-----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, R1hiPUgKHyWkUDTsJo5AeTMN/yx7D9OEpfepIaFpl3Wlm0q5ePxFa4RXN28ni59Y oTtx/ZJPbMhzbSzNLOtW/A== 0000075042-98-000002.txt : 19980401 0000075042-98-000002.hdr.sgml : 19980401 ACCESSION NUMBER: 0000075042-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD 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: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13365 FILM NUMBER: 98582873 BUSINESS ADDRESS: STREET 1: 112 OTTER AVE STREET 2: P O BOX 300 CITY: OSHKOSH STATE: WI ZIP: 54901 BUSINESS PHONE: 4142318800 10-K 1 10-K 1998 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 31, 1997 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 IRS EMPLOYER IDENTIFICATION NO 39-0519915 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 registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No [X] 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 registrant'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 13, 1998, there were outstanding 8,702,429 shares of Class A Common Stock and 1,177,357 shares of Class B Common Stock, of which 8,317,695 shares and 687,696 shares, respectively, were held by non-affiliates of the registrant. Based upon the closing sales price as of March 13, 1998, the aggregate market value of the Class A Common Stock held by non- affiliates was $328,548,953. 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 $27,163,992. DOCUMENTS INCORPORATED BY REFERENCE OshKosh B'Gosh, Inc. definitive Proxy Statement for its annual meeting to be held on May 1, 1998 (or such later date as the directors may determine), incorporated into Part III. INDEX PART I PAGE Item 1. Business 5 (a) General Development of Business 5 (b) Financial Information About Industry Segments 6 (c) Narrative Description of Business 7 Products 7 Raw Materials, Manufacturing and Sourcing 8 Sales and Marketing 10 International Licensing and Distribution 11 Trademarks 11 Seasonality 11 Working Capital 12 Backlog 12 Competitive Conditions 12 Environmental Matters 13 Employees 13 Item 2. Properties 14 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 15 Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Conditions 17 Item 8. Financial Statements and Supplemenatary 27 Item 9. Disagreements on Accounting and Financial Disclosure 49 PART III Item 10. Directors and Executive Officers of the Registrant 49 Item 11. Executive Compensation 49 Item 12. Security Ownership of Certain Beneficial Owners and Management 49 Item 13. Certain Relationships and Related Transactions 49 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 49 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, manufactures, sources and markets apparel for the children's wear, youth wear, and men's wear markets. The Company also offers a children's footwear collection. While its heritage is 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 Baby B'Gosh and utilization of the Company's core competencies to supply the market with all appropriate product 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 children's wear and youth wear business represented approximately 95% of consolidated Company revenues for 1997. 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 119 domestic OshKosh B'Gosh branded stores, including 111 factory outlet stores and eight specialty stores. In 1994, the Company opened an OshKosh B'Gosh showcase store in New York City to feature a full line of OshKosh product in a signature environment designed to reinforce brand awareness among consumers. In the past two years, the Company opened seven first quality retail stores in regional mall locations. During 1997, the Company expanded its retail product line in its OshKosh B'Gosh branded stores by offering youth wear sizes for girls and boys under the trade names Genuine Girl (girls sizes 7-16) and Genuine Blues (boys sizes 8-16). Based on the sales performance of the Genuine Girl line in the OshKosh B'Gosh operated retail stores, the Company is expanding the distribution of this product line by including it as part of the product offering to wholesale customers beginning with the Spring 1998 season. During 1996, the Company completed a comprehensive strategic planning initiative. As part of this initiative and combined with management's commitment to more efficient utilization of working capital, the Company has taken steps to improve product marketability, streamline operations, reduce its capital base and cost structure and improve delivery performance. These actions included limiting distribution of its children's wear product by narrowing the distribution channels in which the Company's products are sold, discontinuing under-performing business units and closing certain domestic manufacturing facilities based on an on-going