Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
AUTHENTIC FITNESS CORPORATION
.................................................................
(Name of Registrant as Specified In Its Charter)
.................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
AUTHENTIC FITNESS CORPORATION
6040 BANDINI BLVD.
COMMERCE, CALIFORNIA 90040
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 19, 1998
------------------------
To the Stockholders of
Authentic Fitness Corporation:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
Authentic Fitness Corporation (the 'Company') will be held at the Century Plaza
Hotel, 2025 Avenue of the Stars, Century City, CA 90067, on November 19, 1998 at
2:00 p.m., local time, or at any adjournments or postponements thereof (the
'Annual Meeting' ) for the following purposes:
1. To re-elect two Class III directors to serve until the Company's
annual meeting in 2001 and until such directors' successors are duly
elected and shall have qualified; and
2. To transact such other business as may properly come before the
Annual Meeting.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. The Board of Directors has fixed the close
of business on October 19, 1998, as the record date for the determination of the
stockholders entitled to notice of and to vote at the Annual Meeting and at any
adjournment or postponement thereof. A list of stockholders entitled to vote at
the Annual Meeting will be located at the principal executive offices of the
Company located at 6040 Bandini Blvd., Commerce, California, 90040 for at least
10 days prior to the Annual Meeting and will also be available for inspection at
the Annual Meeting.
Whether or not you expect to attend, WE URGE YOU TO SIGN, DATE AND PROMPTLY
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. If you
attend the Annual Meeting, you may vote your shares in person, which will revoke
any previously executed proxy.
If your shares are held of record by a broker, bank or other nominee and
you wish to attend the Annual Meeting, you must obtain a letter from the broker,
bank or other nominee confirming your beneficial ownership of the shares and
bring it to the Annual Meeting. In order to vote your shares at the Annual
Meeting, you must obtain from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important. Please
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By order of the Board of Directors,
MICHAEL P. MC HUGH
Senior Vice President and
Chief Financial Officer
Commerce, California
October 23, 1998
AUTHENTIC FITNESS CORPORATION
6040 BANDINI BLVD.
COMMERCE, CALIFORNIA 90040
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 19, 1998
------------------------
INTRODUCTION
THIS PROXY STATEMENT IS BEING FURNISHED IN CONNECTION WITH THE SOLICITATION
OF PROXIES ON BEHALF OF THE BOARD OF DIRECTORS (THE 'BOARD OF DIRECTORS') OF
AUTHENTIC FITNESS CORPORATION, a Delaware corporation (the 'Company'), to be
voted at the 1998 Annual Meeting of Stockholders to be held at the Century Plaza
Hotel, 2025 Avenue of the Stars, Century City, CA 90067, on November 19, 1998 at
2:00 p.m., local time, or at any adjournments or postponements thereof (the
'Annual Meeting'). The Notice of Annual Meeting, this proxy statement and the
accompanying proxy are first being mailed on or about October 23, 1998 to
stockholders of record as of the close of business on October 19, 1998. You can
ensure that your shares are voted at the meeting by signing, dating and promptly
returning the enclosed proxy in the envelope provided. Sending in a signed proxy
will not affect your right to attend the meeting and vote in person. You may
revoke your proxy at any time before it is voted by notifying the Company's
Transfer Agent, The Bank of New York, 101 Barclay Street, Floor 12W, New York,
NY 10286 in writing, or by executing a subsequent proxy, which revokes your
previously executed proxy.
The Company's principal executive offices are located at 6040 Bandini
Blvd., Commerce, California 90040.
VOTING OF PROXIES
A proxy, received by the Company, which is properly signed and not revoked
will be voted FOR the election of the director nominees listed herein unless
contrary instructions are given, and such proxy will be voted by the persons
named in the proxy in their discretion upon such other business as may be
properly brought before the Annual Meeting. The Board of Directors knows of no
other business to come before the Annual Meeting, but if other matters properly
come before the Annual Meeting, the persons named in the proxy intend to vote
thereon in accordance with their best judgment. Under the Delaware General
Corporation Law, the Company's Restated Certificate of Incorporation, as amended
(the 'Charter') and the Company's By-Laws, the affirmative vote of a plurality
of the outstanding shares of common stock, par value $0.001 per share ('Common
Stock'), entitled to vote and present, in person or by properly executed proxy,
will be required to elect a nominated director. Votes that are withheld will be
excluded entirely from the vote and will have no effect. Under the rules of the
New York Stock Exchange ('NYSE'), brokers who hold shares in 'street' name have
the authority to vote on certain routine matters when they have not received
instructions from beneficial owners. Brokers who do not receive instructions are
entitled to vote on the election of directors. Broker non-votes will be
considered present for purposes of verifying a quorum, but under applicable law
will have no effect on the outcome of the election of directors.
At the Annual Meeting, the Company's stockholders will be asked (1) to
re-elect Mrs. Linda J. Wachner and Mr. Robert D. Walter as directors of the
Company until the Company's annual meeting in 2001 and until such directors'
successors are duly elected and shall have qualified and (2) to transact such
other business as may properly come before the Annual Meeting.
OUTSTANDING VOTING SECURITIES
As of October 19, 1998, the record date for determining stockholders
entitled to vote at the Annual Meeting, there were 22,990,086 shares of Common
Stock of the Company outstanding. Each share of Common Stock is entitled to one
vote per share with respect to the election of directors and with respect to
each other matter as may properly be brought before the Annual Meeting. Only
stockholders of record as of the close of business on October 19, 1998 will be
entitled to vote.
