-----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, CrABC1ZJzYHLEmllhqP9oGoLuTIUEEpOBfZpAN7cnMhz8KYHBDqR5linjvD8RaIe agJp3M/NjvMgj2idmNHNEA== 0000075042-02-000003.txt : 20020415 0000075042-02-000003.hdr.sgml : 20020415 ACCESSION NUMBER: 0000075042-02-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011229 FILED AS OF DATE: 20020325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSHKOSH B GOSH INC CENTRAL INDEX KEY: 0000075042 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 390519915 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13365 FILM NUMBER: 02583678 BUSINESS ADDRESS: STREET 1: 112 OTTER AVE STREET 2: P O BOX 300 CITY: OSHKOSH STATE: WI ZIP: 54901 BUSINESS PHONE: 9202318800 MAIL ADDRESS: STREET 1: 112 OTTER AVE CITY: OSHKOSH STATE: WI ZIP: 54901 10-K 1 dec10k01.txt OSHKOSH B'GOSH FORM 10-K 12/29/01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Mark One [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 29, 2001 OR [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission File No. 0-13365 OshKosh B'Gosh, Inc. A DELAWARE Corporation 39-0519915 (I.R.S. ID) 112 Otter Avenue Oshkosh, Wisconsin 54901 Telephone number: (920) 231-8800 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, Par Value $.01 per share Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [] As of March 1, 2002, there were outstanding 10,187,201 shares of Class A Common Stock and 2,206,844 shares of Class B Common Stock, of which 9,678,066 shares and 958,271 shares, respectively, were held by non-affiliates of the Company. Based upon the closing sales price as of March 1, 2002, the aggregate market value of the Class A Common Stock held by non-affiliates was $386,929,079. The Class B Common Stock is no longer listed or quoted on any established trading market, but it is convertible into Class A Common Stock on a share-for-share basis. Based on that conversion right, the value of Class B Common Stock held by non-affiliates was $38,311,675. DOCUMENTS INCORPORATED BY REFERENCE OshKosh B'Gosh, Inc. definitive Proxy Statement for its annual meeting to be held on May 3, 2002 (or such later date as the directors may determine), incorporated into Part III. INDEX PART I PAGE Item 1. Business 2 (a) General Development of Business 2 (b) Financial Information About Industry Segments 2 (c) Narrative Description of Business 2 Products 2 Raw Materials, Manufacturing and Sourcing 3 Sales and Marketing 4 International Licensing and Distribution 5 Trademarks 5 Seasonality 5 Working Capital 5 Backlog 5 Competitive Conditions 6 Environmental Matters 6 Employees 6 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters 7 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 8 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 13 Item 8. Financial Statements and Supplementary Data 13 Item 9. Disagreements on Accounting and Financial Disclosure 28 PART III Item 10. Directors and Executive Officers of the Company 28 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 28 Item 13. Certain Relationships and Related Transactions 28 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 28 PART I ITEM 1. BUSINESS (a) General Development of Business OshKosh B'Gosh, Inc. (together with its subsidiaries, the "Company") was founded in 1895 and was incorporated in the state of Delaware in 1929. The Company designs, sources, and markets apparel primarily for the children's wear and youth wear markets. While its heritage began in the men's work wear market, the Company is currently best known for its line of high quality children's wear. It is the Company's vision to become the dominant global marketer of branded products for children ages newborn to ten through leverage of the existing brand franchise in OshKosh B'Gosh and utilization of the Company's core competencies to supply the market with all appropriate products for children where quality, durability, and fashion innovation are important. The Company is also pursuing niche opportunities in adult apparel, where the Company's century old heritage can provide meaningful differential advantage to address the needs of the marketplace. The success of the children's wear business can be attributed to the Company's core themes: quality, durability, style, trust, and Americana. These themes have propelled the Company to the position of market leader in the branded children's wear industry. The Company strategically extends the product line and also leverages the economic value of the OshKosh B'Gosh name via both domestic and international licensing agreements. In addition to the Company's wholesale business, the Company also operates a chain of 141 domestic OshKosh B'Gosh branded stores, including 134 factory outlet stores, two showcase stores, and five strip mall stores. The Company operates an OshKosh B'Gosh showcase store in New York City to feature a full line of OshKosh products in a signature environment designed to reinforce brand awareness among consumers. The Company's retail product line in its OshKosh B'Gosh branded stores includes OshKosh B'Gosh branded product in sizes from newborn to girls 6X and boys 7 and youth wear for girls and boys under the trade names Genuine Girl (girls sizes 7-16) and Genuine Blues (boys sizes 8-16). The Company's comprehensive strategic planning initiative guides the Company's business focus. Under this initiative, combined with management's commitment to more efficiently utilize working capital, the Company continues to take steps to improve product marketability, streamline operations, reduce its capital base and cost structure, and improve delivery performance. These actions include an analysis of product extensions, commitment to the wholesale customer base, periodic review of significant licensee arrangements, and continued development of an effective global sourcing strategy. The Company designs and sources substantially all of its non- licensed apparel products marketed and sold in the United States. Company designers develop fabrication, trim accessories, and detailed manufacturing specifications. The product is then manufactured according to detailed Company specifications and production schedules at third party contractor locations worldwide or in Company-owned manufacturing facilities. Product sourcing is based predominantly on manufacturing capacity, quality, and lead times, in addition to capabilities of specific manufacturing facilities. The Company leverages its name and brand equity into a wide variety of children's products including children's apparel accessory items such as hats, socks, sleepwear, footwear and outerwear, as well as non apparel brand extensions including eyewear, bedding and other nursery decor and juvenile products including car seats, strollers, books, luggage and developmental toys. The Company regularly reviews the seasonal offerings of all related products both locally and internationally for consistency, brand image, and quality. The Company earns royalties for use of its name on children's and men's wear products throughout the world, and from related accessories distributed in the United States and worldwide. (b) Financial Information About Industry Segments The Company designs, sources, and markets apparel products using primarily the OshKosh B'Gosh brand. The apparel products are primarily marketed in two distinct distribution channels: domestic wholesale and through Company-owned retail stores. The Company designs and sources product to meet the needs of these distribution channels through a single procurement business unit. The Company manages its business operations by periodic analysis of business unit operating results. For this purpose, domestic wholesale, retail, and procurement are separately identified for management reporting and are considered business segments. See Note 12 "Segment Reporting" in the Notes to the Consolidated Financial Statements for additional information about the Company's business segments. (c) Narrative Description of Business Products The Company designs, sources and markets a broad range of children's clothing as well as lines of youth wear under the OshKosh(Registered), OshKosh B'Gosh(Registered), Genuine Girl(Registered), and Genuine Blues(Registered) labels. The products are distributed primarily through better quality department and specialty stores, Company-owned retail stores, and foreign retailers. The children's wear and youth wear business is targeted to reach the middle to upper middle segment of the sportswear market through the use of innovative designs, quality fabrics, and classic styling. The Company believes that its trade name is a valuable asset in the marketing of its apparel, signifying apparel that is classic in design and of high quality construction. The Company tradename and trademarks are generally displayed on OshKosh product or on the hang tags accompanying the product on the retail shelves. Children's wear is marketed in size ranges from layette/newborn and infant/toddler to girls 6X and boys 7. Youth wear is in size ranges girls 7 to 16 and boys 8 to 16. The Company's children's wear and youth wear business includes a broad range of product categories, which are offered in two main groups: Fashion and Classics. The Fashion group is organized primarily in a collection format of seasonal themes, developed by an in-house product development staff. The products in a collection share a primary design theme which is carried out through fabric design and the distinctive use of colors, screenprint, embroidery, and trim applications. These collections are generally presented as three to five small groups within each merchandising season. The Company also offers a Classics product line, consisting primarily of staple denim products with multiple wash treatments and coordinating garments. This product line is developed to be somewhat less seasonal, with signature OshKosh B'Gosh classic styling. These styles are available to retail customers for replenishment throughout the year. Some Classics items are also designed to serve as a foundation for the Fashion group, with seasonal colors and styles to complement the Company's Fashion product offering. Most products are designed by an in-house staff. Product design requires long lead times, with products generally being designed a year in advance of the time they actually reach the retail market. While the Company's products are generally traditional in nature and not intended to be "designer" items, the Company attempts to incorporate current trends and consumer preferences in its designs. In selecting fabric and prints for its products, the Company seeks, where possible, to obtain exclusive rights to unique fabric designs from its suppliers in order to provide the Company, for a limited period of time, with some protection from imitation by competitors. Raw Materials, Manufacturing, and Sourcing All raw materials used in the manufacture of Company products are purchased from unaffiliated suppliers. The Company purchases its raw materials directly for its owned manufacturing facilities and may also procure and retain ownership of fabric related to garments cut and assembled by contract manufacturers. In other circumstances, fabric is procured by the contract manufacturer directly but in accordance with the Company's specifications. In 2001, approximately 88% of the Company's direct expenditures for raw materials (fabric) were from its five largest suppliers, with the largest such supplier accounting for approximately 50% of total raw material expenditures. Fabric and various non-fabric items such as thread, zippers, rivets, buckles, and snaps, are purchased from a variety of domestic and foreign sources, based on quality, pricing, and availability. The fabric and accessory market in which OshKosh B'Gosh purchases its raw materials is composed of a substantial number of suppliers with similar products and capabilities, and is characterized by a high degree of competition. As is customary in its industry, the Company has no long-term contracts with its suppliers. To date, the Company has experienced little difficulty in satisfying its requirements for raw materials, considers its sources of supply to be adequate, and believes that it would be able to obtain sufficient raw materials should any one of its product suppliers becomes unavailable. Product development and administration are primarily coordinated from the Company's headquarters facility in Oshkosh, Wisconsin. The majority of the product engineering and sample making, allocation of production among plants and independent contractors, material purchasing, and invoice payment is done through the Company's Oshkosh headquarters. Substantially all designs and specifications utilized by independent manufacturers are provided by the Company. In 2001, approximately 93% of the Company's product line was sourced from numerous third- party contractors throughout the world and off-shore Company-operated facilities in accordance with the Company's specifications. Most domestic sewing production for 2001 took place in the Company's one Tennessee and two Kentucky plants. However, the Company closed the Tennessee facility in April 2001, a Kentucky plant in 2001, and intends to downsize the remaining Kentucky plant in early 2002, leaving limited domestic production capability. Due in part to changes in import duty regulations under the North American Free Trade Act and the United States-Caribbean Basin Trade Partnership Act, which became effective October 1, 2000, the Company has taken an increasingly global view of its entire manufacturing process. The North American Free Trade Act and the United States-Caribbean Basin Trade Partnership Act have significantly reduced the requirements that certain manufacturing processes be performed in the United States to receive preferential duty treatment. The Company has expanded its base of contractors outside of the U.S. with expertise in any of the five major manufacturing functions - cutting fabric, screenprinting, embroidery, sewing and finishing. These changes are consistent with the Company's direction over the last several years to review its internal manufacturing capacity and utilization, close or downsize domestic facilities, and expand the use of offshore manufacturing capabilities. These offshore manufacturing capabilities include two company-operated facilities in Mexico and one in Honduras, as well as unrelated third-party contractors. In 2001, approximately 30% of the Company's units sourced were from Company-operated offshore facilities. These changes are part of the Company's ongoing strategic initiatives to improve its product cost structure. The Company has established guidelines for each of its third- party manufacturers in order to monitor product quality, labor practices, and financial viability. It also employs agents, based in regional locations abroad, to monitor compliance with design specifications and quality standards. The Company believes that its overall global manufacturing strategy gives the Company maximum flexibility to properly balance the need for timely shipments, high quality products, and competitive pricing. While no long-term, formal arrangements exist with its third- party manufacturers, the Company considers these relationships to be satisfactory. The Company believes it could, over a period of time, obtain adequate alternative production capacity if any of its independent manufacturers become unavailable. As part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia, Mexico and Central America. If financial, political or other related difficulties were to adversely impact the Company's contractors in these regions, it could disrupt the supply of products contracted for by the Company. A sustained disruption of such sources of supply could, particularly on a short-term basis, have an adverse impact on the Company's operations. Because higher quality apparel manufacturing is generally labor intensive (sewing, pressing, finishing and quality control), the Company and its contract manufacturers have continually sought to take advantage of time saving technical advances in areas like computer-assisted design, computer-controlled fabric cutting, computer evaluation and matching of fabric colors, automated sewing processes, and computer-assisted inventory control and shipping. Quality control inspections of both semi-finished and finished products are required at manufacturing locations to assure compliance. Customer orders for Fashion products are booked from three to six months in advance of shipping. Because most Company production of styled products is scheduled to fill orders already booked, the Company believes that it is better able to plan its production and delivery schedules than would be the case if production were in advance of actual orders. In order to secure necessary fabrics on a timely basis and to obtain manufacturing capacity from independent suppliers, the Company must make substantial advance commitments, sometimes as much as five to seven months prior to receipt of customer orders. Inventory levels therefore depend on Company judgment of market demand. Sales and Marketing In order to meet the diverse needs of its broad customer base, the Company uses a wide variety of distribution channels to market its products. Wholesale distribution is made primarily through better quality department and specialty stores, although sales are also made through direct mail catalog companies, foreign retailers, and other outlets. In 2001, the Company's products were sold to approximately 540 wholesale customers (approximately 4,340 stores) throughout the United States and internationally. Product sales to better quality department and specialty stores are made primarily by the Company's sales force. In addition to the central sales office in Oshkosh, the Company maintains a sales office in New York. A majority of the Company's sales force is assigned specific large national accounts, while others are assigned to defined geographic territories. In sparsely populated areas and new markets, manufacturer's representatives represent the Company on a non-exclusive basis. In addition to its wholesale activities, OshKosh B'Gosh products are also sold through 141 Company-owned domestic retail stores, operating under three formats: factory outlet stores, showcase stores, and strip mall stores. The Company operates 134 domestic factory outlet stores, which carry a large selection of first quality Company branded apparel at a discount to conventional retail prices. The factory outlet stores also provide a means of distributing excess and out-of-season product, reducing the amount of such product sold to discounters at excessively low prices. The two showcase stores are full service stores featuring a complete line of OshKosh B'Gosh product in a signature environment designed to convey the total OshKosh image and build brand recognition among customers. The stores are also used to test new styles and merchandising strategies. The Company continues to test its strip center retail prototype by operating five strip mall stores in 2001. These strip mall stores feature a large selection of OshKosh B'Gosh products that are consistently value priced. The Company maintains an e-commerce site (oshkoshbgosh.com), offering a comprehensive collection of the Company's current product at pricing comparable to its outlet stores. The Company's broad distribution base insulates the Company from reliance on any one customer. The Company's largest wholesale customer, Kids 'R' Us, accounted for 11.0% of the Company's 2001 sales, while the Company's largest ten and largest 100 customers accounted for approximately 32.0% and 45.9% of 2001 sales, respectively. Domestic marketing programs are aimed at both the Company's retail accounts and ultimate consumers, with a main goal of increasing overall brand awareness. A national marketing program includes advertising in both consumer and trade publications, local cooperative advertising, promotions, and in-store merchandising. The Company is partnering with department store customers to enhance brand presentation and availability of the OshKosh B'Gosh brand through the creation of "showcase" environments. The showcase environment is a focused merchandising strategy that creates a high impact retail presentation of the OshKosh brand. By the use of custom fixtures, comprehensive in-store merchandising support, focused advertising, and promotions, the Company, along with its key customers, is able to communicate a powerful and consistent brand presence to the consumer. International Licensing and Distribution The Company's products are distributed worldwide through approximately 32 licensees and distributors in over 50 countries. Licensing and distribution agreements allow the Company to develop international markets without the need to maintain a capital commitment in localized warehousing, offices, personnel, and inventory. The Company provides design assistance to its licensees to ensure products are appropriate to each foreign market and consistent with the Company's brand image. The licensees and distributors either purchase fabric or finished product directly from the Company, manufacture their own product, or contract the production of the product from third-party manufacturers. Each licensee and distributor is responsible for the marketing and distribution of specific product categories within defined regions specified in the licensing or distribution agreement. Distribution must be through marketing channels consistent with the Company's domestic operations and as approved by the Company. The Company also provides advertising guidelines and support in the development of localized marketing programs. Trademarks The Company utilizes the OshKosh(Registered), OshKosh B'Gosh(Registered), Genuine Girl(Registered), or Genuine Blues(Registered) trademarks on most of its products. Other significant trademarks include a white triangular patch on the back of bib garments and the Genuine Article(Registered). The Company currently has approximately 46 trademark registrations and eight pending trademark applications in the United States and has trademark registrations in approximately 115 countries outside the U.S. These trademarks and awareness of the OshKosh B'Gosh name are significant in marketing the products. Therefore, it is the Company's policy to vigorously defend its trademarks against infringement under the laws of the U.S. and other countries. The Company is not aware of any material infringing uses. Seasonality Products are designed and marketed primarily for three principal selling seasons: RETAIL PRIMARY SALES SEASON BOOKING PERIOD SHIPPING PERIOD Spring/Summer August-September Late December-May Fall/Back-to-School January-February June-August Winter/Holiday April-May September-December The Company's business is increasingly seasonal, with highest sales and income in the third quarter, which is the Company's peak wholesale shipping period and a major retail selling season at its retail stores. The Company's second quarter sales and income are the lowest because of both relatively low domestic wholesale unit shipments and relatively modest retail store sales during this period. The Company anticipates this seasonality trend to continue to impact 2002 quarterly sales and income. Working Capital Working capital needs are affected primarily by inventory levels, outstanding accounts receivable, and trade payables. The Company's unsecured credit agreement with a number of banks, as amended, provides a $44 million term loan for the repurchase of shares of its common stock, and a $75 million revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The revolving credit facility expires November 3, 2002. The Company intends to extend this revolving credit facility during the first half of 2002. There were no outstanding borrowings against the revolving credit arrangement at December 29, 2001, with $24 million of outstanding long-term debt under the share repurchase component of the credit agreement. Inventory levels are affected by order backlog and anticipated sales. Accounts receivable are affected by payment terms offered. It is general practice in the apparel industry to offer payment terms of ten to sixty days from date of shipment. The Company generally offers net 30 day terms. The Company believes that its working capital requirements and financing resources are comparable with those of other major, financially sound, like-sized apparel companies. Backlog The dollar amount of the backlog of orders believed to be firm as of the end of the Company's fiscal year and as of the preceding fiscal year end is not material for an understanding of the business of the Company taken as a whole. Competitive Conditions The apparel industry is highly competitive and consists of a number of domestic and foreign companies. Some competitors have assets and sales greater than those of the Company. In addition, the Company competes with a number of firms that produce and distribute only a limited number of products similar to those sold by the Company, or sell only in certain geographic areas being supplied by the Company. A characteristic of the apparel industry is the requirement that a marketer recognize fashion trends and adequately provide products to meet such trends. Competition within the apparel industry is generally in terms of quality, price, service, style, and with respect to branded product lines, consumer recognition, and to a lesser extent on the basis of service and price. The Company is focusing attention on the issues of price and service, and has taken, and will continue to take, steps to reduce costs, become more competitive in the eyes of value conscious consumers, and deliver the service expected by its customers. The Company's share of the overall children's wear market is quite small. This is due to the diverse structure of the market where there is no truly dominant producer of children's garments across all size ranges and garment types. The Company believes that in its primary channel of distribution, department and specialty stores, it holds the largest share of the branded children's wear market. Environmental Matters The Company's compliance with Federal, State, and local environmental laws and regulations in recent years had no material effect upon its capital expenditures, earnings, or competitive position. The Company does not anticipate any material capital expenditures for environmental control in either the current or succeeding fiscal years. Employees At December 29, 2001, the Company employed approximately 5,300 persons. Approximately 10% of the Company's personnel are covered by collective bargaining agreements with the United Food and Commercial Workers Union. ITEM 2. PROPERTIES Approximate Floor Area in Location Square Feet Principal Use Albany, KY 20,000 Sample Production Celina, TN 38,250 Laundering/Pressing Choloma, Honduras (2) 47,000 Manufacturing Gainesboro, TN 61,000 Sample Production/Distribution Liberty, KY 218,000 Distribution/Warehousing New York City, NY (1) 18,255 Sales Offices/Showroom Oshkosh, WI 99,000 Exec. & Operating Offices Oshkosh, WI 128,000 Vacant Uman, Mexico (3) 134,000 Manufacturing Merida, Mexico (4) 29,000 Manufacturing White House, TN 284,000 Distribution/Warehousing
All properties are owned by the Company with the exception of: (1) Lease expiration date--2007, (2) Lease expiration date--2006, (3) Lease expiration date--2006, (4) Lease expiration date--2006. The Company believes that its properties are well maintained and its manufacturing equipment is in good operating condition and adequate for current production. The Company's retail stores occupy leased premises, with lease terms generally in the range of 5 - 7 years. These leasehold interests are generally well suited for the Company's retail operations. For information regarding the terms of the leases and rental payments thereunder, refer to Note 6 to the consolidated financial statements of this Form 10-K. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various claims and lawsuits incidental to its business. In the opinion of management, these claims and lawsuits will not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Quarterly Common Stock Data 2001 2000 Stock price Dividends Stock price Dividends High Low per share High Low per share Class A Common Stock 1st $ 25.50 $ 17.88 $ .05 $ 19.84 $ 15.50 $ .05 2nd 36.75 25.63 .05 19.50 13.94 .05 3rd 34.80 24.24 .06 16.63 13.69 .05 4th 42.77 23.92 .06 20.38 14.06 .05 Class B Common Stock 1st - - $ .0425 - - $ .0425 2nd - - .0425 - - .0425 3rd - - .0525 - - .0425 4th - - .0525 - - .0425
The Company's Class A common stock trades on the Over-The-Counter market and is quoted on NASDAQ under the symbol GOSHA. The table reflects the "last" price quotation on the NASDAQ National Market System and does not reflect mark-ups, mark-downs, or commissions and may not represent actual transactions. The Company's Class B common stock is not publicly traded. As of February 28, 2002, there were approximately 3,700 Class A common stock beneficial owners and approximately 210 Class B common stock beneficial owners. ITEM 6. SELECTED FINANCIAL DATA Financial Highlights (Dollars in thousands, except per share amounts) Year Ended December 29, December 30, January 1, January 2, December 31, 2001 2000 2000 1999 1997 Financial results Net sales $ 463,069 $ 453,062 $ 429,786 $ 423,232 $ 395,196 Net income 32,808 32,217 32,448 29,335 22,558 Return on sales 7.1% 7.1% 7.5% 6.9% 5.7% Financial condition Working capital $ 75,423 $ 54,601 $ 27,342 $ 76,876 $ 82,762 Total assets 161,340 158,256 129,699 162,568 174,788 Long term debt 24,000 44,000 44,000 -- -- (including current portion) Shareholders' equity 73,700 44,473 23,439 103,017 113,157 Data per common share Net income Basic $ 2.69 $ 2.61 $ 2.01 $ 1.54 $ 1.02 Diluted 2.61 2.58 1.99 1.52 1.02 Cash dividends declared Class A .22 .20 .20 .17 .14 Class B .19 .17 .17 .145 .12 Shareholders' equity 6.03 3.65 1.86 5.75 5.74
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected Company income statement data expressed as a percentage of net sales. As a Percentage of Net Sales for the Year Ended December 29, December 30, January 1, 2001 2000 2000 Net sales 100.0% 100.0% 100.0% Cost of products sold 58.2% 58.0% 58.1% Gross profit 41.8% 42.0% 41.9% Selling, general and administrative expenses 32.0% 31.6% 31.2% Royalty income, net (2.0%) (1.8%) (1.7%) Operating income 11.8% 12.2% 12.4% Other income (expense) - net (0.3%) (0.6%) (0.1%) Income before income taxes 11.5% 11.6% 12.3% Income taxes 4.4% 4.5% 4.8% Net income 7.1% 7.1% 7.5%
2001 COMPARED TO 2000 Net Sales Net sales in 2001 were $463.1 million, a $10.0 million (2.2%) increase over 2000 net sales of $453.1 million. A summary of the Company's net sales for the years ended December 29, 2001 and December 30, 2000 follows: Net Sales (in millions) Domestic Wholesale Retail Other Total 2001 $ 213.6 $ 245.1 $ 4.4 $ 463.1 2000 216.0 230.8 6.3 453.1 Increase (decrease) $ (2.4) $ 14.3 $ (1.9) $ 10.0 Percent increase (decrease) (1.1%) 6.2% (30.2%) 2.2%
The Company licensed its footwear and outerwear products effective May 1, 2001. The Company's 2000 wholesale sales of footwear and outerwear totaled approximately $12.0 million. The Company's wholesale sales of footwear and outerwear for 2001 were approximately $1.8 million. Excluding its footwear and outerwear products, wholesale net sales for 2001 of $211.8 million were approximately 3.8% over 2000 net wholesale sales of $204.0 million. The Company's 2001 domestic wholesale unit shipments increased approximately 5.8% as compared to 2000. The 2001 increase in unit shipments and net sales dollars are primarily the result of higher booked orders for the year. The lower wholesale sales dollar increase relative to the percent unit increase for 2001 was the result of a combination of slightly lower average unit selling prices, and higher customer sales allowances. Beginning with the Spring 2002 season, the Company will be selling its product offering to Kohl's Department Stores. Initial shipments to Kohl's of approximately $4.5 million were made in December 2001. The Company currently believes its net sales to Kohl's in 2002 will be approximately $40 to $45 million. The Company's 2001 increased retail sales resulted from a combination of a 2.4% comparable store sales gain and sales volume from newly opened stores. During 2001, the Company opened six factory outlet stores, closed one factory outlet store and closed one showcase store. At December 29, 2001, the Company operated 141 domestic OshKosh B'Gosh retail stores, including 134 factory outlet stores, two showcase stores and five strip mall stores. Current Company plans for 2002 call for the addition of approximately ten new OshKosh B'Gosh factory outlet stores and the possible closing of one or two factory outlet stores. The Company currently anticipates low single digit comparable store sales gains for the first half of 2002. Gross Profit The Company's gross profit margin as a percentage of net sales was 41.8% in 2001 compared with 42.0% in 2000. The modest decrease in gross margin percentage for 2001 was due to increased wholesale customer sales allowances and a more aggressive promotional pricing strategy at the Company's retail stores. During 2001, approximately 93% of units sourced were from off- shore venues as compared to 75% in 2000. The Company's current 2002 sourcing plan indicates that substantially all units will be sourced outside of the United States. Selling, General and Administrative Expenses (SG&A) The Company's SG&A expenses for 2001 of $148.3 million were $5.3 million over 2000 SG&A expenses of $143.0 million. As a percentage of net sales, SG&A expenses were 32.0% in 2001 as compared to 31.6% in 2000. The increase in SG&A expenses in both dollars and as a percentage of sales relates primarily to continued expansion of the Company's retail operations. Royalty Income The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. The Company's net royalty income was $9.3 million in 2001, a $1.0 million increase compared to 2000 net royalty income of $8.3 million. Royalty income from domestic licensees was approximately $3.6 million in 2001 as compared to $2.9 million in 2000. This increase was due primarily to the licensing of the Company's footwear and outerwear businesses which was effective May 1, 2001. Royalty income from foreign licensees was approximately $5.7 million in 2001 as compared to $5.4 million in 2000. The increase was due primarily to increased business levels by the Company's Japanese licensees. The Company currently anticipates 2002 royalty income to increase approximately 4-6%. Operating Income As a result of the factors described above, the Company's 2001 operating income was $54.7 million, a slight decrease from 2000 operating income of $55.7 million. Other Income (Expense) - Net The Company's 2001 net other income (expense) was a $1.5 million expense compared to a $2.9 million expense in 2000. This decrease was due to an approximate $2.9 million decrease in interest expense during 2000 offset in part by a nonrecurring gain on sale of a previously closed manufacturing facility of approximately $1.1 million during 2000. The Company's interest expense decreased substantially as a result of lower interest rates, lower levels of seasonal borrowings and prepayment of a portion of the Company's long-term debt. Income Taxes The Company's 2001 effective income tax rate was approximately 38.4% as compared to 39.0% in 2000. The Company currently anticipates an effective income tax rate of approximately 38.0% for 2002. Net Income Net income for the year ended December 29, 2001 of $32.8 million represented a $.6 million (1.8%) increase over net income for the year ended December 30, 2000 of $32.2 million. Diluted earnings per share of $2.61 were 1.2% higher than 2000 diluted earnings per share of $2.58. 2000 COMPARED TO 1999 Net Sales Net sales in 2000 were $453.1 million, a $23.3 million (5.4%) increase over 1999 net sales of $429.8 million. A summary of the Company's net sales for the years ended December 30, 2000 and January 1, 2000 follows: Net Sales (in millions) Domestic Wholesale Retail International Total 2000 $ 216.0 $ 230.8 $ 6.3 $ 453.1 1999 212.3 210.4 7.1 429.8 Increase (decrease) $ 3.7 $ 20.4 $ (.8) $ 23.3 Percent increase (decrease) 1.7% 9.7% (11.3%) 5.4%
The Company's 2000 domestic wholesale unit shipments were approximately 9.0% higher than in 1999. This increase in unit shipments resulted from a combination of a higher level of closeout merchandise sold during the year and an earlier start to the Company's shipment of Spring 2001 season fashion merchandise (which increased December 2000 unit shipments). The wholesale sales dollar increase of 1.7% was significantly lower than the 9.0% unit increase as a result of a combination of slightly lower average unit selling prices, higher customer sales allowances, and the higher level of "closeout" unit sales. The Company's 2000 increased retail sales resulted from a combination of a 1.7% comparable store sales gain and sales volume from newly opened stores. During 2000, the Company opened ten factory outlet stores, closed five factory outlet stores, and closed one showcase store. The Company also continued testing a new store concept by opening three strip mall stores in 2000. At December 30, 2000, the Company operated 137 domestic OshKosh B'Gosh retail stores, including 129 factory outlet stores, three showcase stores and five strip mall stores. Gross Profit The Company's gross profit margin as a percentage of net sales was 42.0% in 2000 compared with 41.9% in 1999. Substantially all of the Company's inventories are stated at the lower of cost or market using the last-in, first-out (LIFO) basis. As a result of a substantial reduction of the Company's inventory levels at January 1, 2000, the 1999 gross profit margin was favorably impacted by an approximate $2.2 million benefit related to the liquidation of certain LIFO layers. No such benefit occurred in 2000. Excluding the $2.2 million LIFO benefit, the 1999 gross profit margin as a percent of sales was 41.4%. The 2000 gross profit margin improvement was due primarily to continued implementation and execution of the Company's global sourcing strategy. During 2000, approximately 75% of units sourced were from off-shore venues as compared to 64% in 1999. Selling, General and Administrative Expenses (SG&A) The Company's SG&A expenses for 2000 of $143.0 million were $9.0 million over 1999 SG&A expenses of $134.0 million. As a percent of net sales, SG&A expenses were 31.6% in 2000 as compared to 31.2% in 1999. The primary reasons for these increased expenses relate to a combination of continued expansion of the Company's retail operations, higher product distribution expenses associated with the Company's transition to an updated distribution system and related processes, and expansion of the Company's brand enhancing activities. Royalty Income The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. The Company's net royalty income was $8.3 million in 2000, a $.9 million increase compared to 1999 net royalty income of $7.4 million. Royalty income from domestic licensees was approximately $2.9 million in 2000 as compared to $2.3 million in 1999. Royalty income from foreign licensees was approximately $5.4 million in 2000 as compared to $5.1 million in 1999. Operating Income As a result of the factors described above, the Company's 2000 operating income improved to $55.7 million. This represents a 3.8% increase over 1999 operating income of $53.7 million. Other Income (Expense) - Net The Company's 2000 net other income (expense) was a $2.9 million expense compared to $.5 million expense in 1999. Interest expense increased by approximately $3.7 million in 2000 as a result of borrowings to help finance the Company's Dutch Auction tender offer in November, 1999 and subsequent open market stock repurchase transactions along with higher seasonal borrowings for working capital requirements. During 2000, the Company also recognized a gain on the sale of a previously closed manufacturing facility of approximately $1.1 million. Income Taxes The Company's 2000 and 1999 effective income tax rates were approximately 39.0%. Net Income Net income for the year ended December 30, 2000 of $32.2 million represented a $.2 million (.7%) decrease from net income for the year ended January 1, 2000 of $32.4 million. The Company's ongoing stock repurchase programs and Dutch Auction tender offer resulted in a significant reduction in its weighted-average diluted shares outstanding during 2000. This decrease resulted in a 29.6% increase in diluted earnings per share for 2000 of $2.58 as compared to $1.99 in 1999. SEASONALITY OF BUSINESS The Company's business is increasingly seasonal, with highest sales and income in the third quarter, which is the Company's peak wholesale shipping period and a major retail selling season at its retail stores. The Company's second quarter sales and income are the lowest both because of relatively low domestic wholesale unit shipments and relatively modest retail store sales during this period. The Company anticipates this seasonality trend to continue to impact 2002 quarterly sales and income. FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY At December 29, 2001, the Company's cash and cash equivalents and investments were $29.3 million, compared to $20.4 million at the end of 2000. Net working capital at December 29, 2001 was $75.4 million compared to $54.6 million at December 30, 2000, and $27.3 million at January 1, 2000. Accounts receivable at December 29, 2001 were $25.7 million compared to $30.2 million at December 30, 2000. The decrease in accounts receivable is primarily attributable to lower fourth quarter wholesale net sales and increased customer allowances. Inventories at December 29, 2001 were $55.4 million, compared to $53.2 million at the end of 2000. Management believes that December 29, 2001 inventory levels are generally appropriate for anticipated 2002 business activities. The increase in working capital is attributable to increases in cash and cash equivalents and inventories, and a reduced current portion of long term debt due to a 2001 prepayment of the current maturity. Cash provided by operations amounted to approximately $42.9 million in 2001, compared to $28.6 million in 2000 and $70.6 million in 1999. The increase in cash provided by operating activities in 2001 compared to 2000 is primarily attributable to reduced accounts receivable in 2001 compared to a significant increase in 2000. Cash used in investing activities totaled $5.6 million in 2001, compared to $6.0 million in 2000, and $6.2 million in 1999. Capital expenditures were $5.1 million in 2001, compared with $8.6 million in 2000, and $7.1 million in 1999, and are currently budgeted at $6.0 million for 2002. Capital expenditures in each year related primarily to retail store expansions and remodeling. Depreciation and amortization are currently budgeted at $8.0 million for 2002. Cash used in financing activities totaled $27.7 million in 2001, compared to $11.8 million in 2000, and $69.7 million in 1999. The Company's primary financing activities consisted of long term debt payments, stock repurchase transactions, dividends, issuances of common shares through stock option exercises, and borrowings under the Company's credit agreement. On December 6, 1999, the Company's Board of Directors authorized a repurchase program for up to 1.5 million shares of its Class A common stock. On December 11, 2000, the Company's Board of Directors authorized an addition of 1.0 million shares to this repurchase program. During 2001, 2000 and 1999, the Company repurchased 397,300, 585,200 and 253,900 shares, respectively, of its Class A common stock under this program for approximately $10.3, $10.2 and $4.8 million, respectively. For all of 1999, the Company repurchased a total of 5,446,642 shares of its Class A common stock and 6,805 shares of its Class B common stock under its current and prior repurchase programs and Dutch Auction tender offer for approximately $110.4 million. Dividends on the Company's Class A and Class B common stock totaled $.22 per share and $.19 per share, respectively, in 2001 and $.20 per share and $.17 per share, respectively, in 2000 and 1999. The Company's unsecured credit agreement, as amended, with a number of banks provides a $44 million term loan for the repurchase of shares of its common stock, and a $75 million revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The revolving credit facility expires November 3, 2002. The Company currently intends to extend this revolving credit facility during the first half of 2002. There were no outstanding borrowings against the revolving credit arrangement at December 29, 2001, with $24 million outstanding on the term loan. The Company believes that these credit facilities, along with cash generated from operations, will be sufficient to finance the Company's seasonal working capital needs as well as its capital expenditures, required payments on long- term debt, and business development needs. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other Intangible Assets" effective for fiscal years beginning after December 15, 2001. Under these Statements, all business combinations initiated after June 30, 2001 must be accounted for using the purchase method of accounting. In addition, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to periodic impairment tests separate from periodic impairment tests for other long-lived assets. Since the Company has not recorded any goodwill, adoption of Statement No. 142 will not have a significant effect on the Company's results of operations or financial position. In August 2001, the FASB issued Statement No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" effective for fiscal years beginning after December 15, 2001. The statement supersedes FAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of" and amends the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 related to the disposal of a segment of a business. This statement establishes a single accounting model for long-lived assets to be disposed of by sale and provides additional implementation guidance for assets to be held and used and assets to be disposed of other than by sale. The Company currently believes that this Statement will not have a material impact on the Company's results of operations or financial position. In 2001, the Emerging Issues Task Force (EITF) issued EITF No. 00- 14 "Accounting for Certain Sales Incentives" and EITF No. 00-25 "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products," which are effective for the first quarter beginning after December 15, 2001. These EITF's prescribe guidance regarding the timing of recognition and income statement classification of costs incurred for certain sales incentive programs to retailers and end consumers. These EITF's had no impact on the Company as the Company currently recognizes these costs and classifies them in accordance with the prescribed rules. FORWARD-LOOKING STATEMENTS This report contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding future sales, gross profit expectations, planned store expansions and store closings, future comparable store net sales, future product sourcing plans, inventory levels and valuation implications, future growth in royalty income, future effective income tax rate, planned capital expenditures and depreciation and amortization expenses, and future cash needs. In addition, from time to time, the Company may issue press releases and other written communications, and representatives of the Company may make oral statements which contain forward-looking information. Except for historical information, matters discussed in such oral and written communications, including this report, are forward-looking statements. Such forward-looking statements are based on current assumptions and expectations that involve risks and uncertainties. Actual results may differ materially. The Company's future results of operations and financial position can be influenced by such factors as the level of consumer spending for apparel, particularly in the children's wear segment, overall consumer acceptance of the Company's product styling, the introduction of new products or pricing changes by the Company's competitors or other competitive factors, the financial strength of the retail industry, including, but not limited to, business conditions and the general economy, natural disasters, risk of non-payment of accounts receivable, the unanticipated loss of a major customer, failure of Company suppliers to timely deliver needed raw materials, the Company's ability to correctly balance the level of its commitments with actual orders, risks associated with terrorist activities, as well as risk associated with foreign operations. In addition, the inability to ship Company products within agreed timeframes due to unanticipated manufacturing and/or distribution system delays or the failure of Company contractors to deliver products within scheduled timeframes are risk factors in ongoing business. As a part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia, Mexico, and Central America. If financial, political, or other related difficulties were to adversely impact the Company's contractors in these regions, it could disrupt the supply of products contracted for by the Company. The forward-looking statements included herein are only made as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The credit agreement entered into by the Company in November, 1999, as amended, provides a $44 million term loan to finance the repurchase of the Company's common stock and a $75 million revolving credit facility available for general corporate purposes. Borrowings under this agreement bear interest at a variable rate, based on the London Interbank Offered Rates. Accordingly, the Company is affected by interest rate changes on its long-term debt. Management monitors this risk by carefully analyzing the short-term rates on its long-term debt portfolio and comparable long-term interest rates. The Company does not presently hedge its interest rate risk. With respect to this debt, a 1% change in interest rates would not have a material impact on the Company's interest expense for fiscal 2002. Foreign Currency Risk The Company contracts for the manufacture of apparel with contractors in Asia, Central America, and Mexico. While these contracts are stated in terms of U.S. dollars, there can be no assurance that the cost for the production of the Company's products will not be affected by exchange fluctuations between the United States and the local currencies of these contractors. Due to the number of currencies involved, the Company cannot quantify the potential impact of future currency fluctuations on net income in future years. The Company does not hedge its exchange rate risk. Inflation Risk The Company manages its inflation risks by ongoing review of product selling prices and production costs. Management does not believe that inflation risks are material to the Company's business, its consolidated financial position, results of operations, or cash flows. Investment Risk The Company does not believe it has material exposure to market risk with respect to any of its investments; the Company does not utilize market rate sensitive instruments for trading or other purposes. For information regarding the Company's investments, refer to the Cash and cash equivalents and Investments portion of Note 1 to the consolidated financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Report of Independent Public Accountants 14 Report of Independent Auditors 15 Consolidated Balance Sheets - December 29, 2001 and December 30, 2000 16 Consolidated Statements of Income - years ended December 29, 2001, December 30, 2000, and January 1, 2000 17 Consolidated Statements of Changes in Shareholders' Equity - years ended December 29, 2001, December 30, 2000, and January 1, 2000 18 Consolidated Statements of Cash Flows - years ended December 29, 2001, December 30, 2000, and January 1, 2000 19 Notes to Consolidated Financial Statements 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of OshKosh B'Gosh, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheet of OshKosh B'Gosh, Inc. (a Delaware Corporation) and subsidiaries as of December 29, 2001 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended. These consolidated financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and supplemental schedule based on our audit. The consolidated financial statements of OshKosh B'Gosh, Inc. and subsidiaries as of December 30, 2000 and for each of the two years in the period ended December 30, 2000 were audited by other auditors whose report dated January 26, 2001, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OshKosh B'Gosh, Inc. and subsidiaries as of December 29, 2001 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental schedule listed in the index to Item 14(a) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. The supplemental schedule for the year ended December 29, 2001 has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 30, 2002 REPORT OF INDEPENDENT AUDITORS The Board of Directors OshKosh B'Gosh, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of OshKosh B'Gosh, Inc. and subsidiaries (the Company) as of December 30, 2000 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the two years in the period ended December 30, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 30, 2000 and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for each of the two years in the period ended December 30, 2000, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. ERNST & YOUNG LLP Milwaukee, Wisconsin January 26, 2001 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except per share amounts) December 29, December 30, 2001 2000 ASSETS Current assets Cash and cash equivalents $ 29,322 $ 19,839 Investments -- 511 Accounts receivable, less allowances of $7,075 in 2001 and $5,510 in 2000 25,697 30,166 Inventories 55,429 53,185 Prepaid expenses and other current assets 1,607 1,882 Deferred income taxes 13,000 13,800 Total current assets 125,055 119,383 Property, plant and equipment, net 30,001 32,285 Deferred income taxes 4,300 4,950 Other assets 1,984 1,638 Total assets $ 161,340 $ 158,256 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ -- $ 10,000 Accounts payable 11,229 14,840 Accrued liabilities 38,403 39,942 Total current liabilities 49,632 64,782 Long-term debt 24,000 34,000 Employee benefit plan liabilities 14,008 15,001 Commitments -- -- Shareholders' equity Preferred stock, par value $.01 per share: Authorized-1,000,000 shares; Issued and outstanding-None -- -- Common stock, par value $.01 per share: Class A, authorized-30,000,000 shares; Issued and outstanding-10,020,226 shares in 2001, 9,943,762 shares in 2000 100 99 Class B, authorized-3,750,000 shares; Issued and outstanding-2,207,394 shares in 2001, 2,228,707 shares in 2000 22 22 Additional paid - in capital 5,339 -- Retained earnings 68,551 45,054 Unearned compensation under restricted stock plan (312) (702) Total shareholders' equity 73,700 44,473 Total liabilities and shareholders' equity $ 161,340 $ 158,256 See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollars in thousands, except per share amounts) For the Year Ended December 29, December 30, January 1, 2001 2000 2000 Net sales $ 463,069 $ 453,062 $ 429,786 Cost of products sold 269,286 262,638 249,592 Gross profit 193,783 190,424 180,194 Selling, general and administrative expenses 148,326 143,012 133,977 Royalty income, net (9,259) (8,257) (7,435) Operating income 54,716 55,669 53,652 Other income (expense): Interest expense (2,258) (5,148) (1,469) Interest income 834 946 1,092 Miscellaneous (29) 1,326 (88) Other income (expense) - net (1,453) (2,876) (465) Income before income taxes 53,263 52,793 53,187 Income taxes 20,455 20,576 20,739 Net income $ 32,808 $ 32,217 $ 32,448 Net income per common share Basic $ 2.69 $ 2.61 $ 2.01 Diluted 2.61 2.58 1.99 See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Equity (Dollars and shares in thousands, except per share amounts) Unearned Common Stock Additional Compensation Class A Class B Paid-In Retained Under Restricted Shares Amount Shares Amount Capital Earnings Stock Plan Balance - January 2, 1999 15,669 $157 2,260 $ 23 $ -- $102,837 $ -- Net income -- -- -- -- -- 32,448 -- Dividends - Class A ($.20 per share) -- -- -- -- -- (2,730) -- - Class B ($.17 per share) -- -- -- -- -- (383) -- Conversions of common shares 13 -- (13) -- -- -- -- Stock options exercised 126 1 -- -- 812 -- -- Income tax benefit from stock options exercised -- -- -- -- 650 -- -- Repurchase and retirement of common shares, net (5,447) (54) (6) -- (1,462) (108,860) -- Balance - January 1, 2000 10,361 104 2,241 23 -- 23,312 -- Net income -- -- -- -- -- 32,217 -- Dividends - Class A ($.20 per share) -- -- -- -- -- (2,016) -- - Class B ($.17 per share) -- -- -- -- -- (381) -- Conversions of common shares 12 1 (12) (1) -- -- -- Stock options exercised 101 -- -- -- 767 -- -- Income tax benefit from stock options exercised -- -- -- -- 432 -- -- Award of restricted stock 55 -- -- -- 935 -- (935) Compensation earned under restricted stock plan -- -- -- -- -- -- 233 Repurchase and retirement of common shares, net (585) (6) -- -- (2,134) (8,078) -- Balance - December 30, 2000 9,944 99 2,229 22 -- 45,054 (702) Net income -- -- -- -- -- 32,808 -- Dividends - Class A ($.22 per share) -- -- -- -- -- (2,198) -- - Class B ($.19 per share) -- -- -- -- -- (422) -- Conversions of common shares 21 -- (21) -- -- -- -- Stock options exercised 452 5 -- -- 5,234 -- -- Income tax benefit from stock options exercised -- -- -- -- 3,754 -- -- Compensation earned Under restricted stock plan -- -- -- -- -- -- 390 Repurchase and retirement of (397) (4) -- -- (3,649) (6,691) -- common shares, net Balance - December 29, 2001 10,020 $ 100 2,208 $ 22 $ 5,339 $ 68,551 $ (312) See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in thousands) For the Year Ended December 29, December 30, January 1, 2001 2000 2000 Cash flows from operating activities: Net income $ 32,808 $ 32,217 $ 32,448 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,210 7,154 7,093 Amortization 806 834 965 (Gain) loss on disposal of assets 76 (1,195) 96 Deferred income taxes 1,450 850 2,000 Compensation earned under restricted stock plan 390 233 -- Income tax benefit from stock option exercises 3,754 432 650 Benefit plan expense, net of contributions (993) (14) 2,550 Changes in operating assets and liabilities: Accounts receivable 4,469 (13,652) 7,494 Inventories (2,244) (4,690) 17,089 Prepaid expenses and other current assets 275 (1,108) 88 Accounts payable (3,611) 4,571 2,631 Accrued liabilities (1,539) 2,966 (2,472) Net cash provided by operating activities 42,851 28,598 70,632 Cash flows from investing activities: Additions to property, plant and equipment (5,106) (8,550) (7,148) Proceeds from disposal of assets 104 1,954 691 Sale of investments, net 511 -- 1,989 Changes in other assets (1,152) 592 (1,703) Net cash used in investing activities (5,643) (6,004) (6,171) Cash flows from financing activities: Payments on long-term debt (20,000) -- -- Principal from long-term borrowings -- -- 44,000 Dividends paid (2,620) (2,397) (3,113) Net proceeds from issuance of common shares 5,239 767 813 Repurchase of common shares (10,344) (10,218) (110,376) Other -- -- (1,000) Net cash used in financing activities (27,725) (11,848) (69,676) Net increase (decrease) in cash and cash equivalents 9,483 10,746 (5,215) Cash and cash equivalents at beginning of year 19,839 9,093 14,308 Cash and cash equivalents at end of year $ 29,322 $ 19,839 $ 9,093 Supplementary disclosures Cash paid for interest $ 2,467 $ 4,105 $ 512 Cash paid for income taxes $ 18,658 $ 16,630 $ 19,182 See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Business OshKosh B'Gosh, Inc. and its wholly-owned subsidiaries (the Company) are engaged primarily in the design, sourcing, and marketing of apparel to wholesale customers and through Company-owned retail stores. Principles of consolidation The consolidated financial statements include the accounts of all wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and cash equivalents Cash equivalents consist of highly liquid debt instruments such as money market accounts and commercial paper with original maturities of three months or less and other financial instruments that can be readily liquidated. The Company's policy is to invest cash in conservative instruments as part of its cash management program and to evaluate the credit exposure of any investment. Cash equivalents are stated at cost, which approximates market value. Investments Investments are classified as available-for-sale securities and are highly liquid debt instruments. These investments are stated at cost, which approximates market value. Financial instruments The fair value of financial instruments, primarily accounts receivable and debt, do not materially differ from their carrying value. Inventories Inventories are stated at the lower of cost or market. Inventories stated on the last-in, first-out (LIFO) basis represent 99.4% of total 2001 and 99.6% of total 2000 inventories. Remaining inventories are valued using the first-in, first-out (FIFO) method. Property, plant and equipment Property, plant and equipment are carried at cost or at management's estimate of fair market value if considered impaired under the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" less accumulated depreciation. Expenditures for improvements that increase asset values and extend usefulness are capitalized. Expenditures for maintenance and repairs are expensed as incurred. Depreciation and amortization for financial reporting purposes are calculated using the straight-line method based on the following useful lives: Years Land improvements 10 to 15 Buildings 10 to 40 Leasehold improvements 5 to 10 Machinery and equipment 3 to 10 Revenue recognition Revenue within wholesale operations is recognized at the time merchandise is shipped and title is transferred to customers. Retail store revenues are recognized at the time of sale. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising Advertising costs are expensed as incurred and totaled $14,896, $16,318 and $13,803 in 2001, 2000 and 1999, respectively. Earnings per share The numerator for the calculation of basic and diluted earnings per share is net income. The denominator is computed as follows (in thousands): 2001 2000 1999 Denominator for basic earnings per share- weighted average shares 12,191 12,321 16,112 Employee stock options (treasury stock method) 390 157 208 Denominator for diluted earnings per share 12,581 12,478 16,320
The Company had 26,500, 639,450 and 361,000 employee stock options that were anti-dilutive in 2001, 2000 and 1999, respectively, and, accordingly, are not included in the diluted earnings per share calculations. Fiscal year The Company's fiscal year is a 52/53 week year ending on the Saturday closest to December 31. Fiscal 2001 ended on December 29, 2001, fiscal 2000 ended on December 30, 2000 and fiscal 1999 ended on January 1, 2000, all of which were 52 week years. All references to years in this report refer to the fiscal years described above. Comprehensive income Comprehensive income equaled net income in 2001, 2000 and 1999. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. NOTE 2. INVENTORIES A summary of inventories follows: December 29, December 30, 2001 2000 Finished goods $ 49,069 $ 37,398 Work in process 5,832 12,595 Raw materials 528 3,192 Total $ 55,429 $ 53,185 The replacement cost of inventory exceeds the above LIFO costs by $12,138 and $11,983 at December 29, 2001 and December 30, 2000, respectively. Partial liquidation of certain LIFO layers in 1999 increased net income by approximately $1,338. NOTE 3. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment follows: December 29, December 30, 2001 2000 Land and improvements $ 2,873 $ 2,869 Buildings 14,220 13,994 Leasehold improvements 20,018 18,120 Machinery and equipment 35,406 33,233 Construction in progress 192 79 Total 72,709 68,295 Less: accumulated depreciation and amortization 42,708 36,010 Property, plant and equipment, net $ 30,001 $ 32,285
NOTE 4. CREDIT AGREEMENTS The Company's unsecured credit agreement, as amended, with a number of banks provides a $44,000 term loan for the repurchase of shares of its common stock and a $75,000 revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The revolving credit facility expires November 3, 2002. Under the terms of the agreement, interest rates are determined at the time of borrowing and are based on London Interbank Offered Rates plus additional basis points as determined by the Company's financial ratios (effectively 3.0% at December 29, 2001). Commitment fees of .20% are required on the unused revolving credit facility and term loan. The Company is required to maintain certain financial ratios in connection with this agreement. As of December 29, 2001, the Company is in compliance with all of its financial covenants. There were no outstanding borrowings against the revolving credit arrangement at December 29, 2001 or December 30, 2000. Outstanding borrowings on the term loan at December 29, 2001 and December 30, 2000, were $24,000 and $44,000, respectively. The term loan is due in $10,000 annual repayments with a final maturity in 2004. The annual repayment originally due in 2002 was prepaid in 2001. Letters of credit of approximately $14,944 were outstanding at December 29, 2001, with $60,056 of the unused revolving credit facility available for borrowing. Annual maturities of principal on long-term debt are as follows: Fiscal Year 2003 $ 10,000 2004 14,000 Total $ 24,000 NOTE 5. ACCRUED LIABILITIES A summary of accrued liabilities follows: December 29, December 30, 2001 2000 Compensation $ 7,181 $ 6,648 Workers' compensation 8,900 9,000 Income taxes 5,182 8,375 Other 17,140 15,919 Total $ 38,403 $ 39,942 NOTE 6. LEASES The Company leases certain property and equipment including retail sales facilities, manufacturing facilities, and a regional sales office under operating leases. Certain leases provide the Company with renewal options. Leases for retail sales facilities provide for minimum rentals plus contingent rentals based on sales volume. Minimum future rental payments under noncancellable operating leases are as follows: Fiscal Year 2002 $ 15,676 2003 14,123 2004 11,019 2005 6,880 2006 3,217 Thereafter 2,817 Total minimum lease payments $ 53,732 Total rent expense charged to operations for all operating leases is as follows: 2001 2000 1999 Minimum rentals $18,755 $17,778 $ 15,754 Contingent rentals 1,262 1,187 1,191 Total rent expense $20,017 $18,965 $ 16,945 NOTE 7. INCOME TAXES Income tax expense is comprised of the following: 2001 2000 1999 Current: Federal $17,092 $16,664 $15,322 State and local 1,913 3,062 3,417 Deferred 1,450 850 2,000 Total $20,455 $20,576 $20,739 Deferred tax assets and liabilities relate to temporary differences between the financial reporting and income tax basis of Company assets and liabilities and include the following components: December 29, December 30, 2001 2000 [Assets (Liabilities)] Current deferred taxes Accounts receivable allowances $ 2,410 $ 1,921 Inventory valuation 3,895 4,012 Accrued liabilities 5,960 6,309 Other 735 1,558 Total net current deferred tax assets $ 13,000 $ 13,800 Non-current deferred taxes Depreciation $ (825) $ (805) Deferred employee benefits 5,155 5,883 Trademark 479 499 Other (509) (627) Total net non-current deferred tax assets $ 4,300 $ 4,950
Substantially all income is subject to United States taxation. A reconciliation of the federal statutory income tax rate to the effective tax rates reflected in the consolidated statements of income follows: 2001 2000 1999 Federal statutory tax rate 35.0% 35.0% 35.0% Differences resulting from: State and local income taxes, net 3.3 4.3 4.5 of federal income tax benefit Other .1 (.3) (.5) Total 38.4% 39.0% 39.0%
NOTE 8. RETIREMENT PLANS The Company has defined contribution and defined benefit pension plans covering substantially all employees. Charges to operations by the Company for these plans totaled $2,047, $2,193 and $3,454 for 2001, 2000 and 1999, respectively. Defined benefit plans The Company sponsors several defined benefit pension plans covering certain hourly and salaried employees. The Company also sponsors an unfunded defined benefit postretirement life and health insurance plan that covers qualifying salaried employees. The actuarial computations utilized the following assumptions as applicable for the most significant plans: 2001 2000 1999 Discount rate 7.0% 7.5% 7.5% Expected long-term rate of return on assets 9.0% 9.0% 9.0% Rates of increase in compensation levels 0-4.5% 0-4.5% 0-4.5%
Net periodic pension cost was comprised of: 2001 2000 1999 Service cost $ 1,894 $1,937 $ 2,276 Interest cost 2,540 2,358 2,248 Expected return on plan assets (3,692) (3,555) (2,841) Amortization of prior service cost 331 585 468 Amortization of transition obligation (159) (146) (156) Recognized actuarial gain (827) (897) (313) Net periodic pension cost $ 87 $ 282 $ 1,682
A reconciliation of changes in pension benefit obligation and plan assets follows: 2001 2000 Change in benefit obligation Benefit obligation at beginning of year $ 35,336 $ 32,274 Service cost 1,894 1,937 Interest cost 2,540 2,358 Amendments 78 37 Actuarial loss 2,399 9 Benefits paid (3,496) (1,279) Benefit obligation at end of year 38,751 35,336 Change in plan assets Fair value of plan assets at beginning of year 44,195 34,820 Actual return on plan assets (5,751) 9,755 Company contributions 664 899 Benefits paid (3,496) (1,279) Fair value of plan assets at end of year 35,612 44,195 Funded status Funded status of plan (3,139) 8,859 Unrecognized net actuarial gain (5,571) (18,239) Unrecognized prior service cost 1,516 1,768 Unrecognized transition obligation (310) (469) Accrued benefit cost $ (7,504) $ (8,081)
Amounts applicable to the Company's pension plans with accumulated benefit obligations in excess of plan assets are as follows: ABO > Assets ABO > Assets December 29, December 30, 2001 2000 Projected benefit obligations $ 8,180 $ 4,274 Accumulated benefit obligations 6,942 3,399 Fair value of plan assets 5,110 1,939
Defined contribution plans The Company maintains a defined contribution retirement plan covering certain salaried employees. Annual contributions are discretionary and are determined by the Company's Executive Committee. Charges to operations by the Company for contributions under this plan totaled $1,278, $1,168 and $1,125, for 2001, 2000 and 1999, respectively. The Company maintains a retirement plan covering certain salaried and hourly employees pursuant to Section 401(k) of the Internal Revenue Code, whereby participants may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code. The plan provides for a matching contribution by the Company which amounted to approximately $402, $506 and $427 for 2001, 2000 and 1999, respectively. The Company also has a supplemental retirement program for designated employees. Annual provisions to this unfunded plan are discretionary and are determined by the Company's Executive Committee. Charges to operations by the Company for additions to this plan totaled $280, $237 and $220 for 2001, 2000 and 1999 respectively. NOTE 9. COMMON STOCK The Company maintains a stock conversion plan whereby shares of Class B common stock may be converted to an equal number of Class A common shares. The Company's common stock authorization provides that dividends be paid on both the Class A and Class B common stock at any time that dividends are paid on either. Whenever dividends (other than dividends of Company stock) are paid on the common stock, each share of Class A common stock is entitled to receive 115% of the dividend paid on each share of Class B common stock. The Class A common stock shareholders are entitled to receive a liquidation preference of $1.875 per share before any payment or distribution to holders of the Class B common stock. Thereafter, holders of the Class B common stock are entitled to receive $1.875 per share before any further payment or distribution to holders of the Class A common stock. Thereafter, holders of the Class A common stock and Class B common stock share on a pro rata basis in all payments or distributions upon liquidation, dissolution, or winding up of the Company. The Class A common stock shareholders have the right to elect or remove, as a class, 25% of the entire board of directors of the Company. Class B common stock shareholders are entitled to elect or remove, as a class, the other 75% of the directors (subject to any rights granted to any series of preferred stock) and are entitled to one vote per share on all matters (including an increase or decrease in the unissued authorized capital stock of any class) presented to the shareholders for vote. On December 6, 1999, the Company's Board of Directors authorized a repurchase program for up to 1.5 million shares of its Class A common stock. On December 11, 2000, the Company's Board of Directors authorized an addition of 1.0 million shares to this repurchase program. During 2001, 2000 and 1999, the Company repurchased 397,300, 585,200 and 253,900 shares, respectively, of its Class A common stock under this program for approximately $10,344, $10,218 and $4,800, respectively. Accordingly, at December 29, 2001, the Company is authorized to repurchase 1,263,600 additional shares. For all of 1999, the Company repurchased a total of 5,446,642 shares of its Class A common stock and 6,805 shares of its Class B common stock under its current and prior repurchase programs and Dutch Auction tender offer for approximately $110,400. Options The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant and the number of shares granted is fixed, no compensation expense is recognized. The Company's Incentive Stock Option Plans have authorized the grant of options to management personnel and directors for up to 3,125,000 of the Company's Class A common stock. As of December 29, 2001, 1,031,875 shares are available for grant. Options granted generally have 10 year terms and vest ratably over a four year period following date of grant. The following pro forma information regarding net income and net income per share required by SFAS No. 123, "Accounting for Stock Based Compensation," has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2001, 2000 and 1999, respectively: risk- free interest rates of 5.00%, 6.47% and 5.10%; annual dividends of $.22, $.20 and $.20; volatility factors of the expected market price of the Company's common stock of .508, .533 and .575; and a weighted-average expected life of the option of approximately 8 years. Changes in these subjective assumptions can significantly affect the fair value calculations. The estimated fair value of the options is amortized to expense over the options' vesting period: 2001 2000 1999 Net income as reported $32,808 $32,217 $32,448 Pro forma net income 31,255 31,204 31,947 Net income per common share as reported Basic 2.69 2.61 2.01 Diluted 2.61 2.58 1.99 Pro forma net income per common share Basic 2.56 2.53 1.98 Diluted 2.51 2.52 1.97 A summary of the Company's stock option activity and related information follows: 2001 2000 1999 Weighted- Weighted- Weighted- Options average Options average Options average (000's) exercise price (000's) exercise price (000's) exercise price Outstanding- beginning of year 1,340 $ 15 1,193 $ 14 1,082 $ 11 Granted 344 20 349 16 342 19 Exercised (452) 12 (101) 8 (207) 8 Forfeited (33) 18 (101) 17 (24) 14 Outstanding-end of year 1,199 $ 17 1,340 $ 15 1,193 $ 14 Exerciseable at end of year 507 $ 16 667 $ 13 448 $ 11 Weighted-average fair value of options granted during year $ 10.51 $ 6.39 $ 7.70
Options outstanding Options exerciseable Weighted- average Weighted- Weighted Range of Number remaining average Number average exercise prices outstanding contract life exercise price Outstanding exercise price $ 7 to $ 9 130 4.7 $ 8 130 $ 8 $15 to $17 267 8.2 $16 71 $16 $18 to $21 773 7.7 $19 282 $19 $24 to $32 29 9.4 $29 24 $29 1,199 507
Restricted Stock On February 15, 2000, the Company issued 55,000 shares of restricted stock to certain key employees. The restrictions lapse over four years based on attainment of certain financial performance targets and continued employment. Under APB No. 25, compensation expense is reflected over the period in which services are performed, and when the financial performance targets have been met. NOTE 10. BUSINESS AND CREDIT CONCENTRATIONS Operations of the Company occur primarily within the United States and its customers are not concentrated in any geographic region. The Company provides credit, in the normal course of business, to department and specialty stores. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. In 2001, 2000 and 1999, sales to a wholesale customer, as a percentage of net sales, amounted to approximately 11%, 13% and 12%, respectively. NOTE 11. LITIGATION The Company is subject to various legal actions and proceedings in the normal course of business. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome will have a significant effect on the consolidated financial statements. NOTE 12. SEGMENT REPORTING The Company designs, sources, and markets apparel products using primarily the OshKosh B'Gosh brand. The apparel products are primarily marketed in two distinct distribution channels: domestic wholesale and through Company-owned retail stores. The Company designs and sources product to meet the needs of these distribution channels through a single procurement business unit. Certain operations have been segregated into segments as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company manages its business operations by periodic analysis of business unit operating results. For this purpose, domestic wholesale, retail, and procurement are separately identified for management reporting and are considered segments as defined by SFAS No. 131. Management evaluates the operating performance of each of its business units based on income from operations as well as return on net assets. For this purpose, product is transferred from procurement to the domestic wholesale and retail business units at cost. However, procurement receives a markup on product sold by the Company's wholesale and retail business units. Accounting policies used for segment reporting are consistent with the Company's overall accounting policies, except that inventories are valued on a FIFO basis. In addition, interest income, interest expense, certain corporate office expenses, and the effects of the LIFO inventory valuation method are not allocated to individual business units, and are included in the All Other/Corporate column below. Segment assets include all assets used in the operation of each business unit, including accounts receivable, inventories, and property, plant and equipment. Certain other corporate assets that cannot be specifically identified with the operation of a business unit are not allocated. Financial information for the Company's reportable segments follows: All Domestic Other/ Wholesale Retail Procurement Corporate Total December 29, 2001 Net sales $213,588 $245,112 $ 5 $ 4,364 $463,069 Income before income taxes 18,671 27,732 4,931 1,929 53,263 Assets 57,831 46,207 13,753 43,549 161,340 Depreciation expense 1,651 3,662 1,073 824 7,210 Property, plant and equipment additions 248 4,166 669 23 5,106 December 30, 2000 Net sales $215,982 $230,774 $ -- $ 6,306 $453,062 Income before income taxes 22,794 25,505 824 3,670 52,793 Assets 62,140 36,216 25,160 34,740 158,256 Depreciation expense 1,612 3,319 1,357 866 7,154 Property, plant and equipment additions 804 7,131 541 74 8,550 January 1, 2000 Net sales $212,371 $210,350 $ -- $ 7,065 $429,786 Income before income taxes 21,896 18,278 10,556 2,457 53,187 Assets 52,580 31,922 19,796 25,401 129,699 Depreciation expense 1,570 3,107 1,222 1,194 7,093 Property, plant and equipment additions 2,285 4,209 421 233 7,148
NOTE 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 2001 Quarter Ended March 31, June 30, September 29, December 29, 2001 2001 2001 2001 Net sales $99,445 $90,945 $147,488 $125,191 Gross profit 40,993 38,238 63,664 50,888 Net income 4,474 2,499 17,329 8,506 Net income per common share: Basic .37 .20 1.42 .70 Diluted .36 .20 1.37 .68
2000 Quarter Ended April 1, July 1, September 30, December 30, 2000 2000 2000 2000 Net sales $95,051 $87,500 $142,339 $128,172 Gross profit 40,587 37,437 60,979 51,421 Net income 4,691 2,341 16,302 8,883 Net income per common share: Basic .37 .19 1.34 .73 Diluted .37 .19 1.33 .72
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required by this item is incorporated by reference to the definitive Proxy Statement of OshKosh B'Gosh, Inc. for its annual meeting to be held on May 3, 2002. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the definitive Proxy Statement of OshKosh B'Gosh, Inc. for its annual meeting to be held on May 3, 2002. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the definitive Proxy Statement of OshKosh B'Gosh, Inc. for its annual meeting to be held on May 3, 2002. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the definitive Proxy Statement of OshKosh B'Gosh, Inc. for its annual meeting to be held on May 3, 2002. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) (1) Financial Statements Financial statements for OshKosh B'Gosh, Inc. listed in the Index to Financial Statements and Supplementary Data are filed as part of this Annual Report. (2) Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts Schedules not included have been omitted because the schedules are not applicable, the amounts are immaterial, or the required information is included in the consolidated financial statements or notes thereto. (3) Index to Exhibits (b) Reports on Form 8-K On August 8, 2001, the Company filed an 8-K to disclose a change in the Company's Certifying Accountant. (c) Exhibits 3.1 Restated Certificate of Incorporation of OshKosh B'Gosh, Inc., as amended through May 7, 1998, previously filed as Exhibit 3.1 to the Company's Report on Form 10-Q dated July 22, 1998, Commission File Number 0-13365, is incorporated herein by reference. 3.2 By-laws of OshKosh B'Gosh, Inc., as amended. *10.1 OshKosh B'Gosh, Inc. Profit Sharing Plan, as amended. *10.2 OshKosh B'Gosh, Inc. Pension Plan, as amended. *10.3 OshKosh B'Gosh, Inc. Executive Non-Qualified Profit Sharing Plan, as amended, previously filed as exhibit 10.3 to the Company's Annual Report on Form 10- K for the fiscal year ended January 1, 2000, Commission File Number 0-13365, is incorporated herein by reference. *10.4 OshKosh B'Gosh, Inc. Excess Benefit Plan, as amended, previously filed as exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000, Commission File Number 0- 13365, is incorporated herein by reference. *10.5 OshKosh B'Gosh, Inc. Executive Deferred Compensation Plan, as amended, previously filed as exhibit 10.5 to the Company's Annual Report on Form 10- K for the fiscal year ended January 1, 2000, Commission File Number 0-13365, is incorporated herein by reference. *10.6 OshKosh B'Gosh, Inc. Officers Medical and Dental Reimbursement Plan, as amended, previously filed as exhibit 10.6 to the Company's Annual Report on Form 10- K for the fiscal year ended December 30, 2000, Commission File Number 0-13365, is incorporated herein by reference. *10.7 OshKosh B'Gosh, Inc. 1994 Incentive Stock Plan, as amended. 10.8 OshKosh B'Gosh, Inc. 1995 Outside Director's Stock Option Plan, as amended. *10.9 OshKosh B'Gosh, Inc. Flexible Nonstandardized 401(k) Adoption Agreement and Smith Barney Prototype Defined Contribution Plan Document #05, as amended, previously filed as exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2000, Commission File Number 0-13365, is incorporated herein by reference. 10.10 Credit agreement between OshKosh B'Gosh, Inc. and Firstar Bank Milwaukee, N.A. and participating banks, dated as of November 3, 1999, as amended, previously filed as exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2000, Commission File Number 0-13365, is incorporated herein by reference. 21. The following is a list of subsidiaries of the Company as of December 29, 2001. The consolidated financial statements reflect the operations of all subsidiaries as they existed on December 29, 2001. State or Other Jurisdiction of Incorporation or Name of Subsidiary Organization OBG Sales, Inc. Delaware Manufacturera International Apparel, S.A. Honduras OshKosh B'Gosh International Sales, Inc. Virgin Islands OshKosh B'Gosh Asia/Pacific Ltd. (Inactive) Hong Kong OshKosh B'Gosh Investments, Inc. Nevada OshKosh B'Gosh Retail, Inc. Delaware OBG Distribution Company, LLC Wisconsin OBG Manufacturing Company Kentucky OshKosh B'Gosh Operations, LLC Wisconsin OshKosh B'Gosh Procurement Company, LLC Wisconsin Millennia Manufacturing SRL de CV Mexico
23. Consent of Arthur Andersen LLP Consent of Ernst & Young LLP 99. Letter to Commission Pursuant to Temporary Note 3T * Represents a plan that covers compensation, benefits and/or related arrangements for executive management. SIGNATURES Date: March 22, 2002 Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OSHKOSH B'GOSH, INC. By: /S/ DOUGLAS W. HYDE Chairman of the Board, President and Chief Executive Officer By: /S/ DAVID L. OMACHINSKI Vice President-Finance, Treasurer and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title /S/ DOUGLAS W. HYDE Chairman of the Board,President and Chief Executive Officer /S/ MICHAEL D. WACHTEL Executive Vice President, Chief Operating Officer and Director /S/ DAVID L. OMACHINSKI Vice President-Finance, Treasurer, Chief Financial Officer and Director /S/ STEVEN R. DUBACK Secretary and Director /S/ WILLIAM F. WYMAN Vice President Domestic Licensing and Director /S/ STIG A. KRY Director Date: March 22, 2002 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts (Dollars in Thousands) 2001 2000 1999 Accounts receivable - allowances: Balance at beginning of period $ 5,510 $ 3,790 $ 4,240 Charged to costs and expenses 31,177 22,314 17,437 Deductions - bad debts and other allowances written off, net of recoveries (29,612) (20,594) (17,887) Balance at end of period $ 7,075 $ 5,510 $ 3,790
EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, included in this Form 10-K, into the Company's previously filed Registration Statements File No. 333- 01051 and No. 333-74038. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin March 22, 2002 CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 333-01051 and No. 333-74038) of OshKosh B'Gosh, Inc. of our report dated January 26, 2001, with respect to the consolidated financial statements and schedule of OshKosh B'Gosh, Inc. and Subsidiaries as of and for each of the two years in the period ended December 30, 2000 included in this Annual Report (Form 10-K) for the year ended December 29, 2001. Ernst & Young LLP Milwaukee, Wisconsin March 22, 2002 EX-3.2 3 exh32.txt OSHKOSH B'GOSH BY LAWS FILED WITH 12/29/01 FORM 10-K EXHIBIT 3.2 BYLAWS OF OSHKOSH B'GOSH, INC. APPROVALS/AMENDMENTS 11/04/85 First Approval of Amended and Restated Bylaws 02/03/86 Final Approval of Amended and Restated Bylaws 05/08/87 New Section 49 Adopted - (Indemnification) 02/01/88 Amended Section 11 - (Increase in Number of Directors) 02/01/90 Repealed old Sections 23-34 and created new Sections 23.01 - 23.16 08/03/90 Amended Section 41 [formerly Section 30] 05/03/91 Amended Section 15 to create Sections 15.01 - 15.06 07/01/91 Amended Sections 23.01, 23.05, 23.07 and 23.09 05/01/92 Amended Sections 23.05, 23.07, 23.08 and 23.10 02/20/95 Amended Section 15.03 11/04/97 Amended Section 43 (effective 01/01/98) 5/5/00 Amended Section 15.02 in its entirety to reflect NASDAQ rules relating to audit committee requirements BYLAWS OF OSHKOSH B'GOSH, INC. STATED TO INCLUDE ALL AMENDMENTS ADOPTED THROUGH MAY 5, 2000 TABLE OF CONTENTS Page OFFICES 1 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is the Corporation Trust Company 1 SEAL 1 2. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise 1 STOCKHOLDERS' MEETINGS 1 3. Place of Meeting 1 4. Annual Meeting 1 5. Notice of Annual Meeting 1 6. Quorum 2 7. Voting of Shares 2 8. Special Meetings 2 9. Notice of Special Meetings 2 DIRECTORS 3 10. General Powers 3 11. Number 3 12. Office 3 13. Vacancies 3 14. Removal 3 COMMITTEES 3 COMPENSATION OF DIRECTORS 5 16. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors 5 MEETINGS OF DIRECTORS 5 17. Annual Meeting 5 18. Regular Meetings 6 19. Special Meetings 6 20. Quorum 6 21. Action By Written Consent of Directors 6 22. Participation By Conference Telephone 6 OFFICERS 6 CERTIFICATES OF STOCK AND THEIR TRANSFER 9 35. Certificates 9 36. Facsimile Signatures 10 37. Transfers of Stock 10 CLOSING OF TRANSFER BOOKS 10 38. In General 10 39. List of Stockholders Available for Inspection 10 REGISTERED STOCKHOLDERS 11 40. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware 11 LOST CERTIFICATES 11 41. The corporation, acting by its President or any Senior Vice President or its Vice President of Finance may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed 11 CHECKS 11 42. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate 11 FISCAL YEAR 11 43. The fiscal year of the corporation shall be a 52- 53 week fiscal year ending on the Saturday nearest December 31 11 DIVIDENDS 11 44. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law 11 DIRECTORS' ANNUAL STATEMENT 12 45. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation 12 NOTICES 12 46. Notice 12 47. Waiver of Notice 12 AMENDMENTS 12 48. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the shareholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation at any regular meeting of the shareholders or of the Board of Directors or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting 12 INDEMNIFICATION OF OFFICERS AND DIRECTORS 12 49. A. Mandatory Indemnification 12 BYLAWS OF OSHKOSH B'GOSH, INC. OFFICES 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is the Corporation Trust Company. The corporation may also have an office in the City of Oshkosh, State of Wisconsin, and also offices at such other places as the Board of Directors may from time to time appoint or the business of the corporation may require. SEAL 2. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. STOCKHOLDERS' MEETINGS 3. Place of Meeting. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of shareholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in duly executed waiver of notice thereof. 4. Annual Meeting. Annual meetings of stockholders shall be held on the first Friday of May if not a legal holiday, and if a legal holiday, then on the next business day following, at 2:00 p.m., local time, or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which the stockholders shall elect a Board of Directors, and transact such other business as may properly be brought before the meeting. 5. Notice of Annual Meeting. Written notice stating the date, place and hour of the annual meeting shall be mailed to each stockholder entitled to vote thereat at such address as appears on the records of the corporation, at least fifteen days prior to the meeting. 6. Quorum. The holders of a majority of the shares of stock issued and outstanding and entitled to vote at a meeting of stockholders on a particular matter, present in person or represented by proxy, shall constitute a quorum for the decision with respect to such matter except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 7. Voting of Shares. At every meeting of the stockholders, each stockholder having the right to vote on a particular matter shall be entitled to vote on such matter in person, or by proxy, appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless such proxy provides for a longer period. Each stockholder shall have one vote on a particular matter for each share of stock having voting power with respect to such matter, registered in his or her name on the books of the corporation, except that no share of stock shall be voted at any election for directors which has been transferred on the books of the corporation within twenty days next preceding such election. The vote for directors, and, upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. When a quorum of stockholders entitled to vote on a particular matter brought before any meeting is present at such meeting, the vote of the holders of a majority of the shares of stock having voting power with respect to such matter, present in person or represented by proxy, shall decide such matter, unless the matter is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such matter. 8. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 9. Notice of Special Meetings. Written notice stating the time and place of a special meeting of stockholders, and the purpose or purposes for which the meeting is called, shall be mailed, postage prepaid, at least ten (10) but not more than sixty (60) days before the date of such meeting, to each stockholder entitled to vote thereat at such address as appears on the records of the corporation. Business transacted at any special meeting of stockholders shall be confined to the purposes stated in the notice. DIRECTORS 10. General Powers. The business of the corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders or by others. 11. Number. The number of directors which shall constitute the whole board shall be nine (9). The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 13 of these Bylaws, and each director elected shall hold office until his or her successor is elected and qualified. The number of directors may be increased or decreased from time to time by amendment to this Section, adopted by the stockholders or Board of Directors, but no decrease shall have the effect of shortening the term of an incumbent director. 12. Office. The directors may hold their meetings and have one or more offices outside of Delaware, at the office of the corporation in the City of Oshkosh, Wisconsin, or at such other places as they may from time to time determine. 13. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. 14. Removal. Unless otherwise restricted by the certificate of incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. The provisions of this Section 14 shall apply, in respect to the removal without cause of a director or directors elected by the holders of any class of stock voting as a separate class, to the vote of the holders of the outstanding shares of that class and not to the vote of the outstanding shares as a whole. COMMITTEES 15. 15.01 Executive Committee. The Board of Directors, by resolution passed by a majority of the whole board, shall elect the Executive Committee, composed of five (5) or more members, all of whom shall be directors of the corporation. The board may designate one or more directors as alternate members, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Executive Committee shall have and may exercise all powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation, if any, to be affixed to all papers which may require it, except that the Executive Committee shall not have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the shareholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by- laws of the corporation; and, unless a resolution of the Board of Directors adopted within the preceding 12 months shall expressly so provide, the Executive Committee shall not have the power or authority to declare a dividend or to authorize the issuance of stock. 15.02 Audit Committee. The Board of Directors, by resolution passed by a majority of the whole board, shall elect the Audit Committee, which shall be composed of three (3) or more members, all of whom shall be directors. All of the members of the Audit Committee shall meet the independence and experience requirements of the NASDAQ Stock Market, Inc. The powers, duties and responsibilities of the Audit Committee shall be as set forth in an Audit Committee Charter approved by the Board of Directors. The Audit Committee shall no less frequently than annually review and reassess the adequacy of the Charter and make recommendations to the Board of Directors regarding changes, if any, to the content of the Charter, and the Board of Directors shall review such recommendations and decide whether and how the Charter should be amended. 15.03 Nominating Committee. The Board of Directors, by resolution passed by a majority of the whole board, shall elect the Nominating Committee, composed of at least five (5) members, all of whom shall be directors and at least two (2) of whom shall be persons who are not officers or employees of the corporation. A majority of the members of the Nominating Committee shall constitute a quorum for the transaction of all business of the committee. The Nominating Committee shall have the following powers, duties and functions: (a) To seek out and consider individuals to serve as directors of the corporation; (b) To make recommendations to the Board of Directors regarding the total size and frequency of meetings of the Board of Directors; (c) To recommend to the Board of Directors candidates for election to the board and to fill any vacancies that occur between annual meetings; and (d) To make recommendations to the Board of Directors regarding compensation of board members for serving on the board and for board and committee meetings attended. 15.04 Retirement Plan Committee. The Board of Directors, by resolution passed by a majority of the whole board, shall elect the Retirement Plan Committee, composed of at least three (3) members, all of whom shall be directors of the corporation. A majority of the members of the Retirement Plan Committee shall constitute a quorum for the transaction of all business of the committee. The Retirement Plan Committee shall have general oversight responsibilities with respect to (a) the administration of all employee welfare benefit plans and all employee pension and profit sharing retirement benefit plans of this Corporation (the "Welfare and Pension Plans"), and (b) the investment management of all funded Welfare and Pension Plans. 15.05 Compensation Committee. The Board of Directors, by resolution passed by a majority of the whole board, shall elect the Compensation Committee, composed of at least three (3) members, all of whom shall be directors and at least a majority of whom shall be persons who are not employees of the corporation. A majority of the members of the Compensation Committee shall constitute a quorum for the transaction of all business of the committee. The Compensation Committee shall make recommendations to the Board of Directors concerning the compensation of officers and corporate department directors. 15.06 Other Committees. The Board of Directors, by resolution passed by a majority of the whole board, may designate other committees, each committee to consist of three (3) or more directors of the corporation and to have such duties and powers as the resolution may specify. COMPENSATION OF DIRECTORS 16. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. MEETINGS OF DIRECTORS 17. Annual Meeting. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. 18. Regular Meetings. Regular meetings of the Board of Directors may be held within or without the State of Delaware, without notice, at such time and place as shall from time to time be determined by the board. 19. Special Meetings. Special meetings of the board may be held within or without the State of Delaware and may be called by the president on forty-eight (48) hours notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors. 20. Quorum. At all meetings of the board, a majority of the number of the directors elected in accordance with these bylaws shall be necessary and sufficient to constitute a quorum for the transaction of business at such meeting, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate or incorporation or by these bylaws. If a quorum shall not be present at any meeting of the Board, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 21. Action By Written Consent of Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writings are filed with the minutes of proceedings of the board or committee. 22. Participation By Conference Telephone. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. OFFICERS 1.01 Number. The principal officers of the corporation shall be a Chairman of the Board, a Vice-Chairman of the Board, a President, an Executive Vice President, one or more other Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may designate one or more of the Vice Presidents as Senior Vice Presidents. Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person unless the certificate of incorporation or these Bylaws otherwise provide. 1.02 Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected or until his prior death, resignation or removal. 1.03 Removal. Any officer or agent may be removed by the Board of Directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment shall not of itself create contract rights. 1.04 Vacancies. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. 1.05 Chairman of the Board. The Chairman of the Board shall call meetings of the Board of Directors, and he shall, when present, preside at all meetings of the shareholders and of the Board of Directors. Specifically, he shall have the power to supervise the activities of and to prescribe the powers and duties of the Vice Chairman of the Board, he shall be responsible for providing high-level support to the President and the Executive Vice President as and when requested, and he shall perform such other duties as may be prescribed by the Board of Directors from time to time. 1.06 Vice-Chairman of the Board. The Vice-Chairman of the Board shall preside at all meetings of the Board of Directors when the Chairman of the Board is absent. In addition he shall be responsible for providing high-level support for special projects and activities, he shall represent the corporation in various civic and trade organizations, and shall perform such other duties as may from time to time be assigned to him by the Chairman of the Board and the Board of Directors. 1.07 President. The President shall be the chief executive officer of the corporation and subject to the control and direction of the Board of Directors, shall have general direction and control over the policies and affairs of the corporation. Specifically, he shall have the power to supervise the activities of and to prescribe the powers and duties of the Executive Vice President (except as the Executive Vice President's powers and duties are hereinafter specifically defined), the Vice President of Finance, the Vice President of International Sales and Marketing, the Director of Licensed Products, the Director of Retail Operations, the Director of Corporate Marketing and Planning, the President of Essex Outfitters, Inc. and Vice President and General Manager of Absorba, Inc. He shall report to the Board and keep the Board informed concerning the affairs and conditions of the corporation's business. He shall, in the absence or incapacity of the Chairman of the Board, perform the functions of the Chairman of the Board except those functions assigned to the Vice Chairman of the Board by these Bylaws. 1.08 Executive Vice President. The Executive Vice President shall be the chief operating officer of the corporation. He shall report directly to the President. Specifically, he shall have the power to supervise the activities and to prescribe the powers and duties of the Vice President of Manufacturing, the Vice President of Sales, the Vice President of Human Resources, the Vice President of Management Information Systems, and the Directors of Distribution and Finishing Services, Manufacturing Support, Quality, and Merchandising. He shall be primarily responsible for achieving the short-term and operational objectives of the corporation. He shall also perform such other duties as from time to time may be assigned to him by the President or by the Board of Directors. He shall, in the absence or incapacity of the President, perform all duties and functions and exercise all powers of the President. 1.09 The Vice Presidents. Each Vice President shall perform such duties as from time to time may be assigned to him by that officer who has supervisory power over him. Vice Presidents may by their election have charge and supervision of designated divisions, departments or portions of the corporation's business. 1.10 Shared Functions. Except in cases where the signing and execution thereof is expressly delegated by the Board of Directors or these Bylaws to some other officer or agent of the corporation, or is required by law to be otherwise signed or executed, the President and the Executive Vice President shall each have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, each of them acting alone may authorize any Vice President or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his place and stead. 1.11 The Secretary. The Secretary shall: (a) keep the minutes of the shareholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal is duly authorized; (d) sign with another appropriate officer, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; and (e) in general perform all duties incident to the office of the Secretary and such other duties as from time to time may be assigned to him by the Chairman of the Board, the President or the Board of Directors. 1.12 The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for funds and securities of the corporation; (b) receive and give receipts for monies due and payable to the corporation, and deposit such monies in the name of the corporation in such banks, trust companies or other depositories as shall have been duly selected; and (c) in general perform all of the duties incident to the office of Treasurer. The Treasurer shall also perform such other duties and exercise such other authority as from time to time may be assigned to him by the Chairman of the Board or the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. 1.13 Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries, when authorized by the Board of Directors, may sign with another appropriate officer, certificates for shares of the corporation the issuance of which shall have been authorized by resolution of the Board of Directors. The Assistant Treasurers shall, respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the Chairman of the Board, the President or the Board of Directors. 1.14 Other Assistants and Acting Officers. The Board of Directors shall have the power to appoint any person to act as assistant to any officer, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer so appointed by the Board of Directors shall have the power to perform all the duties of the office to which he is so appointed to be assistant, or as to which he is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors. 1.15 Additional Officers. Any additional officers not specified above shall have only such authority, duties and responsibilities as shall be specifically authorized and designated by the Board of Directors. 1.16 Salaries. The salaries of the principal officers shall be fixed from time to time by the Board of Directors or by a committee of the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. [Sections 24-34 are intentionally omitted.] CERTIFICATES OF STOCK AND THEIR TRANSFER 35. Certificates. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the Board of Directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, representing the number of shares owned by him or her in the corporation. The powers, designations, preferences and relative, participating, optional or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights shall be set forth in full or summarized on the face or back of the certificates which the corporation shall issue to represent such stock, provided that, except as otherwise provided by statute, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests, the power, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions on such preferences and/or rights. 36. Facsimile Signatures. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. 37. Transfers of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. CLOSING OF TRANSFER BOOKS 38. In General. The Board of Directors shall have power to close the stock transfer books of the corporation for a period not exceeding sixty days preceding the date of any meeting of stockholders, or adjournment thereof, or to express consent to corporate action in writing without a meeting, or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty days preceding the date of any meeting or adjournment or action by consent of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. 39. List of Stockholders Available for Inspection. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. REGISTERED STOCKHOLDERS 40. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. LOST CERTIFICATES 41. The corporation, acting by its President or any Senior Vice President or its Vice President of Finance may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the corporation, acting by its President or any Senior Vice President or its Vice President of Finance may, as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the corporation shall require and/or to give the corporation a bond in such sum as the corporation may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. CHECKS 42. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. FISCAL YEAR 43. The fiscal year of the corporation shall be a 52-53 week fiscal year ending on the Saturday nearest December 31. DIVIDENDS 44. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interests of the corporation; and the directors may modify or abolish any such reserve in the manner in which it was created. DIRECTORS' ANNUAL STATEMENT 45. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. NOTICES 46. Notice. Whenever, under the provisions of the Delaware Statutes or of the certificate of incorporation or these bylaws, notice is required to be given to any director, officer or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, by depositing the same in the United States mail with postage prepaid thereon, addressed to such stockholder, officer or director at such address as appears on the records of the corporation, or in default of other address, to such director, officer or stockholder at the General Post Office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Notice to directors may also be given by telegram. 47. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. AMENDMENTS 48. These by-laws may be altered, amended or repealed or new by- laws may be adopted by the shareholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation at any regular meeting of the shareholders or of the Board of Directors or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the certificate of incorporation it shall not divest or limit the power of the shareholders to adopt, amend or repeal by-laws. INDEMNIFICATION OF OFFICERS AND DIRECTORS 49. A. Mandatory Indemnification (1) Subject to the conditions and limitations set forth hereinafter in this Section 49 and the corporation's certificate of incorporation, the corporation shall, to the fullest extent permitted by the Delaware General Corporation Law as it may then be in effect, indemnify and hold harmless any person who is or was a party, or is threatened to be made a party, to any threatened, pending or completed action, claim, litigation, suit or proceeding, whether civil, criminal, administrative or investigative, whether predicated on foreign, federal, state or local law and whether formal or informal (collectively, "action(s)"), by reason of his status as, or the fact that he is, was or has agreed to become, a director and/or an executive officer (collectively, "executive(s)") of the corporation, and/or is or was serving or has agreed to serve as an executive of another corporation, partnership, joint venture, employee benefit plan, trust or other similar enterprise affiliated with the corporation, except with respect to any executive who is serving or has agreed to serve as an executive of any subsidiary of the corporation which is excluded from this Section 49 from time to time or at any time by the board of directors of the corporation (any and/or all of which are referred to in this Section 49 as an "affiliate"), and as to acts performed in the course of such executive's duty to the corporation and/or to an affiliate, against: (i) expenses, fees, costs and charges including, without limitation, attorneys' fees and disbursements (collectively, "expenses") reasonably incurred by or on behalf of an executive in connection with any action (including, without limitation, in connection with the investigation, defense, settlement or appeal of such action:), no matter by whom brought, including, without limitation, actions brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder (collectively, "securities law action(s)"); provided, that it is not determined pursuant to Paragraph B of this Section 49, or by the court before which such action was brought, that: (A) the executive engaged in criminal, fraudulent or intentional misconduct in the performance of his duty to the corporation, (B) with respect to criminal actions, the executive had reasonable cause to believe his conduct was unlawful, and (C) with respect to securities law action, the executive did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and its stockholders; (ii) subject to the restrictions set forth in Subparagraph (3) hereof, amounts incurred by an executive in settlement of any action, no matter by whom brought, including, without limitation, securities law actions; provided, that it is not determined pursuant to Paragraph B of this Section 49, or by the court before which such action was brought, that: (A) such settlement was not in the best interests of the corporation and its stockholders, (B) the amount incurred by the executive in such settlement was unreasonable (to a material extent) in light of all of the circumstances of such action, or intentional misconduct in the performance of his duty to the corporation, and (C) the executive engaged in criminal, fraudulent or intentional misconduct in the performance of his duty to the corporation, and (D) with respect to securities law action, the executive did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and its stockholders; and (iii) subject to the restrictions set forth in Subparagraph (3) hereof, judgments, fines, penalties or other amounts incurred by an executive pursuant to an adjudication of liability in connection with any action, including, without limitation, securities law action; provided, that it is not determined pursuant to Paragraph B of this Section 49, or by the court before which such action was brought, that: (A) the executive engaged in criminal, a fraudulent or intentional misconduct in the performance of his duty to the corporation, (B) with respect to securities law actions, the executive did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and its stockholders, and (C) with respect to criminal actions, the executive had reasonable cause to believe his conduct was unlawful and that he otherwise did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and its stockholders. (2) To the extent an executive of the corporation and/or of an affiliate has been successful on the merits or otherwise in connection with any action, no matter by whom brought (including, without limitation, the settlement, dismissal, abandonment or withdrawal of any such action where the executive does not pay, incur or assume any material liability) or in connection with any claim, issue or matter therein, he shall be indemnified by the corporation against expenses reasonably incurred by or on behalf of him in connection therewith. The corporation shall pay such amounts (net of all amounts, if any, previously advanced to the executive pursuant to Paragraph D) to the executive (or to such other person or entity as such executive may designate in writing to the corporation) upon the executive's written request therefor without regard to the provisions of Paragraph B. (3) Notwithstanding the provisions of Subparagraph (1) hereof, no indemnification shall be made to an executive by the corporation for monetary damages incurred by the executive pursuant to an action brought by or in the right of the corporation to procure a judgment in its favor (sometimes hereinafter referred to as "derivative action(s)") or an action brought by a stockholder of the corporation if it is determined pursuant to Paragraph B of this Section 49, or by the court before which such action was brought, that: (i) The executive breached his duty of loyalty to the corporation or its stockholders; (ii) The executive committed acts or omissions in bad faith or which involve intentional misconduct or a knowing violation of the law; (iii) The executive engaged in any willful or negligent conduct in paying dividends or repurchasing stock of the corporation out of other than lawfully available funds; or (iv) The executive derived any improper personal benefit from any transaction, unless such improper personal benefit is determined to be immaterial in light of all the circumstances of such action. (4) In the event an executive is or was serving as an executive, trustee, fiduciary, administrator, employee or agent of an employee benefit plan sponsored by or otherwise associated with the corporation and incurs expenses, amounts in settlement or judgments, fines, penalties or other amounts, including, without limitation, any excise tax or penalty assessed with respect to the employee benefit plan by reason of an action having been brought, or having been threatened, against such executive because of his status as such an executive, trustee, fiduciary, administrator, employee or agent of such plan or by reason of his performing duties in any such capacity, the corporation shall indemnify and hold harmless the executive against any and all of such reasonable amounts; provided, it is not determined pursuant to Paragraph B of this Section 49, or by the court before which such action was brought, that the executive's conduct with respect to such employee benefit plan was for a purpose he did not reasonably believe to be in the interests of the participants in and beneficiaries of such plan. B. Right to Indemnification: How Determined. (1) Except as otherwise set forth in this Paragraph B, any indemnification to be provided to an executive by the corporation under Paragraph A of this Section 49 upon the final disposition or conclusion of an action (or a claim, issue or matter associated with such an action), unless otherwise ordered by the court before which such action was brought, shall be paid by the corporation (net of all amounts, if any, previously advanced to the executive pursuant to Paragraph D) to the executive (or to such other person or entity as the executive may designate in writing to the corporation) within sixty (60) days after the receipt of the executive's written request therefor, which request shall include a comprehensive accounting of amounts for which indemnification is being sought and shall reference the provision(s) of this Section 49 pursuant to which such claim is being made. Notwithstanding the foregoing, the payment of such requested amounts may be denied by the corporation in the event: (i) the Board of Directors of the corporation by a majority vote thereof determines that such payment, in whole or in part, would not be in the best interests of the corporation and its stockholders and would contravene the terms and conditions of this Section 49, or (ii) a majority of the directors of the corporation are a party in interest to such an action. In either of such events, the Board of Directors of the corporation shall immediately authorize and direct, by resolution, that an independent determination be made as to whether the executive has met the applicable standard(s) of conduct under Paragraph A of this Section 49 and, therefore, whether indemnification of the executive is proper pursuant to this Section 49. Such independent determination shall be made by a panel of three arbitrators in Oshkosh, Wisconsin, in accordance with the rules then prevailing of the American Arbitration Association, or, at the option of the executive, by an independent legal counsel mutually selected by the Board of Directors of the corporation and the executive (such panel of arbitrators and/or independent legal counsel being hereinafter referred to as "authority"). In any such determination there shall exist a rebuttable presumption that the executive has met such standard(s) of conduct and is therefore entitled to indemnification hereunder. The burden of rebutting such presumption by clear and convincing evidence shall be on the corporation. If a panel of arbitrators is to be employed hereunder, one of such arbitrators shall be selected by the Board of Directors of the corporation by a majority vote of a quorum thereof consisting of directors who were not parties in interest to such action (or, if such a quorum is not obtainable, by an independent legal counsel chosen by the Board of Directors of the corporation), the second by the executive(s) who claim entitlement to indemnification under this Section 49 and the third by the previous two arbitrators. The authority shall make its determination within sixty (60) days of being selected and shall simultaneously submit a written opinion of its conclusions to both the corporation and the executive and, in the event the authority determines that the executive is entitled to be indemnified for any amounts pursuant to this Section 49, the corporation shall pay such amounts (net of all amounts, if any, previously advanced to the executive pursuant to Paragraph D), including interest thereon as provided in Paragraph E, to the executive (or to such other person or entity as the executive may designate in writing to the corporation), within ten (10) days of receipt of such opinion. (2) An executive may, either before or within two years after a determination, if any, has been made by the authority petition any court of competent jurisdiction to determine whether the executive is entitled to indemnification under this Section 49 and such court shall thereupon have the exclusive authority to make such determination unless and until such court dismisses or otherwise terminates such proceeding without having made such determination. The court shall make an independent determination of whether the executive is entitled to indemnification as provided under this Section 49, irrespective of any prior determination made by the authority; provided, however, that there shall exist a rebuttable presumption that the executive has met the applicable standard(s) of conduct and is therefore entitled to indemnification hereunder. The burden of rebutting such presumption by clear and convincing evidence shall be on the corporation. In the event the court determines that the executive is entitled to be indemnified for any amounts pursuant to the terms and conditions of this Section 49, unless otherwise ordered by such court, the corporation shall pay such amounts (net of all amounts, if any, previously advanced to the executive pursuant to Paragraph D), including interest thereon as provided in Paragraph E, to the executive (or to such other person or entity as the executive may designate in writing to the corporation) within ten (10) days of the rendering of such determination. The executive shall pay all expenses incurred by such executive in connection with the judicial determination provided in this Subparagraph (2), unless it shall ultimately be determined by the court that he is entitled to be indemnified, in whole or in part, by the corporation as authorized in this Section 49. All expenses incurred by the executive in connection with any subsequent appeal of the judicial determination provided for in this Subparagraph (2) shall be paid by the executive regardless of the disposition of such appeal. (3) Except as otherwise set forth in this Paragraph B, the expenses associated with the indemnification process set forth in this Paragraph B, including, without limitation, the expenses of the authority selected hereunder, shall be paid by the corporation. C. Termination of an Action is Nonconclusive. The termination of any action, no matter by whom brought, including, without limitation, securities law actions, by judgment, order, settlement, conviction, or upon a plea of no contest or its equivalent, shall not, of itself, create a presumption that the executive has not met the applicable standard(s) of conduct set forth in Paragraph A. D. Advance Payment. (1) Expenses reasonably incurred by or on behalf of an executive in connection with any action (or claim, issue or matter associated with such action), no matter by whom brought, including, without limitation, securities law actions, shall be paid by the corporation to the executive (or to such other person or entity as the executive may designate in writing to the corporation) in advance of the final disposition or conclusion of such action (or claim, issue or matter associated with such action) upon the receipt of the executive's written request therefor; provided, the following conditions are satisfied: (i) the executive has first requested in advance of such expenses in writing (and delivered a copy of such request to the corporation) from the insurance carrier(s) to whom a claim has been reported under an insurance policy purchased by the corporation, if any, as provided under Paragraph G of this Section 49 and each such insurance carrier has declined to make such an advance; (ii) the executive furnishes to the corporation an executed written certificate affirming his good faith belief that he has met the applicable standard(s) of conduct set forth in Paragraph A of this Section 49; (iii) the executive furnishes to the corporation an executed written agreement to repay any advances made under this Paragraph D if it is ultimately determined that such executive is not entitled to be indemnified by the corporation for such amounts pursuant to this Section 49. (2) In the event the corporation makes an advance of expenses to an executive pursuant to this Paragraph D, the corporation shall be subrogated to every right of recovery the executive may have against any insurance carrier from whom the corporation has purchased insurance for such purpose. E. Partial Indemnification: Interest. (1) In the event it is determined by the authority pursuant to Paragraph B of this Section 49, or by the court before which such action was brought, that an executive is entitled to indemnification as to some claims, issues or matters, but not as to other claims, issues or matters, involved in any action, no matter by whom brought, including, without limitation, securities law actions, the authority (or the court) shall authorize the reasonable proration (and payment by the corporation) of such expenses, judgments, penalties, fines and/or amounts incurred in settlement with respect to which indemnification is sought by the executive, among such claims, issues or matters as the authority (or the court) shall deem appropriate in light of all of the circumstances of such action. (2) In the event it is determined by the authority, or by the court before which such action was brought pursuant to Paragraph B of this Section 49, that certain amounts incurred by or on behalf of an executive are for whatever reason unreasonable in amount, the authority (or the court) shall authorize indemnification to be paid by the corporation to the executive for only such amounts as the authority (or the court) shall deem reasonable in light of all of the circumstances of such action. (3) To the extent deemed appropriate by the authority pursuant to Paragraph B, or by the court before which such action was brought, interest shall be paid by the corporation to an executive, at a reasonable interest rate, for amounts for which the corporation indemnifies the executive. F. Nonexclusivity of Section 49. The right to indemnification provided to an executive by this Section 49 shall not be deemed exclusive of any other rights to indemnification or the advancement of expenses to which any executive may be entitled under any charter provision, by-law, agreement, resolution, vote of stockholders or disinterested directors of the corporation or otherwise, including, without limitation, under Delaware General Corporation Law Section 145 as it may then be in effect, both as to acts in his official capacity as such executive or other employee or agent of the corporation or of an affiliate or as to acts in any other capacity while holding such office or position, and the terms and provisions of this Section 49 shall continue as to any executive who has ceased to be an executive or other employee or agent of the corporation and/or of an affiliate, and such terms and provisions shall inure to the benefit of the heirs executors and administrators of such executive. G. Insurance. (1) The corporation may purchase and maintain insurance on behalf of an executive, against any liability asserted against him and/or incurred by or on behalf of him, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Section 49 or under Delaware General Corporation Law Section 145 as it may then be in effect. The purchase and maintenance of such insurance shall not in any way limit or affect the rights and obligations of the corporation or any executive under this Section 49. Such insurance may, but need not, be for the benefit of all executives of the corporation and those serving as an executive of an affiliate. (2) In the event an executive shall receive payment from any insurance carrier or from the plaintiff in any action against such executive in respect of indemnified amounts after payments on account of all or part of such indemnified amounts have been made by the corporation pursuant to this Section 49, such executive shall promptly reimburse the corporation for the amount, if any, by which the sum of such payment by such insurance carrier or such plaintiff and payments by the corporation to such executive exceeds such indemnified amounts; provided, however, that such portions, if any, of such insurance proceeds that are required to be reimbursed to the insurance carrier under the terms of its insurance policy, such as deductible or co-insurance payments, shall not be deemed to be payments to such executive hereunder. In addition, upon payment of indemnified amounts under this