review of the Company's manufacturing capacity and alternative sourcing opportunities. In accordance with the strategic planning initiative, the Company discontinued the Genuine Kids brand which was used to market a line of children's and youth apparel through a chain of Company owned Genuine Kids retail stores. The wind-down of the Genuine Kids store chain was completed in January 1997. See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Conditions" and "Special Charges" in the Notes to the Consolidated Financial Statements, included in Item 8. The Company expanded into the European market in the early 1990's by establishing subsidiaries in France, Germany, and the United Kingdom. While the operation of these subsidiaries increased the distribution of the Company's product in the European marketplace, they were unprofitable, and were closed in 1996. The Company entered into a licensing arrangement for the European marketplace on January 1, 1997. The Company transferred the operation of its businesses in Europe to the licensee in conjunction with the license agreement. The Company also operates a foreign sales corporation to expand the distribution of the Company's product through exporting. The Company designs and arranges for the manufacture of substantially all of its apparel and footwear. Company designers develop fabrication, trim accessories, and detailed manufacturing specifications. The product is then manufactured according to detailed Company specifications and production schedules in Company-owned manufacturing facilities or at third party contractor locations worldwide. Product sourcing is based 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 sleep wear, outerwear, socks, eye wear, educational toys, bedding, and other juvenile products. 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 is engaged in only one line of business, namely, the apparel industry. (c) Narrative Description of Business Products The Company designs, manufactures, sources and markets a broad range of children's clothing as well as lines of youth wear, footwear and men's casual clothing under the OshKoshr, OshKosh B'Goshr, Baby B'Goshr, Genuine Girlr and Genuine Bluesr labels. The products are distributed primarily through better quality department and specialty stores, 119 Company owned domestic stores, and foreign retailers. The children's wear and youth wear business, which is the largest segment of the business, accounted for approximately 95% of 1997 sales compared to approximately 93% of such sales in 1996 and 92% in 1995. 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 prominently on OshKosh product. 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 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. The Classics product offerings for each season will typically consist of a variety of clothing items including bib overalls, pants, jeans, shorts and shortalls (overalls with short pant legs), shirts, blouses and knit tops, skirts, jumpers, sweaters, dresses, playwear and fleece. This product line is developed to be relatively seasonless, 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. The men's wear line is the original business that started the Company in 1895. The original line focused primarily on work wear products. During 1997, the Company repositioned the men's wear product line to better align it with the attributes and distribution channels of the children's wear line. This approach also closely mirrors the men's wear product lines offered by the Company's licensees in Europe and Japan, where the focus of the line is casual or sportswear. By transitioning out of the traditional work wear channels, refining the product offering and upgrading packaging, the Company's goal is to maintain and promote the heritage of OshKosh B'Gosh men's wear, while positioning it for future profitable growth. 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 the fabric design 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 1997, approximately 74% of the Company's direct expenditures for raw materials (fabric) were from its five largest suppliers, with the largest such supplier accounting for approximately 34% 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 become unavailable. Product development and administration are primarily coordinated from the Company's headquarters facility in Oshkosh, WI or its regional office in New York City. The majority of the product engineering and sample making, allocation of production among plants and independent contractors, material purchases and invoice payments is done through the Company's Oshkosh headquarters. Substantially all designs and specifications utilized by independent manufacturers are provided by the Company. Approximately 47% of the Company's product