SOLICITATION OF PROXIES
The cost of soliciting proxies for the Annual Meeting will be borne by the
Company. In addition to solicitation by mail, solicitations may also be made by
telephone or telegram, facsimile transmission, personal visit or otherwise. The
Company may use the services of outside consultants to assist in soliciting
proxies. If such services are required, the Company expects that fees for such
services will not exceed $10,000. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to their principals, and the Company will reimburse them for their
reasonable expenses in connection therewith. Consistent with the Company's
confidential voting procedure, directors, officers and other regular employees
of the Company, as yet undesignated, may also request the return of proxies by
telephone or telegram, facsimile transmission, personal visit or otherwise.
ELECTION OF CLASS III DIRECTORS
At the Annual Meeting, two directors are to be elected to serve for a term
to expire at the 2001 annual meeting of stockholders. The nominees for these
positions are Mrs. Linda J. Wachner and Mr. Robert D. Walter. Information
regarding the Board of Directors' nominees for director is set forth on page 3.
Information regarding the four continuing directors whose terms expire in 1999
and 2000 is set forth on pages 3-4.
The accompanying proxy will be voted FOR the re-election of the Board of
Directors' nominees unless contrary instructions are given. If either of the
Board of Directors' nominees is unable to serve, which is not anticipated, the
persons named as proxies intend to vote, unless the number of nominees is
reduced by the Board of Directors, for such other person or persons as the Board
of Directors may designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RE-ELECTION OF ITS NOMINEES.
The name, age (as of October 1, 1998), principal occupation for the last
five years, selected biographical information and the period of service as a
director of the Company of each director and director nominee are set forth
below.
2
NOMINEES FOR RE-ELECTION TO THE BOARD OF DIRECTORS FOR A THREE-YEAR TERM
TO EXPIRE AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS
Mrs. Linda J. Wachner, 52, has been a Director, Chairman of the Board and
Chief Executive Officer of the Company since its inception in May 1990. Mrs.
Wachner concurrently serves as and has been a Director, President and Chief
Executive Officer of The Warnaco Group, Inc. ('Warnaco') since August 1987, and
the Chairman of the Board of Warnaco since August 1991. Mrs. Wachner was a
Director and President of Warnaco from March 1986 to August 1987. Mrs. Wachner
held various positions, including President and Chief Executive Officer, with
Max Factor and Company from December 1978 to October 1984. Mrs. Wachner also
serves as a Director of Applied Graphics Technologies, Inc. and New York Stock
Exchange, Inc.
Mr. Robert D. Walter, 68, has been a Director of the Company since November
1992. Mr. Walter served as a Vice President and Chief Financial Officer of
Warnaco from June 1986 to February 1988 pursuant to a consulting contract. Mr.
Walter served successively as Treasurer, Vice President and Chief Accounting
Officer, and Senior Vice President and Chief Financial Officer and Member of the
Office of the Chairman of Norton Simon Inc., a diversified consumer products
company, from 1971 to 1983. Since 1983, Mr. Walter has served as a consultant to
several companies and non-profit organizations, including TLC Group, the New
York Mission Society and the National Health Foundation.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE;
TERMS TO EXPIRE AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS
Mr. Stanley S. Arkin, 60, has been a Director of the Company since October
1995. Mr. Arkin is the Senior Partner of the New York law firm of Arkin,
Schaffer & Kaplan LLP, and is of counsel to the Los Angeles law firm of
Alschuler, Grossman & Pines LLP. He is a fellow of the American College of Trial
Lawyers and has been Chairman of the Association of the Bar of the City of New
York Committee on the Criminal Courts, Law and Procedure, and its Committee on
Professional Discipline, and has been a member of the Association's Executive
Committee. He is the author of several treatises and writes a regular column for
the New York Law Journal. Mr. Arkin is also a member of the Board of Directors
for the American Committee of the Weizmann Institute of Science and a member of
the Board of Directors of the American Craft Museum.
Mr. Joseph A. Califano, Jr., 67, has been a Director of the Company since
November 1993. Mr. Califano is Chairman and President of the National Center on
Addiction and Substance Abuse at Columbia University. Mr. Califano is also a
director of Automatic Data Processing, Inc., Chrysler Corporation, Kmart
Corporation and Warnaco. Mr. Califano is a Trustee of New York University and
the Twentieth Century Fund, a Governor of New York Hospital and a director of
the New York and Presbyterian Hospitals. He is founding Chairman of the Board of
the Institute for Social and Economic Policy in the Middle East at the Kennedy
School of Government at Harvard University, and a member of the Institute of
Medicine of the National Academy of Sciences. Mr. Califano served as Secretary
of the United States Department of Health, Education and Welfare from 1977 to
1979. He was Special Assistant for Domestic Affairs to the President of the
United States for the period 1965 to 1969. He is the author of nine books.
