Obligations and any Proceeds of any of the Bond Collateral, when received by the
Collateral Agent or any of the Secured Parties in cash or its equivalent, will
be applied in reduction of the Secured Obligations as follows:
(a) FIRST, to the payment of all reasonable, documented
out-of-pocket costs and expenses (including without limitation
reasonable, documented attorneys' fees) of the Collateral Agent or a
Secured Party in connection with enforcing the rights of the Secured
Parties under the Senior Credit Documents and any protective advances
made by the Collateral Agent or a Secured Party, pro rata as set forth
below;
(b) SECOND, to the payment of all accrued fees and interest
payable to the Collateral Agent, the Secured Parties under the Senior
Credit Documents, pro rata as set forth below;
(c) THIRD, to the payment of the outstanding principal amount
of the Loans and unreimbursed drawings under Letters of Credit and to
the payment or cash collateralization of the outstanding LOC
Obligations under the Bank Credit Documents and
13
<PAGE> 172
the payment of all outstanding principal amounts under the Senior Note
Indentures, pro rata as set forth below;
(d) FOURTH, to any principal amounts outstanding under Hedging
Agreements, pro rata as set forth below;
(e) FIFTH, to all other obligations which shall have become
due and payable under the Senior Credit Documents and not repaid
pursuant to clauses "FIRST" through "FOURTH" above, pro rata as set
forth below; and
(f) SIXTH, to the payment of the surplus, if any, to whomever
may be lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Secured Parties shall receive an amount
equal to its pro rata share of amounts available to be applied above (based on
the proportion that the then outstanding obligations owed by the Pledgor to such
Secured Party under the Senior Credit Documents bears to the aggregate
outstanding obligations of the Pledgor to the Secured Parties under the Senior
Credit Documents); and (iii) to the extent that any amounts available for
distribution pursuant to clause "THIRD" above are attributable to the issued but
undrawn amount of outstanding Letters of Credit under any Bank Credit Document,
such amounts shall be held by the Collateral Agent in a cash collateral account
and applied (x) first, to reimburse the Issuing Lenders under each such Bank
Credit Document from time to time for any drawings under such Letters of Credit
and (y) then, following the expiration of all such Letters of Credit, without
duplication, to all other obligations of the types described in clauses "THIRD"
and "FIFTH" above. The Pledgor irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that the
Collateral Agent shall have the continuing and exclusive right to apply and
reapply any and all such payments and proceeds in the Collateral Agent's sole
discretion, notwithstanding any entry to the contrary upon any of its books and
records.
12. Costs of Counsel. At all times hereafter, the Pledgor agrees to
promptly pay upon demand any and all reasonable, documented costs and expenses
of the Collateral Agent or the Secured Parties as necessary to protect the Bond
Collateral or to exercise any rights or remedies under this Bond Pledge
Agreement or with respect to any Bond Collateral. All of the foregoing costs and
expenses shall constitute Secured Obligations hereunder.
13. Continuing Agreement.
(a) This Bond Pledge Agreement shall be a continuing agreement
in every respect and shall remain in full force and effect so long as
any of the Secured Obligations remain outstanding or any Senior Credit
Document is in effect, and until all of the commitments thereunder
shall have terminated (other than any obligations with respect to the
indemnities and the representations and warranties set forth in the
Senior Credit Documents). Notwithstanding the foregoing, all releases
and indemnities provided hereunder shall survive termination of this
Bond Pledge Agreement, subject to the provisions of the respective
Senior Credit Documents.
14
<PAGE> 173
(b) This Bond Pledge Agreement shall continue to be effective
or be automatically reinstated, as the case may be, if at any time
payment, in whole or in part, of any of the Secured Obligations is
rescinded or must otherwise be restored or returned by the Collateral
Agent or any Secured Party as a preference, fraudulent conveyance or
otherwise under any bankruptcy, insolvency or similar law, all as
though such payment had not been made; provided that in the event
payment of all or any part of the Secured Obligations is rescinded or
must be restored or returned, all reasonable, documented costs and
expenses (including without limitation any reasonable, documented legal
fees and disbursements) incurred by the Collateral Agent or any Secured
Party in defending and enforcing such reinstatement shall be deemed to
be included as a part of the Secured Obligations.
14. Amendments; Waivers; Modifications. This Bond Pledge Agreement and
the provisions hereof may not be amended, waived, modified, changed, discharged
or terminated except by a written instrument executed by the Pledgor and the
Collateral Agent; provided that the Collateral Agent may only execute such
written instrument upon the consent of the Required Lenders (or the Fruit of the
Loom Lenders, as may be required by the terms of the Fruit of the Loom
Agreement).
15. Successors in Interest. This Bond Pledge Agreement shall create a
continuing security interest in the Bond Collateral and shall be binding upon
the Pledgor, its successors and assigns and shall inure, together with the
rights and remedies of the Collateral Agent and the Secured Parties hereunder,
to the benefit of the Collateral Agent and the Secured Parties and their
successors and permitted assigns; provided, however, that the Pledgor may not
assign its rights or delegate its duties hereunder without the prior written
consent of the Required Lenders (or the Fruit of the Loom Lenders as may be
required by the terms of the Fruit of the Loom Agreement). To the fullest extent
permitted by law, the Pledgor hereby releases the Collateral Agent and each
Secured Party, and its successors and assigns, from any liability for any act or
omission relating to this Bond Pledge Agreement or the Bond Collateral, except
for any liability arising from the gross negligence or willful misconduct of the
Collateral Agent, or such Secured Party, or its officers, employees or agents.
16. Notices. All notices required or permitted to be given under this
Bond Pledge Agreement shall be as follows:
to the Pledgor:
Union Underwear Company, Inc.
c/o Fruit of the Loom, Inc.
233 S. Wacker Drive, Suite 5000
Sears Tower
Chicago, Illinois 60606
Attn: Vice President and General Counsel
Telephone: (312) 876-1724
Facsimile: (312) 993-1888
15
<PAGE> 174
with a copy to:
Union Underwear Company, Inc.
c/o Fruit of the Loom, Inc.
233 S. Wacker Drive, Suite 5000
Sears Tower
Chicago, Illinois 60606
Attn: Vice President and Treasurer
Telephone: (312) 876-1724
Facsimile: (312) 993-1888
16
<PAGE> 175
to the
Collateral Agent:
NationsBank, N.A.
Agency Services
Independence Center
15th Floor
Charlotte, North Carolina 28255
Attn: Herb Boyd
Telephone: (704) 388-3225
Facsimile: (704) 386-9923
with a copy to:
NationsBank, N.A.
231 South LaSalle Street
9th Floor
Chicago, Illinois 60697
Attn: Lisa Donoghue
Telephone: (312) 828-3898
Facsimile: (312) 987-0303
17. Counterparts. This Bond Pledge Agreement may be executed in any
number of counterparts, each of which where so executed and delivered shall be
an original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Bond Pledge Agreement to produce
or account for more than one such counterpart.
18. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Bond Pledge Agreement.
19. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS BOND PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
Any legal action or proceeding with respect to this Bond Pledge
Agreement may be brought in the courts of the State of North Carolina,
or of the United States for the Western District of North Carolina,
and, by execution and delivery of this Bond Pledge Agreement, the
Pledgor hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of such
courts. The Pledgor further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to it at the address for notices pursuant to
Section 16, such service to become effective 30 days after such
mailing. Nothing herein shall affect the right of the Collateral Agent
to serve process in any other
17
<PAGE> 176
manner permitted by law or to commence legal proceedings or to
otherwise proceed against the Pledgor in any other jurisdiction.
(b) The Pledgor hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Bond Pledge Agreement brought in the courts referred to in
subsection (a) hereof and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an
inconvenient forum.
20. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS BOND PLEDGE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS BOND PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
21. Severability. If any provision of this Bond Pledge Agreement is
determined to be illegal, invalid or unenforceable, such provision shall be
fully severable and the remaining provisions shall remain in full force and
effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
22. Entirety. This Bond Pledge Agreement and the Senior Credit
Documents represent the entire agreement of the parties hereto and thereto, and
supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating to the Senior Credit
Documents, or the transactions contemplated herein and therein.
23. Survival. Subject to the provisions of the respective Senior Credit
Documents, all representations and warranties of the Pledgor hereunder shall
survive the execution and delivery of this Bond Pledge Agreement and the Senior
Credit Documents, the delivery of the Notes and the making of the Loans and the
issuance of the Letters of Credit under the Fruit of the Loom Agreement, the
incurrence of obligations under the Farley Guaranty and the incurrence of
indebtedness under the Senior Note Indentures.
24. Other Security. To the extent that any of the Secured Obligations
are now or hereafter secured by property other than the Bond Collateral
(including, without limitation, real and other personal property owned by the
Pledgor), or by a guarantee, endorsement or property of any other Person, then
the Collateral Agent and the Secured Parties shall have the right to proceed
against such other property, guarantee or endorsement upon the occurrence and
during the continuation of any Event of Default, and the Collateral Agent and
the Secured Parties have the right, in their sole discretion, to determine which
rights, security, liens, security interests or remedies the Collateral Agent and
the Secured Parties shall at any time pursue, relinquish, subordinate, modify or
take with respect thereto, without in any way modifying or affecting any of them
or any of the Collateral Agent's and the Secured Parties' rights or the Secured
Obligations under this Bond Pledge Agreement, or under any of the Senior Credit
Documents.
25. Duties of Collateral Agent.
18
<PAGE> 177
(a) The Collateral Agent shall not have any duty or obligation
to manage, control, use, sell, dispose of or otherwise deal with the
Bond Collateral, or, to otherwise take or refrain from taking any
action under, or in connection with, this Bond Pledge Agreement,
except, as expressly provided by the terms and conditions of this Bond
Pledge Agreement. The Collateral Agent may take, but shall have no
obligation to take, any and all such actions under this Bond Pledge
Agreement or otherwise as it shall deem to be in the best interests of
the Secured Parties in order to maintain the Bond Collateral and
protect and preserve the Bond Collateral and the rights of the Secured
Parties.
(b) The Collateral Agent shall not be responsible in any
manner whatsoever for the correctness of any recitals, statements,
representations or warranties contained herein. The Collateral Agent
makes no representation as to the value or condition of the Bond
Collateral or any part thereof, as to the title of the Pledgor or any
of its Subsidiaries to the Bond Collateral, as to the security afforded
by this Bond Pledge Agreement or, as to the validity, execution,
enforceability, legality or sufficiency of this Bond Pledge Agreement,
and the Collateral Agent shall incur no liability or responsibility in
respect of any such matters. The Collateral Agent shall not be required
to ascertain or inquire as to the performance by the Pledgor or any of
its Subsidiaries of their respective Secured Obligations.
(c) The Collateral Agent shall not be responsible for insuring
the Bond Collateral, for the payment of taxes, charges, assessments or
liens upon the Bond Collateral or otherwise as to the maintenance of
the Bond Collateral. The Bond Collateral Agent shall have no duty to
the Pledgor or any of its Subsidiaries or to the Secured Parties as to
any Bond Collateral in its possession or control or in the possession
or control of any agent or nominee of the Collateral Agent or any
income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto, except the duty to
accord such of the Bond Collateral as may be in its possession
substantially the same care as it accords its own assets and the duty
to account for monies received by it.
(d) The Collateral Agent may execute any of the powers granted
under this Bond Pledge Agreement and perform any duty hereunder either
directly or by or through agents or attorneys-in-fact, and shall not be
responsible for the gross negligence or willful misconduct of any
agents or attorneys-in-fact selected by it with reasonable care and
without gross negligence or willful misconduct.
(e) The Collateral Agent shall not be deemed to have actual,
constructive, direct or indirect notice or knowledge of the occurrence
of any Event of Default unless and until the Collateral Agent shall
have received a notice of Event of Default or a notice from the Pledgor
to the Collateral Agent in its capacity as Collateral Agent indicating
that an Event of Default has occurred. The Collateral Agent shall have
no obligation either prior to or after receiving such notice to inquire
whether an Event of Default has, in fact, occurred and shall be
entitled to rely conclusively, and shall be fully protected in so
relying, on any notice so furnished to it.
19
<PAGE> 178
26. Termination of Bond Pledge Agreement. Notwithstanding any provision
in this Bond Pledge Agreement to the contrary, in the event all of the Bank
Credit Documents and all obligations thereunder shall have terminated (other
than such obligations that by their terms are stated to survive termination of
the Bank Credit Documents) and no Loans, Letters of Credit or Commitments
thereunder shall remain outstanding, this Bond Pledge Agreement shall
immediately terminate and cease to be effective and the Pledgor shall be
released from all obligations hereunder (other than such obligations that by
their terms are stated to survive the termination of this Bond Pledge
Agreement).
[remainder of page intentionally left blank]
20
<PAGE> 179
IN WITNESS WHEREOF, the Pledgor has caused a counterpart of this Bond
Pledge Agreement to be duly executed and delivered as of the date first above
written.
UNION UNDERWEAR COMPANY, INC.,
a New York corporation
By:
-------------------------------------
Name: Brian J. Hanigan
Title: Vice President
<PAGE> 180
Accepted and agreed to in Charlotte, North Carolina as of the date
first above written.
NATIONSBANK, N.A., as Collateral Agent
By:
------------------------------------
Name:
-- -------------------------------
Title:
---------------------------------
<PAGE> 181
Schedule 2(a)
to
Bond Pledge Agreement
dated as of March 10, 1999
in favor of NationsBank, N.A.
as Collateral Agent
Bonds
-----
1. EQUIPMENT REVENUE BOND, SERIES 1989-UU
<TABLE>
<CAPTION>
<S> <C>
ISSUER: Industrial Development Board, City of Fayette, AL
ISSUE DATE: December 1, 1989
EXPIRATION DATE: December 1, 1999
ORIGINAL PRINCIPAL AMOUNT: $22,000,000
OUTSTANDING PRINCIPAL AMOUNT: $22,000,000
INTEREST RATE: 9.5%
INTEREST PAYMENT DATE(S): June 1 and December 1
TRUSTEE: SouthTrust Bank of Alabama, National Association
TRUSTEE ADDRESS: 110 Office Park Drive, 2nd Floor
Birmingham, AL 35223
Attn: Judith Miller, VP, Corporate Trust Dept.
LESSOR/ASSET LOCATION: Fayette Cotton Mill, Inc.
2. INDUSTRIAL REVENUE BONDS, SERIES 1990-UU, NUMBER R-1
ISSUER: Industrial Development Board, Cherokee County, AL
ISSUE DATE: May 1, 1990
EXPIRATION DATE: May 1, 2005
ORIGINAL PRINCIPAL AMOUNT: $11,000,000
OUTSTANDING PRINCIPAL AMOUNT: $11,000,000
INTEREST RATE: Base Rate (as defined in Indenture) + 1%
INTEREST PAYMENT DATE(S): May 1 and November 1
TRUSTEE: SouthTrust Bank of Alabama, National Association
TRUSTEE ADDRESS: 110 Office Park Drive, 2nd Floor
Birmingham, AL 35223
Attn: Judith Miller, VP, Corporate Trust Dept
LESSOR/ASSET LOCATION: Leesburg Knitting Mills, Inc.
</TABLE>
<PAGE> 182
3. INDUSTRIAL REVENUE BONDS, SERIES 1990-UU-A, NUMBER R-1
<TABLE>
<CAPTION>
<S> <C>
ISSUER: City of Winfield, AL
ISSUE DATE: June 1, 1990
EXPIRATION DATE: June 1, 2005
ORIGINAL PRINCIPAL AMOUNT: $18,300,000
OUTSTANDING PRINCIPAL AMOUNT: $18,300,000
INTEREST RATE: Base Rate (as defined in Indenture) + 1%
(8.75% as of 03/10/99)
INTEREST PAYMENT DATE(S): June 1 and December 1
TRUSTEE: SouthTrust Bank of Alabama, National Association
TRUSTEE ADDRESS: 110 Office Park Drive, 2nd Floor
Birmingham, AL 35223
Attn: Judith Miller, VP, Corporate Trust Dept
LESSOR/ASSET LOCATION: Winfield Cotton Mill, Inc.
4. INDUSTRIAL REVENUE BONDS, SERIES 1990-UU-B, NUMBER R-1
ISSUER: City of Winfield, AL
ISSUE DATE: June 15, 1990
EXPIRATION DATE: June 1, 2005
ORIGINAL PRINCIPAL AMOUNT: $9,700,000
OUTSTANDING PRINCIPAL AMOUNT: $9,700,000
INTEREST RATE: Base Rate (as defined in Indenture) + 1%
INTEREST PAYMENT DATE(S): June 1 and December 1
TRUSTEE: SouthTrust Bank of Alabama, National Association
TRUSTEE ADDRESS: 110 Office Park Drive, 2nd Floor
Birmingham, AL 35223
Attn: Judith Miller, VP, Corporate Trust Dept
LESSOR/ASSET LOCATION: Winfield Cotton Mill, Inc.
5. INDUSTRIAL REVENUE BONDS, SERIES 1991-UU, NUMBER R-1
ISSUER: Industrial Development Board, City of Aliceville, AL
ISSUE DATE: March 22, 1991
EXPIRATION DATE: February 1, 2006
ORIGINAL PRINCIPAL AMOUNT: $31,000,000
OUTSTANDING PRINCIPAL AMOUNT: $31,000,000
INTEREST RATE: Base Rate (as defined in Indenture) + 1%
INTEREST PAYMENT DATE(S): February 1 and August 1
TRUSTEE: SouthTrust Bank of Alabama, National Association
TRUSTEE ADDRESS: 110 Office Park Drive, 2nd Floor
Birmingham, AL 35223
Attn: Judith Miller, VP, Corporate Trust Dept
LESSOR/ASSET LOCATION: Aliceville Cotton Mill, Inc.
</TABLE>
<PAGE> 183
Schedule 4(g)
to
Bond Pledge Agreement
dated as of March 10, 1999
in favor of NationsBank, N.A.
as Collateral Agent
Chief Executive Office
(1) Union Underwear Company, Inc.
c/o Fruit of the Loom, Inc.
One Fruit of the Loom Drive
Bowling Green, KY 42103
(2) Union Underwear Company, Inc.
c/o Fruit of the Loom, Inc.
233 S. Wacker Drive
Suite 5000, Sears Tower
Chicago, IL 60606
<PAGE> 184
Exhibit 3(a) to
Bond Pledge Agreement
BOND PLEDGE CERTIFICATE
This Certificate is delivered pursuant to Section 3(a) of the Bond
Pledge Agreement dated as of March ____, 1999 (as may be amended from time to
time, the "Bond Pledge Agreement") made by Union Underwear Company, Inc. (the
"Pledgor") in favor of NationsBank, N.A. in its capacity as Collateral Agent
(the "Collateral Agent") for the Secured Parties. Capitalized terms used herein
and not otherwise defined shall have the meanings given to such terms in the
Bond Pledge Agreement.
As security for the prompt and complete payment and performance when
due of all Secured Obligations and the performance by the Pledgor of all of the
covenants and obligations to be performed by it pursuant to the Senior Credit
Documents, the Bond Pledge Agreement and any other documents relating to the
Secured Obligations, the Pledgor hereby pledges, hypothecates, assigns and
transfers to the Collateral Agent, hereby delivers to the Collateral Agent, and
hereby grants to the Collateral Agent, a valid and continuing first priority
lien on, and security interest in, all of the Pledgor's right, title and
interest in, to and under the following (the "Bond"):
[Describe Bond]
and all additions thereto, substitutions therefor and replacements and proceeds
thereof.
The Pledgor is delivering to the Collateral Agent the original Bond
together with this Bond Pledge Certificate duly executed in blank.
The Bond shall constitute a "Bond" under the Bond Pledge Agreement and
has been duly pledged thereunder.
Union Underwear Company, Inc.
Dated:
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Signature Guaranteed:
[Bank, Trust Company or Firm]
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE> 1
EX-10.(K)
FRUIT OF THE LOOM, INC.
Employment Agreement for William Farley,
As Amended and Restated January 6, 1999
<PAGE> 2
FRUIT OF THE LOOM, INC.
Employment Agreement for William Farley,
As Amended and Restated January 6, 1999
<TABLE>
<C> <C>
1. Employment...........................................................................1
2. Term.................................................................................1
3. Offices and Duties...................................................................2
4. Salary and Annual Incentive Compensation.............................................3
5. Long Term-Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement.....................................3
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability.................................................................8
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability......................................11
8. Definitions Relating to Termination Events..........................................15
9. Excise Tax Gross-Up.................................................................18
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement...................................................................20
11. Governing Law; Disputes; Arbitration................................................21
12. Miscellaneous.......................................................................23
13. Indemnification and Release.........................................................25
</TABLE>
<PAGE> 3
FRUIT OF THE LOOM, INC.
Employment Agreement for William Farley,
As Amended and Restated January 6, 1999
THIS EMPLOYMENT AGREEMENT, by and between FRUIT OF THE LOOM,
INC., a Delaware corporation (the "Company"), and William Farley ("Executive"),
constitutes an amendment and restatement of the current Employment Agreement
between the Company and the Executive, and is hereby entered into on this 6th
day of January, 1999 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has served the Company in the position of
Chairman of the Board and Chief Executive Officer since May 1985; and
WHEREAS, the Company desires to continue to employ Executive
in his capacity as Chairman of the Board and Chief Executive Officer (and in
such additional positions as are set forth below) in connection with the conduct
of its businesses, and Executive desires to accept such employment on the terms
and conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the
terms upon which Executive shall be so employed.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT.
The Company hereby agrees to employ Executive as its Chairman
of the Board, Chief Executive Officer, Chief Operating Officer and President and
Executive hereby agrees to accept such employment and serve in such capacities,
during the Term as defined in Section 2 and upon the terms and conditions set
forth in this Employment Agreement, as amended and restated (this "Agreement").
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating in
5 years and any period of extension thereof in accordance with this Section 2,
subject to earlier termination in accordance with Section 6 or 7. The Term shall
be extended automatically without further action by either
1
<PAGE> 4
party by one additional year (added to the end of the Term) first on January 6,
2000 (extending the Term to January 6, 2005) and on each succeeding January 6th
thereafter, unless either party shall have served written notice in accordance
with the provisions of Section 12(d) upon the other party prior to 6 months
preceding the date upon which such extension would become effective electing not
to extend the Term further as of the January 6th next succeeding the date such
notice is served, in which case employment shall terminate at the end of the
Term as extended, subject to earlier termination in accordance with Section 6 or
7.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as the Chief Executive
Officer, Chief Operating Officer and President of the Company and, if elected,
shall serve as a member of the Board of Directors of the Company (the "Board")
and, for so long as he is serving on the Board, Executive agrees to serve as
Chairman of the Board, as a member of the Executive Committee, and as a member
of any other Board Committee if the Board shall elect Executive to such
positions. In any and all such capacities, Executive shall report only to the
Board of Directors of the Company. Executive shall have and perform such duties,
responsibilities, and authorities as are customary for the chief executive
officer of a publicly held corporation of the size, type, and nature of the
Company as they may exist from time to time and consistent with such position
and status, but in no event shall such duties, responsibilities, and authorities
be reduced from those of Executive prior to the Effective Date. Executive shall
devote substantial business time and attention, and his best efforts, abilities,
experience, and talent to the position of Chief Executive Officer and for the
businesses of the Company; provided, however, that nothing in this Agreement
shall preclude or prohibit Executive from engaging in other activities,
including but not limited to (i) continuing employment as Chairman and Chief
Executive Officer and in other capacities by Farley Industries, Inc. or a
successor ("FII") or Farley Inc. or a successor ("FI"), (ii) employment in any
capacity by other entities in which Executive, FII, or FI may have a direct or
indirect equity investment, for which FII may perform management services,
and/or which may be otherwise affiliated with Executive, FII, or FI, (iii)
service as a director of any other entity, (iv) service to any educational,
charitable, community, civic, religious, or similar type of organization, and
public speaking engagements, and (v) management of personal and family
investments and financial and legal affairs, to the extent that such other
activities (including those indicated in (i) through (v) above) do not preclude
or render unlawful Executive's employment or service to the Company hereunder or
otherwise materially inhibit the performance of Executive's duties under this
Agreement or materially impair the business of the Company or its subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Chicago, Illinois.
In no event shall the Executive's principal place of employment be relocated to
any location other than Chicago, Illinois, without his prior written consent.
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(c) Rank of Executive Within Company. As Chairman of the Board
and Chief Executive Officer of the Company, Executive shall be the
highest-ranking executive of the Company.
4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered
hereunder by Executive, the Company agrees to pay to Executive during the Term
the compensation set forth in this Section 4.
(a) Base Salary. Subject to Section 5(b), the Company will pay
to Executive during the Term a base salary at the initial annual rate of
$2,000,000 payable in cash in substantially equal monthly installments during
each calendar year, or portion thereof, of the Term and otherwise in accordance
with the Company's usual payroll practices with respect to senior executives
(except to the extent deferred under Section 5(d)). Executive's annual base
salary shall be reviewed by the Compensation Committee of the Board (the
"Committee") at least once in each calendar year and may be increased above, but
may not be reduced below, the then-current rate of such base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Company's 1995 Executive Incentive Compensation Plan (the "1995 EICP"),
and any successor thereto, which shall offer to Executive an opportunity to earn
additional compensation in amounts determined by the Committee in accordance
with the applicable plan and consistent with past practices of the Company;
provided, however, that the Company will use its best efforts to maintain in
effect, for each year during the Term, the 1995 EICP or an equivalent plan under
which the Chief Executive Officer of the Company shall be eligible for an award
not less than the award opportunity assigned to the Executive under the 1995
EICP in 1998 (an amount equal to 2 times the Executive's annual rate of base
salary (without regard to any election to forego or defer salary as described in
Section 4(a) above)). Any such annual incentive compensation payable to
Executive shall be paid in accordance with the Company's usual practices with
respect to payment of incentive compensation to senior executives (except to the
extent deferred under Section 5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation by
senior executives of the Company (specifically including the "Pars" plan), as
presently in effect or as they may be modified or added to by the Company from
time to time, subject to the eligibility and other requirements of such plans
and programs, including without limitation the long-term incentive features of
the 1995 EICP, any successor to such plan, and other stock option plans,
performance share plans, management incentive plans, deferred compensation
plans, and supplemental retirement
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plans; provided, however, that such plans and programs, in the aggregate, shall
provide Executive with benefits and compensation and incentive award
opportunities substantially no less favorable than those provided by the Company
to Executive under such plans and programs as in effect on the Effective Date.
The foregoing notwithstanding, Executive's eligibility for grants of stock
options thereunder are subject to Section 5(b). For purposes of this Agreement,
all references to long-term incentive features refer to any performance shares,
performance units, stock grants, or other long-term incentive arrangements under
the 1995 EICP or other plans of the Company and any successor or replacement to
the 1995 EICP or other plans of the Company.
(b) Participation in Equity Investment Program. Executive
shall be eligible to participate in the Company's Equity Investment Program (the
"Program"), and Executive has previously agreed to participate in the Program,
in accordance with the terms and conditions set forth in this Section 5(b) and
as specified under the Program. Accordingly, the provisions of Section 4(a) and
5(a) notwithstanding, pursuant to the prior agreement of Executive, Executive
has foregone, and agrees to forego, during the period commencing January 1, 1997
and ending December 31, 1999, all base salary up to the $950,000 per year base
salary in effect for 1996 otherwise payable under Section 4(a). After December
31, 1999, Executive will be paid base salary in accordance with Section 4(a).
Notwithstanding any other provision of this Agreement to the contrary, the
$950,000 portion of the Executive's base salary foregone by Executive hereunder
shall be imputed and credited as base salary for all purposes under this
Agreement and the plans and programs of the Company.
(c) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, to the extent such plans are available to other senior executives
or employees of the Company, subject to the eligibility and other requirements
of such plans and programs, including without limitation plans providing
pensions, other retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, and
participation in savings, profit-sharing, and stock ownership plans; provided,
however, that, except as provided in the first sentence of Section 5(c)(iv)
below, such benefit plans and programs, in the aggregate, shall provide
Executive with benefits and compensation and incentive award opportunities
substantially no less favorable than those provided by the Company to Executive
under such plans and programs as in effect on the Effective Date.
In furtherance of and not in limitation of the foregoing
(except as provided in the first sentence of Section 5(c)(iv) below), during the
Term:
(i) Executive will participate as Chief Executive Officer in all
executive and employee vacation and time-off programs;
(ii) The Company will provide Executive, as Chief Executive
Officer, with insurance (including group and executive
long-term disability insurance) and other benefits
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substantially no less favorable (including any required
contributions by Executive) than such insurance and benefits
in effect on the Effective Date;
(iii) Executive will be covered by Company-paid group and individual
term life insurance providing a death benefit of not less than
10 times Executive's annual base salary payable in accordance
with Section 4(a) (including salary that would have been paid
but for Executive's participation in the program under Section
5(b)); provided, however, that such insurance may be combined
with a supplementary retirement funding vehicle;
(iv) Executive will be entitled to retirement benefits
substantially no less favorable than those under the defined
benefit pension plans and programs of the Company as in effect
on the Effective Date; provided, however, that the maximum
annual retirement benefit under such plans and programs shall
be limited to 50% of final average compensation. For purposes
of calculating such benefits, Executive's compensation for the
ten years ending on December 31, 1998, shall include 100% of
annual base salary and 100% of annual incentive compensation,
as well as compensation for services to FII. As of December
31, 1998, Executive has accrued 20 years of service for
purposes of calculating these benefits. For periods commencing
on or after January 1, 1999, Executive's compensation will
include 100% of annual base salary and 100% of annual
incentive compensation paid to Executive for services to the
Company and its subsidiaries (i.e., excluding portions of any
such compensation for services performed for the ultimate
benefit of an entity other than the Company and its
subsidiaries, excluding any payments to Executive under
Section 6 or 7, but including any salary that would have been
paid but for participation in the Program under Section 5(b)).
Service of the Executive which is considered in determining
such benefits shall include the post-termination periods
specified under Section 6(viii) and 7(b)(x), and final average
compensation shall be based on the average of the highest five
consecutive years of such compensation in the ten calendar
year period which includes, as the last year, the calendar
year immediately prior to the calendar year in which the
ending date of Executive's service occurs (for this purpose,
annual incentive compensation shall exclude any payment made
as a result of termination). Further, (A) Executive shall be
credited, for each full year of the Term that is completed
beginning January 1, 1999 (including, for this purpose,
service credited under the post-termination periods specified
under Section 6(viii) and 7(b)(x)), with one additional year
of service under such plans and programs, up to a maximum of
six (6) additional years crediting by operation of this
Section 5(c)(iv)(A), which additional years of service shall
be vested upon such crediting; and (B) amounts equal to the
present value of Executive's accrued benefit vested at any
time during the Term under the Fruit of the Loom, Inc.
Supplemental Executive Retirement Plan (the "SERP") will be
fully funded by the Company by deposits to an irrevocable
"rabbi trust" pursuant to Section 2.2 of the SERP; and
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(v) The Company will provide Executive with health and medical
benefits consistent with its policies for other senior
executives (which currently provide for no co-pays and no
deductibles), provided, however, that supplemental health and
medical benefits shall provide for reimbursement of Executive
to the extent that the $1,000,000 limitation on maximum
lifetime health and medical benefits and reimbursements under
other Company policies and programs is exceeded.
Any provision to the contrary contained in this Agreement
notwithstanding, unless Executive is terminated by the Company for "Cause" (as
defined in Section 8(a) hereof) prior to a Change in Control, Executive may
elect continued participation after termination in the Company's health and
medical coverage for himself and his spouse and dependent children after such
coverage would otherwise end until such time as Executive becomes eligible for
Medicare; provided, however, that in the event of such election, Executive shall
pay the Company each year an amount equal to the current annual COBRA premium
being paid by other former employees of the Company, unless otherwise provided
under Section 6 or 7.
(d) Deferral of Compensation. The Company shall implement
deferral arrangements permitting Executive to elect to irrevocably defer
receipt, pursuant to written deferral election terms and forms (the "Deferral
Election Forms"), of all or a specified portion of (i) his annual base salary
and annual incentive compensation under Section 4, (ii) long-term incentive
compensation under Section 5(a), and (iii) shares acquired upon exercise of
options granted in accordance with Sections 5(a) and (b) that are acquired in an
exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares acquired
by Executive in such exercise; provided, however, that such deferrals shall not
reduce Executive's total cash compensation in any calendar year below the sum of
(i) the FICA maximum taxable wage base plus (ii) 1.45% of Executive's annual
salary, annual incentive compensation and long-term incentive compensation in
excess of such FICA maximum.
In accordance with such duly executed Deferral Election Forms
or the terms of any such mandatory deferral, the Company shall credit to one or
more bookkeeping accounts maintained for Executive on the respective payment
date or dates, amounts equal to the compensation subject to deferral, such
credits to be denominated in cash if the compensation would have been paid in
cash but for the deferral or in shares if the compensation would have been paid
in shares but for the deferral. An amount of cash equal in value to all
cash-denominated amounts credited to Executive's account and a number of shares
of Common Stock equal to the number of shares credited to Executive's account
pursuant to this Section 5(d) shall be transferred as soon as practicable
following such crediting by the Company to, and shall be held and invested by,
an independent trustee selected by the Company and reasonably acceptable to
Executive (a "Trustee") pursuant to a "rabbi trust" established by the Company
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, real estate,
private equity and limited partnerships, and insurance vehicles) (the "Deferred
Compensation Accounts"). Thereafter, Executive's deferral accounts will be
valued by reference to the value of the
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Deferred Compensation Accounts. The Company shall pay all costs of
administration of the deferral arrangement, without deduction or reimbursement
from the assets of the "rabbi trust," or reduction in the Deferred Compensation
Accounts.
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement), the Company shall promptly pay to
Executive cash equal to the cash then credited to Executive's deferral accounts
and cash equal in value to any shares of Common Stock then credited to
Executive's deferral accounts, less applicable withholding taxes, and such
distribution shall be deemed to fully settle such accounts; provided, however,
that the Company may instead settle such accounts by directing the Trustee to
distribute the assets of the "rabbi trust." The Company and Executive agree that
compensation deferred pursuant to this Section 5(d) shall be fully vested and
nonforfeitable; provided, however, Executive acknowledges that his rights to the
deferred compensation provided for in this Section 5(d) shall be no greater than
those of a general unsecured creditor of the Company, and that such rights may
not be pledged, collateralized, encumbered, hypothecated, or liable for or
subject to any lien, obligation, or liability of Executive, or be assignable or
transferable by Executive, otherwise than by will or the laws of descent and
distribution, provided that Executive may designate one or more beneficiaries to
receive any payment of such amounts in the event of his death.
(e) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
(f) Company Registration Obligations. The Company will file
with the Securities and Exchange Commission, and will thereafter maintain the
effectiveness of, one or more registration statements registering under the
Securities Act of 1933, as amended, the offer and sale of shares by the Company
pursuant to stock options granted to Executive under the 1995 EICP and successor
plans, which registration statements shall include a resale prospectus covering
the reoffer and resale (or other disposition) of all shares acquired by
Executive upon exercise of such stock options, and the Company will maintain as
current all offering materials under such registration statement(s) at all times
that offers and sales of such shares could be made by the Company or Executive.
(g) Accelerated Funding of Rabbi Trust. Not later than 30 days
following a Change in Control that occurs during the term of this Agreement, the
Company shall contribute to the "rabbi trust" referred to in Section 5(d) an
amount equal to the amount that would be payable to the Executive upon a
termination of employment described in Section 7(b), where such amount consists
of:
(i) the lump-sum payment provided for in Section 7(b)(i); and
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(ii) a lump-sum payment representing the present value of
Executive's accrued vested benefit in all supplemental
(non-qualified) defined benefit plans and programs of the
Company, including, for this purpose, all such benefits which
Executive would accrue under Sections 7(b)(ix) and (b)(x)
(taking into account all supplemental defined benefit pension
service credits provided for in Section 5(c)(iv)(A) by reason
thereof) in the event of a termination of employment described
in Section 7(b) immediately following a Change in Control,
reduced by any amounts in the rabbi trust immediately prior to
such Change in Control which were placed in trust for the
benefit of the Executive (or by such amounts as are,
immediately following a Change in Control, placed in the rabbi
trust for the benefit of the Executive) under such plans.
In the event of Executive's termination of employment for any reason following a
Change in Control, the trustee of the rabbi trust shall pay such amounts (plus
earnings thereon) to the Executive if the amounts due to the Executive hereunder
are not otherwise paid to the Executive by the Company.
6. TERMINATION DUE TO NORMAL RETIREMENT, APPROVED EARLY
RETIREMENT, DEATH, OR DISABILITY.
Executive may terminate employment as Chief Executive Officer
upon Executive's retirement at or after age 65 ("Normal Retirement") or, if
approved in advance by the Committee, upon Executive's early retirement prior to
age 65 ("Approved Early Retirement"). The Company may terminate the employment
of Executive as Chief Executive Officer due to the Disability (as defined in
Section 8(c)) of Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In the
event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred to in the definition
of Disability (set forth in Section 8(c)) absent the actions referred to therein
being taken by Executive to return to service and present to the Company a
certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations of
the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, provided, however, that subject to the provisions of Section
12(i), the Company will pay Executive (or his beneficiaries or estate), and
Executive (or his beneficiaries or estate) will be entitled to receive, the
following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
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(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (c) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive
compensation for any year in such three-year period, the
Executive's target annual incentive compensation for such
year(s) shall be used to calculate average annual incentive
compensation) multiplied by a fraction the numerator of which
is the number of days Executive was employed in the year of
termination and the denominator of which is the total number
of days in the year of termination;
(iv) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (ii) above), Executive will be paid, for each tranche of
such long term incentive awards, in cash an amount equal to
any cash amount plus the value of any shares of Common Stock
or other property (valued at the date of termination) (A)
payable for that part of the long term incentive award that is
no longer subject to a risk of forfeiture tied to performance
conditions, without proration, and (B) payable in respect of
that part of the long term incentive award that is subject to
a risk of forfeiture tied to performance conditions, assuming
achievement of the maximum performance in the case of death or
Disability or achievement of target performance in the case of
Normal Retirement or Early Retirement, multiplied (in case (B)
only) by a fraction the numerator of which is the number of
days Executive was employed during the performance period over
which such performance was to be measured and the denominator
of which is the total number of days in such performance
period;
(v) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted,
including in and under Section 5(b);
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(vi) All deferral arrangements under Section 5(d) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e); and
(viii) If Executive's employment terminates due to Disability, for
the period extending from such termination until Executive
reaches age 65, Executive shall continue to participate in all
employee benefit plans, programs, and arrangements under
Section 5(c) providing health, medical, and life insurance and
pension benefits in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(except that additional years of service creditable under
Section 5(c)(iv) shall not be credited as a result of such
deemed continued participation following termination) or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if
Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination as provided in this
Section 6(viii), with such benefits payable by the Company at
the same times and in the same manner as such benefits would
have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided further, that in the case of termination of Executive's employment due
to Disability, Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue receiving the compensation and benefits under
(viii), above; and provided further, that Executive will be entitled to the
benefit of any terms of plans or agreements applicable to Executive which are
more favorable than those specified in this Section 6. Amounts payable under
(i), (ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after termination of Executive's employment; provided, however, that, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company).
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7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN NORMAL
RETIREMENT, APPROVED EARLY RETIREMENT, DEATH OR DISABILITY.
