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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended October 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ...... to ......
Commission file number 1-9769
LANDS' END, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2512786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lands' End Lane, Dodgeville, WI 53595
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, 608-935-9341
including area code
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of December 14, 1998:
Common stock, $.01 par value 30,239,300 shares outstanding
LANDS' END, INC. & SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Statements of Operations for the
Three Months Ended October 30, 1998, and
October 31, 1997.................................. 3
Consolidated Statements of Operations for the
Nine Months Ended October 30, 1998, and
October 31, 1997.................................. 4
Consolidated Balance Sheets at October 30, 1998
January 30, 1998, and October 31, 1997............ 5
Consolidated Statements of Cash Flows for the
Nine Months Ended October 30, 1998, and
October 31, 1997.................................. 6
Notes to Consolidated Financial Statements........... 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 9-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 14
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 14
Item 5. Other Information.................................... 14
Item 6. Exhibits and Reports on Form 8-K..................... 14
Signature..................................................... 15
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
Oct. 30, Oct. 31,
1998 1997
(Unaudited)
Net sales $322,422 $318,608
Cost of sales 177,160 171,859
Gross profit 145,262 146,749
Selling, general and
administrative expenses 136,016 129,769
Income from operations 9,246 16,980
Other income (expense):
Interest expense (3,269) (953)
Interest income 7 3
Other (5,433) (2,468)
Total other income
(expense), net (8,695) (3,418)
Income before income taxes 551 13,562
Income tax provision 204 5,400
Net income $ 347 $ 8,162
Basic earnings per share $ 0.01 $ 0.26
Diluted earnings per share $ 0.01 $ 0.26
Basic weighted average shares
outstanding 30,239 31,767
Diluted weighted average shares
outstanding 30,318 31,995
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
3
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Nine months ended
Oct. 30, Oct. 31,
1998 1997
(unaudited)
Net sales $830,203 $783,211
Cost of sales 444,723 421,197
Gross profit 385,480 362,014
Selling, general and
administrative expenses 367,093 328,714
Income from operations 18,387 33,300
Other income (expense):
Interest expense (6,268) (1,299)
Interest income 8 1,511
Gain on sale of subsidiary - 7,805
Other (3,407) (3,156)
Total other income (expense), net (9,667) 4,861
Income before income taxes 8,720 38,161
Income tax provision 3,226 15,265
Net income $ 5,494 $ 22,896
Basic earnings per share $ 0.18 $ 0.71
Diluted earnings per share $ 0.18 $ 0.71
Basic weighted average shares outstanding 30,560 32,123
Diluted weighted average shares outstanding 30,835 32,355
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
4
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
Oct. 30, Jan. 30, Oct. 31,
1998 1998 1997
(unaudited) (audited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 9,843 $ 6,338 $ 8,490
Receivables 21,691 15,443 20,746
Inventory 378,811 241,154 320,881
Prepaid advertising 43,118 18,513 27,260
Other prepaid expenses 6,215 5,085 6,335
Income taxes receivable 843 - -
Deferred income tax benefit 9,550 12,613 9,511
Total current assets 470,071 299,146 393,223
Property, plant and equipment, at cost:
Land and buildings 101,061 81,781 75,264
Fixtures and equipment 149,247 118,190 113,634
Leasehold improvements 5,214 5,443 5,430
Construction in progress - 12,222 9,360
Total property, plant and equipment 255,522 217,636 203,688
Less-accumulated depreciation
and amortization 97,775 84,227 83,777
Property, plant and equipment, net 157,747 133,409 119,911
Intangibles, net 1,045 917 846
Total assets $628,863 $433,472 $513,980
Liabilities and shareholders' investment
Current liabilities:
Lines of credit $256,628 $ 32,437 $118,065
Accounts payable 90,063 83,743 135,129
Reserve for returns 6,136 6,128 6,328
Accrued liabilities 42,013 34,942 30,013
Accrued profit sharing 347 4,286 1,470
Income taxes payable - 20,477 5,669
Total current liabilities 395,187 182,013 296,674
Deferred income taxes 7,291 8,747 8,122
Shareholders' investment:
Common stock, 40,221 shares issued 402 402 402
Donated capital 8,400 8,400 8,400
Additional paid-in capital 26,676 26,457 26,359
Deferred compensation (845) (1,047) (1,129)
Currency translation adjustments 2,116 875 1,041
Retained earnings 380,705 375,211 333,957
Treasury stock, 9,981, 9,281 and
9,067 shares at cost, respectively (191,069) (167,586) (159,846)
Total shareholders' investment 226,385 242,712 209,184
Total liabilities and shareholders'
investment $628,863 $433,472 $513,980
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
5
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
Oct. 30, Oct. 31,
1998 1997
(unaudited)
Cash flows from (used for) operating activities:
Net income $ 5,494 $ 22,896
Adjustments to reconcile net income to net
cash flows from operating activities-
Depreciation and amortization 14,661 12,050
Deferred compensation expense 202 241
Deferred income taxes 1,607 1,319
Pre-tax gain on sale of subsidiary - (7,805)
Loss on disposal of fixed assets 326 718
Changes in current assets and liabilities
excluding the effects of acquisitions
and divestitures:
Receivables (6,248) (12,322)
Inventory (137,657) (184,272)
Prepaid advertising (24,605) (16,194)
Other prepaid expenses (1,130) (2,616)
Accounts payable 6,320 63,002
Reserve for returns 8 1,144
Accrued liabilities 7,109 3,727
Accrued profit sharing (3,939) (1,467)
Income taxes payable (21,320) (15,855)
Other 1,460 132
Net cash flows used for operating activities (157,712) (135,302)
Cash flows from (used for) investing activities:
Cash paid for capital additions (39,491) (30,505)
Proceeds from sale of subsidiary - 12,350
Net cash flows used for investing activities (39,491) (18,155)
Cash flows from (used for) financing activities:
Proceeds from short-term debt 224,191 106,870
Purchases of treasury stock (23,483) (37,750)
Net cash flows from financing activities 200,708 69,120
Net increase (decrease) in cash and cash equivalents 3,505 (84,337)
Beginning cash and cash equivalents 6,338 92,827
Ending cash and cash equivalents $ 9,843 $ 8,490
Supplemental cash flow disclosures:
Interest paid $ 5,478 $ 1,087
Income taxes paid 22,658 31,900
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
6
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim financial statements
The condensed consolidated financial statements included herein have been
prepared by Lands' End, Inc. (the company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, and in
the opinion of management contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the company believes that the disclosures are
adequate to make the information presented not misleading. The results of
operations for the interim periods disclosed within this report are not
necessarily indicative of future financial results. These consolidated
financial statements are condensed and should be read in conjunction with
the financial statements and the notes thereto included in the company's
latest Annual Report on Form 10-K, which includes financial statements for
the year ended January 30, 1998.
2. Reclassification
Certain financial statement amounts have been reclassified to be consistent
with the current presentation.
3. Earnings per share
In accordance with SFAS No. 128, "Earnings Per Share", the following table
discloses the computation of the diluted earnings per share and the basic
earnings per share. The common stock equivalents do not significantly dilute
earnings per share.
Three months ended Nine months ended
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
(In thousands, except per 1998 1997 1998 1997
share data)
Net income $ 347 $ 8,162 $ 5,494 $22,896
Basic weighted average
shares outstanding 30,239 31,767 30,560 32,123
Incremental shares from assumed
exercise of stock options 79 228 275 232
Diluted weighted average
shares outstanding 30,318 31,995 30,835 32,355
Diluted earnings per share $ 0.01 $ 0.26 $ 0.18 $ 0.71
Basic earnings per share $ 0.01 $ 0.26 $ 0.18 $ 0.71
7
4. Comprehensive income
During fiscal 1999, the company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement
establishes standards for the reporting and display of comprehensive income
and its components. The following table presents the company's comprehensive
income (000's):
Three months ended Nine months ended
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1998 1997 1998 1997
Net income $ 347 $ 8,162 $ 5,494 $22,896
Change in cumulative
translation adjustments, net 2,060 (47) 1,241 663
Total comprehensive income $ 2,407 $ 8,115 $ 6,735 $23,559
8
Item 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS
Results of Operations
Three Months Ended October 30, 1998, compared with
Three Months Ended October 31, 1997
The company's net sales in the third quarter of fiscal 1999 increased 1.2
percent to $322.4 million from $318.6 million in the same quarter last
year. The increase in sales during the quarter just ended was primarily
due to additional catalogs and pages mailed, mostly in the specialty
businesses. Because of these increased mailings, specialty book
productivity (sales per page) decreased. Sales in the core business
(represented by the regular monthly and prospecting catalogs) were lower
than in the prior year. There was an increase in productivity for the
core catalogs, as we reduced the number of pages and books mailed. The
company's foreign-based and export businesses have had disappointing sales
and earnings. For the first five weeks of the fourth quarter of fiscal
1999, net sales increased about 5 percent over the similar period last
year.
Gross profit in the quarter just ended was $145.3 million, or 45.1 percent
of net sales, compared with $146.7 million, or 46.1 percent of net sales,
in the similar quarter last year. The decrease in gross profit margin was
primarily due to steeper markdowns on liquidated merchandise. Liquidations
of excess inventory were about 12 percent of net sales in the quarter just
ended, compared with about 10 percent in the similar period a year ago.
For the third quarter this year, selling, general and administrative
expenses increased 4.8 percent to $136.0 million, compared with $129.8
million for last year's third quarter. As a percentage of net sales, SG&A
was 42.2 percent compared with 40.7 percent in the similar period last
year. The increase in the SG&A ratio was primarily the result of an
increase in salaries, including severance pay and benefits, overall lower
productivity of catalog mailings, higher Year 2000 expenses, and increased
investment in the Internet site.
During the quarter just ended, interest expense was $3.3 million, compared
with $1.0 million in the same quarter last year. Higher inventory, coupled
with planned capital expenditures and purchases of treasury stock, resulted
in an increase in the company's borrowing on short-term lines of credit,
which stood at $257 million as of October 30, 1998, compared with $118
million at the end of last year's third quarter.
Third quarter ending inventory was $379 million, up 18 percent from $321
million a year ago. The sales shortfall during the quarter just ended, as
well as in the first half of the year, have increased the amount of risk
inventory. These higher inventory levels will result in greater product
liquidations at lower margins in future periods.