3
TERMS TO EXPIRE AT THE 2000 ANNUAL MEETING OF STOCKHOLDERS
Mr. Stuart D. Buchalter, 61, has been a Director of the Company since May
1990. Mr. Buchalter served as Chairman of the Board of The Art Stores until June
1995 and Chairman of the Board and Chief Executive Officer of The Art Stores
until January 1995. Mr. Buchalter is of counsel to the California law firm of
Buchalter, Nemer, Fields and Younger. From August 1980 to June 1993 he served as
Chairman of the Board and Chief Executive Officer of Standard Brands Paint
Company. In 1975, Mr. Buchalter was a Special Counsel to the Division of
Enforcement of the Securities and Exchange Commission in Washington, D.C., and
was a Lecturer-at-Law at the UCLA School of Law in 'Securities Regulation' in
Spring, 1990. Mr. Buchalter also serves as a director of City National Corp.
(bank holding company), Earl Scheib, Inc. (automotive painter) and Faroudja,
Inc. (video imaging enhancement company). He is Vice Chairman of the Board of
Trustees of Otis College of Art and Design and served as a Director of the
California Chamber of Commerce until December 1993.
Mr. William S. Finkelstein, 50, has been a Director of the Company since
May 1992. Mr. Finkelstein has been Senior Vice President of Warnaco since May
1992 and Chief Financial Officer of Warnaco since May 1995. Mr. Finkelstein
served as Vice President (until May 1992) and Senior Vice President and
Controller of Warnaco from November 1988 until his appointment as Chief
Financial Officer. Mr. Finkelstein served as Senior Vice President, Treasurer
and Secretary of the Company from May 1990 to May 1992. Mr. Finkelstein served
as Vice President of Finance of Warnaco's Activewear and Olga Divisions from
March 1988 until his appointment as Controller and as Vice President of Warnaco
in November 1988. Mr. Finkelstein served as Vice President and Controller of SPI
Pharmaceuticals Inc. from February 1986 to March 1988 and held various financial
positions including Assistant Corporate Controller with Max Factor and Company,
between 1977 and 1985. Mr. Finkelstein also serves as a Director of Warnaco.
COMMITTEES OF THE BOARD -- BOARD MEETINGS
The Board of Directors held five meetings in fiscal 1998. All of the
Directors attended at least 75% of the meetings of the Board and the respective
Committees of the Board of which they were a member during fiscal 1998.
The Board of Directors has the following standing committees:
AUDIT COMMITTEE
The Audit Committee, which met four times in fiscal 1998, recommends the
appointment of the Company's external auditors and meets with both internal and
external auditors to review the scope of their audits and the results thereof.
In addition, the Audit Committee reviews and comments on the proposed plans of
the internal and external auditors, audit fee proposals, financial statements
and other documents submitted to stockholders and regulators and reviews the
internal control policies and procedures of the Company.
During fiscal 1998, the members of the Audit Committee were Mr. Arkin, Mr.
Buchalter and Mr. Walter. Mr. Walter serves as chairman of the Audit Committee.
COMPENSATION COMMITTEE
The Compensation Committee, which met twice in fiscal 1998, reviews and
approves the remuneration arrangements for the executive officers and directors
of the Company and reviews and
4
recommends new executive compensation or stock plans in which the officers
and/or directors are eligible to participate, including the granting of stock
options.
During fiscal 1998, the members of the Compensation Committee were Mr.
Arkin, Mr. Califano and Mr. Walter. Mr. Califano serves as chairman of the
Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, during fiscal 1998, Mr. Arkin, Mr. Califano and Mr. Walter
served as members of the Compensation Committee. Mrs. Wachner, an executive
officer of the Company, serves as Chairman of the Board of Directors, President
and Chief Executive Officer and is a significant shareholder of Warnaco. Mr.
Califano serves on the board of directors of Warnaco. Mr. Walter served as Vice
President and Chief Financial Officer of Warnaco from June 1986 until February
1988 pursuant to a consulting contract and as a Director of Warnaco from January
1987 to June 1996.
The Company acquired substantially all of the business of the Activewear
Division of Warnaco in 1990. Warnaco, a Delaware corporation, designs,
manufactures and markets a broad line of women's intimate apparel, men's,
women's and junior's jeans and jeans-related sportswear and men's dress and
sport shirts, neckwear, underwear and accessories all of which are sold under a
variety of internationally recognized owned and licensed brand names.
From time to time, Warnaco and the Company jointly negotiate contracts and
agreements with vendors and suppliers.
The Company rents certain office facilities in New York, New York and Los
Angeles, California from Warnaco pursuant to month to month leases. Payments for
the leased facilities amounted to approximately $0.6 million for fiscal 1998.
During fiscal 1998, the Company purchased certain services from Warnaco
including contract manufacturing, occupancy services related to leased
facilities, laboratory testing, transportation and other services. Payments for
such services totaled approximately $9.7 million for fiscal 1998.
In fiscal 1994, the Company and Warnaco entered into an exclusive license
agreement for the manufacture and distribution of certain mens' and women's
sportswear under the Catalina'r' brand name. The Company recorded royalty income
of approximately $1.3 million under this agreement in fiscal 1998. In fiscal
1995, the Company entered into a sub-license agreement with Warnaco to
manufacture and market certain women's intimate apparel under the Speedo'r'
name. Royalty income related to this agreement was approximately $0.1 million in
fiscal 1998. In addition, the Company sells merchandise to Warnaco and provides
other services from time to time. Net revenues relating to sales of such
merchandise and other services, totaled approximately $9.3 million for fiscal
1998.