Section 49, the corporation shall be subrogated to such executive's rights against any insurance carrier in respect of such indemnified amounts and the executive shall execute and deliver any and all instruments and/or documents and perform any and all other acts or deeds which the corporation shall deem necessary or advisable to secure such rights. The executive shall do nothing to prejudice such rights of recovery or subrogation. H. Witness Expenses. Upon an executive's written request, the corporation shall pay (in advance or otherwise) or reimburse any and all expenses reasonably incurred by an executive in connection with his appearance as a witness in any action at a time when he has not been formally named a defendant or respondent to such an action. I. Contribution. (1) In the event the indemnity provided for in Paragraph A of this Section 49 is unavailable to an executive for any reason whatsoever, the corporation, in lieu of indemnifying the executive, shall contribute to the amount reasonably incurred by or on behalf of the executive, whether for judgments, fines, penalties, amounts incurred in settlement and/or for expenses, in connection with any action, no matter by whom brought, including without limitation, securities law actions, in such proportion as deemed fair and reasonable by the authority pursuant to Paragraph B hereof, or by the court before which such action was brought, taking into account all of the circumstances of such action, in order to reflect: (i) the relative benefits received by the corporation and the executive as a result of the event(s) and/or transaction(s) giving cause to such action, and/or (ii) the relative fault of the corporation (and its other executives, employees and/or agents) and the executive in connection with such event(s) and/or transaction(s). (2) An executive shall not be entitled to contribution from the corporation under this Paragraph I in the event it is determined by the authority pursuant to Paragraph B, or by the court before which such action was brought, that the executive engaged in criminal, fraudulent or intentional misconduct in the performance of his duty to the corporation or otherwise violated the provisions of Paragraph A(3) of this Section 49. (3) The corporation's payment of, and an executive's right to, contribution under this Paragraph I shall be made and determined in accordance with the provisions in Paragraph B of this Section 49 relating to the corporation's payment of, and the executive's right to, indemnification under this Section 49. J. Severability. If any provision of this Section 49 shall be deemed invalid or inoperative, or in the event a court of competent jurisdiction determines that any of the provisions of this Section 49 contravene public policy, this Section 49 shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are invalid or inoperative or which contravene public policy shall be deemed, without further action or deed by or on behalf of the corporation, be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable, and the corporation shall indemnify an executive as to reasonable expenses, judgments, fines and amounts incurred in settlement with respect to any action, no matter by whom brought, including securities law actions, to the full extent permitted by an applicable provision of this Section 49 that shall not have been invalidated and to the full extent otherwise permitted by the Delaware General Corporation Law as it may then be in effect. K. Amendment. This Section 49 may only be altered or repealed by the affirmative vote of not less than two-thirds of the stockholders of the corporation so entitled to vote; provided, however, that stockholder approval shall not be required if any such alteration or amendment; (1) is made in order to conform to any amendment or revision of the Delaware General Corporation Law which expands an executive's rights to indemnification thereunder or is otherwise beneficial to the executive, or (2) in the sole judgment and discretion of the board of directors, does not materially adversely affect the rights and protections of the stockholders of the corporation. EX-10.1 4 exh101.txt OSHKOSH B'GOSH PROFIT SHARING PLAN FILED WITH 12/29/01 FORM 10K EXHIBIT 10.1 OSHKOSH B'GOSH, INC. PROFIT SHARING PLAN As Amended and Restated on November 6, 2001 Generally Effective: January 1, 1998 (unless otherwise stated) TABLE OF CONTENTS Page INTRODUCTION 1 CHAPTER I DEFINITIONS 1 CHAPTER II ELIGIBILITY AND PARTICIPATION 7 2.01 Eligibility 7 2.02 Re-Employment 7 2.03 Exclusion of Collective Bargaining Employees 7 2.04 Change in Participant Status 7 2.05 Employees Not in Eligible Class 7 CHAPTER III CONTRIBUTIONS AND ALLOCATIONS 8 3.01 Discretionary Employer Contributions 8 3.02 Allocation of Employer Contributions and Forfeitures 8 CHAPTER IV CONTRIBUTION LIMITATIONS 8 4.01 Definitions 8 4.02 Maximum Annual Additions 10 4.03 Reduction of Annual Additions 10 4.04 Limitations if Participant in Other Plan(s) 11 CHAPTER V INVESTMENT OF ACCOUNTS 12 5.01 Funding Policy 12 5.02 Employee Direction of Investments 12 5.03 Expenses 12 CHAPTER VI VESTING OF ACCOUNTS 12 6.01 100% Vesting Situations 12 6.02 Vesting Schedule 13 6.03 Bad-Boy Provision 13 6.04 Forfeitures 13 6.05 Resumption of Participation 14 CHAPTER VII PAYMENT OF BENEFITS 14 7.01 Commencement of Benefits 14 7.02 Form of Payment 15 7.03 Incidental Death Benefits 15 7.03A New Minimum Distribution Regulations 16 7.04 Transfers 17 7.05 Distribution of Small Amounts 17 7.06 Direct Rollover 17 CHAPTER VIIITOP-HEAVY PROVISIONS 18 8.01 Provisions Will Control 18 8.02 Definitions 19 8.03 Minimum Allocation 21 8.04 Nonforfeitability of Minimum Allocation 22 8.05 Minimum Vesting Schedules 22 8.06 Compensation Limitation 22 CHAPTER IX ADJUSTMENT OF ACCOUNTS 22 9.01 Allocation of Trust Earnings 22 9.02 Allocation of Employer Contributions and Forfeitures 23 CHAPTER X DESIGNATION OF BENEFICIARY 23 10.01 Beneficiary Designation 23 10.02 Priority If No Designated Beneficiary 23 CHAPTER XI AMENDMENT OR TERMINATION OF THE PLAN 23 11.01 Amendment by Employer 23 11.02 Conformance to Law 24 11.03 Right to Terminate 24 11.04 Merger, Consolidation, or Transfer 24 CHAPTER XII CLAIMS PROCEDURE 25 12.01 Written Claim 25 12.02 Claim Denial 25 12.03 Request for Review of Denial 25 12.04 Decision on Review 25 12.05 Additional Time 25 CHAPTER XIIIMISCELLANEOUS PROVISIONS 26 13.01 Reversion of Assets 26 13.02 Equitable Adjustment 26 13.03 Reasonable Compensation 26 13.04 Indemnification 26 13.05 Protection from Loss 26 13.06 Protection from Liability 26 13.07 Adoption of Rules and Procedures 27 13.08 Assignment of Benefits 27 13.09 Mental Competency 27 13.10 Authentication 28 13.11 Not an Employment Contract 28 13.12 Appointment of Auditor 28 13.13 Uniform Treatment 28 13.14 Interpretation 28 13.15 Plural and Gender 28 13.16 Headings 28 13.17 Expenses 28 13.18 Unclaimed Accounts 28 13.19 Special Provisions Respecting Military Service 29 13.20 Participation of Affiliated Employers 29 14.01 Stock Savings Accounts 29 14.02 Employer Stock Defined 29 14.03 Distributions from Stock Savings Accounts 29 14.04 Employer Stock Valuation 29 CHAPTER XV EGTRRA PROVISIONS 30 15.01 Adoption and Effective Date of Amendment 30 15.02 Supersession of Inconsistent Provisions 30 15.03 Limitations on Contributions 30 15.04 Modification of Top-Heavy Rules 30 15.05 Direct Rollovers of Plan Distributions 32 INTRODUCTION The name of this Plan is the OshKosh B'Gosh, Inc. Profit Sharing Plan. The validity, construction, and all rights granted under this Plan and Trust will be governed, interpreted, and administered by the laws of the United States under the Employee Retirement Income Security Act of 1974 (ERISA, as it may be amended) and the Internal Revenue Code of 1986 (the Internal Revenue Code, as it may be amended). However, regardless of the preceding, to the extent that ERISA and/or the Internal Revenue Code do not preempt local law, the Plan and Trust will be governed, interpreted, construed, and enforced according to the laws of the State of Wisconsin. If the U.S. Department of Labor or the Internal Revenue Service, or both, determines at any time that this Plan does not meet these requirements or that it is being administered or interpreted in a manner inconsistent with these requirements, the Employer may make the appropriate amendments or adjustments, or both, which may be retroactive, to correct the situation, or terminate the Plan. If any provisions of the Plan and Trust are held to be invalid or unenforceable, the remaining provisions will continue to be fully effective. CHAPTER I DEFINITIONS 1.01 Unless the context requires otherwise, the capitalized terms defined below will have the following meanings throughout the Plan: (a) Account is any or all of a Participant's Account(s) as may be established by the Committee from time to time to administer the Plan, depending upon the context of the sentence in which it is used. Account(s) shall include: (1) Regular Account (the Account to which are credited Employer Contributions and earnings thereon). (2) Employee Contributions Account (the Account to which are credited voluntary Employee Contributions and earnings thereon). (b) Affiliated Employer means (i) each corporation which is included as a member of a controlled group with the Employer and trades or businesses, whether or not incorporated, which are under common control by or with the Employer within the meanings of Sections 414(b) and (c) of the Internal Revenue Code of 1986, or any amendments thereof and (ii) any other corporation not described in clause (i) acquired by the Employer and designated by it as an Affiliated Employer, except that for purposes of the limitation on Annual Additions, the term shall also include trades or businesses on the basis of a more than 50% test rather than an 80% test. Further, the term shall include any members of the same "affiliated service group" within the meaning of Code Section 414(m) and any other entity required to be aggregated with the Employer under Code Sections 414(n) or (o). (c) Anniversary Date is December 31. (d) Beneficiary is the person or entity designated in Chapter X to receive any death benefits of a Participant which become payable under the Plan. (e) Break in Service shall mean, as to any Participant who, as of December 31, 1988 or earlier, had incurred a One Year Break in Service after termination of employment. A One Year Break in Service means a Plan Year in which the Employee does not complete an aggregate of more than 500 Hours of Service with the Employer or Affiliated Employers. As to any Participant who, as of December 31, 1988 or earlier, has not incurred a Break in Service under the rules then in existence, and as to terminations of employment on and after January 1, 1989, a Break in Service shall be any subsequently ending and consecutive five One Year Breaks in Service. Special provisions with respect to military service are contained in Section 13.19 hereof. (f) Code means the Internal Revenue Code of 1986, as amended and as it may be amended. (g) Committee is the organization appointed by the Board of Directors of the Employer (which may name itself as the Committee) for purposes of overseeing the administration of the Plan, and performing any other duties specified in this Plan. A Committee member may resign or be removed at any time by the Board of Directors of the Employer by written notice. To assist it in its duties, the Committee may employ agents or legal counsel. Any such Committee may in its regulations or by action delegate the authority to any one or more of its members to take any action on behalf of the Committee and as to such actions, no meetings or unanimous consent shall be required. The Committee may also act at a meeting or by its unanimous written consent. A majority of the members of the Committee shall constitute a quorum for the transaction of business and shall have full power to act hereunder. All decisions shall be made by vote of the majority present at any meeting at which a quorum is present, except for actions in writing without a meeting which must be unanimous. The Committee may appoint a Secretary who may, but need not, be a member of the Committee. The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. Any absent Committee member, and any dissenting Committee member who (at the time of the making of any decision by the majority) registers his dissent in writing delivered at that time to the other Committee members, shall be immune to the fullest extent permitted by law from any and all liability occasioned by or resulting from the decision of the majority. All rules and decisions of the Committee shall be uniformly and consistently applied to all persons in similar circumstances. The Committee shall be entitled to rely upon the records of the Employer or any Affiliated Employer as to information pertinent to calculations or determinations made pursuant to the Plan. A member of the Committee may not vote or decide upon any matter relating solely to himself or vote in any case in which his individual right of claim to any benefit under the Plan is particularly involved. If, in any case in which a Committee member is so disqualified to act, the remaining members cannot agree, then, the President of the Employer will appoint a temporary substitute member to exercise all of the powers of the disqualified member concerning the matter in which that member is disqualified to act. In the event a dispute arises under the Plan and Trust, the Committee will be the authorized agent for the service of legal process. (h) Compensation means total wages, salaries, fees and other amounts received for a particular Plan Year (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment by the Participant from a Participating Employer to the extent that the amounts are includable in gross income (or such Compensation paid or accrued for Plan Years prior to January 1, 1991), and including any elective contributions not otherwise includable in income under a Code Section 125 cafeteria plan or Section 401(k) plan, but excluding reimbursements or other allowances, fringe benefits (cash and non-cash, including, without limitation, any income arising in connection with any stock options, restricted stock or other equity based incentives relating to stock of the Employer), moving expenses, deferred compensation and welfare benefits. In the Plan Year in which an Employee becomes a Participant, for purposes of allocating Employer Contributions, Compensation includes only his Compensation after he becomes a Participant under Chapter II. However, for any Plan Year beginning after December 31, 1988, Compensation in excess of $200,000 (as adjusted as permitted under Code Section 401(a)(17) from time to time) shall be disregarded. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the plan shall not exceed the OBRA `93 annual compensation limit. The OBRA `93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA `93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA `93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current plan year, the Compensation for that prior determination period is subject of the OBRA `93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day to the first Plan Year beginning on or after January 1, 1994, the OBRA `93 annual compensation limit is $150,000. From and after January 1, 1999, in determining the Compensation of a Participant who is a highly compensated employee as defined in Code Section 414(q) for a Plan Year, all Compensation in excess of $100,000 shall be disregarded. (i) Contributions to the Plan by the Employer and the Participant shall include: (1) "Employer Contributions" shall mean contributions made to the Plan by a Participating Employer. (2) "Employee Contributions" shall mean voluntary Employee contributions made on an after-tax basis. (j) Date of Employment means: (1) the day on which the Employee performs his first Hour of Service on or after the date on which he is employed by the Employer or an Affiliated Employer, or (2) the date on which the Employee performs his first Hour of Service on or after the date on which he is re-employed following a One Year Break in Service. (k) Effective Date of the Plan is January 1, 1952. The Effective Date of this amendment and restatement is January 1, 1998, unless otherwise provided herein. (l) Employee is any person employed directly by the Employer or by an Affiliated Employer and for whom the Employer or an Affiliated Employer pays Social Security taxes and who is a salaried employee covered by the Employer's security code classification number 220, 750, 840, or 850. Leased employees (as defined in Code Section 414(n)) shall not be included even though it is recognized that such leased employees shall be included for purposes of nondiscriminatory testing under Code Section 410. Also excluded is any person who is classified by the Employer or an Affiliated Employer as other than as an Employee, for the entire period of such classification, without regard to any subsequent reclassification which may occur by operation of law or otherwise. (m) Employer is OshKosh B'Gosh, Inc. and any successor corporation or partnership by merger, purchase, or otherwise. The Employer will be the named fiduciary as defined in ERISA. (n) Employment Year means a 12-month period following an Employee's most recent Date of Employment. (o) ERISA is the Employee Retirement Income Security Act of 1974, as amended. (p) Hours of Service means any of the following hours (assuming a 190 hour month for any Employee not paid on an hourly basis who works one hour during the month): (1) Each hour for which an Employee is directly or indirectly paid, or entitled to payment, for the performance of duties for the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed; and (2) Each hour for which an Employee is directly or indirectly paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service will be credited under this paragraph for a single computation period (whether or not the period occurs in a single computation period). Hours under this paragraph will be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference; and (3) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service will not be credited both under (1) or (2) above, as the case may be, and under this definition 3. These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement, or payment is made. For purposes of determining whether a One Year Break in Service has occurred for participation and vesting purposes, an Employee who is absent from work a. by reason of her pregnancy, b. by reason of the birth of a child of the Employee, c. by reason of the placement of a child in connection with the adoption of the child by the Employee, d. for purposes of caring for the child during the period immediately following the birth or placement for adoption, Hours of Service shall be credited according to the following rule. During the period of absence, the Employee shall be deemed to have completed the number of hours that normally would have been credited but for the absence. If the normal work hours are unknown, eight hours of service shall be credited for each normal work day during the leave. The Hours of Service to be credited under this paragraph shall be credited in the year in which the absence begins if such crediting is necessary to prevent a One Year Break in Service in that year or in the following year. Provided, however, the total number of Hours of Service credited by this paragraph shall not exceed 501. Hours of Service will be credited for employment with the Employer and any Affiliated Employer. Hours of Service will also be credited for any individual considered an employee under Section 414(n). If records of employment with respect to an Employee's service with the Employer before the effective date of this restatement are insufficient to determine his exact Hours of Service, the Committee will make reasonable estimates of said Hours of Service based on such records of employment. Any such Hours of Service estimates will be made in a uniform, nondiscriminatory manner and will be binding on all Employees. (q) Normal Retirement Age is the date an Employee is 65 years old. (r) Participant is an Employee who has met the eligibility requirements of Chapter II, or a person who has an Account balance under this Plan. (s) Participating Employer means the Employer and any Affiliated Employer authorized by the Employer to participate in this Plan, by extending the same to such Affiliated Employer's eligible Employees. (t) Plan means the OshKosh B'Gosh, Inc. Profit Sharing Plan as it may be amended from time to time. (u) Plan Administrator is OshKosh B'Gosh, Inc. (v) Plan Year is January 1 to December 31. (w) Suspense Account is the separate Account within a Regular Account consisting of the forfeiture (under Section 6.04) of a Participant who terminates employment and who returns to the employ of the Employer or an Affiliated Employer before he incurs five One Year Breaks in Service. (x) Suspense Amount is the dollar amount of the non-Vested portion, if any, of a terminated Participant's Regular Account. The crediting, if any, of Trust earnings to the Suspense Amount will be determined by the Committee in a uniform and nondiscriminatory manner. (y) Trust means the OshKosh B'Gosh, Inc. Profit Sharing Trust, as it may be amended from time to time. (z) Trustee is the person(s), corporation, or combination thereof (and any duly appointed successor) named in the Trust document. (aa) Trust Fund is the total of contributions made to the Trust, increased by profits, income, refunds, and other recoveries received, and decreased by losses and expenses incurred, and benefits paid. Trust Fund may also include any assets transferred to the Trust Fund from the qualified corporate retirement trust of the Employer or any other employer, if permitted by applicable law, and, if permitted by the Committee, the individual retirement account (as defined by the Internal Revenue Code and referred to as "IRA" in the Plan and Trust) of an Employee, or a distribution to a Participant from the qualified corporate retirement plan of the Employer or another employer. (bb) Valuation Date is any date on which the market valuation of the Trust Fund is made. This valuation must be made on each March 31st, June 30th, September 30th, and December 31st of the Plan Year if there is a need to make a benefit distribution as of such date, as determined by the Committee. If it desires, the Committee in its discretion, may also instruct the Trustee to make valuations at other times. (cc) Vested is that portion of an Account to which a Participant has a nonforfeitable right. (dd) Year of Eligibility Service is the Employment Year of an Employee, provided he completes at least 1,000 Hours of Service during such Employment Year. For an Employee who does not complete at least 1,000 Hours of Service in his Employment Year, a Year of Eligibility Service is a Plan Year, starting with the Plan Year next following his Date of Employment, during which he completes at least 1,000 Hours of Service. (ee) Year of Vesting Service is any Plan Year, starting with the Plan Year in which an Employee is hired by the Employer or an Affiliated Employer, during which such Employee completes at least 1,000 Hours of Service. CHAPTER II ELIGIBILITY AND PARTICIPATION 2.01 Eligibility. On and after January 1, 1989, each Employee of a Participating Employer shall become eligible to participate in the Plan on the first day of the pay period coincident with or next following his completion of both of the following requirements: (a) one Year of Eligibility Service following his most recent Date of Employment; and (b) attainment of age 21. 2.02 Re-Employment. Notwithstanding the provisions of Section 2.01, any Participant who terminated employment with a Participating Employer after the effective date of this restatement, and is later rehired, shall again become eligible to become a Participant on his most recent Date of Employment. 2.03 Exclusion of Collective Bargaining Employees. An Employee who is covered by a collective bargaining agreement to which a Participating Employer is a party will not be eligible to participate in this Plan unless that collective bargaining agreement specifically provides for coverage of such Employee under this Plan. Also, a Participant who becomes covered by a collective bargaining agreement to which a Participating Employer is a party will not be eligible to share in any Employer Contributions and forfeiture reallocations for any Plan Year during which he is covered for the entire Plan Year by that collective bargaining agreement, unless such collective bargaining agreement specifically provides to the contrary. 2.04 Change in Participant Status. In the event a Participant is no longer a member of an eligible class of Employees (as defined in Section 1.01(l)) and becomes ineligible to participate, such employee will participate immediately upon returning to an eligible class of Employees. 2.05 Employees Not in Eligible Class. In the event an employee who is not a member of the eligible class of Employees (as defined in Section 1.01(l)) becomes a member of the eligible class, such employee will participate immediately if such employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant. CHAPTER III CONTRIBUTIONS AND ALLOCATIONS 3.01 Discretionary Employer Contributions. This Plan is intended to be a discretionary contribution plan, not dependent upon the existence of Employer profits, pursuant to Code Section 401(a)(27). Notwithstanding the preceding, this Plan shall be treated as a profit sharing plan for purpose of Code Sections 401(a), 402, 412, and 417. The Participating Employers agree to pay to the Trustee with respect to each Plan Year such amount, if any, as may be determined by the Board of Directors of the Employer each year. The Employer Contributions for any particular Plan Year shall not exceed the amount (including the amount of any credit-carryovers from prior years available to the Participating Employers) which the Participating Employers may lawfully deduct for federal income tax purposes. Employer Contributions shall be made before or as soon as reasonably possible after the close of the Employer's fiscal year, without interest and within the time limit for deductibility thereof by the Employer as specified by the Internal Revenue Code. 3.02 Allocation of Employer Contributions and Forfeitures. Except as provided in Section 6.04, the Employer Contributions shall be allocated to the Regular Accounts of all Participants who are Employees on the last day of the Plan Year or who terminated employment during the Plan Year due to death, retirement (on or after either the attainment of age 65, or the attainment of age 60 and the completion of 10 Years of Vesting Service) or disability, in the proportion that the Compensation of each such Participant bears to the total Compensation of all such Participants. Any forfeitures which become reallocable during the Plan Year under any other provision of this Plan shall be applied to reduce the amount of Employer Contributions otherwise determined for such Plan Year. To the extent any unapplied balance of forfeitures remain, the same shall be similarly applied as soon as possible in the immediately following Plan Years. On the effective date of any total termination of the Plan or complete discontinuance of any contributions to the Trust, any unapplied forfeitures shall be allocated to the Regular Accounts of all Participants who are Employees on such effective date pro rata to Compensation as provided above. CHAPTER IV CONTRIBUTION LIMITATIONS 4.01 Definitions. For purposes of this Chapter IV only, the capitalized terms defined below will have the following meaning when capitalized: Annual Additions means the total of the following amounts, if any, which are allocated to the Combined Accounts of a Participant: (a) Employer Contributions (excluding Employer Contributions arising from an award of back pay by agreement with the Participating Employer or by court order); (b) Amounts forfeited by non-vested previous Participants; (c) Non-deductible voluntary Employee Contributions; and (d) Any amount added to an individual medical account as defined in Section 415(l)(2) which is part of a pension or annuity plan of the Employer for the Participant. For purposes of determining Annual Additions, a rollover contribution from an IRA of a Participant, or from his account in the qualified retirement plan of his previous employer will not be included. Average Compensation of a Participant is his Total Compensation during the three consecutive Limitation Year period in which he earned a year of service and which produced the highest average. Combined Accounts means the total of all accounts of a Participant in all of the Defined Contribution Plans of the Participating Employer. Defined Benefit Plan is a retirement plan which does not provide for benefits from an individual account of a Participant, but rather such benefits are based on a benefit formula provided by the Plan. Defined Contribution Plan is a retirement plan which provides for an individual account for each Participant and for benefits based entirely on the balance of that account. The account balance is usually derived from contributions, income, expenses, market value increases or decreases, and sometimes non-Vested amounts from Participants who quit before retirement. Employer means the employer that adopts this Plan. All members of a controlled group of corporations (as defined in Section 414(h) as modified by Section 415(h) of the Code), all trades or businesses (whether or not incorporated) under common control (as defined by Section 414(c) as modified by Section 415(h) of the Code), or all members of an affiliated service group (as defined in Section 414(m) of the Code), will be considered a single employer for the purposes of applying the limitations of this Chapter. Limitation Year is the Plan Year. Total Compensation includes a Participant's earned income, wages, salaries, and fees for professional service and other amounts received for personal services actually rendered in the course of employment with an Employer maintaining the plan (including but not limited to, commissions paid salesmen, compensation for services on the basis or a percentage of profits, commissions on insurance premiums, tips and bonuses) and excluding the following: a. Employer contributions to a plan of deferred compensation which are not included in the gross income of the Employee for the taxable year in which contributed, or on behalf of an Employee to a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation; b. Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; c. Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and d. Other amounts which receive special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of a 403(b) annuity contract (whether or not the contributions are excludable from the gross income of the Employee). Notwithstanding the above definition, from and after January 1, 1998, Total Compensation shall include any elective deferral contributions (as defined in Code Section 402(g)(3)), any amounts contributed or deferred by the Employer at the election of the Participant which are not includable in the gross income of the Participant by reason of Code Sections 125 or 457, and from and after January 1, 2001, by reason of Code Section 132(f). 4.02 Maximum Annual Additions. The maximum amount of Annual Additions which can be made to the Combined Accounts of a Participant for any Limitation Year is equal to the lesser of: (a) 25% of his Total Compensation for that period; or (b) $30,000 (or such other dollar amount as is specified annually by the Secretary of the Treasury, or his delegate or any other federal law or regulations). 4.03 Reduction of Annual Additions. If the Annual Additions to any Participant's Combined Accounts exceed this maximum for any Limitation Year, the Committee will reduce the amount of his Annual Additions in the following order of priority until the Annual Additions equal the maximum allowed: (a) First, any amounts of voluntary Employee Contributions shall be returned, to the extent required, to the Participant. (b) Second, the forfeitures credited to his Account for the Limitation Year will be reallocated to the appropriate Accounts of all other Participants to the extent required, in the same manner as the other forfeitures for the Limitation Year. (c) Third, and subject to Section 4.02, Employer Contributions shall be reallocated to other Participants covered by the Plan in that Limitation Year. 4.04 Limitations if Participant in Other Plan(s). If a Participant is also a participant in a Defined Benefit Plan (or plans) maintained by the Employer, the decimal equivalent of the sum of the fractions determined as follows for all Defined Benefit Plans and Defined Contribution Plans maintained by the Employer in which he participates shall not exceed 1.0 for any Limitation Year: (a) A defined benefit fraction, the numerator being the projected total annual benefits of the Participant under all Employer-sponsored Defined Benefit Plans (whether or not terminated), and the denominator being the lesser of: (1) the product of 1.25 multiplied by $90,000 (or, if permitted by applicable law, such other dollar amount as is specified annually by the Secretary of the Treasury, or his delegate); or (2) the product of 1.4 multiplied by the Participant's Average Compensation. (b) A defined contribution fraction, the numerator being the sum of the actual Annual Additions to the Participant's Combined Accounts under all Defined Contribution Plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years, and the denominator being the sum of the lesser of the following amounts determined for such Limitation Year and all prior Limitation Years of the Participant's service with the Employer (regardless of whether a Defined Contribution Plan was maintained by the Employer): (1) the product of 1.25 multiplied by $30,000 (or, if permitted by applicable law, such other dollar amount as is specified annually by the Secretary of the Treasury, or his delegate); or (2) the product of 1.4 multiplied by 25% of his Total Compensation for such Limitation Year. In the event the projected annual benefits of a Participant under all Defined Benefit Plans cause the total of the fractions determined under (a) and (b) above to exceed 1.0, the benefits under such Defined Benefit Plans will be reduced to the extent required so that the total of such fractions equals 1.0. From and after January 1, 2000, the special limitations set forth in this Section 4.04 shall no longer apply. CHAPTER V INVESTMENT OF ACCOUNTS 5.01 Funding Policy. In order to implement and carry out the provisions of the Plan and to finance the benefits under the Plan, the Employer will establish and maintain a funding policy with respect to the Trust Fund in a manner consistent with applicable law. 5.02 Employee Direction of Investments. The Committee may, in its discretion, direct the Trustee to establish "separate investment funds" within the Trust Fund according to Committee specification for the investment of Accounts. The Committee will then establish uniform, nondiscriminatory rules permitting each Participant to direct the percentage of his Account(s) to be invested in each of these separate investment funds. Any such written direction will remain in effect for a Participant until it is replaced by his subsequent written direction filed with the Committee. The Committee may also provide for the transfer of funds within an Account from one separate investment fund to another under uniform rules established by the Committee. If a Participant makes no written direction under this provision, the Committee will direct the Trustee to place 100% of his Account(s) in a separate investment fund chosen by the Committee under uniform, nondiscriminatory rules. 5.03 Expenses. The Participating Employers may pay the expenses of administering the Plan, if desired. However, if they do not pay these expenses directly, then, to the extent permitted by law, the payments will be made from the Trust Fund. CHAPTER VI VESTING OF ACCOUNTS 6.01 100% Vesting Situations. A Participant will be fully (100%) Vested in his Regular Account upon the occurrence of any of the following events; provided such event occurs while he is an Employee: (a) either his attainment of his Normal Retirement Age, or his attainment of age 60 and the completion of 10 Years of Vesting Service; (b) his death; (c) his total and permanent disability as determined by a physician selected by the Committee. For purposes of this paragraph, a Participant will be considered totally and permanently disabled if he incurs a mental or physical disability which may be expected to be of a long continued duration or which may be expected to result in death and which prevents him from satisfactorily performing his duties with the Employer or an Affiliated Employer; or (d) the termination (either full or partial) of this Plan or the complete discontinuance of Employer Contributions to this Plan, provided however, that in the event of a partial termination, only those Participants to whom the partial termination applied will be 100% Vested. 6.02 Vesting Schedule. A Participant who is not yet fully Vested under Section 6.01 will be Vested (subject to Section 6.03) in his Regular Account according to the following vesting schedule: Years of Vested Vesting Service Percentage Less than 3 0% 3 or more 100% 6.03 Bad-Boy Provision. Prior to his eligibility for full Vesting under Section 6.01, and whether or not he is eligible to be Vested in his Regular Account under Section 6.02, a Participant with fewer than 5 years of Vesting Service will have no Vested interest in his Regular Account if prior to or after his termination of employment with the Employer or an Affiliated Employer, he commits an act which would constitute a crime against the Employer or an Affiliated Employer under federal law or the laws of the State of Wisconsin. 6.04 Forfeitures. As to any Participant who terminates employment with the Employer and all Affiliated Employers prior to his Retirement Date or earlier death, and prior to becoming fully vested in his Account: (a) If distribution of the vested portion of such a Participant's Regular Account is not made until after he incurs a Break in Service, then the unvested portion of his Account shall be forfeited as of the Anniversary Date of the last Plan Year in such Break in Service and reallocated as provided in Section 3.02 hereof. (b) If such Participant receives distribution of the vested portion of his Regular Account (and his Employee Contributions Account, if any) prior to incurring a Break in Service, then that part of his Account in which he is not vested at the date of such distribution shall be considered a forfeiture as of the date of distribution and shall be reallocated as provided in Section 3.02 hereof as of the Anniversary Date of the Plan Year in which the distribution occurs. A Participant with no vested interest in his Regular Account at his termination shall be deemed to have received a distribution as of his date of termination. (c) The number of Years of Vesting Schedule Service of a terminated Participant who incurs a Break in Service shall not thereafter be increased for purposes of measuring his vested interest in his Regular Account as it exists at the end of such Break in Service. (d) If a Participant terminates his employment with a Participating Employer before he is fully Vested in his Regular Account, receives a distribution and he is later rehired by a Participating Employer before he incurs five One Year Breaks in Service, the Committee will instruct the Trustee to create a Suspense Account for him (prior to any allocations under Section 3.02) in an amount equal to the forfeiture specified in 6.04(b) above. Then, if he is not fully vested in his Regular Account when he subsequently terminates his employment with the Participating Employer, the value of his Regular Account will be calculated according to Sections 6.02 or 6.03, and the value of his Vested Suspense Account will be calculated by multiplying the balance of the Suspense Account by the ratio of: (i) the difference between the Vested percentage under Sections 6.02 or 6.03 and the prior Vested percentage. The prior Vested percentage shall mean the Vested percentage at the prior termination date; and (ii) the difference between 100% and the prior Vested percentage. (e) Any amounts which must be restored to a rehired Participant's Suspense Account pursuant to the foregoing shall first come out of forfeitures and Employer Contributions which would otherwise be applied pursuant to subsection 3.02 for the Plan Year in which the restoration is made, and only thereafter and to the extent necessary, by a special Employer Contribution made solely for this purpose. 6.05 Resumption of Participation. (a) Except as otherwise provided in paragraph (b) below, upon re-employment of any Participant a new Account shall be created to which all allocations of contributions and forfeitures after he is re-employed shall be made. If a Participant had any vested interest in his Regular Account at his termination, all his Years of Vesting Service shall be aggregated to determine the Participant's vested interest in such new Regular Account. If the Participant terminated employment prior to being credited with any vested interest and incurs a Break in Service, only his Years of Vesting Service after his re-employment shall be used to determine his vested interest in such new Regular Account. (b) If a Participant is re-employed before incurring a Break in Service without having received distribution of the vested portion of his Regular Account, then any subsequent allocations of Employer Contributions and forfeitures may be made to the same Account, and the Participant's vested interest in such Account shall be determined under Sections 6.02 or 6.03 based upon his Years of Vesting Service both before and after his re-employment. CHAPTER VII PAYMENT OF BENEFITS 7.01 Commencement of Benefits. Unless a Participant elects in writing to further defer the starting date of any benefit payable under the Plan and Trust, benefits must begin to be paid within 60 days after the later of: (a) the last day of the Plan Year in which he attains age 65; (b) the last day of the Plan Year in which he terminates his employment with the Employer or an Affiliated Employer. Effective January 1, 2000, and notwithstanding any other provisions of this Plan but subject to the special rules pertaining to 5% owners and certain other Participants set forth below, any benefit payable to a Participant shall commence no later than the "Required Beginning Date" for a Participant under Code Section 401(a)(9), as amended by the Small Business Job Protection Act of 1996, which is the April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2, or (ii) the calendar year in which the Participant retires or terminates service with the Employer or an Affiliated Employer. However, any benefit payable to (i) a Participant who is a more than 5% owner of the "employer" as defined in Code Section 416 with respect to the Plan Year ending in the calendar year in which such Participant attains age 70 1/2 shall commence no later than the April 1st of the calendar year following the calendar year in which such Participant attains age 70 1/2, even if he has not separated from service as of such date. Further, any Participant continuing in the service of the Employer or an Affiliated Employer who attained age 70 1/2 after December 31, 1996 but before January 1, 2000 shall have an option to elect either to begin receiving benefits starting no later than April 1st of the calendar year in which such Participant attains age 70 1/2 or to defer the commencement thereof (and, if applicable, to stop the current receipt of benefits) until retirement or termination of service. If a distribution is one to which Sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (a) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Participant, after receiving the notice, affirmatively elects a distribution. 