(a) Termination by the Company for Cause and Termination by
Executive Other Than For Good Reason. In accordance with the provisions of this
Section 7(a), the Company may terminate the employment of Executive as Chief
Executive Officer for Cause (as defined in Section 8(a)) at any time prior to a
Change in Control (as defined in Section 8(b)), and Executive may terminate his
employment as Chief Executive Officer voluntarily for reasons other than Good
Reason (as defined in Section 8(d)) at any time. An election by Executive not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a termination
of this Agreement by Executive for reasons other than Good Reason at the date of
expiration of the Term, unless there occurs a Change in Control prior to such
date of expiration.
Upon a termination of Executive's employment by the Company
for Cause at any time prior to a Change in Control or by the Executive for
reasons other than Good Reason, the Term will immediately terminate, and all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease, provided, however, that, subject to the
provisions of Section 12(i), the Company shall pay Executive, and Executive
shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(c) hereof
(including any earned and vested annual and long-term
incentive compensation) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's
deferral accounts under deferral arrangements authorized under
Section 5(d) hereof at the date of termination of employment
(including cash equal in value at that date to any shares of
Common Stock credited to Executive's deferral accounts), less
applicable withholding taxes under Section 12(i); provided,
however, that the Company may instead settle such accounts by
directing the Trustee to distribute the assets of the "rabbi
trust." Such amounts shall be paid or distributed as promptly
as practicable following such date of termination, without
regard to any stated period of deferral otherwise remaining in
respect of such amounts, and the payment of such amounts shall
be deemed to fully settle such accounts; and
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(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as promptly
as practicable after termination of Executive's employment; provided, however,
that, to the extent that the Company would not be entitled to deduct any such
payments under Internal Revenue Code Section 162(m), such payments shall be made
at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company).
(b) Termination by the Company Without Cause and Termination
by Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of Executive as Chief Executive
Officer without Cause (as defined in Section 8(a)), including after a Change in
Control (as defined in Section 8(b)), upon 90 days' written notice to Executive,
and Executive may terminate his employment as Chief Executive Officer for Good
Reason (as defined in Section 8(d)) upon written notice to the Company;
provided, however, that in the case of a termination for Good Reason prior to a
Change in Control, the Executive must provide 90 days= written notice to the
Company and if the basis for such Good Reason is correctable, the Company must
not have corrected the basis for such Good Reason within 30 days after receipt
of such notice. The foregoing notwithstanding, the Company may, in lieu of
providing 90 days' written notice to Executive, pay Executive his then-current
annual base salary under Section 4(a) (subject to Section 5(b)) and credit
Executive with service for 90 days for all purposes hereunder. An election by
the Company not to extend the Term pursuant to Section 2 hereof shall be deemed
to be a termination of this Agreement by the Company without Cause at the date
of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause, or termination of Executive's employment by the Executive for
Good Reason, the Term will immediately terminate and all obligations of the
parties under Sections 1 through 5 of this Agreement will immediately cease,
except that subject to the provisions of Section 12(i) the Company shall pay
Executive, and Executive shall be entitled to receive, the following:
(i) A lump sum cash payment in an amount equal to the sum of
Executive's then-current annual base salary at the rate
payable under Section 4(a) (without regard to the election to
forego salary pursuant to Section 5(b)) immediately prior to
termination plus the Severance Annual Incentive Amount (as
defined below) multiplied by 5, which payment shall be reduced
pro rata to the extent the number of full months remaining
until Executive attains age 65 is less than 60 months. For
purposes of this Section 7(b)(i) and Section 7(b)(iv), the
"Severance Annual Incentive Amount" shall be (A), in the case
of a termination prior to a Change in Control, the average
annual incentive compensation paid to Executive in the three
years immediately preceding the year of termination (or, if
Executive was not eligible to receive or did not receive such
incentive compensa-
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tion for any year in such three-year period, the Executive's
target annual incentive compensation for such year(s) shall be
used to calculate average annual incentive compensation), or
(B), in the case of a termination after a Change in Control,
the greater of the average of the highest three years out of
the last ten calendar years or the annual incentive
compensation payable to Executive upon achievement of the
maximum level of performance for the year of termination,
provided, however, that in either case the Severance Annual
Incentive Amount shall not be less than 50% of the current
annual base salary referred to above;
(ii) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof (and subject to Section
5(b)), at the date of termination of employment, pro rated
through such date of termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (c) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated, and all amounts not vested and nonforfeitable,
but owing and accrued at the date of termination of
employment, under such benefit plans, programs, and
arrangements, shall become vested and nonforfeitable and will
be paid under the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (iii) above), Executive will
be paid an amount equal to the Severance Annual Incentive
Amount as defined in Section 7(b)(i) which, in the case of
termination prior to a Change in Control, shall be multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination, and which, in the case of termination after a
Change in Control, shall be subject to no proration;
(v) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (iii) above), an amount equal to any cash amount plus
the value of any shares of Common Stock or other property
(valued at the date of termination) assuming achievement of
the maximum performance for the performance period;
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(vi) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted,
provided, however, that for all such purposes Executive shall
be deemed to be an Employee for a period of 5 years following
the termination of Executive's employment;
(vii) All deferral arrangements under Section 5(d) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(e);
(ix) A lump-sum cash payment will be paid equal to the present
value of Executive's accrued benefit, if any, which shall be
fully vested at date of termination of employment, under all
supplemental (non-qualified) defined benefit pension plans of
the Company, unless such benefits are fully funded based on
assets held in trust for the benefit of Executive which cannot
be reached by creditors of the Company, or such benefits are
otherwise funded and secured in an equivalent manner; and
(x) For a period of 5 years after such termination, Executive
shall continue to participate in all employee, executive, and
special individual benefit plans, programs, and arrangements
under Section 5(c) (and, in the case of a termination
following a Change in Control, the Company's restricted stock
grant plan (with all stock issued under such plan being fully
vested)), including the executive benefits in effect as of the
Effective Date (as indicated in the benefits statement which
has been provided to Executive for 1999), and further
including but not limited to health, medical, disability, life
insurance, and pension benefits in which Executive was
participating immediately prior to termination, the terms of
which allow Executive's continued participation, as if
Executive had continued in employment with the Company during
such period (additional years of service creditable under
Section 5(c)(iv)(A) shall be credited as a result of such
deemed continued participation following termination) or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if
Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination, with such benefits
payable by the Company at the same times and in the same
manner as such benefits would have been received by Executive
under such plans (it being understood that the value of
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any insurance-provided benefits will be based on the premium
cost to Executive, which shall not exceed the highest risk
premium charged by a carrier having an investment grade or
better credit rating);
provided, however, that Executive will be entitled to the benefit of any terms
of plans or agreements applicable to Executive which are more favorable than
those specified in this Section 7(b). Amounts payable under (i), (ii), (iii),
(iv), (v), (vii), (viii), (ix), and (x) above will be paid as promptly as
practicable after termination of Executive's employment, and in no event more
than 45 days after such termination; provided, however, that, if such
termination is a termination by the Company without Cause and prior to a Change
in Control, to the extent that the Company would not be entitled to deduct any
such payments under Internal Revenue Code Section 162(m), such payments shall be
made at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company), but in no event later than 12 months subsequent to the date of
termination.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition, "gross
misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the Company
and its subsidiaries or materially impairs the value of the Executive's services
to the Company, or (B) willfully engaging in one or more acts, or willfully
omitting to act in accordance with duties hereunder, which is demonstrably and
materially damaging to the Company and its subsidiaries, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or failure
to act on Executive's part shall be considered "willful" if it was done or
omitted to be done by him not in good faith, and shall not include any act or
failure to act resulting from any incapacity of Executive. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within 6 months after the Board (A) had
knowledge of conduct or an event allegedly constituting Cause and (B) had reason
to believe that such conduct or event could be grounds for Cause, a copy of a
resolution duly adopted by a majority affirmative vote of the membership of the
Board (excluding Executive) at a meeting of the Board called and held for such
purpose (after giving Executive reasonable notice specifying the nature of the
grounds for such termination and not less than 30 days to correct the acts or
omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
set forth above in this Section 8(a), or, in any case, after a Change in
Control.
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
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(i) An acquisition by any Person of Beneficial Ownership of the
shares of Common Stock of the Company then outstanding (the
"Company Common Stock Outstanding") or the voting securities
of the Company then outstanding entitled to vote generally in
the election of directors (the "Company Voting Securities
Outstanding"); provided, however, that such acquisition of
Beneficial Ownership would result in the Person's Beneficially
Owning twenty-five percent (25%) or more of the Company Common
Stock Outstanding or twenty-five percent (25%) or more of the
combined voting power of the Company Voting Securities
Outstanding; and provided further, that immediately prior to
such acquisition such Person was not a direct or indirect
Beneficial Owner of twenty-five percent (25%) or more of the
Company Common Stock Outstanding or twenty-five percent (25%)
or more of the combined voting power of Company Voting
Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this
Section 8(b) as a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, for purposes of
this Section 8(b), that any individual who becomes a member of
the Board subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act, including any successor to such Rule) or
other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent
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(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; or (3) any transaction
initiated or controlled, directly or indirectly, by Executive, in a capacity
other than as Chairman of the Board, Chief Executive Officer, or a director of
the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning,"
and "Beneficial Ownership" shall have the meanings
ascribed to such terms in Rule 13d-3 under the
Exchange Act (including any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including
"group" as defined in Section 13(d) thereof.
(D) The term "Board" means the Board of Directors of the
Company or any parent of the Company.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed termination due to such absence, Executive shall have
returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by the Company and reasonably acceptable to
Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's prior written consent, (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices as
set forth in Section 3(a), status, rank, nature of responsibilities, or
authority within the Company, or a removal of Executive from or any failure to
elect or re-elect or, as the case may be, nominate Executive to any such
positions or offices, including as Chairman of the Board or as a member of any
committee of the Board of Directors upon which Executive has served under
Section 3(a), except in connection with the termination
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of Executive's employment for Cause, Disability, Normal Retirement or Approved
Early Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive which are inconsistent
with his status as Chairman of the Board and Chief Executive Officer of the
Company and other positions held under Section 3(a), (C) a decrease in annual
base salary or other compensation opportunities and maximums or benefits
provided under this Agreement, (D) any other failure by the Company to perform
any material obligation under, or breach by the Company of any material
provision of, this Agreement, (E) a relocation of the Corporate Offices of the
Company more than 35 miles from the latest location of such offices prior to the
date of a Change in Control, (F) any failure to secure the agreement of any
successor corporation or other entity to the Company to fully assume the
Company's obligations under this Agreement in a form reasonably acceptable to
Executive, and (G) any attempt by the Company to terminate Executive for Cause
which does not result in a valid termination for Cause, except in the case that
valid grounds for termination for Cause exist but are corrected as permitted
under Section 8(a).
9. EXCISE TAX GROSS-UP.
In the event that there shall occur a Change in Control of the Company,
if Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement for
any penalties and interest that may accrue in respect of such Excise Tax) such
that the net amount retained by Executive, after reduction for any Excise Tax
(including any penalties or interest thereon) on the Total Payments and any
federal, state and local income or employment tax and Excise Tax on the Gross-up
Payment provided for by this Section 9, but before reduction for any federal,
state, or local income or employment tax on the Total Payments, shall be equal
to the sum of (a) the Total Payments, and (b) an amount equal to the product of
any deductions disallowed for federal, state, or local income tax purposes
because of the inclusion of the Gross-up Payment in Executive's adjusted gross
income multiplied by the highest applicable marginal rate of federal, state, or
local income taxation, respectively, for the calendar year in which the Gross-up
Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless, and except to the extent that, in the
written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and
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reasonably acceptable to Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the
Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A)
the total amount of the Total Payments or (B) the total amount
of excess parachute payments within the meaning of section
280G(b)(1) of the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made (including, for this purpose, any additional
tax associated with the alternative minimum tax, if applicable); (B) to pay any
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of Executive's adjusted gross
income); and (C) to have otherwise allowable deductions for federal, state, and
local income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, Executive
shall repay to the Company at the time that the amount of such reduction in
Excise Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction is refunded to
Executive or otherwise realized as a benefit by Executive) the portion of the
Gross-up Payment that would not have been paid if such Excise Tax had been
applied in initially calculating the Gross-up Payment, plus interest on the
amount of such repayment. In the event that the Excise Tax is determined by the
Internal Revenue Service (at any time, including subsequent to the expiration of
this Agreement) to exceed the amount taken into account hereunder at the time
the Gross-up Payment is made (including by reason of any payment the existence
or amount of which cannot be determined at the time of the Gross-up Payment),
the Company shall make an additional Gross-up Payment in respect of such excess
(plus any interest and penalties payable with respect to such excess) at the
time that the amount of such excess is assessed.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise
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Tax; provided, however, that if the amount of such Gross-up Payment or portion
thereof cannot be finally determined on or before such day, the Company shall
pay to Executive on such day an estimate, as determined by the Independent
Advisors, of the minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In
the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company to Executive, payable on the fifth day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code). If more than one Gross-up Payment is made, the amount of each Gross-up
Payment shall be computed so as not to duplicate any prior Gross-up Payment. The
Company shall have the right to control all proceedings with the Internal
Revenue Service that may arise in connection with the determination and
assessment of any Excise Tax and, at its sole option, the Company may pursue or
forego any and all administrative appeals, proceedings, hearings, and
conferences with any taxing authority in respect of such Excise Tax (including
any interest or penalties thereon); provided, however, that the Company's
control over any such proceedings shall be limited to issues with respect to
which a Gross-up Payment would be payable hereunder, and Executive shall be
entitled to settle or contest any other issue raised by the Internal Revenue
Service or any other taxing authority. Executive shall cooperate with the
Company in any proceedings relating to the determination and assessment of any
Excise Tax and shall not take any position or action that would materially
increase the amount of any Gross-Up Payment hereunder. Notwithstanding anything
herein to the contrary, the Company shall make an additional Gross-up Payment in
respect of any failure by the Company to pay the Excise Tax in a timely manner,
including, but not limited to, interest and penalties, and the fees of any
accountants, attorneys and other tax advisors engaged by Executive in connection
with any dispute regarding the amount of any Excise Tax due.
10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive will
not, for a period of 3 years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business in the continental United States in which he has been directly engaged
on behalf of the Company or any subsidiary, or has supervised as an executive
thereof, during the last two years prior to such termination and which is
directly in competition with a business then conducted by the Company or any of
its subsidiaries, other than engaging in the businesses owned or controlled by
FII (excluding those of the Company and its subsidiaries) or FI (excluding those
of the Company and its subsidiaries) at the date of termination, or providing
services through FII to businesses for which FII provided services at the date
of termination; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his or her employment with the
Company or any of its subsidiaries, to curtail or cancel their business with
such companies or any of them; or (iii) induce, or attempt to influence, any
employee of the
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Company or any of its subsidiaries to terminate employment; provided, however,
that the limitation contained in clause (i) above shall not apply if Executive's
employment is terminated as a result of a termination by the Company following a
Change in Control, a termination by Executive for Good Reason, a termination due
to Disability, Normal Retirement, or Approved Early Retirement. The provisions
of subparagraphs (i), (ii), and (iii) above are separate and distinct
commitments independent of each of the other subparagraphs. It is agreed that
the ownership of not more than one percent of the equity securities of any
company having securities listed on an exchange or regularly traded in the
over-the-counter market shall not, of itself, be deemed inconsistent with clause
(i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company and its subsidiaries so long as such
information has not otherwise been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action which may, directly or indirectly, disparage or be damaging to the
Company or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations. Notwithstanding the
foregoing, nothing in this Agreement shall preclude Executive from making
truthful statements or disclosures that are required by applicable law,
regulation or legal process.
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and regulations
may be applicable. If under the governing law, any portion of this
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Agreement is at any time deemed to be in conflict with any applicable statute,
rule, regulation, ordinance, or other principle of law, such portion shall be
deemed to be modified or altered to the extent necessary to conform thereto or,
if that is not possible, to be omitted from this Agreement. The invalidity of
any such portion shall not affect the force, effect, and validity of the
remaining portion hereof. If any court determines that any provision of Section
10 is unenforceable because of the duration or geographic scope of such
provision, it is the parties' intent that such court shall have the power to
modify the duration or geographic scope of such provision, as the case may be,
to the extent necessary to render the provision enforceable and, in its modified
form, such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights; provided, however, that no reimbursement shall be made of such
expenses relating to any unsuccessful assertion of rights if and to the extent
that Executive's assertion of such rights was in bad faith or frivolous, as
determined by independent counsel mutually acceptable to the Executive and the
Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts of
the State of Illinois, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter have to such jurisdiction and any defense of inconvenient
forum. The Company and Executive hereby agree that a judgment upon an award
rendered by the arbitrators may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. Subject to Section 11(b),
the Company shall bear all costs and expenses arising in connection with any
arbitration proceeding pursuant to this Section 11. Notwithstanding any
provision in this Section 11, Executive shall be entitled to seek specific
performance of Executive's right to be paid during the pendency of any dispute
or controversy arising under or in connection with this Agreement. The
arbitrator shall have the right to order immediate payment of any amounts not in
dispute, and to advance the payment of the fees of Executive under Section
11(b).
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest at the prime rate in effect at the time such
payment first becomes payable, as quoted by the Bankers Trust Company.
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12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company and its subsidiaries, except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and its subsidiaries. This Agreement (together with
the Option Agreement ) constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment or benefit under this
Agreement which duplicates a payment or benefit received or receivable by
Executive under such prior agreements and understandings or under any benefit or
compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation of
law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a condition
of the succession, require such Successor to agree to assume the Company's
obligations and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's voting securities or all or substantially all of its assets, or
otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
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With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
William Farley
209 East Lake Shore Drive
Chicago, Illinois 60611
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective 2 days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in Section 5(c) hereof, any
such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) Offsets and Withholding. The amounts required to be paid
by the Company to Executive pursuant to this Agreement shall not be subject to
offset. The foregoing and other provisions of this Agreement notwithstanding,
all payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
24
<PAGE> 27
(j) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company (and its parent, if any, and affiliates) and its
successors and assigns. Upon the effective time of the Company's reorganization
pursuant to which Fruit of the Loom, Ltd. shall become the parent company of the
Company, this agreement shall become a binding obligation of Fruit of the Loom,
Ltd. and all references to the Company shall be deemed to be a reference to
Fruit of the Loom, Ltd.
13. INDEMNIFICATION AND RELEASE.
(a) Indemnification of Executive by the Company. All
rights to indemnification by the Company now existing in favor
of the Executive as provided in the Company's Certificate of
Incorporation or By-Laws or pursuant to other agreements in
effect on or immediately prior to the Effective Date shall
continue in full force and effect from the Effective Date
(including all periods after the expiration of the Term), and
the Company shall also advance expenses for which
indemnification may be ultimately claimed as such expenses are
incurred to the fullest extent permitted under applicable law,
subject to any requirement that the Executive provide an
undertaking to repay such advances if it is ultimately
determined that the Executive is not entitled to
indemnification; provided, however, that any determination
required to be made with respect to whether the Executive's
conduct complies with the standards required to be met as a
condition of indemnification or advancement of expenses under
applicable law and the Company's Certificate of Incorporation,
By-Laws, or other agreement shall be made by independent
counsel mutually acceptable to the Executive and the Company
(except to the extent otherwise required by law). After the
date hereof, the Company shall not amend its Certificate of
Incorporation or By-Laws or any agreement in any manner which
adversely affects the rights of the Executive to
indemnification thereunder. Any provision contained herein
notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to
applicable law. In addition, the Company will maintain
directors' and officers' liability insurance in effect and
covering acts and omissions of Executive during the Term and
for a period of six years thereafter on terms substantially no
less favorable than those in effect on the Effective Date.
(b) Release by Executive. Except for the Company's
obligations under this Agreement including, without
limitation, Executive's rights of indemnification, and except
as hereinafter expressly provided, Executive irrevocably and
unconditionally releases and discharges the Company, its
officers, directors, shareholders, agents, employees,
affiliates, related companies and entities, successors and
assigns (separately and collectively, the "Company's Released
Parties", jointly and individually, from any and all claims,
obligations, demands, damages, and causes of action of any
nature or kind whatsoever, known or unknown, which Executive,
his heirs, successors or assigns, has or may have, now or in
the future, against the Company or the
25
<PAGE> 28
Company's Released Parties, based upon, relating to, or
arising from the creation, existence or termination of
Executive's employment, including but not limited to, claims
arising under or relating to the Fair Labor Standards Act of
1938 and claims of employment discrimination arising under
Title VII of the Civil Rights Act of 1964, as amended by the
Civil Rights Act of 1991, the Americans with Disabilities Act
of 1990, the Family and Medical Leave Act of 1993, the Age
Discrimination in Employment Act of 1967, as amended by the
Older Workers Benefit Protection Act, the Employee Retirement
Income Security Act, the National Labor Relations Act, and/or
claims arising under the State Statute or Local Statute or
Ordinance covering age discrimination, wrongful termination or
any claim arising under express or implied contracts, tort,
public policy, common law or any other Federal, state or local
statute (including state and local anti-discrimination
statutes), ordinance, regulation or constitutional provision.
(c) Release by Company. Except for the Executive=s
obligations under this Agreement, (including the repayment of
any advancements made before or after the Effective Date,
which the Executive is required to repay if it is ultimately
determined that the Executive is not entitled to
indemnification) and as hereinafter provided, the Company and
the Company's Released Parties irrevocably and unconditionally
release and discharge Executive, his successors and assigns,
from any and all claims, obligations, demands, damages and
causes of action of any kind whatsoever, known or unknown,
which the Company and the Company's Released Parties may have,
now or in the future, against the Executive based upon,
relating to, or arising from the creation, existence or
termination of Executive's employment; and such release shall
extend to the full extent (and only to the extent) of any
indemnification authorized under Section 13(a) of this
Agreement and under Article XIII of the Company's Certificate
of Incorporation.
26
<PAGE> 1
EX-10.(L)
FRUIT OF THE LOOM, INC.
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Employment Agreement for Brian J. Hanigan
----------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for Brian J. Hanigan
----------------------
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<TABLE>
<C> <C>
1. Employment.......................................................................1
2. Term.............................................................................1
3. Offices and Duties...............................................................2
4. Salary and Annual Incentive Compensation.........................................2
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement.................................3
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability. ...........................................................6
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability. .................................8
8. Definitions Relating to Termination Events......................................12
9. Excise Tax Gross-Up.............................................................14
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement...............................................................17
11. Governing Law; Disputes; Arbitration............................................18
12. Miscellaneous...................................................................19
13. Indemnification and Release.....................................................21
</TABLE>
<PAGE> 3
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for Brian J. Hanigan
----------------------
- --------------------------------------------------------------------------------
THIS EMPLOYMENT AGREEMENT, by and between FRUIT OF THE LOOM,
INC., a Delaware corporation (the "Company"), and Brian J. Hanigan
("Executive"), is hereby entered into on this 6th day of January, 1999 (the
"Effective Date").
W I T N E S S E T H
WHEREAS, Executive has been an employee of the Company since
June 18, 1984; and
WHEREAS, the Company desires to continue to employ Executive
in his capacity as Vice President-Treasurer in connection with the conduct of
its businesses, and Executive desires to accept such employment on the terms and
conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the
terms upon which Executive shall be so employed.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT.
The Company hereby agrees to employ Executive as its Vice
President-Treasurer, and Executive hereby agrees to accept such employment and
serve in such capacity, during the Term as defined in Section 2 and upon the
terms and conditions set forth in this Employment Agreement, as amended and
restated (this "Agreement").
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating
January 5, 2002 and any period of extension thereof in accordance with this
Section 2, subject to earlier termination in accordance with Section 6 or 7. The
Term shall be extended automatically without further action by either party by
one additional year (added to the end of the Term) first on January 6, 2002
(extending the Term to January 5, 2003) and on each succeeding January 6
thereafter, unless either party shall have served written notice in accordance
with the provisions of Section 12(d) upon the other party prior
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<PAGE> 4
to the July 6 preceding the date upon which such extension would become
effective electing not to extend the Term further as of the January 6 next
succeeding the date such notice is served (and successive January 6 during the
remainder of the Term), in which case employment shall terminate at the end of
the Term as extended, subject to earlier termination in accordance with Section
6 or 7.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as the Vice
President-Treasurer of the Company. Executive shall have and perform such
duties, responsibilities, and authorities as are customary for the Vice
President-Treasurer of a publicly held corporation of the size, type, and nature
of the Company as they may exist from time to time and consistent with such
position and status, but in no event shall such duties, responsibilities, and
authorities be reduced from those of Executive prior to the Effective Date as
described in Executive's job description provided to the Executive as of the
date hereof. Executive shall devote substantial business time and attention, and
his best efforts, abilities, experience, and talent to the position of Vice
President-Treasurer and for the businesses of the Company; provided, however,
that nothing in this Agreement shall preclude or prohibit Executive from
engaging in other activities, including as assigned by the Company, the
provision of services to William Farley, Farley Industries, Inc. or a successor
("FII"), or Farley, Inc. ("FI") or a successor, to the extent that such other
activities do not preclude or render unlawful Executive's employment or service
to the Company hereunder or otherwise materially inhibit the performance of
Executive's duties under this Agreement or conflict with the business of the
Company or its subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Chicago, Illinois.
In no event shall the Executive's principal place of employment be relocated to
any location other than Chicago, Illinois, without his prior written consent.
4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered
hereunder by Executive, the Company agrees to pay to Executive during the Term
the compensation set forth in this Section 4.
(a) Base Salary. Subject to Section 5(b), the Company will pay
to Executive during the Term a base salary at the initial annual rate of
$180,000 payable in cash in substantially equal bi-weekly installments during
each calendar year, or portion thereof, of the Term and otherwise in accordance
with the Company's usual payroll practices with respect to senior executives
(except to the extent deferred under Section 5(d)). Executive's annual base
salary shall be reviewed by the Compensation Committee of the Board of Directors
of the Company (the "Committee") at least once in each calendar year and may be
increased above, but may not be reduced below, the then-current rate of such
base salary.
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<PAGE> 5
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Company's 1995 Executive Incentive Compensation Plan (the "1995 EICP"),
and any successor thereto, which shall offer to Executive an opportunity to earn
additional compensation in amounts determined by the Committee in accordance
with the applicable plan and consistent with past practices of the Company;
provided, however, that the Company will use its best efforts to maintain in
effect, for each year during the Term, the 1995 EICP or an equivalent plan under
which the Executive shall be eligible for an award not less than the award
opportunity assigned to the Executive under the 1995 EICP in 1998. Any such
annual incentive compensation payable to Executive shall be paid in accordance
with the Company's usual practices with respect to payment of incentive
compensation to senior executives (except to the extent deferred under Section
5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND
BENEFITS, DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation by
senior executives of the Company (other than the Chief Executive of the
Company), as presently in effect or as they may be modified or added to by the
Company from time to time, subject to the eligibility and other requirements of
such plans and programs, including without limitation the long-term incentive
features of the 1995 EICP, any successor to such plan, and other stock option
plans, performance share plans, management incentive plans, deferred
compensation plans, and supplemental retirement plans; provided, however, that
such plans and programs, in the aggregate, shall provide Executive with benefits
and compensation and incentive award opportunities substantially no less
favorable than those provided by the Company to Executive under such plans and
programs as in effect on the Effective Date, except that the Company shall have
no obligation to include the Executive in the "Pars" program or in the Fruit of
the Loom, Inc. Supplemental Executive Retirement Plan ("SERP"). For purposes of
this Agreement, all references to long-term incentive features refer to any
performance shares, performance units, stock grants, or other long-term
incentive arrangements under the 1995 EICP or other plans of the Company and any
successor or replacement to the 1995 EICP or other plans of the Company.
(b) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, to the extent such plans are available to other senior executives
or employees of the Company, subject to the eligibility and other requirements
of such plans and programs, including without limitation plans providing
pensions, other retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, and
participation in savings, profit-sharing, and stock ownership plans; provided,
however, that, except as provided in the first sentence of Section 5(c)(iv)
below, such benefit plans and programs, in the aggregate, shall provide
Executive with benefits and compensation and incentive award opportunities
substantially no less favorable than those provided by the Company to Executive
under such plans and programs as in effect on the Effective Date, except that
the Company shall have no obligation to include the Executive in the "Pars"
program or in the SERP.
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<PAGE> 6
In furtherance of and not in limitation of the foregoing,
during the Term:
(i) Executive will participate as Vice President-Treasurer in all
executive and employee vacation and time-off programs;
(ii) The Company will provide Executive with coverage as Vice
President-Treasurer in group and executive long-term
disability insurance and benefits substantially no less
favorable (including any required contributions by Executive)
than such insurance and benefits in effect on the Effective
Date;
(iii) Executive will be covered by life insurance substantially no
less favorable (including any required contributions by
Executive) than life insurance coverage in effect on the
Effective Date; and
(iv) Executive will be entitled to retirement benefits
substantially no less favorable than those under the qualified
and nonqualified defined benefit pension plans of the Company
as in effect on the Effective Date.
(c) Deferral of Compensation. The Company shall implement
deferral arrangements permitting Executive to elect to irrevocably defer
receipt, pursuant to written deferral election terms and forms (the "Deferral
Election Forms"), of all or a specified portion of (i) his annual base salary
and annual incentive compensation under Section 4, (ii) long-term incentive
compensation under Section 5(a), and (iii) shares acquired upon exercise of
options granted in accordance with Sections 5(a) and (b) that are acquired in an
exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares acquired
by Executive in such exercise; provided, however, that such deferrals shall not
reduce Executive's total cash compensation in any calendar year below the sum of
(i) the FICA maximum taxable wage base plus (ii) 1.45% of Executive's annual
salary, annual incentive compensation and long-term incentive compensation in
excess of such FICA maximum.
In accordance with such duly executed Deferral Election Forms
or the terms of any such mandatory deferral, the Company shall credit to one or
more bookkeeping accounts maintained for Executive on the respective payment
date or dates, amounts equal to the compensation subject to deferral, such
credits to be denominated in cash if the compensation would have been paid in
cash but for the deferral or in shares if the compensation would have been paid
in shares but for the deferral. An amount of cash equal in value to all
cash-denominated amounts credited to Executive's account and a number of shares
of Common Stock equal to the number of shares credited to Executive's account
pursuant to this Section 5(c) shall be transferred as soon as practicable
following such crediting by the Company to, and shall be held and invested by,
an independent trustee selected by the Company and reasonably acceptable to
Executive (a "Trustee") pursuant to a "rabbi trust" established by the Company
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, real estate, and
insurance vehicles) (the "Deferred Compensation Accounts"). Thereafter,
Executive's deferral accounts will be valued by reference to the value of the
assets of the Deferred Compensation Accounts. The Company shall pay all costs of
administration of the deferral
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<PAGE> 7
arrangement, without deduction or reimbursement from the assets of the "rabbi
trust," or reduction in the Deferred Compensation Accounts.
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or under the terms of any mandatory
deferral, the Company shall promptly pay to Executive cash equal to the cash
then credited to Executive's deferral accounts and cash equal in value to any
shares of Common Stock then credited to Executive's deferral accounts, less
applicable withholding taxes, and such distribution shall be deemed to fully
settle such accounts; provided, however, that the Company may instead settle
such accounts by directing the Trustee to distribute the assets of the "rabbi
trust." The Company and Executive agree that compensation deferred pursuant to
this Section 5(c) shall be fully vested and nonforfeitable; provided, however,
Executive acknowledges that his rights to the deferred compensation provided for
in this Section 5(c) shall be no greater than those of a general unsecured
creditor of the Company, and that such rights may not be pledged,
collateralized, encumbered, hypothecated, or liable for or subject to any lien,
obligation, or liability of Executive, or be assignable or transferable by
Executive, otherwise than by will or the laws of descent and distribution,
provided that Executive may designate one or more beneficiaries to receive any
payment of such amounts in the event of his death.
(d) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
(e) Company Registration Obligations. The Company will file
with the Securities and Exchange Commission, and will thereafter maintain the
effectiveness of, one or more registration statements registering under the
Securities Act of 1933, as amended, the offer and sale of shares by the Company
pursuant to stock options granted to Executive under the 1995 EICP and successor
plans, which registration statements shall include a resale prospectus covering
the reoffer and resale (or other disposition) of all shares acquired by
Executive upon exercise of such stock options, and the Company will maintain as
current all offering materials under such registration statement(s) at all times
that offers and sales of such shares could be made by the Company or Executive.
(f) Accelerated Funding of Rabbi Trust. Not later than 30 days
following a Change in Control that occurs during the term of this Agreement, the
Company shall contribute to the "rabbi trust" referred to in Section 5(c) an
amount equal to the amount that would be payable to the Executive upon a
termination of employment described in Section 7(b), where such amount consists
of the lump-sum payment provided for in Section (7)(b)(i). In the event of
Executive's termination of employment, for any reason, following a Change in
Control, the trustee of the rabbi trust shall pay such amounts (plus earnings
thereon) to the Executive if the amounts due to the Executive hereunder are not
otherwise paid to the Executive by the Company.
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<PAGE> 8
6. TERMINATION DUE TO NORMAL RETIREMENT, APPROVED EARLY
RETIREMENT, DEATH, OR DISABILITY.
Executive may terminate employment as Vice President-Treasurer
upon Executive's retirement at or after age 65 ("Normal Retirement") or, if
approved in advance by the Committee, upon Executive's early retirement prior to
age 65 ("Approved Early Retirement"). The Company may terminate the employment
of Executive as Vice President-Treasurer due to the Disability (as defined in
Section 8(c)) of Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In the
event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred to in the definition
of Disability (set forth in Section 8(c)) absent the actions referred to therein
being taken by Executive to return to service and present to the Company a
certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations of
the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, provided, however, that subject to the provisions of Section
12(i), the Company will pay Executive (or his beneficiaries or estate), and
Executive (or his beneficiaries or estate) will be entitled to receive, the
following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive
compensation for any year in such three-year period, the
Executive's target annual incentive compensation for such
year(s) shall be used to calculate average annual incentive
compensation) multiplied by a fraction the numerator of which
is the number of days Executive was employed in the year of
termination and the denominator of which is the total number
of days in the year of termination;
(iv) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not
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<PAGE> 9
completed at the date Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid, for each tranche of such long term incentive awards, in
cash an amount equal to any cash amount plus the value of any
shares of Common Stock or other property (valued at the date
of termination) (A) payable for that part of the long term
incentive award that is no longer subject to a risk of
forfeiture tied to performance conditions, without proration,
and (B) payable in respect of that part of the long term
incentive award that is subject to a risk of forfeiture tied
to performance conditions, assuming achievement of the maximum
performance in the case of death or Disability or achievement
of target performance in the case of Normal Retirement or
Early Retirement, multiplied (in case (B) only) by a fraction
the numerator of which is the number of days Executive was
employed during the performance period over which such
performance was to be measured and the denominator of which is
the total number of days in such performance period;
(v) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d); and
(viii) If Executive's employment terminates due to Disability, for
the period extending from such termination until Executive
reaches age 65, Executive shall continue to participate in all
employee benefit plans, programs, and arrangements under
Section 5(b) providing health, medical, and life insurance and
pension benefits in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(except that additional years of service creditable under
Section 5(b)(iv) shall not be credited as a result of such
deemed continued participation following termination) or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if
Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination as provided in this
Section 6(viii), with such benefits payable by the Company at
the same times and in the same manner as such benefits would
have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive,
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<PAGE> 10
which shall not exceed the highest risk premium charged by a
carrier having an investment grade or better credit rating);
provided further, that in the case of termination of Executive's employment due
to Disability, Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue receiving the compensation and benefits under
(viii), above; and provided further, that Executive will be entitled to the
benefit of any terms of plans or agreements applicable to Executive which are
more favorable than those specified in this Section 6. Amounts payable under
(i), (ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after termination of Executive's employment; provided, however, that, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company).
7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN NORMAL
RETIREMENT, APPROVED EARLY RETIREMENT, DEATH OR DISABILITY.
(a) Termination by the Company for Cause and Termination by
Executive Other Than For Good Reason. In accordance with the provisions of this
Section 7(a), the Company may terminate the employment of Executive as Vice
President-Treasurer for Cause (as defined in Section 8(a)) at any time prior to
a Change in Control (as defined in Section 8(b)), and Executive may terminate
his employment as Vice President-Treasurer voluntarily for reasons other than
Good Reason (as defined in Section 8(d)) at any time. An election by Executive
not to extend the Term pursuant to Section 2 hereof shall be deemed to be a
termination of this Agreement by Executive for reasons other than Good Reason at
the date of expiration of the Term, unless there occurs a Change in Control
prior to such date of expiration.
Upon a termination of Executive's employment by the Company
for Cause at any time prior to a Change in Control or by the Executive for
reasons other than Good Reason, the Term will immediately terminate, and all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease, provided, however, that, subject to the
provisions of Section 12(i), the Company shall pay Executive, and Executive
shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(b) hereof
(including any earned and vested annual and long-term
incentive compensation) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
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<PAGE> 11
(iii) A cash amount equal to the amount credited to Executive's
deferral accounts under deferral arrangements authorized under
Section 5(c) hereof at the date of termination of employment
(including cash equal in value at that date to any shares of
Common Stock credited to Executive's deferral accounts), less
applicable withholding taxes under Section 12(i); provided,
however, that the Company may instead settle such accounts by
directing the Trustee to distribute the assets of the "rabbi
trust." Such amounts shall be paid or distributed as promptly
as practicable following such date of termination, without
regard to any stated period of deferral otherwise remaining in
respect of such amounts, and the payment of such amounts shall
be deemed to fully settle such accounts; and
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as promptly
as practicable after termination of Executive's employment; provided, however,
that, to the extent that the Company would not be entitled to deduct any such
payments under Internal Revenue Code Section 162(m), such payments shall be made
at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company).
(b) Termination by the Company Without Cause and Termination
by Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of Executive without Cause (as
defined in Section 8(a)), including after a Change in Control (as defined in
Section 8(b)), upon 90 days' written notice to Executive, and Executive may
terminate his employment with the Company for Good Reason (as defined in Section
8(d)) upon written notice to the Company; provided, however, that, (1) in the
case of a termination for Good Reason prior to a Change in Control, the
Executive must provide 90 days' written notice to the Company and if the basis
for such Good Reason is correctable, the Company must not have corrected the
basis for such Good Reason within 30 days after receipt of such notice, and (2)
in the case of a termination for Good Reason after a Change in Control, the
Executive may provide written notice to the Company at any time during the Term,
regardless of when the circumstances giving rise to such Good Reason did occur.