Net income for the quarter just ended was $347 thousand, compared with the
$8.2 million earned in the same quarter last year. Diluted earnings per
share for the quarter just ended were $0.01, compared with $0.26 in the
prior year. Net income for the quarter just ended includes a foreign
currency exchange after-tax loss of $3.4 million, compared with a $1.2
million after-tax loss in the prior year, recorded as other expense.
9
These were unrealized losses resulting from the strengthening of the yen
against the U.S. dollar. Foreign currency exchange gains or losses will
occur in response to currency market movements and the company's hedging
strategy.
Nine Months Ended October 30, 1998, compared with
Nine Months Ended October 31, 1997
The company's net sales in the first nine months of fiscal 1999 increased 6
percent to $830.2 million from $783.2 million in the same period last year.
The increase in net sales was due primarily to the same factors disclosed
above for the three months ended October 30, 1998.
Gross profit of $385.5 million for the first nine months of fiscal 1999
increased 6.5 percent from $362.0 million in the same nine-month period last
year. As a percentage of net sales, gross profit increased from 46.2 percent
in fiscal 1998 to 46.4 percent in fiscal 1999. The increase in gross profit
was due principally to higher initial margins. This increase was slightly
offset by a greater proportion of liquidation sales at steeper markdowns.
Year-to-date liquidation sales were about ten percent, compared with nine
percent during the same period last year.
Selling, general and administrative expenses increased 11.7 percent to $367.1
million in the first nine months of fiscal 1999 from $328.7 million in the
same period last year. As a percentage of net sales, selling, general and
administrative expenses increased to 44.2 percent in fiscal 1999 from 42.0
percent in fiscal 1998. The increase in the SG&A ratio was the result of the
same factors listed above for the third quarter ended October 30, 1998. This
increase was partially offset by lower bonus and profit sharing expenses.
Interest expense for the first nine months of fiscal 1999 was $6.3 million,
compared to $1.3 million during the same period last year. The increase in
the interest expense was due to the same factors listed above for the third
quarter ended October 30, 1998.
Net income for the first nine months of fiscal 1999 was $5.5 million, or $0.18
per share, compared with net income of $22.9 million, or $0.71 per share in
the same period a year ago. Last year's nine months-to-date period includes
an after-tax gain of $4.7 million, or $0.15 per share, from the sale of the
company's majority interest in The Territory Ahead. Excluding this non-
recurring gain, net income in the first nine months of last year (fiscal 1998)
was $18.2 million, or $0.56 per share.
Seasonality of business
The company's business is highly seasonal. Historically, a disproportionate
amount of the company's net sales and a majority of its profits have been
realized during the fourth quarter. If the company's sales were materially
different from seasonal norms during the fourth quarter, the company's annual
operating results could be materially affected. In addition, as the company
continues to refine its marketing efforts by experimenting with the timing of
its catalog mailings, quarterly results may fluctuate. Accordingly, results
for the individual quarters are not necessarily indicative of the results to
be expected for the entire year.
Liquidity and capital resources
To date, the bulk of the company's working capital needs have been met through
funds generated from operations and from short-term bank loans. The company's
10
principal need for working capital has been to meet peak inventory
requirements associated with its seasonal sales pattern. In addition, the
company's resources have been used to make asset additions and purchase
treasury stock.
While this investment spending has had some negative short term impact on
earnings, it is not expected to have a material effect on liquidity.
At October 30, 1998, the company had unsecured domestic credit facilities
totaling $255 million, of which about $221 million had been used. During the
third quarter, the company increased its unsecured domestic bank credit lines
from $205 million to $255 million. The company also maintains foreign credit
lines for use in foreign operations totaling the equivalent of approximately
$52 million as of October 30, 1998, of which $36 million was used.
Since fiscal 1990, the company's board of directors has authorized the company
from time to time to purchase a total of 12.7 million shares of treasury
stock. As of December 14, 1998, 11.0 million shares have been purchased, and
there is a balance of 1.7 million shares available to the company.
Capital expenditures for fiscal 1999 are currently planned to be about $49
million, of which about $39 million had been expended through October 30,
1998. Major projects to date for fiscal 1999 include a new distribution and
phone center in Oakham, England, new computer hardware and software, expansion
of office facilities in Dodgeville, Wisconsin, and expansion of distribution
facilities in Reedsburg, Wisconsin. The company believes that its cash flow
from operations and borrowings under its current credit facilities will
provide adequate resources to meet its capital requirements, treasury stock
purchases and operational needs for the foreseeable future.
Year 2000
The "Year 2000" issue refers to the possibility that some date-sensitive
computer software will not correctly interpret "00" references, possibly
resulting in processing errors or system failures. We do not manufacture or
sell any products that could encounter Year 2000 problems. However, the Year
2000 issue could affect computers that we use for entering orders from
customers, for monitoring business information such as customer lists and
inventory positions, and for other business processes, as well as
microprocessors embedded in equipment used in our warehouses and other
facilities. In addition, the Year 2000 issue could affect third parties on
which we depend, such as our product vendors and suppliers of telephone
communications, credit card processing, Internet support, product shipment,
package delivery, catalog production and distribution, and other important
services. Our facilities also depend on basic infrastructure items such as
electricity and water utilities. Computer errors or failures in any of these
areas have the potential to disrupt our business operations.
We began to address the Year 2000 issue in 1996 and established a Year 2000
project office in 1997. The project office works with our information systems
department and outside consultants to identify and assess the Year 2000
readiness of our internal computer systems and microprocessors and, where
appropriate, to remediate and test them. The project office is also working
with our buyers, quality assurance and other personnel to assess the readiness
of our suppliers to deal with the Year 2000 issue. The principal activities
of our Year 2000 project office are as follows:
11
Internal Systems: Most of the software that is critical to our business runs
on mainframe computers in an MVS operating environment as well as on a few
midrange computers. Certain less important functions are performed on a
mainframe computer in a VM operating environment. We have completed
substantially all of the identification and assessment efforts for these
systems, and we are about half way through remediation and unit testing, with
substantial completion currently targeted for February 1999.
A substantial amount of the mainframe remediation and unit testing work has
been performed by a consultant. Another consulting firm has been engaged to
design an integration testing process for these systems, with such testing
currently expected to commence in early 1999 and to be substantially complete
by mid 1999. However, due to the less critical nature of certain operations
performed in the VM environment, further remediation in that area, as well as
related unit and integration testing, is expected to continue throughout 1999
on a selectively prioritized basis, and some of these functions may not be
remediated.
We completed an inventory and assessment of hardware and software associated
with personal computers earlier this year. We currently expect to complete
remediation of these systems in mid 1999.
We have also identified and assessed the microprocessors used in our
warehouses and other facilities in the United States and Japan, and we expect
to complete this process at our United Kingdom facility in January 1999. We
have not identified significant problems in this area and currently expect to
complete remediation in the first quarter of 1999.
Suppliers: Our Year 2000 project office is working closely with other
departments, including our merchant, inventory and quality assurance staff, to
track the Year 2000 readiness of our principal product vendors through written
questionnaires, telephone calls and on site visits. Among other things, we
are evaluating the readiness of vendors' manufacturing processes and business
operations and their ability to perform electronic data interchange with us.
In addition, we are evaluating the vulnerability of vendors to possible
interruption of the supply of key components of their products, such as
fabric, buttons and zippers.
Our evaluation of product vendors is focused on approximately 50 suppliers
that collectively account for more than 85% of our unit volume of product
purchases. Out of that group, we currently believe that about 60% are making
substantial progress and should continue to be monitored, while about 40% may
experience problems that will need to be addressed further in contingency
planning.
We have also identified approximately 150 suppliers of services and
infrastructure items that are critical to our business operations. In some
cases, such as our principal domestic suppliers of telecommunications and
package delivery services, we have had extensive contacts and received
substantial information about their Year 2000 readiness. While we currently
have less information about certain other suppliers, including the United
States Postal Service, we currently expect to substantially complete our
assessment of (domestic) service suppliers by February 1999, and we have not
as yet identified any significant problems that are likely to be encountered.
We currently have less comfort regarding foreign suppliers and infrastructure
issues, especially in Asia, than we do in the domestic environment. Foreign
12
service suppliers are very important to our business because approximately
half of our products are manufactured abroad. However, in many cases we are
currently unable to assess the extent of Year 2000 problems that may be
encountered. Our Year 2000 project office is following up in this area.
Contingency Planning: The Year 2000 project office currently expects to
develop initial contingency plans by March 1999 in order to address any
internal items that cannot be remediated and third party issues that may place
our operations at risk. We expect to review and modify these contingency
plans throughout 1999.
Based on the activities of our Year 2000 project office, we currently expect
that our most important computer systems will be able to function adequately
into the next century. While some disruptions are likely to occur with
internal systems and at least a few product vendors, we believe the most
probable scenario is that there will not be a systemic failure of important
services or infrastructure that will materially disrupt our operations as a
whole. Moreover, in view of the strong seasonality of our business, any
disruptions that do occur are likely to take place in the off-peak selling
period following the 1999 holiday season. However, our expectations in this
regard are forward-looking in nature and are necessarily subject to the many
uncertainties that relate to the Year 2000 issue, especially as it affects our
suppliers and other third parties over whom we have little or no control. If
our remediation, supplier evaluation and contingency planning efforts are not
successful, there could be a material adverse effect on our business, results
of operations or financial condition. We currently believe that the greatest
area of risk in this regard relates to foreign supply and infrastructure
issues such as the ability to ship products produced in other counties. In
addition, our sales volume could be adversely affected if widespread Year 2000
problems in our domestic or foreign markets were to result in a general
slowdown of economic activity and consumer demand.
The total cost of our Year 2000 effort is expected to be about $20 million,
which is being expensed as incurred except for about $1 million of hardware
replacement costs that have been or will be capitalized. About $3.4 million
of the total amount was incurred through the end of fiscal 1998 and
approximately an additional $6.5 million in the first nine months of fiscal
1999. We currently expect that about $2.2 million of additional expense will
be incurred in the fourth quarter of fiscal 1999, about $6 million in fiscal
2000 and about $1 million in fiscal 2001. The timing and amount of these
future expenditures are forward-looking and subject to uncertainties relating
to our ongoing assessment of the Year 2000 issue and appropriate remediation
efforts, contingency plans and responses to any problems that may arise. Our
Year 2000 expenses have been paid out of our annual budgets for information
services. Accordingly, other technology development projects have been
delayed to the extent that resources have been devoted to the Year 2000
project.
