-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CqoViTQ92UtR3Hj2tP2CqqJP6USJxs/ntIHWHuIUp3XHHLOl5fnlgHV1qc6J0Irp 0Q+qbdLde7NID5xsemgaPA== 0000950155-02-000176.txt : 20021119 0000950155-02-000176.hdr.sgml : 20021119 20021119125048 ACCESSION NUMBER: 0000950155-02-000176 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20021107 ITEM INFORMATION: Other events FILED AS OF DATE: 20021119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FACTORY 2 U STORES INC CENTRAL INDEX KEY: 0000813775 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 510299573 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10089 FILM NUMBER: 02832558 BUSINESS ADDRESS: STREET 1: 4000 RUFFIN ROAD STREET 2: 6TH FLR CITY: SAN DIEGO STATE: CA ZIP: 92123-1866 MAIL ADDRESS: STREET 1: 4000 RUFFIN ROAD STREET 2: 6TH FLOOR CITY: SAN DIEG STATE: CA ZIP: 92123-1866 FORMER COMPANY: FORMER CONFORMED NAME: DRS INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LONGWOOD GROUP LTD DATE OF NAME CHANGE: 19920527 FORMER COMPANY: FORMER CONFORMED NAME: FAMILY BARGAIN CORP DATE OF NAME CHANGE: 19940202 8-K 1 e700215frm8k.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 7, 2002 FACTORY 2-U STORES, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE -------------------------------------------------- (State or other jurisdiction of incorporation) 0-16309 51-0299573 ------------------------------ ---------------------------------- (Commission File Number) (IRS Employer Identification No.) 4000 RUFFIN ROAD, SAN DIEGO, CALIFORNIA 92123 ------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (858) 627-1800 NA ------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 5. OTHER EVENTS. On November 7, 2002, we announced that William R. Fields had replaced Michael M. Searles, as of such date, as Chairman of our Board of Directors and as our Chief Executive Officer. We also announced on such date that our Board of Directors had established the position of Lead Director, naming Ronald Rashkow to serve in such position as of November 4, 2002. The full text of our revised press release of November 11, 2002, together with Mr. Fields' Employment Agreement and the letter agreement pursuant to which Mr. Rashkow agreed to serve as Lead Director, are attached as exhibits hereto. ITEM 7. EXHIBITS. EXHIBIT NO. DESCRIPTION ----------- ----------- 99.1 Press release of Factory 2-U Stores, Inc., dated November 11, 2002. 99.2 Employment Agreement, dated as of November 7, 2002, by and between Factory 2-U Stores, Inc. and William R. Fields. 99.3 Letter agreement, dated November 4, 2002, by and between Factory 2-U Stores, Inc. and Ronald Rashkow SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FACTORY 2-U STORES, INC. (Registrant) By: /s/ DOUGLAS C. FELDERMAN ---------------------------------- NOVEMBER 19, 2002 Douglas C. Felderman ----------------- Executive Vice President and Date Chief Financial Officer EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ----------- ----------- 99.1 Press release of Factory 2-U Stores, Inc., dated November 11, 2002. 99.2 Employment Agreement, dated as of November 7, 2002, by and between Factory 2-U Stores, Inc. and William F. Fields. 99.3 Letter agreement, dated November 4, 2002, by and between Factory 2-U Stores, Inc. and Ronald Rashkow. EX-99.1 3 e700215ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 FACTORY 2-U STORES, INC. NAMES WILLIAM R. FIELDS, CHAIRMAN OF BOARD AND CHIEF EXECUTIVE OFFICER; FORMER PRESIDENT AND CEO OF WAL-MART STORES DIVISION BOARD OF DIRECTORS ESTABLISHES LEAD DIRECTOR POSITION SAN DIEGO, CA, November 11, 2002 - FACTORY 2-U STORES, INC. (Nasdaq: FTUS) today announced the appointment of William R. Fields as Chairman of the Board and Chief Executive Officer of the Company. Mr. Fields replaces Mike Searles who was named President and Chief Executive Officer of the Company in March 1998 and Chairman of the Board in November 1998. During his tenure revenues grew from $300 million to over $580 million, while total stores increased from 164 to 258. Mr. Fields, 53, served as President and Chief Executive Officer of Wal-Mart Stores Division during 1993-96. He originally joined Wal-Mart in 1971 as Assistant Store Manager and was promoted over the next 24 years to various management positions in strategic planning for store operations, distribution, transportation, finance, merchandising and sales. Most recently he served as Chairman and Chief Executive Officer of Blockbuster Entertainment Group (1996-97), President and Chief Executive Officer of Hudson's Bay Company (1997-99) and Chairman and Chief Executive Officer of Apec China Asset Management, Ltd. (1999 to October 31, 2002). He serves on various professional and business Board of Directors, including, The University of Texas Pan, American Foundation, Lexmark International, The ADX Company-Advanced, Data Exchange and several other organizations. He received a BA, Economics and BS, Business at the University of Arkansas in 1971. The Company also announced that the Board of Directors had established the position of Lead Director naming Ronald Rashkow to this new Board responsibility. Mr. Rashkow has been a director of Factory 2-U Stores since 1997, and has been a principal of Chapman Partners, LLC, an investment banking firm, since its founding in September 1995. For more than five years prior to that, he served as Chairman and Chief Executive Officer of Handy Andy Improvement Centers. As Lead Director he will work directly with Senior Management on various strategic issues. In addition, the Company announced that the Board has initiated a search for two new outside directors. FACTORY 2-U STORES, INC. operates 261 "Factory 2-U" off-price retail stores which sell branded casual apparel for the family, as well as selected domestics and household merchandise at prices which generally are significantly lower than the prices offered by its discount competitors. The Company operates 34 stores in Arizona, 3 stores in Arkansas, 64 stores in southern California, 63 stores in northern California, 1 store in Idaho, 5 stores in Louisiana, 3 stores in Missouri, 8 stores in Nevada, 9 stores in New Mexico, 2 stores in Oklahoma, 15 stores in Oregon, 2 stores in Tennessee, 36 stores in Texas, and 16 stores in Washington. Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements that involve risks and uncertainties, and actual results could differ materially from the Company's present expectations. Among the important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are: customer demand and trends in the off-price apparel industry, the effect of economic conditions, the impact of competitive openings and pricing, supply constraints or difficulties, and other risks detailed in the Company's Securities and Exchange Commission filings. # # # # # EX-99.2 4 e700215ex99_2.txt EXHIBIT 99.2 Exhibit 99.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, dated as of November 7, 2002, by and between Factory 2-U Stores, Inc. (the "Company"), a Delaware corporation, and William R. Fields, who currently resides in Austin, Texas ("Executive"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the Company desires to employ Executive, and Executive desires to accept such employment on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the Company and Executive agree as follows: 1. TERM OF EMPLOYMENT. Except upon earlier termination as provided in Section 9 hereof, Executive's employment under this Agreement shall be for a one-year term commencing on the date of this Agreement (the "Effective Date") and terminating on November 6, 2003; provided, however, that at the scheduled end of the employment term, and on each anniversary of such date, the employment term shall automatically be extended for a one-year period unless the Company or the Executive gives notice to the other at least 90 days before an extension is to take effect that they do not desire the employment term to be extended. The term of employment, as so extended from time to time, is referred to in this Agreement as the "Employment Term." 2. POSITIONS. (a) Executive shall serve as Chairman and Chief Executive Officer of the Company. Executive shall report to the Board of Directors of the Company (the "Board") and shall have such duties and authority, consistent with his position as the Chief Executive Officer of the Company, as shall be assigned to him from time to time by the Board. (b) During the -Employment Term, Executive shall, without additional compensation, also serve on the Board of, and perform such executive and consulting services for, or on behalf of, such subsidiaries or affiliates of the Company as the Board may, from time to time, request. The Company and such subsidiaries and affiliates are hereinafter referred to, collectively, as the "Company" and, individually, as a "Constituent Corporation." For purposes of this Agreement, the term "Affiliate" shall have the meaning given in the Securities Exchange Act of 1934, as amended (the "Act"). (c) During the Employment Term, Executive shall devote substantially all of his business time and efforts to the performance of his duties hereunder; PROVIDED, HOWEVER, that Executive shall be permitted, to the extent that such activities do not materially interfere with the performance of his duties and responsibilities hereunder, to manage his personal financial and legal affairs and to serve on not more than three corporate, civic or charitable boards or committees. Notwithstanding the foregoing, the Executive shall not serve on any corporate board of directors or similar body if such service would be inconsistent with his fiduciary responsibilities to any Constituent Corporation and in no event shall Executive serve on any such board or other body unless approved by the Board, which approval shall not be unreasonably withheld. Executive's current service on the boards of directors of Lexmark, Bauger Investments/Bonus and Everyday Wealth are hereby approved; provided, however, that if current or future rules or regulations of the Securities and Exchange Commission, New York Stock Exchange or Nasdaq limit the number of boards of directors of public companies on which an individual may serve, Executive shall reduce his commitments such that he may continue to serve on the Board of the Company. Executive shall, within six months after the Effective Date, relocate his principal residence to a location not more than fifty (50) miles from the Company's executive offices in San Diego, California. 3. BASE SALARY. During the Employment Term, the Company shall pay to the Executive a base salary at the annual rate of not less than Seven Hundred and Fifty Thousand Dollars ($750,000). Base salary shall be payable in accordance with the usual payroll practices of the Company. Executive's base salary shall be subject to annual review by the Compensation Committee of the Board and may be increased, but not decreased, from time to time at the discretion of the Compensation Committee. The base salary, as determined as aforesaid from time to time, shall constitute "Base Salary" for purposes of this Agreement. 4. ANNUAL BONUS. (a) For the first year of the Employment Term, Executive's annual bonus will be Three Hundred Seventy-Five Thousand Dollars ($375,000), equal to 50% of the Base Salary, payable in 12 monthly installments in accordance with the usual payroll practices of the Company. Not later than four months after the Effective Date, Executive shall prepare and present to the Compensation Committee written financial, operational and other objectives (the "Performance Objectives") for the Company's fiscal year ending February 3, 2004. If such Performance Objectives are approved and accepted by the Compensation Committee, Executive's target bonus for such fiscal year shall be equal to 75% of Executive's annual Base Salary for such year. For each fiscal year during the Employment Term thereafter, Executive shall prepare and submit Performance Objectives to the Compensation Committee during the normal course of the Company's planning cycle and before the commencement of the new fiscal year. If such subsequent Performance Objectives are accepted and approved by the Compensation Committee, Executive's target bonus for such fiscal years shall be based on 100% of Executive's Base Salary in effect as of the start of such fiscal year. In the event of any disagreement between the Compensation Committee and Executive concerning the acceptance and approval of Performance Objectives, the Compensation Committee and Executive shall negotiate in good faith to attempt to resolve such differences. Annual bonuses shall be reduced