The foregoing notwithstanding, the Company may, in lieu of providing 90 days'
written notice to Executive, pay Executive his then-current annual base salary
under Section 4(a) and credit Executive with service for 90 days for all
purposes hereunder. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of this Agreement by the
Company without Cause at the date of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause, or termination of Executive's employment by the Executive for
Good Reason, the Term will immediately terminate and all obligations of the
parties under Sections 1 through 5 of this Agreement will immediately cease,
except that subject to the provisions of Section 12(i) the Company shall pay
Executive, and Executive shall be entitled to receive, the following:
(i) A lump sum cash payment in an amount equal to the sum of
Executive's then-current annual base salary at the rate
payable under Section 4(a) immediately prior
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to termination plus the Severance Annual Incentive Amount (as
defined below) multiplied by 3 (2 in the case of a termination
of employment prior to a Change in Control), which payment
shall be reduced pro rata to the extent the number of full
months remaining until Executive attains age 65 is less than
36 months (24 months in the case of a termination of
employment prior to a Change in Control). For purposes of this
Section 7(b)(i) and Section 7(b)(iv), the "Severance Annual
Incentive Amount" shall be 50% of the current annual base
salary referred to above;
(ii) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated, and all amounts not vested and nonforfeitable,
but owing and accrued at the date of termination of
employment, under such benefit plans, programs, and
arrangements, shall become vested and nonforfeitable and will
be paid under the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (iii) above), Executive will
be paid an amount equal to the Severance Annual Incentive
Amount as defined in Section 7(b)(i) which shall be multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(v) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (iii) above), an amount equal to any cash amount plus
the value of any shares of Common Stock or other property
(valued at the date of termination) assuming achievement of
the maximum performance for the performance period;
(vi) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted,
provided, however, that for all such purposes Executive shall
be deemed to be an Employee for a period of 3 years following
the termination of Executive's employment (2 years in the case
of a termination of employment prior to a Change in Control);
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(vii) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d);
(ix) A lump-sum cash payment will be paid equal to the present
value of Executive's accrued benefit, if any, which shall be
fully vested at date of termination of employment, under all
supplemental (non-qualified) defined benefit pension plans of
the Company, unless such benefits are fully funded based on
assets held in trust for the benefit of Executive which cannot
be reached by creditors of the Company, or such benefits are
otherwise funded and secured in an equivalent manner; and
(x) For a period of 3 years after such termination (2 years in the
case of a termination prior to a Change in Control), Executive
shall continue to participate in all employee, executive, and
special individual benefit plans, programs, and arrangements
under Section 5(b) (and, in the case of a termination
following a Change in Control, the Company's restricted stock
grant plan (with all stock issued under such plan being fully
vested)), including but not limited to health, medical,
disability, life insurance, and pension benefits in which
Executive was participating immediately prior to termination
(but not including any plan, program or arrangement under
which the Executive was entitled to the use of a
Company-provided automobile), the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(additional years of service creditable under Section 5(b)(iv)
shall be credited as a result of such deemed continued
participation following termination) or, if such plans,
programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis
to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and
arrangements in which Executive was participating immediately
prior to termination, as if Executive had received credit
under such plans, programs, and arrangements for service and
age with the Company during such period following Executive's
termination, with such benefits payable by the Company at the
same times and in the same manner as such benefits would have
been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided, however, that Executive will be entitled to the benefit of any terms
of plans or agreements applicable to Executive which are more favorable than
those specified in this Section 7(b). Amounts payable under (i), (ii), (iii),
(iv), (v), (vii), (viii), (ix), and (x) above will be paid as promptly as
practicable after termination of Executive's employment, and in no event more
than 45 days after such termination; provided, however, that, if such
termination is a termination by the Company without Cause and prior to a Change
in Control, to the extent that the Company would not be
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entitled to deduct any such payments under Internal Revenue Code Section 162(m),
such payments shall be made at the earliest time that the payments would be
deductible by the Company without limitation under Section 162(m) (unless this
provision is waived by the Company), but in no event later than 12 months
subsequent to the date of termination.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition, "gross
misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the Company
and its subsidiaries or materially impairs the value of the Executive's services
to the Company, or (B) willfully engaging in one or more acts, or willfully
omitting to act in accordance with duties hereunder, which is demonstrably and
materially damaging to the Company and its subsidiaries, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or failure
to act on Executive's part shall be considered "willful" if it was done or
omitted to be done by him not in good faith, and shall not include any act or
failure to act resulting from any incapacity of Executive. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within 6 months after the Board of Directors
of the Company (the "Board") (A) had knowledge of conduct or an event allegedly
constituting Cause and (B) had reason to believe that such conduct or event
could be grounds for Cause, a copy of a resolution duly adopted by a majority
affirmative vote of the membership of the Board (excluding Executive) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such termination and
not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with his counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth above in this Section 8(a), or,
in any case, after a Change in Control.
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the
shares of Common Stock of the Company then outstanding (the
"Company Common Stock Outstanding") or the voting securities
of the Company then outstanding entitled to vote generally in
the election of directors (the "Company Voting Securities
Outstanding"); provided, however, that such acquisition of
Beneficial Ownership would result in the Person's Beneficially
Owning twenty-five percent (25%) or more of the Company Common
Stock Outstanding or twenty-five percent (25%) or more of the
combined voting power of the Company Voting Securities
Outstanding; and provided further, that immediately prior to
such acquisition such Person was not a direct or indirect
Beneficial Owner of twenty-five percent (25%) or more of the
Company Common Stock Outstanding or twenty-five percent (25%)
or more of the combined voting power of Company Voting
Securities Outstanding, as the case may be; or
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<PAGE> 15
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this
Section 8(b) as a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, for purposes of
this Section 8(b), that any individual who becomes a member of
the Board subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act, including any successor to such Rule) or
other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and the
combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in 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; or (3) any transaction
initiated or controlled, directly or indirectly, by Executive, in a capacity
other than as an officer or a director of the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning,"
and "Beneficial Ownership" shall have the meanings
ascribed to such terms in Rule 13d-3 under the
Exchange Act (including any successor to such Rule).
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<PAGE> 16
(B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including
"group" as defined in Section 13(d) thereof.
(D) The term "Board" means the Board of Directors of the
Company or any parent of the Company.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed termination due to such absence, Executive shall have
returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by the Company and reasonably acceptable to
Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's prior written consent, (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices as
set forth in Section 3(a), status, rank, nature of responsibilities, or
authority within the Company, except in connection with the termination of
Executive's employment for Cause, Disability, Normal Retirement or Approved
Early Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive which are inconsistent
with Executive's status, duties, responsibilities, and authorities under Section
3(a), (C) a decrease in annual base salary or other compensation opportunities
and maximums or benefits provided under this Agreement, (D) any other failure by
the Company to perform any material obligation under, or breach by the Company
of any material provision of, this Agreement, (E) a relocation of the Corporate
Offices of the Company more than 35 miles from the latest location of such
offices prior to the date of a Change in Control, (F) any failure to secure the
agreement of any successor corporation or other entity to the Company to fully
assume the Company's obligations under this Agreement in a form reasonably
acceptable to Executive, and (G) any attempt by the Company to terminate
Executive for Cause which does not result in a valid termination for Cause,
except in the case that valid grounds for termination for Cause exist but are
corrected as permitted under Section 8(a).
9. EXCISE TAX GROSS-UP.
In the event that there shall occur a Change in Control of the Company,
if Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to Executive at the time specified
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below an additional amount (the "Gross-up Payment") (which shall include,
without limitation, reimbursement for any penalties and interest that may accrue
in respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 9, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless, and except to the extent that, in the
written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable
to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A)
the total amount of the Total Payments or (B) the total amount
of excess parachute payments within the meaning of section
280G(b)(1) of the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made (including, for this purpose, any additional
tax associated with the alternative minimum tax, if applicable); (B) to pay any
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of Executive's adjusted gross
income); and (C) to have otherwise allowable deductions for federal, state, and
local income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In the
event that the Excise Tax is subsequently determined
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to be less than the amount taken into account hereunder at the time the Gross-up
Payment is made, Executive shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined (but, if previously
paid to the taxing authorities, not prior to the time the amount of such
reduction is refunded to Executive or otherwise realized as a benefit by
Executive) the portion of the Gross-up Payment that would not have been paid if
such Excise Tax had been applied in initially calculating the Gross-up Payment,
plus interest on the amount of such repayment. In the event that the Excise Tax
is determined by the Internal Revenue Service (at any time, including subsequent
to the expiration of this Agreement) to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess (plus any interest and penalties payable with respect to
such excess) at the time that the amount of such excess is assessed.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest any other issue
raised by the Internal Revenue Service or any other taxing authority. Executive
shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder. Notwithstanding anything herein to the contrary, the Company shall
make an additional Gross-up Payment in respect of any failure of the Company to
pay the Excise Tax, in a timely manner, including, but not limited to, interest
and penalties, and in respect to the fees of any accountants, attorneys, and
other tax advisors engaged by Executive in connection with any dispute regarding
the amount of any Excise Tax due.
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10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive will
not, for a period of 3 years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business in the continental United States in which he has been directly engaged
on behalf of the Company or any subsidiary, or has supervised as an executive
thereof, during the last two years prior to such termination and which is
directly in competition with a business then conducted by the Company or any of
its subsidiaries, other than engaging in the businesses owned or controlled by
FII (excluding those of the Company and its subsidiaries) or FI (excluding those
of the Company and its subsidiaries) at the date of termination, or providing
services through FII to businesses for which FII provided services at the date
of termination; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his or her employment with the
Company or any of its subsidiaries, to curtail or cancel their business with
such companies or any of them; or (iii) induce, or attempt to influence, any
employee of the Company or any of its subsidiaries to terminate employment;
provided, however, that the limitation contained in clause (i) above shall not
apply if Executive's employment is terminated as a result of a termination by
the Company following a Change in Control, a termination by Executive for Good
Reason, a termination due to Disability, Normal Retirement, or Approved Early
Retirement. The provisions of subparagraphs (i), (ii), and (iii) above are
separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company and its subsidiaries so long as such
information has not otherwise been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly,
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in writing, orally, or otherwise, or take any action which may, directly or
indirectly, disparage or be damaging to the Company or any of its subsidiaries
or affiliates or their respective officers, directors, employees, advisors,
businesses or reputations. Notwithstanding the foregoing, nothing in this
Agreement shall preclude Executive from making truthful statements or
disclosures that are required by applicable law, regulation or legal process.
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and regulations
may be applicable. If under the governing law, any portion of this Agreement is
at any time deemed to be in conflict with any applicable statute, rule,
regulation, ordinance, or other principle of law, such portion shall be deemed
to be modified or altered to the extent necessary to conform thereto or, if that
is not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof. If any court determines that any provision of Section 10 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights; provided, however, that no reimbursement shall be made of such
expenses relating to any unsuccessful assertion of rights if and to the extent
that Executive's assertion of such rights was in bad faith or frivolous, as
determined by independent counsel mutually acceptable to the Executive and the
Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts of
the State of Illinois, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter have to such jurisdiction and any defense of inconvenient
forum. The Company and Executive hereby agree that a judgment upon an award
rendered by the arbitrators may be enforced in other
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jurisdictions by suit on the judgment or in any other manner provided by law.
Subject to Section 11(b), the Company shall bear all costs and expenses arising
in connection with any arbitration proceeding pursuant to this Section 11.
Notwithstanding any provision in this Section 11, Executive shall be entitled to
seek specific performance of Executive's right to be paid during the pendency of
any dispute or controversy arising under or in connection with this Agreement.
The arbitrator shall have the right to order immediate payment of any amounts
not in dispute, and to advance the payment of the fees of Executive under
Section 11(b).
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest at the prime rate in effect at the time such
payment first becomes payable, as quoted by the Bankers Trust Company.
12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company and its subsidiaries, except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and its subsidiaries. This Agreement (together with
the Option Agreement) constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment or benefit under this
Agreement which duplicates a payment or benefit received or receivable by
Executive under such prior agreements and understandings or under any benefit or
compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation of
law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a condition
of the succession, require such Successor to agree to assume the Company's
obligations and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's voting securities or all or substantially all of its assets, or
otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
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<PAGE> 22
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
Brian Hanigan
5840 West 100th Place
Oak Lawn, Illinois 60453
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective 2 days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment;
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provided, however, that, to the extent Executive receives from a subsequent
employer health or other insurance benefits that are substantially similar to
the benefits referred to in Section 5(b) hereof, any such benefits to be
provided by the Company to Executive following the Term shall be correspondingly
reduced.
(i) Offsets and Withholding. The amounts required to be paid
by the Company to Executive pursuant to this Agreement shall not be subject to
offset. The foregoing and other provisions of this Agreement notwithstanding,
all payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company (and its parent, if any, and affiliates) and its
successors and assigns. Upon the effective time of the Company's reorganization
pursuant to which Fruit of the Loom, Ltd. shall become the parent company of the
Company, this agreement shall become a binding obligation of Fruit of the Loom,
Ltd. and all references to the Company shall be deemed to be a reference to
Fruit of the Loom, Ltd.
13. INDEMNIFICATION AND RELEASE.
(a) Indemnification of Executive by the Company. All rights to
indemnification by the Company now existing in favor of the Executive as
provided in the Company's Certificate of Incorporation or By-Laws or pursuant to
other agreements in effect on or immediately prior to the Effective Date shall
continue in full force and effect from the Effective Date (including all periods
after the expiration of the Term), and the Company shall also advance expenses
for which indemnification may be ultimately claimed as such expenses are
incurred to the fullest extent permitted under applicable law, subject to any
requirement that the Executive provide an undertaking to repay such advances if
it is ultimately determined that the Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-Laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-Laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law. In
addition, the Company will maintain directors' and officers' liability insurance
in effect and covering acts and omissions of Executive during the Term and for a
period of six years thereafter on terms substantially no less favorable than
those in effect on the Effective Date.
(b) Release by Executive. Except for the Company's obligations
under this Agreement including, without limitation, Executive's rights of
indemnification, and except as hereinafter expressly provided, Executive
irrevocably and unconditionally releases and discharges the Company, its
officers, directors, shareholders, agents, employees, affiliates, related
companies and entities, successors and assigns (separately and collectively, the
"Company's Released Parties"), jointly and individually, from any and all
claims, obligations, demands, damages, and causes of action of any nature or
kind whatsoever, known or unknown, which Executive, his heirs, successors or
assigns, has or may have, now or in the future, against the Company or the
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<PAGE> 24
Company's Released Parties, based upon, relating to, or arising from the
creation, existence or termination of Executive's employment, including but not
limited to, claims arising under or relating to the Fair Labor Standards Act of
1938 and claims of employment discrimination arising under Title VII of the
Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991, the
Americans with Disabilities Act of 1990, the Family and Medical Leave Act of
1993, the Age Discrimination in Employment Act of 1967, as amended by the Older
Workers Benefit Protection Act, the Employee Retirement Income Security Act, the
National Labor Relations Act, and/or claims arising under the State Statute or
Local Statute or Ordinance covering age discrimination, wrongful termination or
any claim arising under express or implied contracts, tort, public policy,
common law or any other Federal, state or local statute (including state and
local anti-discrimination statutes), ordinance, regulation or constitutional
provision.
(c) Release by Company. Except for the Executive's obligations
under this Agreement, (including the repayment of any advancements made before
or after the Effective Date, which the Executive is required to repay if it is
ultimately determined that the Executive is not entitled to indemnification) and
as hereinafter provided, the Company and the Company's Released Parties
irrevocably and unconditionally release and discharge Executive, his successors
and assigns, from any and all claims, obligations, demands, damages and causes
of action of any kind whatsoever, known or unknown, which the Company and the
Company's Released Parties may have, now or in the future, against the Executive
based upon, relating to, or arising from the creation, existence or termination
of Executive's employment; and such release shall extend to the full extent (and
only to the extent) of any indemnification authorized under Section 13(a) of
this Agreement and under Article XIII of the Company's Certificate of
Incorporation.
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<PAGE> 1
EX-10.(M)
FRUIT OF THE LOOM, INC.
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Employment Agreement for G. William Newton
----------------------
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<PAGE> 2
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for G. William Newton
----------------------
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<TABLE>
<C> <C>
1. Employment....................................................................1
2. Term..........................................................................1
3. Offices and Duties............................................................2
4. Salary and Annual Incentive Compensation......................................2
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement..............................3
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability. ........................................................6
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability. ..............................9
8. Definitions Relating to Termination Events...................................13
9. Excise Tax Gross-Up..........................................................15
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement............................................................18
11. Governing Law; Disputes; Arbitration.........................................19
12. Miscellaneous................................................................20
13. Indemnification and Release..................................................22
</TABLE>
<PAGE> 3
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for G. William Newton
----------------------
- --------------------------------------------------------------------------------
THIS EMPLOYMENT AGREEMENT, by and between FRUIT OF THE LOOM,
INC., a Delaware corporation (the "Company"), and G. William Newton
("Executive"), is hereby entered into on this 6th day of January, 1999 (the
"Effective Date").
W I T N E S S E T H
WHEREAS, Executive has been an employee of the Company since
August 17, 1994; and
WHEREAS, the Company desires to continue to employ Executive
in his capacity as Vice President-Acting Chief Financial Officer, in connection
with the conduct of its businesses, and Executive desires to accept such
employment on the terms and conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the
terms upon which Executive shall be so employed.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT.
The Company hereby agrees to employ Executive as its Vice
President-Acting Chief Financial Officer, and Executive hereby agrees to accept
such employment and serve in such capacity, during the Term as defined in
Section 2 and upon the terms and conditions set forth in this Employment
Agreement, as amended and restated (this "Agreement").
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating
January 5, 2002 and any period of extension thereof in accordance with this
Section 2, subject to earlier termination in accordance with Section 6 or 7. The
Term shall be extended automatically without further action by either party by
one additional year (added to the end of the Term) first on January 6, 2002
(extending the Term to January 5, 2003) and on each succeeding January 6
thereafter, unless either party shall have served written notice in accordance
with the provisions of Section 12(d) upon the other party prior
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<PAGE> 4
to the July 6 preceding the date upon which such extension would become
effective electing not to extend the Term further as of the January 6 next
succeeding the date such notice is served (and successive January 6 during the
remainder of the Term), in which case employment shall terminate at the end of
the Term as extended, subject to earlier termination in accordance with Section
6 or 7.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as the Vice
President-Acting Chief Financial Officer of the Company. Executive shall have
and perform such duties, responsibilities, and authorities as are customary for
the Vice President-Acting Chief Financial Officer of a publicly held corporation
of the size, type, and nature of the Company as they may exist from time to time
and consistent with such position and status, but in no event shall such duties,
responsibilities, and authorities be reduced from those of Executive prior to
the Effective Date as described in Executive's job description provided to the
Executive as of the date hereof. Executive shall devote substantial business
time and attention, and his best efforts, abilities, experience, and talent to
the position of Vice President-Acting Chief Financial Officer and for the
businesses of the Company; provided, however, that nothing in this Agreement
shall preclude or prohibit Executive from engaging in other activities, to the
extent that such other activities do not preclude or render unlawful Executive's
employment or service to the Company hereunder or otherwise materially inhibit
the performance of Executive's duties under this Agreement or conflict with the
business of the Company or its subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Bowling Green,
Kentucky. In no event shall the Executive's principal place of employment be
relocated to any location other than Bowling Green, Kentucky, without his prior
written consent.
4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered
hereunder by Executive, the Company agrees to pay to Executive during the Term
the compensation set forth in this Section 4.
(a) Base Salary. Subject to Section 5(b), the Company will pay
to Executive during the Term a base salary at the initial annual rate of
$250,000 payable in cash in substantially equal bi-weekly installments during
each calendar year, or portion thereof, of the Term and otherwise in accordance
with the Company's usual payroll practices with respect to senior executives
(except to the extent deferred under Section 5(d)). Executive's annual base
salary shall be reviewed by the Compensation Committee of the Board of Directors
of the Company (the "Committee") at least once in each calendar year and may be
increased above, but may not be reduced below, the then-current rate of such
base salary.
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<PAGE> 5
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Company's 1995 Executive Incentive Compensation Plan (the "1995 EICP"),
and any successor thereto, which shall offer to Executive an opportunity to earn
additional compensation in amounts determined by the Committee in accordance
with the applicable plan and consistent with past practices of the Company;
provided, however, that the Company will use its best efforts to maintain in
effect, for each year during the Term, the 1995 EICP or an equivalent plan under
which the Executive shall be eligible for an award not less than the award
opportunity assigned to the Executive under the 1995 EICP in 1998. Any such
annual incentive compensation payable to Executive shall be paid in accordance
with the Company's usual practices with respect to payment of incentive
compensation to senior executives (except to the extent deferred under Section
5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation by
senior executives of the Company (other than the Chief Executive of the
Company), as presently in effect or as they may be modified or added to by the
Company from time to time, subject to the eligibility and other requirements of
such plans and programs, including without limitation the long-term incentive
features of the 1995 EICP, any successor to such plan, and other stock option
plans, performance share plans, management incentive plans, deferred
compensation plans, and supplemental retirement plans; provided, however, that
such plans and programs, in the aggregate, shall provide Executive with benefits
and compensation and incentive award opportunities substantially no less
favorable than those provided by the Company to Executive under such plans and
programs as in effect on the Effective Date, except that the Company shall have
no obligation to include the Executive in the "Pars" program. For purposes of
this Agreement, all references to long-term incentive features refer to any
performance shares, performance units, stock grants, or other long-term
incentive arrangements under the 1995 EICP or other plans of the Company and any
successor or replacement to the 1995 EICP or other plans of the Company.
(b) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, to the extent such plans are available to other senior executives
or employees of the Company, subject to the eligibility and other requirements
of such plans and programs, including without limitation plans providing
pensions, other retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, and
participation in savings, profit-sharing, and stock ownership plans; provided,
however, that, except as provided in the first sentence of Section 5(c)(iv)
below, such benefit plans and programs, in the aggregate, shall provide
Executive with benefits and compensation and incentive award opportunities
substantially no less favorable than those provided by the Company to Executive
under such plans and programs as in effect on the Effective Date.
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<PAGE> 6
In furtherance of and not in limitation of the foregoing,
during the Term:
(i) Executive will participate as Vice President-Acting Chief
Financial Officer in all executive and employee vacation and
time-off programs;
(ii) The Company will provide Executive with coverage as Vice
President-Acting Chief Financial Officer in group and
executive long-term disability insurance and benefits
substantially no less favorable (including any required
contributions by Executive) than such insurance and benefits
in effect on the Effective Date;
(iii) Executive will be covered by group term life insurance
substantially no less favorable (including any required
contributions by Executive) than such group term life
insurance coverage in effect on the Effective Date (provided
that Executive hereby acknowledges that any split-dollar life
insurance will be used solely to fund the SERP); and
(iv) Executive will be entitled to retirement benefits
substantially no less favorable than those under the qualified
and nonqualified defined benefit pension plans of the Company
as in effect on the Effective Date; provided, however, that
the maximum annual retirement under such plans and programs
shall be limited to 50% of final average compensation. For
purposes of calculating such benefits, Executive's
compensation shall include 100% of annual base salary and 100%
of annual incentive compensation. Service of the Executive
which is considered in determining such benefits shall include
the post-termination periods specified under Section 6(viii)
and 7(b)(x), and final average compensation shall be based on
the average of the highest five consecutive years of such
compensation in the ten calendar year period which includes,
as the last year, the calendar year immediately prior to the
calendar year in which the ending date of Executive=s service
occurs (for this purpose, annual incentive compensation shall
exclude any payment made as a result of termination). Further,
(A) Executive shall be credited, for each full calendar year
of employment that is completed beginning after December 18,
1994, (including, for this purpose, service credited under the
post-termination periods specified under Section 6(viii) and
7(b)(x)), with one additional year of service under such plans
and programs, up to a maximum of five (5) additional years
crediting by operation of this Section 5(b)(iv)(A), which
additional years of service shall be vested upon such
crediting; and (B) amounts equal to the present value of
Executive's accrued benefit vested at any time during the Term
under the Fruit of the Loom, Inc. Supplemental Executive
Retirement Plan (the "SERP") will be fully funded by the
Company by deposits to an irrevocable "rabbi trust" pursuant
to Section 2.2 of the SERP.
(c) Deferral of Compensation. The Company shall implement
deferral arrangements permitting Executive to elect to irrevocably defer
receipt, pursuant to written deferral election terms and forms (the "Deferral
Election Forms"), of all or a specified portion of (i) his annual base salary
and annual incentive compensation under Section 4, (ii) long-term incentive
compensation under Section 5(a), and (iii) shares acquired upon exercise of
options granted in accordance with Sections 5(a) and (b) that are acquired in an
exercise in which Executive pays the
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<PAGE> 7
exercise price by the surrender of previously acquired shares, to the extent of
the net additional shares acquired by Executive in such exercise; provided,
however, that such deferrals shall not reduce Executive's total cash
compensation in any calendar year below the sum of (i) the FICA maximum taxable
wage base plus (ii) 1.45% of Executive's annual salary, annual incentive
compensation and long-term incentive compensation in excess of such FICA
maximum.
In accordance with such duly executed Deferral Election Forms
or the terms of any such mandatory deferral, the Company shall credit to one or
more bookkeeping accounts maintained for Executive on the respective payment
date or dates, amounts equal to the compensation subject to deferral, such
credits to be denominated in cash if the compensation would have been paid in
cash but for the deferral or in shares if the compensation would have been paid
in shares but for the deferral. An amount of cash equal in value to all
cash-denominated amounts credited to Executive's account and a number of shares
of Common Stock equal to the number of shares credited to Executive's account
pursuant to this Section 5(c) shall be transferred as soon as practicable
following such crediting by the Company to, and shall be held and invested by,
an independent trustee selected by the Company and reasonably acceptable to
Executive (a "Trustee") pursuant to a "rabbi trust" established by the Company
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, real estate, and
insurance vehicles) (the "Deferred Compensation Accounts"). Thereafter,
Executive's deferral accounts will be valued by reference to the value of the
assets of the Deferred Compensation Accounts. The Company shall pay all costs of
administration of the deferral arrangement, without deduction or reimbursement
from the assets of the "rabbi trust," or reduction in the Deferred Compensation
Accounts.
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or under the terms of any mandatory
deferral, the Company shall promptly pay to Executive cash equal to the cash
then credited to Executive's deferral accounts and cash equal in value to any
shares of Common Stock then credited to Executive's deferral accounts, less
applicable withholding taxes, and such distribution shall be deemed to fully
settle such accounts; provided, however, that the Company may instead settle
such accounts by directing the Trustee to distribute the assets of the "rabbi
trust." The Company and Executive agree that compensation deferred pursuant to
this Section 5(c) shall be fully vested and nonforfeitable; provided, however,
Executive acknowledges that his rights to the deferred compensation provided for
in this Section 5(c) shall be no greater than those of a general unsecured
creditor of the Company, and that such rights may not be pledged,
collateralized, encumbered, hypothecated, or liable for or subject to any lien,
obligation, or liability of Executive, or be assignable or transferable by
Executive, otherwise than by will or the laws of descent and distribution,
provided that Executive may designate one or more beneficiaries to receive any
payment of such amounts in the event of his death.
(d) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
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<PAGE> 8
(e) Company Registration Obligations. The Company will file
with the Securities and Exchange Commission, and will thereafter maintain the
effectiveness of, one or more registration statements registering under the
Securities Act of 1933, as amended, the offer and sale of shares by the Company
pursuant to stock options granted to Executive under the 1995 EICP and successor
plans, which registration statements shall include a resale prospectus covering
the reoffer and resale (or other disposition) of all shares acquired by
Executive upon exercise of such stock options, and the Company will maintain as
current all offering materials under such registration statement(s) at all times
that offers and sales of such shares could be made by the Company or Executive.
(f) Accelerated Funding of Rabbi Trust. Not later than 30 days
following a Change in Control that occurs during the term of this Agreement, the
Company shall contribute to the "rabbi trust" referred to in Section 5(c) an
amount equal to the amount that would be payable to the Executive upon a
termination of employment described in Section 7(b), where such amount consists
of:
(i) the lump-sum payment provided for in Section (7)(b)(i); and
(ii) a lump-sum payment representing the present value of
Executive's accrued vested benefit in all supplemental
(non-qualified) defined benefit pension plans and programs of
the Company, including, for this purpose, all such benefits
which Executive would accrue under Sections 7(b)(ix) and
7(b)(x) (taking into account all supplemental defined benefit
pension service credits provided for in Section 5(b)(iv)(A) by
reason thereof) in the event of a termination of employment
described in Section 7(b) immediately following a Change in
Control, reduced by any amounts in the rabbi trust immediately
prior to such Change in Control which were placed in trust for
the benefit of the Executive (or by such amounts as are,
immediately following a Change in Control, placed in the rabbi
trust for the benefit of the Executive) under such plans.
In the event of Executive's termination of employment, for any reason, following
a Change in Control, the trustee of the rabbi trust shall pay such amounts (plus
earnings thereon) to the Executive if the amounts due to the Executive hereunder
are not otherwise paid to the Executive by the Company.
6. TERMINATION DUE TO NORMAL RETIREMENT, APPROVED EARLY RETIREMENT,
DEATH, OR DISABILITY.
Executive may terminate employment as Vice President-Acting
Chief Financial Officer upon Executive's retirement at or after age 65 ("Normal
Retirement") or, if approved in advance by the Committee, upon Executive's early
retirement prior to age 65 ("Approved Early Retirement"). The Company may
terminate the employment of Executive as Vice President-Acting Chief Financial
Officer due to the Disability (as defined in Section 8(c)) of Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In the
event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred
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<PAGE> 9
to in the definition of Disability (set forth in Section 8(c)) absent the
actions referred to therein being taken by Executive to return to service and
present to the Company a certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations of
the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, provided, however, that subject to the provisions of Section
12(i), the Company will pay Executive (or his beneficiaries or estate), and
Executive (or his beneficiaries or estate) will be entitled to receive, the
following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive
compensation for any year in such three-year period, the
Executive's target annual incentive compensation for such
year(s) shall be used to calculate average annual incentive
compensation) multiplied by a fraction the numerator of which
is the number of days Executive was employed in the year of
termination and the denominator of which is the total number
of days in the year of termination;
(iv) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (ii) above), Executive will be paid, for each tranche of
such long term incentive awards, in cash an amount equal to
any cash amount plus the value of any shares of Common Stock
or other property (valued at the date of termination) (A)
payable for that part of the long term incentive award that is
no longer subject to a risk of forfeiture tied to performance
conditions, without proration, and (B) payable in respect of
that part of the long term incentive award that is subject to
a risk of forfeiture tied to performance conditions, assuming
achievement of the maximum performance in the case of death or
Disability or achievement of target performance in the case of
Normal Retirement or Early Retirement, multiplied (in case (B)
only) by a fraction the numerator of which is the number of
days Executive was employed during the performance period over
which such performance was to
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be measured and the denominator of which is the total number
of days in such performance period;
(v) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d); and
(viii) If Executive's employment terminates due to Disability, for
the period extending from such termination until Executive
reaches age 65, Executive shall continue to participate in all
employee benefit plans, programs, and arrangements under
Section 5(b) providing health, medical, and life insurance and
pension benefits in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(except that additional years of service creditable under
Section 5(b)(iv) shall not be credited as a result of such
deemed continued participation following termination) or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if
Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination as provided in this
Section 6(viii), with such benefits payable by the Company at
the same times and in the same manner as such benefits would
have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided further, that in the case of termination of Executive's employment due
to Disability, Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue receiving the compensation and benefits under
(viii), above; and provided further, that Executive will be entitled to the
benefit of any terms of plans or agreements applicable to Executive which are
more favorable than those specified in this Section 6. Amounts payable under
(i), (ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after termination of Executive's employment; provided, however, that, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
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earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company).
7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN NORMAL
RETIREMENT, APPROVED EARLY RETIREMENT, DEATH OR DISABILITY.
(a) Termination by the Company for Cause and Termination by
Executive Other Than For Good Reason. In accordance with the provisions of this
Section 7(a), the Company may terminate the employment of Executive as Vice
President-Acting Chief Financial Officer for Cause (as defined in Section 8(a))
at any time prior to a Change in Control (as defined in Section 8(b)), and
Executive may terminate his employment as Vice President-Acting Chief Financial
Officer voluntarily for reasons other than Good Reason (as defined in Section
8(d)) at any time. An election by Executive not to extend the Term pursuant to
Section 2 hereof shall be deemed to be a termination of this Agreement by
Executive for reasons other than Good Reason at the date of expiration of the
Term, unless there occurs a Change in Control prior to such date of expiration.
Upon a termination of Executive's employment by the Company
for Cause at any time prior to a Change in Control or by the Executive for
reasons other than Good Reason, the Term will immediately terminate, and all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease, provided, however, that, subject to the
provisions of Section 12(i), the Company shall pay Executive, and Executive
shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(b) hereof
(including any earned and vested annual and long-term
incentive compensation) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's
deferral accounts under deferral arrangements authorized under
Section 5(c) hereof at the date of termination of employment
(including cash equal in value at that date to any shares of
Common Stock credited to Executive's deferral accounts), less
applicable withholding taxes under Section 12(i); provided,
however, that the Company may instead settle such accounts by
directing the Trustee to distribute the assets of the "rabbi
trust." Such amounts shall be paid or distributed as promptly
as practicable following such date of termination, without
regard to any stated period of deferral otherwise remaining in
respect of such amounts, and the payment of such amounts shall
be deemed to fully settle such accounts; and
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(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as promptly
as practicable after termination of Executive's employment; provided, however,
that, to the extent that the Company would not be entitled to deduct any such
payments under Internal Revenue Code Section 162(m), such payments shall be made
at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company).
(b) Termination by the Company Without Cause and Termination
by Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of Executive without Cause (as
defined in Section 8(a)), including after a Change in Control (as defined in
Section 8(b)), upon 90 days' written notice to Executive, and Executive may
terminate his employment with the Company for Good Reason (as defined in Section
8(d)) upon written notice to the Company; provided, however, that, (1) in the
case of a termination for Good Reason prior to a Change in Control, the
Executive must provide 90 days' written notice to the Company and if the basis
for such Good Reason is correctable, the Company must not have corrected the
basis for such Good Reason within 30 days after receipt of such notice, and (2)
in the case of a termination for Good Reason after a Change in Control, the
Executive may provide written notice to the Company at any time during the Term,
regardless of when the circumstances giving rise to such Good Reason did occur.
The foregoing notwithstanding, the Company may, in lieu of providing 90 days'
written notice to Executive, pay Executive his then-current annual base salary
under Section 4(a) and credit Executive with service for 90 days for all
purposes hereunder. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of this Agreement by the
Company without Cause at the date of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause, or termination of Executive's employment by the Executive for
Good Reason, the Term will immediately terminate and all obligations of the
parties under Sections 1 through 5 of this Agreement will immediately cease,
except that subject to the provisions of Section 12(i) the Company shall pay
Executive, and Executive shall be entitled to receive, the following:
(i) A lump sum cash payment in an amount equal to the sum of
Executive's then-current annual base salary at the rate
payable under Section 4(a) immediately prior to termination
plus the Severance Annual Incentive Amount (as defined below)
multiplied by 3 (2 in the case of a termination of employment
prior to a Change in Control), which payment shall be reduced
pro rata to the extent the number of full months remaining
until Executive attains age 65 is less than 36 months (24
months in the case of a termination of employment prior to a
Change in Control). For purposes of this Section 7(b)(i) and
Section 7(b)(iv), the "Severance Annual Incentive Amount"
shall be 50% of the current annual base salary referred to
above. Notwithstanding the foregoing, the lump sum cash
payment described in the preceding sentence shall be reduced
by 50% in the case of the termination of Executive's
employment by the Executive for Good Reason, if the effective
date of such termination occurs within 12 months after the
date of a Change in Control,
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provided, however, that if subsequent to the date the
Executive gives written notice of a termination for Good
Reason, but prior to the effective date of such termination
selected by the Executive, the Company terminates the
Executive, the reduction shall not apply, but if the Executive
terminates employment prior to such effective date and before
the date which is 12 months after the date of Change in
Control, the reduction shall apply;
(ii) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated, and all amounts not vested and nonforfeitable,
but owing and accrued at the date of termination of
employment, under such benefit plans, programs, and
arrangements, shall become vested and nonforfeitable and will
be paid under the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (iii) above), Executive will
be paid an amount equal to the Severance Annual Incentive
Amount as defined in Section 7(b)(i) which shall be multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(v) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (iii) above), an amount equal to any cash amount plus
the value of any shares of Common Stock or other property
(valued at the date of termination) assuming achievement of
the maximum performance for the performance period;
(vi) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted,
provided, however, that for all such purposes Executive shall
be deemed to be an Employee for a period of 3 years following
the termination of Executive's employment (2 years in the case
of a termination of employment prior to a Change in Control);
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<PAGE> 14
(vii) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d);
(ix) A lump-sum cash payment will be paid equal to the present
value of Executive's accrued benefit, if any, which shall be
fully vested at date of termination of employment, under all
supplemental (non-qualified) defined benefit pension plans of
the Company, unless such benefits are fully funded based on
assets held in trust for the benefit of Executive which cannot
be reached by creditors of the Company, or such benefits are
otherwise funded and secured in an equivalent manner; and
(x) For a period of 3 years after such termination (2 years in the
case of a termination prior to a Change in Control), Executive
shall continue to participate in all employee, executive, and
special individual benefit plans, programs, and arrangements
under Section 5(b) (and, in the case of a termination
following a Change in Control, the Company's restricted stock
grant plan (with all stock issued under such plan being fully
vested)), including but not limited to health, medical,
disability, life insurance, and pension benefits in which
Executive was participating immediately prior to termination
(but not including any plan, program or arrangement under
which the Executive was entitled to the use of a
Company-provided automobile), the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(additional years of service creditable under Section 5(b)(iv)
shall be credited as a result of such deemed continued
participation following termination) or, if such plans,
programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis
to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and
arrangements in which Executive was participating immediately
prior to termination, as if Executive had received credit
under such plans, programs, and arrangements for service and
age with the Company during such period following Executive's
termination, with such benefits payable by the Company at the
same times and in the same manner as such benefits would have
been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided, however, that Executive will be entitled to the benefit of any terms
of plans or agreements applicable to Executive which are more favorable than
those specified in this Section 7(b). Amounts payable under (i), (ii), (iii),
(iv), (v), (vii), (viii), (ix), and (x) above will be paid as promptly as
practicable after termination of Executive's employment, and in no event more
than 45 days after such termination; provided, however, that, if such
termination is a termination by the Company without Cause and prior to a Change
in Control, to the extent that the Company would not be
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entitled to deduct any such payments under Internal Revenue Code Section 162(m),
such payments shall be made at the earliest time that the payments would be
deductible by the Company without limitation under Section 162(m) (unless this
provision is waived by the Company), but in no event later than 12 months
subsequent to the date of termination.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition, "gross
misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the Company
and its subsidiaries or materially impairs the value of the Executive's services
to the Company, or (B) willfully engaging in one or more acts, or willfully
omitting to act in accordance with duties hereunder, which is demonstrably and
materially damaging to the Company and its subsidiaries, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or failure
to act on Executive's part shall be considered "willful" if it was done or
omitted to be done by him not in good faith, and shall not include any act or
failure to act resulting from any incapacity of Executive. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within 6 months after the Board of Directors
of the Company (the "Board") (A) had knowledge of conduct or an event allegedly
constituting Cause and (B) had reason to believe that such conduct or event
could be grounds for Cause, a copy of a resolution duly adopted by a majority
affirmative vote of the membership of the Board (excluding Executive) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such termination and
not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with his counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth above in this Section 8(a), or,
in any case, after a Change in Control.
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the
shares of Common Stock of the Company then outstanding (the
"Company Common Stock Outstanding") or the voting securities
of the Company then outstanding entitled to vote generally in
the election of directors (the "Company Voting Securities
Outstanding"); provided, however, that such acquisition of
Beneficial Ownership would result in the Person's Beneficially
Owning twenty-five percent (25%) or more of the Company Common
Stock Outstanding or twenty-five percent (25%) or more of the
combined voting power of the Company Voting Securities
Outstanding; and provided further, that immediately prior to
such acquisition such Person was not a direct or indirect
Beneficial Owner of twenty-five percent (25%) or more of the
Company Common Stock Outstanding or twenty-five percent (25%)
or more of the combined voting power of Company Voting
Securities Outstanding, as the case may be; or
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(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this
Section 8(b) as a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, for purposes of
this Section 8(b), that any individual who becomes a member of
the Board subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act, including any successor to such Rule) or
other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and the
combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in 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; or (3) any transaction
initiated or controlled, directly or indirectly, by Executive, in a capacity
other than as an officer or a director of the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning,"
and "Beneficial Ownership" shall have the meanings
ascribed to such terms in Rule 13d-3 under the
Exchange Act (including any successor to such Rule).