line (excluding footwear) is produced at Company-owned facilities, with the remainder produced by numerous third party contractors throughout the world, in accordance with the Company's specifications. Most domestic production takes place in the Company's four Tennessee and two Kentucky plants. The Company also leases a sewing plant in Honduras, where cut apparel pieces are received from the United States and are reimported by OshKosh B'Gosh as finished goods under Section 9802 (previously Section 807). In 1997, as part of the Company's review of manufacturing capacity and utilization, the Company completed the closure of certain domestic manufacturing facilities and continued to expand its use of offshore manufacturing capabilities. These actions were part of the Company's on-going effort 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. If the current financial and related difficulties were to adversely impact the Company's contractors in Asia, 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 has 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. In order to realize economies of operation within the domestic production facilities, cutting operations are located in one of the Company's six plants, with all domestic product washing, pressing and finishing done in one facility in Tennessee and all screenprint and embroidery done in one facility in Kentucky. Quality control inspections of both semi-finished and finished products are required at each plant, including those of independent manufacturers, 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 1997, the Company's products were sold to approximately 2,400 wholesale customers (approximately 9,900 stores) throughout the United States, and a sizable number of international accounts. Product sales to better quality department and specialty stores are made primarily by an employee sales force with the balance of sales made by manufacturer's representatives or through in-house accounts. In addition to the central sales office in Oshkosh, the Company maintains regional sales offices and product showrooms in Dallas and New York. Most members of the Company's sales force are assigned to defined geographic territories, with some assigned to specific large national accounts. 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 119 Company-owned domestic retail stores, operating under two formats: factory outlet stores and mall-based specialty stores. The Company operates 111 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. In addition, the Company operates seven regional mall- based stores and one showcase store. These full price, full service stores feature a full 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's broad distribution base insulates the Company from reliance on any one customer. The Company's largest wholesale customer accounted for 11% of the Company's 1997 sales, while the Company's largest ten and largest 100 customers accounted for approximately 41% and 56% of 1997 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 also offers a cooperative advertising program to its retail customers, paying a portion of its retail customers' advertising expenditures up to a maximum percentage of qualifying sales. International Licensing and Distribution The Company's products are distributed worldwide through approximately 40 licensees and distributors in over 80 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 insure 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 OshKoshr, OshKosh B'Goshr, Baby B'Goshr, Genuine Girlr or Genuine Bluesr trademarks on most of its products. Other significant trademarks include a white triangular patch on the back of bib garments and the Genuine Articler. The Company currently has approximately 40 trademark registrations and 6 pending trademark applications in the United States and has trademark registrations in 94 countries outside the U.S. These trademarks and universal 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: PRIMARY RETAIL SALES SEASON BOOKING PERIOD SHIPPING PERIOD Spring/Summer August-September January-April Fall/Back-to-School January-February May-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 1998 quarterly sales and income. Working Capital Working capital needs are affected primarily by inventory levels, outstanding accounts receivable and trade payables. The Company maintains a credit agreement with a number of banks which provides a $60 million revolving credit facility and a $40 million revocable demand line of credit for cash borrowings, issuance of commercial paper and letters of credit. The agreement expires in June, 2000. There were no outstanding borrowings against these credit arrangements at December 31, 1997. Letters of credit of approximately $28 million were outstanding at December 31, 1997. 