13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings presently pending, except for
routine litigation incidental to the business, to which Lands' End,
Inc., is a party or of which any of its property is the subject.
Items 2 and 3 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders for
the quarter ended October 30, 1998.
Item 5. Other Information
On October 28, 1998, the board of directors announced that Michael J.
Smith, president and chief executive officer, and William E. Ferry,
vice chairman of sales, resigned from the company. On this same day,
David F. Dyer joined the company as president and chief executive
officer, and was elected a member of the board.
Dyer, 49, had originally joined Lands' End in July 1989 as managing
director of a new business unit that launched the company's Coming
Home catalog. He was made head of merchandising in June 1990 and
named vice chairman of merchandising in February 1992. In January
1993, Dyer was promoted to vice chairman of merchandising and sales.
He remained in that position until he left Lands' End in August 1994
to join the Home Shopping Network, where he served as their president
and chief operating officer. Since August 1995, Dyer has been a
catalog/retail consultant. Most recently he has worked in that
capacity with the Texas Pacific Group in San Francisco and the
J. Crew Group in New York.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Table Exhibit
Number Description Number
10 Resignation agreement between
Michael J. Smith and the company 1
10 Resignation agreement between
William E. Ferry and the company 2
10 Employment and option agreements
between David F. Dyer and the company 3
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three-month
period ended October 30, 1998
14
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, its duly authorized officer and chief financial officer.
LANDS' END, INC.
Date: December 14, 1998 By /s/ BRADLEY K. JOHNSON
Bradley K. Johnson
Senior Vice President,
Chief Administrative Officer
and Chief Financial Officer
15
EXHIBIT 10-1
EXECUTION
Resignation and Release
This Agreement is entered into on December 9, 1998, between
Michael J. Smith ("Executive") and Lands' End, Inc., a Delaware corporation
(the "Company").
Executive and the Company mutually desire to resolve all matters
based upon, relating to or arising from the creation, existence or termination
of the "employer/employee" relationship between them. Accordingly, Executive
and the Company mutually agree as follows:
1. Resignation as Officer and Director. Executive hereby
confirms his resignation, effective as of the close of business on October 27,
1998, from any and all positions that he holds as an officer of the Company
(including but not limited to the offices of President and Chief Executive
Officer), as a member of the Board of Directors of the Company, as a member of
any management or Board committee of the Company, and as an officer, director
or trustee of any and all subsidiaries and affiliates of the Company. The
Company hereby confirms its acceptance of such resignation. Notwithstanding
the forgoing, Executive shall continue as an employee of the Company, subject
to the provisions of Section 2.
2. Termination of Employment. (a) Unless Executive resigns
his employment on an earlier date, Executive will continue as an employee of
the Company until the close of business on January 31, 1999 (at which time
such employment shall automatically terminate). Executive will be deemed to
have so resigned, and such employment will automatically terminate, in the
event that he earlier accepts and commences active employment in an executive
position with any other company. The date on which Executive's employment
terminates is referred to herein as the "Termination Date."
(b) Through the Termination Date, Executive will be entitled to
participate in the Company's Profit-Sharing, 401(k) and Deferred Compensation
and Excess Benefit Plans.
(c) If Executive is employed by the Company on January 31, 1999,
Executive will be entitled to participate in the Company's Salaried Incentive
Bonus Plan with respect to the Company's fiscal year ending on that date.
Executive agrees that he will not be entitled to participate in that Plan with
respect to the Company's fiscal year ending January 31, 1999 if his employment
shall have terminated prior to that date.
3. Post-Employment Benefits. (a) For a period of 18 months
following the Termination Date, Executive will be entitled to receive
severance payments at an annual rate equal to his current annual rate of
salary, payable in accordance with the Company's normal payroll policies.
Notwithstanding the foregoing, the Company shall have the right, at its
election at any time, to pay Executive a lump sum amount, in lieu of any
further severance payments, equal to the amount of the severance payments
then remaining to be paid.
(b) Executive will be entitled to participate in the Company's
medical, dental, disability insurance, life insurance and similar employee
welfare benefit plans, at the Company's expense, for a period of 18 months
following the Termination Date, provided that such participation shall
terminate earlier in the event that Executive accepts employment with another
company that provides benefit plans covering similar matters.
(c) Executive shall continue to receive his current employee
discount on merchandise purchases from the Company for a period of 18 months
following the Termination Date.
4. Stock Options.
(a) Notwithstanding the termination of Executive's employment on
the Termination Date, the exercise period of each of (i) the 16,000 vested
stock options granted to Executive on April 6, 1993 (ii) the 2,240 vested
stock options granted to Executive on December 10, 1993, (iii) the 49,500
vested stock options granted to Executive on February 13, 1995, (iv) the
12,500 vested stock options granted to Executive on March 19, 1996, and (v)
the 7,000 vested stock options granted to Executive on November 24, 1997,
shall be extended through the close of business on April 30, 1999, such
extension having been approved by the Board committee administering the
Company's Stock Option Plan.
(b) Executive acknowledges that, effective on the Termination
Date, 560 unvested stock options granted to him on December 10, 1993, 60,500
unvested stock options granted to him on February 13, 1995, 37,500 unvested
stock options granted to him on March 19, 1996, 63,000 unvested stock options
granted to him on November 24, 1997, 200 shares of unvested restricted stock
granted to him on August 30, 1989 and 800 shares of unvested restricted stock
granted to him on September 23, 1992 would terminate automatically in
accordance with their terms.
5. Outplacement. On the Termination Date, the Company will pay
Executive $10,000 in cash in lieu of outplacement services.
6. Office Access. Executive agrees to follow the directions of
the Company from time to time with regard to access to the Company's offices
for the purpose of removing his personal effects.
7. Computer Equipment. Executive will be entitled to retain
the computer and printer he currently uses during the course of his employment
with the Company, provided, that, the Company will have the opportunity to
delete from the computer's hard drive any of the Company's proprietary
information or data, and all software owned or licensed to the Company.
8. Confidential Information. Executive acknowledges that his
employment as President and Chief Executive Officer of the Company has placed
him in possession of confidential and proprietary information that relates to
the business, products, customers, services and trade secrets of the Company.
Executive agrees that, prior to the termination of his employment, he will
turn over to the Company all files, documents, notes and other materials
evidencing such confidential information that are in his possession and that,
without the prior written consent of the Company, he will not in any manner
use or disclose any such confidential information at any time, either during
or after the term of his employment by the Company. The Company agrees that
the foregoing shall not be construed to prevent the Executive from using his
general business knowledge and skill after termination of his employment by
the Company.
2
9. Release. As consideration for the Company's agreements
contained herein, Executive irrevocably and unconditionally releases and
forever discharges the Company, its officers, directors, shareholders, agents,
employees, affiliates, related companies or entities, successors and assigns
(separately and collectively "Released Parties"), jointly and individually,
from any and all claims, suits, obligations, demands, damages, causes of
action, contracts and liabilities of any nature or kind whatsoever, known or
unknown, which Executive, his heirs, successors or assigns have or may have
against the Released Parties based upon, relating to, or arising from the
creation, existence or termination of the "employer/employee" relationship,
including but not limited to claims of discrimination under any federal state
or local law, rule or regulation, whether those claims are past or present,
whether they arise from equity, common law, or statute, whether they arise
from labor laws or discrimination laws, such as Title VII of the Civil Rights
Act of 1964, as amended, or any other law, rule or regulation. This release
is for any relief, no matter how called, including but not limited to wages,
backpay, frontpay, compensatory damages, punitive damages or damages for pain
or suffering, or attorney fees. Further, Executive agrees he will not be
entitled to any benefit from any claim or proceeding filed by him or on his
behalf with any agency or court which is within the scope of this Agreement.
Executive acknowledges that he has consulted with an attorney regarding the
foregoing provisions and the other provisions of this Agreement.
10. Settlement of Claims. The Company and Executive agree that
the execution of this Agreement is in compromise and final settlement among
the parties of all disputed matters, constitutes full satisfaction of all
claims made or which could be made based upon, relating to or arising from the
creation, existence or termination of the "employer/employee" relationship,
and does not in any way admit liability or wrongdoing by any party.
11. Understanding of Agreement. Executive acknowledges that he
has carefully read and fully understands this Agreement, including the release
included herein, that he has had the opportunity to have an attorney explain
to him the terms of the foregoing, and that he knows and understands the
contents of the foregoing, that he executes this Agreement knowingly and
voluntarily as his own free act and deed and that this Agreement was freely
negotiated and entered into without fraud, duress or coercion and with full
knowledge of its significance, effects and consequences.
12. Entire Agreement. This document is the complete agreement
between the parties, and there are no written or oral understandings, promises
or agreements directly or indirectly related to this Agreement that are not
incorporated herein in full.
13. Interpretation. Section headings used in this Agreement are
for ease of reference only and are not intended as substantive terms hereof.
This Agreement shall be governed by and interpreted under the laws of the
State of Delaware without giving effect to the conflict of laws provisions
thereof.
3
In witness whereof, the parties have executed and delivered this Agreement on
and as of the date first written above.
MICHAEL J. SMITH
____________________________
Michael J. Smith
Lands' End, Inc.
By: BRADLEY K. JOHNSON
Its: CAO - CFO
4
EXHIBIT 10-2
EXECUTION
Resignation and Release
This Agreement is entered into on December 10, 1998, between
William E. Ferry ("Executive") and Lands' End, Inc., a Delaware corporation
(the "Company").
Executive and the Company mutually desire to resolve all matters
based upon, relating to or arising from the creation, existence or termination
of the "employer/employee" relationship between them. Accordingly, Executive
and the Company mutually agree as follows:
1. Resignation as Officer and Director. Executive hereby
confirms his resignation, effective as of the close of business on October 27,
1998, from any and all positions that he holds as an officer of the Company
(including but not limited to the office of Vice Chairman of Sales), as a
member of the Board of Directors of the Company, as a member of any management
or Board committee of the Company, and as an officer, director or trustee of
any and all subsidiaries and affiliates of the Company. The Company hereby
confirms its acceptance of such resignation. Notwithstanding the foregoing,
Executive shall continue as an employee of the Company, subject to the
provisions of Section 2.