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<PAGE> 17
(B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including
"group" as defined in Section 13(d) thereof.
(D) The term "Board" means the Board of Directors of the
Company or any parent of the Company.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed termination due to such absence, Executive shall have
returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by the Company and reasonably acceptable to
Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's prior written consent, (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices as
set forth in Section 3(a), status, rank, nature of responsibilities, or
authority within the Company, except in connection with the termination of
Executive's employment for Cause, Disability, Normal Retirement or Approved
Early Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive which are inconsistent
with Executive's status, duties, responsibilities, and authorities under Section
3(a), (C) a decrease in annual base salary or other compensation opportunities
and maximums or benefits provided under this Agreement, (D) any other failure by
the Company to perform any material obligation under, or breach by the Company
of any material provision of, this Agreement, (E) a relocation of the Corporate
Offices of the Company more than 35 miles from the latest location of such
offices prior to the date of a Change in Control, (F) any failure to secure the
agreement of any successor corporation or other entity to the Company to fully
assume the Company's obligations under this Agreement in a form reasonably
acceptable to Executive, and (G) any attempt by the Company to terminate
Executive for Cause which does not result in a valid termination for Cause,
except in the case that valid grounds for termination for Cause exist but are
corrected as permitted under Section 8(a).
9. EXCISE TAX GROSS-UP.
In the event that there shall occur a Change in Control of the Company,
if Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to Executive at the time specified
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below an additional amount (the "Gross-up Payment") (which shall include,
without limitation, reimbursement for any penalties and interest that may accrue
in respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 9, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless, and except to the extent that, in the
written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable
to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A)
the total amount of the Total Payments or (B) the total amount
of excess parachute payments within the meaning of section
280G(b)(1) of the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made (including, for this purpose, any additional
tax associated with the alternative minimum tax, if applicable); (B) to pay any
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of Executive's adjusted gross
income); and (C) to have otherwise allowable deductions for federal, state, and
local income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In the
event that the Excise Tax is subsequently determined
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to be less than the amount taken into account hereunder at the time the Gross-up
Payment is made, Executive shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined (but, if previously
paid to the taxing authorities, not prior to the time the amount of such
reduction is refunded to Executive or otherwise realized as a benefit by
Executive) the portion of the Gross-up Payment that would not have been paid if
such Excise Tax had been applied in initially calculating the Gross-up Payment,
plus interest on the amount of such repayment. In the event that the Excise Tax
is determined by the Internal Revenue Service (at any time, including subsequent
to the expiration of this Agreement) to exceed the amount taken into account
hereunder at the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-up Payment), the Company shall make an additional Gross-up Payment in
respect of such excess (plus any interest and penalties payable with respect to
such excess) at the time that the amount of such excess is assessed.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest any other issue
raised by the Internal Revenue Service or any other taxing authority. Executive
shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder. Notwithstanding anything herein to the contrary, the Company shall
make an additional Gross-up Payment in respect of any failure of the Company to
pay the Excise Tax, in a timely manner, including, but not limited to, interest
and penalties, and in respect to the fees of any accountants, attorneys, and
other tax advisors engaged by Executive in connection with any dispute regarding
the amount of any Excise Tax due.
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<PAGE> 20
10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive will
not, for a period of 3 years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business in the continental United States in which he has been directly engaged
on behalf of the Company or any subsidiary, or has supervised as an executive
thereof, during the last two years prior to such termination and which is
directly in competition with a business then conducted by the Company or any of
its subsidiaries; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his or her employment with the
Company or any of its subsidiaries, to curtail or cancel their business with
such companies or any of them; or (iii) induce, or attempt to influence, any
employee of the Company or any of its subsidiaries to terminate employment;
provided, however, that the limitation contained in clause (i) above shall not
apply if Executive's employment is terminated as a result of a termination by
the Company following a Change in Control, a termination by Executive for Good
Reason, a termination due to Disability, Normal Retirement, or Approved Early
Retirement. The provisions of subparagraphs (i), (ii), and (iii) above are
separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company and its subsidiaries so long as such
information has not otherwise been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action which may, directly or indirectly, disparage or be damaging to the
Company or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations. Notwithstanding the
foregoing, nothing
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<PAGE> 21
in this Agreement shall preclude Executive from making truthful statements or
disclosures that are required by applicable law, regulation or legal process.
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and regulations
may be applicable. If under the governing law, any portion of this Agreement is
at any time deemed to be in conflict with any applicable statute, rule,
regulation, ordinance, or other principle of law, such portion shall be deemed
to be modified or altered to the extent necessary to conform thereto or, if that
is not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof. If any court determines that any provision of Section 10 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights; provided, however, that no reimbursement shall be made of such
expenses relating to any unsuccessful assertion of rights if and to the extent
that Executive's assertion of such rights was in bad faith or frivolous, as
determined by independent counsel mutually acceptable to the Executive and the
Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts of
the State of Illinois, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter have to such jurisdiction and any defense of inconvenient
forum. The Company and Executive hereby agree that a judgment upon an award
rendered by the arbitrators may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. Subject to Section 11(b),
the Company shall bear all costs and expenses arising in connection with any
arbitration proceeding pursuant to this Section 11. Notwithstanding any
provision in this Section 11, Executive
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<PAGE> 22
shall be entitled to seek specific performance of Executive's right to be paid
during the pendency of any dispute or controversy arising under or in connection
with this Agreement. The arbitrator shall have the right to order immediate
payment of any amounts not in dispute, and to advance the payment of the fees of
Executive under Section 11(b).
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest at the prime rate in effect at the time such
payment first becomes payable, as quoted by the Bankers Trust Company.
12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company and its subsidiaries, except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and its subsidiaries. This Agreement (together with
the Option Agreement ) constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment or benefit under this
Agreement which duplicates a payment or benefit received or receivable by
Executive under such prior agreements and understandings or under any benefit or
compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation of
law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a condition
of the succession, require such Successor to agree to assume the Company's
obligations and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's voting securities or all or substantially all of its assets, or
otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
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If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
G. William Newton
101 Hampton Place
Nashville, Tennessee 37215
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective 2 days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in Section 5(b)
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<PAGE> 24
hereof, any such benefits to be provided by the Company to Executive following
the Term shall be correspondingly reduced.
(i) Offsets and Withholding. The amounts required to be paid
by the Company to Executive pursuant to this Agreement shall not be subject to
offset. The foregoing and other provisions of this Agreement notwithstanding,
all payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company (and its parent, if any, and affiliates) and its
successors and assigns. Upon the effective time of the Company's reorganization
pursuant to which Fruit of the Loom, Ltd. shall become the parent company of the
Company, this agreement shall become a binding obligation of Fruit of the Loom,
Ltd. and all references to the Company shall be deemed to be a reference to
Fruit of the Loom, Ltd.
13. INDEMNIFICATION AND RELEASE.
(a) Indemnification of Executive by the Company. All rights to
indemnification by the Company now existing in favor of the Executive as
provided in the Company's Certificate of Incorporation or By-Laws or pursuant to
other agreements in effect on or immediately prior to the Effective Date shall
continue in full force and effect from the Effective Date (including all periods
after the expiration of the Term), and the Company shall also advance expenses
for which indemnification may be ultimately claimed as such expenses are
incurred to the fullest extent permitted under applicable law, subject to any
requirement that the Executive provide an undertaking to repay such advances if
it is ultimately determined that the Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-Laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-Laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law. In
addition, the Company will maintain directors' and officers' liability insurance
in effect and covering acts and omissions of Executive during the Term and for a
period of six years thereafter on terms substantially no less favorable than
those in effect on the Effective Date.
(b) Release by Executive. Except for the Company's obligations
under this Agreement including, without limitation, Executive's rights of
indemnification, and except as hereinafter expressly provided, Executive
irrevocably and unconditionally releases and discharges the Company, its
officers, directors, shareholders, agents, employees, affiliates, related
companies and entities, successors and assigns (separately and collectively, the
"Company's Released Parties"), jointly and individually, from any and all
claims, obligations, demands, damages, and causes of action of any nature or
kind whatsoever, known or unknown, which Executive, his heirs, successors or
assigns, has or may have, now or in the future, against the Company or the
Company's Released Parties, based upon, relating to, or arising from the
creation, existence or termination of Executive's employment, including but not
limited to, claims arising under or relating
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<PAGE> 25
to the Fair Labor Standards Act of 1938 and claims of employment discrimination
arising under Title VII of the Civil Rights Act of 1964, as amended by the Civil
Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and
Medical Leave Act of 1993, the Age Discrimination in Employment Act of 1967, as
amended by the Older Workers Benefit Protection Act, the Employee Retirement
Income Security Act, the National Labor Relations Act, and/or claims arising
under the State Statute or Local Statute or Ordinance covering age
discrimination, wrongful termination or any claim arising under express or
implied contracts, tort, public policy, common law or any other Federal, state
or local statute (including state and local anti-discrimination statutes),
ordinance, regulation or constitutional provision.
(c) Release by Company. Except for the Executive's obligations
under this Agreement, (including the repayment of any advancements made before
or after the Effective Date, which the Executive is required to repay if it is
ultimately determined that the Executive is not entitled to indemnification) and
as hereinafter provided, the Company and the Company's Released Parties
irrevocably and unconditionally release and discharge Executive, his successors
and assigns, from any and all claims, obligations, demands, damages and causes
of action of any kind whatsoever, known or unknown, which the Company and the
Company's Released Parties may have, now or in the future, against the Executive
based upon, relating to, or arising from the creation, existence or termination
of Executive's employment; and such release shall extend to the full extent (and
only to the extent) of any indemnification authorized under Section 13(a) of
this Agreement and under Article XIII of the Company's Certificate of
Incorporation.
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<PAGE> 1
EX-10.(N)
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for John J. Ray III
--------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for John J. Ray III
--------------------
- --------------------------------------------------------------------------------
<TABLE>
<C> <C>
1. Employment.....................................................................1
2. Term...........................................................................1
3. Offices and Duties.............................................................2
4. Salary and Annual Incentive Compensation.......................................2
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement...............................3
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability. .........................................................6
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability. ...............................9
8. Definitions Relating to Termination Events....................................12
9. Excise Tax Gross-Up...........................................................15
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement.............................................................17
11. Governing Law; Disputes; Arbitration..........................................18
12. Miscellaneous.................................................................20
13. Indemnification and Release...................................................22
</TABLE>
<PAGE> 3
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for John J. Ray III
--------------------
- --------------------------------------------------------------------------------
THIS EMPLOYMENT AGREEMENT, by and between FRUIT OF THE LOOM,
INC., a Delaware corporation (the "Company"), and John J. Ray III ("Executive"),
is hereby entered into on this 6th day of January, 1999 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has been an employee of the Company since
January 15, 1998; and
WHEREAS, the Company desires to continue to employ Executive
in his capacity as Vice President-General Counsel & Secretary, in connection
with the conduct of its businesses, and Executive desires to accept such
employment on the terms and conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the
terms upon which Executive shall be so employed.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT.
The Company hereby agrees to employ Executive as its Vice
President-General Counsel & Secretary, and Executive hereby agrees to accept
such employment and serve in such capacity, during the Term as defined in
Section 2 and upon the terms and conditions set forth in this Employment
Agreement, as amended and restated (this "Agreement").
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating
January 5, 2002 and any period of extension thereof in accordance with this
Section 2, subject to earlier termination in accordance with Section 6 or 7. The
Term shall be extended automatically without further action by either party by
one additional year (added to the end of the Term) first on January 6, 2002
(extending the Term to January 5, 2003) and on each succeeding January 6
thereafter, unless either party shall have served written notice in accordance
with the provisions of Section 12(d) upon the other party prior
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<PAGE> 4
to the July 6 preceding the date upon which such extension would become
effective electing not to extend the Term further as of the January 6 next
succeeding the date such notice is served (and successive January 6 during the
remainder of the Term), in which case employment shall terminate at the end of
the Term as extended, subject to earlier termination in accordance with Section
6 or 7.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as the Vice
President-General Counsel & Secretary of the Company. Executive shall have and
perform such duties, responsibilities, and authorities as are customary for the
Vice President-General Counsel & Secretary of a publicly held corporation of the
size, type, and nature of the Company as they may exist from time to time and
consistent with such position and status, but in no event shall such duties,
responsibilities, and authorities be reduced from those of Executive prior to
the Effective Date as described in Executive's job description provided to the
Executive as of the date hereof. Executive shall devote substantial business
time and attention, and his best efforts, abilities, experience, and talent to
the position of Vice President-General Counsel & Secretary and for the
businesses of the Company; provided, however, that nothing in this Agreement
shall preclude or prohibit Executive from engaging in other activities,
including as assigned by the Company, the provision of services to William
Farley, Farley Industries, Inc. or a successor ("FII"), or Farley, Inc. ("FI")
or a successor, to the extent that such other activities do not preclude or
render unlawful Executive's employment or service to the Company hereunder or
otherwise materially inhibit the performance of Executive's duties under this
Agreement or conflict with the business of the Company or its subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Chicago, Illinois.
In no event shall the Executive's principal place of employment be relocated to
any location other than Chicago, Illinois, without his prior written consent.
4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered
hereunder by Executive, the Company agrees to pay to Executive during the Term
the compensation set forth in this Section 4.
(a) Base Salary. Subject to Section 5(b), the Company will pay
to Executive during the Term a base salary at the initial annual rate of
$250,000 payable in cash in substantially equal bi-weekly installments during
each calendar year, or portion thereof, of the Term and otherwise in accordance
with the Company's usual payroll practices with respect to senior executives
(except to the extent deferred under Section 5(d)). Executive's annual base
salary shall be reviewed by the Compensation Committee of the Board of Directors
of the Company (the "Committee") at least once in each calendar year and may be
increased above, but may not be reduced below, the then-current rate of such
base salary.
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<PAGE> 5
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Company's 1995 Executive Incentive Compensation Plan (the "1995 EICP"),
and any successor thereto, which shall offer to Executive an opportunity to earn
additional compensation in amounts determined by the Committee in accordance
with the applicable plan and consistent with past practices of the Company;
provided, however, that the Company will use its best efforts to maintain in
effect, for each year during the Term, the 1995 EICP or an equivalent plan under
which the Executive shall be eligible for an award not less than the award
opportunity assigned to the Executive under the 1995 EICP in 1998. Any such
annual incentive compensation payable to Executive shall be paid in accordance
with the Company's usual practices with respect to payment of incentive
compensation to senior executives (except to the extent deferred under Section
5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation by
senior executives of the Company (other than the Chief Executive of the
Company), as presently in effect or as they may be modified or added to by the
Company from time to time, subject to the eligibility and other requirements of
such plans and programs, including without limitation the long-term incentive
features of the 1995 EICP, any successor to such plan, and other stock option
plans, performance share plans, management incentive plans, deferred
compensation plans, and supplemental retirement plans; provided, however, that
such plans and programs, in the aggregate, shall provide Executive with benefits
and compensation and incentive award opportunities substantially no less
favorable than those provided by the Company to Executive under such plans and
programs as in effect on the Effective Date, except that the Company shall have
no obligation to include the Executive in the "Pars" program. For purposes of
this Agreement, all references to long-term incentive features refer to any
performance shares, performance units, stock grants, or other long-term
incentive arrangements under the 1995 EICP or other plans of the Company and any
successor or replacement to the 1995 EICP or other plans of the Company.
(b) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, to the extent such plans are available to other senior executives
or employees of the Company, subject to the eligibility and other requirements
of such plans and programs, including without limitation plans providing
pensions, other retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, and
participation in savings, profit-sharing, and stock ownership plans; provided,
however, that, except as provided in the first sentence of Section 5(c)(iv)
below, such benefit plans and programs, in the aggregate, shall provide
Executive with benefits and compensation and incentive award opportunities
substantially no less favorable than those provided by the Company to Executive
under such plans and programs as in effect on the Effective Date.
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<PAGE> 6
In furtherance of and not in limitation of the foregoing,
during the Term:
(i) Executive will participate as Vice President-General Counsel &
Secretary in all executive and employee vacation and time-off
programs;
(ii) The Company will provide Executive with coverage as Vice
President-General Counsel & Secretary in group and executive
long-term disability insurance and benefits substantially no
less favorable (including any required contributions by
Executive) than such insurance and benefits in effect on the
Effective Date;
(iii) Executive will be covered by Company-paid group and individual
term life insurance substantially no less favorable (including
any required contributions by Executive) than such group and
individual term life insurance coverage in effect on the
Effective Date; and
(iv) Executive will be entitled to retirement benefits
substantially no less favorable than those under the qualified
and nonqualified defined benefit pension plans of the Company
as in effect on the Effective Date; provided, however, that
the maximum annual retirement under such plans and programs
shall be limited to 50% of final average compensation. For
purposes of calculating such benefits, Executive's
compensation shall include 100% of annual base salary and 100%
of annual incentive compensation. Service of the Executive
which is considered in determining such benefits shall include
the post-termination periods specified under Section 6(viii)
and 7(b)(x), and final average compensation shall be based on
the average of the highest five consecutive years of such
compensation in the ten calendar year period which includes,
as the last year, the calendar year immediately prior to the
calendar year in which the ending date of Executive=s service
occurs (for this purpose, annual incentive compensation shall
exclude any payment made as a result of termination). Further,
(A) Executive shall be credited, for each full calendar year
of employment that is completed beginning after December 18,
1994, (including, for this purpose, service credited under the
post-termination periods specified under Section 6(viii) and
7(b)(x)), with one additional year of service under such plans
and programs, up to a maximum of five (5) additional years
crediting by operation of this Section 5(b)(iv)(A), which
additional years of service shall be vested upon such
crediting; and (B) amounts equal to the present value of
Executive's accrued benefit vested at any time during the Term
under the Fruit of the Loom, Inc. Supplemental Executive
Retirement Plan (the "SERP") will be fully funded by the
Company by deposits to an irrevocable "rabbi trust" pursuant
to Section 2.2 of the SERP.
(c) Deferral of Compensation. The Company shall implement
deferral arrangements permitting Executive to elect to irrevocably defer
receipt, pursuant to written deferral election terms and forms (the "Deferral
Election Forms"), of all or a specified portion of (i) his annual base salary
and annual incentive compensation under Section 4, (ii) long-term incentive
compensation under Section 5(a), and (iii) shares acquired upon exercise of
options granted in accordance with Sections 5(a) and (b) that are acquired in an
exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional
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<PAGE> 7
shares acquired by Executive in such exercise; provided, however, that such
deferrals shall not reduce Executive's total cash compensation in any calendar
year below the sum of (i) the FICA maximum taxable wage base plus (ii) 1.45% of
Executive's annual salary, annual incentive compensation and long-term incentive
compensation in excess of such FICA maximum.
In accordance with such duly executed Deferral Election Forms
or the terms of any such mandatory deferral, the Company shall credit to one or
more bookkeeping accounts maintained for Executive on the respective payment
date or dates, amounts equal to the compensation subject to deferral, such
credits to be denominated in cash if the compensation would have been paid in
cash but for the deferral or in shares if the compensation would have been paid
in shares but for the deferral. An amount of cash equal in value to all
cash-denominated amounts credited to Executive's account and a number of shares
of Common Stock equal to the number of shares credited to Executive's account
pursuant to this Section 5(c) shall be transferred as soon as practicable
following such crediting by the Company to, and shall be held and invested by,
an independent trustee selected by the Company and reasonably acceptable to
Executive (a "Trustee") pursuant to a "rabbi trust" established by the Company
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, real estate, and
insurance vehicles) (the "Deferred Compensation Accounts"). Thereafter,
Executive's deferral accounts will be valued by reference to the value of the
assets of the Deferred Compensation Accounts. The Company shall pay all costs of
administration of the deferral arrangement, without deduction or reimbursement
from the assets of the "rabbi trust," or reduction in the Deferred Compensation
Accounts.
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or under the terms of any mandatory
deferral, the Company shall promptly pay to Executive cash equal to the cash
then credited to Executive's deferral accounts and cash equal in value to any
shares of Common Stock then credited to Executive's deferral accounts, less
applicable withholding taxes, and such distribution shall be deemed to fully
settle such accounts; provided, however, that the Company may instead settle
such accounts by directing the Trustee to distribute the assets of the "rabbi
trust." The Company and Executive agree that compensation deferred pursuant to
this Section 5(c) shall be fully vested and nonforfeitable; provided, however,
Executive acknowledges that his rights to the deferred compensation provided for
in this Section 5(c) shall be no greater than those of a general unsecured
creditor of the Company, and that such rights may not be pledged,
collateralized, encumbered, hypothecated, or liable for or subject to any lien,
obligation, or liability of Executive, or be assignable or transferable by
Executive, otherwise than by will or the laws of descent and distribution,
provided that Executive may designate one or more beneficiaries to receive any
payment of such amounts in the event of his death.
(d) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
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(e) Company Registration Obligations. The Company will file
with the Securities and Exchange Commission, and will thereafter maintain the
effectiveness of, one or more registration statements registering under the
Securities Act of 1933, as amended, the offer and sale of shares by the Company
pursuant to stock options granted to Executive under the 1995 EICP and successor
plans, which registration statements shall include a resale prospectus covering
the reoffer and resale (or other disposition) of all shares acquired by
Executive upon exercise of such stock options, and the Company will maintain as
current all offering materials under such registration statement(s) at all times
that offers and sales of such shares could be made by the Company or Executive.
(f) Accelerated Funding of Rabbi Trust. Not later than 30 days
following a Change in Control that occurs during the term of this Agreement, the
Company shall contribute to the "rabbi trust" referred to in Section 5(c) an
amount equal to the amount that would be payable to the Executive upon a
termination of employment described in Section 7(b), where such amount consists
of:
(i) the lump-sum payment provided for in Section (7)(b)(i); and
(ii) a lump-sum payment representing the present value of
Executive's accrued vested benefit in all supplemental
(non-qualified) defined benefit pension plans and programs of
the Company, including, for this purpose, all such benefits
which Executive would accrue under Sections 7(b)(ix) and
7(b)(x) (taking into account all supplemental defined benefit
pension service credits provided for in Section 5(b)(iv)(A) by
reason thereof) in the event of a termination of employment
described in Section 7(b) immediately following a Change in
Control, reduced by any amounts in the rabbi trust immediately
prior to such Change in Control which were placed in trust for
the benefit of the Executive (or by such amounts as are,
immediately following a Change in Control, placed in the rabbi
trust for the benefit of the Executive) under such plans.
In the event of Executive's termination of employment, for any reason, following
a Change in Control, the trustee of the rabbi trust shall pay such amounts (plus
earnings thereon) to the Executive if the amounts due to the Executive hereunder
are not otherwise paid to the Executive by the Company.
6. TERMINATION DUE TO NORMAL RETIREMENT, APPROVED EARLY RETIREMENT,
DEATH, OR DISABILITY.
Executive may terminate employment as Vice President-General
Counsel & Secretary upon Executive's retirement at or after age 65 ("Normal
Retirement") or, if approved in advance by the Committee, upon Executive's early
retirement prior to age 65 ("Approved Early Retirement"). The Company may
terminate the employment of Executive as Vice President-General Counsel &
Secretary due to the Disability (as defined in Section 8(c)) of Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In the
event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred
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<PAGE> 9
to in the definition of Disability (set forth in Section 8(c)) absent the
actions referred to therein being taken by Executive to return to service and
present to the Company a certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations of
the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, provided, however, that subject to the provisions of Section
12(i), the Company will pay Executive (or his beneficiaries or estate), and
Executive (or his beneficiaries or estate) will be entitled to receive, the
following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive
compensation for any year in such three-year period, the
Executive's target annual incentive compensation for such
year(s) shall be used to calculate average annual incentive
compensation) multiplied by a fraction the numerator of which
is the number of days Executive was employed in the year of
termination and the denominator of which is the total number
of days in the year of termination;
(iv) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (ii) above), Executive will be paid, for each tranche of
such long term incentive awards, in cash an amount equal to
any cash amount plus the value of any shares of Common Stock
or other property (valued at the date of termination) (A)
payable for that part of the long term incentive award that is
no longer subject to a risk of forfeiture tied to performance
conditions, without proration, and (B) payable in respect of
that part of the long term incentive award that is subject to
a risk of forfeiture tied to performance conditions, assuming
achievement of the maximum performance in the case of death or
Disability or achievement of target performance in the case of
Normal Retirement or Early Retirement, multiplied (in case (B)
only) by a fraction the numerator of which is the number of
days Executive was employed during the performance period over
which such performance was to
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<PAGE> 10
be measured and the denominator of which is the total number
of days in such performance period;
(v) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d); and
(viii) If Executive's employment terminates due to Disability, for
the period extending from such termination until Executive
reaches age 65, Executive shall continue to participate in all
employee benefit plans, programs, and arrangements under
Section 5(b) providing health, medical, and life insurance and
pension benefits in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(except that additional years of service creditable under
Section 5(b)(iv) shall not be credited as a result of such
deemed continued participation following termination) or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if
Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination as provided in this
Section 6(viii), with such benefits payable by the Company at
the same times and in the same manner as such benefits would
have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided further, that in the case of termination of Executive's employment due
to Disability, Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue receiving the compensation and benefits under
(viii), above; and provided further, that Executive will be entitled to the
benefit of any terms of plans or agreements applicable to Executive which are
more favorable than those specified in this Section 6. Amounts payable under
(i), (ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after termination of Executive's employment; provided, however, that, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
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<PAGE> 11
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company).
7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN NORMAL
RETIREMENT, APPROVED EARLY RETIREMENT, DEATH OR DISABILITY.
(a) Termination by the Company for Cause and Termination by
Executive Other Than For Good Reason. In accordance with the provisions of this
Section 7(a), the Company may terminate the employment of Executive as Vice
President-General Counsel & Secretary for Cause (as defined in Section 8(a)) at
any time prior to a Change in Control (as defined in Section 8(b)), and
Executive may terminate his employment as Vice President-General Counsel &
Secretary voluntarily for reasons other than Good Reason (as defined in Section
8(d)) at any time. An election by Executive not to extend the Term pursuant to
Section 2 hereof shall be deemed to be a termination of this Agreement by
Executive for reasons other than Good Reason at the date of expiration of the
Term, unless there occurs a Change in Control prior to such date of expiration.
Upon a termination of Executive's employment by the Company
for Cause at any time prior to a Change in Control or by the Executive for
reasons other than Good Reason, the Term will immediately terminate, and all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease, provided, however, that, subject to the
provisions of Section 12(i), the Company shall pay Executive, and Executive
shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(b) hereof
(including any earned and vested annual and long-term
incentive compensation) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's
deferral accounts under deferral arrangements authorized under
Section 5(c) hereof at the date of termination of employment
(including cash equal in value at that date to any shares of
Common Stock credited to Executive's deferral accounts), less
applicable withholding taxes under Section 12(i); provided,
however, that the Company may instead settle such accounts by
directing the Trustee to distribute the assets of the "rabbi
trust." Such amounts shall be paid or distributed as promptly
as practicable following such date of termination, without
regard to any stated period of deferral otherwise remaining in
respect of such amounts, and the payment of such amounts shall
be deemed to fully settle such accounts; and
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<PAGE> 12
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as promptly
as practicable after termination of Executive's employment; provided, however,
that, to the extent that the Company would not be entitled to deduct any such
payments under Internal Revenue Code Section 162(m), such payments shall be made
at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company).
(b) Termination by the Company Without Cause and Termination
by Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of Executive without Cause (as
defined in Section 8(a)), including after a Change in Control (as defined in
Section 8(b)), upon 90 days' written notice to Executive, and Executive may
terminate his employment with the Company for Good Reason (as defined in Section
8(d)) upon written notice to the Company; provided, however, that, (1) in the
case of a termination for Good Reason prior to a Change in Control, the
Executive must provide 90 days= written notice to the Company and if the basis
for such Good Reason is correctable, the Company must not have corrected the
basis for such Good Reason within 30 days after receipt of such notice, and (2)
in the case of a termination for Good Reason after a Change in Control, the
Executive may provide written notice to the Company at any time during the Term,
regardless of when the circumstances giving rise to such Good Reason did occur.
The foregoing notwithstanding, the Company may, in lieu of providing 90 days'
written notice to Executive, pay Executive his then-current annual base salary
under Section 4(a) and credit Executive with service for 90 days for all
purposes hereunder. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of this Agreement by the
Company without Cause at the date of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause, or termination of Executive's employment by the Executive for
Good Reason, the Term will immediately terminate and all obligations of the
parties under Sections 1 through 5 of this Agreement will immediately cease,
except that subject to the provisions of Section 12(i) the Company shall pay
Executive, and Executive shall be entitled to receive, the following:
(i) A lump sum cash payment in an amount equal to the sum of
Executive's then-current annual base salary at the rate
payable under Section 4(a) immediately prior to termination
plus the Severance Annual Incentive Amount (as defined below)
multiplied by 3 (2 in the case of a termination of employment
prior to a Change in Control), which payment shall be reduced
pro rata to the extent the number of full months remaining
until Executive attains age 65 is less than 36 months (24
months in the case of a termination of employment prior to a
Change in Control). For purposes of this Section 7(b)(i) and
Section 7(b)(iv), the "Severance Annual Incentive Amount"
shall be 50% of the current annual base salary referred to
above;
(ii) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
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<PAGE> 13
(iii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated, and all amounts not vested and nonforfeitable,
but owing and accrued at the date of termination of
employment, under such benefit plans, programs, and
arrangements, shall become vested and nonforfeitable and will
be paid under the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (iii) above), Executive will
be paid an amount equal to the Severance Annual Incentive
Amount as defined in Section 7(b)(i) which shall be multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(v) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (iii) above), an amount equal to any cash amount plus
the value of any shares of Common Stock or other property
(valued at the date of termination) assuming achievement of
the maximum performance for the performance period;
(vi) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted,
provided, however, that for all such purposes Executive shall
be deemed to be an Employee for a period of 3 years following
the termination of Executive's employment (2 years in the case
of a termination of employment prior to a Change in Control);
(vii) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d);
(ix) A lump-sum cash payment will be paid equal to the present
value of Executive's accrued benefit, if any, which shall be
fully vested at date of termination of employment, under all
supplemental (non-qualified) defined benefit pension plans of
the Company, unless such benefits are fully funded based on
assets held in trust
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<PAGE> 14
for the benefit of Executive which cannot be reached by
creditors of the Company, or such benefits are otherwise
funded and secured in an equivalent manner; and
(x) For a period of 3 years after such termination (2 years in the
case of a termination prior to a Change in Control), Executive
shall continue to participate in all employee, executive, and
special individual benefit plans, programs, and arrangements
under Section 5(b) (and, in the case of a termination
following a Change in Control, the Company's restricted stock
grant plan (with all stock issued under such plan being fully
vested)), including but not limited to health, medical,
disability, life insurance, and pension benefits in which
Executive was participating immediately prior to termination
(but not including any plan, program or arrangement under
which the Executive was entitled to the use of a
Company-provided automobile), the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(additional years of service creditable under Section 5(b)(iv)
shall be credited as a result of such deemed continued
participation following termination) or, if such plans,
programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis
to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and
arrangements in which Executive was participating immediately
prior to termination, as if Executive had received credit
under such plans, programs, and arrangements for service and
age with the Company during such period following Executive's
termination, with such benefits payable by the Company at the
same times and in the same manner as such benefits would have
been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided, however, that Executive will be entitled to the benefit of any terms
of plans or agreements applicable to Executive which are more favorable than
those specified in this Section 7(b). Amounts payable under (i), (ii), (iii),
(iv), (v), (vii), (viii), (ix), and (x) above will be paid as promptly as
practicable after termination of Executive's employment, and in no event more
than 45 days after such termination; provided, however, that, if such
termination is a termination by the Company without Cause and prior to a Change
in Control, to the extent that the Company would not be entitled to deduct any
such payments under Internal Revenue Code Section 162(m), such payments shall be
made at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company), but in no event later than 12 months subsequent to the date of
termination.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition, "gross
misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the Company
and its subsidiaries or materially impairs the value of the Executive's services
to the Company, or (B)
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<PAGE> 15
willfully engaging in one or more acts, or willfully omitting to act in
accordance with duties hereunder, which is demonstrably and materially damaging
to the Company and its subsidiaries, including acts and omissions that
constitute gross negligence in the performance of Executive's duties under this
Agreement. For purposes of this Agreement, an act or failure to act on
Executive's part shall be considered "willful" if it was done or omitted to be
done by him not in good faith, and shall not include any act or failure to act
resulting from any incapacity of Executive. Notwithstanding the foregoing,
Executive may not be terminated for Cause unless and until there shall have been
delivered to him, within 6 months after the Board of Directors of the Company
(the "Board") (A) had knowledge of conduct or an event allegedly constituting
Cause and (B) had reason to believe that such conduct or event could be grounds
for Cause, a copy of a resolution duly adopted by a majority affirmative vote of
the membership of the Board (excluding Executive) at a meeting of the Board
called and held for such purpose (after giving Executive reasonable notice
specifying the nature of the grounds for such termination and not less than 30
days to correct the acts or omissions complained of, if correctable, and
affording Executive the opportunity, together with his counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board,
Executive was guilty of conduct set forth above in this Section 8(a), or, in any
case, after a Change in Control .
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the
shares of Common Stock of the Company then outstanding (the
"Company Common Stock Outstanding") or the voting securities
of the Company then outstanding entitled to vote generally in
the election of directors (the "Company Voting Securities
Outstanding"); provided, however, that such acquisition of
Beneficial Ownership would result in the Person's Beneficially
Owning twenty-five percent (25%) or more of the Company Common
Stock Outstanding or twenty-five percent (25%) or more of the
combined voting power of the Company Voting Securities
Outstanding; and provided further, that immediately prior to
such acquisition such Person was not a direct or indirect
Beneficial Owner of twenty-five percent (25%) or more of the
Company Common Stock Outstanding or twenty-five percent (25%)
or more of the combined voting power of Company Voting
Securities Outstanding, as the case may be; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this
Section 8(b) as a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the
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<PAGE> 16
Board; provided, however, for purposes of this Section 8(b),
that any individual who becomes a member of the Board
subsequent to the Effective Date whose election, or nomination
for election by the Company's stockholders, was approved by a
vote of at least a majority of those individuals who are
members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act, including any successor to such Rule) or
other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and the
combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in 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; or (3) any transaction
initiated or controlled, directly or indirectly, by Executive, in a capacity
other than as an officer or a director of the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning,"
and "Beneficial Ownership" shall have the meanings
ascribed to such terms in Rule 13d-3 under the
Exchange Act (including any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including
"group" as defined in Section 13(d) thereof.
(D) The term ABoard@ means the Board of Directors of the
Company or any parent of the Company.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any
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consecutive 12 month period, because of any physical or mental incapacity or
disability as determined by a physician or physicians selected by the Company
and reasonably acceptable to Executive, unless, within 30 days after Executive
has received written notice from the Company of a proposed termination due to
such absence, Executive shall have returned to the full performance of his
duties hereunder and shall have presented to the Company a written certificate
of Executive's good health prepared by a physician selected by the Company and
reasonably acceptable to Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's prior written consent, (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices as
set forth in Section 3(a), status, rank, nature of responsibilities, or
authority within the Company, except in connection with the termination of
Executive's employment for Cause, Disability, Normal Retirement or Approved
Early Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive which are inconsistent
with Executive's status, duties, responsibilities, and authorities under Section
3(a), (C) a decrease in annual base salary or other compensation opportunities
and maximums or benefits provided under this Agreement, (D) any other failure by
the Company to perform any material obligation under, or breach by the Company
of any material provision of, this Agreement, (E) a relocation of the Corporate
Offices of the Company more than 35 miles from the latest location of such
offices prior to the date of a Change in Control, (F) any failure to secure the
agreement of any successor corporation or other entity to the Company to fully
assume the Company's obligations under this Agreement in a form reasonably
acceptable to Executive, and (G) any attempt by the Company to terminate
Executive for Cause which does not result in a valid termination for Cause,
except in the case that valid grounds for termination for Cause exist but are
corrected as permitted under Section 8(a).
9. EXCISE TAX GROSS-UP.
In the event that there shall occur a Change in Control of the Company,
if Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement for
any penalties and interest that may accrue in respect of such Excise Tax) such
that the net amount retained by Executive, after reduction for any Excise Tax
(including any penalties or interest thereon) on the Total Payments and any
federal, state and local income or employment tax and Excise Tax on the Gross-up
Payment provided for by this Section 9, but before reduction for any federal,
state, or local income or employment tax on the Total Payments, shall be equal
to the sum of (a) the Total Payments, and (b) an amount equal to the product of
any deductions disallowed for federal, state, or local income tax purposes
because of the inclusion of the Gross-up Payment in Executive's adjusted gross
income multiplied by the highest applicable marginal rate of federal, state, or
local income taxation, respectively, for the calendar year in which the Gross-up
Payment is to be made.
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<PAGE> 18
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless, and except to the extent that, in the
written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable
to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A)
the total amount of the Total Payments or (B) the total amount
of excess parachute payments within the meaning of section
280G(b)(1) of the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made (including, for this purpose, any additional
tax associated with the alternative minimum tax, if applicable); (B) to pay any
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of Executive's adjusted gross
income); and (C) to have otherwise allowable deductions for federal, state, and
local income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, Executive
shall repay to the Company at the time that the amount of such reduction in
Excise Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction is refunded to
Executive or otherwise realized as a benefit by Executive) the portion of the
Gross-up Payment that would not have been paid if such Excise Tax had been
applied in initially calculating the Gross-up Payment, plus interest on the
amount of such repayment. In the event that the Excise Tax is determined by the
Internal Revenue Service (at any time, including subsequent to the expiration of
this Agreement) to exceed the amount taken into account hereunder at the time
the Gross-up Payment is made (including by reason of any payment the existence
or amount of which cannot be determined at the time of the Gross-up Payment),
the Company shall make an additional Gross-up Payment in respect of such excess
(plus any interest
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<PAGE> 19
and penalties payable with respect to such excess) at the time that the amount
of such excess is assessed.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross- up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest any other issue
raised by the Internal Revenue Service or any other taxing authority. Executive
shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder. Notwithstanding anything herein to the contrary, the Company shall
make an additional Gross-up Payment in respect of any failure of the Company to
pay the Excise Tax, in a timely manner, including, but not limited to, interest
and penalties, and in respect to the fees of any accountants, attorneys, and
other tax advisors engaged by Executive in connection with any dispute regarding
the amount of any Excise Tax due.