pro rata for any fiscal year other than the first during the Employment Term that is not a full year (based on the actual number of days of such year included in the Employment Term). Except as provided above with regard to the annual bonus for the first year of the Employment Term, each annual bonus shall be paid no later than 30 days after the Company's audited financial statements with respect to the year for which the annual bonus is awarded are available. If the Performance Objectives accepted by the Compensation Committee are exceeded in any year, the Compensation Committee may increase the bonus. If the Performance Objectives accepted by the Compensation Committee are not met, the Compensation Committee may reduce or withhold the bonus entirely. (b) To the extent that the Executive's annual bonus and base salary in any fiscal year is in excess of $1 million, payment of an amount equal to such excess shall be automatically deferred. Amounts deferred under this Paragraph 4(b) shall be credited annually with interest at the Company's borrowing rate and shall be paid to Executive (or to his estate, in the case of death) in a single lump sum three months following his termination of employment. Amounts deferred under this Paragraph 4(b) shall represent an unfunded, unsecured obligation of the Company. The Company will establish a "rabbi trust" reasonably acceptable to Executive and will fund its deferred compensation obligation to Executive by transferring to such rabbi trust, cash or other assets sufficient to satisfy such obligation. 5. EQUITY COMPENSATION. (a) NON-QUALIFIED STOCK OPTIONS. The Company will grant to Executive, pursuant to the Company's Second Amended and Restated 1997 Stock Option Plan (the "Plan"), if approved by the stockholders at the Company's next annual meeting of stockholders or, if such approval is not obtained, by contract not subject to the Plan, nonqualified options entitling Executive to acquire a total of 250,000 shares of the Company's common stock at $1.68 per share (which is equal to the closing market price of such common stock on the commencement date of the Employment Term). Subject to Executive's continued employment under this Agreement, such nonqualified stock options will vest in increments of 15,625 shares (each, a "Tranche") on each December, March, June and September 30 during the first four years of the Employment Term. The non-qualified options in each such Tranche shall be exercisable for a period of five years after the vesting of such Tranche. During any period of time after one year from the date of this Agreement that shares acquired upon exercise of such non-qualified options would not be saleable by Executive pursuant to Rule 144 under the Act or pursuant to an effective registration statement under the Act, the Company shall file with the Securities and Exchange Commission and maintain the effectiveness of a registration statement on Form S-8 (or such successor or replacement form as may be applicable) to permit Executive to resell shares of common stock acquired upon exercise of such non-qualified stock options. The terms of such nonqualified stock options will be more specifically set forth in a Stock Option Agreement substantially in the form attached as Exhibit A. (b) RESTRICTED STOCK. The Company will grant to Executive pursuant to the Plan, if approved by the stockholders at the Company's next annual meeting of stockholders or, if such approval is not obtained, by contract not subject to the Plan, two hundred fifty thousand (250,000) restricted shares of the Company's common stock (the "Restricted Stock") at a cost to Executive of Two Thousand Five Hundred Dollars ($2,500). (c) VESTING. The Restricted Stock shall vest in installments as follows: 83,333 shares of Restricted Stock shall vest at such time as the closing market price of the Company's common stock equals or exceeds $10 per share for 20 consecutive trading days in any three-month period; an additional 83,333 shares of restricted common stock shall vest at such time as the closing market price of the Company's common stock equals or exceeds twenty dollars ($20) per share for 20 consecutive trading days in any three-month period; and the final 83,334 shares of the Company's common stock shall vest at such time as the closing market price of the Company's common stock equals or exceeds thirty dollars ($30) per share for 20 consecutive trading days in any three-month period. Executive's right to receive any shares of Restricted Stock that have not so vested prior to November 7, 2007 shall terminate and any such Restricted Stock shall be retained by the Company. Notwithstanding the foregoing, Executive shall not be entitled to sell any such vested shares of Restricted Stock until the expiration of two years from the Effective Date (the "Holding Period"). The terms of such Restricted Stock will be more specifically set forth in a Restricted Stock Agreement substantially in the form attached as Exhibit B. (d) RESTRICTIONS ON RESTRICTED STOCK. Until Restricted Stock has vested and the Holding Period has expired, it may not be sold, transferred, assigned or pledged. Shares of Restricted Stock shall be evidenced by stock certificates bearing appropriate legends referring to the applicable terms, conditions and restrictions. Stock certificates representing the Restricted Stock will be registered in the name of Executive as of the date of this Agreement, but such certificates will be held by the Company until the shares vest and the Holding Period has expired, and Executive shall deliver to the Company a stock power, endorsed in blank, relating to the shares of Restricted Stock. At such time as Restricted Stock vests, and the expiration of the Holding Period with regard to such vested shares of Restricted Stock, a certificate representing such shares (less any shares retained by the Company to satisfy Executive's tax withholding obligations) will be delivered to Executive as soon as practicable. (e) DIVIDENDS AND VOTING. From and after the date of issuance of the Restricted Stock, Executive will have, with respect to the Restricted Stock, all the rights of a holder of common stock, including the right to receive any dividends or distributions paid on the common stock and the right to vote the shares of Restricted