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 offers net 30 days terms only. The Company believes that its working capital requirements and financing resources are comparable with those of other major, financially sound apparel companies. Backlog The dollar amount of 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 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 31, 1997, the Company employed approximately 4,000 persons. Approximately 22% of the Company's personnel are covered by collective bargaining agreements with the United Garment Workers of America. ITEM 2. PROPERTIES Approximate Floor Area in Location Square Feet Principal Use Albany, KY 20,000 Manufacturing Byrdstown, TN 32,000 Manufacturing Celina, TN 38,250 Vacant Celina, TN 90,000 Laundering/Pressing Dallas, TX (1) 1,995 Sales Offices/Showroom Gainesboro, TN 61,000 Manufacturing Jamestown, TN 43,000 Manufacturing Liberty, KY 218,000 Manufacturing/Warehousing Liberty, KY (2) 32,000 Sub-leased to Outside Party New York City, NY (3) 18,255 Sales Offices/Showroom Oshkosh, WI 99,000 Exec. & Operating Offices Oshkosh, WI 88,000 Leased to Outside Party Oshkosh, WI 128,000 Distribution/Warehousing Red Boiling Springs, TN 41,000 Leased to Outside Party White House, TN 284,000 Distribution/Warehousing All properties are owned by the Registrant with the exception of: (1) Lease expiration date--1998, (2) Lease expiration date--1999, (3) Lease expiration date--2007. 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 determined that it no longer required the manufacturing capacity of its plants in Celina TN, Columbia KY, Oshkosh WI and Red Boiling Springs TN. These facilities were closed in 1996 or early 1997. In 1996, the carrying value of these facilities was written down to their net realizable value. In 1997, the Columbia, KY facility and a portion of the Celina, TN facility were sold to outside parties. During 1996, the Company experienced increasing difficulties in selling its idle manufacturing facilities and equipment, necessitating that the Company reevaluate the fair market value of its remaining manufacturing property and equipment. The Company recorded significant special charges during the fourth quarter of 1996 related to the impairment of assets. All impacted manufacturing assets being used in production have been written down to management's estimate of fair value. See Item 7, " Management's Discussion and Analysis of Results of Operations and Financial Conditions" and "Special Charges" in the Notes to the Consolidated Financial Statements included in Item 8. Substantially all of the Company's retail stores occupy leased premises, with lease terms generally in the range of 5 - 7 years. During 1996, the Company reached agreements concerning the termination of substantially all Genuine Kids retail store leases. Costs incurred to settle the remaining lease obligations were included in the special charges recorded by the Company in 1996. For further information regarding the terms of the leases and rental payments thereunder, refer to "Leases" in the Notes to the Consolidated Financial Statements included in Item 8 of this filing. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are not parties to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Quarterly Common Stock Data 1997 1996 Dividends Dividends High Low per share High Low per share Class A Common Stock 1st $17-1/8 $13-3/4 $ 0.07 $17-1/2 $14-1/8 $0.07 2nd 21-3/4 15-1/2 0.07 18-1/4 14-1/8 0.07 3rd 28-1/8 21-1/8 0.07 18-1/4 15-1/2 0.07 4th 35-9/16 26-3/4 0.07 17 14 0.07 Class B Common Stock 1st $19-1/2 $19-1/8 $0.06 $19-1/2 $18-1/2 $0.06 2nd 19-1/8 19-1/8 0.06 19-3/8 18-3/4 0.06 3rd --- --- 0.06 19-1/4 18-3/4 0.06 4th --- --- 0.06 19 18-7/8 0.06 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. Prior to June 30, 1997, the Company's Class B common stock traded on the Over-The- Counter market and was quoted on NASDAQ under the symbol GOSHB. As of February 10, 1998, there were 1,322 Class A common stock shareholders of record and 157 Class B common stock shareholders of record. ITEM 6. SELECTED FINANCIAL DATA Financial Highlights (Dollars in thousands, except per share amounts) Year ended December 31, 1997 1996 1995 1994 1993 Financial results Net sales $395,196 $444,766 $432,266 $363,363 $340,186 Net income 22,558 1,119 10,947 7,039 4,523 Return on sales 5.7% 0.3% 2.5% 1.9% 1.3% Financial condition Working capital $ 82,762 $104,641 $ 95,414 $101,946 $111,794 Total assets 174,788 196,033 208,579 217,211 229,131 Shareholders' equity 113,157 138,077 150,078 158,814 171,998 Data per common share Net income Basic $ 2.05 $ .09 $ .85 $ .50 $ .31 Diluted 2.03 .09 .85 .50 .31 Cash dividends declared Class A .28 .28 .28 .3775 .5125 Class B .24 .24 .24 .33 .45 Shareholders' equity 11.48 11.72 12.05 11.76 11.79 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 Years Ended December 31, 1997 1996 1995 Net sales 100.0% 100.0% 100.0% Cost of products sold 63.5% 67.6% 68.2% Gross profit 36.5% 32.4% 31.8% Selling, general and administrative expenses 29.2% 27.4% 27.9% Special charges -- 7.4% 0.6% Royalty income, net (2.0%) (1.4%) (1.3%) Operating income (loss) 9.3% (1.0%) 4.6% Other income--net 0.3% 0.1% 0.1% Income (loss) before income taxes 9.6% (0.9%) 4.7% Income taxes (benefit) 3.9% (1.2%) 2.2% Net income 5.7% 0.3% 2.5% 1997 Compared to 1996 Net Sales Net sales in 1997 were $395.2 million, a $49.6 million (11.2%) decrease as compared to 1996 net sales of $444.8 million. A summary of the Company's net sales for the years ended December 31, 1997 and 1996 follows: Net Sales (in millions) Domestic Wholesale Retail International Other Total 1997 $214.1 $173.9 $ 7.2 -- $395.2 1996 257.1 160.5 24.5 2.7 444.8 Increase decrease) (43.0) 13.4 (17.3) (2.7) (49.6) Percent increase (decrease) (16.7%) 8.3% (70.6%) -- (11.2%) The Company's 1997 domestic wholesale unit shipments were down approximately 19.2% from 1996. This decrease in unit shipments for 1997 resulted primarily from a combination of the Company's strategic decision to reduce distribution and a significant reduction in unit shipments of close-out merchandise. Shipments of first quality garments during 1997 were down approximately 14.7% as compared to 1996. The Company's retail sales for the years ended December 31, 1997 and 1996 are summarized as follows: Retail Net Sales Summary (in millions) OshKosh Genuine Kids Total Stores Stores 1997 $ 173.9 $ -- $ 173.9 1996 126.6 33.9 160.5 Increase (decrease) 47.3 (33.9) 13.4 Percent increase 37.4% -- 8.3% Comparable store sales increase 24.5% -- The Company's 1997 increased retail sales at its OshKosh B'Gosh stores resulted from both the conversion and combination of a total of 22 Genuine Kids stores in early January 1997, as well as comparable store sales gains. The 24.5% comparable store sales gain reported in 1997 reflected both an increase in sales of OshKosh B'Gosh branded products, along with the introduction of an expanded retail product line to include bigger sizes under the labels Genuine Girl (girls sizes 7-16) and Genuine Blues (boys sizes 8-16). Net sales of Genuine labeled products were approximately $22.1 million during 1997, representing approximately 12.7% of total Company retail sales at Company operated stores. During 1997, the Company opened 10 OshKosh B'Gosh stores, converted 15 Genuine Kids stores to OshKosh stores, combined 7 Genuine Kids stores into an existing OshKosh store (the Genuine Kids store was immediately adjacent to the OshKosh store), closed 6 OshKosh stores and closed the remaining 36 Genuine Kids stores (all Genuine Kids stores were closed in early January). At December 31, 1997, the Company operated 119 domestic OshKosh retail stores, including 111 outlet stores and 8 showcase stores. Gross Profit The Company's gross profit margin as a percent of net sales increased to 36.5% in 1997 compared with 32.4% in 1996. This gross profit margin improvement was due to continued implementation and execution of the Company's sourcing strategy, improved operating efficiencies at the Company's five remaining domestic sewing facilities, a substantial reduction in the sale of close-out merchandise during 1997, and the impact of the Company's increased retail sales at higher gross margins as compared to the wholesale business. During 1997, approximately 47% of units sourced were in the Company's domestic facilities as compared to 65% in 1996. Selling, General & Administrative Expenses (S,G&A) The Company's S,G&A expenses for 1997 of $115.4 million were $6.7 million less than 1996 S,G&A expenses of $122.1 million (excluding special charges). This decrease was directly attributable to the discontinuance of the Company's direct operations in Europe, elimination of the Genuine Kids retail store chain, and decreased volume in the Company's wholesale business. As a percent of net sales, S,G&A expenses were 29.2% in 1997 as compared to 27.4% in 1996 (excluding special charges). The primary reasons for the increased S,G&A expenses as a percent of net sales were the decrease in 1997 net sales without a proportionate decrease in the fixed element of the Company's S,G&A cost structure, combined with the impact of the Company's increased retail volume and related higher S,G&A costs as compared to the wholesale business. Special Charges During 1996, the Company recorded special charges related to the discontinuance of the Genuine Kids retail store chain and European subsidiaries, the closing of three domestic sewing facilities, and the write-down of the Company's