7.02 Form of Payment. All distributions under this Plan will be made in one, or a combination of, the following forms, as selected by the Participant or his Beneficiary: (a) By payment in a series of substantially equal installments not less frequently than annually; (b) By payment in a lump sum. Distributions will be based on the Account values as of the most recent Valuation Date. 7.03 Incidental Death Benefits. Regardless of any statement to the contrary, the ability of any Participant or Beneficiary to select the timing and method of a distribution option will be limited by the following provisions: (a) If the Participant's entire interest is to be distributed in other than a lump sum, then the amount to be distributed each year must be at least an amount equal to the quotient obtained by dividing the Participant's entire interest by the life expectancy of the Participant or joint and last survivor expectancy of the Participant and designated Beneficiary. Life expectancy and joint and last survivor expectancy are computed by the use of the return multiples contained in Section 1.72-9 of the Income Tax Regulations. For purposes of this computation, a Participant's life expectancy may be recalculated no more frequently than annually, however, the life expectancy of a non-spouse Beneficiary may not be recalculated. If the Participant's spouse is not the designated Beneficiary, the method of distribution selected must satisfy the minimum death incidental benefit requirements of Regulation Section 1.401(a)(9)-2. (b) If the Participant dies after distribution of his or her interest has commenced, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. (c) If the Participant dies before distribution of his or her interest commences, the Participant's entire interest will be distributed no later than five years after the Participant's death except to the extent that an election is made to receive distributions in accordance with (1) or (2) below: (1) If any portion of the Participant's interest is payable to a designated Beneficiary, distributions may be made in substantially equal installments over the life or life expectancy of the designated Beneficiary commencing no later than one year after the Participant's death; (2) If the designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (1) above shall not be earlier than the date on which the Participant would have attained age 70 1/2, and, if the spouse dies before payments begin, subsequent distributions shall be made as if the spouse had been the Participant. (d) For purposes of 7.04(c) above, payments will be calculated by use of the return multiples specified in Section 1.72-9 of the regulations. Life expectancy of a surviving spouse may be recalculated annually, however, in the case of any other designated Beneficiary, such life expectancy will be calculated at the time payment first commences without further recalculation. 7.03A New Minimum Distribution Regulations. With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Internal Revenue Service in accordance with the regulations under Section 401(a)(9) that were proposed in January 2001 notwithstanding any provision of the Plan to the contrary. This Section 7.03A shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Section 401(a)(9) or such other date specified in guidance published by the Internal Revenue Code. 7.04 Transfers. In addition to the other methods of distribution described in this Chapter, the Committee may direct the Trustee to make distribution of Account balances under this Plan directly to the IRA of a Participant, if such Participant files a written request to that effect with the Committee and such distribution is permitted by law. To the extent permitted by applicable law, neither the Participating Employer, the Committee, the Plan Administrator, nor the Trustee will incur any liability under this Plan for Account distributions made in the specified amount to a Participant's IRA in accordance with such written request, regardless of any adverse tax consequences which may be incurred by the Participant as a result of such distribution. The Plan will not accept the transfer into the Trust Fund of IRA's or distributions to Participants from other qualified retirement plans. 7.05 Distribution of Small Amounts. Notwithstanding the other provisions of this Chapter VII, if the vested portion of all of the Accounts of a Participant who terminates, retires, or dies does not exceed $3,500 (changing to $5,000 effective as of January 1, 2002) (or such other sum as may be permitted from time to time by applicable governmental regulations) as of the Valuation Date preceding the Participant's termination, such vested interest shall be distributed in the form of a single sum cash distribution as soon as practicable following the Participant's termination. 7.06 Direct Rollover. (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (b) Definitions (i) Eligible Rollover Distribution: An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: 1) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; 2) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; 3) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities); 4) returns of Section 401(k) elective deferrals that are returned as a result of the Section 415 limitations; 5) corrective distributions of excess contributions, excess deferrals, and excess aggregate contributions, together with the income allocable to these corrective distributions; 6) loans treated as distributions under Section 72(p) and not excepted by Section 72(p)(2); 7) loans in default that are deemed distributions; 8) a distribution less than $200; 9) for distributions made from and after December 31, 1999, any amount which is a hardship distribution under Section 401(k)(2) of the Code; and 10) similar items designated by the IRS in revenue rulings, notices, and other guidance of general applicability. (ii) Eligible Retirement Plan: An Eligible Retirement Plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (iii) Distributee: A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employees' spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (iv) Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. CHAPTER VIII TOP-HEAVY PROVISIONS 8.01 Provisions Will Control. If the Plan is or becomes Top-Heavy in any Plan Year beginning after December 31, 1983, the provisions of Chapter VIII will supersede any conflicting provisions in the Plan. 8.02 Definitions. For purposes of this Chapter VIII the following definitions shall apply: (a) Employer: Means all Participating Employers and all Affiliated Employers. (b) Key Employee: Any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the Determination Period was: (1) an officer of the Employer having annual compensation from the Employer greater than 50% of the amount in effect under Section 415(b)(1)(A) for any such Plan Year; (2) an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer if such individual's compensation exceeds the dollar limitation under Section 415(c)(1)(A) of the Code; (3) a 5% owner of the Employer; or (4) a 1% owner of the Employer who has an annual compensation of more than $150,000. The Determination Period is the Plan Year containing the Determination Date and the 4 preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Section 416(i)(l) of the Code and the regulations thereunder. (c) Top-Heavy Plan: For any Plan Year beginning after December 31, 1983, this Plan is Top-Heavy if any of the following conditions exist: (1) If the Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of Plans. (2) If this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60%. (3) If this Plan is a part of Required Aggregation Group and part of Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%. (d) Top-Heavy Ratio: (1) If the Employer maintains one or more defined benefit plans and the Employer has not maintained any defined contribution plans (including any Simplified Employee Pension Plan) which during the 5-year period ending on the Determination Date(s) has or has had account balances, the Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the Present Value of accrued benefits of all Key Employees as of the Determination Date(s) (including any part of any accrued benefit distribution in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all accrued benefits distributed in the 5-year period ending on the Determination Date(s) determined in accordance with Section 416 of the Code and the regulations thereunder. (2) If the Employer maintains one or more defined benefit plans and the Employer maintains or has maintained one or more defined contribution plans (including any Simplified Employee Pension Plan) which during the 5-year period ending on the Determination Date(s) has or has had account balances, the Top-Heavy Ratio for any Required or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of account balances under the aggregate defined contribution plan or plans for all Key Employees and the Present Value of accrued benefits under the aggregate defined benefit plan or plans for all Key Employees, and the denominator of which is the sum of the account balances under the aggregate defined contribution plan or plans for all Participants and the Present Value of accrued benefits under the aggregate defined benefit plan or plans for all Participants as determined in accordance with Section 416 of the Code and the regulations thereunder. The account balances under a defined contribution plan and the Present Value of accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-Heavy Ratio are adjusted for any distribution made in the 5-year period ending on the Determination Date. (3) For purposes of (1) and (2) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Section 416 of the Code and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a Participant who: (i) is not a Key Employee but who was a Key Employee in a prior year; or (ii) has not received any compensation from any employer maintaining the Plan at any time during the 5-year period ending on the Determination Date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Accordingly, the accrued benefit of any employee who has not performed an Hour of Service for the Employer at any time during the 5-year period ending on the Determination Date will be disregarded. Deductible employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. (e) Permissive Aggregation Group: The Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (f) Required Aggregation Group: (1) Each qualified plan of the Employer in which at least one Key Employee participates in the Plan Year containing the Determination Date or any of the four preceding Plan Years (including any such plan that terminated within the 5-year period ending on the Determination Date), and (2) any other qualified plan of the Employer which enables a plan described in (1) to meet the requirements of Sections 401(a)(4) or 410 of the Code. (g) Determination Date: For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. (h) Valuation Date: December 31st of each Plan Year, as of which account balances or accrued benefits are valued for purposes of calculating the Top-Heavy Ratio. (i) Present Value: Present Value shall be based only on the interest and mortality rates specified in the defined benefit plan. 8.03 Minimum Allocation. (a) Except as otherwise provided in (c) and (d) below, the Employer Contributions and forfeitures allocated on behalf of any Participant who is not a Key Employee shall not be less than the lesser of three percent of such Participant's Compensation for the entire Plan Year (notwithstanding any other provision of this Plan) or in the case where the Employer has no defined benefit plan which designates this Plan to satisfy Section 401 of the Code, the largest percentage of Employer Contributions, as a percentage of the first $200,000 of the Key Employee's Compensation, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation in that year because of the Participant's failure to complete 1,000 Hours of Service (or any equivalent provided in the Plan). (b) For purposes of computing the Minimum Allocation, Compensation will mean Compensation as defined in Section 1.01(h). (c) The provisions in (a) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year. (d) The provisions in (a) above shall not apply to any Participant to the extent that the Participant is covered under any other plan or plans of the Employer and the Employer has provided that the minimum allocation or benefit requirement applicable to Top-Heavy plans will be met in the other plan or plans. 8.04 Nonforfeitability of Minimum Allocation. The minimum allocation required (to the extent required to be nonforfeitable under Section 416(b)) may not be forfeited due to any suspension of benefits upon re-employment of retiree. 8.05 Minimum Vesting Schedules. For any Plan Year in which this Plan is Top-Heavy, the following vesting schedule will automatically apply to the Plan: Years of Vested Vesting Service Percentage 1 0% 2 20% 3 or more 100% The minimum vesting schedule applies to all benefits within the meaning of Section 411(a)(7) of the Code, including benefits accrued before the effective date of Section 416 and benefits accrued before the Plan became Top-Heavy. Further, no reduction in vested benefits may occur in the event the Plan's status as Top-Heavy changes for any Plan Year. However, this Section does not apply to the account balances of any Employee who does not have an Hour of Service after the Plan has initially become Top-Heavy and such Employee's account balances attributable to Employer Contributions will be determined without regard to this Section. If the vesting schedule under the Plan shifts in or out of the above schedule for any Plan Year because of the Plan's Top-Heavy status, such shift is an amendment to the vesting schedule and the election in Section 11.01(c) of the Plan applies. 8.06 Compensation Limitation. For any Plan Year in which the Plan is Top-Heavy, only the first $200,000 (or such larger amount as may be prescribed by the Secretary or his delegate) of a Participant's annual Compensation shall be taken into account for purposes of determining Employer Contributions under the Plan. CHAPTER IX ADJUSTMENT OF ACCOUNTS 9.01 Allocation of Trust Earnings. As of each Valuation Date, the Committee will charge the Trustee to value the Trust at its fair market value and any gains or losses will be allocated to the Account of each Participant in proportion to the value of each such Account as of the previous Valuation Date. In making such allocations, the Committee will adjust the beginning or ending Account balances to reflect the amount and timing of any Employee Contributions, withdrawals, and benefit payments under uniform and nondiscriminatory rules established by the Committee. 9.02 Allocation of Employer Contributions and Forfeitures. As of each Anniversary Date, the Committee will allocate Employer Contributions (and forfeitures, if any, which shall be used to reduce Employer Contributions) for the Plan Year ending on that Anniversary Date to the Regular Account of Participants. CHAPTER X DESIGNATION OF BENEFICIARY 10.01 Beneficiary Designation. Each Participant may name, or change the name of his Beneficiary(ies) who will receive any death benefits payable to such Beneficiary(ies) under the Plan and Trust. If the Participant designates someone other than his spouse as the primary Beneficiary, then the spouse must give written consent (witnessed by a Plan representative or notary public) to such designation. To be effective, a Beneficiary designation form (available from the Committee) must be on file with the Committee on the Participant's date of death. 10.02 Priority If No Designated Beneficiary. If there is no Beneficiary designation form on file, or if the designated Beneficiary(ies) predeceases the Participant, benefit payments required under the Plan and Trust to be payable on death to the Beneficiary(ies) will be distributed in the following order of priority: (a) to the surviving spouse; or, if none (b) to the surviving issue (per stirpes and not per capita); or, if none (c) to the surviving parents equally, or, if one is deceased, to the survivor of them; or, if none (d) to the estate of the Participant. CHAPTER XI AMENDMENT OR TERMINATION OF THE PLAN 11.01 Amendment by Employer. The Employer may, by resolution of the Board of Directors, amend this Plan at any time. Any amendment by the Employer will be subject to the following rules: (a) Without its written consent, no amendment may increase the duties or liabilities of the Trustee. (b) Except as permitted by law, no amendment may provide for the use of funds or assets under the Plan and Trust other than for the exclusive benefit of Participants or their Beneficiaries. In addition, no amendment may allow Trust Fund assets to revert to or be used or enjoyed by any Participating Employer unless otherwise permitted by law. (c) If an amendment changes the vesting schedule of the Plan, or if the Plan is amended in any way that directly or indirectly affects the computation of a Participant's nonforfeitable percentage, any Participant in the employ of the Participating Employer or an Affiliated Employer on the date such amendment is adopted (or the date it is effective, if later) who has completed at least three years of service at the end of the election period specified below, may make an irrevocable election to remain under the vesting schedule of the Plan as in existence immediately prior to said amendment. If such Participant does not make this election during the election period starting on the date such amendment is adopted, and ending 60 days following the latest of the following dates, he will be subject to the new vesting schedule provided by said amendment: (1) the date the amendment is adopted; (2) the date the amendment is effective; or (3) the date written notice of the amendment is given to the Participant. However, the failure to make an election described above will not result in the forfeiture of any benefits which are already Vested. (d) No amendment may reduce the Vested percentage of a Participant. (e) No amendment may reduce the Account balance of a Participant. 11.02 Conformance to Law. Regardless of the provisions of Section 11.01, the Employer has the right to make whatever amendments are necessary to this Plan or the Trust to bring it into conformity with applicable law. 11.03 Right to Terminate. The Board of Directors of the Employer may, by resolution, terminate the Trust and/or this Plan at any time or reduce, suspend or discontinue its contributions, with respect to certain or all of its Employees. Further, any other Participating Employer may do likewise as to its participation in this Plan by resolution of its Board of Directors. However, if the Plan is terminated (either wholly or partially), or if there is a complete discontinuance of Employer Contributions to the Trust, each affected Participant who is an Employee on the effective date of such total Plan termination or complete discontinuance of contributions (or, if a partial termination, whose severance causes or is a result of such partial termination) will then become 100% Vested in his Accounts. In the event that the Plan is terminated or contributions are discontinued as provided above, all distributions will be made in accordance with the provisions of Chapter VII and, except as provided in Section 7.05, remaining Accounts will continue to share in the experience of the Trust Fund on each Valuation Date as provided in Section 9.01. 11.04 Merger, Consolidation, or Transfer. If the Plan and Trust are merged or consolidated with, or the assets or liabilities are transferred to, any other plan and trust, the benefits payable to each Participant immediately after such action (if the Plan was then terminated) will be equal to or greater than the benefits to which he would have been entitled if the Plan had terminated immediately before such action. CHAPTER XII CLAIMS PROCEDURE 12.01 Written Claim. A Participant or Beneficiary(ies) may make a claim for Plan benefits by filing a written request with the Committee, on a form provided by the Committee. 12.02 Claim Denial. If a claim is wholly or partially denied, the Committee will furnish the Participant or Beneficiary(ies) with written notice of the denial within 60 days of the date the original claim was filed. The notice of denial will specify: (a) the reason for denial; (b) specific reference to pertinent Plan and Trust provisions on which the denial is based; (c) a description of any additional information or requirements needed to be eligible to obtain the denied benefit and an explanation of why such information or requirements are necessary; and (d) an explanation of the claim procedure. 12.03 Request for Review of Denial. The Participant or Beneficiary(ies) will have 60 days from receipt of a denial notice in which to make written application for review by the Committee. The Participant or Beneficiary may request that the review be in the nature of a hearing. The Participant or Beneficiary(ies) will have the rights to representation, to review pertinent documents, and to submit comments in writing. 12.04 Decision on Review. The Committee will issue a decision on such review within 60 days after receipt of an application for review. The Plan Administrator shall have full and complete discretionary authority to determine eligibility for benefits, to construe the terms of the Plan and to decide any matter presented through the claims review procedure. Any final determination by the Plan Administrator shall be binding on all parties. If challenged in court, such determination shall not be subject to de novo review and shall not be overturned unless proven to be arbitrary and capricious upon the evidence considered by the Plan Administrator at the time of such determination. 12.05 Additional Time. The Committee may take additional time, as provided by government regulations, under this Chapter XII, if such time is needed to gather data, perform calculations or reach decisions in the processing of a claim. The Participant or Beneficiary(ies) will be informed by the Committee, in writing, of the need for such additional time prior to the date such extension begins. CHAPTER XIII MISCELLANEOUS PROVISIONS 13.01 Reversion of Assets. This Plan and Trust are for the exclusive benefit of the Employees of the Participating Employers and none of the assets may be used for any other purpose. Notwithstanding the above, there may be a reversion of assets to the Employer (or the Employee) in the event one of the following occurs: (a) If, in the course of administering the Plan and Trust, errors in accounting arise due to factual errors in information supplied by any Participating Employer, the Committee, the Plan Administrator or the Trustee, equitable adjustments may be made to correct these errors. Excess contributions arising from such adjustments may be returned to the Participating Employer (or Employee, if such contributions are attributable to Employee contributions) within one year after such contributions were made. (b) All Employer Contributions made to the Plan are conditioned on deductibility. For any year(s) that all or a part of the deduction for Participating Employer Contributions to the Plan is disallowed by the Secretary of the Treasury, the amount of the contributions so disallowed must be returned to the Participating Employer within one year after such disallowance. (c) The Plan is terminated as provided for in Chapter XI. 13.02 Equitable Adjustment. The Committee may make equitable adjustments, which may be retroactive, to correct for mathematical, accounting, or factual errors made in good faith. Such adjustments will be final and binding upon all Participants and other parties in interest. 13.03 Reasonable Compensation. If for any Plan Year, the Internal Revenue Service determines that the total compensation of a Participant exceeds the amount which can be considered "reasonable" for purposes of the federal income tax return of the Participating Employer, then the Committee will readjust the Account of such Participant to reflect only the "reasonable" compensation of said Participant. 13.04 Indemnification. To the extent permitted by law, the Employer will indemnify each member of the Committee and any others to whom the Employer has delegated fiduciary duties (except corporate trustees, insurers, or "investment managers" (as defined in ERISA)) against any and all claims, losses, damages, expenses and liabilities arising from their responsibilities in connection with the Plan, unless the same are determined to be due to gross negligence or willful misconduct. 13.05 Protection from Loss. Neither the Trustee, the Plan Administrator, the Committee nor the Employer guarantee the Trust Fund in any way from loss or depreciation. To the extent permitted by applicable law, the liability of any of these persons, groups of persons, or entities to make any payment under the Plan and Trust is limited to the available assets of the Trust Fund. 13.06 Protection from Liability. To the maximum extent allowed by law, the Plan Administrator and all Participating Employers, and their agents, designees and employees, shall be free from all liability, joint or several, for their acts, omissions, and conduct, except in the case of their own willful misconduct, gross negligence or bad faith. Specifically and without limitation other than as follows, nothing in the first sentence of this Section or elsewhere in the Plan and Trust shall be construed to relieve any Fiduciary from responsibility or liability for any responsibility, obligation or duty under Part 4 of Title 1 of ERISA (except as provided in Sections 405(b)(1) and 405(d) of ERISA). 13.07 Adoption of Rules and Procedures. Any group of people acting in a specified capacity under the Plan and Trust (such as the Named Fiduciary, Trustee, Committee, Plan Administrator, "investment manager" (as defined by ERISA) if any, and so on) may create and abide by whatever rules and procedures they desire, so long as these rules and procedures are not inconsistent with the Plan, the Trust and applicable law. If these rules specifically limit the duties and responsibilities of the members of any of these groups, then to the extent permitted by applicable law, the liability to each member under the Plan and Trust will be limited to his specific duties. 13.08 Assignment of Benefits. A Participant's interest in this Plan may not be assigned or alienated, either voluntarily or involuntarily. This shall not preclude the Trustee from complying with: (i) a qualified domestic relations order (as defined in Section 414(p) of the Code) made pursuant to a domestic relations law requiring deduction from the benefits of a Participant for alimony, child support, or marital property payments, or (ii) on or after August 5, 1997 and pursuant to Code Section 401(a)(13)(c), any court order, judgment, decree, or settlement agreement requiring that a Participant's benefits be reduced where the Participant has committed a breach of fiduciary duty to the Plan or committed a criminal act against the Plan. Notwithstanding any restrictions on the timing of distributions and withdrawals under this Plan, distribution shall be made to an alternate payee in accordance with the terms of an order described in the preceding paragraph, or as determined by the Plan Administrator and alternate payee if provided in the order, even if such distribution is made prior to the Participant's attainment of the earliest retirement age (as defined in Code Section 414(p)(4)). 13.09 Mental Competency. Every person receiving or claiming benefits under the Plan and Trust will be presumed to be mentally competent until the date on which the Committee receives a written notice (in a form and manner acceptable to it) that such person is incompetent, and that a guardian, conservator or other person legally vested with his care or the care of his estate has been appointed. If the Committee receives acceptable notice that a person to whom a benefit is payable under this Plan and Trust is unable to care for his affairs because of incompetency, any payment due (unless a prior claim for it has been made by duly appointed legal representative) may be paid to the spouse, a child, a parent, a brother or a sister or to any person determined by the Committee to have incurred expenses for such person. Any such payment will be a complete discharge of the obligation of the Participating Employer, Committee, Plan Administrator and Trustee to provide benefits under the Plan and Trust. In the event that the Plan benefits of a person receiving or claiming them are garnished or attached by order of any court, the Committee may bring an action for a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be paid under the Plan. While this action is pending, any benefits that become payable under this Plan will be paid into the court as they become payable. The court will then make the benefit distributions to the recipient it deems proper at the close of said action. 13.10 Authentication. The Participating Employer, Committee, Plan Administrator and Trustee will be fully protected in acting and relying upon such certificate, affidavit, document or other information which that person requesting such information may consider pertinent, reliable and genuine. Any notice required to be made under the Plan and Trust may be waived, in writing, to the person entitled thereto. In addition, the time period specified in this Plan for filing any such notice may be modified or waived, in writing, by the person entitled thereto. 13.11 Not an Employment Contract. This Plan and Trust will not be construed as creating or modifying any contract of employment between any Participating Employer and the Employee. 13.12 Appointment of Auditor. The Employer shall have the right to appoint an independent auditor to audit the books, records, and accounts of the Trustee as they relate to the Plan and Trust. 13.13 Uniform Treatment. All interpretations made in connection with this Plan and Trust are intended to be exercised in a nondiscriminatory manner so that all Employees in similar circumstances are treated alike. 13.14 Interpretation. The provisions of the Plan and Trust are to be construed as a whole and not construed separately without relation to the context of the entire agreement. 13.15 Plural and Gender. When appropriate, the singular nouns in this Plan and Trust may include the plural, and vice versa. Also, wherever the male gender is used in the Plan and Trust, the female gender may be included, and vice versa. 13.16 Headings. Headings at the beginnings of any Chapter, Section, or subsection are for convenience only and are not to influence the construction of this Plan and Trust. 13.17 Expenses. The Participating Employers may pay the expenses of administering the Plan, if desired. However, if they do not pay these expenses directly, then, to the extent permitted by law, the payments will be made from the Trust Fund. 13.18 Unclaimed Accounts. Any Account which is payable without Participant consent in accordance with Article VII, but which cannot be paid due to an inability to locate the applicable Participant or Beneficiary, shall be forfeited and reallocated in accordance with Section 4.03. Prior to any forfeiture, the Plan Administrator shall make reasonable attempts to locate the person entitled to any distribution. Any Account forfeited pursuant to this Section 13.18 shall be restored and paid to the applicable Participant or Beneficiary upon the making of a valid claim by such person in accordance with Plan Section 9.05. The amount to be restored shall equal the vested amount in the Account as of the Valuation Date coincident with or immediately preceding the forfeiture under Section 4.03, then from the Participating Employers' discretionary contribution for a Plan Year, and finally, if necessary from a special one-time Employer Contribution made solely for this purpose. 13.19 Special Provisions Respecting Military Service. Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code, effective for individuals whose reemployment occurs after December 11, 1994. 13.20 Participation of Affiliated Employers. The administrative powers and control of the Employer, as provided in this Plan and the Trust agreement, as well as the sole and exclusive right of amendment and termination (as covered in Chapter XI), and of appointment and removal of the Plan Administrator, the Trustee, and their successors, shall remain solely with OshKosh B'Gosh, Inc. and shall not be diminished in any way by reason of the participation of any Affiliated Employer in the Plan and the Trust agreement. CHAPTER XIV EMPLOYER STOCK SAVINGS ACCOUNTS AND INVESTMENTS 14.01 Stock Savings Accounts. The Employer Contribution and forfeitures, if any, for the Plan Year ending December 31, 1990, and for each subsequent Plan Year shall be allocated to Participants' Regular Accounts as provided in Article III. Any amounts accumulated in a Participant's Stock Savings Account (pursuant to Employer Contributions and forfeitures, if any, allocated on or after December 31, 1984 but before January 1, 1990) will continue to be held in such Account. Any income, loss, appreciation, and/or depreciation attributable to amounts held in Stock Savings Accounts will be allocated only to such Stock Savings Accounts. 14.02 Employer Stock Defined. For purposes of this Article XIV, the term "Employer Stock" means any common stock of OshKosh B'Gosh, Inc. The Trustee, or any investment manager or any Special Investment Committee appointed by the Employer under Section 2.05 or Section 2.06 of the Trust, may invest up to 100% of the fair market value of the Trust Fund in Employer Stock ("qualifying employer securities" of the Company, as that term is defined by ERISA). 14.03 Distributions from Stock Savings Accounts. To the extent Employer Stock is held in Participants' Stock Savings Accounts, a terminating Participant shall be entitled to request, in writing on a form acceptable to the Plan Administrator, that the full value of his Stock Savings Account (or any portion thereof) that becomes distributable under Article VII be distributed in full shares of Employer Stock (any partial share will be paid in cash). 14.04 Employer Stock Valuation. For purposes of any distribution under the Plan, valuation of the Stock Savings Account shall be made as of the Valuation Date coincident with or immediately preceding the date of distribution. Valuation of any Employer Stock distributed pursuant to an election under Section 14.03 shall be based on the closing price reported by NASDAQ on the last day immediately preceding the date of distribution during which a sale of the Employer Stock was completed. CHAPTER XV EGTRRA PROVISIONS 15.01 Adoption and Effective Date of Amendment. This amendment of the Plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). This amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise provided, this amendment shall be effective as of the first day of the first Plan year beginning after December 31, 2001. 15.02 Supersession of Inconsistent Provisions. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment. 15.03 Limitations on Contributions. (a) Effective date. This section shall be effective for limitation years beginning after December 31, 2001. (b) Maximum annual addition. The annual addition that may be contributed or allocated to a Participant's account under the Plan for any limitation year shall not exceed the lesser of: (1) $40,000, as adjusted for increases in the cost-of-living under Section 415(d) of the Code; or (2) 100 percent of the Participant's compensation, within the meaning of Section 415(c)(3) of the Code, for the limitation year. The compensation limit referred to in (b)(2) above shall not apply to any contribution for medical benefits after separation from service (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an annual addition. 15.04 Modification of Top-Heavy Rules. (a) Effective date. This section shall apply for purposes of determining whether the Plan is a top-heavy plan under Section 416(g) of the Code for plan years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Section 416(c) of the Code for such years. This section amends Chapter VIII of the Plan. (b) Determination of top-heavy status. (1) Key employee. Key employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder. (2) Determination of present values and amounts. This Section (2) shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of the determination date. (3) Distributions during year ending on the determination date. The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting "5-year period" for "1-year period." (4) Employees not performing services during year ending on the determination date. The accrued benefits and accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account. (c) Minimum benefits. (1) Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the plan. The preceding sentence shall apply with respect to matching contributions under the plan or, if the plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code. (2) Contributions under other plans. The employer may provide in the Plan that the minimum benefit requirement shall be met in another plan (including another plan that consists solely of a cash or deferred arrangement which meets the requirements of Section 401(k)(12) of the Code and matching contributions with respect to which the requirements of Section 401(m)(11) of the Code are met). 