Stock. (f) INCOME TAX. Executive shall be required to make arrangements satisfactory to the Company to satisfy any applicable federal, state or local tax liability arising with respect to the Restricted Stock. Such arrangements may be satisfied by either making a cash payment to the Company of the required amount or by having the Company retain Restricted Stock having a value equal to the amount of Executive's federal, state and local tax obligation from the shares of Restricted Stock otherwise deliverable to Executive upon the vesting of such Restricted Stock and expiration of the Holding Period. If Executive fails to satisfy the obligations in a time and manner satisfactory to the Company, the Company may withhold all required amounts from Executive's compensation or other amounts payable under this Agreement to satisfy such federal, state and local tax obligations. Executive shall be solely responsible for determining whether to make, and for making, any election under Section 83(b) of the Internal Revenue Code of 1986 (as amended) with respect to the Restricted Stock. (g) EFFECT AND OTHER BENEFITS. Income recognized by Executive as the result of the grant or vesting of Restricted Stock, the expiration of the Holding Period or the receipt of dividends, unrestricted stock will not be included in any formula for calculating benefits under this Agreement or any benefit plan of the Company. 6. EMPLOYMENT BENEFITS AND VACATION. (a) During the Employment Term, Executive shall also be entitled to participate in all pension, retirement, savings, welfare and other pension and welfare employee benefit plans and arrangements and fringe benefits and perquisites generally maintained by the Company from time to time for the benefit of senior executives of the Company, in accordance with their respective terms as in effect from time to time (other than any special arrangement entered into by contract with an executive). (b) During the Employment Term, Executive shall be entitled to vacation each year in accordance with the Company's policies in effect from time to time, but in no event less than four (4) weeks paid vacation per calendar year. Executive shall also be entitled to such sick leave as is customarily provided by the Company for its senior executive employees. 7. MOVING EXPENSES. The Company will reimburse Executive on an after-tax basis for all reasonable expenses incurred by the Executive (i) for the relocation of his family to San Diego for the purpose of commencing Executive's employment pursuant to this Agreement, including one customary real estate commission, (ii) for interim living expenses in the San Diego area reasonably incurred to maintain Executive's normal standard of living for up to two years and (iii) for up to two trips to the San Diego area for Executive and Executive's spouse for the purpose of locating a residence. In the event that Executive's employment is terminated by the Company without Cause or Executive terminates his employment with the Company for Good Reason, in each case within one year after the Effective Date, the Company will reimburse Executive for all reasonable expenses incurred by Executive in the relocation of his family to Austin, Texas. 8. BUSINESS EXPENSES. Executive shall be reimbursed for the travel, entertainment and other business expenses incurred in the performance of his duties hereunder, in accordance with policies generally applicable to senior executives of the Company as in effect from time to time. 9. TERMINATION. (a) The employment of Executive under this Agreement shall terminate on the expiration of the Employment Term and earlier upon the occurrence of any of the following events: (i) the death of Executive; (ii) the termination by the Company of Executive's employment due to Executive's Disability pursuant to Section 9(b) hereof; (iii) the termination by Executive of Executive's employment for Good Reason pursuant to Section 9(c) hereof; (iv) the termination by the Company of Executive's employment without Cause; (v) the termination by Executive of Executive's employment without Good Reason upon sixty (60) days prior written notice; or (vi) the termination by the Company of Executive's employment for Cause pursuant to Section 9(e) hereof. (b) DISABILITY. If, by reason of the same or related physical or mental reasons, Executive is unable to carry out his material duties pursuant to this Agreement for more than three (3) months in any twelve (12) consecutive month period, the Company may terminate Executive's employment for Disability upon thirty (30) days prior written notice. (c) TERMINATION FOR GOOD REASON. A Termination for Good Reason means a termination by Executive by written notice given within ninety (90) days after the occurrence of the Good Reason event. For purposes of this Agreement, "Good Reason" shall mean the occurrence or failure to cause the occurrence, as the case may be, without Executive's express written consent, of any of the following circumstances, unless such circumstances are corrected prior to the date of termination specified in the Notice of Termination for Good Reason (as defined in Section 9(d) hereof): (i) the material breach by the Company of any of its obligations to Executive under this Agreement; (ii) any material diminution of Executive's positions, duties or responsibilities hereunder, as of the Effective Date (except in each case in connection with the termination of Executive's employment for Cause or Disability or as a result of Executive's death, or temporarily as a result of Executive's illness or other absence and provided that a reduction in the size or number of the units reporting to Executive as a result of dispositions, shall not be a material diminution), or the assignment to Executive of duties or responsibilities that are inconsistent with Executive's position as the Chief Executive Officer of the Company; (iii) removal of, or the nonreelection of, the Executive from his position as the Chief Executive Officer of the Company; (iv) a relocation of the principal executive offices of the Company to a location more than seventy-five (75) miles from its current location in San Diego, California, or a relocation of Executive away from such principal executive office; (v) failure by the Compensation Committee and Executive to agree on