10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive will
not, for a period of 3 years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business in the continental United States in which he has been directly engaged
on behalf of the Company or any subsidiary, or has supervised as an executive
thereof, during the last two years prior to such termination and which is
directly in competition with a business then conducted by the Company or any of
its subsidiaries, other than engaging in the businesses owned or controlled by
FII (excluding those of the Company and its subsidiaries) or FI (excluding those
of the Company and its subsidiaries) at the date of termination, or providing
services through FII to businesses for which FII provided services at the date
of termination; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
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<PAGE> 20
indirectly, during and within the scope of his or her employment with the
Company or any of its subsidiaries, to curtail or cancel their business with
such companies or any of them; or (iii) induce, or attempt to influence, any
employee of the Company or any of its subsidiaries to terminate employment;
provided, however, that the limitation contained in clause (i) above shall not
apply if Executive's employment is terminated as a result of a termination by
the Company following a Change in Control, a termination by Executive for Good
Reason, a termination due to Disability, Normal Retirement, or Approved Early
Retirement. The provisions of subparagraphs (i), (ii), and (iii) above are
separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company and its subsidiaries so long as such
information has not otherwise been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action which may, directly or indirectly, disparage or be damaging to the
Company or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations. Notwithstanding the
foregoing, nothing in this Agreement shall preclude Executive from making
truthful statements or disclosures that are required by applicable law,
regulation or legal process.
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and regulations
may be applicable. If under the governing law, any portion of this
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<PAGE> 21
Agreement is at any time deemed to be in conflict with any applicable statute,
rule, regulation, ordinance, or other principle of law, such portion shall be
deemed to be modified or altered to the extent necessary to conform thereto or,
if that is not possible, to be omitted from this Agreement. The invalidity of
any such portion shall not affect the force, effect, and validity of the
remaining portion hereof. If any court determines that any provision of Section
10 is unenforceable because of the duration or geographic scope of such
provision, it is the parties' intent that such court shall have the power to
modify the duration or geographic scope of such provision, as the case may be,
to the extent necessary to render the provision enforceable and, in its modified
form, such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights; provided, however, that no reimbursement shall be made of such
expenses relating to any unsuccessful assertion of rights if and to the extent
that Executive's assertion of such rights was in bad faith or frivolous, as
determined by independent counsel mutually acceptable to the Executive and the
Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts of
the State of Illinois, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter have to such jurisdiction and any defense of inconvenient
forum. The Company and Executive hereby agree that a judgment upon an award
rendered by the arbitrators may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. Subject to Section 11(b),
the Company shall bear all costs and expenses arising in connection with any
arbitration proceeding pursuant to this Section 11. Notwithstanding any
provision in this Section 11, Executive shall be entitled to seek specific
performance of Executive's right to be paid during the pendency of any dispute
or controversy arising under or in connection with this Agreement. The
arbitrator shall have the right to order immediate payment of any amounts not in
dispute, and to advance the payment of the fees of Executive under Section
11(b).
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest at the prime rate in effect at the time such
payment first becomes payable, as quoted by the Bankers Trust Company.
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<PAGE> 22
12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company and its subsidiaries, except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and its subsidiaries. This Agreement (together with
the Option Agreement ) constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment or benefit under this
Agreement which duplicates a payment or benefit received or receivable by
Executive under such prior agreements and understandings or under any benefit or
compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation of
law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a condition
of the succession, require such Successor to agree to assume the Company's
obligations and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's voting securities or all or substantially all of its assets, or
otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
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<PAGE> 23
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
John J. Ray III
360 Arboretum Circle South
Wheaton, Illinois 60187
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective 2 days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in Section 5(b) hereof, any
such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) Offsets and Withholding. The amounts required to be paid
by the Company to Executive pursuant to this Agreement shall not be subject to
offset. The foregoing and other provisions of this Agreement notwithstanding,
all payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
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<PAGE> 24
(j) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company (and its parent, if any, and affiliates) and its
successors and assigns. Upon the effective time of the Company's reorganization
pursuant to which Fruit of the Loom, Ltd. shall become the parent company of the
Company, this agreement shall become a binding obligation of Fruit of the Loom,
Ltd. and all references to the Company shall be deemed to be a reference to
Fruit of the Loom, Ltd.
13. INDEMNIFICATION AND RELEASE.
(a) Indemnification of Executive by the Company. All rights to
indemnification by the Company now existing in favor of the Executive as
provided in the Company's Certificate of Incorporation or By-Laws or pursuant to
other agreements in effect on or immediately prior to the Effective Date shall
continue in full force and effect from the Effective Date (including all periods
after the expiration of the Term), and the Company shall also advance expenses
for which indemnification may be ultimately claimed as such expenses are
incurred to the fullest extent permitted under applicable law, subject to any
requirement that the Executive provide an undertaking to repay such advances if
it is ultimately determined that the Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-Laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-Laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law. In
addition, the Company will maintain directors' and officers' liability insurance
in effect and covering acts and omissions of Executive during the Term and for a
period of six years thereafter on terms substantially no less favorable than
those in effect on the Effective Date.
(b) Release by Executive. Except for the Company's obligations
under this Agreement including, without limitation, Executive's rights of
indemnification, and except as hereinafter expressly provided, Executive
irrevocably and unconditionally releases and discharges the Company, its
officers, directors, shareholders, agents, employees, affiliates, related
companies and entities, successors and assigns (separately and collectively, the
"Company's Released Parties"), jointly and individually, from any and all
claims, obligations, demands, damages, and causes of action of any nature or
kind whatsoever, known or unknown, which Executive, his heirs, successors or
assigns, has or may have, now or in the future, against the Company or the
Company's Released Parties, based upon, relating to, or arising from the
creation, existence or termination of Executive's employment, including but not
limited to, claims arising under or relating to the Fair Labor Standards Act of
1938 and claims of employment discrimination arising under Title VII of the
Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991, the
Americans with Disabilities Act of 1990, the Family and Medical Leave Act of
1993, the Age Discrimination in Employment Act of 1967, as amended by the Older
Workers Benefit Protection Act, the Employee Retirement Income Security Act, the
National Labor Relations Act, and/or claims arising under the State Statute or
Local Statute or Ordinance covering age discrimination, wrongful termination or
any claim arising under express or implied contracts, tort, public policy,
common law or any other Federal, state or local statute (including state and
local anti-discrimination statutes), ordinance, regulation or constitutional
provision.
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<PAGE> 25
(c) Release by Company. Except for the Executive's obligations
under this Agreement, (including the repayment of any advancements made before
or after the Effective Date, which the Executive is required to repay if it is
ultimately determined that the Executive is not entitled to indemnification) and
as hereinafter provided, the Company and the Company's Released Parties
irrevocably and unconditionally release and discharge Executive, his successors
and assigns, from any and all claims, obligations, demands, damages and causes
of action of any kind whatsoever, known or unknown, which the Company and the
Company's Released Parties may have, now or in the future, against the Executive
based upon, relating to, or arising from the creation, existence or termination
of Executive's employment; and such release shall extend to the full extent (and
only to the extent) of any indemnification authorized under Section 13(a) of
this Agreement and under Article XIII of the Company's Certificate of
Incorporation.
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<PAGE> 1
EX-10.(O)
FRUIT OF THE LOOM, INC.
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Employment Agreement for John Salisbury
--------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for John Salisbury
--------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Employment.......................................................................1
2. Term.............................................................................1
3. Offices and Duties...............................................................2
4. Salary and Annual Incentive Compensation.........................................2
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement.................................3
6. Termination Due to Normal Retirement, Approved Early Retirement, Death,
or Disability. ..................................................................5
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability. .................................8
8. Definitions Relating to Termination Events......................................12
9. Excise Tax Gross-Up.............................................................14
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement...............................................................17
11. Governing Law; Disputes; Arbitration............................................18
12. Miscellaneous...................................................................19
13. Indemnification and Release.....................................................21
</TABLE>
<PAGE> 3
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for John Salisbury
--------------------
- --------------------------------------------------------------------------------
THIS EMPLOYMENT AGREEMENT, by and between FRUIT OF THE LOOM,
INC., a Delaware corporation (the "Company"), and John Salisbury ("Executive"),
is hereby entered into on this 6th day of January, 1999 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has been an employee of the Company since
September 16, 1997; and
WHEREAS, the Company desires to continue to employ Executive
in his capacity as President-Retail Group, in connection with the conduct of its
businesses, and Executive desires to accept such employment on the terms and
conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the
terms upon which Executive shall be so employed.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT.
The Company hereby agrees to employ Executive as its
President-Retail Group, and Executive hereby agrees to accept such employment
and serve in such capacity, during the Term as defined in Section 2 and upon the
terms and conditions set forth in this Employment Agreement, as amended and
restated (this "Agreement").
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating
January 5, 2002 and any period of extension thereof in accordance with this
Section 2, subject to earlier termination in accordance with Section 6 or 7. The
Term shall be extended automatically without further action by either party by
one additional year (added to the end of the Term) first on January 6, 2002
(extending the Term to January 5, 2003) and on each succeeding January 6
thereafter, unless either party shall have served written notice in accordance
with the provisions of Section 12(d) upon the other party prior
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<PAGE> 4
to the July 6 preceding the date upon which such extension would become
effective electing not to extend the Term further as of the January 6 next
succeeding the date such notice is served (and successive January 6 during the
remainder of the Term), in which case employment shall terminate at the end of
the Term as extended, subject to earlier termination in accordance with Section
6 or 7.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as the President-Retail
Group of the Company. Executive shall have and perform such duties,
responsibilities, and authorities as are customary for the President-Retail
Group of a publicly held corporation of the size, type, and nature of the
Company as they may exist from time to time and consistent with such position
and status, but in no event shall such duties, responsibilities, and authorities
be reduced from those of Executive prior to the Effective Date as described in
Executive=s job description provided to the Executive as of the date hereof.
Executive shall devote substantial business time and attention, and his best
efforts, abilities, experience, and talent to the position of President-Retail
Group and for the businesses of the Company; provided, however, that nothing in
this Agreement shall preclude or prohibit Executive from engaging in other
activities, to the extent that such other activities do not preclude or render
unlawful Executive's employment or service to the Company hereunder or otherwise
materially inhibit the performance of Executive's duties under this Agreement or
conflict with the business of the Company or its subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Bowling Green,
Kentucky. In no event shall the Executive's principal place of employment be
relocated to any location other than Bowling Green, Kentucky, without his prior
written consent.
4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered
hereunder by Executive, the Company agrees to pay to Executive during the Term
the compensation set forth in this Section 4.
(a) Base Salary. Subject to Section 5(b), the Company will pay
to Executive during the Term a base salary at the initial annual rate of
$350,000 payable in cash in substantially equal bi-weekly installments during
each calendar year, or portion thereof, of the Term and otherwise in accordance
with the Company's usual payroll practices with respect to senior executives
(except to the extent deferred under Section 5(d)). Executive's annual base
salary shall be reviewed by the Compensation Committee of the Board of Directors
of the Company (the "Committee") at least once in each calendar year and may be
increased above, but may not be reduced below, the then-current rate of such
base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Company's 1995 Executive Incentive Compensation Plan (the "1995 EICP"),
and any successor thereto, which shall offer to
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<PAGE> 5
Executive an opportunity to earn additional compensation in amounts determined
by the Committee in accordance with the applicable plan and consistent with past
practices of the Company; provided, however, that the Company will use its best
efforts to maintain in effect, for each year during the Term, the 1995 EICP or
an equivalent plan under which the Executive shall be eligible for an award not
less than the award opportunity assigned to the Executive under the 1995 EICP in
1998. Any such annual incentive compensation payable to Executive shall be paid
in accordance with the Company's usual practices with respect to payment of
incentive compensation to senior executives (except to the extent deferred under
Section 5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation by
senior executives of the Company (other than the Chief Executive of the
Company), as presently in effect or as they may be modified or added to by the
Company from time to time, subject to the eligibility and other requirements of
such plans and programs, including without limitation the long-term incentive
features of the 1995 EICP, any successor to such plan, and other stock option
plans, performance share plans, management incentive plans, deferred
compensation plans, and supplemental retirement plans; provided, however, that
such plans and programs, in the aggregate, shall provide Executive with benefits
and compensation and incentive award opportunities substantially no less
favorable than those provided by the Company to Executive under such plans and
programs as in effect on the Effective Date, except that the Company shall have
no obligation to include the Executive in the "Pars" program or in the Fruit of
the Loom, Inc. Supplemental Executive Retirement Plan ("SERP"). For purposes of
this Agreement, all references to long-term incentive features refer to any
performance shares, performance units, stock grants, or other long-term
incentive arrangements under the 1995 EICP or other plans of the Company and any
successor or replacement to the 1995 EICP or other plans of the Company.
(b) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, to the extent such plans are available to other senior executives
or employees of the Company, subject to the eligibility and other requirements
of such plans and programs, including without limitation plans providing
pensions, other retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, and
participation in savings, profit-sharing, and stock ownership plans; provided,
however, that, except as provided in the first sentence of Section 5(c)(iv)
below, such benefit plans and programs, in the aggregate, shall provide
Executive with benefits and compensation and incentive award opportunities
substantially no less favorable than those provided by the Company to Executive
under such plans and programs as in effect on the Effective Date, except that
the Company shall have no obligation to include the Executive in the "Pars"
program or in the SERP.
In furtherance of and not in limitation of the foregoing,
during the Term:
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(i) Executive will participate as President-Retail Group in all
executive and employee vacation and time-off programs;
(ii) The Company will provide Executive with coverage as
President-Retail Group in group and executive long-term
disability insurance and benefits substantially no less
favorable (including any required contributions by Executive)
than such insurance and benefits in effect on the Effective
Date;
(iii) Executive will be covered by life insurance substantially no
less favorable (including any required contributions by
Executive) than life insurance coverage in effect on the
Effective Date; and
(iv) Executive will be entitled to retirement benefits
substantially no less favorable than those under the qualified
and nonqualified defined benefit pension plans of the Company
as in effect on the Effective Date.
(c) Deferral of Compensation. The Company shall implement
deferral arrangements permitting Executive to elect to irrevocably defer
receipt, pursuant to written deferral election terms and forms (the "Deferral
Election Forms"), of all or a specified portion of (i) his annual base salary
and annual incentive compensation under Section 4, (ii) long-term incentive
compensation under Section 5(a), and (iii) shares acquired upon exercise of
options granted in accordance with Sections 5(a) and (b) that are acquired in an
exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares acquired
by Executive in such exercise; provided, however, that such deferrals shall not
reduce Executive's total cash compensation in any calendar year below the sum of
(i) the FICA maximum taxable wage base plus (ii) 1.45% of Executive's annual
salary, annual incentive compensation and long-term incentive compensation in
excess of such FICA maximum.
In accordance with such duly executed Deferral Election Forms
or the terms of any such mandatory deferral, the Company shall credit to one or
more bookkeeping accounts maintained for Executive on the respective payment
date or dates, amounts equal to the compensation subject to deferral, such
credits to be denominated in cash if the compensation would have been paid in
cash but for the deferral or in shares if the compensation would have been paid
in shares but for the deferral. An amount of cash equal in value to all
cash-denominated amounts credited to Executive's account and a number of shares
of Common Stock equal to the number of shares credited to Executive's account
pursuant to this Section 5(c) shall be transferred as soon as practicable
following such crediting by the Company to, and shall be held and invested by,
an independent trustee selected by the Company and reasonably acceptable to
Executive (a "Trustee") pursuant to a "rabbi trust" established by the Company
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, real estate, and
insurance vehicles) (the "Deferred Compensation Accounts"). Thereafter,
Executive's deferral accounts will be valued by reference to the value of the
assets of the Deferred Compensation Accounts. The Company shall pay all costs of
administration of the deferral arrangement, without deduction or reimbursement
from the assets of the "rabbi trust," or reduction in the Deferred Compensation
Accounts.
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Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or under the terms of any mandatory
deferral, the Company shall promptly pay to Executive cash equal to the cash
then credited to Executive's deferral accounts and cash equal in value to any
shares of Common Stock then credited to Executive's deferral accounts, less
applicable withholding taxes, and such distribution shall be deemed to fully
settle such accounts; provided, however, that the Company may instead settle
such accounts by directing the Trustee to distribute the assets of the "rabbi
trust." The Company and Executive agree that compensation deferred pursuant to
this Section 5(c) shall be fully vested and nonforfeitable; provided, however,
Executive acknowledges that his rights to the deferred compensation provided for
in this Section 5(c) shall be no greater than those of a general unsecured
creditor of the Company, and that such rights may not be pledged,
collateralized, encumbered, hypothecated, or liable for or subject to any lien,
obligation, or liability of Executive, or be assignable or transferable by
Executive, otherwise than by will or the laws of descent and distribution,
provided that Executive may designate one or more beneficiaries to receive any
payment of such amounts in the event of his death.
(d) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
(e) Company Registration Obligations. The Company will file
with the Securities and Exchange Commission, and will thereafter maintain the
effectiveness of, one or more registration statements registering under the
Securities Act of 1933, as amended, the offer and sale of shares by the Company
pursuant to stock options granted to Executive under the 1995 EICP and successor
plans, which registration statements shall include a resale prospectus covering
the reoffer and resale (or other disposition) of all shares acquired by
Executive upon exercise of such stock options, and the Company will maintain as
current all offering materials under such registration statement(s) at all times
that offers and sales of such shares could be made by the Company or Executive.
(f) Accelerated Funding of Rabbi Trust. Not later than 30 days
following a Change in Control that occurs during the term of this Agreement, the
Company shall contribute to the "rabbi trust" referred to in Section 5(c) an
amount equal to the amount that would be payable to the Executive upon a
termination of employment described in Section 7(b), where such amount consists
of the lump-sum payment provided for in Section (7)(b)(i). In the event of
Executive's termination of employment, for any reason, following a Change in
Control, the trustee of the rabbi trust shall pay such amounts (plus earnings
thereon) to the Executive if the amounts due to the Executive hereunder are not
otherwise paid to the Executive by the Company.
6. TERMINATION DUE TO NORMAL RETIREMENT, APPROVED EARLY
RETIREMENT, DEATH, OR DISABILITY.
Executive may terminate employment as President-Retail Group
upon Executive's retirement at or after age 65 ("Normal Retirement") or, if
approved in advance by the Committee,
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upon Executive's early retirement prior to age 65 ("Approved Early Retirement").
The Company may terminate the employment of Executive as President-Retail Group
due to the Disability (as defined in Section 8(c)) of Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In the
event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred to in the definition
of Disability (set forth in Section 8(c)) absent the actions referred to therein
being taken by Executive to return to service and present to the Company a
certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations of
the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, provided, however, that subject to the provisions of Section
12(i), the Company will pay Executive (or his beneficiaries or estate), and
Executive (or his beneficiaries or estate) will be entitled to receive, the
following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive
compensation for any year in such three-year period, the
Executive's target annual incentive compensation for such
year(s) shall be used to calculate average annual incentive
compensation) multiplied by a fraction the numerator of which
is the number of days Executive was employed in the year of
termination and the denominator of which is the total number
of days in the year of termination;
(iv) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (ii) above), Executive will be paid, for each tranche of
such long term incentive awards, in cash an amount equal to
any cash amount plus the value of any shares of Common Stock
or other property (valued at the date of termination) (A)
payable for that part of the long term incentive award that is
no longer subject
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<PAGE> 9
to a risk of forfeiture tied to performance conditions,
without proration, and (B) payable in respect of that part of
the long term incentive award that is subject to a risk of
forfeiture tied to performance conditions, assuming
achievement of the maximum performance in the case of death or
Disability or achievement of target performance in the case of
Normal Retirement or Early Retirement, multiplied (in case (B)
only) by a fraction the numerator of which is the number of
days Executive was employed during the performance period over
which such performance was to be measured and the denominator
of which is the total number of days in such performance
period;
(v) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d); and
(viii) If Executive's employment terminates due to Disability, for
the period extending from such termination until Executive
reaches age 65, Executive shall continue to participate in all
employee benefit plans, programs, and arrangements under
Section 5(b) providing health, medical, and life insurance and
pension benefits in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(except that additional years of service creditable under
Section 5(b)(iv) shall not be credited as a result of such
deemed continued participation following termination) or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if
Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination as provided in this
Section 6(viii), with such benefits payable by the Company at
the same times and in the same manner as such benefits would
have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided further, that in the case of termination of Executive's employment due
to Disability, Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue
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receiving the compensation and benefits under (viii), above; and provided
further, that Executive will be entitled to the benefit of any terms of plans or
agreements applicable to Executive which are more favorable than those specified
in this Section 6. Amounts payable under (i), (ii), (iii), (iv), and (vii) above
will be paid as promptly as practicable after termination of Executive's
employment; provided, however, that, to the extent that the Company would not be
entitled to deduct any such payments under Internal Revenue Code Section 162(m),
such payments shall be made at the earliest time that the payments would be
deductible by the Company without limitation under Section 162(m) (unless this
provision is waived by the Company).
7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN NORMAL
RETIREMENT, APPROVED EARLY RETIREMENT, DEATH OR DISABILITY.
(a) Termination by the Company for Cause and Termination by
Executive Other Than For Good Reason. In accordance with the provisions of this
Section 7(a), the Company may terminate the employment of Executive as
President-Retail Group for Cause (as defined in Section 8(a)) at any time prior
to a Change in Control (as defined in Section 8(b)), and Executive may terminate
his employment as President-Retail Group voluntarily for reasons other than Good
Reason (as defined in Section 8(d)) at any time. An election by Executive not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a termination
of this Agreement by Executive for reasons other than Good Reason at the date of
expiration of the Term, unless there occurs a Change in Control prior to such
date of expiration.
Upon a termination of Executive's employment by the Company
for Cause at any time prior to a Change in Control or by the Executive for
reasons other than Good Reason, the Term will immediately terminate, and all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease, provided, however, that, subject to the
provisions of Section 12(i), the Company shall pay Executive, and Executive
shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(b) hereof
(including any earned and vested annual and long-term
incentive compensation) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) A cash amount equal to the amount credited to Executive's
deferral accounts under deferral arrangements authorized under
Section 5(c) hereof at the date of termination of employment
(including cash equal in value at that date to any shares of
Common Stock credited to Executive's deferral accounts), less
applicable withholding taxes under Section 12(i); provided,
however, that the Company may instead settle such accounts by
directing the Trustee to distribute the assets of the
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"rabbi trust." Such amounts shall be paid or distributed as
promptly as practicable following such date of termination,
without regard to any stated period of deferral otherwise
remaining in respect of such amounts, and the payment of such
amounts shall be deemed to fully settle such accounts; and
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as promptly
as practicable after termination of Executive's employment; provided, however,
that, to the extent that the Company would not be entitled to deduct any such
payments under Internal Revenue Code Section 162(m), such payments shall be made
at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company).
(b) Termination by the Company Without Cause and Termination
by Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of Executive without Cause (as
defined in Section 8(a)), including after a Change in Control (as defined in
Section 8(b)), upon 90 days' written notice to Executive, and Executive may
terminate his employment with the Company for Good Reason (as defined in Section
8(d)) upon written notice to the Company; provided, however, that, (1) in the
case of a termination for Good Reason prior to a Change in Control, the
Executive must provide 90 day's written notice to the Company and if the basis
for such Good Reason is correctable, the Company must not have corrected the
basis for such Good Reason within 30 days after receipt of such notice, and (2)
in the case of a termination for Good Reason after a Change in Control, the
Executive may provide written notice to the Company at any time during the Term,
regardless of when the circumstances giving rise to such Good Reason did occur.
The foregoing notwithstanding, the Company may, in lieu of providing 90 days'
written notice to Executive, pay Executive his then-current annual base salary
under Section 4(a) and credit Executive with service for 90 days for all
purposes hereunder. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of this Agreement by the
Company without Cause at the date of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause, or termination of Executive's employment by the Executive for
Good Reason, the Term will immediately terminate and all obligations of the
parties under Sections 1 through 5 of this Agreement will immediately cease,
except that subject to the provisions of Section 12(i) the Company shall pay
Executive, and Executive shall be entitled to receive, the following:
(i) A lump sum cash payment in an amount equal to the sum of
Executive's then-current annual base salary at the rate
payable under Section 4(a) immediately prior to termination
plus the Severance Annual Incentive Amount (as defined below)
multiplied by 3 (2 in the case of a termination of employment
prior to a Change in Control), which payment shall be reduced
pro rata to the extent the number of full months remaining
until Executive attains age 65 is less than 36 months (24
months in the case of a termination of employment prior to a
Change in Control). For purposes of this Section 7(b)(i) and
Section 7(b)(iv), the "Severance Annual
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Incentive Amount" shall be 50% of the current annual base
salary referred to above. Notwithstanding the foregoing, the
lump sum cash payment described in the preceding sentence
shall be reduced by 50% in the case of the termination of
Executive's employment by the Executive for Good Reason, if
the effective date of such termination occurs within 12 months
after the date of a Change in Control, provided, however, that
if subsequent to the date the Executive gives written notice
of a termination for Good Reason, but prior to the effective
date of such termination selected by Executive, the Company
terminates the Executive, the reduction shall not apply, but
if the Executive terminates employment prior to such effective
date and before the date which is 12 months after the date of
Change in Control, the reduction shall apply;
(ii) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated, and all amounts not vested and nonforfeitable,
but owing and accrued at the date of termination of
employment, under such benefit plans, programs, and
arrangements, shall become vested and nonforfeitable and will
be paid under the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (iii) above), Executive will
be paid an amount equal to the Severance Annual Incentive
Amount as defined in Section 7(b)(i) which shall be multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(v) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (iii) above), an amount equal to any cash amount plus
the value of any shares of Common Stock or other property
(valued at the date of termination) assuming achievement of
the maximum performance for the performance period;
(vi) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted,
provided, however, that for all such purposes Executive shall
be deemed to be an Employee for a period of 3 years following
the termination of Executive's
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employment (2 years in the case of a termination of employment
prior to a Change in Control);
(vii) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d);
(ix) A lump-sum cash payment will be paid equal to the present
value of Executive's accrued benefit, if any, which shall be
fully vested at date of termination of employment, under all
supplemental (non-qualified) defined benefit pension plans of
the Company, unless such benefits are fully funded based on
assets held in trust for the benefit of Executive which cannot
be reached by creditors of the Company, or such benefits are
otherwise funded and secured in an equivalent manner; and
(x) For a period of 3 years after such termination (2 years in the
case of a termination prior to a Change in Control), Executive
shall continue to participate in all employee, executive, and
special individual benefit plans, programs, and arrangements
under Section 5(b) (and, in the case of a termination
following a Change in Control, the Company's restricted stock
grant plan (with all stock issued under such plan being fully
vested)), including but not limited to health, medical,
disability, life insurance, and pension benefits in which
Executive was participating immediately prior to termination
(but not including any plan, program or arrangement under
which the Executive was entitled to the use of a
Company-provided automobile), the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(additional years of service creditable under Section 5(b)(iv)
shall be credited as a result of such deemed continued
participation following termination) or, if such plans,
programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis
to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and
arrangements in which Executive was participating immediately
prior to termination, as if Executive had received credit
under such plans, programs, and arrangements for service and
age with the Company during such period following Executive's
termination, with such benefits payable by the Company at the
same times and in the same manner as such benefits would have
been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest risk premium charged by a carrier
having an investment grade or better credit rating);
provided, however, that Executive will be entitled to the benefit of any terms
of plans or agreements applicable to Executive which are more favorable than
those specified in this Section 7(b). Amounts payable under (i), (ii), (iii),
(iv), (v), (vii), (viii), (ix), and (x) above will be paid as promptly
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as practicable after termination of Executive's employment, and in no event more
than 45 days after such termination; provided, however, that, if such
termination is a termination by the Company without Cause and prior to a Change
in Control, to the extent that the Company would not be entitled to deduct any
such payments under Internal Revenue Code Section 162(m), such payments shall be
made at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company), but in no event later than 12 months subsequent to the date of
termination.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition, "gross
misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the Company
and its subsidiaries or materially impairs the value of the Executive's services
to the Company, or (B) willfully engaging in one or more acts, or willfully
omitting to act in accordance with duties hereunder, which is demonstrably and
materially damaging to the Company and its subsidiaries, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or failure
to act on Executive's part shall be considered "willful" if it was done or
omitted to be done by him not in good faith, and shall not include any act or
failure to act resulting from any incapacity of Executive. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within 6 months after the Board of Directors
of the Company (the "Board") (A) had knowledge of conduct or an event allegedly
constituting Cause and (B) had reason to believe that such conduct or event
could be grounds for Cause, a copy of a resolution duly adopted by a majority
affirmative vote of the membership of the Board (excluding Executive) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such termination and
not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with his counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth above in this Section 8(a), or,
in any case, after a Change in Control .
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the
shares of Common Stock of the Company then outstanding (the
"Company Common Stock Outstanding") or the voting securities
of the Company then outstanding entitled to vote generally in
the election of directors (the "Company Voting Securities
Outstanding"); provided, however, that such acquisition of
Beneficial Ownership would result in the Person's Beneficially
Owning twenty-five percent (25%) or more of the Company Common
Stock Outstanding or twenty-five percent (25%) or more of the
combined voting power of the Company Voting Securities
Outstanding; and provided further, that immediately prior to
such acquisition such Person was not a direct or indirect
Beneficial Owner of twenty-five percent (25%) or more of the
Company Common Stock Outstanding or twenty-five percent (25%)
or more of the
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combined voting power of Company Voting Securities
Outstanding, as the case may be; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this
Section 8(b) as a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, for purposes of
this Section 8(b), that any individual who becomes a member of
the Board subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act, including any successor to such Rule) or
other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and the
combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in 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; or (3) any transaction
initiated or controlled, directly or indirectly, by Executive, in a capacity
other than as an officer or a director of the Company.
For purposes of this definition:
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<PAGE> 16
(A) The terms "Beneficial Owner," "Beneficially Owning,"
and "Beneficial Ownership" shall have the meanings
ascribed to such terms in Rule 13d-3 under the
Exchange Act (including any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including
"group" as defined in Section 13(d) thereof.
(D) The term "Board" means the Board of Directors of the
Company or any parent of the Company.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed termination due to such absence, Executive shall have
returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by the Company and reasonably acceptable to
Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's prior written consent, (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices as
set forth in Section 3(a), status, rank, nature of responsibilities, or
authority within the Company, except in connection with the termination of
Executive's employment for Cause, Disability, Normal Retirement or Approved
Early Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive which are inconsistent
with Executive's status, duties, responsibilities, and authorities under Section
3(a), (C) a decrease in annual base salary or other compensation opportunities
and maximums or benefits provided under this Agreement, (D) any other failure by
the Company to perform any material obligation under, or breach by the Company
of any material provision of, this Agreement, (E) a relocation of the Corporate
Offices of the Company more than 35 miles from the latest location of such
offices prior to the date of a Change in Control, (F) any failure to secure the
agreement of any successor corporation or other entity to the Company to fully
assume the Company's obligations under this Agreement in a form reasonably
acceptable to Executive, and (G) any attempt by the Company to terminate
Executive for Cause which does not result in a valid termination for Cause,
except in the case that valid grounds for termination for Cause exist but are
corrected as permitted under Section 8(a).
9. EXCISE TAX GROSS-UP.
In the event that there shall occur a Change in Control of the Company,
if Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this
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<PAGE> 17
Agreement or any other plan, arrangement, or agreement with the Company or any
affiliated company (the "Total Payments"), which are or become subject to the
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below an
additional amount (the "Gross-up Payment") (which shall include, without
limitation, reimbursement for any penalties and interest that may accrue in
respect of such Excise Tax) such that the net amount retained by Executive,
after reduction for any Excise Tax (including any penalties or interest thereon)
on the Total Payments and any federal, state and local income or employment tax
and Excise Tax on the Gross-up Payment provided for by this Section 9, but
before reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (a) the Total Payments, and (b)
an amount equal to the product of any deductions disallowed for federal, state,
or local income tax purposes because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless, and except to the extent that, in the
written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable
to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A)
the total amount of the Total Payments or (B) the total amount
of excess parachute payments within the meaning of section
280G(b)(1) of the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year in which
the Gross-up Payment is to be made (including, for this purpose, any additional
tax associated with the alternative minimum tax, if applicable); (B) to pay any
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined
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<PAGE> 18
without regard to limitations on deductions based upon the amount of Executive's
adjusted gross income); and (C) to have otherwise allowable deductions for
federal, state, and local income tax purposes at least equal to those disallowed
because of the inclusion of the Gross-up Payment in Executive's adjusted gross
income. In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time the Gross-up Payment is
made, Executive shall repay to the Company at the time that the amount of such
reduction in Excise Tax is finally determined (but, if previously paid to the
taxing authorities, not prior to the time the amount of such reduction is
refunded to Executive or otherwise realized as a benefit by Executive) the
portion of the Gross-up Payment that would not have been paid if such Excise Tax
had been applied in initially calculating the Gross-up Payment, plus interest on
the amount of such repayment. In the event that the Excise Tax is determined by
the Internal Revenue Service (at any time, including subsequent to the
expiration of this Agreement) to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up Payment in respect of
such excess (plus any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is assessed.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross- up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest any other issue
raised by the Internal Revenue Service or any other taxing authority. Executive
shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder. Notwithstanding anything herein to the contrary, the Company shall
make an additional Gross-up Payment in respect of any failure of the Company to
pay the Excise Tax, in a timely manner, including, but not limited to, interest
and penalties, and in respect to the fees of any accountants, attorneys, and
other tax advisors engaged by Executive in connection with any dispute regarding
the amount of any Excise Tax due.
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<PAGE> 19
10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive will
not, for a period of 3 years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business in the continental United States in which he has been directly engaged
on behalf of the Company or any subsidiary, or has supervised as an executive
thereof, during the last two years prior to such termination and which is
directly in competition with a business then conducted by the Company or any of
its subsidiaries; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his or her employment with the
Company or any of its subsidiaries, to curtail or cancel their business with
such companies or any of them; or (iii) induce, or attempt to influence, any
employee of the Company or any of its subsidiaries to terminate employment;
provided, however, that the limitation contained in clause (i) above shall not
apply if Executive's employment is terminated as a result of a termination by
the Company following a Change in Control, a termination by Executive for Good
Reason, a termination due to Disability, Normal Retirement, or Approved Early
Retirement. The provisions of subparagraphs (i), (ii), and (iii) above are
separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company and its subsidiaries so long as such
information has not otherwise been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action which may, directly or indirectly, disparage or be damaging to the
Company or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations. Notwithstanding the
foregoing, nothing
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<PAGE> 20
in this Agreement shall preclude Executive from making truthful statements or
disclosures that are required by applicable law, regulation or legal process.
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and regulations
may be applicable. If under the governing law, any portion of this Agreement is
at any time deemed to be in conflict with any applicable statute, rule,
regulation, ordinance, or other principle of law, such portion shall be deemed
to be modified or altered to the extent necessary to conform thereto or, if that
is not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof. If any court determines that any provision of Section 10 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights; provided, however, that no reimbursement shall be made of such
expenses relating to any unsuccessful assertion of rights if and to the extent
that Executive's assertion of such rights was in bad faith or frivolous, as
determined by independent counsel mutually acceptable to the Executive and the
Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts of
the State of Illinois, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter have to such jurisdiction and any defense of inconvenient
forum. The Company and Executive hereby agree that a judgment upon an award
rendered by the arbitrators may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. Subject to Section 11(b),
the Company shall bear all costs and expenses arising in connection with any
arbitration proceeding pursuant to this Section 11. Notwithstanding any
provision in this Section 11, Executive
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<PAGE> 21
shall be entitled to seek specific performance of Executive's right to be paid
during the pendency of any dispute or controversy arising under or in connection
with this Agreement. The arbitrator shall have the right to order immediate
payment of any amounts not in dispute, and to advance the payment of the fees of
Executive under Section 11(b).
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest at the prime rate in effect at the time such
payment first becomes payable, as quoted by the Bankers Trust Company.
12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company and its subsidiaries, except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and its subsidiaries. This Agreement (together with
the Option Agreement ) constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment or benefit under this
Agreement which duplicates a payment or benefit received or receivable by
Executive under such prior agreements and understandings or under any benefit or
compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation of
law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a condition
of the succession, require such Successor to agree to assume the Company's
obligations and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's voting securities or all or substantially all of its assets, or
otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or notified, by Federal
Express or other similar overnight service or by certified or registered mail,
return receipt requested, postage prepaid and addressed to such party at the
address set forth below or at such other address as may be designated by such
party by like notice:
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<PAGE> 22
If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
John Salisbury
500 Old Academy Road
Fairfield, Connecticut 06430
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective 2 days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in Section 5(b)
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<PAGE> 23
hereof, any such benefits to be provided by the Company to Executive following
the Term shall be correspondingly reduced.
(i) Offsets and Withholding. The amounts required to be paid
by the Company to Executive pursuant to this Agreement shall not be subject to
offset. The foregoing and other provisions of this Agreement notwithstanding,
all payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company (and its parent, if any, and affiliates) and its
successors and assigns. Upon the effective time of the Company's reorganization
pursuant to which Fruit of the Loom, Ltd. shall become the parent company of the
Company, this agreement shall become a binding obligation of Fruit of the Loom,
Ltd. and all references to the Company shall be deemed to be a reference to
Fruit of the Loom, Ltd.
13. INDEMNIFICATION AND RELEASE.
(a) Indemnification of Executive by the Company. All rights to
indemnification by the Company now existing in favor of the Executive as
provided in the Company's Certificate of Incorporation or By-Laws or pursuant to
other agreements in effect on or immediately prior to the Effective Date shall
continue in full force and effect from the Effective Date (including all periods
after the expiration of the Term), and the Company shall also advance expenses
for which indemnification may be ultimately claimed as such expenses are
incurred to the fullest extent permitted under applicable law, subject to any
requirement that the Executive provide an undertaking to repay such advances if
it is ultimately determined that the Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-Laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-Laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law. In
addition, the Company will maintain directors' and officers' liability insurance
in effect and covering acts and omissions of Executive during the Term and for a
period of six years thereafter on terms substantially no less favorable than
those in effect on the Effective Date.
(b) Release by Executive. Except for the Company's obligations
under this Agreement including, without limitation, Executive's rights of
indemnification, and except as hereinafter expressly provided, Executive
irrevocably and unconditionally releases and discharges the Company, its
officers, directors, shareholders, agents, employees, affiliates, related
companies and entities, successors and assigns (separately and collectively, the
"Company's Released Parties"), jointly and individually, from any and all
claims, obligations, demands, damages, and causes of action of any nature or
kind whatsoever, known or unknown, which Executive, his heirs, successors or
assigns, has or may have, now or in the future, against the Company or the
Company's Released Parties, based upon, relating to, or arising from the
creation, existence or termination of Executive's employment, including but not
limited to, claims arising under or relating
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<PAGE> 24
to the Fair Labor Standards Act of 1938 and claims of employment discrimination
arising under Title VII of the Civil Rights Act of 1964, as amended by the Civil
Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and
Medical Leave Act of 1993, the Age Discrimination in Employment Act of 1967, as
amended by the Older Workers Benefit Protection Act, the Employee Retirement
Income Security Act, the National Labor Relations Act, and/or claims arising
under the State Statute or Local Statute or Ordinance covering age
discrimination, wrongful termination or any claim arising under express or
implied contracts, tort, public policy, common law or any other Federal, state
or local statute (including state and local anti-discrimination statutes),
ordinance, regulation or constitutional provision.
(c) Release by Company. Except for the Executive's obligations
under this Agreement, (including the repayment of any advancements made before
or after the Effective Date, which the Executive is required to repay if it is
ultimately determined that the Executive is not entitled to indemnification) and
as hereinafter provided, the Company and the Company's Released Parties
irrevocably and unconditionally release and discharge Executive, his successors
and assigns, from any and all claims, obligations, demands, damages and causes
of action of any kind whatsoever, known or unknown, which the Company and the
Company's Released Parties may have, now or in the future, against the Executive
based upon, relating to, or arising from the creation, existence or termination
of Executive's employment; and such release shall extend to the full extent (and
only to the extent) of any indemnification authorized under Section 13(a) of
this Agreement and under Article XIII of the Company's Certificate of
Incorporation.