2. Termination of Employment. (a) Unless Executive resigns his
employment on an earlier date, Executive will continue as an employee of the
Company until the close of business on January 31, 1999 (at which time such
employment shall automatically terminate). Executive will be deemed to have
so resigned, and such employment will automatically terminate, in the event
that he earlier accepts and commences active employment in an executive
position with any other company. The date on which Executive's employment
terminates is referred to herein as the "Termination Date."
(b) Through the Termination Date, Executive will be entitled to
participate in the Company's Profit-Sharing, 401(k) and Deferred Compensation
and Excess Benefit Plans.
(c) If Executive is employed by the Company on January 31, 1999,
Executive will be entitled to participate in the Company's Salaried Incentive
Bonus Plan with respect to the Company's fiscal year ending on that date.
Executive agrees that he will not be entitled to participate in that Plan with
respect to the Company's fiscal year ending January 31, 1999 if his employment
shall have terminated prior to that date.
3. Post-Employment Benefits. (a) For a period of 18 months
following the Termination Date, Executive will be entitled to receive
severance payments at an annual rate equal to his current annual rate of
salary, payable in accordance with the Company's normal payroll policies.
Notwithstanding the foregoing, the Company shall have the right, at its
election at any time, to pay Executive a lump sum amount, in lieu of any
further severance payments, equal to the amount of the severance payments
then remaining to be paid.
(b) Executive will be entitled to participate in the Company's
medical, dental, disability insurance, life insurance and similar employee
welfare benefit plans, at the Company's expense, for a period of 18 months
following the Termination Date, provided that such participation shall
terminate earlier in the event that Executive accepts employment with another
company that provides benefit plans covering similar matters.
(c) Executive shall continue to receive his current employee
discount on merchandise purchases from the Company for a period of 18 months
following the Termination Date.
4. Stock Options.
(a) Notwithstanding the termination of Executive's employment on
the Termination Date, the exercise period of the 62,500 vested stock options
granted to Executive on July 25, 1996 shall be extended through the close of
business on April 30, 1999, such extension having been approved by the Board
committee administering the Company's Stock Option Plan.
(b) Executive acknowledges that, effective on the Termination
Date, 187,500 unvested stock options granted to him on July 25, 1996, and
15,000 shares of unvested restricted stock granted to him on July 25, 1996
would terminate automatically in accordance with their terms.
5. Outplacement. On the Termination Date, the Company will pay
Executive $10,000 in cash in lieu of outplacement services.
6. Office Access. Executive agrees to follow the directions of
the Company from time to time with regard to access to the Company's offices
for the purpose of removing his personal effects.
7. Computer Equipment. Executive will be entitled to retain the
computer and printer he currently uses during the course of his employment
with the Company, provided, that, the Company will have the opportunity to
delete from the computer's hard drive any of the Company's proprietary
information or data, and all software owned or licensed to the Company.
8. Confidential Information. Executive acknowledges that his
employment as an executive officer of the Company has placed him in possession
of confidential and proprietary information that relates to the business,
products, customers, services and trade secrets of the Company. Executive
agrees that, prior to the termination of his employment, he will turn over to
the Company all files, documents, notes and other materials evidencing such
confidential information that are in his possession and that, without the
prior written consent of the Company, he will not in any manner use or
disclose any such confidential information at any time, either during or after
the term of his employment by the Company. The Company agrees that the
foregoing shall not be construed to prevent the Executive from using his
general business knowledge and skill after termination of his employment by
the Company.
9. Release. As consideration for the Company's agreements
contained herein, Executive irrevocably and unconditionally releases and
forever discharges the Company, its officers, directors, shareholders, agents,
employees, affiliates, related companies or entities, successors and assigns
(separately and collectively "Released Parties"), jointly and individually,
from any and all claims, suits, obligations, demands, damages, causes of
action, contracts and liabilities of any nature or kind whatsoever, known or
unknown, which Executive, his heirs, successors or assigns have or may have
against the Released Parties based upon, relating to, or arising from the
creation, existence or termination of the "employer/employee" relationship,
including but not limited to claims of discrimination under any federal state
or local law, rule or regulation, whether those claims are past or present,
whether they arise from equity, common law, or statute, whether they arise
2
from labor laws or discrimination laws, such as Title VII of the Civil Rights
Act of 1964, as amended, or any other law, rule or regulation. This release
is for any relief, no matter how called, including but not limited to wages,
backpay, frontpay, compensatory damages, punitive damages or damages for pain
or suffering, or attorney fees. Further, Executive agrees he will not be
entitled to any benefit from any claim or proceeding filed by him or on his
behalf with any agency or court which is within the scope of this Agreement.
Executive acknowledges that he has consulted with an attorney regarding the
foregoing provisions and the other provisions of this Agreement.
10. Settlement of Claims. The Company and Executive agree that
the execution of this Agreement is in compromise and final settlement among
the parties of all disputed matters, constitutes full satisfaction of all
claims made or which could be made based upon, relating to or arising from the
creation, existence or termination of the "employer/employee" relationship,
and does not in any way admit liability or wrongdoing by any party.
11. Understanding of Agreement. Executive acknowledges that he
has carefully read and fully understands this Agreement, including the release
included herein, that he has had the opportunity to have an attorney explain
to him the terms of the foregoing, and that he knows and understands the
contents of the foregoing, that he executes this Agreement knowingly and
voluntarily as his own free act and deed and that this Agreement was freely
negotiated and entered into without fraud, duress or coercion and with full
knowledge of its significance, effects and consequences.
12. Entire Agreement. This document is the complete agreement
between the parties, and there are no written or oral understandings, promises
or agreements directly or indirectly related to this Agreement that are not
incorporated herein in full.
13. Interpretation. Section headings used in this Agreement are
for ease of reference only and are not intended as substantive terms hereof.
This Agreement shall be governed by and interpreted under the laws of the
State of Delaware without giving effect to the conflict of laws provisions
thereof.
* * * * * * * * * * *
3
In witness whereof, the parties have executed and delivered this Agreement on
and as of the date first written above.
WILLIAM E. FERRY
_________________________
William E. Ferry
Lands' End, Inc.
By: BRADLEY K. JOHNSON
4
EXHIBIT 10-3
EXECUTION
AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of December 11, 1998,
between Lands' End, Inc., a Delaware corporation (the "Company"),and David F.
Dyer ("Executive").
1. Employment. The Company agrees to employ Executive and
Executive accepts such employment for the period beginning as of the date
hereof and ending upon his Separation pursuant to Section 1(c) hereof (the
"Employment Period").
(a) Position and Duties.
(i) During the Employment Period, Executive shall serve as the
President and Chief Executive Officer of the Company and shall have the
normal duties, responsibilities and authority of the President and Chief
Executive Officer, including, without limitation, control of all aspects
of the daily operations of the Company, subject to the power of the
Company's Board of Directors (the "Board") to expand or limit such
duties, responsibilities and authority and to override actions of the
President and Chief Executive Officer. It is the intention of the
parties that Executive shall be elected to and serve as a member of the
Board.
(ii) Executive shall report to the Board and Executive shall
devote his full business time and attention to the business and affairs
of the Company and its subsidiaries. Anything herein to the contrary
notwithstanding, nothing shall preclude Executive from (A) serving on
the boards of directors of a reasonable number of other corporations (as
disclosed to and approved by the Board) or the boards of a reasonable
number of trade associations and/or charitable organizations, (B)
engaging in charitable activities and community affairs, and (C) managing
his personal investments and affairs, provided that such activities do
not materially interfere with the proper performance of his duties and
responsibilities as the Company's President and Chief Executive Officer.
(b) Salary, Bonus and Benefits.
(i) Promptly upon the commencement of the Employment Period,
the Company will pay Executive a cash signing bonus of $300,000.
(ii) During the Employment Period, the Company will pay
Executive a base salary (the "Annual Base Salary") of $450,000 per annum,
subject to any increase as determined by the Board from time to time.
Executive's Annual Base Salary for any partial year will be prorated
based upon the number of days elapsed in such year. The Annual Base
Salary shall be payable in accordance with the regular payroll practices
of the Company but, in any event, no less frequently than monthly.
(iii) The Board or the Compensation Committee of the Board may
award a bonus to Executive in its sole discretion from time to time.
(iv) On October 27, 1998, the Performance Compensation
Committee of the Board awarded Executive (A) an option on 400,000 shares
of the Company's common stock and (B) subject to the approval by the
Company's stockholders of certain amendments to the Company's stock
option plan, an option on 600,000 shares of the Company's common stock.
In order to evidence these stock option grants, Executive and the Company
have entered into two separate stock option agreements substantially in
the form annexed hereto.
(v) During the Employment Period, Executive shall be entitled
to participate in all employee pension and welfare benefit plans and
programs made available to the Company's senior level executives or to
its employees generally, as such plans or programs may be in effect from
time to time, including, without limitation, pension, profit sharing,
savings and other retirement plans or programs, medical, dental,
hospitalization, short-term and long-term disability and life insurance
plans, accidental death and dismemberment protection, travel accident
insurance, and any other pension or retirement plans or programs and any
other employee welfare benefit plans or programs that may be sponsored by
the Company from time to time, including plans that supplement the above-
listed types of plans or programs, whether funded or unfunded.
(vi) During the Employment Period, Executive shall participate
in all benefits and perquisites available to senior executives of the
Company at levels, and on terms and conditions, that are commensurate
with his positions and responsibilities at the Company, and shall receive
such additional benefits and perquisites as the Board may, in its sole
discretion, from time to time provide.
(c) Separation.
(i) The Employment Period will continue until Executive's
death, Disability, resignation or until the Board determines to terminate
Executive's employment (a "Separation"). A Separation, other than a
resignation by Executive for Good Reason, a termination by the Company
for Cause, death or Disability, shall only be effective upon 30 days
notice by Executive or the Company, as applicable.