remaining manufacturing facilities and related assets to management's estimate of fair value. During 1997, the Company continued to execute its plan to eliminate underperforming elements of the Company's business and to adjust its domestic manufacturing capacity to improve manufacturing efficiency. The Company has completed substantially all strategic changes related to the special charges, and is not currently anticipating any increase in the amount of special charges recorded during 1996. In total, cash outlays of approximately $7.2 million related to these 1996 special charges were more than offset by the cash generated from the corresponding income tax benefit and asset sales. No additional material cash outlays are anticipated related to the 1996 special charges. 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 $7.9 million in 1997, a $1.8 million increase over 1996 net royalty income of $6.1 million. Royalty income from domestic licensees was approximately $2.6 million in 1997 as compared to $2.8 million in 1996. Royalty income from foreign licensees was approximately $5.3 million in 1997 as compared to $3.3 million in 1996. The Company's 1997 increase in royalty income related to foreign licensees was due primarily to the Company's conversion of its European business to a licensee, along with growth in other foreign markets. Operating Income The Company's 1997 operating income of $36.9 million compares to a 1996 operating loss of $4.6 million. Excluding the impact of the special charges recorded in 1996, the Company's operating income was $28.3 million in 1996. Other Income--Net The Company's 1997 interest expense decreased to $0.3 million as compared to $1.1 million in 1996. Interest income increased to $1.8 million in 1997 as compared to $1.3 million in 1996. The decrease in interest expense and increase in interest income both relate to the significantly higher level of cash and short-term investments carried by the Company throughout the first ten months of 1997 as compared to 1996. Income Taxes The Company's 1997 effective tax rate was approximately 41%. For 1996, the Company recorded a $5.2 million income tax benefit, which included an approximate $4.5 million income tax benefit resulting from the recognition of previously unrecorded U.S. tax benefits related to the discontinuance of the Company's European subsidiaries. The remaining 1996 tax benefit related to the Company's net loss from operations. Net Income Net income for the year ended December 31, 1997 of $22.6 million was a $21.5 million increase over net income for the year ended December 31, 1996 of $1.1 million. Excluding the special charges recorded by the Company in 1996, the Company's 1997 net income increase was $6.3 million (38.7%) over 1996. 1997 diluted earnings per share of $2.03 compares to $.09 per share in 1996. 1996 Compared to 1995 Net Sales Net sales in 1996 were $444.8 million, an increase of $12.5 million (2.9%) over 1995 net sales of $432.3 million. The Company's 1996 domestic wholesale business of approximately $250.5 million was 1.8% less than 1995 sales of approximately $255 million. Shipments for 1996 were up 1.9% over 1995 unit shipments. The decrease in dollar sales in 1996 was due primarily to lower fall back-to-school (shipped primarily during the Company's third quarter) and holiday (shipped during the Company's third and fourth quarters) season order bookings, combined with higher than anticipated order cancellations. Order cancellations during the second half of 1996 resulted from a combination of relatively weak retail "sell-thrus" at the Company's retail customers (which occurred during the first half of 1996), along with the implementation of the Company's strategic direction to limit wholesale distribution. Actual unit shipments during 1996 were slightly higher than in 1995 due to higher shipments of close-out merchandise at significantly lower prices. The Company experienced a 29.8% increase in retail sales at its OshKosh B'Gosh branded stores in 1996 over 1995 amounts due to a combination of new store openings, conversion of and combination with certain Genuine Kids stores into OshKosh stores, as well as a 13.1% increase in comparable store sales. During 1996, the Company opened 15 OshKosh B'Gosh stores, converted 4 Genuine Kids stores to OshKosh stores, combined 1 Genuine Kids store into an OshKosh store (the Genuine Kids store was immediately adjacent to the OshKosh store), and closed 29 Genuine Kids stores. At December 31, 1996, the Company operated 100 domestic OshKosh retail stores, including 95 outlet stores and 5 showcase stores. At December 31, 1996, the Company was also operating 58 Genuine Kids stores. Gross Profit The Company's gross profit margin as a percent of net sales increased to 32.4% in 1996 