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<PAGE> 1
EX-10.(P)
FRUIT OF THE LOOM, INC.
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Employment Agreement for Edgar F. Turner
-------------------
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<PAGE> 2
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for Edgar F. Turner
-------------------
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<TABLE>
<S> <C>
1. Employment....................................................................1
2. Term..........................................................................1
3. Offices and Duties............................................................2
4. Salary and Annual Incentive Compensation......................................2
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement..............................3
6. Termination Due to Normal Retirement, Approved Early Retirement,
Death, or Disability. ........................................................6
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability. ..............................8
8. Definitions Relating to Termination Events...................................12
9. Excise Tax Gross-Up..........................................................15
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement............................................................17
11. Governing Law; Disputes; Arbitration.........................................18
12. Miscellaneous................................................................19
13. Indemnification and Release..................................................21
</TABLE>
<PAGE> 3
FRUIT OF THE LOOM, INC.
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Employment Agreement for Edgar F. Turner
-------------------
- --------------------------------------------------------------------------------
THIS EMPLOYMENT AGREEMENT, by and between FRUIT OF THE LOOM,
INC., a Delaware corporation (the "Company"), and Edgar F. Turner ("Executive"),
is hereby entered into on this 6th day of January, 1999 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has been an employee of the Company since
March 2, 1996; and
WHEREAS, the Company desires to continue to employ Executive
in his capacity as Executive Vice President-Operations in connection with the
conduct of its businesses, and Executive desires to accept such employment on
the terms and conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the
terms upon which Executive shall be so employed.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT.
The Company hereby agrees to employ Executive as its Executive
Vice President-Operations, and Executive hereby agrees to accept such employment
and serve in such capacity, during the Term as defined in Section 2 and upon the
terms and conditions set forth in this Employment Agreement, as amended and
restated (this "Agreement").
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating
January 5, 2002 and any period of extension thereof in accordance with this
Section 2, subject to earlier termination in accordance with Section 6 or 7. The
Term shall be extended automatically without further action by either party by
one additional year (added to the end of the Term) first on January 6, 2002
(extending the Term to January 5, 2003) and on each succeeding January 6
thereafter, unless either party shall have served written notice in accordance
with the provisions of Section 12(d) upon the other party prior
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to the July 6 preceding the date upon which such extension would become
effective electing not to extend the Term further as of the January 6 next
succeeding the date such notice is served (and successive January 6 during the
remainder of the Term), in which case employment shall terminate at the end of
the Term as extended, subject to earlier termination in accordance with Section
6 or 7.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as the Executive Vice
President-Operations of the Company. Executive shall have and perform such
duties, responsibilities, and authorities as are customary for the Executive
Vice President-Operations of a publicly held corporation of the size, type, and
nature of the Company as they may exist from time to time and consistent with
such position and status, but in no event shall such duties, responsibilities,
and authorities be reduced from those of Executive prior to the Effective Date
as described in Executive's job description provided to the Executive as of the
date hereof. Executive shall devote substantial business time and attention, and
his best efforts, abilities, experience, and talent to the position of Executive
Vice President-Operations and for the businesses of the Company; provided,
however, that nothing in this Agreement shall preclude or prohibit Executive
from engaging in other activities, to the extent that such other activities do
not preclude or render unlawful Executive's employment or service to the Company
hereunder or otherwise materially inhibit the performance of Executive's duties
under this Agreement or conflict with the business of the Company or its
subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Bowling Green,
Kentucky. In no event shall the Executive's principal place of employment be
relocated to any location other than Bowling Green, Kentucky, without his prior
written consent.
4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered
hereunder by Executive, the Company agrees to pay to Executive during the Term
the compensation set forth in this Section 4.
(a) Base Salary. Subject to Section 5(b), the Company will pay
to Executive during the Term a base salary at the initial annual rate of
$335,000, payable in cash in substantially equal bi-weekly installments during
each calendar year, or portion thereof, of the Term and otherwise in accordance
with the Company's usual payroll practices with respect to senior executives
(except to the extent deferred under Section 5(d)). Executive's annual base
salary shall be reviewed by the Compensation Committee of the Board of Directors
of the Company (the "Committee") at least once in each calendar year and may be
increased above, but may not be reduced below, the then-current rate of such
base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Company's 1995 Executive Incentive Compensation Plan (the "1995 EICP"),
and any successor thereto, which shall offer to
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Executive an opportunity to earn additional compensation in amounts determined
by the Committee in accordance with the applicable plan and consistent with past
practices of the Company; provided, however, that the Company will use its best
efforts to maintain in effect, for each year during the Term, the 1995 EICP or
an equivalent plan under which the Executive shall be eligible for an award not
less than the award opportunity assigned to the Executive under the 1995 EICP in
1998. Any such annual incentive compensation payable to Executive shall be paid
in accordance with the Company's usual practices with respect to payment of
incentive compensation to senior executives (except to the extent deferred under
Section 5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation by
senior executives of the Company (other than the Chief Executive of the
Company), as presently in effect or as they may be modified or added to by the
Company from time to time, subject to the eligibility and other requirements of
such plans and programs, including without limitation the long-term incentive
features of the 1995 EICP, any successor to such plan, and other stock option
plans, performance share plans, management incentive plans, deferred
compensation plans, and supplemental retirement plans; provided, however, that
such plans and programs, in the aggregate, shall provide Executive with benefits
and compensation and incentive award opportunities substantially no less
favorable than those provided by the Company to Executive under such plans and
programs as in effect on the Effective Date, except that the Company shall have
no obligation to include the Executive in the "Pars" program or in the Fruit of
the Loom, Inc. Supplemental Executive Retirement Plan ("SERP"). For purposes of
this Agreement, all references to long-term incentive features refer to any
performance shares, performance units, stock grants, or other long-term
incentive arrangements under the 1995 EICP or other plans of the Company and any
successor or replacement to the 1995 EICP or other plans of the Company.
(b) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, to the extent such plans are available to other senior executives
or employees of the Company, subject to the eligibility and other requirements
of such plans and programs, including without limitation plans providing
pensions, other retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, and
participation in savings, profit-sharing, and stock ownership plans; provided,
however, that, except as provided in the first sentence of Section 5(c)(iv)
below, such benefit plans and programs, in the aggregate, shall provide
Executive with benefits and compensation and incentive award opportunities
substantially no less favorable than those provided by the Company to Executive
under such plans and programs as in effect on the Effective Date, except that
the Company shall have no obligation to include the Executive in the "Pars"
program or in the SERP.
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In furtherance of and not in limitation of the foregoing,
during the Term:
(i) Executive will participate as Executive Vice
President-Operations in all executive and employee vacation
and time-off programs;
(ii) The Company will provide Executive with coverage as Executive
Vice President-Operations in group and executive long-term
disability insurance and benefits substantially no less
favorable (including any required contributions by Executive)
than such insurance and benefits in effect on the Effective
Date;
(iii) Executive will be covered by life insurance substantially no
less favorable (including any required contributions by
Executive) than life insurance coverage in effect on the
Effective Date; and
(iv) Executive will be entitled to retirement benefits
substantially no less favorable than those under the qualified
and nonqualified defined benefit pension plans of the Company
as in effect on the Effective Date.
(c) Deferral of Compensation. The Company shall implement
deferral arrangements permitting Executive to elect to irrevocably defer
receipt, pursuant to written deferral election terms and forms (the "Deferral
Election Forms"), of all or a specified portion of (i) his annual base salary
and annual incentive compensation under Section 4, (ii) long-term incentive
compensation under Section 5(a), and (iii) shares acquired upon exercise of
options granted in accordance with Sections 5(a) and (b) that are acquired in an
exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares acquired
by Executive in such exercise; provided, however, that such deferrals shall not
reduce Executive's total cash compensation in any calendar year below the sum of
(i) the FICA maximum taxable wage base plus (ii) 1.45% of Executive's annual
salary, annual incentive compensation and long-term incentive compensation in
excess of such FICA maximum.
In accordance with such duly executed Deferral Election Forms
or the terms of any such mandatory deferral, the Company shall credit to one or
more bookkeeping accounts maintained for Executive on the respective payment
date or dates, amounts equal to the compensation subject to deferral, such
credits to be denominated in cash if the compensation would have been paid in
cash but for the deferral or in shares if the compensation would have been paid
in shares but for the deferral. An amount of cash equal in value to all
cash-denominated amounts credited to Executive's account and a number of shares
of Common Stock equal to the number of shares credited to Executive's account
pursuant to this Section 5(c) shall be transferred as soon as practicable
following such crediting by the Company to, and shall be held and invested by,
an independent trustee selected by the Company and reasonably acceptable to
Executive (a "Trustee") pursuant to a "rabbi trust" established by the Company
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, real estate, and
insurance vehicles) (the "Deferred Compensation Accounts"). Thereafter,
Executive's deferral accounts will be valued by reference to the value of the
assets of the Deferred Compensation Accounts. The Company shall pay all costs of
administration of the deferral
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arrangement, without deduction or reimbursement from the assets of the "rabbi
trust," or reduction in the Deferred Compensation Accounts.
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or under the terms of any mandatory
deferral, the Company shall promptly pay to Executive cash equal to the cash
then credited to Executive's deferral accounts and cash equal in value to any
shares of Common Stock then credited to Executive's deferral accounts, less
applicable withholding taxes, and such distribution shall be deemed to fully
settle such accounts; provided, however, that the Company may instead settle
such accounts by directing the Trustee to distribute the assets of the "rabbi
trust." The Company and Executive agree that compensation deferred pursuant to
this Section 5(c) shall be fully vested and nonforfeitable; provided, however,
Executive acknowledges that his rights to the deferred compensation provided for
in this Section 5(c) shall be no greater than those of a general unsecured
creditor of the Company, and that such rights may not be pledged,
collateralized, encumbered, hypothecated, or liable for or subject to any lien,
obligation, or liability of Executive, or be assignable or transferable by
Executive, otherwise than by will or the laws of descent and distribution,
provided that Executive may designate one or more beneficiaries to receive any
payment of such amounts in the event of his death.
(d) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
(e) Company Registration Obligations. The Company will file
with the Securities and Exchange Commission, and will thereafter maintain the
effectiveness of, one or more registration statements registering under the
Securities Act of 1933, as amended, the offer and sale of shares by the Company
pursuant to stock options granted to Executive under the 1995 EICP and successor
plans, which registration statements shall include a resale prospectus covering
the reoffer and resale (or other disposition) of all shares acquired by
Executive upon exercise of such stock options, and the Company will maintain as
current all offering materials under such registration statement(s) at all times
that offers and sales of such shares could be made by the Company or Executive.
(f) Accelerated Funding of Rabbi Trust. Not later than 30 days
following a Change in Control that occurs during the term of this Agreement, the
Company shall contribute to the "rabbi trust" referred to in Section 5(c) an
amount equal to the amount that would be payable to the Executive upon a
termination of employment described in Section 7(b), where such amount consists
of the lump-sum payment provided for in Section (7)(b)(i). In the event of
Executive's termination of employment, for any reason, following a Change in
Control, the trustee of the rabbi trust shall pay such amounts (plus earnings
thereon) to the Executive if the amounts due to the Executive hereunder are not
otherwise paid to the Executive by the Company.
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6. TERMINATION DUE TO NORMAL RETIREMENT, APPROVED EARLY
RETIREMENT, DEATH, OR DISABILITY.
Executive may terminate employment as Executive Vice
President-Operations upon Executive's retirement at or after age 65 ("Normal
Retirement") or, if approved in advance by the Committee, upon Executive's early
retirement prior to age 65 ("Approved Early Retirement"). The Company may
terminate the employment of Executive as Executive Vice President-Operations due
to the Disability (as defined in Section 8(c)) of Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In the
event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred to in the definition
of Disability (set forth in Section 8(c)) absent the actions referred to therein
being taken by Executive to return to service and present to the Company a
certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations of
the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, provided, however, that subject to the provisions of Section
12(i), the Company will pay Executive (or his beneficiaries or estate), and
Executive (or his beneficiaries or estate) will be entitled to receive, the
following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive
compensation for any year in such three-year period, the
Executive's target annual incentive compensation for such
year(s) shall be used to calculate average annual incentive
compensation) multiplied by a fraction the numerator of which
is the number of days Executive was employed in the year of
termination and the denominator of which is the total number
of days in the year of termination;
(iv) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not
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completed at the date Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid, for each tranche of such long term incentive awards, in
cash an amount equal to any cash amount plus the value of any
shares of Common Stock or other property (valued at the date
of termination) (A) payable for that part of the long term
incentive award that is no longer subject to a risk of
forfeiture tied to performance conditions, without proration,
and (B) payable in respect of that part of the long term
incentive award that is subject to a risk of forfeiture tied
to performance conditions, assuming achievement of the maximum
performance in the case of death or Disability or achievement
of target performance in the case of Normal Retirement or
Early Retirement, multiplied (in case (B) only) by a fraction
the numerator of which is the number of days Executive was
employed during the performance period over which such
performance was to be measured and the denominator of which is
the total number of days in such performance period;
(v) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d); and
(viii) If Executive's employment terminates due to Disability, for
the period extending from such termination until Executive
reaches age 65, Executive shall continue to participate in all
employee benefit plans, programs, and arrangements under
Section 5(b) providing health, medical, and life insurance and
pension benefits in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(except that additional years of service creditable under
Section 5(b)(iv) shall not be credited as a result of such
deemed continued participation following termination) or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if
Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination as provided in this
Section 6(viii), with such benefits payable by the Company at
the same times and in the same manner as such benefits would
have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive,
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which shall not exceed the highest risk premium charged by a
carrier having an investment grade or better credit rating);
provided further, that in the case of termination of Executive's employment due
to Disability, Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue receiving the compensation and benefits under
(viii), above; and provided further, that Executive will be entitled to the
benefit of any terms of plans or agreements applicable to Executive which are
more favorable than those specified in this Section 6. Amounts payable under
(i), (ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after termination of Executive's employment; provided, however, that, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company).
7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN NORMAL
RETIREMENT, APPROVED EARLY RETIREMENT, DEATH OR DISABILITY.
(a) Termination by the Company for Cause and Termination by
Executive Other Than For Good Reason. In accordance with the provisions of this
Section 7(a), the Company may terminate the employment of Executive as Executive
Vice President-Operations for Cause (as defined in Section 8(a)) at any time
prior to a Change in Control (as defined in Section 8(b)), and Executive may
terminate his employment as Executive Vice President-Operations voluntarily for
reasons other than Good Reason (as defined in Section 8(d)) at any time. An
election by Executive not to extend the Term pursuant to Section 2 hereof shall
be deemed to be a termination of this Agreement by Executive for reasons other
than Good Reason at the date of expiration of the Term, unless there occurs a
Change in Control prior to such date of expiration.
Upon a termination of Executive's employment by the Company
for Cause at any time prior to a Change in Control or by the Executive for
reasons other than Good Reason, the Term will immediately terminate, and all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease, provided, however, that, subject to the
provisions of Section 12(i), the Company shall pay Executive, and Executive
shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(b) hereof
(including any earned and vested annual and long-term
incentive compensation) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
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(iii) A cash amount equal to the amount credited to Executive's
deferral accounts under deferral arrangements authorized under
Section 5(c) hereof at the date of termination of employment
(including cash equal in value at that date to any shares of
Common Stock credited to Executive's deferral accounts), less
applicable withholding taxes under Section 12(i); provided,
however, that the Company may instead settle such accounts by
directing the Trustee to distribute the assets of the "rabbi
trust." Such amounts shall be paid or distributed as promptly
as practicable following such date of termination, without
regard to any stated period of deferral otherwise remaining in
respect of such amounts, and the payment of such amounts shall
be deemed to fully settle such accounts; and
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as promptly
as practicable after termination of Executive's employment; provided, however,
that, to the extent that the Company would not be entitled to deduct any such
payments under Internal Revenue Code Section 162(m), such payments shall be made
at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company).
(b) Termination by the Company Without Cause and Termination
by Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of Executive without Cause (as
defined in Section 8(a)), including after a Change in Control (as defined in
Section 8(b)), upon 90 days' written notice to Executive, and Executive may
terminate his employment with the Company for Good Reason (as defined in Section
8(d)) upon written notice to the Company; provided, however, that, (1) in the
case of a termination for Good Reason prior to a Change in Control, the
Executive must provide 90 days' written notice to the Company and if the basis
for such Good Reason is correctable, the Company must not have corrected the
basis for such Good Reason within 30 days after receipt of such notice, and (2)
in the case of a termination for Good Reason after a Change in Control, the
Executive may provide written notice to the Company at any time during the Term,
regardless of when the circumstances giving rise to such Good Reason did occur.
The foregoing notwithstanding, the Company may, in lieu of providing 90 days'
written notice to Executive, pay Executive his then-current annual base salary
under Section 4(a) and credit Executive with service for 90 days for all
purposes hereunder. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of this Agreement by the
Company without Cause at the date of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause, or termination of Executive's employment by the Executive for
Good Reason, the Term will immediately terminate and all obligations of the
parties under Sections 1 through 5 of this Agreement will immediately cease,
except that subject to the provisions of Section 12(i) the Company shall pay
Executive, and Executive shall be entitled to receive, the following:
(i) A lump sum cash payment in an amount equal to the sum of
Executive's then-current annual base salary at the rate
payable under Section 4(a) immediately prior
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to termination plus the Severance Annual Incentive Amount (as
defined below) multiplied by 3 (2 in the case of a termination
of employment prior to a Change in Control), which payment
shall be reduced pro rata to the extent the number of full
months remaining until Executive attains age 65 is less than
36 months (24 months in the case of a termination of
employment prior to a Change in Control). For purposes of this
Section 7(b)(i) and Section 7(b)(iv), the "Severance Annual
Incentive Amount" shall be 50% of the current annual base
salary referred to above. Notwithstanding the foregoing, the
lump sum cash payment described in the preceding sentence
shall be reduced by 50% in the case of the termination of
Executive's employment by the Executive for Good Reason, if
the effective date of such termination occurs within 12 months
after the date of a Change in Control, provided, however, that
if subsequent to the date the Executive gives written notice
of a termination for Good Reason, but prior to the effective
date of such termination selected by the Executive, the
Company terminates the Executive, the reduction shall not
apply, but if the Executive terminates employment prior to
such effective date and before the date which is 12 months
after the date of Change in Control, the reduction shall
apply;
(ii) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated, and all amounts not vested and nonforfeitable,
but owing and accrued at the date of termination of
employment, under such benefit plans, programs, and
arrangements, shall become vested and nonforfeitable and will
be paid under the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (iii) above), Executive will
be paid an amount equal to the Severance Annual Incentive
Amount as defined in Section 7(b)(i) which shall be multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(v) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (iii) above), an amount equal to any cash amount plus
the value of any shares of Common Stock or other property
(valued at the date of termination) assuming achievement of
the maximum performance for the performance period;
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(vi) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted,
provided, however, that for all such purposes Executive shall
be deemed to be an Employee for a period of 3 years following
the termination of Executive's employment (2 years in the case
of a termination of employment prior to a Change in Control);
(vii) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d);
(ix) A lump-sum cash payment will be paid equal to the present
value of Executive's accrued benefit, if any, which shall be
fully vested at date of termination of employment, under all
supplemental (non-qualified) defined benefit pension plans of
the Company, unless such benefits are fully funded based on
assets held in trust for the benefit of Executive which cannot
be reached by creditors of the Company, or such benefits are
otherwise funded and secured in an equivalent manner; and
(x) For a period of 3 years after such termination (2 years in the
case of a termination prior to a Change in Control), Executive
shall continue to participate in all employee, executive, and
special individual benefit plans, programs, and arrangements
under Section 5(b) (and, in the case of a termination
following a Change in Control, the Company's restricted stock
grant plan (with all stock issued under such plan being fully
vested)), including but not limited to health, medical,
disability, life insurance, and pension benefits in which
Executive was participating immediately prior to termination
(but not including any plan, program or arrangement under
which the Executive was entitled to the use of a
Company-provided automobile), the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(additional years of service creditable under Section 5(b)(iv)
shall be credited as a result of such deemed continued
participation following termination) or, if such plans,
programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis
to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and
arrangements in which Executive was participating immediately
prior to termination, as if Executive had received credit
under such plans, programs, and arrangements for service and
age with the Company during such period following Executive's
termination, with such benefits payable by the Company at the
same times and in the same manner as such benefits would have
been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest
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risk premium charged by a carrier having an investment grade
or better credit rating);
provided, however, that Executive will be entitled to the benefit of any terms
of plans or agreements applicable to Executive which are more favorable than
those specified in this Section 7(b). Amounts payable under (i), (ii), (iii),
(iv), (v), (vii), (viii), (ix), and (x) above will be paid as promptly as
practicable after termination of Executive's employment, and in no event more
than 45 days after such termination; provided, however, that, if such
termination is a termination by the Company without Cause and prior to a Change
in Control, to the extent that the Company would not be entitled to deduct any
such payments under Internal Revenue Code Section 162(m), such payments shall be
made at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company), but in no event later than 12 months subsequent to the date of
termination.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition, "gross
misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the Company
and its subsidiaries or materially impairs the value of the Executive's services
to the Company, or (B) willfully engaging in one or more acts, or willfully
omitting to act in accordance with duties hereunder, which is demonstrably and
materially damaging to the Company and its subsidiaries, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or failure
to act on Executive's part shall be considered "willful" if it was done or
omitted to be done by him not in good faith, and shall not include any act or
failure to act resulting from any incapacity of Executive. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within 6 months after the Board of Directors
of the Company (the "Board") (A) had knowledge of conduct or an event allegedly
constituting Cause and (B) had reason to believe that such conduct or event
could be grounds for Cause, a copy of a resolution duly adopted by a majority
affirmative vote of the membership of the Board (excluding Executive) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such termination and
not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with his counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth above in this Section 8(a), or,
in any case, after a Change in Control .
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the
shares of Common Stock of the Company then outstanding (the
"Company Common Stock Outstanding") or the voting securities
of the Company then outstanding entitled to vote generally in
the election of directors (the "Company Voting Securities
Outstanding"); provided, however, that such acquisition of
Beneficial Ownership
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<PAGE> 15
would result in the Person's Beneficially Owning twenty-five
percent (25%) or more of the Company Common Stock Outstanding
or twenty-five percent (25%) or more of the combined voting
power of the Company Voting Securities Outstanding; and
provided further, that immediately prior to such acquisition
such Person was not a direct or indirect Beneficial Owner of
twenty-five percent (25%) or more of the Company Common Stock
Outstanding or twenty-five percent (25%) or more of the
combined voting power of Company Voting Securities
Outstanding, as the case may be; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this
Section 8(b) as a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, for purposes of
this Section 8(b), that any individual who becomes a member of
the Board subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act, including any successor to such Rule) or
other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and the
combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in substantially
the same proportions as their ownership, immediately prior to such acquisition
or Corporate Transaction, of the Company Common Stock Outstanding and Company
Voting
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<PAGE> 16
Securities Outstanding, as the case may be; or (3) any transaction initiated or
controlled, directly or indirectly, by Executive, in a capacity other than as an
officer or a director of the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning,"
and "Beneficial Ownership" shall have the meanings
ascribed to such terms in Rule 13d-3 under the
Exchange Act (including any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including
"group" as defined in Section 13(d) thereof.
(D) The term "Board" means the Board of Directors of the
Company or any parent of the Company.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed termination due to such absence, Executive shall have
returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by the Company and reasonably acceptable to
Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's prior written consent, (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices as
set forth in Section 3(a), status, rank, nature of responsibilities, or
authority within the Company, except in connection with the termination of
Executive's employment for Cause, Disability, Normal Retirement or Approved
Early Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive which are inconsistent
with Executive's status, duties, responsibilities, and authorities under Section
3(a), (C) a decrease in annual base salary or other compensation opportunities
and maximums or benefits provided under this Agreement, (D) any other failure by
the Company to perform any material obligation under, or breach by the Company
of any material provision of, this Agreement, (E) a relocation of the Corporate
Offices of the Company more than 35 miles from the latest location of such
offices prior to the date of a Change in Control, (F) any failure to secure the
agreement of any successor corporation or other entity to the Company to fully
assume the Company's obligations under this Agreement in a form reasonably
acceptable to Executive, and (G) any attempt by the Company to terminate
Executive for Cause which does not result in a valid termination for Cause,
except in the case that valid grounds for termination for Cause exist but are
corrected as permitted under Section 8(a).
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<PAGE> 17
9. EXCISE TAX GROSS-UP.
In the event that there shall occur a Change in Control of the Company,
if Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement for
any penalties and interest that may accrue in respect of such Excise Tax) such
that the net amount retained by Executive, after reduction for any Excise Tax
(including any penalties or interest thereon) on the Total Payments and any
federal, state and local income or employment tax and Excise Tax on the Gross-up
Payment provided for by this Section 9, but before reduction for any federal,
state, or local income or employment tax on the Total Payments, shall be equal
to the sum of (a) the Total Payments, and (b) an amount equal to the product of
any deductions disallowed for federal, state, or local income tax purposes
because of the inclusion of the Gross-up Payment in Executive's adjusted gross
income multiplied by the highest applicable marginal rate of federal, state, or
local income taxation, respectively, for the calendar year in which the Gross-up
Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless, and except to the extent that, in the
written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable
to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A)
the total amount of the Total Payments or (B) the total amount
of excess parachute payments within the meaning of section
280G(b)(1) of the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation
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for the calendar year in which the Gross-up Payment is to be made (including,
for this purpose, any additional tax associated with the alternative minimum
tax, if applicable); (B) to pay any applicable state and local income taxes at
the highest marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes if
paid in such year (determined without regard to limitations on deductions based
upon the amount of Executive's adjusted gross income); and (C) to have otherwise
allowable deductions for federal, state, and local income tax purposes at least
equal to those disallowed because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account hereunder
at the time the Gross-up Payment is made, Executive shall repay to the Company
at the time that the amount of such reduction in Excise Tax is finally
determined (but, if previously paid to the taxing authorities, not prior to the
time the amount of such reduction is refunded to Executive or otherwise realized
as a benefit by Executive) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied in initially calculating the
Gross-up Payment, plus interest on the amount of such repayment. In the event
that the Excise Tax is determined by the Internal Revenue Service (at any time,
including subsequent to the expiration of this Agreement) to exceed the amount
taken into account hereunder at the time the Gross-up Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Gross-up Payment), the Company shall make an additional
Gross-up Payment in respect of such excess (plus any interest and penalties
payable with respect to such excess) at the time that the amount of such excess
is assessed.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross- up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest any other issue
raised by the Internal Revenue Service or any other taxing authority. Executive
shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder. Notwithstanding anything herein to the contrary, the Company shall
make an additional Gross-up
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<PAGE> 19
Payment in respect of any failure of the Company to pay the Excise Tax, in a
timely manner, including, but not limited to, interest and penalties, and in
respect to the fees of any accountants, attorneys, and other tax advisors
engaged by Executive in connection with any dispute regarding the amount of any
Excise Tax due.
10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive will
not, for a period of 3 years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business in the continental United States in which he has been directly engaged
on behalf of the Company or any subsidiary, or has supervised as an executive
thereof, during the last two years prior to such termination and which is
directly in competition with a business then conducted by the Company or any of
its subsidiaries; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his or her employment with the
Company or any of its subsidiaries, to curtail or cancel their business with
such companies or any of them; or (iii) induce, or attempt to influence, any
employee of the Company or any of its subsidiaries to terminate employment;
provided, however, that the limitation contained in clause (i) above shall not
apply if Executive's employment is terminated as a result of a termination by
the Company following a Change in Control, a termination by Executive for Good
Reason, a termination due to Disability, Normal Retirement, or Approved Early
Retirement. The provisions of subparagraphs (i), (ii), and (iii) above are
separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company and its subsidiaries so long as such
information has not otherwise been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
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<PAGE> 20
(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action which may, directly or indirectly, disparage or be damaging to the
Company or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations. Notwithstanding the
foregoing, nothing in this Agreement shall preclude Executive from making
truthful statements or disclosures that are required by applicable law,
regulation or legal process.
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and regulations
may be applicable. If under the governing law, any portion of this Agreement is
at any time deemed to be in conflict with any applicable statute, rule,
regulation, ordinance, or other principle of law, such portion shall be deemed
to be modified or altered to the extent necessary to conform thereto or, if that
is not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof. If any court determines that any provision of Section 10 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights; provided, however, that no reimbursement shall be made of such
expenses relating to any unsuccessful assertion of rights if and to the extent
that Executive's assertion of such rights was in bad faith or frivolous, as
determined by independent counsel mutually acceptable to the Executive and the
Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts of
the State of Illinois, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter
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<PAGE> 21
have to such jurisdiction and any defense of inconvenient forum. The Company and
Executive hereby agree that a judgment upon an award rendered by the arbitrators
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Subject to Section 11(b), the Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 11. Notwithstanding any provision in this Section 11,
Executive shall be entitled to seek specific performance of Executive's right to
be paid during the pendency of any dispute or controversy arising under or in
connection with this Agreement. The arbitrator shall have the right to order
immediate payment of any amounts not in dispute, and to advance the payment of
the fees of Executive under Section 11(b).
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest at the prime rate in effect at the time such
payment first becomes payable, as quoted by the Bankers Trust Company.
12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company and its subsidiaries, except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and its subsidiaries. This Agreement (together with
the Option Agreement ) constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment or benefit under this
Agreement which duplicates a payment or benefit received or receivable by
Executive under such prior agreements and understandings or under any benefit or
compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation of
law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a condition
of the succession, require such Successor to agree to assume the Company's
obligations and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's voting securities or all or substantially all of its assets, or
otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or
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<PAGE> 22
notified, by Federal Express or other similar overnight service or by certified
or registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:
If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
Edgar F. Turner
749 Turner Road
Rome, Georgia 30165
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective 2 days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
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<PAGE> 23
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in Section 5(b) hereof, any
such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) Offsets and Withholding. The amounts required to be paid
by the Company to Executive pursuant to this Agreement shall not be subject to
offset. The foregoing and other provisions of this Agreement notwithstanding,
all payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company (and its parent, if any, and affiliates) and its
successors and assigns. Upon the effective time of the Company's reorganization
pursuant to which Fruit of the Loom, Ltd. shall become the parent company of the
Company, this agreement shall become a binding obligation of Fruit of the Loom,
Ltd. and all references to the Company shall be deemed to be a reference to
Fruit of the Loom, Ltd.
13. INDEMNIFICATION AND RELEASE.
(a) Indemnification of Executive by the Company. All rights to
indemnification by the Company now existing in favor of the Executive as
provided in the Company's Certificate of Incorporation or By-Laws or pursuant to
other agreements in effect on or immediately prior to the Effective Date shall
continue in full force and effect from the Effective Date (including all periods
after the expiration of the Term), and the Company shall also advance expenses
for which indemnification may be ultimately claimed as such expenses are
incurred to the fullest extent permitted under applicable law, subject to any
requirement that the Executive provide an undertaking to repay such advances if
it is ultimately determined that the Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-Laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-Laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law. In
addition, the Company will maintain directors' and officers' liability insurance
in effect and covering acts and omissions of Executive during the Term and for a
period of six years thereafter on terms substantially no less favorable than
those in effect on the Effective Date.
(b) Release by Executive. Except for the Company's obligations
under this Agreement including, without limitation, Executive's rights of
indemnification, and except as hereinafter expressly provided, Executive
irrevocably and unconditionally releases and discharges the Company, its
officers, directors, shareholders, agents, employees, affiliates, related
companies and entities, successors and assigns (separately and collectively, the
"Company's Released Parties"), jointly and individually, from any and all
claims, obligations, demands, damages, and
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<PAGE> 24
causes of action of any nature or kind whatsoever, known or unknown, which
Executive, his heirs, successors or assigns, has or may have, now or in the
future, against the Company or the Company's Released Parties, based upon,
relating to, or arising from the creation, existence or termination of
Executive's employment, including but not limited to, claims arising under or
relating to the Fair Labor Standards Act of 1938 and claims of employment
discrimination arising under Title VII of the Civil Rights Act of 1964, as
amended by the Civil Rights Act of 1991, the Americans with Disabilities Act of
1990, the Family and Medical Leave Act of 1993, the Age Discrimination in
Employment Act of 1967, as amended by the Older Workers Benefit Protection Act,
the Employee Retirement Income Security Act, the National Labor Relations Act,
and/or claims arising under the State Statute or Local Statute or Ordinance
covering age discrimination, wrongful termination or any claim arising under
express or implied contracts, tort, public policy, common law or any other
Federal, state or local statute (including state and local anti-discrimination
statutes), ordinance, regulation or constitutional provision.
(c) Release by Company. Except for the Executive's obligations
under this Agreement, (including the repayment of any advancements made before
or after the Effective Date, which the Executive is required to repay if it is
ultimately determined that the Executive is not entitled to indemnification) and
as hereinafter provided, the Company and the Company's Released Parties
irrevocably and unconditionally release and discharge Executive, his successors
and assigns, from any and all claims, obligations, demands, damages and causes
of action of any kind whatsoever, known or unknown, which the Company and the
Company's Released Parties may have, now or in the future, against the Executive
based upon, relating to, or arising from the creation, existence or termination
of Executive's employment; and such release shall extend to the full extent (and
only to the extent) of any indemnification authorized under Section 13(a) of
this Agreement and under Article XIII of the Company's Certificate of
Incorporation.
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<PAGE> 1
EX-10.(Q)
FRUIT OF THE LOOM, INC.
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Employment Agreement for Vincent Tyra
-----------------
- --------------------------------------------------------------------------------
<PAGE> 2
FRUIT OF THE LOOM, INC.
- --------------------------------------------------------------------------------
Employment Agreement for Vincent Tyra
-----------------
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<TABLE>
<S> <C>
1. Employment......................................................................1
2. Term............................................................................1
3. Offices and Duties..............................................................2
4. Salary and Annual Incentive Compensation........................................2
5. Long-Term Compensation, Including Stock Options, and Benefits,
Deferred Compensation, and Expense Reimbursement................................3
6. Termination Due to Normal Retirement, Approved Early Retirement, Death,
or Disability. .................................................................6
7. Termination of Employment For Reasons Other Than Normal Retirement,
Approved Early Retirement, Death or Disability. ................................8
8. Definitions Relating to Termination Events.....................................12
9. Excise Tax Gross-Up............................................................15
10. Non-Competition and Non-Disclosure; Executive Cooperation;
Non-Disparagement..............................................................17
11. Governing Law; Disputes; Arbitration...........................................18
12. Miscellaneous..................................................................19
13. Indemnification and Release....................................................21
</TABLE>
<PAGE> 3
FRUIT OF THE LOOM, INC.
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Employment Agreement for Vincent Tyra
-----------------
- --------------------------------------------------------------------------------
THIS EMPLOYMENT AGREEMENT, by and between FRUIT OF THE LOOM,
INC., a Delaware corporation (the "Company"), and Vincent Tyra ("Executive"), is
hereby entered into on this 6th day of January, 1999 (the "Effective Date").
W I T N E S S E T H
WHEREAS, Executive has been an employee of the Company since
September 8, 1997; and
WHEREAS, the Company desires to continue to employ Executive
in his capacity as President-Activewear, in connection with the conduct of its
businesses, and Executive desires to accept such employment on the terms and
conditions herein set forth; and
WHEREAS, the Company and Executive desire to set forth the
terms upon which Executive shall be so employed.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which the Company and Executive each hereby acknowledge,
the Company and Executive hereby agree as follows:
1. EMPLOYMENT.
The Company hereby agrees to employ Executive as its
President-Activewear, and Executive hereby agrees to accept such employment and
serve in such capacity, during the Term as defined in Section 2 and upon the
terms and conditions set forth in this Employment Agreement, as amended and
restated (this "Agreement").
2. TERM.
The term of employment of Executive under this Agreement (the
"Term") shall be the period commencing on the Effective Date and terminating
January 5, 2002 and any period of extension thereof in accordance with this
Section 2, subject to earlier termination in accordance with Section 6 or 7. The
Term shall be extended automatically without further action by either party by
one additional year (added to the end of the Term) first on January 6, 2002
(extending the Term to January 5, 2003) and on each succeeding January 6
thereafter, unless either party shall have served written notice in accordance
with the provisions of Section 12(d) upon the other party prior
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<PAGE> 4
to the July 6 preceding the date upon which such extension would become
effective electing not to extend the Term further as of the January 6 next
succeeding the date such notice is served (and successive January 6 during the
remainder of the Term), in which case employment shall terminate at the end of
the Term as extended, subject to earlier termination in accordance with Section
6 or 7.
3. OFFICES AND DUTIES.
The provisions of this Section 3 will apply during the Term:
(a) Generally. Executive shall serve as the
President-Activewear of the Company. Executive shall have and perform such
duties, responsibilities, and authorities as are customary for the
President-Activewear of a publicly held corporation of the size, type, and
nature of the Company as they may exist from time to time and consistent with
such position and status, but in no event shall such duties, responsibilities,
and authorities be reduced from those of Executive prior to the Effective Date
as described in Executive's job description provided to the Executive as of the
date hereof. Executive shall devote substantial business time and attention, and
his best efforts, abilities, experience, and talent to the position of
President-Activewear and for the businesses of the Company; provided, however,
that nothing in this Agreement shall preclude or prohibit Executive from
engaging in other activities, to the extent that such other activities do not
preclude or render unlawful Executive's employment or service to the Company
hereunder or otherwise materially inhibit the performance of Executive's duties
under this Agreement or conflict with the business of the Company or its
subsidiaries.
(b) Place of Employment. Executive's principal place of
employment shall be the Corporate Offices of the Company in Bowling Green,
Kentucky. In no event shall the Executive's principal place of employment be
relocated to any location other than Bowling Green, Kentucky, without his prior
written consent.
4. SALARY AND ANNUAL INCENTIVE COMPENSATION.
As partial compensation for the services to be rendered
hereunder by Executive, the Company agrees to pay to Executive during the Term
the compensation set forth in this Section 4.
(a) Base Salary. Subject to Section 5(b), the Company will pay
to Executive during the Term a base salary at the initial annual rate of
$250,000 payable in cash in substantially equal bi-weekly installments during
each calendar year, or portion thereof, of the Term and otherwise in accordance
with the Company's usual payroll practices with respect to senior executives
(except to the extent deferred under Section 5(d)). Executive's annual base
salary shall be reviewed by the Compensation Committee of the Board of Directors
of the Company (the "Committee") at least once in each calendar year and may be
increased above, but may not be reduced below, the then-current rate of such
base salary.
(b) Annual Incentive Compensation. The Company will pay to
Executive during the Term annual incentive compensation, through participation
in the Company's 1995 Executive Incentive Compensation Plan (the "1995 EICP"),
and any successor thereto, which shall offer to
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<PAGE> 5
Executive an opportunity to earn additional compensation in amounts determined
by the Committee in accordance with the applicable plan and consistent with past
practices of the Company; provided, however, that the Company will use its best
efforts to maintain in effect, for each year during the Term, the 1995 EICP or
an equivalent plan under which the Executive shall be eligible for an award not
less than the award opportunity assigned to the Executive under the 1995 EICP in
1998. Any such annual incentive compensation payable to Executive shall be paid
in accordance with the Company's usual practices with respect to payment of
incentive compensation to senior executives (except to the extent deferred under
Section 5(d)).