15.05 Direct Rollovers of Plan Distributions. (a) Effective date. This section shall apply to distributions made after December 31, 2001. (b) Modification of definition of eligible retirement plan. For purposes of the direct rollover provisions in Section 7.06 of the Plan, an eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Section 414(p) of the Code. (c) Modification of definition of eligible rollover distribution to include after-tax employee contributions. For purposes of the direct rollover provisions in Section 7.06 of the Plan, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. IN WITNESS WHEREOF, this Plan is executed by the Employer through its duly authorized officers, on this 6th day of November, 2001. By: /S/ DAVID L. OMACHINSKI Attest: /S/ MARGARET WACHOLTZ EX-10.2 5 exh102.txt OSHKOSH B'GOSH PENSION PLAN FILED WITH 12/29/01 FORM 10K EXHIBIT 10.2 OSHKOSH B'GOSH, INC. PENSION PLAN As Amended and Restated on November 6, 2001 Generally Effective: January 1, 1998 (unless otherwise stated) TABLE OF CONTENTS Page INTRODUCTION 1 CHAPTER I DEFINITIONS 1 CHAPTER II ELIGIBILITY AND PARTICIPATION 10 2.01 Eligibility 10 2.02 Re-Employment 10 2.03 Exclusion of Collective Bargaining Employees 10 2.04 Change in Participant Status 10 2.05 Employees Not in Eligible Class 10 CHAPTER III CONTRIBUTIONS 10 3.01 Employer Contributions 10 3.02 Funding Policy 11 3.03 Employee Contributions 11 CHAPTER IV RETIREMENT BENEFITS 11 4.01 Normal Retirement Benefit 11 4.02 Early Retirement 12 4.03 Late Retirement 12 4.04 Non-Duplication of Benefit 13 4.05 Re-Employment 13 CHAPTER V BENEFIT LIMITATIONS 13 5.01 Definitions 13 5.02 General Limitations 15 5.03 Less Than 10 Years 16 5.04 Limitations if Participant in Other Plan(s) 16 CHAPTER VI PRE-RETIREMENT DEATH BENEFITS 17 6.01 Death Benefits 17 6.02 Death Benefit Limitations 17 6.03 Pre-Retirement Death Benefit for Surviving Spouse; Post-Retirement Death Benefits 17 CHAPTER VII OTHER TERMINATION AND VESTING 17 7.01 Full Vesting Dates 17 7.02 Vesting Schedule 17 7.03 Commencement of Benefits 18 7.04 Forfeiture 18 7.05 Resumption of Participation 18 CHAPTER VIIIPAYMENT OF BENEFITS 18 8.01 Commencement of Benefits 18 8.02 Automatic Joint and Survivor Benefits 19 8.03 Optional Forms of Payment 20 8.04 Incidental Death Benefits 21 8.04A New Minimum Distribution Regulations 22 8.05 Transfers 22 8.06 No Other Benefits 22 8.07 Direct Rollover 22 CHAPTER IX DESIGNATION OF BENEFICIARY 24 9.01 Beneficiary Designation; Election of Non-Spouse Beneficiary 24 9.02 Priority If No Designated Beneficiary 25 CHAPTER X TOP-HEAVY PROVISIONS 25 10.01 Provisions Will Control 25 10.02 Definitions 25 10.03 Minimum Accrued Benefit 28 10.04 Adjustment for Benefit Form Other Than Life Annuity 29 10.05 Nonforfeitability of Minimum Accrued Benefit 29 10.06 Minimum Vesting Schedules 29 10.07 Compensation Limitation 29 CHAPTER XI AMENDMENT OF THE PLAN 30 11.01 Amendment by Employer 30 11.02 Conformance to Law 30 11.03 Merger, Consolidation, or Transfer 31 CHAPTER XII TERMINATION OF THE PLAN 31 12.01 Right to Terminate 31 12.02 Termination Priorities 31 12.03 Reversion to Employer 32 12.04 Subsequent Benefit Payments 32 CHAPTER XIIICLAIMS PROCEDURE 32 13.01 Written Claim 32 13.02 Claim Denial 32 13.03 Request for Review of Denial 33 13.04 Decision on Review 33 13.05 Additional Time 33 CHAPTER XIV CONTRIBUTION AND BENEFIT LIMITS TO HIGH PAID EMPLOYEES 33 14.01 When Applicable 33 14.02 Limitations 33 14.03 Limitations if Plan Amended 34 14.04 Alternate Limitations 34 CHAPTER XV MISCELLANEOUS PROVISIONS 35 15.01 Reversion of Assets 35 15.02 Equitable Adjustment 35 15.03 Reasonable Compensation 35 15.04 Indemnification 35 15.05 Protection From Loss 35 15.06 Protection From Liability 36 15.07 Adoption of Rules and Procedures 36 15.08 Assignment of Benefits 36 15.09 Mental Competency 36 15.10 Authentication 37 15.11 Not an Employment Contract 37 15.12 Appointment of Auditor 37 15.13 Uniform Treatment 37 15.14 Interpretation 37 15.15 Plural and Gender 37 15.16 Headings 37 15.17 Expenses 37 15.18 Prevention of Escheat 37 15.19 Special Provisions Respecting Military Service 38 15.20 Participation of Affiliated Employers 38 CHAPTER XVI EGTRRA PROVISIONS 38 16.01 Adoption and Effective Date of Amendment 38 16.02 Supersession of Inconsistent Provisions 38 16.03 Increase in Compensation Limit 38 16.04 Modification of Top-Heavy Rules 39 16.05 Direct Rollovers of Plan Distributions 40 INTRODUCTION The validity, construction, and all rights granted under this Plan and Trust will be governed, interpreted, and administered by the laws of the United States under the Employee Retirement Income Security Act of 1974 (ERISA, as it may be amended) and the Internal Revenue Code of 1986 (the Internal Revenue Code, as it may be amended). However, regardless of the preceding, to the extent that ERISA and/or the Internal Revenue Code do not preempt local law, the Plan and Trust will be governed, interpreted, construed, and enforced according to the laws of the State of Wisconsin. If the U.S. Department of Labor or the Internal Revenue Service, or both, determines at any time that this Plan does not meet these requirements or that it is being administered or interpreted in a manner inconsistent with these requirements, the Employer may either make the appropriate amendments or adjustments, or both, which may be retroactive, to correct the situation, or terminate the Plan. If any provisions of the Plan and Trust are held to be invalid or unenforceable, the remaining provisions will continue to be fully effective. CHAPTER I DEFINITIONS 1.01 Unless the context requires otherwise, the capitalized terms defined below will have the following meanings throughout this Plan when capitalized: (a) Accrued Benefit means a Participant's Normal Retirement Benefit earned under the Plan payable at a Participant's Normal Retirement Date based on his Years of Benefit Service and monthly Compensation up to the date for which the Accrued Benefit is being determined. Unless otherwise provided under the Plan, each Section 401(a)(17) employee's Accrued Benefit under this Plan will be the greater of the Accrued Benefit determined for the employee under (1) or (2) below: (1) the employee's Accrued Benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the employee's total years of service taken into account under the Plan for the purposes of benefit accruals, or (2) the sum of: a. the employee's Accrued Benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in accordance with Section 1.401(a)(4)-13 of the regulations, and b. the employee's Accrued Benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the employee's years of service credited to the employee for the Plan Years beginning on or after January 1, 1994, for purposes of benefit accruals. A Section 401(a)(17) employee means an employee whose current Accrued Benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based on Compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded $150,000. (b) Actuary is any person or firm selected by the Employer (as provided by applicable law) to make calculations required by law or otherwise desired to be made under the Plan. The Actuary is also responsible for calculating the Actuarial Equivalents required by the Plan in accordance with generally accepted actuarial principles. An Actuary may be removed by the Employer or resign at any time by written notice. (c) Actuarial Equivalent. Two benefits are said to be Actuarial Equivalents if they have the same present value as determined by the Actuary in accordance with generally accepted actuarial principles applied in a uniform and nondiscriminatory manner. The actuarial assumptions to be used in determining Actuarial Equivalents are as follows: (1) For purposes of the small amount cash-out provision of Section 8.01 (relating to amounts not in excess of $3,500, changing to $5,000 on January 1, 2002) and for purposes of any lump sum payment which may become due because of the pre-retirement death of the Participant, the actuarial assumptions to be used shall be the "applicable mortality table" and the "applicable interest rate." The term "applicable mortality table" means the table prescribed by the IRS from time to time under Section 417(e)(3) of the Code. The term "applicable interest rate" means the annual rate of interest on 30-year Treasury securities as published by the IRS for the second full calendar month preceding the calendar month that contains the annuity starting date (distribution date). However, at any time on or after July 1, 1998, the single sum distribution payable under such small account cash-out provision or because of the pre-retirement death of the Participant must be no less than the single sum distribution calculated using the Unisex Pension 1984 Mortality Table and an interest rate of 5.5%, based upon the Participant's Accrued Benefit under the Plan through June 30, 1997 and based upon the Participant's age on the annuity starting date (distribution date) or the date of death. (2) For purposes of any lump sum payment under the provisions of Section 8.03(d), excluding only any lump sum payment which may become due because of the pre-retirement death of the Participant, the actuarial assumptions to be used shall be the "applicable mortality table" and the "applicable interest rate," as such terms are defined in subsection (1) above. (3) For purposes of optional forms of payment, in circumstances other than those covered by the special rules set forth in paragraphs (1) and (2) above, the actuarial assumptions to be used are the Unisex Pension 1984 Mortality Table and 5.5% interest; provided, however, that in no event may the interest rate exceed the PBGC rates in effect at the date of distribution. (4) For purposes of the benefit increase covered in Plan Section 4.03, the actuarial assumptions to be used are the Unisex Pension 1984 Mortality Table and 5.5% interest; provided, however, that in no event may the interest rate exceed the PBGC rates in effect at the date of distribution. (d) Affiliated Employer. Affiliated Employer means each corporation which is included as a member of a controlled group with the Employer, and trades and businesses whether or not incorporated, which are under common control by or with the Employer within the meanings of Sections 414(b) and (c) of the Internal Revenue Code of 1986, or any amendments thereof. Further, the term shall include any members of the same "affiliated service group" within the meaning of Code Section 414(m) and any other entity required to be aggregated with the Employer under Code Section 414(o). (e) Annuity Starting Date means the first day of the first period for which an amount is payable as an annuity or in any other form, all as provided in Section 417(f) of the Code and regulations thereunder. (f) Beneficiary is the person or entity designated in Chapter IX to receive any death benefits of a Participant which become payable under the Plan. (g) Break in Service shall mean as to any Participant who, as of December 31, 1988 or earlier, had incurred a One Year Break in Service after termination of employment. A One Year Break in Service means a Plan Year in which the Employee does not complete an aggregate of more than 500 Hours of Service with the Employer or Affiliated Employers. As to any Participant who, as of December 31, 1988 or earlier, has not incurred a Break in Service under the rules then in existence, and as to terminations of employment on and after January 1, 1989, a Break in Service shall be any subsequently ending and consecutive five One Year Breaks in Service. Special provisions with respect to military service are contained in Section 15.19 hereof. (h) Code means the Internal Revenue Code of 1986, as amended and as it may be amended. (i) Committee is the organization appointed by the Board of Directors of the Employer (which may name itself as the Committee) for purposes of overseeing the administration of the Plan, and performing any other duties specified in this Plan. A Committee member may resign or be removed at any time by the Board of Directors of the Employer by written notice. To assist it in its duties, the Committee may employ agents or legal counsel. Any such Committee may in its regulations or by action delegate the authority to any one or more of its members to take any action on behalf of the Committee and as to such actions, no meetings or unanimous consent shall be required. The Committee may also act at a meeting or by its unanimous written consent. A majority of the members of the Committee shall constitute a quorum for the transaction of business and shall have full power to act hereunder. All decisions shall be made by vote of the majority present at any meeting at which a quorum is present, except for actions in writing without a meeting which must be unanimous. The Committee may appoint a Secretary who may, but need not, be a member of the Committee. The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. Any absent Committee member, and any dissenting Committee member who (at the time of the making of any decision by the majority) registers his dissent in writing delivered at that time to the other Committee members, shall be immune to the fullest extent permitted by law from any and all liability occasioned by or resulting from the decision of the majority. All rules and decisions of the Committee shall be uniformly and consistently applied to all persons in similar circumstances. The Committee shall be entitled to rely upon the records of the Employer or any Affiliated Employer as to information pertinent to calculations or determinations made pursuant to the Plan. A member of the Committee may not vote or decide upon any matter relating solely to himself or vote in any case in which his individual right of claim to any benefit under the Plan is particularly involved. If, in any case in which a Committee member is so disqualified to act, the remaining members cannot agree, then, the President of the Employer will appoint a temporary substitute member to exercise all of the powers of the disqualified member concerning the matter in which that member is disqualified to act. In the event a dispute arises under the Plan and Trust, the Committee will be the authorized agent for the service of legal process. (j) Compensation is the quotient of total wages, salaries, fees and other amounts received for a particular Plan Year (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment by the Participant from a Participating Employer to the extent that the amounts are includable in gross income (or such Compensation paid or accrued for Plan Years prior to January 1, 1991), and including any elective contributions not otherwise includable in income under a Code Section 125 cafeteria plan or Section 401(k) plan, but excluding reimbursements or other allowances, fringe benefits (cash and noncash, including, without limitation, any income arising in connection with any stock options, restricted stock or other equity based incentives relating to stock of the Employer), moving expenses, deferred compensation and welfare benefits, divided by 12 (or the number of actual completed calendar months for purposes of the first or last Plan Years of employment). Effective as of January 1, 2001, for Employees who are salespersons receiving any commissions during the Plan Year, no more than $50,000 of Compensation while so employed (as adjusted under Code Section 414(q)(1)(C); $54,480 in 1989, $56,990 in 1990, $60,535 in 1991, $62,345 in 1992, $64,245 in 1993, and $66,000 in 1994, 1995 and 1996, and changing for 1997 to the limit represented in Code Section 414(q)(1)(B) which was $80,000, and as adjusted thereafter) will be used for purposes of determining benefits under the Plan. This restriction shall not apply to national account executives or sales employees with a security code classification of 710. Notwithstanding any provision of the Plan to the contrary, prior to January 1, 1989, "Compensation" will be determined under the terms of the Plan then in effect; provided, however, that with respect to any Employee with an Hour of Service after December 31, 1988, a special rule will apply. For any given Plan Year commencing on or after January 1, 1989, if such Employee is not a "Highly Compensated Employee" (within the meaning of Code Section 414(q)) during such Plan Year, then the five year average monthly Compensation will be determined without regard to (i) the adjusted $50,000 limit provided above, and (ii) the Compensation limitations that were applicable to salespersons under the terms of the Plan as in effect prior to January 1, 1989, for each prior Plan Year during which the Employee was not a Highly Compensated Employee. However, for any Plan Year beginning after December 31, 1988, Compensation in excess of $200,000 (as adjusted as permitted under Code Section 401(a)(17) from time to time) shall be disregarded. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each employee taken into account under the plan shall not exceed the OBRA `93 annual compensation limit. The OBRA `93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA `93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA `93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA `93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA `93 annual compensation limit is $150,000. However, for special rules with respect to the application of increases in Compensation limits due to EGTRRA, reference is made to Section 16.03 of the Plan. (k) Date of Employment means: (1) the day on which the Employee performs his first Hour of Service on or after the date on which he is employed by the Employer or an Affiliated Employer, or (2) the date on which the Employee performs his first Hour of Service on or after the date on which he is re-employed following a Break in Service. (l) Disability is any impairment which arises before a Participant's termination of employment with the Employer or an Affiliated Employer which may be expected to be of a long continued duration or which may be expected to result in death and which prevents him from satisfactorily performing his duties with the Employer or an Affiliated Employer. Determination of such Disability will be made by a physician selected by the Committee. (m) Early Retirement occurs on the first day of any month coinciding with or next following the Early Retirement Date of a Participant in which he incurs a Termination of Employment, provided he has not then attained his Normal Retirement Date. (n) Early Retirement Date is the date on which the Participant has attained the age of 60 and completed 5 years of Vesting Service. (o) Effective Date of the Plan is January 1, 1947. The Effective Date of this amendment and restatement is January 1, 1998, unless otherwise provided herein. (p) Employee is any person employed directly by the Employer or an Affiliated Employer and for whom the Employer or an Affiliated Employer pays Social Security taxes and who in each case is not excluded by the provisions of Section 2.03 hereof relating to collective bargaining employees. "Leased employees" as defined in Code Section 414(n) shall not be eligible to participate in the Plan although it is recognized that such leased employees, if any, must be treated as employees of the Employer or an Affiliated Employer for purposes of certain nondiscrimination, coverage, and other rules under the Code. Also excluded is any person who is classified by the Employer or an Affiliated Employer as other than as an Employee, for the entire period of such classification, without regard to any subsequent reclassification which may occur by operation of law or otherwise. It is recognized that the definition of an eligible "Employee" was significantly expanded as to certain classes of Employees (the "Newly Included Group") by amendment to this Plan effective as of January 1, 1989. Notwithstanding any other provisions of this Plan, individuals in the Newly Included Group shall have all past periods of service with the Employer counted as Years of Eligibility and Vesting Service for purposes of this Plan. Such past service shall also be counted as Years of Benefit Service for purposes of this Plan, except for Years covered under another private defined benefit pension plan sponsored by the Employer. (q) Employer is OshKosh B'Gosh, Inc. and any successor corporation by merger, purchase, or otherwise. (r) Employment Year means a 12-month period following an Employee's most recent Date of Employment. (s) Hours of Service means any of the following hours (assuming a 190 hour month for any Employee not employed on an hourly basis who works one hour during the month): (1) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed; and (2) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service will be credited under this paragraph for a single computation period (whether or not the period occurs in a single computation period). Hours under this paragraph will be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference; and (3) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service will not be credited both under (1) or (2) above, as the case may be, and under this definition (3). These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement, or payment is made. For purposes of determining whether a One Year Break in Service has occurred for participation and vesting purposes, an employee who is absent from work (i) by reason of her pregnancy, (ii) by reason of the birth of a child of the employee, (iii) by reason of the placement of a child in connection with the adoption of the child by the Employee or (iv) for purposes of caring for the child during the period immediately following the birth or placement for adoption, Hours of Service shall be credited according to the following rule. During the period of absence, the Employee shall be deemed to have completed the number of hours that normally would have been credited but for the absence. If the normal work hours are unknown, eight hours of service shall be credited for each normal workday during the leave. Provided, however, the total number of Hours of Service required by this paragraph to be treated as completed for any period shall not exceed 501. The Hours of Service to be credited under this Section shall be credited in the year in which the absence begins if such crediting is necessary to prevent a One Year Break in Service in that year or in the following year. Hours of Service will also be credited for any individual considered an Employee under Section 414(n). If records of employment with respect to an Employee's service with the Employer before the effective date of this restatement are insufficient to determine his exact Hours of Service, the Committee will make reasonable estimates of said Hours of Service based on such records of employment. Any such Hours of Service estimates will be made in a uniform, nondiscriminatory manner and will be binding on all Employees. Hours of Service attributable to employment with the Employer and any Affiliated Employer shall be counted for all purposes of this Plan, except for the determination of Years of Benefit Service under Section 1.01(ii), which credits only Hours of Service accrued while an Employee in the service of a Participating Employer. (t) Joint and Survivor Annuity is an annuity for the life of the Participant, with a survivor annuity for the life of a Participant's spouse which is 50% of the amount of the annuity payable for the life of the Participant and which is the Actuarial Equivalent of the Normal Form of Benefit. (u) Non-Vested or Forfeited means that portion of a benefit to which a Participant would not be entitled under Section 7.02 if he incurred a Termination of Employment. (v) Normal Form of Benefit is a benefit payable monthly for the life of a Participant with no benefits payable to a Beneficiary upon the Participant's death. (w) Normal Retirement Date is the first of the month coinciding with or next following the Participant's attainment of age 65. A Participant will be fully Vested at age 65. (x) Normal Retirement Benefit is the monthly benefit described in Section 4.01 payable beginning the first of the month following the Normal Retirement Date. (y) Participant is an Employee who has met the eligibility requirements of Chapter II. (z) Participating Employer means the Employer and any Affiliated Employer authorized by the Employer to participate in this Plan, by extending the same to such Affiliated Employer's eligible Employees. (aa) Plan means the OshKosh B'Gosh, Inc. Pension Plan as it may be amended from time to time. (bb) Plan Administrator is OshKosh B'Gosh, Inc. (cc) Plan Year is January 1 to December 31. (dd) Termination of Employment of an Employee for purposes of the Plan shall be deemed to occur upon his resignation, discharge, retirement, death, disability, failure to return to active work at the end of an authorized leave of absence, or the authorized extension or extensions thereof, failure to return to work when duly called following a temporary layoff, failure to return from military service within the time prescribed by any law protecting employment rights, or upon the happening of any other event or circumstance, which, under the policy of the Employer or an Affiliated Employer, as in effect from time to time, results in the termination of the employer/employee relationship. (ee) Trust means the OshKosh B'Gosh, Inc. Pension Trust as it may be amended from time to time. (ff) Trustee is the person(s), corporation, or combination thereof, and any duly appointed successor or successors, named as Trustee in the Trust document. (gg) Trust Fund is the total of contributions made to the Trust, increased by profits, income, refunds, and other recoveries received, and decreased by losses and expenses incurred, and benefits paid. (hh) Vested is that portion of an Accrued Benefit to which a Participant has a nonforfeitable right. (ii) Year of Benefit Service for an Employee means a Plan Year during which he completes at least 1,000 Hours of Service in the employ of a Participating Employer. In the event that a Participant is not employed for the entire Plan Year, a partial Year of Benefit Service will be earned as follows: Number of Hours of Service Year of Benefit Service During a Plan Year 1,000 or more 1.0 900 but less than 1,000 .9 800 but less than 900 .8 700 but less than 800 .7 600 but less than 700 .6 500 but less than 600 .5 400 but less than 500 .4 300 but less than 400 .3 200 but less than 300 .2 100 but less than 200 .1 less than 100 0 Years of Benefit Service prior to January 1, 1984 will be determined according to the provisions of the Plan in effect prior to January 1, 1984. Effective January 1, 1991, Employees at the Employer's McEwen facility who become Participants under Section 2.01 may earn a Year of Benefit Service or a partial Year of Benefit Service under the above definition. (jj) Year of Eligibility Service is the Employment Year of an Employee, provided he completes at least 1,000 Hours of Service during such Employment Year. For an Employee who does not compete at least 1,000 Hours of Service in his Employment Year, a Year of Eligibility Service is a Plan Year, starting with the Plan Year next following his Date of Employment, during which he completes at least 1,000 Hours of Service. (kk) Year of Vesting Service is any Plan Year, starting with the Plan Year in which an Employee is hired by the Employer or an Affiliated Employer during which such Employee completes at least 1,000 Hours of Service. CHAPTER II ELIGIBILITY AND PARTICIPATION 2.01 Eligibility. On and after January 1, 1989, each Employee of a Participating Employer will become a Participant in the Plan the first of the month coincident with or next following: (a) his attainment of at least age 21; and (b) his completion of one Year of Eligibility Service. Effective May 21, 1991, this Plan is merged with the OshKosh B'Gosh, Inc. McEwen Hourly Employees' Pension Plan (the "McEwen Plan"). Employees participating in the McEwen Plan on May 20, 1991, will become Participants in this Plan on May 21, 1991. Otherwise, Employees at the McEwen facility will become Participants in this Plan as provided in this Section 2.01. 2.02 Re-Employment. Notwithstanding the provisions of Section 2.01, any Participant who terminated employment with a Participating Employer after the effective date of this restatement, and is later rehired, shall again become eligible to become a Participant on his most recent Date of Employment. 2.03 Exclusion of Collective Bargaining Employees. An Employee who is covered by a collective bargaining agreement to which a Participating Employer is a party will not be eligible to participate in this Plan unless that collective bargaining agreement specifically provides for coverage of such Employees under this Plan. 2.04 Change in Participant Status. In the event a Participant is no longer a member of the eligible class of Employees and becomes ineligible to participate, such employee will participate immediately upon returning to the eligible class of Employees. 2.05 Employees Not in Eligible Class. In the event an employee who is not a member of the eligible class of Employees becomes a member of the eligible class, such employee will participate immediately if such employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant. CHAPTER III CONTRIBUTIONS 3.01 Employer Contributions. Upon advice from the Actuary, the Participating Employers will contribute from time to time amounts sufficient to fund the benefits under the Plan and Trust. Such contributions will be paid over to the Trustees of the Trust Fund. To the extent any contributions are not deductible under Code Section 404, such contributions shall be returned to the Participating Employers. 3.02 Funding Policy. In order to implement and carry out the provisions of the Plan and finance the benefits under the Plan, the Employer will establish and maintain a funding policy with respect to the Trust Fund in a manner consistent with applicable law. 3.03 Employee Contributions. Employee contributions are not permitted under this Plan. CHAPTER IV RETIREMENT BENEFITS 4.01 Normal Retirement Benefit. (a) A Participant who retires from a Participating Employer on his Normal Retirement Date is entitled to a monthly Normal Retirement Benefit, payable in the Normal Form of Benefit, in an amount equal to the sum of 1% of the Participant's five-year average monthly compensation (the average of any five consecutive Plan Years or if the actual number of such Years is less than five, the average based on the number of completed months, which produce the highest average) multiplied by his Years of Benefit Service. (b) A Participant who terminates from employment before January 1, 1992, and who was transferred by the Employer from employment covered by another pension plan of the Employer to employment covered by this Plan, will have his retirement benefits calculated based on his Years of Benefit Service earned after his date of transfer. (c) A Participant who terminates on or after January 1, 1992, but before January 1, 1993, and who was transferred by the Employer from employment covered by another pension plan of the Employer to employment covered by this Plan, will have his retirement benefits determined as follows: the Normal Retirement Benefit will be the greater of the amount determined under paragraph (a) of this Section 4.01 (based on his Years of Benefit Service earned after his date of transfer) or an amount equal to the product of (1) times (2), with such product reduced by (3), as follows: (1) the unit benefit (e.g., the dollar amount that is multiplied by Years of Benefit Service), as of the Employee's Termination of Employment from this Plan, payable from the plan under which the Employee was covered prior to the transfer; (2) the Employee's total Years of Benefit Service (including service under the plan which the Employee was covered prior to the transfer); (3) the actual benefit payable from the plan under which the Employee was covered prior to the transfer. (d) A Participant who terminates from employment on or after January 1, 1993, and who, before January 1, 1989, was transferred by the Employer from employment covered by another pension plan of the Employer to employment covered by this Plan, will have his retirement benefits calculated based on all of his Years of Benefit Service earned including employment covered by the other pension plan. (e) A Participant who terminates on or after January 1, 1993, and who, on or after January 1, 1989, was transferred by the Employer from employment covered by another pension plan of the Employer to employment covered by this Plan, will have his retirement benefits determined under paragraph (c) of this Section 4.01. (f) The retirement benefits under this Plan of an Employee who is transferred by the Employer from employment covered by this Plan to employment covered by another pension plan of an Affiliated Employer, will be calculated up to his date of transfer. (g) Effective May 21, 1991, this Plan and the McEwen Plan are merged. Any Accrued Benefit earned under the terms of the McEwen Plan before May 21, 1991, shall be payable under this Plan. The retirement benefits under this Plan applicable to Employees at the Employer's McEwen facility will be calculated based on Years of Benefit Service on or after January 1, 1991. For the Plan Year ending December 31, 1991, such Employees shall accrue a benefit equal to the greater of the benefit accrued under this Plan (including all service on or after January 1, 1991) or the benefit accrued under the McEwen Plan between January 1, 1991 and May 20, 1991. For purposes of calculating a Participant's five year average monthly compensation for any Plan Year before January 1, 1991, this Plan will take into account compensation earned under the terms of the McEwen Plan then in effect. 4.02 Early Retirement. A Participant who is eligible for Early Retirement may retire from the employ of a Participating Employer at any time prior to his Normal Retirement Date. Such Participant may elect to begin receiving his early retirement benefit on or after his Early Retirement Date, subject to the provisions of Section 8.01. For purposes of this Section 4.02, the amount of a Participant's early retirement benefit is equal to his Accrued Benefit. Such benefit will be reduced to its Actuarial Equivalent for each month that benefits commence before Normal Retirement Date. 4.03 Late Retirement. If a Participant remains in the employ of a Participating Employer after his Normal Retirement Date, unless an election to the contrary is made under Section 8.01, his benefit payments will begin no later than his Required Beginning Date, as defined in Section 8.01. The amount of the benefit payable when such Participant actually retires from the employ of a Participating Employer will be calculated in the same manner as the Normal Retirement Benefit including Compensation and Years of Benefit Service after the Participant's Normal Retirement Date. Such benefit will be offset by the Actuarial Equivalent of any benefit previously paid under this Plan to such Participant. However, if a Participant remains in the employ of a Participating Employer after his Normal Retirement Date, such Participant, upon his subsequent retirement, shall have the value of his benefit in the Normal Form increased by the Actuarial Equivalent of the monthly benefit in the Normal Form to which he would have been entitled had he not continued in employment, for any month after his Normal Retirement Date until the date that benefits actually commence. In the event of such Participant's death while continuing in the employ of a Participating Employer after his Normal Retirement Date, the Actuarial Equivalent value of the additional benefit that would have been provided under the preceding sentence shall be added to the value of his benefit for purposes of any death benefit that may be payable under Chapter VI or VIII. 4.04 Non-Duplication of Benefit. Under no circumstances will the benefit of any Employee who has incurred a Termination of Employment and is later rehired by a Participating Employer be greater than the benefit he would have received if the Termination of Employment had not occurred and he had been continuously employed. Upon such Participant's later retirement or Termination of Employment, the Participant's Normal Retirement Benefit shall be reduced by the Actuarial Equivalent of any benefit previously paid under this Plan to such Participant. 4.05 Re-Employment. If a former Employee who is receiving benefits from the Plan and Trust returns to the employ of the Employer or an Affiliated Employer, his benefit payments shall continue uninterrupted. CHAPTER V BENEFIT LIMITATIONS 5.01 Definitions. For purposes of this Chapter V, the capitalized terms defined below will have the following meaning when capitalized: Annual Additions means the total of the following amounts, if any, which are allocated to the Combined Accounts of a Participant: (a) Employer contributions (excluding Employer contributions arising from an award of back pay by agreement with the Employer or by court order); (b) Amounts forfeited by non-Vested previous Participants; (c) Non-deductible voluntary Employee contributions; and (d) Any amount added to an individual medical account as defined in Section 415(e)(2) of the Code which is part of a pension or annuity plan of the Employer for the Participant (even if not in a defined contribution plan). For purposes of determining Annual Additions, a rollover contribution from an IRA of a Participant, or from his account in the qualified retirement plan of his previous employer will not be included. Average Compensation of a Participant is his Total Compensation during the three consecutive Limitation Year period in which he earned a Year of Vesting Service and which produces the highest average. Combined Accounts means the total of all accounts of a Participant in all of the Defined Contribution Plans of the Employer. Defined Benefit Plan is a retirement plan which does not provide for benefits from an individual account of a Participant, but rather such benefits are based on a benefit formula provided by the Plan. Defined Contribution Plan is a retirement plan which provides for an individual account for each Participant and for benefits based entirely on the balance of that account. The account balance is usually derived from contributions, income, expenses, market value increases or decreases, and sometimes non-Vested (Forfeited) amounts from Participants who terminate employment before retirement. Employer means the employer that adopts this Plan. All members of a controlled group of corporations (as defined in Section 414(h) as modified by Section 415(h) of the Code), all trades or businesses (whether or not incorporated) under common control (as defined by Section 414(c) as modified by Section 415(h) of the Code), or all members of an affiliated service group (as defined in Section 414(m) of the Code), will be considered a single employer for the purposes of applying the limitations of this Chapter. Limitation Year is the Plan Year. Total Compensation includes a Participant's earned income, wages, salaries, and fees for professional service and other amounts received for personal services actually rendered in the course of employment with an Employer maintaining the plan (including but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses) and excluding the following: (a) Employer contributions to a plan of deferred compensation which are not included in the gross income of the Employee for the taxable year in which contributed, or on behalf of an Employee to a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation; (b) Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (c) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (d) Other amounts which receive special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of a 403(b) annuity contract (whether or not the contributions are excludable from the gross income of the Employee). Notwithstanding the above definition, from and after January 1, 1998, Total Compensation shall include any elective deferral contributions (as defined in Code Section 402(g)(3)) and any amounts contributed or deferred by the Employer at the election of the Participant which are not included in the gross income of the Participant by reason of Code Section 125 or 457, and, from and after January 1, 2001, by reason of Code Section 132(f). 5.02 General Limitations. Under no circumstances will the total annual benefits (which, for purposes of this Chapter means benefits payable in the form of a straight life annuity, without ancillary benefits, or if payable in some other form, the Actuarial Equivalent (computed using an interest rate of 5%) of such form) derived from Employer contributions and payable under all Combined Plans to a Participant who retires at or after the Social Security Retirement Age (as defined in Code Section 415(b)(8)) exceed the lesser of the following for any Limitation Year: (a) $90,000 (the "Dollar Limitation") (effective on January 1, 1988, and each January 1 thereafter, the $90,000 limitation above will be automatically adjusted to the new dollar limitation determined by the Commissioner of Internal Revenue for that calendar year. The new limitation will apply to Limitation Years ending within the calendar year of the date of the adjustment.) (b) 100% of his Average Compensation (as defined in Section 5.01) (the "Compensation Limitation"). If the annual benefit commences after the Social Security Retirement Age, the benefit may not exceed the Actuarial Equivalent of a single life annuity equal to the Dollar Limitation commencing on the Participant's Social Security Retirement Age. To determine Actuarial Equivalence after the Social Security Retirement Age, in the preceding sentence, an interest rate assumption of 5% will be used. If the annual benefit commences before a Participant's attainment of his Social Security Retirement Age, the Dollar Limitation applicable to such benefit shall be reduced to an amount which is equal to a single life annuity commencing at the same time which is the Actuarial Equivalent of a single life annuity equal to the Dollar Limitation commencing on the Participant's Social Security Retirement Age. Notwithstanding the above, if the Participant was a Participant in a plan in existence on July 1, 1982, the maximum permissible amount shall not be less than the Participant's accrued benefit as of September 30, 1983. Notwithstanding the foregoing provisions of this Section 5, if the maximum limitations on retirement benefits, with respect to any person who was a Participant prior to January 1, 1987 and whose retirement benefit (determined without regard to any changes in the Plan after May 6, 1986 and without regard to cost-of-living adjustments occurring after December 31, 1986) exceeds the limitations set forth in this Section, then, for purposes of such Section and Section 415(b) and (e) of the Code, the Dollar Limitations with respect to such Participant shall be equal to such Participant's retirement benefit as of December 31, 1986; provided that such Participant's retirement benefit did not exceed the maximum limitation as in effect for all the Plan Years prior to January 1, 1987. Regardless of anything to the contrary, the limitations described in Section 5.02(a) and (b) above will not apply if the annual benefits of a Participant under all Combined Defined Benefit Plans do not exceed $10,000 in the Plan Year or any prior Plan Year, and if he has never been a Participant in any Defined Contribution Plan of the Employer. 5.03 Less Than 10 Years. If the annual benefit commences when the Participant has completed less than ten years of Vesting Service with the Employer, the limitations described in Section 5.02 will be reduced by 10% for each Year of Vesting Service less than ten. 5.04 Limitations if Participant in Other Plan(s). If a Participant is also a Participant in a Defined Contribution Plan (or Plans) maintained by the Employer, the decimal equivalent of the sum of the fractions determined as follows for all Defined Benefit Plans and Defined Contribution Plans maintained by the Employer in which he participates shall not exceed 1.0 for any Limitation year: (a) A defined benefit fraction, the numerator being the projected total annual benefits of the Participant under all Employer-sponsored Defined Benefit Plans (whether or not terminated), and the denominator being the lesser of: (1) the product of 1.25 multiplied by $90,000 (or, if permitted by applicable law, such other dollar amount as is specified annually by the Secretary of the Treasury, or his delegate); or (2) the product of 1.4 multiplied by the Participant's Average Compensation. (b) A defined contribution fraction, the numerator being the sum of the actual Annual Additions to the Participant's Combined Accounts under all Defined Contribution Plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years, and the denominator being the sum of the lesser of the following amounts determined for such Limitation Year and all prior Limitation Years of the Participant's service with the Employer (regardless of whether a Defined Contribution Plan was maintained by the Employer): (1) the product of 1.25 multiplied by $30,000 (or, if greater, one-fourth of the Dollar Limitation in effect under Code Section 415(b)(1)(A)); or (2) the product of 1.4 multiplied by 25% of his Total Compensation for such Limitation Year. In the event the projected annual benefits of a Participant under all Defined Benefit Plans cause the total of the fractions determined under (a) and (b) above to exceed 1.0, the annual benefits under the Employer-sponsored Defined Benefit Plans will be reduced to the extent necessary so that the sum of the defined benefit plan fraction and defined contribution plan fraction do not exceed 1.0. From and after January 1, 2000, the special limitations set forth in this Section 5.04 shall no longer apply. CHAPTER VI PRE-RETIREMENT DEATH BENEFITS 6.01 Death Benefits. Except as provided in Section 6.03 and Chapter VIII, any death benefits payable under the Plan and Trust will be according to the provisions of this Section 6.01. The Beneficiary of any Participant (including former Participants with deferred vested benefits) who dies before his Annuity Starting Date will be entitled to a lump sum death benefit, payable as soon as administratively possible after the Participant's death, equal to the present Actuarial Equivalent value (as determined by the Actuary) of the Accrued Benefit of such Participant on his date of death. 6.02 Death Benefit Limitations. Except as provided in Sections 6.01, 6.03 and Chapter VIII, the Beneficiary or spouse of any Participant who dies will not be entitled to any death benefit under the Plan and Trust. 6.03 Pre-Retirement Death Benefit for Surviving Spouse; Post-Retirement Death Benefits. Unless the Participant has designated someone other than his spouse as the primary Beneficiary under the provisions of Section 9.01, the death benefit payable to the spouse of a Participant (including a former Participant with deferred vested benefits) who dies before his Annuity Starting Date will be in the form of a single life annuity for the life of such spouse which is the Actuarial Equivalent of the Accrued Benefit of such Participant. The surviving spouse may elect to commence payment of such annuity within a reasonable period after the Participant's death. Absent an election by the surviving spouse, payment of such annuity will start on the later of the Participant's date of death or the date when the Participant would have attained age 62. The surviving spouse may also elect the lump sum death benefit specified in Section 6.01 above in lieu of such annuity. If the Participant dies after benefits have commenced under one of the forms specified in Chapter VIII, the death benefits payable, if any, will be in accordance with the form of payment then in effect. CHAPTER VII OTHER TERMINATION AND VESTING 7.01 Full Vesting Dates. Upon the date of a Participant's death, retirement or incurrence of a Disability, he will be fully Vested in his Accrued Benefit. 7.02 Vesting Schedule. A Participant who has completed at least 5 Years of Vesting Service and who terminates his employment with the Employer or an Affiliated Employer for reasons other than death, Disability, or retirement will be fully Vested in his Accrued Benefit. If a Participant terminates his employment with the Employer or an Affiliated Employer for reasons other than death, Disability, or retirement before he has completed 5 Years of Vesting Service, he will not be Vested in any benefit in this Plan and his entire Accrued Benefit will be forfeited. 