The Company believes that arrangements with Warnaco are on approximately
the same terms as could be obtained from third persons.
Mr. Arkin is the Senior Partner of the New York law firm of Arkin, Schaffer
& Kaplan LLP which, from time to time, provides legal services to the Company.
See also 'Certain Relationships and Related Transactions' on pages 7-8.
COMPENSATION OF DIRECTORS
The Company does not pay any additional remuneration to employees for
serving as directors. In fiscal 1998, Directors of the Company who are not
employees received an annual retainer fee of $50,000
5
plus fees of $1,500 per day for attendance at meetings of the Board of Directors
and $1,000 per day for attendance at meetings of its committees. Directors are
also reimbursed for out-of-pocket expenses.
During fiscal 1998, each of the non-employee directors, Messrs. Arkin,
Buchalter, Califano, Finkelstein and Walter, was granted an option under the
1993 Stock Option Plan for Non-Employee Directors to purchase 5,000 shares of
the Company's Common stock at an exercise price of $17.23 per share, the fair
market value at the date of grant.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of October 19, 1998 by (i)
each of the Company's directors, (ii) each of the Company's executive officers,
(iii) all directors and executive officers as a group, and (iv) each person who
is known by the Company to beneficially own five percent or more of any class of
the Company's voting securities.
SHARES BENEFICIALLY OWNED
COMMON STOCK
--------------------------------
NUMBER PERCENT
NAME OF SHARES OF SHARES
- ----------------------------------------------------------------------- --------- ----------
DIRECTORS AND EXECUTIVE OFFICERS (a)
Linda J. Wachner (b)................................................... 4,836,462 20.3%
Christopher G. Staff (c)............................................... 89,026 *
Michael P. Mc Hugh..................................................... -- --
Susan Guensch (d)...................................................... 167,697 *
Wallis H. Brooks....................................................... -- --
Stanley S. Arkin (e)................................................... 27,600 *
Stuart D. Buchalter (f)................................................ 51,600 *
Joseph A. Califano, Jr. (f)............................................ 37,000 *
William S. Finkelstein (f)............................................. 154,714 *
Robert D. Walter (f)................................................... 37,000 *
All directors and executive officers
as a group (10 persons) (g).......................................... 5,401,099 22.7%
OTHER 5% STOCKHOLDERS
Pentland Ventures, Ltd. ............................................... 5,067,458 21.3%
Pentland Center
Lakeside, Squires Lane
Finchley N3
London, England
General Electric Capital Corporation .................................. 1,809,179 7.6%
260 Long Ridge Road
Stamford, Connecticut 06902
John J. Lattanzio (h) ................................................. 2,208,600 9.3%
Lattanzio Group, LLC
277 Park Ave. 27th Floor
New York, New York 10172
- ------------
* Less than 1%
(footnotes continued on next page)
6
(footnotes continued from previous page)
(a) The business address of each of the directors and executive officers is c/o
Authentic Fitness Corporation, 6040 Bandini Blvd., Commerce, California
90040.
(b) Includes options pursuant to the 1992 Long-Term Stock Incentive Plan to
purchase 2,741,900 shares of Common Stock; Also includes 750,000 shares of
Common Stock held by a trust, the shares of which Mrs. Wachner has the sole
power to vote and no power to dispose.
(c) Includes options pursuant to the 1992 Long-Term Stock Incentive Plan to
purchase 66,667 shares of Common Stock.
(d) Includes options pursuant to the 1992 Long-Term Stock Incentive Plan to
purchase 150,667 shares of Common Stock.
(e) Includes options pursuant to the 1993 Stock Option Plan for Non-Employee
Directors to purchase 25,000 shares of Common Stock.
(f) Includes options pursuant to the 1993 Stock Option Plan for Non-Employee
Directors to purchase 35,000 shares of Common Stock.
(g) Includes options pursuant to the 1992 Long-Term Stock Incentive Plan and
the 1993 Stock Option Plan for Non-Employee Directors to purchase 3,124,234
shares of Common Stock.
(h) Information based on a Schedule 13G, dated February 17, 1998, filed with
the Securities and Exchange Commission (the 'SEC') by John J. Lattanzio and
Lattanzio Group LLC (collectively 'Lattanzio') reporting the beneficial
ownership of the shares of Common Stock set forth in the table. According
to such Schedule 13G, Lattanzio has sole power to vote or direct the vote
of 609,700 shares and shared power to vote or direct the vote of 1,598,900
shares, sole dispositive power for 609,700 shares and shared dispositive
power for 1,598,900 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Speedo International Ltd., an affiliate of Pentland Ventures, Ltd., has
licensed the Company to design, manufacture and market certain men's, women's
and children's apparel and accessories under the Speedo'r' trademark and certain
related trademarks including Speedo'r' Surf Walker'TM' and Speedo'r' Authentic
Fitness'r'. Such license was granted in perpetuity and is exclusive in the
United States, its territories and possessions, Canada, Mexico and the Caribbean
Islands. The Company has paid royalties and other fees pursuant to the licensing
agreements with Speedo International Ltd. of approximately $7.0 million for
fiscal 1998.