compared with 31.8% in 1995. This gross profit margin improvement was due to the impact of the Company's increased retail sales at higher gross margins relative to its domestic wholesale business, offset in part by lower domestic wholesale business gross profit margins. The Company's gross profit margins for its domestic wholesale business during 1996 were adversely affected by a much higher sales level of close-out merchandise. Selling, General & Administrative Expenses Selling, general and administrative expenses (excluding special charges) for 1996 increased $1.5 million over 1995. As a percent of net sales, these costs decreased to 27.4% as compared to 27.9% in 1995 due to increased sales. The increase in selling, general and administrative expenses in dollars relates primarily to continued expansion of the Company's retail operations, offset in part by the discontinuance of the Company's catalog business in late 1995. Special Charges During the second quarter of 1996, the Company recorded pre-tax special charges of $20.9 million which, net of income tax benefits, reduced net income by $8 million ($.65 per share). The special charges related to the discontinuance of the Company's Genuine Kids retail store chain, the wind-down of the Company's European subsidiaries and transfer of the European business to a licensee, and the closing of the Red Boiling Springs and Celina, Tennessee sewing facilities. These actions eliminated the under performing Genuine Kids and European components of the Company's business. The plant closings are a part of the Company's on- going review of its manufacturing capacity, operational effectiveness, and alternative sourcing opportunities. During the second half of 1996, the Company began to execute its plan to discontinue the Company's Genuine Kids retail store chain, wind-down the Company's European subsidiaries and transfer the European business to a licensee, and close its manufacturing facilities in Red Boiling Springs and Celina, Tennessee. Severance and related benefits for approximately 1,100 affected employees total approximately $3.9 million. The second quarter 1996 special charges included approximately $6.9 million related to other exit costs, including estimated lease settlements and anticipated costs to dispose of certain operating assets as part of the exit plan, and $2.0 million related to anticipated losses on inventory disposals. The second quarter 1996 special charges also included approximately $8.1 million related to impaired assets, recognized in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." The Company's decision to implement the aforementioned changes resulted in unamortized retail leasehold improvements and excess manufacturing space in Tennessee. All assets held for sale but not disposed of were written down to management's estimate of fair value as part of the special charges. The wind-down of the European entities permitted the recognition of certain U.S. tax deductions previously unrecognized, resulting in an approximate $4.5 million income tax benefit. This income tax benefit, along with the $8.4 million income tax credit resulting from the special charges, reduced the net impact on Company earnings by $12.9 million. During the second half of 1996, the Company experienced increasing difficulties in selling its idle manufacturing facilities and equipment. In addition, in October 1996 a long- standing customer contract for apparel finishing services was not renewed, creating significant excess capacity in the Company's garment finishing facility. These events along with related adverse changes in the economic environment affecting U.S. apparel manufacturers necessitated that the Company reevaluate the fair market value of its remaining manufacturing property and equipment in the fourth quarter of 1996. As a result of this analysis, and a decision to close the Company's Columbia, Kentucky sewing facility, the Company recorded pre-tax special charges of $12 million in the fourth quarter which, net of income tax benefits, reduced net income by $7.2 million ($.58 per share). The special charge included asset impairments of approximately $9.5 million and severance and related benefits for approximately 500 manufacturing employees totaling approximately $2.5 million. All impacted manufacturing assets being used in production were written down to management's estimate of fair value as part of this special charge. During the third quarter of 1995, the Company recorded a pre-tax charge for plant closings of $2.7 million. This plant closing charge (net of income tax benefit) reduced net income by $1.6 million ($.13 per share) in 1995. The $2.7 million pre-tax charge for plant closings included approximately $1.9 million of severance and related costs pertaining to work force reductions as well as $0.8 million for facility closings and the write-down of related assets. These plant closings were completed in early 1996, with no material changes in cost to fully effect these actions. The Company's cash expenditures (net of income tax benefit) to carry out these plant closings were approximately $1 million. 