Performance Objectives, after good faith negotiations, within 60 days after submission to the Compensation Committee by Executive; or (vi) any change in the Company's Certificate of Incorporation or Bylaws not approved by Executive that materially and adversely diminish Executive's rights to indemnification in his capacity as an officer or director of the Company. (d) NOTICE OF TERMINATION OF GOOD REASON. A Notice of Termination for Good Reason shall mean a notice that shall indicate the specific termination provision in Section 9(c) relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Termination for Good Reason. The Notice of Termination for Good Reason shall provide for a date of termination not less than ten (10) nor more than sixty (60) days after the date such Notice of Termination for Good Reason is given. (e) CAUSE. Subject to the notification provisions of Section 9(f) below, Executive's employment hereunder may be terminated by the Company for Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i) willful misconduct by Executive with regard to the Company; (ii) the refusal of Executive to follow the proper written direction of the Board; PROVIDED, HOWEVER, that the foregoing refusal shall not be "Cause" if Executive in good faith believes that such direction is illegal, unethical or immoral and promptly so notifies in writing the entity or person giving the direction; (iii) Executive being convicted of a felony; (iv) the willful breach by Executive of any fiduciary duty owed by Executive to any Constituent Corporation which has a material adverse effect on the Company; or (v) Executive's material fraud with regard to any Constituent Corporation. (f) NOTICE OF TERMINATION FOR CAUSE. A Notice of Termination for Cause shall mean a notice that shall indicate the specific termination provision in Section 9(e) relied upon and shall set forth in reasonable detail the facts and circumstances which provide a basis for Termination for Cause. The date of termination for a Termination for Cause shall be the date indicated in the Notice of Termination. Any purported Termination for Cause which is held by a court not to have been based on the grounds set forth in this Agreement shall be deemed a Termination without Cause. 10. CONSEQUENCES OF TERMINATION OF EMPLOYMENT. (a) DEATH. If Executive's employment is terminated during the Employment Term by reason of Executive's death, the employment period under this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement except for (i) any compensation earned but not yet paid, including and without limitation, any declared but unpaid bonus, any amount of Base Salary or deferred compensation accrued or earned but unpaid, any accrued vacation pay payable pursuant to the Company's policies and any unreimbursed business expenses payable pursuant to Section 8, which amounts shall be promptly paid in a lump sum to Executive's estate; (ii) the product of (x) the target annual bonus for the fiscal year of Executive's death, multiplied by (y) a fraction, the numerator of which is the number of days of the current fiscal year during which Executive was employed by the Company, and the denominator of which is 365, which bonus shall be paid if and when bonuses for such period are paid to the other executive officers of the Company; (iii) subject to Section 11 hereof, any other amounts or benefits owing to Executive under the then applicable employee benefit plans or policies of the Company, which shall be paid in accordance with such plans or policies; and (iv) payment of the spouse's and dependent's COBRA coverage premiums to the extent, and as long as, they remain eligible for COBRA coverage, but in no event more than three (3) years. (b) DISABILITY. If Executive's employment is terminated by reason of Executive's Disability, Executive shall be entitled to receive the payments and benefits to which his representatives would be entitled in the event of a termination of employment by reason of his death; PROVIDED that the payment of Base Salary shall be reduced by the projected amount he would receive under any long-term disability policy maintained by the Company or program maintained by the Company during the twelve (12) month period during which Base Salary is being paid. (c) TERMINATION BY EXECUTIVE FOR GOOD REASON OR FOR CHANGE IN CONTROL. If (i) Executive terminates his employment hereunder for Good Reason during the Employment Term; or (ii) a Change in Control occurs and within 180 days thereafter Executive terminates his employment for any reason, Executive shall be entitled to receive the payments and benefits to which his representatives would be entitled in the event of a termination of employment by reason of his death plus payment on a monthly basis of twelve (12) months of Base Salary in effect as of the start of the fiscal year in which such termination occurs, in accordance with usual Company payroll practices. In addition, in the event Executive terminates his employment as a result of a Change of Control, Executive's non-qualified stock options shall immediately vest and become exercisable and Executive's Restricted Stock shall immediately vest. (d) TERMINATION WITH CAUSE OR VOLUNTARY RESIGNATION WITHOUT GOOD REASON. If Executive's employment hereunder is terminated (i) by the Company for Cause; or (ii) by Executive without Good Reason except within 180 days following a Change in Control, the Executive shall be entitled to receive only his Base Salary through the date of termination, any earned but unpaid bonus for such year, any unreimbursed business expenses payable pursuant to Section 8 and any other benefits subject to Section 10(a)(iii) hereof to which he is entitled by law. All other benefits (including, without limitation, rights to retain Restricted Stock and rights to exercise options) due Executive shall terminate upon such termination of employment. (e) NON RENEWAL BY THE COMPANY OR TERMINATION BY THE COMPANY WITHOUT CAUSE. If this Agreement is not renewed by the Company at the end of the Employment Term or Executive's employment is terminated by the Company without cause, Executive shall be entitled to receive the payment and benefits to which his representatives would be entitled in the event of a termination of employment by reason of his death plus payment on a monthly basis of twelve (12) months of Base Salary in effect as of the start of such fiscal year, in equal shares all in accordance with usual Company payroll practices. (f) PARACHUTE PAYMENTS. Notwithstanding the foregoing, the benefits provided to the Executive under Section 10(c) on account of a Change in Control shall be reduced if and to the extent that a nationally recognized firm of compensation consultants or auditors designated by the Company determines that such reduction will result in a greater net after-tax benefit to the Executive than the Executive would obtain in the absence of such reduction, taking into account any excise tax payable by the Executive under Internal Revenue Code Section 4999. The allocation of the reduction required hereby among the benefits shall be determined by the Executive. 