ASCO International Sourcing Limited and Soaring Force Limited
(collectively, 'ASCO'), both affiliates of Pentland Ventures, Ltd., act as
exclusive buying agents on behalf of the Company in certain Far East countries,
including China, Hong Kong, India, Japan, Korea, the Philippines, Singapore and
Thailand. The Company has agreed to pay ASCO an amount equal to 6% of the FOB
price in U.S. dollars indicated on the manufacturers' or suppliers' commercial
invoices for the merchandise shipped on behalf of the Company. ASCO also extends
credit to the Company on a secured basis and guarantees payments to
manufacturers and suppliers (by means of letters of credit or otherwise) in
exchange for the Company's payment of all direct bank charges and certain other
charges, which are approximately 0.6% of the FOB price. The Company has paid
interest, commissions and other fees
7
associated with the Company's Buying Agency Agreement with ASCO of approximately
$2.7 million in fiscal 1998.
An affiliate of Pentland Ventures, Ltd. also purchases certain merchandise
from the Company, principally goggles. Sales of such merchandise aggregated
approximately $0.1 million for fiscal 1998.
Mr. Buchalter is of counsel to the California law firm of Buchalter, Nemer,
Fields and Younger, which, from time to time, provides legal services to the
Company.
See also 'Compensation Committee Interlocks and Insider Participation' on
page 5.
SECTION 16(a) -- BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who own more than ten
percent of the Company's Common Stock, to file reports of ownership and changes
in ownership with the SEC and NYSE. Executive officers, directors and greater
than ten percent stockholders are required by SEC regulations to furnish the
Company with copies of all such Section 16(a) forms that they file.
Based solely on review of the copies of such forms furnished to the Company
and written representations that no other forms were required when applicable,
the Company believes that, during the fiscal year ended July 4, 1998, all
Section 16(a) filing requirements applicable to the Company's executive
officers, directors and more than ten percent stockholders were complied with.
COMPENSATION OF EXECUTIVE OFFICERS
Set forth below are tables prescribed by the proxy rules of the SEC which
present compensation information for the Company's Chief Executive Officer and
the four other most highly compensated executive officers whose aggregate annual
salary and bonus exceeds $100,000 in fiscal 1998 (collectively, the 'Named
Executives').
8
SUMMARY COMPENSATION TABLE
The following table discloses compensation earned by the Named Executives
in each of the three fiscal years ended July 6, 1996, July 5, 1997 and July 4,
1998.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- --------------------------------
AWARDS PAYOUTS
---------------------- -------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARDS SARS (#) PAYOUTS SATION
- ------------------------------------------ ------ ---------- -------- ------- ---------- ---------- ------- ---------
Linda J. Wachner ......................... 1998 $1,092,810 $ -- $ (e) $ -- 1,741,900 $ -- $ --
Chairman and Chief 1997 1,019,179 -- (e) -- 500,000 -- --
Executive Officer 1996 989,726 -- (e) -- 500,000 -- --
Christopher G. Staff (a) ................. 1998 319,049 -- (e) -- 50,000 -- 1,618(f)
President and Chief 1997 188,888 -- (e) -- 50,000 -- 94(f)
Operating Officer 1996 -- -- (e) -- -- -- --
Michael P. Mc Hugh (b) ................... 1998 50,071 -- (e) -- 50,000 -- --
Senior Vice President and 1997 -- -- -- -- -- -- --
Chief Financial Officer 1996 -- -- -- -- -- -- --
Susan Guensch (c) ........................ 1998 253,657 -- (e) -- 40,000 -- 929(f)
President Speedo'r' 1997 244,176 -- (e) -- 40,000 -- 1,125(f)
Division 1996 181,101 48,280 (e) -- 40,000 -- 1,324(f)
Wallis H. Brooks (d) ..................... 1998 232,060 -- (e) -- -- -- 17,315(g)
Former Senior Vice President and 1997 101,258 -- (e) -- 25,000 -- 656(f)
Chief Financial Officer 1996 -- -- -- -- -- -- --
- ------------
(a) Mr. Staff was appointed President and Chief Operating Officer on
February 18, 1997.
(b) Mr. Mc Hugh was appointed Senior Vice President and Chief Financial
Officer on May 7, 1998.
(c) Ms. Guensch was appointed President of the Speedo'r' Division on
September 27, 1996.
(d) Mr. Brooks' employment with the Company terminated effective May 27,
1998. Mr. Brooks served as Senior Vice President and Chief Financial
Officer from February 18, 1997.
(e) Other compensation was less than $50,000 or 10% of such officer's
annual salary and bonus for such year.
(f) Represents employer matching contributions under the Company's
Employee Savings Plan.
(g) Amount represents $15,154 of accrued vacation pay and $2,161 of
employer matching contributions under the Company's Employee Savings
Plan.
9
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on options granted in fiscal 1998
to the Named Executives.