(ii) If Executive's employment is terminated by the Company for
Cause or is terminated by Executive without Good Reason, Executive shall
be entitled to (A) salary at an annual rate equal to his Annual Base
Salary through the date of Separation, (B) the balance of any incentive
awards and any amounts or benefits provided under Sections 1(b)(i),
1(b)(v), 1(b)(vi) and 5(a) hereof which he would otherwise be entitled to
receive as of the date of Separation, but which have not theretofore been
paid and (C) payment with respect to unused vacation time in accordance
with the Company's policy.
(iii) If Executive's employment is terminated as a result of
Executive's death, his estate or beneficiaries (as the case may be) shall
be entitled to the payments and benefits described in Section 1(c)(ii)
hereof and, in addition, Executive's family members shall be entitled to
continued participation for one year in all medical, dental, vision,
hospitalization and other employee welfare benefit plans, programs and
arrangements to the extent such family members were participating as of
the date of Executive's death, on terms and conditions no less favorable
than those applying on such date and with COBRA benefits commencing
thereafter.
(iv) If Executive's employment is terminated as a result of
Executive's Disability, he shall be entitled to the payments and benefits
described in Section 1(c)(ii) hereof.
2
(v) If Executive's employment is terminated by the Company
without Cause or Executive resigns with Good Reason, he shall be entitled
to the payments and benefits described in Section 1(c)(ii) hereof, and in
addition, within 30 days after the date of such Separation, the Company
shall pay Executive an aggregate amount equal to two times Executive's
then applicable Annual Base Salary (before any reduction that resulted in
a resignation with Good Reason), payable as a lump sum (the "Severance
Payment").
(vi) Notwithstanding the foregoing, the Board may remove
Executive as an officer of the Company at any time (it being understood
that such removal would constitute Good Reason).
(vii) For purposes hereof, "Cause" means:
(1) Executive is convicted of a felony; or
(2) in the course of carrying out his duties to the
Company, Executive engages in conduct that
constitutes willful dishonesty, moral turpitude,
knowing violation of law (other than any violation
of law committed in good faith by the Executive and
in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and
with respect to which he had reasonable cause to
believe his conduct was lawful at the time the
action was taken), willful refusal to carry out
reasonable lawful directions from the Board, gross
neglect of duties or willful gross misconduct;
provided, in each case described in this clause
(B), that the Board determines that such conduct
has resulted or is likely to result in material
harm to the Company.
There shall be no termination for Cause without
Executive's first being given written notice describing in
detail the grounds on which the proposed termination is
based and a reasonable opportunity to be heard and, if
circumstances permit, to cure.
(viii) For purposes hereof, "Good Reason" means the occurrence of
any of the following events without the written consent of Executive:
(1) a material diminution of Executive's duties or the
assignment to him of duties that are inconsistent
in any substantial respect with the position,
authority, or responsibilities associated with the
positions of President and Chief Executive Officer;
(2) the failure of the Company to accord to Executive
the title, authority and responsibilities of
President and Chief Executive Officer or the
failure of the Company to continue Executive as
President and Chief Executive Officer (other than
in connection with a termination for Cause); the
failure of the Company to nominate Executive as a
member of the Board upon expiration of his term as
3
a director or the failure of Executive to be
elected to a new term as a director upon such
expiration (other than as a result of voluntary
action by Executive);
(3) a reduction by the Company in Executive's base
compensation or a material reduction in his
employee benefits or perquisites;
(4) the failure of the Company to pay to Executive any
portion of Executive's compensation when due;
(5) the termination of this Agreement by the Company
other than for Cause; or
(6) the failure of the Company to obtain the assumption
of Executive's employment arrangements by any
successor.
Executive shall give written notice to the Board of his intention
to terminate for Good Reason, such notice to describe in detail the grounds on
which the proposed termination is based. The Company shall have thirty days
after the date that such written notice has been given to the Board in which
to cure such grounds.
(ix) For purposes hereof, "Disability" means Executive's
inability, due to disease, injury or mental disorder to perform with
reasonable continuity his duties and responsibilities under this
Agreement (i) for a period of 180 consecutive days, as determined in good
faith by the Board, or (ii) for a period of 90 consecutive days in the
event that a medical doctor selected by the Board determines that such
Disability would continue for an additional 90 days. If Executive
disagrees with such determination by the Board or such medical doctor,
Executive shall deliver written notice to the Company of such
disagreement within ten days after the receipt by Executive of notice of
such determination of Disability. Upon delivery of such notice, the
Company and Executive shall jointly select a medical doctor to review
such determination and determine whether Executive has a Disability. If
the Company and Executive cannot agree jointly on a medical doctor, each
party shall select a medical doctor and the two doctors shall select a
third medical doctor who shall determine Executive's Disability
hereunder.
(d) Sale of the Company. In the event that Executive's
employment is terminated for any reason within 12 months following a Sale of
the Company (or prior to and in connection with the consummation of a Sale of
the Company), in lieu of the Severance Payment referred to in Section 1(c)
above, the Company shall pay Executive a lump sum cash payment equal to $10
million, reduced by the sum of the Time Factor and the Gain Factor (each as
defined below), but in any event not reduced to less than $2 million.
For purposes hereof, a "Sale of the Company" shall be deemed to
occur only upon (i) a sale of the business of the Company substantially as an
entirety to any person or group, whether by means of an asset sale, a stock
sale, a merger or otherwise, or (ii) the beneficial ownership by any person or
group other than Gary Comer (the "Controlling Stockholder"), any family
member, descendant or affiliate of the Controlling Stockholder and any trust
4
or estate for his or their benefit (collectively, the "Comer Group") of an
amount of the Company's common stock that is both (A) more than 35% of the
Company's common stock and (B) a greater percentage of the Company's common
stock than is at that time beneficially owned by the Comer Group; provided,
however that a transfer of stock between or among members of the Comer Group
shall not be deemed to constitute a Sale of the Company.
For purposes hereof, the "Time Factor" shall be equal to zero
until November 1, 1999, and thereafter will be increased at an annual rate of
$2 million per year (prorated on a monthly basis) through the date of the Sale
of the Company.
For purposes hereof, the "Gain Factor" shall be equal to the
product of multiplying (a) 1,000,000 times (b) the amount, if any, by which
the fair value of the per share consideration paid in the Sale of the Company
(as determined in good faith by the Board) exceeds $18.50.
(e) No Mitigation; No Offset. In the event of any termination
of employment under Section 1(c) or Section 1(d) hereof, Executive shall be
under no obligation to seek other employment and there shall be no offset
against amounts due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain.
(f) Nature of Payments. Any amounts due under Section 1(c) or
Section 1(d) hereof are in the nature of severance payments considered to be
reasonable by the Company and are not in the nature of a penalty.
2. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates, including information concerning acquisition
opportunities in or reasonably related to the Company's business or industry
of which Executive becomes aware during the Employment Period are the property
of the Company. Therefore, Executive agrees that he will not disclose to any
unauthorized person or use for his own account any of such information,
observations or data without the Board's written consent, unless and to the
extent that (x) he is required to do so by law or by a court, governmental
agency, legislative body, or other person with jurisdiction to order him to
divulge, disclose or make accessible such information, or (y) the
aforementioned matters become generally known to and available for use by the
public other than as a result of Executive's acts or omissions to act.
Executive agrees to deliver to the Company at a Separation, or at any other
time the Company may request in writing, all memoranda, notes, plans, records,
reports and other documents (and copies thereof) relating to the business of
the Company and its affiliates (including, without limitation, all acquisition
prospects, lists and contact information) which he may then possess or have
under his control.
3. Notices. Any notice provided for in this Agreement must
be in writing and must be either personally delivered, mailed by first class
mail (postage prepaid and return receipt requested) or sent by reputable
overnight courier service (charges prepaid) to the recipient at the address
below indicated:
5
If to the Company:
Lands' End, Inc.
1 Lands' End Lane
Dodgeville, Wisconsin 53595
Attention: General Counsel
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Robert S. Osborne, P.C.
If to the Executive:
David F. Dyer
c/o Lands' End
1 Lands' End Lane
Dodgeville, Wisconsin 53595
or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given when
so delivered or sent or, if mailed, five days after deposit in the U.S. mail.
4. Tax Matters. In the event Executive incurs (through
withholding or otherwise) any excise tax ("Excise Tax") under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") on "excess
parachute payments" made by the Company in connection with a change in control
transaction consummated on or before December 31, 1999, the Company shall pay
Executive, prior to the time any such Excise Tax is payable, an additional
amount which, after the imposition of all income and excise taxes thereon, is
equal to the Excise Tax incurred by Executive. In the event Executive
receives parachute payments (as defined in Section 280G of the Code) in
connection with a change in control transaction consummated after December 31,
1999, the payments to Executive shall be reduced to the maximum amount that
can be paid without Executive incurring Excise Tax; provided, however that
there shall be no reduction in payments to Executive if the making of such
parachute payments to him without such reduction would result in a greater net
income to him after all taxes, than the net after-tax amount he would receive
if the reduction applied.
5. General Provisions.
(a) Expenses. Executive is authorized to incur
reasonable expenses in carrying out his duties and responsibilities under this
Agreement and the Company shall promptly reimburse him for all legitimate
business expenses incurred in connection with carrying out the business of
the Company, subject to documentation and in accordance with the Company's
reimbursement policies. In addition, the Company agrees to pay, and hold
Executive harmless against the liability for payment of, (i) one-half of the
reasonable legal and other expenses of the Executive incurred in connection
with the negotiation and execution of this Agreement and (ii) the reasonable
legal expenses of Executive incurred in connection with litigation concerning
the termination of Executive for Cause in which Executive is the prevailing
party or which is settled by the parties.
6
(b) Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement embodies the
complete agreement and understanding among the parties and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
(d) Counterparts. This Agreement may be executed in
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement.
(e) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors, heirs (in the case of Executive) and assigns. No rights or
obligations of the Company under this Agreement may be assigned or transferred
by the Company except that such rights or obligations may be assigned or
transferred pursuant to a merger or consolidation in which the Company is not
the continuing entity, or the sale or liquidation of all or substantially all
of the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter
of law. The Company further agrees that, in the event of a sale of assets or
liquidation as described in the preceding sentence, it shall take whatever
action it legally can in order to cause such assignee or transferee to
expressly assume the liabilities, obligations and duties of the Company
hereunder. No rights or obligations of Executive under this Agreement may be
assigned or transferred by Executive other than his rights to compensation and
benefits, which may be transferred only by will or operation of law.