5. LONG-TERM COMPENSATION, INCLUDING STOCK OPTIONS, AND BENEFITS,
DEFERRED COMPENSATION, AND EXPENSE REIMBURSEMENT
(a) Executive Compensation Plans. Executive shall be entitled
during the Term to participate, without discrimination or duplication, in all
executive compensation plans and programs intended for general participation by
senior executives of the Company (other than the Chief Executive of the
Company), as presently in effect or as they may be modified or added to by the
Company from time to time, subject to the eligibility and other requirements of
such plans and programs, including without limitation the long-term incentive
features of the 1995 EICP, any successor to such plan, and other stock option
plans, performance share plans, management incentive plans, deferred
compensation plans, and supplemental retirement plans; provided, however, that
such plans and programs, in the aggregate, shall provide Executive with benefits
and compensation and incentive award opportunities substantially no less
favorable than those provided by the Company to Executive under such plans and
programs as in effect on the Effective Date, except that the Company shall have
no obligation to include the Executive in the "Pars" program or in the Fruit of
the Loom, Inc. Supplemental Executive Retirement Plan ("SERP"). For purposes of
this Agreement, all references to long-term incentive features refer to any
performance shares, performance units, stock grants, or other long-term
incentive arrangements under the 1995 EICP or other plans of the Company and any
successor or replacement to the 1995 EICP or other plans of the Company.
(b) Employee and Executive Benefit Plans. Executive shall be
entitled during the Term to participate, without discrimination or duplication,
in all employee and executive benefit plans and programs of the Company, as
presently in effect or as they may be modified or added to by the Company from
time to time, to the extent such plans are available to other senior executives
or employees of the Company, subject to the eligibility and other requirements
of such plans and programs, including without limitation plans providing
pensions, other retirement benefits, medical insurance, life insurance,
disability insurance, and accidental death or dismemberment insurance, and
participation in savings, profit-sharing, and stock ownership plans; provided,
however, that, except as provided in the first sentence of Section 5(c)(iv)
below, such benefit plans and programs, in the aggregate, shall provide
Executive with benefits and compensation and incentive award opportunities
substantially no less favorable than those provided by the Company to Executive
under such plans and programs as in effect on the Effective Date, except that
the Company shall have no obligation to include the Executive in the "Pars"
program or in the SERP.
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<PAGE> 6
In furtherance of and not in limitation of the foregoing,
during the Term:
(i) Executive will participate as President-Activewear in all
executive and employee vacation and time-off programs;
(ii) The Company will provide Executive with coverage as
President-Activewear in group and executive long-term
disability insurance and benefits substantially no less
favorable (including any required contributions by Executive)
than such insurance and benefits in effect on the Effective
Date;
(iii) Executive will be covered by life insurance substantially no
less favorable (including any required contributions by
Executive) than life insurance coverage in effect on the
Effective Date; and
(iv) Executive will be entitled to retirement benefits
substantially no less favorable than those under the qualified
and nonqualified defined benefit pension plans of the Company
as in effect on the Effective Date.
(c) Deferral of Compensation. The Company shall implement
deferral arrangements permitting Executive to elect to irrevocably defer
receipt, pursuant to written deferral election terms and forms (the "Deferral
Election Forms"), of all or a specified portion of (i) his annual base salary
and annual incentive compensation under Section 4, (ii) long-term incentive
compensation under Section 5(a), and (iii) shares acquired upon exercise of
options granted in accordance with Sections 5(a) and (b) that are acquired in an
exercise in which Executive pays the exercise price by the surrender of
previously acquired shares, to the extent of the net additional shares acquired
by Executive in such exercise; provided, however, that such deferrals shall not
reduce Executive's total cash compensation in any calendar year below the sum of
(i) the FICA maximum taxable wage base plus (ii) 1.45% of Executive's annual
salary, annual incentive compensation and long-term incentive compensation in
excess of such FICA maximum.
In accordance with such duly executed Deferral Election Forms
or the terms of any such mandatory deferral, the Company shall credit to one or
more bookkeeping accounts maintained for Executive on the respective payment
date or dates, amounts equal to the compensation subject to deferral, such
credits to be denominated in cash if the compensation would have been paid in
cash but for the deferral or in shares if the compensation would have been paid
in shares but for the deferral. An amount of cash equal in value to all
cash-denominated amounts credited to Executive's account and a number of shares
of Common Stock equal to the number of shares credited to Executive's account
pursuant to this Section 5(c) shall be transferred as soon as practicable
following such crediting by the Company to, and shall be held and invested by,
an independent trustee selected by the Company and reasonably acceptable to
Executive (a "Trustee") pursuant to a "rabbi trust" established by the Company
in connection with such deferral arrangement and as to which the Trustee shall
make investments based on Executive's investment objectives (including possible
investment in publicly traded stocks and bonds, mutual funds, real estate, and
insurance vehicles) (the "Deferred Compensation Accounts"). Thereafter,
Executive's deferral accounts will be valued by reference to the value of the
assets of the Deferred Compensation Accounts. The Company shall pay all costs of
administration of the deferral
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<PAGE> 7
arrangement, without deduction or reimbursement from the assets of the "rabbi
trust," or reduction in the Deferred Compensation Accounts.
Except as otherwise provided under Section 7 in the event of
Executive's termination of employment with the Company or as otherwise
determined by the Committee in the event of hardship on the part of Executive,
upon such date(s) or event(s) set forth in the Deferral Election Forms
(including forms filed after deferral but before settlement in which Executive
may elect to further defer settlement) or under the terms of any mandatory
deferral, the Company shall promptly pay to Executive cash equal to the cash
then credited to Executive's deferral accounts and cash equal in value to any
shares of Common Stock then credited to Executive's deferral accounts, less
applicable withholding taxes, and such distribution shall be deemed to fully
settle such accounts; provided, however, that the Company may instead settle
such accounts by directing the Trustee to distribute the assets of the "rabbi
trust." The Company and Executive agree that compensation deferred pursuant to
this Section 5(c) shall be fully vested and nonforfeitable; provided, however,
Executive acknowledges that his rights to the deferred compensation provided for
in this Section 5(c) shall be no greater than those of a general unsecured
creditor of the Company, and that such rights may not be pledged,
collateralized, encumbered, hypothecated, or liable for or subject to any lien,
obligation, or liability of Executive, or be assignable or transferable by
Executive, otherwise than by will or the laws of descent and distribution,
provided that Executive may designate one or more beneficiaries to receive any
payment of such amounts in the event of his death.
(d) Reimbursement of Expenses. The Company will promptly
reimburse Executive for all reasonable business expenses and disbursements
incurred by Executive in the performance of Executive's duties during the Term
in accordance with the Company's reimbursement policies as in effect from time
to time.
(e) Company Registration Obligations. The Company will file
with the Securities and Exchange Commission, and will thereafter maintain the
effectiveness of, one or more registration statements registering under the
Securities Act of 1933, as amended, the offer and sale of shares by the Company
pursuant to stock options granted to Executive under the 1995 EICP and successor
plans, which registration statements shall include a resale prospectus covering
the reoffer and resale (or other disposition) of all shares acquired by
Executive upon exercise of such stock options, and the Company will maintain as
current all offering materials under such registration statement(s) at all times
that offers and sales of such shares could be made by the Company or Executive.
(f) Accelerated Funding of Rabbi Trust. Not later than 30 days
following a Change in Control that occurs during the term of this Agreement, the
Company shall contribute to the "rabbi trust" referred to in Section 5(c) an
amount equal to the amount that would be payable to the Executive upon a
termination of employment described in Section 7(b), where such amount consists
of the lump-sum payment provided for in Section (7)(b)(i). In the event of
Executive's termination of employment, for any reason, following a Change in
Control, the trustee of the rabbi trust shall pay such amounts (plus earnings
thereon) to the Executive if the amounts due to the Executive hereunder are not
otherwise paid to the Executive by the Company.
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<PAGE> 8
6. TERMINATION DUE TO NORMAL RETIREMENT, APPROVED EARLY
RETIREMENT, DEATH, OR DISABILITY.
Executive may terminate employment as President-Activewear
upon Executive's retirement at or after age 65 ("Normal Retirement") or, if
approved in advance by the Committee, upon Executive's early retirement prior to
age 65 ("Approved Early Retirement"). The Company may terminate the employment
of Executive as President-Activewear due to the Disability (as defined in
Section 8(c)) of Executive.
At the time Executive's employment terminates due to Normal
Retirement, Approved Early Retirement, or death, the Term will terminate. In the
event Executive's employment terminates due to Disability, the Term will
terminate at the expiration of the 30-day period referred to in the definition
of Disability (set forth in Section 8(c)) absent the actions referred to therein
being taken by Executive to return to service and present to the Company a
certificate of good health.
Upon a termination of Executive's employment due to Normal
Retirement, Approved Early Retirement, death, or Disability, all obligations of
the Company and Executive under Sections 1 through 5 of this Agreement will
immediately cease, provided, however, that subject to the provisions of Section
12(i), the Company will pay Executive (or his beneficiaries or estate), and
Executive (or his beneficiaries or estate) will be entitled to receive, the
following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
(iii) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid an amount equal to the average annual incentive
compensation paid to Executive in the three years immediately
preceding the year of termination (or, if Executive was not
eligible to receive or did not receive such incentive
compensation for any year in such three-year period, the
Executive's target annual incentive compensation for such
year(s) shall be used to calculate average annual incentive
compensation) multiplied by a fraction the numerator of which
is the number of days Executive was employed in the year of
termination and the denominator of which is the total number
of days in the year of termination;
(iv) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not
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<PAGE> 9
completed at the date Executive's employment terminated
(unless otherwise payable under (ii) above), Executive will be
paid, for each tranche of such long term incentive awards, in
cash an amount equal to any cash amount plus the value of any
shares of Common Stock or other property (valued at the date
of termination) (A) payable for that part of the long term
incentive award that is no longer subject to a risk of
forfeiture tied to performance conditions, without proration,
and (B) payable in respect of that part of the long term
incentive award that is subject to a risk of forfeiture tied
to performance conditions, assuming achievement of the maximum
performance in the case of death or Disability or achievement
of target performance in the case of Normal Retirement or
Early Retirement, multiplied (in case (B) only) by a fraction
the numerator of which is the number of days Executive was
employed during the performance period over which such
performance was to be measured and the denominator of which is
the total number of days in such performance period;
(v) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted;
(vi) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(vii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d); and
(viii) If Executive's employment terminates due to Disability, for
the period extending from such termination until Executive
reaches age 65, Executive shall continue to participate in all
employee benefit plans, programs, and arrangements under
Section 5(b) providing health, medical, and life insurance and
pension benefits in which Executive was participating
immediately prior to termination, the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(except that additional years of service creditable under
Section 5(b)(iv) shall not be credited as a result of such
deemed continued participation following termination) or, if
such plans, programs, or arrangements do not allow Executive's
continued participation, a cash payment equivalent on an
after-tax basis to the value of the additional benefits
Executive would have received under such employee benefit
plans, programs, and arrangements in which Executive was
participating immediately prior to termination, as if
Executive had received credit under such plans, programs, and
arrangements for service and age with the Company during such
period following Executive's termination as provided in this
Section 6(viii), with such benefits payable by the Company at
the same times and in the same manner as such benefits would
have been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive,
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<PAGE> 10
which shall not exceed the highest risk premium charged by a
carrier having an investment grade or better credit rating);
provided further, that in the case of termination of Executive's employment due
to Disability, Executive must continue to satisfy the conditions set forth in
Section 10 in order to continue receiving the compensation and benefits under
(viii), above; and provided further, that Executive will be entitled to the
benefit of any terms of plans or agreements applicable to Executive which are
more favorable than those specified in this Section 6. Amounts payable under
(i), (ii), (iii), (iv), and (vii) above will be paid as promptly as practicable
after termination of Executive's employment; provided, however, that, to the
extent that the Company would not be entitled to deduct any such payments under
Internal Revenue Code Section 162(m), such payments shall be made at the
earliest time that the payments would be deductible by the Company without
limitation under Section 162(m) (unless this provision is waived by the
Company).
7. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN NORMAL
RETIREMENT, APPROVED EARLY RETIREMENT, DEATH OR DISABILITY.
(a) Termination by the Company for Cause and Termination by
Executive Other Than For Good Reason. In accordance with the provisions of this
Section 7(a), the Company may terminate the employment of Executive as
President-Activewear for Cause (as defined in Section 8(a)) at any time prior to
a Change in Control (as defined in Section 8(b)), and Executive may terminate
his employment as President-Activewear voluntarily for reasons other than Good
Reason (as defined in Section 8(d)) at any time. An election by Executive not to
extend the Term pursuant to Section 2 hereof shall be deemed to be a termination
of this Agreement by Executive for reasons other than Good Reason at the date of
expiration of the Term, unless there occurs a Change in Control prior to such
date of expiration.
Upon a termination of Executive's employment by the Company
for Cause at any time prior to a Change in Control or by the Executive for
reasons other than Good Reason, the Term will immediately terminate, and all
obligations of the Company and Executive under Sections 1 through 5 of this
Agreement will immediately cease, provided, however, that, subject to the
provisions of Section 12(i), the Company shall pay Executive, and Executive
shall be entitled to receive, the following:
(i) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(ii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and 5(b) hereof
(including any earned and vested annual and long-term
incentive compensation) in which Executive theretofore
participated will be paid under the terms and conditions of
the plans, programs, and arrangements (and agreements and
documents thereunder) pursuant to which such compensation and
benefits were granted;
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<PAGE> 11
(iii) A cash amount equal to the amount credited to Executive's
deferral accounts under deferral arrangements authorized under
Section 5(c) hereof at the date of termination of employment
(including cash equal in value at that date to any shares of
Common Stock credited to Executive's deferral accounts), less
applicable withholding taxes under Section 12(i); provided,
however, that the Company may instead settle such accounts by
directing the Trustee to distribute the assets of the "rabbi
trust." Such amounts shall be paid or distributed as promptly
as practicable following such date of termination, without
regard to any stated period of deferral otherwise remaining in
respect of such amounts, and the payment of such amounts shall
be deemed to fully settle such accounts; and
(iv) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d).
Amounts payable under (i), (ii), (iii), and (iv) above will be paid as promptly
as practicable after termination of Executive's employment; provided, however,
that, to the extent that the Company would not be entitled to deduct any such
payments under Internal Revenue Code Section 162(m), such payments shall be made
at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company).
(b) Termination by the Company Without Cause and Termination
by Executive for Good Reason. In accordance with the provisions of this Section
7(b), the Company may terminate the employment of Executive without Cause (as
defined in Section 8(a)), including after a Change in Control (as defined in
Section 8(b)), upon 90 days' written notice to Executive, and Executive may
terminate his employment with the Company for Good Reason (as defined in Section
8(d)) upon written notice to the Company; provided, however, that, (1) in the
case of a termination for Good Reason prior to a Change in Control, the
Executive must provide 90 days' written notice to the Company and if the basis
for such Good Reason is correctable, the Company must not have corrected the
basis for such Good Reason within 30 days after receipt of such notice, and (2)
in the case of a termination for Good Reason after a Change in Control, the
Executive may provide written notice to the Company at any time during the Term,
regardless of when the circumstances giving rise to such Good Reason did occur.
The foregoing notwithstanding, the Company may, in lieu of providing 90 days'
written notice to Executive, pay Executive his then-current annual base salary
under Section 4(a) and credit Executive with service for 90 days for all
purposes hereunder. An election by the Company not to extend the Term pursuant
to Section 2 hereof shall be deemed to be a termination of this Agreement by the
Company without Cause at the date of expiration of the Term.
Upon a termination of Executive's employment by the Company
without Cause, or termination of Executive's employment by the Executive for
Good Reason, the Term will immediately terminate and all obligations of the
parties under Sections 1 through 5 of this Agreement will immediately cease,
except that subject to the provisions of Section 12(i) the Company shall pay
Executive, and Executive shall be entitled to receive, the following:
(i) A lump sum cash payment in an amount equal to the sum of
Executive's then-current annual base salary at the rate
payable under Section 4(a) immediately prior
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<PAGE> 12
to termination plus the Severance Annual Incentive Amount (as
defined below) multiplied by 3 (2 in the case of a termination
of employment prior to a Change in Control), which payment
shall be reduced pro rata to the extent the number of full
months remaining until Executive attains age 65 is less than
36 months (24 months in the case of a termination of
employment prior to a Change in Control). For purposes of this
Section 7(b)(i) and Section 7(b)(iv), the "Severance Annual
Incentive Amount" shall be 50% of the current annual base
salary referred to above. Notwithstanding the foregoing, the
lump sum cash payment described in the preceding sentence
shall be reduced by 50% in the case of the termination of
Executive's employment by the Executive for Good Reason, if
the effective date of such termination occurs within 12 months
after the date of a Change in Control, provided, however, that
if subsequent to the date the Executive gives written notice
of a termination for Good Reason, but prior to the effective
date of such termination selected by the Executive, the
Company terminates the Executive, the reduction shall not
apply, but if the Executive terminates employment prior to
such effective date and before the date which is 12 months
after the date of Change in Control, the reduction shall
apply;
(ii) The unpaid portion of annual base salary at the rate payable,
in accordance with Section 4(a) hereof, at the date of
termination of employment, pro rated through such date of
termination, will be paid;
(iii) All vested, nonforfeitable amounts owing or accrued at the
date of termination of employment under any compensation and
benefit plans, programs, and arrangements set forth or
referred to in Sections 4(b) and 5(a) and (b) hereof
(including any earned annual incentive compensation and long
term incentive award) in which Executive theretofore
participated, and all amounts not vested and nonforfeitable,
but owing and accrued at the date of termination of
employment, under such benefit plans, programs, and
arrangements, shall become vested and nonforfeitable and will
be paid under the terms and conditions of the plans, programs,
and arrangements (and agreements and documents thereunder)
pursuant to which such compensation and benefits were granted;
(iv) In lieu of any annual incentive compensation under Section
4(b) for the year in which Executive's employment terminated
(unless otherwise payable under (iii) above), Executive will
be paid an amount equal to the Severance Annual Incentive
Amount as defined in Section 7(b)(i) which shall be multiplied
by a fraction the numerator of which is the number of days
Executive was employed in the year of termination and the
denominator of which is the total number of days in the year
of termination;
(v) In lieu of any payment in respect of any long term incentive
award granted in accordance with Section 5(a) for any
performance and vesting periods not completed at the date
Executive's employment terminated (unless otherwise payable
under (iii) above), an amount equal to any cash amount plus
the value of any shares of Common Stock or other property
(valued at the date of termination) assuming achievement of
the maximum performance for the performance period;
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(vi) Stock options then held by Executive will be exercisable to
the extent and for such periods, and otherwise governed, by
the plans and programs and the agreements and other documents
thereunder pursuant to which such stock options were granted,
provided, however, that for all such purposes Executive shall
be deemed to be an Employee for a period of 3 years following
the termination of Executive's employment (2 years in the case
of a termination of employment prior to a Change in Control);
(vii) All deferral arrangements under Section 5(c) will be settled
in accordance with Executive's duly executed Deferral Election
Forms or the terms of any mandatory deferral;
(viii) Reasonable business expenses and disbursements incurred by
Executive prior to such termination of employment will be
reimbursed, as authorized under Section 5(d);
(ix) A lump-sum cash payment will be paid equal to the present
value of Executive's accrued benefit, if any, which shall be
fully vested at date of termination of employment, under all
supplemental (non-qualified) defined benefit pension plans of
the Company, unless such benefits are fully funded based on
assets held in trust for the benefit of Executive which cannot
be reached by creditors of the Company, or such benefits are
otherwise funded and secured in an equivalent manner; and
(x) For a period of 3 years after such termination (2 years in the
case of a termination prior to a Change in Control), Executive
shall continue to participate in all employee, executive, and
special individual benefit plans, programs, and arrangements
under Section 5(b) (and, in the case of a termination
following a Change in Control, the Company's restricted stock
grant plan (with all stock issued under such plan being fully
vested)), including but not limited to health, medical,
disability, life insurance, and pension benefits in which
Executive was participating immediately prior to termination
(but not including any plan, program or arrangement under
which the Executive was entitled to the use of a
Company-provided automobile), the terms of which allow
Executive's continued participation, as if Executive had
continued in employment with the Company during such period
(additional years of service creditable under Section 5(b)(iv)
shall be credited as a result of such deemed continued
participation following termination) or, if such plans,
programs, or arrangements do not allow Executive's continued
participation, a cash payment equivalent on an after-tax basis
to the value of the additional benefits Executive would have
received under such employee benefit plans, programs, and
arrangements in which Executive was participating immediately
prior to termination, as if Executive had received credit
under such plans, programs, and arrangements for service and
age with the Company during such period following Executive's
termination, with such benefits payable by the Company at the
same times and in the same manner as such benefits would have
been received by Executive under such plans (it being
understood that the value of any insurance-provided benefits
will be based on the premium cost to Executive, which shall
not exceed the highest
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<PAGE> 14
risk premium charged by a carrier having an investment grade
or better credit rating);
provided, however, that Executive will be entitled to the benefit of any terms
of plans or agreements applicable to Executive which are more favorable than
those specified in this Section 7(b). Amounts payable under (i), (ii), (iii),
(iv), (v), (vii), (viii), (ix), and (x) above will be paid as promptly as
practicable after termination of Executive's employment, and in no event more
than 45 days after such termination; provided, however, that, if such
termination is a termination by the Company without Cause and prior to a Change
in Control, to the extent that the Company would not be entitled to deduct any
such payments under Internal Revenue Code Section 162(m), such payments shall be
made at the earliest time that the payments would be deductible by the Company
without limitation under Section 162(m) (unless this provision is waived by the
Company), but in no event later than 12 months subsequent to the date of
termination.
8. DEFINITIONS RELATING TO TERMINATION EVENTS.
(a) "Cause." For purposes of this Agreement, "Cause" shall
mean Executive's gross misconduct (as defined herein) or willful and material
breach of Section 10 of this Agreement. For purposes of this definition, "gross
misconduct" shall mean (A) a felony conviction in a court of law under
applicable federal or state laws which results in material damage to the Company
and its subsidiaries or materially impairs the value of the Executive's services
to the Company, or (B) willfully engaging in one or more acts, or willfully
omitting to act in accordance with duties hereunder, which is demonstrably and
materially damaging to the Company and its subsidiaries, including acts and
omissions that constitute gross negligence in the performance of Executive's
duties under this Agreement. For purposes of this Agreement, an act or failure
to act on Executive's part shall be considered "willful" if it was done or
omitted to be done by him not in good faith, and shall not include any act or
failure to act resulting from any incapacity of Executive. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within 6 months after the Board of Directors
of the Company (the "Board") (A) had knowledge of conduct or an event allegedly
constituting Cause and (B) had reason to believe that such conduct or event
could be grounds for Cause, a copy of a resolution duly adopted by a majority
affirmative vote of the membership of the Board (excluding Executive) at a
meeting of the Board called and held for such purpose (after giving Executive
reasonable notice specifying the nature of the grounds for such termination and
not less than 30 days to correct the acts or omissions complained of, if
correctable, and affording Executive the opportunity, together with his counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, Executive was guilty of conduct set forth above in this Section 8(a), or,
in any case, after a Change in Control .
(b) "Change in Control." A "Change in Control" shall be deemed
to have occurred if:
(i) An acquisition by any Person of Beneficial Ownership of the
shares of Common Stock of the Company then outstanding (the
"Company Common Stock Outstanding") or the voting securities
of the Company then outstanding entitled to vote generally in
the election of directors (the "Company Voting Securities
Outstanding"); provided, however, that such acquisition of
Beneficial Ownership
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<PAGE> 15
would result in the Person's Beneficially Owning twenty-five
percent (25%) or more of the Company Common Stock Outstanding
or twenty-five percent (25%) or more of the combined voting
power of the Company Voting Securities Outstanding; and
provided further, that immediately prior to such acquisition
such Person was not a direct or indirect Beneficial Owner of
twenty-five percent (25%) or more of the Company Common Stock
Outstanding or twenty-five percent (25%) or more of the
combined voting power of Company Voting Securities
Outstanding, as the case may be; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this
Section 8(b) as a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, for purposes of
this Section 8(b), that any individual who becomes a member of
the Board subsequent to the Effective Date whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A under
the Exchange Act, including any successor to such Rule) or
other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be
so considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of this
Section 8(b), the following shall not constitute a Change in Control for
purposes of this Plan: (1) any acquisition by or consummation of a Corporate
Transaction with any Subsidiary or an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate; or (2) any acquisition
or consummation of a Corporate Transaction following which more than fifty
percent (50%) of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction and the
combined voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were Beneficial Owners, respectively, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding
immediately prior to such acquisition or Corporate Transaction in substantially
the same proportions as their ownership, immediately prior to such acquisition
or Corporate Transaction, of the Company Common Stock Outstanding and Company
Voting
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<PAGE> 16
Securities Outstanding, as the case may be; or (3) any transaction initiated or
controlled, directly or indirectly, by Executive, in a capacity other than as an
officer or a director of the Company.
For purposes of this definition:
(A) The terms "Beneficial Owner," "Beneficially Owning,"
and "Beneficial Ownership" shall have the meanings
ascribed to such terms in Rule 13d-3 under the
Exchange Act (including any successor to such Rule).
(B) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, or any
successor act thereto.
(C) The term "Person" shall have the meaning ascribed to
such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof, including
"group" as defined in Section 13(d) thereof.
(D) The term "Board" means the Board of Directors of the
Company or any parent of the Company.
(c) "Disability." "Disability" means the failure of Executive
to render and perform the services required of him under this Agreement, for a
total of 180 days of more during any consecutive 12 month period, because of any
physical or mental incapacity or disability as determined by a physician or
physicians selected by the Company and reasonably acceptable to Executive,
unless, within 30 days after Executive has received written notice from the
Company of a proposed termination due to such absence, Executive shall have
returned to the full performance of his duties hereunder and shall have
presented to the Company a written certificate of Executive's good health
prepared by a physician selected by the Company and reasonably acceptable to
Executive.
(d) "Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without Executive's prior written consent, (A) a material
change, adverse to Executive, in Executive's positions, titles, or offices as
set forth in Section 3(a), status, rank, nature of responsibilities, or
authority within the Company, except in connection with the termination of
Executive's employment for Cause, Disability, Normal Retirement or Approved
Early Retirement, as a result of Executive's death, or as a result of action by
Executive, (B) an assignment of any duties to Executive which are inconsistent
with Executive's status, duties, responsibilities, and authorities under Section
3(a), (C) a decrease in annual base salary or other compensation opportunities
and maximums or benefits provided under this Agreement, (D) any other failure by
the Company to perform any material obligation under, or breach by the Company
of any material provision of, this Agreement, (E) a relocation of the Corporate
Offices of the Company more than 35 miles from the latest location of such
offices prior to the date of a Change in Control, (F) any failure to secure the
agreement of any successor corporation or other entity to the Company to fully
assume the Company's obligations under this Agreement in a form reasonably
acceptable to Executive, and (G) any attempt by the Company to terminate
Executive for Cause which does not result in a valid termination for Cause,
except in the case that valid grounds for termination for Cause exist but are
corrected as permitted under Section 8(a).
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<PAGE> 17
9. EXCISE TAX GROSS-UP.
In the event that there shall occur a Change in Control of the Company,
if Executive becomes entitled to one or more payments (with a "payment"
including, without limitation, the vesting of an option or other non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company
shall pay to Executive at the time specified below an additional amount (the
"Gross-up Payment") (which shall include, without limitation, reimbursement for
any penalties and interest that may accrue in respect of such Excise Tax) such
that the net amount retained by Executive, after reduction for any Excise Tax
(including any penalties or interest thereon) on the Total Payments and any
federal, state and local income or employment tax and Excise Tax on the Gross-up
Payment provided for by this Section 9, but before reduction for any federal,
state, or local income or employment tax on the Total Payments, shall be equal
to the sum of (a) the Total Payments, and (b) an amount equal to the product of
any deductions disallowed for federal, state, or local income tax purposes
because of the inclusion of the Gross-up Payment in Executive's adjusted gross
income multiplied by the highest applicable marginal rate of federal, state, or
local income taxation, respectively, for the calendar year in which the Gross-up
Payment is to be made.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the
Excise Tax, unless, and except to the extent that, in the
written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable
to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A)
the total amount of the Total Payments or (B) the total amount
of excess parachute payments within the meaning of section
280G(b)(1) of the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Independent Advisors in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation
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for the calendar year in which the Gross-up Payment is to be made (including,
for this purpose, any additional tax associated with the alternative minimum
tax, if applicable); (B) to pay any applicable state and local income taxes at
the highest marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes if
paid in such year (determined without regard to limitations on deductions based
upon the amount of Executive's adjusted gross income); and (C) to have otherwise
allowable deductions for federal, state, and local income tax purposes at least
equal to those disallowed because of the inclusion of the Gross-up Payment in
Executive's adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account hereunder
at the time the Gross-up Payment is made, Executive shall repay to the Company
at the time that the amount of such reduction in Excise Tax is finally
determined (but, if previously paid to the taxing authorities, not prior to the
time the amount of such reduction is refunded to Executive or otherwise realized
as a benefit by Executive) the portion of the Gross-up Payment that would not
have been paid if such Excise Tax had been applied in initially calculating the
Gross-up Payment, plus interest on the amount of such repayment. In the event
that the Excise Tax is determined by the Internal Revenue Service (at any time,
including subsequent to the expiration of this Agreement) to exceed the amount
taken into account hereunder at the time the Gross-up Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Gross-up Payment), the Company shall make an additional
Gross-up Payment in respect of such excess (plus any interest and penalties
payable with respect to such excess) at the time that the amount of such excess
is assessed.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest any other issue
raised by the Internal Revenue Service or any other taxing authority. Executive
shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-Up Payment
hereunder. Notwithstanding anything herein to the contrary, the Company shall
make an additional Gross-up
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Payment in respect of any failure of the Company to pay the Excise Tax, in a
timely manner, including, but not limited to, interest and penalties, and in
respect to the fees of any accountants, attorneys, and other tax advisors
engaged by Executive in connection with any dispute regarding the amount of any
Excise Tax due.
10. NON-COMPETITION AND NON-DISCLOSURE; EXECUTIVE COOPERATION;
NON-DISPARAGEMENT.
(a) Non-Competition. Without the consent in writing of the
Board, upon termination of Executive's employment for any reason, Executive will
not, for a period of 3 years thereafter, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business in the continental United States in which he has been directly engaged
on behalf of the Company or any subsidiary, or has supervised as an executive
thereof, during the last two years prior to such termination and which is
directly in competition with a business then conducted by the Company or any of
its subsidiaries; (ii) induce any customers of the Company or any of its
subsidiaries with whom Executive has had contacts or relationships, directly or
indirectly, during and within the scope of his or her employment with the
Company or any of its subsidiaries, to curtail or cancel their business with
such companies or any of them; or (iii) induce, or attempt to influence, any
employee of the Company or any of its subsidiaries to terminate employment;
provided, however, that the limitation contained in clause (i) above shall not
apply if Executive's employment is terminated as a result of a termination by
the Company following a Change in Control, a termination by Executive for Good
Reason, a termination due to Disability, Normal Retirement, or Approved Early
Retirement. The provisions of subparagraphs (i), (ii), and (iii) above are
separate and distinct commitments independent of each of the other
subparagraphs. It is agreed that the ownership of not more than one percent of
the equity securities of any company having securities listed on an exchange or
regularly traded in the over-the-counter market shall not, of itself, be deemed
inconsistent with clause (i) of this paragraph (a).
(b) Non-Disclosure. Executive shall not, at any time during
the Term and thereafter (including following Executive's termination of
employment for any reason), disclose, use, transfer, or sell, except in the
course of employment with or other service to the Company, any confidential or
proprietary information of the Company and its subsidiaries so long as such
information has not otherwise been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
(c) Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company, during the Term and thereafter (including following
Executive's termination of employment for any reason), by making himself
available to testify on behalf of the Company or any subsidiary or affiliate of
the Company, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, and to assist the Company, or any subsidiary
or affiliate of the Company, in any such action, suit, or proceeding, by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company, or any
subsidiary or affiliate of the Company, as requested. The Company agrees to
reimburse the Executive, on an after-tax basis, for all expenses actually
incurred in connection with his provision of testimony or assistance.
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(d) Non-Disparagement. Executive shall not, at any time during
the Term and thereafter, make statements or representations, or otherwise
communicate, directly or indirectly, in writing, orally, or otherwise, or take
any action which may, directly or indirectly, disparage or be damaging to the
Company or any of its subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations. Notwithstanding the
foregoing, nothing in this Agreement shall preclude Executive from making
truthful statements or disclosures that are required by applicable law,
regulation or legal process.
(e) Survival. The provisions of this Section 10 shall survive
the termination or expiration of this Agreement in accordance with the terms
hereof.
11. GOVERNING LAW; DISPUTES; ARBITRATION.
(a) Governing Law. This Agreement is governed by and is to be
construed, administered, and enforced in accordance with the laws of the State
of Illinois, without regard to Illinois conflicts of law principles, except
insofar as the Delaware General Corporation Law and federal laws and regulations
may be applicable. If under the governing law, any portion of this Agreement is
at any time deemed to be in conflict with any applicable statute, rule,
regulation, ordinance, or other principle of law, such portion shall be deemed
to be modified or altered to the extent necessary to conform thereto or, if that
is not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof. If any court determines that any provision of Section 10 is
unenforceable because of the duration or geographic scope of such provision, it
is the parties' intent that such court shall have the power to modify the
duration or geographic scope of such provision, as the case may be, to the
extent necessary to render the provision enforceable and, in its modified form,
such provision shall be enforced.
(b) Reimbursement of Expenses in Enforcing Rights. All
reasonable costs and expenses (including fees and disbursements of counsel)
incurred by Executive in seeking to interpret this Agreement or enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights; provided, however, that no reimbursement shall be made of such
expenses relating to any unsuccessful assertion of rights if and to the extent
that Executive's assertion of such rights was in bad faith or frivolous, as
determined by independent counsel mutually acceptable to the Executive and the
Company.
(c) Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois by three arbitrators in accordance with the rules of the
American Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Illinois, (ii) any of the courts of
the State of Illinois, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter
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<PAGE> 21
have to such jurisdiction and any defense of inconvenient forum. The Company and
Executive hereby agree that a judgment upon an award rendered by the arbitrators
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Subject to Section 11(b), the Company shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this Section 11. Notwithstanding any provision in this Section 11,
Executive shall be entitled to seek specific performance of Executive's right to
be paid during the pendency of any dispute or controversy arising under or in
connection with this Agreement. The arbitrator shall have the right to order
immediate payment of any amounts not in dispute, and to advance the payment of
the fees of Executive under Section 11(b).
(d) Interest on Unpaid Amounts. Any amounts that have become
payable pursuant to the terms of this Agreement or any decision by arbitrators
or judgment by a court of law pursuant to this Section 11 but which are not
timely paid shall bear interest at the prime rate in effect at the time such
payment first becomes payable, as quoted by the Bankers Trust Company.
12. MISCELLANEOUS.
(a) Integration. This Agreement cancels and supersedes any and
all prior agreements and understandings between the parties hereto with respect
to the employment of Executive by the Company and its subsidiaries, except for
contracts relating to compensation under executive compensation and employee
benefit plans of the Company and its subsidiaries. This Agreement (together with
the Option Agreement) constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Executive shall not be entitled to any payment or benefit under this
Agreement which duplicates a payment or benefit received or receivable by
Executive under such prior agreements and understandings or under any benefit or
compensation plan of the Company.
(b) Non-Transferability. Neither this Agreement nor the rights
or obligations hereunder of the parties hereto shall be transferable or
assignable by Executive, except in accordance with the laws of descent and
distribution or as specified in Section 12(c). The Company may assign this
Agreement and the Company's rights and obligations hereunder, and shall assign
this Agreement, to any Successor (as hereinafter defined) which, by operation of
law or otherwise, continues to carry on substantially the business of the
Company prior to the event of succession, and the Company shall, as a condition
of the succession, require such Successor to agree to assume the Company's
obligations and be bound by this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's voting securities or all or substantially all of its assets, or
otherwise.
(c) Beneficiaries. Executive shall be entitled to designate
(and change, to the extent permitted under applicable law) a beneficiary or
beneficiaries to receive any compensation or benefits payable hereunder
following Executive's death.
(d) Notices. Whenever under this Agreement it becomes
necessary to give notice, such notice shall be in writing, signed by the party
or parties giving or making the same, and shall be served on the person or
persons for whom it is intended or who should be advised or
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<PAGE> 22
notified, by Federal Express or other similar overnight service or by certified
or registered mail, return receipt requested, postage prepaid and addressed to
such party at the address set forth below or at such other address as may be
designated by such party by like notice:
If to the Company:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
With copies to:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: General Counsel
If to Executive:
Vincent Tyra
2060 Quail Run Drive
Bowling Green, Kentucky 42104
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement. In the case of Federal Express or other similar
overnight service, such notice or advice shall be effective when sent, and, in
the cases of certified or registered mail, shall be effective 2 days after
deposit into the mails by delivery to the U.S. Post Office.
(e) Reformation. The invalidity of any portion of this
Agreement shall not deemed to render the remainder of this Agreement invalid.
(f) Headings. The headings of this Agreement are for
convenience of reference only and do not constitute a part hereof.
(g) No General Waivers. The failure of any party at any time
to require performance by any other party of any provision hereof or to resort
to any remedy provided herein or at law or in equity shall in no way affect the
right of such party to require such performance or to resort to such remedy at
any time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
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<PAGE> 23
(h) No Obligation To Mitigate. Executive shall not be required
to seek other employment or otherwise to mitigate Executive's damages upon any
termination of employment; provided, however, that, to the extent Executive
receives from a subsequent employer health or other insurance benefits that are
substantially similar to the benefits referred to in Section 5(b) hereof, any
such benefits to be provided by the Company to Executive following the Term
shall be correspondingly reduced.
(i) Offsets and Withholding. The amounts required to be paid
by the Company to Executive pursuant to this Agreement shall not be subject to
offset. The foregoing and other provisions of this Agreement notwithstanding,
all payments to be made to Executive under this Agreement, including under
Sections 6 and 7, or otherwise by the Company will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of Executive, his heirs, executors,
administrators and beneficiaries, and shall be binding upon and inure to the
benefit of the Company (and its parent, if any, and affiliates) and its
successors and assigns. Upon the effective time of the Company's reorganization
pursuant to which Fruit of the Loom, Ltd. shall become the parent company of the
Company, this agreement shall become a binding obligation of Fruit of the Loom,
Ltd. and all references to the Company shall be deemed to be a reference to
Fruit of the Loom, Ltd.
13. INDEMNIFICATION AND RELEASE.
(a) Indemnification of Executive by the Company. All rights to
indemnification by the Company now existing in favor of the Executive as
provided in the Company's Certificate of Incorporation or By-Laws or pursuant to
other agreements in effect on or immediately prior to the Effective Date shall
continue in full force and effect from the Effective Date (including all periods
after the expiration of the Term), and the Company shall also advance expenses
for which indemnification may be ultimately claimed as such expenses are
incurred to the fullest extent permitted under applicable law, subject to any
requirement that the Executive provide an undertaking to repay such advances if
it is ultimately determined that the Executive is not entitled to
indemnification; provided, however, that any determination required to be made
with respect to whether the Executive's conduct complies with the standards
required to be met as a condition of indemnification or advancement of expenses
under applicable law and the Company's Certificate of Incorporation, By-Laws, or
other agreement shall be made by independent counsel mutually acceptable to the
Executive and the Company (except to the extent otherwise required by law).