INDIVIDUAL GRANTS
-----------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL 1998 $ PER SHARE DATE
- --------------------------- ------------ -------------- ----------- -------------
Linda J. Wachner........... 500,000(a) 23.4% $ 14.75 Aug. 22, 2007
66,077(b) 3.1% $ 20.88 Aug. 14, 2002
147,306(b) 6.9% $ 20.88 Aug. 19, 2003
212,949(b) 10.0% $ 20.88 Aug. 16, 2004
396,257(b) 18.5% $ 20.88 Feb. 19, 2007
419,311(b) 19.6% $ 20.88 Aug. 22, 2007
Christopher G. Staff....... 50,000(c) 2.3% $ 14.75 Aug. 22, 2007
Michael P. Mc Hugh......... 50,000(d) 2.3% $ 17.88 Apr. 23, 2008
Susan Guensch.............. 40,000(c) 1.9% $ 14.75 Aug. 22, 2007
Wallis H. Brooks........... -- -- -- --
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
FOR OPTION TERM(e)
-------------------------------------
NAME 0%(f) 5% 10%
- --------------------------- ------ ----------- ----------------
Linda J. Wachner........... 0 $ 4,638,098 $11,753,851
0 $ 381,182 $ 842,313
0 $ 1,046,049 $ 2,373,128
0 $ 1,810,121 $ 4,218,352
0 $ 5,203,377 $13,186,380
0 $ 5,506,107 $13,953,556
Christopher G. Staff....... 0 $ 463,810 $ 1,175,385
Michael P. Mc Hugh......... 0 $ 562,075 $ 1,424,407
Susan Guensch.............. 0 $ 371,048 $ 940,308
Wallis H. Brooks........... -- -- --
- ------------
(a) All of such options were granted on August 22, 1997 and are fully vested as
of such date. Such options have stock-for-stock exercise and tax
withholding features which allow the holder, in lieu of paying cash for the
exercise price and any tax withholding, to have the Company commensurately
reduce the number of such shares of common stock to which the optionee
would otherwise be entitled upon exercise of such options.
(b) Reflects restoration options granted automatically under the provisions of
the 1992 Long-Term Stock Incentive Plan upon the exercise of stock options;
such restoration options have an exercise price equal to the fair market
value of the Common Stock on the date of exercise of the original options,
and expire on the expiration date of the original options. The restoration
option feature, approved by Stockholders in 1992, entitles the holder to
purchase a number of shares equal to the sum of (i) the number of shares
delivered by the optionee upon exercise of the original option in payment
of the aggregate option exercise price and (ii) the number of shares, if
any, tendered by the optionee to the Company to satisfy any withholding tax
liability arising in connection with the exercise of the original option.
Optionees, therefore, do not reduce their proportional interest in the
Company because of the need to sell shares to pay for the exercise of an
option. This restoration feature fosters continued stock ownership in the
Company but does not result in any net increase in an individual's
beneficial equity position.
(c) All of such options were granted on August 22, 1997 and one-third of such
options vest annually until fully vested on August 22, 2000. Such options
have stock-for-stock exercise and tax withholding features which allow the
holders, in lieu of paying cash for the exercise price and any tax
withholding, to have the Company commensurately reduce the number of such
shares of common stock to which the optionee would otherwise be entitled
upon exercise of such options.
(d) All such options were granted on April 23, 1998 and one-third of such
options vest annually until fully vested on April 23, 2001. Such options
have stock-for-stock exercise and tax withholding
(footnotes continued on next page)
10
(footnotes continued from previous page)
features which allow the holders, in lieu of paying cash for the exercise
price and any tax withholding, to have the Company commensurately reduce
the number of such shares of common stock to which the optionee would
otherwise be entitled upon exercise of such options.
(e) The dollar amounts under these columns are the result of calculations at 0%
and at the 5% and 10% rates set by the SEC based upon the closing price of
the Company's common stock on the date of grant. These amounts are not
intended to forecast future appreciation, if any, of the Company's stock
price.
(f) No gain to the optionee is possible without an increase in stock price
appreciation, which will benefit all stockholders commensurately. A zero
percent gain in stock price appreciation will result in zero dollars for
the optionee.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following table provides information on option/SAR exercises in fiscal
1998 by the Named Executives and the values of such officers' unexercised
options at July 4, 1998.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS THE-MONEY OPTIONS/SARS AT
AT JULY 4, 1998 JULY 4, 1998
------------------------- -------------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
--------------- ----------- ------------------------- -------------------------
Linda J. Wachner............. 1,550,000 $11,693,750 1,741,900/0 $0/$0
Christopher G. Staff......... 0 0 50,000/50,000 $146,875/$59,375
Michael P. Mc Hugh........... 0 0 0/50,000 $0/$0
Susan Guensch................ 0 0 137,333/66,667 $358,416/$125,834
Wallis H. Brooks............. 25,000 112,000 0/0 $0/$0
EMPLOYMENT AGREEMENT
The Company and Mrs. Wachner have entered into an employment agreement,
which was amended on November 1, 1993 (the 'Employment Agreement'), pursuant to
which the Company has agreed to employ Mrs. Wachner as the Chief Executive
Officer of the Company and of Authentic Fitness Products, Inc. through October
31, 1999, with automatic one-year renewals thereafter, and to use its best
efforts to ensure that she is elected to serve as a director of the Company for
two successive three year terms. The amended Employment Agreement provides for
Mrs. Wachner to receive a base salary of $975,000 per year for the term of the
Employment Agreement with automatic cost of living increases beginning January
1, 1996. Under the Employment Agreement, Mrs. Wachner is also eligible for
annual bonuses, as determined by the Compensation Committee. In this regard, the
stockholders approved the Executive Incentive Compensation Plan ('Executive
Plan') at the 1994 Annual Meeting of Stockholders.
The Employment Agreement provides that Mrs. Wachner shall devote such time
to the business and affairs of the Company as is reasonably necessary to perform
the duties of her position, except that
11
she is not required to perform any duties or responsibilities which would be
likely to result in non-compliance with or breach or violation of her employment
contract with Warnaco.