(f) Choice of Law. All questions concerning the
construction, validity and interpretation of this Agreement and the exhibits
hereto will be governed by and construed in accordance with the internal laws
of the State of Wisconsin, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Wisconsin or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Wisconsin.
(g) Remedies. Each of the parties to this Agreement
will be entitled to enforce its rights under this Agreement specifically, to
recover damages and costs (including attorney's fees) caused by any breach of
any provision of this Agreement and to exercise all other rights existing in
its favor. The parties hereto agree and acknowledge that money damages may
not be an adequate remedy for any breach of the provisions of this Agreement
and that any party may in its sole discretion apply to any court of law or
equity of competent jurisdiction (without posting any bond or deposit) for
specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
7
(h) Amendment and Waiver. No provision in this
Agreement may be amended unless such amendment is agreed to in writing and
signed by Executive and an authorized officer of the Company. No waiver by
either party of any breach by the other party of any condition or provision
contained in this Agreement to be performed by such other party shall be
deemed a waiver of a similar or dissimilar condition or provision at the same
or any prior or subsequent time. Any waiver must be in writing and signed by
Executive or an authorized officer of the Company, as the case may be.
(i) Business Days. If any time period forgiving notice
or taking action hereunder expires on a day which is a Saturday, Sunday or
holiday in the state in which the Company's chief executive office is located,
the time period shall be automatically extended to the business day
immediately following such Saturday, Sunday or holiday.
(j) Representation. The Company represents and
warrants that it is fully authorized and empowered to enter into this
Agreement and that the performance of its obligations under this Agreement
will not violate any agreement between it and any other person, firm or
organization.
(k) Survival. The respective rights and obligations of
the parties hereunder shall survive any termination of Executive's employment
to the extent necessary to the intended preservation of such rights and
obligations.
(l) Resolution of Disputes. Any disputes arising under
or in connection with this Agreement shall, at the election of either party,
be resolved by binding arbitration, to be held on a confidential basis in
Madison, Wisconsin, in accordance with rules and procedures of the American
Arbitration Association (it being understood that the parties will not
disclose to any third party any aspect of such arbitration). Judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Costs of the arbitration or litigation, including,
without limitation, attorneys' fees of both parties, shall be borne as
provided in Section 5(a) hereof.
* * * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
LANDS' END, INC.
By: BRADLEY K. JOHNSON
Its: CAO-CFO
DAVID F. DYER
___________________________
David F. Dyer
8
OPTION AGREEMENT
(400,000 Shares)
Lands' End, Inc. (the "Company") and David F. Dyer (the
"Participant") hereby agree as follows:
1. Grant. The Company hereby confirms that on October 27, 1998
(the "Grant Date"), the Performance Compensation Committee of the Company's
board of directors (the "Committee"), being the committee responsible for
administering the Lands' End, Inc. Stock Option Plan (the "Plan"), granted to
the Participant a Nonqualified Stock Option (i.e., an option that is not an
Incentive Stock Option) (the "Option") covering 400,000 shares of common stock
of the Company (the "Company Shares") for a term which will expire on October
27, 2008 (the "Scheduled Expiration Date"), subject to the terms and
conditions set forth herein and in the Plan.
The price at which the Participant may purchase all or any part of the Company
Shares covered by the Option is $18.50 per Company Share (the "Option Price").
The grant herein is subject to the following terms and conditions, in addition
to the terms and conditions of the Plan.
2. Participant's Rights Under the Option.
(a) The Participant is entitled, in accordance with the Option
and the exercisability rules described below, to purchase at the Option Price
indicated above all or any portion of the aggregate Company Shares covered by
the Option. Upon each exercise of any portion or all of the Participant's
Option, the number of Company Shares covered by the Option shall be reduced by
the number of Company Shares purchased under the Option.
(b) The Participant hereby agrees that he will not sell, pledge
or otherwise transfer any interest in the Option, except pursuant to
applicable laws of descent and distribution.
3. Vesting: Certain Limitations on the Exercisability of the
Option.
(a) Time Vesting. Subject to the terms and conditions of the
Option set forth in the Plan and subject to Section 3(b) below, the Option
shall vest and become exercisable as to 100% of the Company Shares covered
thereby on April 27, 1999.
(b) Acceleration of Vesting. Upon (i) any termination of the
Participant's employment, other than a termination by the Company for Cause or
a voluntary resignation by the Participant without Good Reason, or (ii) any
Sale of the Company, the Option shall immediately vest and become exercisable
as to all of the Company Shares covered thereby as of such date. For purposes
hereof, "Cause," "Good Reason," and "Sale of the Company" shall have the
meanings set forth in that certain Agreement dated as of December 11, 1998
between the Company and the Participant.
4. Expiration of Option. Unless otherwise determined by the
Committee, in the event of the termination of the Participant's employment as
a result of a termination by the Company for Cause or a voluntary resignation
by the Participant without Good Reason, the Option shall terminate effective
as of the date of the Participant's termination of employment (or the
Scheduled Expiration Date, if sooner) and no portion of the terminated Option
shall be exercisable after that date. Following the termination of the
Participant's employment on account of the Participant's retirement or
disability, any unexercised portion of the Option which is vested and
exercisable as of the date of such termination (including that which vests as
a result of such termination) shall remain exercisable during the three years
following the date of such termination and shall terminate on the third
anniversary of the date of such termination of employment, subject to
extension at the discretion of the Committee; provided that in no event shall
the Option be exercisable after the Scheduled Expiration Date. Following the
termination of the Participant's employment for any other reason, any
unexercised portion of the Option which is vested and exercisable as of the
date of such termination (including that which vests as a result of such
termination) shall remain exercisable during the one year following the date
of such termination and shall terminate on the first anniversary of the date
of such termination of employment, subject to extension at the discretion of
the Committee; provided that in no event shall the Option be exercisable after
the Scheduled Expiration Date. In the event of the Participant's death, the
Option may be exercised by the Participant's estate or any person who acquired
the right to exercise the Option by bequest, inheritance or the laws of
descent and distribution. In the event of the Participant's disability (as
defined in the Plan), the Option may be exercised by the Participant or his
guardian.
5. Method of Exercising the Option. In order to exercise the
Option, the Participant must give written notice (the "Exercise Notice") to
the Company which (i) identifies the Option the Participant wishes to
exercise, (ii) specifies the number of Company Shares with respect to which
the Option is being exercised, (iii) identifies the date which the Participant
wishes to govern such exercise, (iv) makes the representations and warranties
which the Company deems necessary in order for the Company to issue the stock
in accordance with applicable securities laws, (v) is signed by the
Participant and (vi) is accompanied by the Option Price which, in the
discretion of the Committee, may be in one or any combination of cash,
certified or official bank check, or Company Share certificates endorsed in
blank or accompanied by executed stock powers evidencing Company Shares whose
value shall be deemed to be the "fair market value" (as determined in
accordance with Section 4.2 of the Plan) on the date of exercise of such
Company Shares. The Option shall be deemed to have been exercised on the
date (the "Exercise Date") specified in clause (iii) above unless the Exercise
Notice is delivered to the Company after such date, in which case the Exercise
Date shall be deemed to be the date on which the Exercise Notice is delivered
to the Company. A form of Exercise Notice which will be deemed to be
satisfactory to the Company for the exercise of the Option is attached hereto
as Exhibit A.
6. No Rights as Stockholder to Company Shares Issuable Upon
Exercise of Option. Until the Option Price is paid and a stock certificate
representing the Company Shares has been issued, the Participant shall have no
rights as a stockholder with respect to any Company Shares which may be
issuable upon the exercise of the Option. Upon exercise of the Option in
accordance with Section 5 above and payment of the Option Price, the Company
will promptly deliver to the Participant a stock certificate representing the
Company Shares.
7. Securities Law and Other Restrictions.
(a) Unless specifically authorized by the Committee, the
Participant may not dispose, sell, pledge or otherwise transfer any Company
Shares acquired upon exercise of the Option for a period of six months
following the Grant Date.
2
(b) Applicable securities laws may restrict the Participant's
ability to exercise the Option or to dispose of any Company Shares which he
may acquire upon any such exercise and may govern the manner in which such
Company Shares must be sold. The Participant shall not exercise the Option or
offer, sell or otherwise dispose of any of the Company Shares acquired by
reason of the exercise of the Option in any manner which would violate any
state or federal law or cause the Company to have to make any filing or take
any action to avoid such violation.
(c) The Company shall not be required (i) to transfer on its
books any Options or Company Shares which have been sold or transferred in
violation of any of the provisions set forth in this Agreement, (ii) to treat
any such proposed transferee as owner of such Options or such Company Shares,
or (iii) to accord such proposed transferee the right to vote as such owner or
to pay such transferee dividends as such owner.
(d) Each holder of Company Shares agrees not to effect any
public sale or distribution of any equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90 days after the
effectiveness of any underwritten public offering of the Company's common
stock, except as part of such underwritten public offering if otherwise
permitted.
8. Withholding of Taxes. The Company shall be entitled, if the
Committee (or any financial officer designated by it) considers it necessary
or desirable, to withhold (or secure payment from the Participant in lieu of
withholding) the amount of any withholding or other payment required of the
Company under the tax withholding provisions of the Internal Revenue Code of
1986, as amended, any state's income tax act or any other applicable law with
respect to any Company Shares issuable under such Participant's exercised
options, and the Company may defer issuance unless indemnified to its
satisfaction with respect to payment of such withholding or other tax.
Subject to such rules as the Committee may adopt, the Participant may satisfy
this obligation, in whole or in part, by an election to have the number of
Company Shares received upon exercise of any option reduced by a number of
Company Shares having a "fair market value" (as determined in accordance with
Section 4.2 of the Plan) equal to the amount of the required withholding to be
so satisfied or to surrender to the Company previously held Company Shares
having an equivalent fair market value.
9. Notices. Any notice to be given by the Participant to the
Company pursuant to this Agreement or in accordance with the terms of the Plan
shall be addressed to the Company. Such notice shall be deemed to be
"delivered" to the Company when the Company has actually received such notice.