After the date hereof, the Company shall not amend its Certificate of
Incorporation or By-Laws or any agreement in any manner which adversely affects
the rights of the Executive to indemnification thereunder. Any provision
contained herein notwithstanding, this Agreement shall not limit or reduce any
rights of the Executive to indemnification pursuant to applicable law. In
addition, the Company will maintain directors' and officers' liability insurance
in effect and covering acts and omissions of Executive during the Term and for a
period of six years thereafter on terms substantially no less favorable than
those in effect on the Effective Date.
(b) Release by Executive. Except for the Company's obligations
under this Agreement including, without limitation, Executive's rights of
indemnification, and except as hereinafter expressly provided, Executive
irrevocably and unconditionally releases and discharges the Company, its
officers, directors, shareholders, agents, employees, affiliates, related
companies and entities, successors and assigns (separately and collectively, the
"Company's Released Parties"), jointly and individually, from any and all
claims, obligations, demands, damages, and
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<PAGE> 24
causes of action of any nature or kind whatsoever, known or unknown, which
Executive, his heirs, successors or assigns, has or may have, now or in the
future, against the Company or the Company's Released Parties, based upon,
relating to, or arising from the creation, existence or termination of
Executive's employment, including but not limited to, claims arising under or
relating to the Fair Labor Standards Act of 1938 and claims of employment
discrimination arising under Title VII of the Civil Rights Act of 1964, as
amended by the Civil Rights Act of 1991, the Americans with Disabilities Act of
1990, the Family and Medical Leave Act of 1993, the Age Discrimination in
Employment Act of 1967, as amended by the Older Workers Benefit Protection Act,
the Employee Retirement Income Security Act, the National Labor Relations Act,
and/or claims arising under the State Statute or Local Statute or Ordinance
covering age discrimination, wrongful termination or any claim arising under
express or implied contracts, tort, public policy, common law or any other
Federal, state or local statute (including state and local anti-discrimination
statutes), ordinance, regulation or constitutional provision.
(c) Release by Company. Except for the Executive's obligations
under this Agreement, (including the repayment of any advancements made before
or after the Effective Date, which the Executive is required to repay if it is
ultimately determined that the Executive is not entitled to indemnification) and
as hereinafter provided, the Company and the Company's Released Parties
irrevocably and unconditionally release and discharge Executive, his successors
and assigns, from any and all claims, obligations, demands, damages and causes
of action of any kind whatsoever, known or unknown, which the Company and the
Company's Released Parties may have, now or in the future, against the Executive
based upon, relating to, or arising from the creation, existence or termination
of Executive's employment; and such release shall extend to the full extent (and
only to the extent) of any indemnification authorized under Section 13(a) of
this Agreement and under Article XIII of the Company's Certificate of
Incorporation.
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<PAGE> 1
EXHIBIT 10.(u)
GUARANTY OF PAYMENT
THIS GUARANTY OF PAYMENT (this "Guaranty"), dated as of March 24, 1999,
is given by:
FRUIT OF THE LOOM, INC. ("Fruit of the Loom"), a Delaware corporation,
its Material Domestic Subsidiaries (as defined below) and its parent holding
company, Fruit of the Loom, Ltd., a Cayman Islands company (the "Parent")
(collectively with Fruit of the Loom, "the Guarantors") to:
NATIONSBANK, N.A., a national banking association, in its capacity as
Administrative Agent (the "Administrative Agent") for the Lenders party to the
Credit Agreement referred to below, for the benefit of:
WILLIAM FARLEY as the Borrower (the "Borrower") under that certain
Credit Agreement dated as of the date hereof among the Borrower, the
Administrative Agent, CREDIT SUISSE FIRST BOSTON as Syndication Agent and the
Lenders party thereto (as amended, modified, extended, renewed, restated or
replaced from time to time, the "Credit Agreement").
W I T N E S S E T H:
WHEREAS, the Lenders have been requested to enter into the Credit
Agreement and to make available to the Borrower a revolving credit facility and
letter of credit subfacility (collectively, the "Credit Facility") in the
maximum aggregate principal amount of $65 million;
WHEREAS, the Guarantors will benefit if the Borrower enters into the
Credit Agreement because the Guarantors have or may have interests, directly or
indirectly, in the transactions to be funded (or refinanced) with the proceeds
of the Credit Facility; and
WHEREAS, the Agents and the Lenders have required that the Guarantors
execute and deliver this Guaranty as a condition precedent to entering into the
Credit Agreement and the other Credit Documents referred to therein;
NOW, THEREFORE, in consideration of the Lenders' agreement to make the
Credit Facility available to the Borrower, each of the Guarantors hereby,
jointly and severally, unconditionally guarantees to the Lenders, their
successors and assigns, the prompt and full payment of the Obligations as more
fully set forth below.
SECTION 1. DEFINITIONS.
All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in the Credit Agreement. The pronouns used
in this instrument shall be construed as masculine, feminine or neuter as the
occasion may require, and words in the singular include
<PAGE> 2
the plural and words in plural include the singular. As used herein, the
following terms shall have the corresponding meanings set forth below:
"Domestic Subsidiary" means each direct and indirect Subsidiary of
Fruit of the Loom that (a) is domiciled, incorporated or organized under the
laws of any State of the United States or the District of Columbia or (b)
maintains the major portion of its assets (determined on a consolidated basis)
in the United States of America.
"Material Domestic Subsidiary" means any Domestic Subsidiary of Fruit
of the Loom that, together with its Subsidiaries on a consolidated basis, (i)
during the twelve months preceding such date of determination accounts for (or
to which may be attributed) 5% or more of the sales, earnings or assets
(determined on a consolidated basis) of Fruit of the Loom and its Subsidiaries
or (ii) is otherwise necessary for the ongoing business operations of Fruit of
the Loom and its Subsidiaries taken as a whole.
SECTION 2. THE GUARANTY.
Each Guarantor hereby, jointly and severally, guarantees to each Lender
and the Agents the prompt payment of the Obligations in full when due (whether
at stated maturity, as a mandatory prepayment, by acceleration or otherwise).
The Guarantors shall pay any Obligations that are not paid as and when required
of the Borrower under the Credit Documents (including upon the expiration of any
applicable grace period set forth therein). Each such sum may be recovered in a
separate action as it comes due, or, in the event that the Administrative Agent
or the Lenders shall accelerate the maturity of the Obligations in accordance
with the Credit Documents, the Guarantors shall promptly pay all sums which
become due and payable on such acceleration of maturity. The Lenders shall have
the absolute right to seek one or more money judgments for each cause of action
based solely upon this Guaranty.
SECTION 3. GUARANTY OF PAYMENT; PRIMARY LIABILITY OF GUARANTORS,
ETC.
This Guaranty is a guarantee of payment and not of collection. The
obligations of the Guarantors under this Guaranty are direct, unconditional and
completely independent of the obligations of the Borrower. The Administrative
Agent and the Lenders may exercise any of its or their rights under this
Guaranty, including without limitation bringing and prosecuting any action
against the Guarantors, without any requirement that the Administrative Agent or
the Lenders join the Borrower as a party to the action, or proceed against any
security or collateral then held by the Administrative Agent or the Lenders for
the Obligations or the obligations of the Guarantors hereunder, or have recourse
to the Notes or any of the other Credit Documents, or notify or make demand upon
or proceed against or exhaust any other remedy against the Borrower, any other
guarantor of the Obligations, or any other person who might have become liable
for the Obligations, or to pursue any other remedy or enforce any other right.
The Guarantors hereby waive and renounce all benefits of discussion and
division.
The Guarantors further agree that nothing contained herein shall
prevent the Administrative Agent or the Lenders from suing on the Credit
Agreement, the Notes or any of the other Credit
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<PAGE> 3
Documents or foreclosing any security interest in or lien on any collateral now
or hereafter securing the Obligations or the obligations of the Guarantors
hereunder or from exercising any other rights available to them under the Credit
Agreement, the Notes, any other of the Credit Documents, or any other instrument
of security if neither the Borrower nor the Guarantors timely perform the
obligations of the Borrower thereunder, and the exercise of any of the aforesaid
rights and the completion of any foreclosure proceedings shall not constitute a
discharge of any Guarantor's obligations hereunder; it being the purpose and
intent of the Guarantors that each Guarantor's obligations hereunder shall be
absolute, independent and unconditional under any and all circumstances. Neither
a Guarantor's obligations hereunder nor any remedy for the enforcement thereof
shall be impaired, modified, changed, released or limited in any manner
whatsoever by an impairment, modification, change, release or limitation of the
liability of the Borrower or by reason of the Borrower's bankruptcy or
insolvency.
SECTION 4. CONTINUING GUARANTY.
This instrument is a continuing, binding, absolute and unconditional
guaranty of payment which shall remain in full force and effect, subject to
Section 25 hereof, until the Obligations are fully paid, performed and
discharged and all commitments of the Lenders to the Borrower have been
terminated. This Guaranty covers all Obligations whether presently existing and
outstanding or arising subsequent to the date hereof including all amounts
advanced by the Lenders to the Borrower in stages or installments.
Notwithstanding the foregoing, this Guaranty shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Obligations is rescinded or must otherwise be restored or returned
by the Lenders upon the insolvency or bankruptcy of, or as a result of any
similar proceeding with respect to, the Borrower, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or any substantial part of his property, or otherwise,
all as though such payments had not been made. The liability assumed under this
Guaranty shall not be affected by the Lenders' acceptance of any settlement or
composition offered by the Borrower or decreed with respect to the Borrower by
any court, either in readjustment, receivership, bankruptcy or otherwise, except
only to the extent that such settlement has resulted in actual payment of a part
of the Obligations, and then only to that extent.
SECTION 5. RELEASE OF COLLATERAL, PARTIES LIABLE, ETC.
The Guarantors agree that (a) any or all of the security now or
hereafter held for the Obligations or Guarantors' obligations hereunder may be
exchanged, compromised, or surrendered from time to time; (b) neither the
Administrative Agent nor the Lenders shall have any obligation to protect,
perfect, secure or insure any such security interests, liens or encumbrances now
or hereafter held for the Obligations or the Guarantors' obligations hereunder
or the properties subject thereto; (c) the time or place of payment of the
Obligations may be changed or extended, in whole or in part, to a time certain
or otherwise, and may be renewed or accelerated, in whole or in part; (d) the
Borrower may be granted indulgences generally; (e) any of the provisions of the
Credit Agreement, the Notes or any of the other Credit Documents may be
modified, amended or waived; (f) any party liable for the payment thereof,
including without limitation other guarantors, may be granted indulgences or
released; and (g) any deposit balance for the credit of the Borrower or any
other party liable for the payment of the Obligations, including without
limitation other guarantors, or liable upon any security
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<PAGE> 4
therefor may be released, in whole or in part, at, before and/or after the
stated, extended or accelerated maturity of the Obligations, all without notice
to or further assent by the Guarantors, who shall remain bound thereon,
notwithstanding any such exchange, compromise, surrender, extension, renewal,
acceleration, modification, indulgence, release or other act.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to extend credit to the Borrower, and
knowing that the Lenders shall rely on the following warranties and
representations, each of the Guarantors represents, warrants and covenants to
and with the Lenders, in addition to the representations, warranties and
covenants incorporated herein in accordance with Section 7 hereof, that:
(a) such Guarantor shall benefit, directly or indirectly, from
the extension of credit to the Borrower by the Lenders under the Credit
Agreement;
(b) such Guarantor has received good, valuable and adequate
consideration from the Borrower for the execution and delivery to the
Lenders of this Guaranty; and
(c) such Guarantor acknowledges that the Credit Agreement and
the Obligations are separate and distinct from all other obligations of
the Borrower to the Lenders and that any accommodation previously or
hereafter made by the Lenders with respect to any such other
obligations is not an indication that the same or a similar
accommodation will be made with respect to the Credit Agreement or the
Obligations.
SECTION 7. INCORPORATION OF REPRESENTATIONS, WARRANTIES AND
COVENANTS.
Reference is made to the Fruit of the Loom Agreement and the
representations and warranties of the Guarantors contained in Section 6 of the
Fruit of the Loom Agreement (hereinafter referred to as the "Incorporated
Representations and Warranties") and the covenants of the Guarantors contained
in Sections 7 and 8 of the Fruit of the Loom Agreement (hereinafter referred to
as the "Incorporated Covenants").
Each of the Guarantors agrees with the Lenders that the Incorporated
Representations and Warranties and the Incorporated Covenants (and all other
relevant provisions of the Fruit of the Loom Agreement related thereto,
including without limitation the defined terms contained in Section 1 thereof
which are used in the Incorporated Representations and Warranties and the
Incorporated Covenants, hereinafter referred to as the "Additional Incorporated
Terms") are hereby incorporated by reference into this Guaranty to the same
extent and with the same effect as if set forth fully herein and shall inure to
the benefit of the Lenders, without giving effect to any waiver, amendment,
modification or replacement of the Fruit of the Loom Agreement or any term or
provision of the Incorporated Representations and Warranties, the Incorporated
Covenants or the Additional Incorporated Terms occurring subsequent to the
Closing Date, except to the extent otherwise specifically provided in the
following provisions of this paragraph. For purposes of the incorporation of the
provisions of the Fruit of the Loom Agreement pursuant to this paragraph, (a)
all references in the Fruit of the Loom Agreement to the "Administrative Agent"
or to the
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<PAGE> 5
"Agents" shall be deemed to refer to the Administrative Agent or the Agents, as
applicable, under the Credit Agreement, (b) all references in the Fruit of the
Loom Agreement to the "Lenders" shall be deemed to refer to the Lenders under
the Credit Agreement, (c) all references in the Fruit of the Loom Agreement to
the "Credit Agreement" shall be deemed to refer to this Guaranty and all
references in the Fruit of the Loom Agreement to the "Credit Documents" shall be
deemed to refer to the Credit Documents under the Credit Agreement, (d) all
references in the Fruit of the Loom Agreement to the "Borrower" or the "Credit
Parties" shall be deemed to refer to the Guarantors hereunder, and (e) all
references in the Fruit of the Loom Agreement to the "Effective Date" shall be
deemed to refer to the Effective Date of the Credit Agreement. In the event a
waiver is granted under the Fruit of the Loom Agreement or an amendment or
modification is executed with respect to the Fruit of the Loom Agreement, and
such waiver, amendment and/or modification affects the Incorporated
Representations and Warranties, the Incorporated Covenants or the Additional
Incorporated Terms, then such waiver, amendment or modification shall be
effective with respect to the Incorporated Representations and Warranties, the
Incorporated Covenants and the Additional Incorporated Terms as incorporated by
reference into this Guaranty only if consented to in writing by the Required
Lenders. In the event the Fruit of the Loom Agreement is replaced or terminated,
then the Incorporated Representations and Warranties, the Incorporated Covenants
and the Additional Incorporated Terms (as amended or modified in accordance with
this paragraph) shall continue to be the Incorporated Representations and
Warranties, the Incorporated Covenants and the Additional Incorporated Terms
hereunder unless otherwise consented to by the Required Lenders.
SECTION 8. WAIVER OF DEFENSES.
The Guarantors hereby waive any and all defenses to any action or
proceeding brought to enforce this Guaranty or any part of this Guaranty, except
the single defense that the sum claimed has actually been paid to the Lenders.
Without limiting the foregoing in any way, but merely by way of illustration,
the Guarantors hereby specifically waive all technical, dilatory or
nonmeritorious defenses, and any defense predicated upon:
(a) Incapacity, disability or lack of authority on the part of
the Borrower or any other person; or
(b) Any change or modification or extension or waiver of any
term of the Obligations or any Credit Document, or any indulgence or
forbearance or delay on the part of the Administrative Agent or the
Lenders in the enforcement of any term of the Obligations or any Credit
Document, or any other or further dealings or agreements between the
Lenders and the Borrower or between the Lenders and any other
guarantors or sureties for all or any part of the Obligations; or
(c) Any failure to perfect, release of, substitution for,
addition to, increase in or impairment of all or any part of any
security for the Obligations or the Guarantors' obligations hereunder,
whether for valuable consideration or otherwise; or
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<PAGE> 6
(d) The fact that there may now or hereafter be other
guarantors or sureties liable for all or any part of the Obligations,
or that solvent persons other than the Borrower or the Guarantors may
have undertaken the payment of all or any part of the Obligations,
whether in connection with any transfer of any collateral for the
Obligations or the Guarantors' obligations hereunder or otherwise; or
(e) The full or partial release or discharge of the Borrower
or any other present or future guarantors or sureties for all or any
part of the Obligations except pursuant to the payment in full of the
Obligations; or
(f) Any other act or omission by the Administrative Agent or
the Lenders or failure by the Administrative Agent or the Lenders to
proceed promptly or diligently, or any other matter which might, but
for this waiver by the Guarantors, be deemed a legal or equitable
release or discharge of a surety or guarantor, regardless of whether
such act or omission or failure or other matter varies or increases the
risk of the Guarantors or affects or impairs the rights or remedies of
the Guarantors.
SECTION 9. ADDITIONAL WAIVERS.
Neither the Administrative Agent nor the Lenders shall be required to
notify the Guarantors of (a) the Lenders' acceptance of this Guaranty, (b) any
disbursements of funds by or on behalf of the Lenders, or (c) any modification
of any other document executed by the Borrower or any other guarantor or surety
in connection with the Obligations. The Administrative Agent agrees to give
prompt notice to Fruit of the Loom, on behalf of the Guarantors, after it has
actual knowledge of a default by the Borrower under the Obligations; provided
that failure to give such notice shall not in any respect invalidate this
Guaranty or the obligations of the Guarantors hereunder. The Guarantors hereby
waive presentment for payment, demand, protest, notice of protest or dishonor,
notice of default, and any other notice or demand whatsoever before the
Administrative Agent or the Lenders commence to enforce their rights under this
Guaranty, whether by judicial proceedings or in any other manner. Neither the
Administrative Agent nor the Lenders shall have any obligation whatsoever to
disclose to the Guarantors any information the Lenders may now possess or
hereafter obtain about the Borrower, regardless of whether (i) the
Administrative Agent or the Lenders have reason to believe that such information
materially increases the risk of the Guarantors beyond that which the Guarantors
intend to assume hereunder, or (ii) the Administrative Agent or the Lenders have
reason to believe that such information is unknown to the Guarantors, or (iii)
the Administrative Agent or the Lenders have a reasonable opportunity to
communicate such information to the Guarantors. The Guarantors understand and
agree that the Guarantors are fully responsible for being and keeping informed
of the financial condition of the Borrower and of all circumstances bearing on
the risk of failure of the Borrower to repay the Obligations.
SECTION 10. LIMITATIONS ON RIGHTS OF GUARANTORS.
Until the Obligations shall have actually been paid in full, the
Guarantors hereby (a) agree not to seek reimbursement or repayment from the
Borrower or the liquidation of any security for
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<PAGE> 7
the Obligations by reason of having paid monies pursuant to this Guaranty, (b)
waive any right to enforce any remedy as a subrogee of the Lenders or their
successors and assigns or to participate in the Obligations or in any security
for the Obligations, (c) agree not to seek or accept repayment or reimbursement
from the Borrower of any sums advanced, contributed or loaned to the Borrower
by the Guarantors, all of which are hereby subordinated and postponed to the
full repayment of the Obligations, and (d) agree not to seek or accept any
distributions or other transfers of assets from the Borrower.
SECTION 11. RIGHTS OF CONTRIBUTION.
The Guarantors agree among themselves that, in connection with payments
made hereunder, each Guarantor shall have contribution rights against the other
Guarantors and against the Borrower as permitted under applicable law. Such
contribution rights shall be subordinate and subject in right of payment to the
obligations of the Guarantors hereunder and the Obligations of the Borrower and
no Guarantor shall exercise such rights of contribution until all Obligations
(other than any such obligations which by the terms thereof are stated to
survive termination of the Credit Documents) have been paid in full and the
Commitments terminated.
SECTION 12. BENEFIT OF GUARANTY.
The rights and authority granted to the Lenders in this Guaranty shall
inure to the benefit of their successors and assigns, and the agreements by the
Guarantors contained in this Guaranty shall bind the Guarantors and the
Guarantors' successors and assigns, jointly and severally.
SECTION 13. ASSIGNMENT.
Any Lender may assign its interests under this Guaranty in accordance
with Section 9.3 of the Credit Agreement and without the prior consent of the
Guarantors.
No Guarantor may assign any of its obligations under this Guaranty
without the prior written consent of the Required Lenders.
SECTION 14. ADDITIONAL GUARANTORS.
At the time any Person becomes a Material Domestic Subsidiary of Fruit
of the Loom or the Parent, Fruit of the Loom shall so notify the Administrative
Agent and promptly thereafter (but in any event within 30 days after the date
thereof) shall (a) cause such Person to execute either a joinder agreement
satisfactory to the Administrative Agent with respect to this Guaranty or a
separate guaranty agreement in favor of the Lenders in substantially the same
form as this present Guaranty and (b) deliver, or cause such Person to deliver,
such other documentation as the Administrative Agent may reasonably request in
connection with the foregoing, including, without limitation, certified
resolutions and other organizational and authorizing documents of such Person
and favorable opinions of counsel to such Person (which shall cover, among other
things, the legality, validity, binding effect and enforceability of the joinder
or guaranty agreement referred to above).
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SECTION 15. TIME IS OF THE ESSENCE.
Time shall be of the essence with respect to all of the provisions of
this Guaranty.
SECTION 16. LIMITATIONS ON GUARANTY.
Notwithstanding any provision to the contrary contained herein or in
any of the other Credit Documents, to the extent the obligations of any
Guarantor shall be adjudicated to be invalid or unenforceable for any reason
(including, without limitation, because of any applicable state, federal or
foreign law relating to fraudulent conveyances or transfers) then the
obligations of such Guarantor hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether state, federal or foreign).
Nothing contained in this Guaranty shall be construed as obligating the
Guarantors in any way to be responsible for interest in excess of the maximum
rate permitted by applicable law.
SECTION 17. REMEDIES.
The Guarantors agree that, as between the Guarantors, on the one hand,
and the Administrative Agent and the Lenders, on the other hand, the Obligations
may be declared to be forthwith due and payable as provided in Article VII of
the Credit Agreement (and shall be deemed to have become automatically due and
payable in the circumstances provided in Article VII) notwithstanding any stay,
injunction or other prohibition preventing such declaration (or preventing such
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or such Obligations being
deemed to have become automatically due and payable), such Obligations (whether
or not due and payable by any other Person) shall forthwith become due and
payable by the Guarantors. The Guarantors acknowledge and agree that their
obligations hereunder are secured in accordance with the terms of the Security
Agreement and the other Collateral Documents and that the Administrative Agent
and the Lenders may exercise their remedies thereunder in accordance with the
terms thereof.
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SECTION 18. NOTICES.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set forth below, (c) the day following the day on which the same has been
delivered prepaid to a reputable national overnight air courier service, or (d)
the third Business Day following the day on which the same is sent by certified
or registered mail, postage prepaid, in each case to the Guarantors:
c/o Fruit of the Loom, Inc.
233 South Wacker Drive
Suite 5000, Sears Tower
Chicago, IL 60606
Attention: Brian Hanigan
Telephone: (312) 993-1708
Fax: (312) 993-1888
and to all other parties hereto in accordance with Section 9.1 of the Credit
Agreement.
SECTION 19. ATTORNEY'S FEES AND COSTS OF COLLECTION.
The Guarantors agree to pay any expenses incurred by the Administrative
Agent or the Lenders in the collection or enforcement of this Guaranty,
including reasonable documented costs and attorney's fees (including those
incurred for appellate or administrative or bankruptcy proceedings) in the event
that the Administrative Agent or the Lenders shall be obliged to resort to the
courts or require the services of an attorney to collect under this Guaranty.
SECTION 20. GOVERNING LAW; VENUE.
(a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Any legal action or proceeding with respect to this Guaranty
may be brought in the courts of the State of New York or of the United
States for the Southern District of New York, and, by execution and
delivery of this Guaranty, each Guarantor hereby irrevocably accepts
for itself and in respect of its property, generally and
unconditionally, the jurisdiction of such courts. Each Guarantor
further irrevocably consents to the service of process out of any of
the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to it in care of Katten, Muchin & Zavis, Attn: Susan
Schneider, Esq., whose present address is 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661, whom each Guarantor hereby appoints as
such Guarantor's agent for service of process, such service to become
effective thirty (30) days after such mailing. Nothing herein shall
affect the right of the Lenders to serve process in any other manner
9
<PAGE> 10
permitted by law or to commence legal proceedings or to otherwise
proceed against any Guarantor in any other jurisdiction.
(b) Each Guarantor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Guaranty brought in the courts referred to in subsection (a) and
hereby further irrevocably waives and agrees not to plead or claim in
any such court that any such action or proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 21. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 22. COUNTERPARTS/TELECOPY.
This Guaranty may be executed in any number of counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. Delivery of an executed
counterpart by telecopy shall be as effective as delivery of a manually executed
counterpart hereto and shall constitute a representation that an original
executed counterpart will be provided.
SECTION 23. HEADINGS.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Guaranty.
SECTION 24. SEVERABILITY.
If any provision of any of this Guaranty is determined to be illegal,
invalid or unenforceable, such provision shall be fully severable and the
remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
SECTION 25. EXPIRATION.
Notwithstanding anything to the contrary contained herein, this
Guaranty shall expire on September 24, 2000 unless the Borrower, by written
notice to the Guarantors at least ten Business Days prior to such expiration
date, extends this Guaranty for up to six additional months; provided that this
Guaranty shall remain in effect as to any claims for payment hereunder made by
the Administrative Agent or the Lenders on or prior to such expiration date, it
being understood that a claim for payment hereunder shall be deemed to have been
made by the Administrative Agent and the Lenders on such expiration date in the
amount of the Obligations
10
<PAGE> 11
outstanding on such expiration date (after giving effect to any payments
received by the Administrative Agent from the Borrower on such expiration date).
(signature pages follow)
11
<PAGE> 12
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be duly
executed and delivered as of the date first above written.
FRUIT OF THE LOOM, INC.,
a Delaware corporation
By:
-----------------------------------------
Name: Brian J. Hanigan
Title: Vice President and Treasurer
FRUIT OF THE LOOM, LTD.,
a Cayman Islands company
UNION UNDERWEAR COMPANY, INC.,
a New York corporation
ALICEVILLE COTTON MILL, INC.,
an Alabama corporation
THE B.V.D. LICENSING CORPORATION,
a Delaware corporation
FAYETTE COTTON MILL, INC.,
an Alabama corporation
FOL CARIBBEAN CORPORATION,
a Delaware corporation
FRUIT OF THE LOOM ARKANSAS, INC.,
an Arkansas corporation
FRUIT OF THE LOOM CARIBBEAN, INC.,
a Delaware corporation
FRUIT OF THE LOOM, INC.,
a New York corporation
FRUIT OF THE LOOM TEXAS, INC.,
a Texas corporation
12
<PAGE> 13
FTL SALES COMPANY, INC.,
a New York corporation
GITANO FASHIONS LIMITED,
a Delaware corporation
GREENVILLE MANUFACTURING, INC.,
a Mississippi corporation
JET SEW TECHNOLOGIES, INC.,
a New York corporation
MARTIN MILLS, INC.,
a Louisiana corporation
PRO PLAYER, INC.,
a New York corporation
RABUN APPAREL, INC.,
a Georgia corporation
RUSSELL HOSIERY MILLS, INC.,
a North Carolina corporation
SALEM SPORTSWEAR CORPORATION,
a Delaware corporation
SHERMAN WAREHOUSE CORPORATION,
a Mississippi corporation
UNION SALES, INC.,
a Delaware corporation
UNION YARN MILLS, INC.,
an Alabama corporation
WHITMIRE MANUFACTURING, INC.,
a South Carolina corporation
WINFIELD COTTON MILL, INC.,
an Alabama corporation
FTL REGIONAL SALES COMPANY, INC.,
a Delaware corporation
13
<PAGE> 14
LEESBURG YARN MILLS, INC.,
an Alabama corporation
SALEM SPORTSWEAR, INC.,
a New Hampshire corporation
FRUIT OF THE LOOM TRADING COMPANY,
a Delaware corporation
DEKALB KNITTING CORPORATION,
an Alabama corporation
By:
-------------------------------------------
Name: Brian J. Hanigan
Title: Vice President and a Financial Officer
of each of the foregoing entities
14
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF
FRUIT OF THE LOOM, INC.(1)
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
-------------
<S> <C>
Fruit of the Loom, Ltd. Cayman Islands
NWI Land Management Corporation Delaware
Union Underwear Company, Inc. New York
SUBSIDIARIES OF UNION UNDERWEAR COMPANY, INC.
(A NEW YORK CORPORATION)
Aliceville Cotton Mill, Inc. Alabama
Apparel Outlet Stores, Inc. Delaware
Artex Manufacturing Co, Inc. Delaware
AVX Management Co., Inc. Kentucky
Brundidge Shirt Corporation Alabama
The B.V.D. Licensing Corporation Delaware
Camp Hosiery Company, Inc. Tennessee
Fayette Cotton Mill, Inc. Alabama
FOL Caribbean Corporation Delaware
FOL International Republic of Ireland
Fruit of the Loom Arkansas, Inc. Arkansas
Fruit of the Loom Canada, Inc. Ontario
Fruit of the Loom Caribbean, Inc. Delaware
Fruit of the Loom, Inc. New York
Fruit of the Loom Italy, S.r.1. Italy
Fruit of the Loom Texas, Inc. Texas
FTL Receivables Company Delaware
FTL Sales Company, Inc. New York
FTL Systems, Inc. Tennessee
Gitano Fashions Limited Delaware
Greenville Manufacturing, Inc. Mississippi
Jet Sew Technologies, Inc. New York
Leesburg Knitting Mills, Inc. Alabama
Martin Mills, Inc. Louisiana
Panola Mills, Inc. Mississippi
Pro Player, Inc. New York
Rabun Apparel, Inc. Georgia
Russell Hosiery Mills, Inc. North Carolina
Salem Sportswear Corporation Delaware
Sherman Warehouse Corporation Mississippi
Superior Underwear Mill, Inc. New York
Superior Underwear Mills, Inc. Pennsylvania
Union Sales, Inc. Delaware
Union Yarn Mills, Inc. Alabama
Whitmire Manufacturing, Inc. South Carolina
Winfield Cotton Mill, Inc. Alabama
Woodville Apparel Corporation Mississippi
SUBSIDIARIES OF ARTEX MANUFACTURING CO., INC.
(A DELAWARE CORPORATION)
FTL Investments, Inc. Delaware
</TABLE>
[FN]
(1) Excludes some subsidiaries which, if considered in the aggregate as a
single subsidiary, would not constitute a "significant subsidiary" at
January 2, 1999.
</FN>
80
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
-------------
<S> <C>
SUBSIDIARIES OF FOL CARIBBEAN CORPORATION (A DELAWARE CORPORATION)
FOL Holding, Ltd. Cayman Islands
FTL Finance Ltd. Cayman Islands
SUBSIDIARIES OF FOL HOLDING, LTD. (A CAYMAN ISLANDS CORPORATION)
Fruit of the Loom Operating Ltd. Cayman Islands
FTL Sourcing Ltd. Cayman Islands
SUBSIDIARIES OF FRUIT OF THE LOOM OPERATING LTD. (A CAYMAN
ISLANDS CORPORATION)
Confecciones Dos Caminos, S. De R.L. de C.V. Honduras
El Porvenir Manufacturing, S. De R.L. de C.V. Honduras
FTL Costa Rica S.R.L. Costa Rica
Gitano of Jamaica Company Jamaica
Manufacturas Villanueva S. De R.L. de C.V. Honduras
Productos San Jose, S. De R.L. de C.V. Honduras
Superior Acquisition Corporation Cayman Islands
Textiles Lourdes Limitada El Salvador
SUBSIDIARIES OF SUPERIOR ACQUISITION CORPORATION (A CAYMAN
ISLANDS CORPORATION)
Confecciones de Lourdes S.A. de C.V. El Salvador
Confecciones dos Caminos, S.A. de C.V. Honduras
SUBSIDIARIES OF FOL INTERNATIONAL (A REPUBLIC OF IRELAND
CORPORATION)
FOL International GmbH Germany
FOL Ireland Limited Republic of Ireland
Fruit of the Loom AG Switzerland
Fruit of the Loom Benelux, S.A. Belgium
Fruit of the Loom France, S.a.r.1. France
Fruit of the Loom Investments, Ltd. United Kingdom
Fruit of the Loom International Sp. Z.o.o. Poland
Fruit of the Loom-Maroc Morocco
Fruit of the Loom Nordic, AB Sweden
Fruit of the Loom Spain, S.A. Spain
SUBSIDIARIES OF FOL IRELAND LIMITED (A REPUBLIC OF
IRELAND CORPORATION)
Fruit of the Loom International Limited Republic of Ireland
Fruit of the Loom Distribution Limited Republic of Ireland
SUBSIDIARIES OF FRUIT OF THE LOOM INVESTMENTS, LTD.
(A UNITED KINGDOM CORPORATION)
Fruit of the Loom, Ltd. United Kingdom
Fruit of the Loom Management Co., Ltd. United Kingdom
Fruit of the Loom Manufacturing Co., Ltd. Northern Ireland
</TABLE>
81
<PAGE> 3
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
-------------
<S> <C>
SUBSIDIARIES OF FRUIT OF THE LOOM INTERNATIONAL LIMITED
(A REPUBLIC OF IRELAND CORPORATION)
Protean Republic of Ireland
All Screen & Design Limited Republic of Ireland
SUBSIDIARIES OF FRUIT OF THE LOOM, INC. (A NEW YORK CORPORATION)
Fruit of the Loom GmbH Germany
SUBSIDIARIES OF FRUIT OF THE LOOM GMBH (A GERMAN CORPORATION)
Fruit of the Loom Distribution GmbH Germany
SUBSIDIARIES OF FTL SALES COMPANY, INC. (A NEW YORK CORPORATION)
FTL Regional Sales Company, Inc. Delaware
SUBSIDIARIES OF GITANO FASHIONS LIMITED (A DELAWARE CORPORATION)
Dutton II Trading Limited Hong Kong
Noel of Jamaica Limited Jamaica
SUBSIDIARIES OF DUTTON II TRADING LIMITED (A HONG KONG CORPORATION)
P.S. Garment Limited Hong Kong
SUBSIDIARIES OF RUSSELL HOSIERY MILLS, INC.
(A NORTH CAROLINA CORPORATION)
Leesburg Yarn Mills, Inc. Alabama
SUBSIDIARIES OF SALEM SPORTSWEAR CORPORATION
(A DELAWARE CORPORATION)
All-Star Manufacturing, Inc. Alabama
Rienzi Manufacturing, Inc. Mississippi
Rogersville Apparel, Inc Alabama
Salem Screen South, Inc. Alabama
Salem Sportswear, Inc. New Hampshire
SUBSIDIARIES OF SALEM SPORTSWEAR, INC.
(A NEW HAMPSHIRE CORPORATION)
Salem International, Inc. (FSC) U.S. Virgin Islands
SUBSIDIARIES OF UNION SALES, INC. (A DELAWARE CORPORATION)
Fruit of the Loom Trading Company Delaware
SUBSIDIARIES OF FRUIT OF THE LOOM TRADING COMPANY
(A DELAWARE CORPORATION)
Controladora Fruit of the Loom, S.A. de C.V. Mexico
SUBSIDIARIES OF CONTROLADORA FRUIT OF THE LOOM, S.A. DE D.V.
(A MEXICAN CORPORATION)
Distribuidora FTL, S.A. de C.V. Mexico
Distribuidora Fruit of the Loom, S.A. de C.V. Mexico
Edificadora de Valle Hermoso, S.A. de C.V. Mexico
Fruit of the Loom De Mexico, S.A. de C.V. Mexico
Inmobiliaria de Miguel Aleman, S.A. de C.V. Mexico
SUBSIDIARIES OF UNION YARN MILLS, INC. (AN ALABAMA CORPORATION)
DeKalb Knitting Corporation Alabama
</TABLE>
82
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Fruit of the Loom,
Ltd. Registration Statements as follows: Post-Effective Amendment No. 4 to
Form S-8, Registration No. 33-18250 pertaining to the Fruit of the Loom, Inc.
1987 Stock Option Plan, Post-Effective Amendment No. 1 to Form S-8,
Registration No. 33-50499 pertaining to the Fruit of the Loom, Inc. Directors'
Stock Option Plan, Post-Effective Amendment No. 1 to Form S-8, Registration No.
333-38953 pertaining to the Fruit of the Loom, Inc. 1995 Executive Incentive
Compensation Plan As Amended and Restated and the Fruit of the Loom, Inc. 1996
Incentive Compensation Plan As Amended and Restated (the "1996 Incentive
Compensation Plan"), Post-Effective Amendment No. 1 to Form S-8, Registration
No. 33-59551 pertaining to the Fruit of the Loom, Inc. Executive Incentive
Compensation Plan, Post-Effective Amendment No. 1 to Form S-8, Registration No.
333-09203 pertaining to the 1996 Incentive Compensation Plan, Post-Effective
Amendment No. 1 to Form S-8, Registration No. 33-39625 pertaining to the Fruit
of the Loom, Inc. 1989 Stock Grant Plan and the Fruit of the Loom, Inc.
Long-Term Bonus Plan, Post-Effective Amendment No. 2 to Form S-8, Registration
No. 333-00039 pertaining to the Fruit of the Loom, Inc. 1995 Executive
Incentive Compensation Plan and the Fruit of the Loom, Inc. 1995 Non-Employee
Director's Stock Plan, Form S-8, Registration No. 333-74077 pertaining to the
1996 Incentive Compensation Plan, Post-Effective Amendment No. 2 to Form S-3,
Registration No. 33-52023 pertaining to the registration of 2,178,178 Class A
Ordinary Shares and Post-Effective Amendment No. 1 to Form S-3 Registration No.
33-52779 pertaining to the registration of 2,178,178 Class A Ordinary Shares
and in the related Prospectuses of our report dated February 16, 1999, except
for "Subsequent Events" note, as to which the date is March 25, 1999, with
respect to the consolidated financial statements of Fruit of the Loom, Inc. and
subsidiaries included in this Annual Report (Form 10-K) for the year ended
January 2, 1999.
ERNST & YOUNG LLP
Chicago, Illinois
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 1,400
<SECURITIES> 0
<RECEIVABLES> 121,700
<ALLOWANCES> 12,000
<INVENTORY> 742,000
<CURRENT-ASSETS> 894,200
<PP&E> 1,192,100
<DEPRECIATION> 758,200
<TOTAL-ASSETS> 2,289,800
<CURRENT-LIABILITIES> 616,900
<BONDS> 856,600
<COMMON> 326,700
0
0
<OTHER-SE> 222,200
<TOTAL-LIABILITY-AND-EQUITY> 2,289,800
<SALES> 2,170,300
<TOTAL-REVENUES> 2,170,300
<CGS> 1,564,800
<TOTAL-COSTS> 1,564,800
<OTHER-EXPENSES> (5,400)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,300
<INCOME-PRETAX> 143,000
<INCOME-TAX> 7,100
<INCOME-CONTINUING> 135,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,900
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.88
</TABLE>