7.03 Commencement of Benefits. The payment of any Vested Accrued Benefit determined under this Chapter will start on the date specified in Section 8.01, and will be adjusted for either or both of the following reasons: (a) If payments start on a date prior to the Participant's Normal Retirement Date, such payments will be adjusted as specified in Section 4.02; (b) If payments are in a form other than the Normal Form of Benefits, such payments will have an Actuarial Equivalent adjustment made. 7.04 Forfeiture. Any Non-Vested Accrued Benefit determined under this Chapter, or any other benefit forfeited by a Participant who dies but is not eligible for death benefits under the Plan and Trust will be retained in the Trust Fund and will be used to reduce the future Participating Employer contributions to the Plan. 7.05 Resumption of Participation. If an Employee returns to the employ of a Participating Employer following a Break in Service, his Years of Vesting Service and Years of Benefit Service which occurred before such Break in Service will be aggregated with his Years of Vesting Service and Years of Benefit Service occurring after such Break in Service if he also meets either of the following requirements: (a) If he was Vested in some or all of his Accrued Benefit under this Plan at the time his Break in Service occurred; or (b) Even if he was not Vested in his Accrued Benefit at the time of his Break in Service, if the number of consecutive One Year Breaks in Service is less than the Years of Vesting Service which occurred before such Break in Service. CHAPTER VIII PAYMENT OF BENEFITS 8.01 Commencement of Benefits. Unless a Participant elects in writing to further defer the starting date of any benefit payable under the Plan and Trust, benefits must begin to be paid within 60 days after the later of: (a) the last day of the Plan Year in which he attains age 65; or (b) the last day of the Plan Year in which he incurs a Termination of Employment. Effective January 1, 2000, and notwithstanding any other provisions of this Plan but subject to the special rules pertaining to 5% owners and certain other Participants set forth below, any benefit payable to a Participant shall commence no later than the "Required Beginning Date" for a Participant under Code Section 401(a)(9), as amended by the Small Business Job Protection Act of 1996, which is the April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires or terminates service with the Employer or an Affiliated Employer. However, any benefit payable to a Participant who is a more than 5% owner of the "employer" as defined in Code Section 416 with respect to the Plan Year ending in the calendar year in which such Participant attains age 70 1/2 shall commence no later than the April 1st of the calendar year following the calendar year in which such Participant attains age 70 1/2, even if he has not separated from service as of such date. Further, any Participant continuing in the service of the Employer or an Affiliated Employer who attained age 70 1/2 after December 31, 1996 but before January 1, 2000 shall have an option to elect either to begin receiving benefits starting no later than April 1st of the calendar year following the calendar year in which such Participant attains age 70 1/2 or to defer the commencement thereof (and, if applicable, to stop the current receipt of benefits) until retirement or termination of service. Any distribution of benefits that was being made to such a Participant in the Joint and Survivor Annuity form may be stopped under the preceding sentence only if consent of the person who was such Participant's spouse when the benefit payments initially commenced is obtained and such consent acknowledges the effect of the election to stop. Any commencement or recommencement of benefits starting after retirement or termination of service of a Participant who has elected to defer (and, if applicable to stop the current receipt of benefits) shall be subject to all of the provisions of Section 8.02 dealing with the mandatory Joint and Survivor Annuity form of distribution for married Participants and the single life annuity form for single Participants and the circumstances under which some other form of distribution may be elected. Any Participant who incurs a Termination of Employment and who later attains the age specified as an Early Retirement Date may elect in writing to the Committee to have his benefit payments begin at any time following such age. Once such election is made, benefit payments must begin within 60 days after the date specified in the election. Notwithstanding any provision of the Plan to the contrary, if the Vested portion of the Accrued Benefit of a Participant who terminates, retires, or dies does not exceed $3,500, or, from and after January 1, 2002, $5,000, the Vested Accrued Benefit shall be distributed in the form of a single sum cash distribution as soon as practicable following the Participant's termination. If a distribution is one to which Sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (a) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (b) the Participant, after receiving the notice, affirmatively elects a distribution. 8.02 Automatic Joint and Survivor Benefits. Unless an optional form of benefit is selected pursuant to a qualified election within the 90-day period ending on the Annuity Starting Date, a married Participant's Vested Accrued Benefit will be paid in the form of a Joint and Survivor Annuity. A qualified election is a waiver of a Joint and Survivor Annuity. The waiver must be in writing and must be consented to by the Participant's spouse. The spouse's consent to a waiver must acknowledge the designation of a specific alternative beneficiary in writing signed by the spouse and witnessed by a Plan representative or notary public. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of a Plan representative that such written consent may not be obtained because there is no spouse or the spouse cannot be located, waiver will be deemed a qualified election. Any consent necessary under this provision will be valid only with respect to the spouse who signs the consent, or in the event of a deemed qualified election, the designated spouse. Additionally, a revocation of a prior waiver may be made by a Participant without the consent of the spouse at any time before the commencement of benefit. The number of revocations shall not be limited. In the case of a Joint and Survivor Annuity as described above, the Committee shall provide each Participant within a reasonable period under applicable regulations (currently, not less than 30 and no more than 90 days) prior to the Annuity Starting Date a written explanation of: (a) the terms and conditions of a Joint and Survivor Annuity; (b) the Participant's right to make and the effect of an election to waive the Joint and Survivor Annuity form of benefit; (c) the rights of a Participant's spouse; and (d) the right to make, and the effect of, a revocation of a previous election to waive the Joint and Survivor Annuity. If the Participant, after having received the above written explanation, affirmatively elects a form of distribution (with spousal consent if the form is other than the Joint and Survivor Annuity), the Plan may treat such election as a waiver of any remaining portion of the 30-day notice period, provided the distribution does not commence before the expiration of a 7-day period beginning the day after the Participant has received the above written notice and other requirements of applicable regulations are satisfied. Unless an optional form of benefit is selected, an unmarried Participant's Vested Accrued Benefit will be paid in the form of a single life annuity under Section 8.03. 8.03 Optional Forms of Payment. Except where a Joint and Survivor Annuity is required by Section 6.01 or Section 8.02, all benefit payments will be made in the Normal Form of Benefit unless the Participant (or his Beneficiary, if he is deceased) selects in writing one, or a combination of, the following optional forms of benefits: (a) life income annuity; (b) a joint and survivor annuity providing a survivor benefit to any Beneficiary which is at least 50% but not greater than 100% of the Participant's benefit; (c) a term certain annuity for 120 months, or 180 months; (d) a lump sum payment, but only if Termination of Employment is due to retirement, death, or Disability. (e) if the Participant was employed at the McEwen facility, then he or his Beneficiary may select a life annuity with 120 or 180 monthly benefits guaranteed. Any benefit payable in a form other than the Normal Form of Benefit will be the Actuarial Equivalent of the benefit which would have been payable in the Normal Form of Benefit. Any annuity contracts which may be purchased to provide Plan benefits will be nontransferable. 8.04 Incidental Death Benefits. Regardless of any statement (with the exception of Section 8.02) to the contrary, the ability of any Participant or any Beneficiary to select the timing and method of a distribution option will be limited by the following provisions: (a) If the Participant's entire interest is to be distributed in other than a lump sum, then the amount to be distributed each year must be at least an amount equal to the quotient obtained by dividing the Participant's entire interest by the life expectancy of the Participant or joint and last survivor expectancy of the Participant and designated Beneficiary. Life expectancy and joint and last survivor expectancy are computed by the use of the return multiples contained in Section 1.72-9 of the Income Tax Regulations. For purposes of this computation, a Participant's life expectancy may be recalculated no more frequently than annually, however, the life expectancy of a nonspouse Beneficiary may not be recalculated. If the Participant's spouse is not the designated Beneficiary, the method of distribution selected must satisfy the minimum death incidental benefit requirements of Section 1.401(a)(9)-2 of the regulations which are incorporated herein by this reference. (b) If the Participant dies after distribution of his or her interest has commenced, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. (c) If the Participant dies before distribution of his or her interest commences, the Participant's entire interest will be distributed no later than five years after the Participant's death except to the extent that an election is made to receive distribution in accordance with (1) or (2) below: (1) If any portion of the Participant's interest is payable to a designated Beneficiary, distributions may be made in substantially equal installments over the life or life expectancy of the designated Beneficiary commencing no later than one year after the Participant's death; (2) If the designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (1) above shall not be earlier than the date on which the Participant would have attained age 70 1/2, and, if the spouse dies before payments begin, subsequent distributions shall be made as if the spouse had been the Participant. (d) For purposes of 8.04(c) above, payments will be calculated by use of the return multiples specified in Section 1.72-9 of the regulations. Life expectancy of a surviving spouse may be recalculated annually, however, in the case of any other designated Beneficiary, such life expectancy will be calculated at the time payment first commences without further recalculation. (e) For purposes of this Section 8.04, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. 8.04A New Minimum Distribution Regulations. With respect to distributions under the Plan made on or after April 1, 2001 for calendar years beginning on or after January 1, 2001, the Plan will apply to minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed on January 17, 2001 (the 2001 Proposed Regulations), notwithstanding any provision of the Plan to the contrary. If the total amount of required minimum distributions made to a Participant for 2001 prior to April 1, 2001 are equal to or greater than the amount of required minimum distributions determined under the 2001 Proposed Regulations, then no additional distributions are required for such Participant for 2001 on or after such date. If the total amount of required minimum distributions made to a Participant for 2001 prior to April 1, 2001 are less than the amount determined under the 2001 Proposed Regulations, then the amount of required minimum distributions for 2001 on or after such date will be determined so that the total amount of required minimum distribution for 2001 is the amount determined under the 2001 Proposed Regulations. This amendment shall continue in effect until the last calendar year beginning before the effective date of the final regulations under Section 401(a)(9) of the Code or such other date as may be published by the Internal Revenue Service. 8.05 Transfers. The Plan will not accept the transfer into the Trust Fund of IRA's or distributions to Participants from other retirement plans. 8.06 No Other Benefits. Except as provided in Chapter XII, no payments shall be made from the Plan and Trust to a Participant except for retirement, death, Disability, or other Termination of Employment. 8.07 Direct Rollover. (a) This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (b) Definitions (i) Eligible Rollover Distribution: An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: 1) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; 2) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; 3) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities); 4) returns of Section 401(k) elective deferrals that are returned as a result of the Section 415 limitations; 5) corrective distributions of excess contributions, excess deferrals, and excess aggregate contributions, together with the income allocable to these corrective distributions; 6) loans treated as distributions under Section 72(p) and not excepted by Section 72(p)(2); 7) loans in default that are deemed distributions; 8) a distribution less than $200; 9) for distribution made from and after December 31, 1999, any amount which is a hardship distribution under Section 401(K)(2) of the Code; and 10) similar items designated by the IRS in revenue rulings, notices, and other guidance of general applicability. (ii) Eligible Retirement Plan: An Eligible Retirement Plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (iii) Distributee: A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employees' spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (iv) Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. CHAPTER IX DESIGNATION OF BENEFICIARY 9.01 Beneficiary Designation; Election of Non-Spouse Beneficiary. Each Participant may name or change the name of his Beneficiary(ies) who will receive any death benefits payable under Chapters VI or VIII of the Plan. However, any designation by a married Participant of someone other than his spouse as the primary Beneficiary for any pre-retirement death benefit payable under Section 6.01 of the Plan is an election to waive the pre-retirement surviving spouse death benefit under Section 6.03 and must be made by the Participant in writing during the election period described below and shall not be effective unless: (a) the Participant's spouse consents in writing to the election; (b) the election designates a specific alternate Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries, which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent); (c) the spouse's consent acknowledges the effect of the election; and (d) the spouse's consent is witnessed by a plan representative or notary public. If it is established to the satisfaction of a plan representative that such written consent may not be obtained because there is no spouse or the spouse cannot be located, a waiver will be deemed a qualified election. The election period to waive the pre-retirement surviving spouse death benefit begins on the first day of the Plan Year in which the Participant attains age 35 or the date of the Participant's termination of service, if earlier, and ends on the date of the Participant's death. An earlier waiver (with spousal consent) may be made, but it will become invalid at the beginning of the Plan Year in which the Participant attains age 35 or the date of a vested Participant's termination of service, if earlier. However, a new waiver and consent form may be signed thereafter at any time during the election period. With regard to the election, the Committee shall provide each Participant within the applicable period, with respect to such Participant (and consistent with regulations), a written explanation of the pre-retirement surviving spouse death benefit containing comparable information to that required pursuant to Section 8.02. For the purposes of this paragraph, the term "applicable period" means, with respect to a Participant, whichever of the following periods ends last: (a) The period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (b) One year ending after the individual becomes a Participant; (c) One year ending after the Plan no longer fully subsidizes the cost of the pre-retirement surviving spouse death benefit with respect to the Participant; or (d) One year ending after Code Section 401(a)(11) first applies to the Participant. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from service in the case of a Participant who separates before attaining age 35. For this purpose, the Committee must provide the explanation within a period beginning one year before the separation from service and ending one year after such separation. If such a Participant thereafter returns to employment with a Participating Employer, the applicable period for such Participant shall be redetermined. 9.02 Priority If No Designated Beneficiary. If there is no Beneficiary designation form on file, or if the designated Beneficiary(ies) predeceases the Participant, benefit payments required under the Plan and Trust to be payable on death to the Beneficiary(ies) will be distributed in the following order of priority: (a) to the surviving spouse; or if none (b) to the surviving issue (per stirpes and not per capita); or, if none (c) to the surviving parents equally, or, if one is deceased, to the survivor of them; or, if none (d) to the estate of the Participant. CHAPTER X TOP-HEAVY PROVISIONS 10.01 Provisions Will Control. If the Plan is or becomes Top-Heavy in any Plan Year beginning after December 31, 1983, the provisions of Chapter X will supersede any conflicting provisions in the Plan. 10.02 Definitions. For purposes of this Chapter X the following definitions shall apply: (a) Employer: Means all Participating Employers and all Affiliated Employers. (b) Key Employee: Any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the Determination Period was: (1) an officer of the Employer having annual compensation from the Employer greater than 1.5 times the amount in effect under Section 415(c)(1)(A) for any such Plan Year; (2) an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer if such individual's compensation exceeds the dollar limitation under Section 415(c)(1)(A) of the Code; (3) a 5% owner of the Employer; or (4) a 1% owner of the Employer who has an annual compensation of more than $150,000. The Determination Period is the Plan Year containing the Determination Date and the 4 preceding Plan Years. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the regulations thereunder. (c) Top-Heavy Plan: For any Plan Year beginning after December 31, 1983, this Plan is Top-Heavy if any of the following conditions exist: (1) If the Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of Plans. (2) If this Plan is a part of a Required Aggregation Group of plans but not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans exceeds 60%. (3) If this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%. (d) Top-Heavy Ratio: (1) If the Employer maintains one or more defined benefit plans and the Employer has not maintained any defined contribution plans (including any Simplified Employee Pension Plan) which during the 5-year period ending on the Determination Date(s) has or has had account balances, the Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the Present Value of Accrued Benefits of all Key Employees as of the Determination Date(s) (including any part of any Accrued Benefit distributed in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all Accrued Benefits (including any part of any Accrued Benefits distributed in the 5-year period ending on the Determination Date(s)) determined in accordance with Section 416 of the Code and the regulations thereunder. (2) If the Employer maintains one or more defined benefit plans and the Employer maintains or has maintained one or more defined contribution plans (including any Simplified Employee Pension Plan) which during the 5-year period ending on the Determination Date(s) has or has had account balances, the Top-Heavy Ratio for any Required or Permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of account balances under the aggregate defined contribution plan or plans for all Key Employees and the Present Value of Accrued Benefits under the aggregate defined benefit plan or plans for all Key Employees, and the denominator of which is the sum of the account balances under the aggregate defined contribution plan or plans for all Participants and the Present Value of Accrued Benefits under the aggregate defined benefit plan or plans for all Participants as determined in accordance with Section 416 of the Code and the regulations thereunder. The account balances under a defined contribution plan and the Accrued Benefits under a defined benefit plan in both the numerator and denominator of the Top-Heavy Ratio are adjusted for any distribution made in the 5-year period ending on the Determination Date. (3) For purposes of (1) and (2) above, the value of account balances and the Present Value of Accrued Benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Section 416 of the Code and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and Accrued Benefits of a Participant who: (i) is not a Key Employee but who was a Key Employee in a prioryear; or (ii) has not received any compensation from any Employer maintaining the Plan at any time during the 5-year period ending on the Determination Date, will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Accordingly, the accrued benefit of any employee who has not performed an Hour of Service for the Employer at any time during the 5-year period ending on the Determination Date will be disregarded. Deductible employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans the value of account balances and Accrued Benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. (e) Permissive Aggregation Group: The Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. (f) Required Aggregation Group: (1) Each qualified plan of the Employer in which at least one Key Employee participates in the Plan Year containing the Determination Date or any of the four preceding Plan Years (including any such plan that terminated within 5-year period ending on the Determination Date), and (2) any other qualified plan of the Employer which enables a plan described in (1) to meet the requirements of Sections 401(a)(4) or 410 of the Code. (g) Determination Date: For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. (h) Valuation Date: The first day of the Plan Year, as of which account balances or Accrued Benefits are valued for purposes of calculating the Top-Heavy Ratio. (i) Present Value: Present Value shall be based only on the Actuarial Equivalent interest and mortality rates specified in Section 1.01(c) 10.03 Minimum Accrued Benefit: (a) Notwithstanding any other provision in this Plan except (c), (d), and (e) below, for any Plan Year in which this Plan is Top-Heavy, each Participant who is employed on the last day of the Plan Year will accrue a benefit (to be provided solely by Employer contributions and payable in the Normal Form of Benefit) of 2.0% of his or her highest average compensation for the five consecutive years for which the Participant had the highest compensation. The minimum accrual is determined without regard to any Social Security contribution. The minimum accrual applies even though under other Plan provisions the Participant would not otherwise be entitled to receive an accrual, or would have received a lesser accrual for the year. (b) For purposes of computing the minimum accrued benefit, compensation will include all wages subject to tax under Section 3101(a) without the dollar limitation of Section 3121(a), but not including deferred compensation other than contributions through a salary reduction agreement to a cash or deferred plan under Section 401(k) or to a tax deferred annuity under Section 403(b) of the Code. (c) No additional benefit accruals shall be provided pursuant to (a) above to the extent that the total accruals on behalf of the Participant attributable to Employer contributions will provide a benefit expressed as a life annuity commencing at the Normal Retirement Date that equals or exceeds 20% of the Participant's highest average compensation for the five consecutive years for which the Participant had the highest compensation. (d) The provisions in (a) above shall not apply to any Participant to the extent that the Participant is covered under any other plan or plans of the Employer. In such case, the minimum allocation or benefit requirement applicable to this Top-Heavy plan will be met in the other plan or plans. (e) All accruals of Employer derived benefit, whether or not attributable to years for which the Plan is Top-Heavy, may be used in computing whether the minimum accrual requirements of paragraph (c) above are satisfied. 10.04 Adjustment for Benefit Form Other Than Life Annuity. If the Normal Form of Benefit is other than a single life annuity, the Employee must receive an amount that is the Actuarial Equivalent of the minimum single life annuity benefit. If the benefit commences at a date other than the Normal Retirement Date, the Employee must receive at least an amount that is the Actuarial Equivalent of the minimum single life annuity benefit commencing at the Normal Retirement Date. 10.05 Nonforfeitability of Minimum Accrued Benefit. The minimum accrued benefit required (to the extent required to be nonforfeitable under Section 416(b)) may not be forfeited due to any suspension of benefits upon re-employment of retiree. 10.06 Minimum Vesting Schedules. For any Plan Year in which this Plan is Top-Heavy, the following vesting schedule will automatically apply to the Plan: Years of Vesting Service Vested Percentage 1 0% 2 20% 3 40% 4 60% 5 100% The minimum vesting schedule applies to all benefits within the meaning of Section 411(a)(7) of the Code, including benefits accrued before the effective date of Section 416 and benefits accrued before the Plan became Top-Heavy. Further, no reduction in Vested benefits may occur in the event the Plan's status as Top-Heavy changes for any Plan Year. However, this Section does not apply to the Accrued Benefits of any Employee who does not have an Hour of Service after the Plan has initially become Top-Heavy and such Employee's Accrued Benefits attributable to Employer contributions will be determined without regard to this Section. If the vesting schedule under the Plan shifts in or out of the above schedule for any Plan Year because of the Plan's Top-Heavy status, such shift is an amendment to the vesting schedule and the election in Section 11.01(c) of the Plan applies. 10.07 Compensation Limitation. For any Plan Year in which the Plan is Top-Heavy, only the first $200,000 (or such larger amount as may be prescribed by the Secretary or his delegate) of a Participant's annual Compensation shall be taken into account for purposes of determining benefits under the Plan. CHAPTER XI AMENDMENT OF THE PLAN 11.01 Amendment by Employer. The Employer may, by resolution of its Board of Directors, amend this Plan at any time. Any amendment by the Employer will be subject to the following rules: (a) Without its written consent, no amendment may increase the duties or liabilities of the Trustee. (b) Except as permitted by law, no amendment may provide for the use of funds or assets under the Plan and Trust other than for the exclusive benefit of Participants or their Beneficiaries. In addition, no amendment may allow Trust Fund assets to revert to or be used or enjoyed by any Participating Employer unless otherwise permitted by law. (c) If an amendment changes the vesting schedule of the Plan, or if the Plan is amended in any way that directly or indirectly affects the computation of a Participant's nonforfeitable percentage, any Participant in the employ of a Participating Employer or an Affiliated Employer on the date such amendment is adopted (or the date it is effective, if later) who has completed at least three Years of Vesting Service at the end of the election period specified below, may make an irrevocable election to remain under the vesting schedule of the Plan as in existence immediately prior to said amendment. If such Participant does not make this election during the election period starting on the date such amendment is adopted, and ending 60 days following the latest of the following dates, he will be subject to the new vesting schedule provided by said amendment: (1) the date the amendment is adopted; (2) the date the amendment is effective; or (3) the date written notice of the amendment is given to the Participant. However, the failure to make an election described above will not result in the forfeiture of any benefits which are already Vested. (d) No amendment may reduce the Accrued Benefit or Vested percentage of a Participant. 11.02 Conformance to Law. Regardless of the provisions of Section 11.01, the Employer has the right to make whatever amendments are necessary to this Plan or the Trust to bring it into conformity with applicable law. 11.03 Merger, Consolidation, or Transfer. If the Plan and Trust are merged or consolidated with, or the assets or liabilities are transferred to, any other plan and trust, the benefits payable to each Participant immediately after such action (if the Plan was then terminated) will be equal to or greater than the benefits to which he would have been entitled if the Plan had terminated immediately before such action. CHAPTER XII TERMINATION OF THE PLAN 12.01 Right to Terminate. It is the expectation of the Employer that it will continue the Plan and the payment of contributions indefinitely, but continuance of the Plan is not assumed as a contractual obligation of the Employer, and the right is reserved by the Employer, by resolution of its Board of Directors, at any time to reduce, suspend, or discontinue its contributions, or terminate the Plan with respect to certain or all of its Employees. Further, any other Participating Employer may do likewise as to its participation in the Plan by resolution of its Board of Directors. If the Plan is terminated or partially terminated, the Accrued Benefit of each Participant who is in the employ of the Participating Employer on the effective date of the Plan termination or partial termination (as specified by the Participating Employer unless otherwise specified by the PBGC) and whose employment is affected by such termination or partial termination will thereafter be fully vested and nonforfeitable. Such Participant will have recourse only to the assets of the Trust Fund and the PBGC for the payment of such Vested Accrued Benefit. 12.02 Termination Priorities. If the Plan is terminated or partially terminated (whether by the Employer or the PBGC), and the PBGC has notified the Employer that it may proceed with benefit payments under this Plan, the Trust Fund assets (or portion thereof, in the case of partial termination) will be allocated to the appropriate Participants (all Participants in the event of complete Plan termination, in the event of partial termination, only those Participants whose Termination of Employment caused or was the result of such partial termination) in the following order of priority: (a) to provide for the return of Employee contributions, if any; (b) to provide for any benefit of a Participant which was payable as an annuity in either of the following categories: (1) the benefit of a Participant which was in pay status as of the first day of the 3-year period immediately preceding the date the Plan was terminated, as specified by the PBGC; (2) the benefit of a Participant which could have been in pay status as of the first day of the 3-year period immediately preceding the date the Plan was terminated, as specified by the PBGC. For purposes of this Sub-Section (b), such benefit will be determined on the basis of the Plan's provisions which were in effect at any time during the 5-year period ending on such date of Plan termination under which the benefit would be the least; (c) to provide for any other benefit of a Participant (not covered by any of the two previous priority classifications) which is insured and guaranteed by the PBGC; (d) to provide for all other nonforfeitable benefits; (e) to provide for all other benefits. Any allocations provided for under the above priority classifications will be payable to either a Participant or his Beneficiary, whichever is appropriate. In addition, with respect to priority classifications (b), (c), (d), and (e), the amount of an allocation to a Participant under a specified priority classification will be reduced by the amount of such Participant's allocation under a previous priority classification. 12.03 Reversion to Employer. In the event assets remain in the Trust Fund after the complete satisfaction of all liabilities of the Plan and Trust, as specified in Section 12.02, distribution may be made to the Employer of such remaining assets, which will be deemed attributable to the difference between the actuarial assumptions used by the Actuary to determine the funding requirements of the Plan and Trust and the actual experience of the Trust Fund during its operation. 12.04 Subsequent Benefit Payments. Unless otherwise specified by law, the timing, form (with the addition of lump sum distributions), and amount of any benefit payments provided under this Chapter will be made in accordance with the provisions of Chapter VIII. CHAPTER XIII CLAIMS PROCEDURE 13.01 Written Claim. A Participant or Beneficiary(ies) may make a claim for Plan benefits by filing a written request with the Committee, on a form provided by the Committee. 13.02 Claim Denial. If a claim is wholly or partially denied, the Committee will furnish the Participant or Beneficiary(ies) with written notice of the denial within 60 days of the date the original claim was filed. The notice of denial will specify: (a) the reason for denial; (b) specific reference to pertinent Plan and Trust provisions on which the denial is based; (c) a description of any additional information or requirements needed to be eligible to obtain the denied benefit and an explanation of why such information or requirements are necessary; and (d) an explanation of the claim procedure. 13.03 Request for Review of Denial. The Participant or Beneficiary(ies) will have 60 days from receipt of denial notice in which to make written application for review by the Committee. The Participant or Beneficiary may request that the review be in the nature of a hearing. The Participant or Beneficiary(ies) will have the rights to representation, to review pertinent documents, and to submit comments in writing. 13.04 Decision on Review. The Committee will issue a decision on such review within 60 days after receipt of an application for review. The Committee shall have full and complete discretionary authority to determine eligibility for benefits, to construe the terms of the Plan and to decide any matter presented through the claims review procedure. Any final determination by the Committee shall be binding on all parties. If challenged in court, such determination shall not be subject to de novo review and shall not be overturned unless proven to be arbitrary and capricious upon the evidence considered by the Committee at the time of such determination. 13.05 Additional Time. The Committee may take additional time, as provided by government regulations, under this Chapter XIII, if such time is needed to gather data, perform calculations or reach decisions in the processing of a claim. The Participant or Beneficiary(ies) will be informed by the Committee, in writing, of the need for such additional time prior to the date such extension begins. CHAPTER XIV CONTRIBUTION AND BENEFIT LIMITS TO HIGH PAID EMPLOYEES 14.01 When Applicable. Participating Employer contributions on behalf of any of the 25 highest paid Employees at the time the Plan is established and whose anticipated annual benefit exceeds $1,500 will be restricted as provided in Section 14.02 upon the occurrence of the following conditions: (a) The Plan is terminated within 10 years after its establishment; (b) The benefits of such highest paid Employee become payable within 10 years after the establishment of the Plan; or (c) If Section 412 of the Code (without regard to Section 412(h)(2)) does not apply to this Plan, the benefits of such Employee become payable after the Plan has been in effect for 10 years, and the full current costs of the Plan for the first 10 years have not been funded. 14.02 Limitations. Participating Employer contributions which may be used for the benefit of an Employee described in Section 14.01 shall not exceed the greater of $20,000, or 20% of the first $50,000 of the Employee's compensation multiplied by the number of years between the date of the establishment of the Plan and: (a) if 14.0l(a) applies, the date of the termination of the plan; (b) if 14.0l(b) applies, the date the benefit becomes payable; or (c) if 14.0l(c) applies, the date of the failure to meet the full current costs. 14.03 Limitations if Plan Amended. If the Plan is amended so as to increase the benefit actually payable in event of the subsequent termination of the Plan, or the subsequent discontinuance of contributions thereunder, then the provisions of the above Sections shall be applied to the Plan as so changed as if it were a new Plan established on the date of the change. The original group of 25 Employees (as described in Section 14.01 above) will continue to have the limitations in Section 14.02 apply as if the Plan had not been changed. The restriction relating to the change of Plan should apply to benefits or funds for each of the 25 highest paid Employees on the effective date of the change except that such restrictions need not apply with respect to any Employee in this group for whom the normal annual pension or annuity provided by Participating Employer contributions prior to that date and during the ensuing ten years, based on his rate of compensation on that date, could not exceed $1,500. The Participating Employer contributions which may be used for the benefit of the new group of 25 Employees will be limited to the greater of: (a) The Participating Employer contributions (or funds attributable thereto) which would have been applied to provide the benefits for the Employees if the previous Plan had been continued without change; (b) $20,000; or (c) The sum of: (1) the Participating Employer contributions (or funds attributable thereto) which would have been applied to provide benefits for the Employees under the previous Plan if it had been terminated the day before the effective date of change, and (2) an amount computed by multiplying the number of years (for which the current costs of the Plan after that date are met) by 20% of his annual compensation, or $10,000, whichever is smaller. 14.04 Alternate Limitations. Notwithstanding the above limitations the following limitations will apply if they would result in a greater amount of Participating Employer contributions to be used for the benefit of the restricted Employee: (a) In the case of a substantial owner (as defined in Section 4022(b)(5) of ERISA), a dollar amount which equals the present value of the benefit guaranteed for such Employee under Section 4022 of ERISA, or if the Plan has not terminated, the present value of the benefit that would be guaranteed if the Plan terminated on the date the benefit commences, determined in accordance with regulations of the PBGC; and (b) In the case of the other restricted Employees, a dollar amount which equals the present value of the maximum benefit described in Section 4022(b)(3)(B) of ERISA (determined on the earlier of the date the Plan terminates or the date benefits commence, and determined in accordance with regulations of the PBGC) without regard to any other limitations in Section 4022 of ERISA. CHAPTER XV MISCELLANEOUS PROVISIONS 15.01 Reversion of Assets. This Plan and Trust are for the exclusive benefit of the Employees of the Participating Employers and none of the assets may be used for any other purpose. Notwithstanding the above, there may be a reversion of assets to the Employer (or the Employee) in the event one of the following occurs: (a) If, in the course of administering the Plan and Trust, errors in accounting arise due to factual errors in information supplied by any Participating Employer, the Committee, the Plan Administrator or the Trustee, equitable adjustments may be made to correct these errors. Excess contributions arising from such adjustments may be returned to the Participating Employer within one year after such contributions were made. (b) All Participating Employer contributions made to the Plan under Code Section 412(m) are conditioned on deductibility. For any year(s) that all or a part of a deduction for Participating Employer contributions to the Plan is disallowed by the Secretary of the Treasury, the amount of the contributions so disallowed shall be returned to the Participating Employer within one year after such disallowance. (c) The Plan is terminated as provided for in Chapter XII. 15.02 Equitable Adjustment. The Committee may make equitable adjustments, which may be retroactive, to correct for mathematical, accounting, or factual errors made in good faith. Such adjustments will be final and binding on all Participants and other parties in interest. 15.03 Reasonable Compensation. If for any Plan Year, the Internal Revenue Service determines that the total compensation of a Participant exceeds the amount which can be considered "reasonable" for purposes of the federal income tax return of the Participating Employer, then the Committee will readjust the Accrued Benefit of such Participant to reflect only the "reasonable" compensation of said Participant. 15.04 Indemnification. To the extent permitted by law, the Employer will indemnify each member of the Committee and any others to whom the Employer has delegated fiduciary duties (except corporate trustees, insurers or "investment managers" (as defined in ERISA)) against any and all claims, losses, damages, expenses and liabilities arising from their responsibilities in connection with the Plan, unless the same are determined to be due to gross negligence or willful misconduct. 15.05 Protection From Loss. Neither the Trustee, the Plan Administrator, the Committee nor the Employer guarantee the Trust Fund in any way from loss or depreciation. To the extent permitted by applicable law, the liability of any of these persons, groups of persons, or entities to make any payment under the Plan and Trust is limited to the available assets of the Trust Fund. 15.06 Protection From Liability. To the maximum extent allowed by law, the Plan Administrator and the Participating Employers, and their agents, designees and employees, shall be free from all liability, joint or several, for their acts, omissions, and conduct, except in the case of their own willful misconduct, gross negligence or bad faith. Specifically and without limitation other than as follows, nothing in the first sentence of this Section or elsewhere in the Plan and Trust shall be construed to relieve any Fiduciary from responsibility or liability for any responsibility, obligation or duty Under Part 4 of Title 1 of ERISA (except as provided in Sections 405(b)(1) and 405(d) of ERISA). 