Any notice to be given to the Participant pursuant to this Agreement or in
accordance with the terms of the Plan shall be addressed to the Participant at
the address given beneath the Participant's signature hereto, or at such other
address as the Participant may direct by notice in writing. Any such notice
shall be deemed to be "delivered" to the Participant when the Participant
actually receives such notice.
10. Terms of Plan Control. This Agreement shall be subject to
all the terms, conditions and provisions of the Plan, a copy of which is
attached hereto as Exhibit B. In the event of any conflict between the
provisions of this Agreement and the Plan, the terms, conditions and
provisions of the Plan shall control and this agreement shall be deemed
modified accordingly.
3
11. The Effect of Subsequent Changes in the Plan. No change in
the Plan which shall be made after the Grant Date shall (i) adversely affect
the Participant's rights under the Option unless the Participant shall have
agreed in writing to such change, or (ii) inure to the Participant's benefit
except to the extent expressly permitted by the Committee.
12. Applicable Law, Successors. This Agreement shall be
construed according to the laws of the State of Wisconsin. Its terms shall be
binding upon, and inure to the benefit of, any successors of the Company.
13. Adoption of the Plan. The Lands' End, Inc. 1990 Stock
Option Plan was adopted by the Company's Board of Directors on November 27,
1990 and approved by the Company's shareholders on May 15, 1991. The Lands'
End, Inc. 1990 Stock Option Plan was amended and restated by the Company's
Board of Directors on October 22, 1991 and December 9, 1991 (at which time it
was renamed the Lands' End, Inc. Second Amended and Restated 1990 Stock Option
Plan) which amendments were approved by the Company's shareholders on May 20,
1992. The Lands' End, Inc. 1990 Second Amended and Restated Stock Option Plan
was further amended and restated by the Company's Board of Directors on
December 10, 1993 and April 15, 1994 (at which time it was renamed the Lands'
End, Inc. Stock Option Plan) which amendments were approved by the Company's
shareholders on May 18, 1994. The Lands' End, Inc. Stock Option Plan was
further amended and restated by the Company's Board of Directors on April 7,
1995, which amendment was approved by the Company's shareholders on May 17,
1995. The Lands' End, Inc. Stock Option Plan was further amended by the
Company's Board of Directors on October 27, 1998, which amendment is subject
to approval by the Company's shareholders at the 1999 annual meeting of the
Company's shareholders.
* * * *
Each party hereby confirms that such party has executed this
Agreement at the place provided immediately below to evidence such party's
intention to be bound by all provisions in this Agreement.
PARTICIPANT: LANDS' END, INC.
DAVID F. DYER By BRADLEY K. JOHNSON
David F. Dyer
1311 Brightwaters Blvd. NE Its CAO - CFO
(Number and Street)
St. Petersburg, FL 33704
(City and State)
4
Exhibit A to
Option Agreement
TO: Lands' End, Inc.
Pursuant to the provisions of my Option Agreement (herein called
the "Agreement") issued under the Lands' End, Inc. Stock Option Plan (the
"Plan") under a Granting Date of October 27, 1998, I hereby give notice that I
elect to exercise the Nonqualified Stock Option granted under the Agreement
with respect to _______ shares of common stock and accordingly I hereby agree
to purchase such shares at the price and on the terms established under the
Agreement and the Plan.
Shares of common stock to be issued pursuant hereto are referred to as
"Company Shares."
I hereby represent and warrant to Lands' End, Inc. (the "Company")
as follows:
(a) I understand that Section 16(b) of the Securities Exchange
Act of 1934, as amended, may apply to this exercise and to my disposition of
common stock, and I am receiving independent advice on this issue.
(b) I understand that unless specifically authorized by the
Special Compensation Committee (the "Committee"), the Company Shares may not
be disposed of, sold or otherwise transferred for a period of six months
following the Granting Date.
(c) I am acquiring the Company Shares for my own account and not
with a view to, or present intention of, distribution thereof in violation of
the Securities Act of 1933, as amended (the "1933 Act"), and I will not
dispose of the Company Shares in contravention of the 1933 Act.
(d) I am able to bear the economic risk of my investment in the
Company Shares for an indefinite period of time.
(e) I have had an opportunity to ask questions and receive
answers concerning the terms and conditions of the sale of Company Shares and
have had full access to such other information concerning the Company as I
have requested.
(f) I am, or was until ________________, an employee of the
Company.
(g) I will not sell, transfer or dispose of any Company Shares
except in accordance with the terms of the Agreement.
I understand that the Company shall be entitled, if the Committee
(or any financial officer designated by it) considers it necessary or
desirable, to withhold (or secure payment from me in lieu of withholding) the
amount of any withholding or other payment required of the Company under the
tax withholding provisions of the Internal Revenue Code of 1986, as amended,
any state's income tax act or any other applicable law with respect to any
Company Shares, and the Company may defer issuance unless indemnified to its
satisfaction with respect to payment of such withholding. Subject to such
rules as the Committee may adopt, I may elect to satisfy any portion of my
obligation with respect to such withholding taxes by either reducing the
5
number of Company Shares I receive upon this exercise by a number of Company
Shares having a fair market value equal to the amount of the required
withholding or surrendering to the Company any previously held Company Shares
having an equivalent fair market value.
I hereby agree that the Options granted under the Agreement shall
be deemed to have been exercised to the extent specified in this Notice on the
exercise date specified opposite my signature below and I hereby warrant that
on such date this Notice was delivered to the office of the Company's Chief
Financial Officer or to another agent of the Company designated by the
Company's Chief Financial Officer.
Sincerely,
_________________________________
David F. Dyer
Exercise Date: _________________
6
OPTION AGREEMENT
(600,000 Shares)
Lands' End, Inc. (the "Company") and David F. Dyer (the
"Participant") hereby agree as follows:
1. Grant and Effectiveness. The Company hereby confirms that
on October 27, 1998 (the "Grant Date"), the Performance Compensation Committee
of the Company's board of directors (the "Committee"), being the committee
responsible for administering the Lands' End, Inc. Stock Option Plan (the
"Plan"), granted to the Participant a Nonqualified Stock Option (i.e., an
option that is not an Incentive Stock Option) (the "Option") covering 600,000
shares of common stock of the Company (the "Company Shares") for a term which
will expire on October 27, 2008 (the "Scheduled Expiration Date"), subject to
the terms and conditions set forth herein and in the Plan.
The price at which the Participant may purchase all or any part of the Company
Shares covered by the Option is $18.50 per Company Share (the "Option Price").
The grant herein is subject to the following terms and conditions, in addition
to the terms and conditions of the Plan.
On the Grant Date, the Company's board of directors approved certain
amendments (the "Amendments") to the Plan in order to permit the grant of the
Option hereunder. The Amendments are subject to approval by the stockholders
of the Company, such approval to voted upon not later than the date of the
1999 annual meeting of the stockholders (the "1999 Meeting"). This Option,
therefore, is contingent upon and subject to the approval of the Company's
stockholders not later than the date of the 1999 Meeting, and in the event
that the stockholders do not grant such approval on or before the date of the
1999 Meeting , this Option shall be automatically cancelled. at the close of
business on such date.
2. Participant's Rights Under the Option.
(a) The Participant is entitled, in accordance with the Option
and the exercisability rules described below, to purchase at the Option Price
indicated above all or any portion of the aggregate Company Shares covered by
the Option. Upon each exercise of any portion or all of the Participant's
Option, the number of Company Shares covered by the Option shall be reduced by
the number of Company Shares purchased under the Option.
(b) The Participant hereby agrees that he will not sell, pledge
or otherwise transfer any interest in the Option, except pursuant to
applicable laws of descent and distribution.
3. Vesting: Certain Limitations on the Exercisability of the
Option.
(a) Time Vesting. Subject to the terms and conditions of the
Option set forth in the Plan and subject to Section 3(b) below, the Option
shall vest and become exercisable as to 100% of the Company Shares covered
thereby on the later of (i) April 27, 1999 and (ii) the 1999 Meeting.
(b) Acceleration of Vesting. Upon (i) any termination of the
Participant's employment, other than a termination by the Company for Cause or
a voluntary resignation by the Participant without Good Reason, or (ii) any
Sale of the Company, the Option shall immediately vest and become exercisable
as to all of the Company Shares covered thereby as of the date of such
termination, provided however, that such acceleration of vesting shall occur
only if shareholder approval of the Amendment s has theretofore been obtained.
For purposes hereof, "Cause," "Good Reason," and "Sale of the Company" have
the meanings set forth in that certain Agreement dated as of December 11, 1998
between the Company and the Participant.
(c) Replacement Benefit. In the event that stockholder approval
has not been obtained prior to the occurrence of any event described in clause
(b) above, then (i) this Option shall immediately and automatically be
cancelled and (ii) the Company and the Participant will mutually agree to a
replacement benefit of comparable value to the Participant.
4. Expiration of Option. Unless otherwise determined by the
Committee, in the event of the termination of the Participant's employment as
a result of a termination by the Company for Cause or a voluntary resignation
by the Participant without Good Reason, the Option shall terminate effective
as of the date of the Participant's termination of employment (or the
Scheduled Expiration Date, if sooner) and no portion of the terminated Option
shall be exercisable after that date. Following the termination of the
Participant's employment on account of the Participant's retirement or
disability, any unexercised portion of the Option which is vested and
exercisable as of the date of such termination (including that which vests as
a result of such termination) shall remain exercisable during the three years
following the date of such termination and shall terminate on the third
anniversary of the date of such termination of employment, subject to
extension at the discretion of the Committee; provided that in no event shall
the Option be exercisable after the Scheduled Expiration Date. Following the
termination of the Participant's employment for any other reason, any
unexercised portion of the Option which is vested and exercisable as of the
date of such termination (including that which vests as a result of such
termination) shall remain exercisable during the one year following the date
of such termination and shall terminate on the first anniversary of the date
of such termination of employment, subject to extension at the discretion of
the Committee; provided that in no event shall the Option be exercisable after
the Scheduled Expiration Date. In the event of the Participant's death, the
Option may be exercised by the Participant's estate or any person who acquired
the right to exercise the Option by bequest, inheritance or the laws of
descent and distribution. In the event of the Participant's disability (as
defined in the Plan), the Option may be exercised by the Participant or his
guardian.