11. NO MITIGATION: NO SET-OFF. In the event of any termination of employment under Section 9, Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain. Any amounts due under Section 10 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. Such amounts are inclusive and in lieu of any amounts payable under any other salary continuation or cash severance arrangement of the Company or any affiliate thereof and to the extent paid or provided under any other such arrangement shall be offset from the amount due hereunder. 12. CHANGE IN CONTROL. Subject to the provisions of Section 12(b) hereof, for purposes of this Agreement, the term "Change in Control" shall mean (a) any "person" (as defined in the Act) not an affiliate of the Company on the Effective Date becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in this paragraph) whose election by the Board of the Company or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets other than the sale of all or substantially all of the assets of the Company to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale. 13. CONFIDENTIAL INFORMATION, NON-COMPETITION AND NON-SOLICITATION OF THE COMPANY. (a) (i) Executive acknowledges that, as a result of his employment hereunder, Executive will obtain secret and confidential information of the Company and the Company will suffer substantial damage, which would be difficult to ascertain and in an amount which would be difficult to compute, if Executive should use any of such confidential information and that because of the nature of the information that will be known to Executive, it is necessary for the Company to be protected by the prohibition against Competition as set forth herein, as well as the Confidentiality restrictions set forth herein. (ii) Executive acknowledges that the retention of non-clerical employees of the Company, in which the Company has invested training and on which the Company depends for the operation of its business, is important to the businesses of the Company; Executive will obtain unique information as to such employees as an executive of the Company and will develop a unique relationship with such persons as a result of being an executive of the Company; and, therefore, it is necessary for the Company to be protected from Executive's Solicitation of such employees as set forth below. (iii) Executive acknowledges that the provisions of this Agreement are reasonable and necessary for the protection of the business of the Company and that part of the compensation paid under this Agreement and the agreement to pay severance in certain instances is in consideration for the agreements in this Section 13. (b) As used herein, "Competition" shall mean: participating, directly or indirectly, as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, consultant or in any capacity whatsoever (within the United States of America, or in any other country where any Constituent Corporation does business) in a business that owns or operates off price apparel and housewares stores (or any other business in which any Constituent Corporation is then engaged); PROVIDED, HOWEVER, that such participation shall not include (i) the ownership of not more than one percent (1%) of the total outstanding stock of a publicly-held company; or (ii) any activity engaged in with the prior written approval of the Board. (c) As used herein, "Solicitation" shall mean recruiting, soliciting or inducing any non-clerical employee of any Constituent Corporation to terminate his or her employment with, or otherwise cease his or her relationship with, such Constituent Corporation or hiring, or assisting another person or entity to hire, any non-clerical employee of any Constituent Corporation or any person who, within six (6) months before, had been a non-clerical employee of any Constituent Corporation, unless the employment of such person by a Constituent Corporation was terminated involuntarily and without cause. (d) If any restriction set forth with regard to Competition or Solicitation is found by any court of competent jurisdiction, or an arbitrator, to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographical area, it shall be interpreted to extend over the maximum period of time, range of activities or geographic area as to which it may be enforceable. If any provision of this Section 13 shall be declared to be invalid or enforceable, in whole or in part, as a result of the foregoing, as a result of public policy or for any other reason, such invalidity shall not affect the remaining provisions of this Section, which shall remain in full force and effect. (e) During and after the Employment Term, Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company and its business, including any confidential information as to suppliers (i) obtained by Executive during his employment by the Company and (ii) not otherwise in the public domain. Executive shall not, without prior written consent of the Company, unless compelled pursuant to the order of a court or other government or legal body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company, and those designated by it. In the event Executive is compelled by order of a court or other governmental or legal body to communicate or divulge any such information, knowledge or data to anyone other than the foregoing, he shall promptly notify the Company of any such order and he shall cooperate fully with the Company in protecting such information to the full extent, possible under applicable law, (f) Upon