15.07 Adoption of Rules and Procedures. Any group of people acting in a specified capacity under the Plan and Trust (such as the Named Fiduciary, Trustee, Committee, Plan Administrator, "investment manager" (as defined by ERISA) if any, and so on) may create and abide by whatever rules and procedures they desire, so long as these rules and procedures are not inconsistent with the Plan, the Trust and applicable law. If these rules specifically limit the duties and responsibilities of the members of any of these groups, then to the extent permitted by applicable law, the liability to each member under the Plan and Trust will be limited to his specific duties. 15.08 Assignment of Benefits. A Participant's interest in this Plan may not be assigned or alienated, either voluntarily or involuntarily. This shall not preclude the Trustee from complying with: (i) a qualified domestic relations order (as defined in Section 414(p) of the Code) made pursuant to a domestic relations law requiring deduction from the benefits of a Participant for alimony, child support, or marital property payments, or (ii) on or after August 5, 1997 and pursuant to Code Section 401(a)(13)(c), any court order, judgment, decree, or settlement agreement requiring that a Participant's benefits be reduced where the Participant has committed a breach of fiduciary duty to the Plan or committed a criminal act against the Plan. Notwithstanding any restrictions on the timing of distributions and withdrawals under this Plan, distribution shall be made to an alternate payee in accordance with the terms of an order described in the preceding paragraph, or as determined by the Plan Administrator and alternate payee if provided in the order, even if such distribution is made prior to the Participant's attainment of the earliest retirement age (as defined in Code Section 414(p)(4)). 15.09 Mental Competency. Every person receiving or claiming benefits under the Plan and Trust will be presumed to be mentally competent until the date on which the Committee receives a written notice (in a form and manner acceptable to it) that such person is incompetent, and that a guardian, conservator or other person legally vested with his care or the care of his estate has been appointed. If the Committee receives acceptable notice that a person to whom a benefit is payable under the Plan and Trust is unable to care for his affairs because of incompetency, any payment due (unless a prior claim for it has been made by duly appointed legal representative) may be paid to the spouse, a child, a parent, a brother or a sister or to any person determined by the Committee to have incurred expenses for such person. Any such payment will be a complete discharge of the obligation of the Participating Employer, Committee, Plan Administrator and Trustee to provide benefits under the Plan and Trust. In the event that the Plan benefits of a person receiving or claiming them are garnished or attached by order of any court, the Committee may bring an action for a declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be paid under the Plan. While the action is pending, any benefits that become payable under this plan will be paid into the court as they become payable. The court will then make the benefit distributions to the recipient it deems proper at the close of said action. 15.10 Authentication. The Participating Employer, Committee, Plan Administrator and Trustee will be fully protected in acting and relying upon such certificate, affidavit, document or other information which that person requesting such information may consider pertinent, reliable and genuine. Any notice required to be made under the Plan and Trust may be waived, in writing, by the person entitled thereto. In addition, the time period specified in this Plan for filing any such notice may be modified or waived, in writing, by the person entitled thereto. 15.11 Not an Employment Contract. The Plan and Trust will not be construed as creating or modifying any contract of employment between any Participating Employer and the Employee. 15.12 Appointment of Auditor. The Employer shall have the right to appoint an independent auditor to audit the books, records, and accounts of the Trustee as they relate to the Plan and the Trust. 15.13 Uniform Treatment. All interpretations made in connection with the Plan and Trust are intended to be exercised in a nondiscriminatory manner so that all Employees in similar circumstances are treated alike. 15.14 Interpretation. The provisions of the Plan and Trust are to be construed as a whole and not construed separately without relation to the context of the entire agreement. 15.15 Plural and Gender. When appropriate, the singular nouns in the Plan and Trust may include the plural, and vice versa. Also, wherever the male gender is used in the Plan and Trust, the female gender may be included, and vice versa. 15.16 Headings. Headings at the beginnings of any Chapter, Section, or Sub-Section are for convenience only and are not to influence the construction of this Plan and Trust. 15.17 Expenses. The Participating Employers may pay the expenses of administering the Plan, if desired. However, if they do not pay these expenses directly, then, to the extent permitted by law, the payments will be made from the Trust Fund. 15.18 Prevention of Escheat. If the Participating Employer cannot ascertain the whereabouts of any person to whom a payment is due under the Plan, and if a notice of such payment due is mailed to the last known address of such person, as shown on the records of the Participating Employer, and within three months after such mailing such person has not made written claim therefor, the Participating Employer, if it so elects, may direct that such payment and all remaining payments otherwise due to such person be canceled on the records of the Plan and the amount thereof applied to reduce the contributions of the Participating Employer. The Plan and the Trust shall have no further liability therefor, except that, in the event such person later notifies the Participating Employer of his whereabouts and requests the payment due to him under the Plan, the amount so applied shall be paid to him. 15.19 Special Provisions Respecting Military Service. Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code, effective for individuals whose re-employment occurs after December 11, 1994. 15.20 Participation of Affiliated Employers. The administrative powers and control of the Employer, as provided in this Plan and the Trust agreement, as well as the sole and exclusive right of amendment and termination (as covered in Chapters XI and XII) and of appointment and removal of the Plan Administrator, the Trustee, and their successors, shall remain solely with OshKosh B'Gosh, Inc. and shall not be diminished in any way by reason of the participation of any Affiliated Employer in the Plan and the Trust agreement. CHAPTER XVI EGTRRA PROVISIONS 16.01 Adoption and Effective Date of Amendment. This amendment of the Plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). This amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise provided, this amendment shall be effective as of the first day of the first Plan year beginning after December 31, 2001. 16.02 Supersession of Inconsistent Provisions. This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment. 16.03 Increase in Compensation Limit. (a) Increase in limit. The annual compensation of each Participant taken into account in determining benefit accruals in any Plan Year beginning after December 31, 2001, shall not exceed $200,000. Annual compensation means compensation during the plan year or such other consecutive 12-month period over which compensation is otherwise determined under the plan (the determination period). For purposes of determining benefit accruals in a plan year beginning after December 31, 2001, the compensation for any prior determination period shall be $200,000. (b) Cost-of-living adjustment. The $200,000 limit on annual compensation in paragraph (a) shall be adjusted for cost-of- living increases in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year. 16.04 Modification of Top-Heavy Rules. (a) Effective date. This section shall apply for purposes of determining whether the Plan is a top-heavy plan under Section 416(g) of the Code for plan years beginning after December 31, 2001, and whether the plan satisfies the minimum benefits requirements of Section 416(c) of the Code for such years. This section amends Chapter V of the Plan. (b) Determination of top-heavy status. (1) Key employee. Key employee means any employee or former employee (including any deceased employee) who at any time during the Plan Year that includes the determination date was an officer of the employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for plan years beginning after December 31, 2002), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder. (2) Determination of present values and amounts. Subsections (3) and (4) below shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of employees as of the determination date. (3) Distributions during year ending on the determination date. The present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting "5-year period" for "1-year period." (4) Employees not performing services during year ending on the determination date. The accrued benefits and accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account. (c) Minimum benefits. For purposes of satisfying the minimum benefit requirements of Section 416(c)(1) of the Code and the Plan, in determining years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a Plan Year when the Plan benefits (within the meaning of Section 410(b) of the Code) no key employee or former key employee. 16.05 Direct Rollovers of Plan Distributions. (a) Effective date. This section shall apply to distributions made after December 31, 2001. (b) Modification of definition of eligible retirement plan. For purposes of the direct rollover provisions in Section 8.07 of the Plan, an eligible retirement plan shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Section 414(p) of the Code. (c) Modification of definition of eligible rollover distribution to include after-tax employee contributions. For purposes of the direct rollover provisions in Section 8.07 of the Plan, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. IN WITNESS WHEREOF, this Plan is executed by the Employer through its duly authorized officers, on this 6th day of November, 2001. By: /S/ DAVID L. OMACHINSKI Attest: /S/ MARGARET WACHOLTZ EX-10.7 6 exh107.txt OSHKOSH B'GOSH 1994 INCENTIVE STOCK OPTION PLAN FILED WITH 12/29/01 FORM 10K EXHIBIT 10.7 OSHKOSH B'GOSH, INC. 1994 INCENTIVE STOCK PLAN (AS AMENDED THROUGH 11/6/01) I. INTRODUCTION 1.01 Purpose. This plan shall be known as the Oshkosh B'Gosh, Inc. 1994 Incentive Stock Plan (the "Plan"). The purpose of the Plan is to provide an incentive for key employees of Oshkosh B'Gosh, Inc. and its Subsidiaries to improve corporate performance on a long-term basis, and to attract and retain key employees. It is intended that the Plan and its operation comply with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor rule). 1.02 Effective Date. The effective date of the Plan shall be August 8, 1994, subject to approval of the Plan by shareholders of the Company. Any Award granted prior to such shareholder approval shall be expressly conditioned upon shareholder approval of the Plan. II. PLAN DEFINITIONS 2.01 Definitions. For Plan purposes, except where the context clearly indicates otherwise, the following terms shall have the meanings set forth below: (a) "Award" shall mean the grant of any form of stock option or restricted stock. (b) "Board" shall mean the Board of Directors of the Company. (c) (Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (d) "Committee" shall mean the committee described in Section 4.01 or the person or persons to whom the committee has delegated its power and responsibilities under Section 4.03. (e) "Company" shall mean Oshkosh B'Gosh, Inc., a Wisconsin corporation. (f) "Company Stock" shall mean the Company's Class A Common Stock and such other stock and securities as may be substituted therefor pursuant to Section 3.02. (g) "Eligible Employee" shall mean any regular salaried employee of the Company or a Subsidiary who satisfies the requirements of Section 5.01. (h) "Fair Market Value" on any date shall mean, with respect to Company Stock, if the stock is then listed and traded on a registered national securities exchange, or is quoted in the NASDAQ National Market System, the mean of the high and low sale prices recorded in composite transactions as reported by a reliable source for such date. In the absence of reported sales or if the stock is not so listed or quoted, but is traded in the over-the-counter market, Fair Market Value shall be the mean of the closing bid and asked prices for such shares on the relevant date. (i) "Grantee" shall mean any person who has been granted an Award under the Plan. (j) "Option Period" shall mean the period of time provided pursuant to Section 6.04 within which a stock option may be exercised. (k) "Subsidiary" shall mean any corporation, partnership, limited liability company, joint venture or other entity now or hereafter in existence in which at least a 50% voting or profits interest is owned, directly or indirectly, by the Company, and any other business venture designated by the Committee in which the Company has a significant interest, as determined in the discretion of the Committee. III. SHARES SUBJECT TO AWARD 3.01 Available Shares. The total number of shares of Company Stock that may be issued under the Plan shall not exceed two million eight hundred thousand (2,800,000) shares. Shares subject to and not issued under an option which expires, terminates, is canceled or forfeited for any reason under the Plan and shares of restricted Company Stock which have been forfeited before the Grantee has received any benefits of ownership, such as dividends from the forfeited shares, shall again become available for the granting of Awards. 3.02 Changes in Common Stock. If any stock dividend is declared upon the Company Stock, or if there is any stock split, stock distribution, or other recapitalization of the Company with respect to the Company Stock, resulting in a split or combination or exchange of shares, the aggregate number and kind of shares which may thereafter be granted under the Plan shall be proportionately and appropriately adjusted and the number and kind of shares then subject to options granted to employees under the Plan and the per share option price therefor shall be proportionately and appropriately adjusted, without any change in the aggregate purchase prices to be paid therefor. IV. ADMINISTRATION 4.01 Administration by the Committee. The Plan shall be administered by a committee designated by the Board to administer the Plan and shall initially be the Compensation Committee of the Board. The Committee shall be constituted to permit the Plan to comply with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor rule). A majority of the members of the Committee shall constitute a quorum. The approval of such a quorum, expressed by a vote at a meeting held either in person or by conference telephone call, or the unanimous consent of all members in writing without a meeting, shall constitute the action of the Committee and shall be valid and effective for all purposes of the Plan. 4.02 Committee Powers. The Committee is empowered to adopt such rules, regulations and procedures and take such other action as it shall deem necessary or proper for the administration of the Plan and, in its discretion, may modify, extend or renew any Award theretofore granted. The Committee shall also have authority to interpret the Plan, and the decision of the Committee on any questions concerning the interpretation of the Plan shall be final and conclusive. The Committee may consult with counsel, who may be counsel for the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. Subject to the provisions of the Plan, the Committee shall have full and final authority to: (a) designate the persons to whom Awards shall be granted; (b) grant Awards in such form and amount as the Committee shall determine; (c) impose such limitations, restrictions and conditions upon any such Award as the Committee shall deem appropriate, and (d) waive in whole or in part any limitations, restrictions or conditions imposed upon any such Award as the Committee shall deem appropriate. 4.03 Delegation by Committee. The committee designated by the Board under Section 4.01 may delegate all or any part of its responsibilities and powers to any executive officer or officers of the Company selected by it, provided that no such delegation shall be made with respect to the grant of any Award to the President or any Vice President of the Company, and any such delegation shall comply in all respects with the requirements and conditions of Section 157 of the Delaware General Corporation Law. Any such delegation may be revoked by the Board or by the committee at any time. V. PARTICIPATION 5.01 Eligibility. Key employees of the Company and its Subsidiaries (including officers and employees who may be members of the Board) who, in the sole opinion of the Committee, contribute significantly to the growth and success of the Company or a Subsidiary shall be eligible for Awards under the Plan. From among all such Eligible Employees, the Committee shall determine from time to time those Eligible Employees to whom Awards shall be granted. No eligible employees shall be granted an Award or Awards covering more than 50,000 shares of Company Stock in any calendar year. No Eligible Employee shall have any right whatsoever to receive an Award unless so determined by the Committee. 5.02 No Employment Rights. The Plan shall not be construed as conferring any rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Company or any Subsidiary to terminate the employment of any person or to take any other action affecting such person. VI. STOCK OPTIONS 6.01 General. Stock options granted under the Plan may be in the form of incentive stock options (within the meaning of Code Section 422) or non-qualified stock options; provided, however, that incentive stock options shall only be granted to Eligible Employees who are employed by the Company or a parent or subsidiary corporation of the Company. Each option granted under the Plan shall be evidenced by a stock option agreement between the Company and the Grantee which shall contain the terms and conditions required by this Article VI, and such other terms and conditions, not inconsistent herewith, as the Committee may deem appropriate in each case. The holder of an option shall not have any rights as a stockholder with respect to the shares covered by an option until such shares have been delivered to him or her. 6.02 Option Price. The price at which each share of Company Stock covered by an option may be purchased shall be determined in each case by the Committee and set forth in each stock option agreement. In no event shall such price be less than one hundred percent (100%) of the Fair Market Value of the Company Stock when the option is granted. Employees who own, directly or indirectly, within the meaning of Code Section 425(d), more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary corporation shall not be eligible to receive an incentive stock option hereunder unless the purchase price per share under such option is at least 110% of the Fair Market Value of the stock subject to the option and such option by its terms is not exercisable after the expiration of 5 years from the date such option is granted. 6.03 Date Option Granted. For purposes of the Plan, a stock option shall be considered as having been granted on the date on which the Committee authorized the grant of the option, except where the Committee has designated a later date, in which event the later date shall constitute the date of grant of the option; provided, however, that in either case notice of the grant of the option shall be given to the employee within a reasonable time. 6.04 Period for Exercise of Options. Each stock option agreement shall state the period or periods of time within which the option may be exercised by the Grantee, in whole or in part, which shall be the period or periods of time as may be determined by the Committee, provided that: (a) No option granted under this Plan may be exercised until at least six months from the later of (i) the date of grant or (ii) shareholder approval of the Plan, (b) No Option Period for an incentive stock option may exceed ten (10) years from the date the option is granted, and (c) No option may be treated as an incentive stock option unless the Grantee exercises the option while employed by the Company or a Subsidiary or within three months after termination of employment, or if termination is caused by death or disability, within one year after such termination. 6.05 Special Rule for Incentive Stock Options. For so long as Section 422 (or any successor provision) of the Code so provides, the aggregate Fair Market Value (determined as of the date the incentive stock option is granted) of the number of shares with respect to which incentive stock options are exercisable for the first time by a Grantee during any calendar year shall not exceed One Hundred Thousand Dollars ($100,000) or such other limit as may be required by the Code. 6.06 Method of Exercise. Subject to Section 6.04, each option may be exercised in whole or in part from time to time as specified in the stock option agreement. Each Grantee may exercise an option by giving written notice of the exercise to the Company, specifying the number of shares to be purchased, accompanied by payment in full of the purchase price therefor. The purchase price may be paid in cash, by check, or, with the approval of the Committee, by delivering shares of Company Stock which have been beneficially owned by the Grantee, the Grantee's spouse, or both of them for a period of at least six months prior to the time of exercise ("Delivered Stock) or a combination of cash and Delivered Stock. Delivered Stock shall be valued at its Fair Market Value determined as of the date of exercise of the option. No Grantee shall be under any obligation to exercise any option hereunder. 6.07 Merger, Consolidation or Reorganization. In the event of a merger, consolidation or reorganization with another corporation in which the Company is not the surviving corporation, the Committee shall, subject to the approval of the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company hereunder, take action regarding each outstanding and unexercised option pursuant to either clause (a) or (b) below: (a) Appropriate provision may be made for the protection of such option by the substitution on an equitable basis of appropriate shares of the surviving corporation, provided that the excess of the aggregate Fair Market Value of the shares subject to such option immediately before such substitution over the exercise price thereof is not more than the excess of the aggregate fair market value of the substituted shares made subject to option immediately after such substitution over the exercise price thereof; or (b) The Committee may cancel such option. In such event, the Company, or the corporation assuming the obligations of the Company hereunder, shall pay the employee an amount of cash (less normal withholding taxes) equal to the excess of the highest Fair Market Value per share of the Company Stock during the 60-day period immediately preceding the merger, consolidation or reorganization over the option exercise price, multiplied by the number of shares subject to such option. 6.08 Dissolution or Liquidation. Anything contained herein to the contrary notwithstanding, on the effective date of any dissolution or liquidation of the Company, the holder of each then outstanding and unexercised option shall receive the cash amount described in 6.07(b) hereof and such option shall be cancelled. 6.09 Conditional Cashless Exercise. In connection with the Company's tender offer to purchase shares of Company stock to be dated on or about October 4, 1999 (the "Offer"), a Grantee may elect a conditional cashless exercise of the Grantee's options which are then exercisable. The conditional cashless exercise will permit a Grantee to exercise the option only if, and to the extent, the Company will actually purchase the option shares in the Offer. If after taking into account any proration, the Company purchases less than all of the option shares which the Grantee has tendered in the Offer, the options will be exercised, and the option shares purchased, in the order designated by the Grantee in an option election form. If any of the tendered option shares are not purchased, the related options will not be considered to have been exercised and will remain outstanding. The Grantee will not be required to pay cash for the exercise price, and the consideration received by the Grantee whose option shares are purchased in a conditional cashless exercise will be the difference between the purchase price per share in the Offer and the exercise price per share relating to the option shares so purchased (less applicable tax withholding). VII. RESTRICTED STOCK. 7.01 Administration. Shares of restricted stock may be issued either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Eligible Employees to whom and the time or times at which grants of restricted stock will be made, the number of shares to be awarded, the time or times within which such Awards may be subject to forfeiture and any other terms and conditions of the Awards. The Committee may condition the grant of restricted stock upon the attainment of specified performance goals so that the grant would qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code. In such case, the performance goals that may be used by the Committee shall be based on any one or more of the following, as determined by the Committee: the amount of consolidated operating income expressed as a percentage of net sales and the return on net assets of the Company and any subsidiary. The Committee may also condition the grant of restricted stock upon such other conditions, restrictions and contingencies as the Committee may determine. The provisions of restricted stock Awards need not be the same with respect to each recipient. 7.02 Awards and Certificates. Each individual receiving a restricted stock Award shall be issued a certificate in respect of such shares of restricted stock. Such certificate shall be registered in the name of such individual and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Oshkosh B'Gosh, Inc. 1994 Incentive Stock Plan and a Restricted Stock Agreement. Copies of such Plan and Agreement are on file at the offices of Oshkosh B'Gosh, Inc." The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any restricted stock Award, the Grantee shall have delivered a stock power, endorsed in blank, relating to the Company Stock covered by such Award. 7.03 Terms and Conditions. Shares of restricted stock shall be subject to the following terms and conditions: (a) Until the applicable restrictions lapse, the Grantee shall not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of restricted stock. (b) The Grantee shall have, with respect to the shares of restricted stock, all of the rights of a stockholder of the Company, including the right to vote the shares and the right to receive any cash dividends. Unless otherwise determined by the Committee, cash dividends shall be automatically paid in cash and dividends payable in Company Stock shall be paid in the form of additional restricted stock. (c) Except to the extent otherwise provided in the applicable Restricted Stock Agreement and (d) below, all shares still subject to restriction shall be forfeited by the Grantee upon termination of a Grantee's employment for any reason. (d) In the event of hardship or other special circumstances of a Grantee whose employment is involuntarily terminated (other than for cause), the Committee may waive in whole or in part any or all remaining restrictions with respect to such Grantee's shares of restricted stock. (e) If and when the applicable restrictions lapse, unlegended certificates for such shares shall be delivered to the Grantee. (f) Each Award shall be confirmed by, and be subject to the terms of, a Restricted Stock Agreement. VIII. WITHHOLDING TAXES. 8.01 General Rule. Pursuant to applicable federal and state laws, the Company is or may be required to collect withholding taxes upon the exercise of an option or the lapse of stock restrictions. The Company may require, as a condition to the exercise of an option or the issuance of a stock certificate, that the Grantee concurrently pay to the Company (either in cash or, at the request of Grantee but in the discretion of the Committee and subject to such rules and regulations as the Committee may adopt from time to time, in shares of Delivered Stock) the entire amount or a portion of any taxes which the Company is required to withhold by reason of such exercise or lapse of restrictions, in such amount as the Committee or the Company in its discretion may determine. 8.02 Withholding from Shares to be Issued. In lieu of part or all of any such payment, the Grantee may elect, subject to such rules and regulations as the Committee may adopt from time to time, or the Company may require that the Company withhold from the shares to be issued that number of shares having a Fair Market Value equal to the amount which the Company is required to withhold. 8.03 Special Rule for Insiders. Any such request or election (to satisfy a withholding obligation using shares) by an individual who is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 shall be made in accordance with the rules and regulations of the Securities and Exchange Commission promulgated thereunder. IX. GENERAL 9.01 Nontransferability. Unless otherwise specified by the Committee, no Award granted under the Plan shall be transferable or assignable except by last will and testament or the laws of descent and distribution. During the Grantee's lifetime, options shall be exercisable only by the Grantee or by the Grantee's guardian or legal representative. 9.02 General Restriction. Each Award shall be subject to the requirement that if at any time the Board or the Committee shall determine, in its discretion, that the listing, registration, or qualification of securities upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of securities thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board or the Committee. 9.03 Expiration and Termination of the Plan. Awards may be granted under the Plan at any time and from time to time, prior to August 8, 2004, the date on which the Plan will expire, except as to Awards then outstanding under the Plan, which shall remain in effect until they have been exercised, the restrictions have lapsed or the Awards have expired or been forfeited. The Plan may be abandoned or terminated at any time by the Board of Directors of the Company, except with respect to any Awards then outstanding under the Plan. 9.04 Amendments. The Board may from time to time amend, modify, suspend or terminate the Plan; provided, however, that no such action shall (a) impair without the Grantee's consent any Award theretofore granted under the Plan or deprive any Grantee of any shares of Company Stock which he or she may have acquired through or as a result of the Plan or (b) be made without shareholder approval where such approval would be required as a condition of compliance with Rule 16b-3. 9.05 Construction. Except as otherwise required by applicable federal laws, the Plan shall be governed by, and construed in accordance with, the laws of the State of Wisconsin. EX-10.8 7 exh108.txt OSHKOSH B'GOSH 1995 OUTSIDE DIRECTORS STOCK OPTION PLAN FILED WITH 12/29/01 FORM 10K EXHIBIT 10.8 OSHKOSH B'GOSH, INC. 1995 OUTSIDE DIRECTORS' STOCK OPTION PLAN (INCLUDING AMENDMENTS MADE 2/21/01) I. INTRODUCTION 1.01 Purpose. This plan shall be known as the Oshkosh B'Gosh, Inc. 1995 Outside Directors' Stock Option Plan. The purpose of the Plan is to provide an incentive for Outside Directors of Oshkosh B'Gosh, Inc. to improve corporate performance on a long- term basis. It is intended that the Plan and its operation comply with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor rule). 1.02 Effective Date. The Plan shall be effective upon its approval by shareholders at the Company's 1995 annual meeting. If the Plan is approved by shareholders, the first option grants will automatically be made at the Board meeting immediately following the 1995 annual meeting. II. PLAN DEFINITIONS 2.01 Definitions. For Plan purposes, except where the context clearly indicates otherwise, the following terms shall have the meanings set forth below: (a) "Board" shall mean the Board of Directors of the Company. (b) "Company" shall mean Oshkosh B'Gosh, Inc., a Wisconsin corporation. (c) "Company Stock" shall mean the Company's Class A Common Stock and such other stock and securities as may be substituted therefor pursuant to Section 3.02. (d) "Director" shall mean a director of the Company. (e) "Fair Market Value" on any date shall mean, with respect to Company Stock, if the stock is then listed and traded on a registered national securities exchange, or is quoted in the NASDAQ National Market System, the mean of the high and low sale prices recorded in composite transactions as reported in the Wall Street Journal (Midwest Edition) for such date or the preceding business day if such date is not a business day. In the absence of reported sales or if the stock is not so listed or quoted, but is traded in the over-the-counter market, Fair Market Value shall be the mean of the closing bid and asked prices for such shares on the relevant date. (f) "Grantee" shall mean any person who has been granted an option under the Plan. (g) "Outside Director" shall mean a Director who is not also an active full-time employee of the Company or a corporation in which the Company owns, directly or indirectly, a voting stock interest of more than fifty percent (50%). III. SHARES SUBJECT TO OPTION 3.01 Available Shares. The total number of shares of Company Stock that may be issued under the Plan shall not exceed Three Hundred Twenty-five Thousand (325,000) shares. Shares subject to and not issued under an option which expires, terminates, or is canceled for any reason under the Plan shall again become available for the granting of options. 3.02 Changes in Common Stock. If any stock dividend is declared upon the Company Stock, or if there is any stock split, stock distribution, or other recapitalization of the Company with respect to the Company Stock, resulting in a split or combination or exchange of shares, the aggregate number and kind of shares which may thereafter be granted under the Plan shall be proportionately and appropriately adjusted and the number and kind of shares then subject to options under the Plan and the per share option price therefor shall be proportionately and appropriately adjusted, without any change in the aggregate purchase prices to be paid therefor. IV. ADMINISTRATION 4.01 Administration by the Committee. The Plan shall be administered by the Compensation Committee of the Board which shall have the power, subject to and within the limits of the express provisions of the Plan, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan. The Committee shall have no discretion as to the amount, price or timing of any option granted under this Plan. V. STOCK OPTIONS 5.01 Option Agreements. Each option granted under the Plan shall be evidenced by a stock option agreement between the Company and the Grantee which shall contain the terms and conditions required by this Article V, and such other terms and conditions, not inconsistent herewith, as the Committee may deem appropriate in each case. The holder of an option shall not have any rights as a stockholder with respect to the shares covered by an option until such shares have been delivered to him or her. 5.02 Option Grant Size and Grant Date. (a) Annual Grant. Each year, upon the first meeting of the Board following the Company's annual meeting of shareholders, each person then serving the Company as an Outside Director shall automatically be granted a non-qualified stock option to purchase Six Thousand (6,000) shares, subject to adjustment under Section 3.02 hereof. (b) Special Rule. If at any time there are not sufficient available shares under the Plan to grant each Outside Director an option to purchase the number of shares identified above, each Outside Director shall receive an option to purchase an equal number of the remaining available shares, determined by dividing the remaining available shares by the number of Outside Directors. 5.03 Exercise Price. The price at which each share of Company Stock covered by an option may be purchased shall be one hundred percent (100%) of the Fair Market Value of the Company Stock on the date the option is granted. 5.04 Period for Exercise of Options. Each stock option granted under this Plan shall become exercisable six months from the date of grant, regardless of whether the Grantee is still a Director on such date. All rights to exercise an option shall terminate upon the earlier of (a) ten (10) years from the date the option is granted, or (b) two years from the date the Grantee ceases to be a Director. 5.05 Method of Exercise. Subject to Section 5.04, each option may be exercised in whole or in part from time to time as specified in the stock option agreement. Each Grantee may exercise an option by giving written notice of the exercise to the Company, specifying the number of shares to be purchased, accompanied by payment in full of the exercise price therefor. The exercise price may be paid in cash, by check, or by delivering shares of Company Stock which have been beneficially owned by the Grantee, the Grantee's spouse, or both of them for a period of at least six months prior to the time of exercise ("Delivered Stock") or a combination of cash and Delivered Stock. Delivered Stock shall be valued at its Fair Market Value determined as of the date of exercise of the option. No Grantee shall be under any obligation to exercise any option hereunder. 5.06 Merger, Consolidation or Reorganization. In the event of a merger, consolidation or reorganization with another corporation in which the Company is not the surviving corporation, the Committee shall, subject to the approval of the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company hereunder, take action regarding each outstanding and unexercised option to protect such option by the substitution on an equitable basis of appropriate shares of the surviving corporation, provided that the excess of the aggregate Fair Market Value of the shares subject to such option immediately before such substitution over the exercise price thereof is not more than the excess of the aggregate fair market value of the substituted shares made subject to option immediately after such substitution over the exercise price thereof. 5.07 Dissolution or Liquidation. Anything contained herein to the contrary notwithstanding, on the effective date of any dissolution or liquidation of the Company, the Company shall pay the holder of each then outstanding and unexercised option an amount of cash equal to the excess of the highest Fair Market Value per share of the Company Stock during the 60-day period immediately preceding the dissolution or liquidation over the option exercise price, multiplied by the number of shares subject to such option. Such option shall then be canceled. VI. GENERAL 6.01 Nontransferability. No option granted under the Plan shall be transferable or assignable except by last will and testament or the laws of descent and distribution. During the Grantee's lifetime, options shall be exercisable only by the Grantee or by the Grantee's guardian or legal representative. In the event of the Grantee's death, the personal representative of the Grantee's estate or the person or persons to whom the option is transferred by will or the laws of descent and distribution may exercise the option in accordance with its terms. 6.02 General Restriction. Each option shall be subject to the requirement that if at any time the Board shall determine, in its discretion, that the listing, registration, or qualification of securities upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of securities thereunder, such option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board. 6.03 Expiration and Termination of the Plan. Options may be granted under the Plan at any time and from time to time. The Plan may be abandoned or terminated at any time by the Board except with respect to any options then outstanding under the Plan. 6.04 Amendments. The Board may from time to time amend, modify, suspend or terminate the Plan; provided, however, that no such action shall (a) impair without the Grantee's consent any option theretofore granted under the Plan or (b) be made without shareholder approval where such approval would be required as a condition of compliance with Rule 16b-3 under the Securities Exchange Act of 1934. 6.05 Withholding Taxes. If the Company is required to collect withholding taxes upon exercise of an option, the Company may require, as a condition to such exercise, that the Grantee concurrently pay to the Company the entire amount or a portion of any taxes which the Company is required to withhold by reason of such exercise. In lieu of part or all of such payment, the Grantee may elect, subject to such rules as the Board may adopt from time to time, to have the Company withhold from the shares to be issued upon exercise of the option that number of shares having a Fair Market Value equal to the amount which the Company is required to withhold. 6.06 Construction. Except as otherwise required by applicable federal laws, the Plan shall be governed by, and construed in accordance with, the laws of the State of Wisconsin. EX-99 8 exh99.txt OSHKOSH B'GOSH LETTER TO COMMISSION PURSUANT TO TEMPORARY NOTE 3T EXHIBIT 99 U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Judiciary Plaza Washington, D.C. 20549 Ladies and Gentlemen: In a letter dated March 22, 2002, our independent public accountants, Arthur Andersen LLP ("Andersen"), represented to us that their audit of the consolidated financial statements of OshKosh B'Gosh, Inc. and subsidiaries as of December 29, 2001 and for the year then ended was subject to Andersen's quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that their engagement was conducted in compliance with professional standards and that there was appropriate continuity of Andersen personnel working on the audit and availability of national office consultation. OshKosh B'Gosh , Inc. /S/ David L. Omachinski Vice President-Finance, Treasurer and Chief Financial Officer March 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----