5. Method of Exercising the Option. In order to exercise the
Option, the Participant must give written notice (the "Exercise Notice") to
the Company which (i) identifies the Option the Participant wishes to
exercise, (ii) specifies the number of Company Shares with respect to which
the Option is being exercised, (iii) identifies the date which the Participant
wishes to govern such exercise, (iv) makes the representations and warranties
which the Company deems necessary in order for the Company to issue the stock
in accordance with applicable securities laws, (v) is signed by the
Participant and (vi) is accompanied by the Option Price which, in the
discretion of the Committee, may be in one or any combination of cash,
certified or official bank check, or Company Share certificates endorsed in
blank or accompanied by executed stock powers evidencing Company Shares whose
value shall be deemed to be the "fair market value" (as determined in
accordance with Section 4.2 of the Plan) on the date of exercise of such
Company Shares. The Option shall be deemed to have been exercised on the
date (the "Exercise Date") specified in clause (iii) above unless the Exercise
2
Notice is delivered to the Company after such date, in which case the Exercise
Date shall be deemed to be the date on which the Exercise Notice is delivered
to the Company. A form of Exercise Notice which will be deemed to be
satisfactory to the Company for the exercise of the Option is attached hereto
as Exhibit A.
6. No Rights as Stockholder to Company Shares Issuable Upon
Exercise of Option. Until the Option Price is paid and a stock certificate
representing the Company Shares has been issued, the Participant shall have no
rights as a stockholder with respect to any Company Shares which may be
issuable upon the exercise of the Option. Upon exercise of the Option in
accordance with Section 5 above and payment of the Option Price, the Company
will promptly deliver to the Participant a stock certificate representing the
Company Shares.
7. Securities Law and Other Restrictions.
(a) Unless specifically authorized by the Committee, the
Participant may not dispose, sell, pledge or otherwise transfer any Company
Shares acquired upon exercise of the Option for a period of six months
following the Grant Date.
(b) Applicable securities laws may restrict the Participant's
ability to exercise the Option or to dispose of any Company Shares which he
may acquire upon any such exercise and may govern the manner in which such
Company Shares must be sold. The Participant shall not exercise the Option or
offer, sell or otherwise dispose of any of the Company Shares acquired by
reason of the exercise of the Option in any manner which would violate any
state or federal law or cause the Company to have to make any filing or take
any action to avoid such violation.
(c) The Company shall not be required (i) to transfer on its
books any Options or Company Shares which have been sold or transferred in
violation of any of the provisions set forth in this Agreement, (ii) to treat
any such proposed transferee as owner of such Options or such Company Shares,
or (iii) to accord such proposed transferee the right to vote as such owner or
to pay such transferee dividends as such owner.
(d) Each holder of Company Shares agrees not to effect any
public sale or distribution of any equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90 days after the
effectiveness of any underwritten public offering of the Company's common
stock, except as part of such underwritten public offering if otherwise
permitted.
8. Withholding of Taxes. The Company shall be entitled, if the
Committee (or any financial officer designated by it) considers it necessary
or desirable, to withhold (or secure payment from the Participant in lieu of
withholding) the amount of any withholding or other payment required of the
Company under the tax withholding provisions of the Internal Revenue Code of
1986, as amended, any state's income tax act or any other applicable law with
respect to any Company Shares issuable under such Participant's exercised
options, and the Company may defer issuance unless indemnified to its
satisfaction with respect to payment of such withholding or other tax.
Subject to such rules as the Committee may adopt, the Participant may satisfy
this obligation, in whole or in part, by an election to have the number of
Company Shares received upon exercise of any option reduced by a number of
3
Company Shares having a "fair market value" (as determined in accordance with
Section 4.2 of the Plan) equal to the amount of the required withholding to be
so satisfied or to surrender to the Company previously held Company Shares
having an equivalent fair market value.
9. Notices. Any notice to be given by the Participant to the
Company pursuant to this Agreement or in accordance with the terms of the Plan
shall be addressed to the Company. Such notice shall be deemed to be
"delivered" to the Company when the Company has actually received such notice.
Any notice to be given to the Participant pursuant to this Agreement or in
accordance with the terms of the Plan shall be addressed to the Participant at
the address given beneath the Participant's signature hereto, or at such other
address as the Participant may direct by notice in writing. Any such notice
shall be deemed to be "delivered" to the Participant when the Participant
actually receives such notice.
10. Terms of Plan Control. This Agreement shall be subject to
all the terms, conditions and provisions of the Plan, a copy of which is
attached hereto as Exhibit B. In the event of any conflict between the
provisions of this Agreement and the Plan, the terms, conditions and
provisions of the Plan shall control and this agreement shall be deemed
modified accordingly.
11. The Effect of Subsequent Changes in the Plan. No change in
the Plan which shall be made after the Grant Date shall (i) adversely affect
the Participant's rights under the Option unless the Participant shall have
agreed in writing to such change, or (ii) inure to the Participant's benefit
except to the extent expressly permitted by the Committee.
12. Applicable Law, Successors. This Agreement shall be
construed according to the laws of the State of Wisconsin. Its terms shall be
binding upon, and inure to the benefit of, any successors of the Company.
13. Adoption of the Plan. The Lands' End, Inc. 1990 Stock
Option Plan was adopted by the Company's Board of Directors on November 27,
1990 and approved by the Company's shareholders on May 15, 1991. The Lands'
End, Inc. 1990 Stock Option Plan was amended and restated by the Company's
Board of Directors on October 22, 1991 and December 9, 1991 (at which time it
was renamed the Lands' End, Inc. Second Amended and Restated 1990 Stock Option
Plan) which amendments were approved by the Company's shareholders on May 20,
1992. The Lands' End, Inc. 1990 Second Amended and Restated Stock Option Plan
was further amended and restated by the Company's Board of Directors on
December 10, 1993 and April 15, 1994 (at which time it was renamed the Lands'
End, Inc. Stock Option Plan) which amendments were approved by the Company's
shareholders on May 18, 1994. The Lands' End, Inc. Stock Option Plan was
further amended and restated by the Company's Board of Directors on April 7,
1995, which amendment was approved by the Company's shareholders on May 17,
1995. The Lands' End, Inc. Stock Option Plan was further amended by the
Company's Board of Directors on October 27, 1998, which amendment is subject
to approval by the Company's shareholders at the 1999 annual meeting of the
Company's shareholders.
* * * *
4
Each party hereby confirms that such party has executed this
Agreement at the place provided immediately below to evidence such party's
intention to be bound by all provisions in this Agreement.
PARTICIPANT: LANDS' END, INC.
DAVID F. DYER By BRADLEY K. JOHNSON
David F. Dyer
1311 Brightwaters Blvd. NE Its CAO - CFO
(Number and Street)
St. Petersburg, FL 33704
(City and State)
5
Exhibit A to
Option Agreement
TO: Lands' End, Inc.
Pursuant to the provisions of my Option Agreement (herein called
the "Agreement") issued under the Lands' End, Inc. Stock Option Plan (the
"Plan") under a Granting Date of October 27, 1998, I hereby give notice that I
elect to exercise the Nonqualified Stock Option granted under the Agreement
with respect to _______ shares of common stock and accordingly I hereby agree
to purchase such shares at the price and on the terms established under the
Agreement and the Plan.
Shares of common stock to be issued pursuant hereto are referred to as
"Company Shares."
I hereby represent and warrant to Lands' End, Inc. (the "Company")
as follows:
(a) I understand that Section 16(b) of the Securities Exchange
Act of 1934, as amended, may apply to this exercise and to my disposition of
common stock, and I am receiving independent advice on this issue.
(b) I understand that unless specifically authorized by the
Special Compensation Committee (the "Committee"), the Company Shares may not
be disposed of, sold or otherwise transferred for a period of six months
following the Granting Date.
(c) I am acquiring the Company Shares for my own account and not
with a view to, or present intention of, distribution thereof in violation of
the Securities Act of 1933, as amended (the "1933 Act"), and I will not
dispose of the Company Shares in contravention of the 1933 Act.
(d) I am able to bear the economic risk of my investment in the
Company Shares for an indefinite period of time.
(e) I have had an opportunity to ask questions and receive
answers concerning the terms and conditions of the sale of Company Shares and
have had full access to such other information concerning the Company as I
have requested.
(f) I am, or was until ________________, an employee of the
Company.
(g) I will not sell, transfer or dispose of any Company Shares
except in accordance with the terms of the Agreement.
I understand that the Company shall be entitled, if the Committee
(or any financial officer designated by it) considers it necessary or
desirable, to withhold (or secure payment from me in lieu of withholding) the
amount of any withholding or other payment required of the Company under the
tax withholding provisions of the Internal Revenue Code of 1986, as amended,
any state's income tax act or any other applicable law with respect to any
Company Shares, and the Company may defer issuance unless indemnified to its
satisfaction with respect to payment of such withholding. Subject to such
rules as the Committee may adopt, I may elect to satisfy any portion of my
obligation with respect to such withholding taxes by either reducing the
6
number of Company Shares I receive upon this exercise by a number of Company
Shares having a fair market value equal to the amount of the required
withholding or surrendering to the Company any previously held Company Shares
having an equivalent fair market value.
I hereby agree that the Options granted under the Agreement shall
be deemed to have been exercised to the extent specified in this Notice on the
exercise date specified opposite my signature below and I hereby warrant that
on such date this Notice was delivered to the office of the Company's Chief
Financial Officer or to another agent of the Company designated by the
Company's Chief Financial Officer.
Sincerely,
_________________________________
David F. Dyer
Exercise Date: ________________
7
5
1,000
9-MOS 9-MOS
JAN-29-1999 JAN-30-1998
OCT-30-1998 OCT-31-1997
9,843 8,490
0 0
21,691 20,746
0 0
378,811 320,881
470,071 393,223
255,522 203,688
97,775 83,777
628,863 513,980
395,187 296,674
0 0
0 0
0 0
402 402
225,983 208,782
628,863 513,980
830,203 783,211
830,203 783,211
444,723 421,197
444,723 421,197
3,818 3,558
0 0
6,268 1,299
8,720 38,161
3,226 15,265
5,494 22,896
0 0
0 0
0 0
5,494 22,896
0.18 0.71
0.18 0.71
Per SFAS 128 the EPS is Basic
Restated due to SFAS 128 EPS
Expenses included in Other Income and Expenses on the Consolidated Statements
of Operations