termination of his employment with the Company, or at any time the Company may request, Executive will promptly deliver to the Company, as requested, all documents (whether prepared by the Company, Executive or a third party) relating to the Company or any of its business or property which he may possess or have under his direction or control, other than his personal employment and personnel records. (g) During the Employment Term and for one (1) year thereafter, Executive will not enter into Competition with the Company; provided, however, that Executive's obligation under this sentence shall be suspended during any time when the Company is in breach of any payment obligation under Section 10(c) or 10(e) of this Agreement. Furthermore, in the event of any termination of Executive's employment for any reason whatsoever, whether by the Company or by the Executive and whether or not for Cause, Good Reason or expiration of the Employment Tem, the Executive will not engage in Solicitation for one (1) year thereafter. (h) Executive acknowledges that in the event of a breach of this Section 13, the Company will be caused irreparable injury and money damages may not be an adequate remedy. Consequently, Executive agrees that the Company shall be entitled to seek injunctive relief (in addition to its other remedies at law) to have the provisions of this Section 13 enforced. 14. INDEMNIFICATION. (a) The Company agrees that if Executive is made a party to or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director or officer of any Constituent Corporation or is or was serving at the request of any Constituent Corporation as a director, officer, member, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including, without limitation, service with respect to employee benefit plans, whether or not the basis of such Proceeding is alleged action in an official capacity as a director, officer, member, employee, fiduciary or agent while serving as a director, officer, member, employee, fiduciary or agent, he shall be indemnified and held harmless by the applicable company to the fullest extent authorized by applicable law against all Expenses incurred or suffered by Executive in connection therewith, and such indemnification shall continue as to Executive even if Executive has ceased to be an officer, director, member, fiduciary or agent, or is no longer employed by such company, and shall inure to the benefit of his heirs, executors and administrators. (b) As used in this Agreement, the term "Expenses" shall include, without limitation, damages, losses, judgments, liabilities, fines, penalties, excise taxes, settlements and costs, attorneys' fees, accountants' fees and disbursements and costs of attachment or similar bonds, investigations and any expenses of establishing a right to indemnification under this Agreement. (c) To the extent permitted by applicable law, Expenses incurred by Executive in connection with any Proceeding shall be paid in advance upon request of Executive and the giving by the Executive of any undertakings required by applicable law. (d) Executive shall give the Company notice of any claim made against him for which indemnity will or could be sought under this Agreement. In addition, Executive shall give the Company such information and cooperation as it may reasonably require and as shall be within Executive's power and at such times and places as are reasonably convenient for Executive. (e) With respect to any Proceeding involving Executive: (i) The Company will be entitled to participate therein at its own expense; and (ii) Except as otherwise provided below, to the extent that it may wish, the Company will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Executive, in which case Executive also shall have the right to participate and employ his own counsel in such action, suit or proceeding, but only at his own cost and expense, PROVIDED that the Company shall only be permitted to assume defense of a Proceeding if (l) the Proceeding could not result in imposition of criminal penalties against Executive and (2) the Company acknowledges that it is liable to indemnify Executive with respect to all Expenses with respect to such Proceedings, except as provided earlier in this sentence with regard to Executive's own counsel. (f) The Company shall not be liable to indemnify Executive under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner which would impose any penalty on Executive (except a penalty in respect of which Executive is fully indemnified hereunder) without Executive's written consent. Neither the Company nor Executive will unreasonably withhold or delay consent to any proposed settlement. (g) The right to indemnification and the payment of expenses incurred in defending a Proceeding in advance of its final disposition conferred in this Section 14 shall not be exclusive of any other right which Executive may have or hereafter may acquire under any statute, provision of the certificate of incorporation or by-laws of the Company, agreements, vote of stockholders or disinterested directors or otherwise. (h) The Company shall obtain officer and director liability insurance policies covering Executive in the same aggregate amount and under the same terms as are currently maintained by the Company for senior officers and directors and use commercially reasonable efforts to maintain such policies or replacement policies with substantially the same limits in effect during the term of Executive's employment by the Company. 15. MISCELLANEOUS. (a) ENTIRE ARRANGEMENT/AMENDMENTS. This Agreement and the instruments contemplated herein, contain the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter hereof other than those expressly set forth herein and therein. This Agreement may not be altered, modified or amended except by written instrument signed by the parties hereto. (b) NO WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any such waiver must be in writing and signed by Executive or an authorized officer of the Company, as the case may be. (c) ASSIGNMENT. This Agreement shall not be assignable by Executive. This Agreement shall be assignable by the Company, but only to another Constituent Corporation and only if such Constituent Corporation promptly assumes all of the obligations hereunder of the Company in a writing delivered to the Executive and otherwise complies with the provisions hereof with regard to such assumption. Upon such assignment and assumption, all obligations of the Company herein shall be the obligations of the assignee entity or acquiror, as the case may be, but the Company shall remain secondarily liable for the obligations hereunder. (d) SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the personal or legal representatives, executors, administrators, successor, heirs, distributees, devisees legatees and permitted assignees of the parties hereto. (e) COMMUNICATIONS. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when faxed or delivered in person; or (ii) two business days after mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the signature page of this Agreement, PROVIDED that all notices to the Company shall be directed to the Chairman of the Compensation Committee of the Company or to such other address as any party may have furnished to the other in writing in accordance herewith. Notice of change of address shall be effective only upon receipt. (f) WITHHOLDING TAXES. The Company may withhold from any and all amounts payable under this Agreement to Executive such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. (g) SURVIVAL. The respective rights and obligations of the parties hereunder shall survive any termination of Executive's employment to the extent necessary to the agreed preservation of such rights and obligations. (h) COUNTERPARTS. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. (i) HEADINGS. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provisions of this Agreement. (j) Notwithstanding anything to the contrary in this Agreement, the Company shall not be required to take any action or make any payment to the extent such action or payment would be inconsistent with or violate the provisions of the Sarbanes-Oxley Act of 2002. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written, FACTORY 2-U STORES, INC. By: /s/ WILLEM DE VOGEL -------------------------------------------- Compensation Committee Chairman Address: 4000 Ruffin Road San Diego, California 92123-1866 Telephone: (858) 627-1800 Fax: (858) 637-4199 /s/ WILLIAM R. FIELDS ------------------------------------------------ William R. Fields Address: 103 Bella Cima Austin, Texas 78734 Telephone: (512) 266-0206 Fax: (512) 266-6495 EX-99.3 5 e700215ex99_3.txt EXHIBIT 99.3 Exhibit 99.3 Factory 2-U Stores, Inc. 4000 Ruffin Road San Diego, California 92123-1866 November 4, 2002 Ronald Rashkow Chapman Partners, L.L.C. 6250 North River Road, Suite 12-300 Rosemont, Illinois 60018 Dear Ron: Consistent with evolving standards of corporate governance, we have determined to create the position of Lead Director. The Lead Director will be selected by the full Board of Directors from among the independent directors, and will act as a liaison between the Board of Directors and the Chairman and CEO. The Lead Director will also act in a leadership role with the Board of Directors, including coordination of meeting agendas with the Chairman and CEO. After due consideration, and with the approval of the Board of Directors, we are pleased to offer you the position of Lead Director. Because of the significant additional responsibilities that the Lead Director will assume, which are discussed below, your compensation as Lead Director, which will be in lieu of any other compensation as a member of the Board of Directors, is summarized below. DUTIES o Minimum of two days per month to be spent with the Chairman and CEO to evaluate business segments, status, progress, overall strategic outlook and such other matters as you, the Chairman and CEO or the Board of Directors deem appropriate. o Up to an additional six days per quarter to be spent with the Chairman and CEO if desired by you, the Chairman and CEO or the Board of Directors. o All meetings between the Chairman and CEO, and you, will be at mutually convenient times and locations. o Start date to be November 4, 2002, with service to continue at the pleasure of the Board of Directors for up to three years. COMPENSATION o Fully vested grant of 50,000 options, to be granted under the Company's stock option plan if approved by the stockholders at the Company's next annual meeting of stockholders or, if such approval is not obtained, by contract not subject to the Plan. The option would be exercisable for five years from date of grant at a price equal to the fair market value of the Company's common stock on the date of your acceptance of this letter agreement. o On or about November 7, 2002, a grant of 25,000 shares of restricted common stock, subject to your completion of 12 months of service as Lead Director. o Monthly compensation of $12,500, plus reimbursement of all reasonable out-of-pocket travel and other expenses related to the performance of your duties as Lead Director. o Target grants of 25,000 similar shares of restricted common stock, subject to your completion of 24 and 36 months of service as Lead Director, commensurate with achievement of CEO's performance goals for the applicable year. By way of example, if the CEO received 50% of his performance bonus for such year, you would receive a grant of 12,500 shares of restricted stock for such year. In the event that such periods of service do not dovetail with the periods of such performance goals, the number of shares of restricted stock will be determined in good faith by the Board of Directors based on achievements during the relevant periods. o $3,500 per day, plus reimbursement of all reasonable out-of-pocket travel and other expenses related to the performance of your duties as Lead Director, for each day of service in excess of six days per quarter (i.e. in excess of two days per month). If these terms are acceptable to you, please sign below and return a copy of this letter agreement to me. We are confident that your experience and expertise will provide significant benefit to the Company and our shareholders. Very truly yours, Factory 2-U Stores, Inc By: /s/ WILLEM DE VOGEL ---------------------------------- Willem de Vogel Chairman of Compensation Committee AGREED AND ACCEPTED: /s/ RONALD RASHKOW - ------------------------------ Ronald Rashkow Date: November 4, 2002 -----END PRIVACY-ENHANCED MESSAGE-----