In the event that Mrs. Wachner's employment is terminated by the Company
other than for 'cause,' or by Mrs. Wachner for 'good reason,' in each case as
defined in the Employment Agreement, she will be entitled to receive a lump-sum
payment equal to the present value of base salary payments owing pursuant to the
Employment Agreement through the end of the then current term of employment, all
other accrued but unpaid amounts owing to her in connection with her employment,
and a lump-sum termination payment of $2,000,000. If Mrs. Wachner's employment
is terminated by the Company for cause or if she voluntarily terminates her
employment without good reason, she will be entitled to receive any amounts
owing to her under the Employment Agreement through the date of termination. In
the case of any other termination of employment, Mrs. Wachner will receive
continued payments of base salary through the end of the term of employment.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of the Directors is responsible for
administering the executive compensation plans and programs of the Company and
for making recommendations to the Board of Directors regarding the compensation
of and benefits provided to the Chief Executive Officer and the Named
Executives. The names of the Committee members are set forth below.
GENERAL POLICIES REGARDING COMPENSATION OF EXECUTIVE OFFICERS
The Committee's goals in establishing compensation levels and administering
executive compensation plans are (1) to attract and retain individuals of
superior ability and managerial talent, (2) to reward executives for superior
individual contributions to the achievement of the Company's business objectives
and (3) to motivate executive officers to increase Company performance. The
Company's compensation structure consists of base salary, variable annual cash
compensation (bonuses) and stock-based long-term incentive awards.
Base Salary. The Committee establishes base salaries at levels that reflect
the Committee's subjective assessment of prevailing salary levels among the
Company's competitors. The Company's competitors, for this purpose, include
certain of the companies included in the industry peer group index used for
comparison with the Company's performance in the performance graph following
this report as well as other companies with which, in the Committee's view, the
Company competes for executive talent. This group of companies may include
non-public companies and companies in related industries such as retailing or
general apparel manufacturing.
In general, the Committee attempts to set base salaries at levels that will
attract and retain highly qualified individuals. In selected cases, the
Committee may feel that excellent executive talent may only be attracted and
retained by compensation in excess of prevailing levels among the Company's
competitors.
In establishing the appropriate compensation level for any particular
officer, as well as in determining which companies should form the comparison
group for this purpose, the Committee from time to time may consult with
independent compensation consultants. However, the Committee ultimately reviews
the case of each executive officer individually, relying heavily on the
recommendations of the Chief Executive Officer as well as on its members' own
subjective judgment. The Committee did not engage outside consultants during
fiscal 1998.
12
Annual Bonus. The Committee generally believes that, at higher executive
levels, a greater percentage of an individual's total annual cash compensation
opportunity should consist of variable compensation tied to the Company's
performance. Annual bonus opportunities for executive officers, other than Mrs.
Wachner, range from 0% to 100% of base salary. Starting with fiscal 1995, Mrs.
Wachner's annual bonus has been determined in accordance with the Executive Plan
(see 'Employment Agreement' on pages 11-12).
The Committee's practice with regard to awarding annual bonuses to
executive officers other than Mrs. Wachner has been to establish those measures
of corporate performance which the Committee has determined in its sole
discretion to be appropriate under the circumstances, and to assign such
relative weight to any such factors as it determines to be appropriate. The
Committee focuses particularly on such factors as growth in earnings (measured
by earnings before interest, taxes, depreciation and amortization (EBITDA)) and
cash flow, as well as discretionary factors in determining whether or not
bonuses are paid. The Committee also pays bonuses to selected individuals on an
ad hoc basis in connection with, or in recognition of, special events or
projects such as major acquisitions and financing and licensing arrangements. In
making all of such determinations, the Committee takes into consideration and
gives significant weight to the recommendations of the Chief Executive Officer
with respect to bonuses of executive officers other than herself.
For fiscal 1999, the Committee generally intends to maintain its customary
approach to determining annual bonuses as described above.
Long-Term Incentive Compensation. Stock-based incentives, at the present
time consisting solely of stock options granted at 100% of the stock's fair
market value on the grant date, constitute the long-term incentive portion of
the Company's executive compensation package. Stock options provide an incentive
for executives to increase the Company's stock price and, therefore, the return
to the Company's stockholders. The Committee has not heretofore granted stock
appreciation rights ('SARs') or other stock-based awards, although it has the
authority to do so under the 1992 Long-Term Stock Incentive Plan. The Committee
reserves the discretion to consider any factors it considers relevant, and to
give all factors considered the relative weight it considers appropriate under
the circumstances then prevailing, in reaching its determination regarding the
size and timing of option grants.
Limitations on Deductibility of Executive Compensation. Section 162(m) of
the Internal Revenue Code, enacted as part of the Revenue Reconciliation Act of
1993, limits the deductibility of compensation paid to certain executive
officers of the Company beginning with the Company's 1995 taxable year. To
qualify for deductibility under Section 162(m), compensation in excess of
$1,000,000 per year paid to the Chief Executive Officer and the four other most
highly compensated executive officers at the end of such fiscal year generally
must be either (1) paid pursuant to a written binding contract in effect on
February 17, 1993, and which was not modified thereafter in any material respect
before such remuneration is paid or (2) 'performance-based' compensation, as
determined under Section 162(m). In order to be considered 'performance-based,'
for this purpose, compensation must be paid solely on account of the attainment
of one or more pre-established performance goals established by a committee of
two or more 'outside directors,' pursuant to an arrangement that has been
disclosed to and approved by stockholders. Also, in order for an arrangement to
give rise to fully deductible 'performance-based' compensation, the terms of the
arrangement must preclude the exercise of any discretion in the administration
of the plan that would have the effect of increasing compensation paid
thereunder.
13
The Company generally intends to comply with the requirements for full
deductibility of executive compensation under Section 162(m). However, the
Committee will balance the costs and burdens involved in such compliance against
the value of the tax benefits to be obtained by the Company thereby, and may in
certain instances pay compensation that is not fully deductible if in its
determination such costs and burdens outweigh such benefits.
1998 COMPENSATION
In awarding the options granted to the Named Executives as shown in the
table labeled 'Option/SAR Grants in Last Fiscal Year,' the Committee considered
the number of option shares available for grant under the Company's stock option
plan and the stockholder dilution represented by the total number of options
authorized and outstanding under such plan. The Committee then determined, in
its discretion, the number of options it wished to grant for fiscal 1998 and
allocated the options available for grant among executive officers based on its
subjective assessment of individual performance, seniority and relative position
level. In making such assessments, the Committee reviewed the number of
outstanding options held by each executive officer. In making these
determinations and allocations, the Committee also relied on the recommendations
of the Chief Executive Officer with respect to option grants to executives
other than herself.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mrs. Wachner's annual base salary and annual bonus are governed by the
Employment Agreement with the Company, described on pages 11-12. Pursuant to the
Employment Agreement, Mrs. Wachner's base salary was adjusted in 1997 solely to
reflect changes in the cost of living. Other than cost of living increases, Mrs.
Wachner has not received a base salary increase since 1993.
Joseph A. Califano, Jr.
Stanley S. Arkin
Robert D. Walter
14
STOCK PRICE PERFORMANCE GRAPH
The Company's Common Stock commenced trading on the NYSE on June 28, 1992.
The Stock Price performance graph below compares cumulative total return through
July 4, 1998, assuming reinvestment of dividends, by an investor who invested
$100.00 on July 3, 1993 in each of (i) the Common Stock of the Company, (ii) the
Wilshire 5000 Total Return Composite Index, and (iii) the S&P Textiles-Apparel
Index. The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
[CHART]
7/3/93 7/2/94 7/1/95 7/6/96 7/5/97 7/4/98
------- ------- ------- ------- ------- -------
Authentic Fitness...................................... 100.00 134.94 161.45 177.40 119.93 154.97
Wilshire 5000.......................................... 100.00 102.25 127.06 157.65 213.54 270.06
S&P Textiles-Apparel................................... 100.00 87.38 91.17 111.55 155.72 175.96
ANNUAL REPORT
The Annual Report on Form 10-K of the Company for the fiscal year ended
July 4, 1998, is being mailed to all stockholders of record as of the close of
business on October 19, 1998 with this proxy statement.
15
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 1999 annual
meeting of stockholders, including proposals for the nomination of directors,
must be received by the Company by June 23, 1999.
APPOINTMENT OF AUDITORS
The Board of Directors of the Company has re-appointed and designated
PricewaterhouseCoopers LLP to audit the consolidated financial statements of the
Company for the fiscal year ending July 3, 1999. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting and
will be afforded the opportunity to make a statement if they desire to do so,
and such representatives are expected to be available to respond to appropriate
questions.
OTHER MATTERS
The Board of Directors knows of no other matters which may come before the
Annual Meeting. However, if other matters properly come before the Annual
Meeting, it is intended that the persons named as proxies in the accompanying
proxy card vote the shares represented thereon in accordance with their best
judgment.
16
APPENDIX 1 - PROXY CARD
AUTHENTIC FITNESS CORPORATION
COMMERCE, CALIFORNIA 90040
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Linda J. Wachner, William S. Finkelstein
and Michael P. Mc Hugh, and each of them acting solely as proxies with full
power of substitution and with all powers the undersigned would possess if
personally present, to represent and to vote at the Annual Meeting of
Stockholders to be held on November 19, 1998 and at any adjournments or
postponements thereof, as designated on the reverse side hereof and in their
discretion with respect to any other matters as may properly come before such
meeting, all of the shares of Common Stock of Authentic Fitness Corporation held
of record by the undersigned as of the close of business on October 19, 1998.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1.
(Continued and to be signed and dated on reverse side.)
AUTHENTIC FITNESS CORPORATION
P.O. BOX 11154
NEW YORK, N.Y. 10203-0154
[ ]
1. Proposal to elect two Class III directors FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
for a term of three years. listed below for all nominees listed below
Nominees: Mrs. Linda J. Wachner and Mr. Robert D. Walter
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box
and write that nominee's name on the space below.)
*Exceptions___________________________________________________________________________
2. To transact such other business as may properly come before the meeting and any and all adjournments or
postponements thereof.
Change of Address and or Comments Mark Here
Please sign exactly as name appears. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, adminstrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated_________________________, 1998
____________________________________
____________________________________
Signatures
Votes must be indicated X
(x) in Black or Blue ink.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.