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 $6.1 million in 1996, a $0.4 million increase over 1995 net royalty income of $5.7 million. Royalty income from domestic licensees was approximately $2.8 million in both 1996 and 1995. Royalty income from foreign licensees was approximately $3.3 million in 1996 as compared to $2.9 million in 1995. Operating Income The Company's 1996 operating loss of $4.6 million was $24.5 million lower than 1995 operating income. Excluding the impact of the special charges recorded in 1996 and 1995, the Company's operating income increased to $28.3 million as compared to $22.6 million in 1995. Income Taxes The Company recorded a $5.2 million income tax benefit during 1996, which includes an approximate $4.5 million income tax benefit resulting from the recognition of previously unrecorded U.S. tax benefits related to the discontinuance of the Company's European subsidiaries. The remaining 1996 tax benefit relates to the Company's net loss from operations during 1996. The Company's effective tax rate for 1995 was 45.8%. This relatively high effective tax rate resulted primarily from the Company's foreign operating losses (principally in Europe) which provided no tax benefit. 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 outlet 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 outlet store sales during this period. The Company anticipates this seasonality trend to continue to impact 1998 quarterly sales and income. Change in Fiscal Year Effective January 1, 1998, the Company has changed its fiscal year to a 52/53 week period ending on the Saturday closest to December 31. Accordingly, for 1998 the quarter end dates will be April 4, July 4, October 3 and January 2, 1999. The Company does not currently anticipate that this change will have any material impact on the comparability of its quarterly and full year earnings in 1998 as compared to 1997. Year 2000 Considerations The Company is undertaking actions to determine that its computer related systems are capable of processing periods for the year 2000 and beyond. The Company has assessed and continues to assess the impact of Year 2000 considerations on its operations. To date, the Company has determined that costs related to programming and related changes will not have a material impact on its ongoing results of operations. The Company is also in the process of assessing the impact of its vendors' and customers' compliance to Year 2000 issues and the potential impact on the Company's ongoing results of operation. Financial Position, Capital Resources and Liquidity The Company's financial position remains strong, as demonstrated by its balance sheet. The Company had no outstanding long-term debt at December 31, 1997 or 1996. At December 31, 1997, the Company's cash, cash equivalents and short-term investments were $22.5 million, compared to $41.2 million at the end of 1996. This reduction is attributable to the Company's stock repurchases, offset in part by cash generated from operations combined with modest capital expenditures and proceeds from the disposal of assets. Net working capital at the end of 1997 was $82.8 million compared to $104.6 million at December 31, 1996, and $95.4 million at 1995 year end. Cash provided by operations amounted to approximately $35.9 million in 1997, compared to $55.6 million in 1996 and $19.5 million in 1995. Accounts receivable at December 31, 1997 were $23.3 million compared to $20.5 million at December 31, 1996. This increase is primarily attributable to increased wholesale shipments in December 1997 as compared to December 1996. Inventories at December 31, 1997 were $68.2 million, compared to $66.8 million at the end of 1996. Management believes that year end 1997 inventory levels are generally appropriate for anticipated 1998 business activities. Capital expenditures were $6.6 million in 1997, compared with $7.3 million in 1996 and $9.7 million in 1995. In August, 1997 the Company purchased approximately 1,657,000 shares of its Class A common stock and approximately 42,000 shares of its Class B common stock under the terms of its Dutch auction tender offer for approximately $37.7 million. Under the terms of the Dutch auction tender offer, all shares were purchased at $22 per share. On August 25, 1997, the Company's Board of Directors authorized an additional 500,000 share repurchase program of the Company's Class A common stock. Through December 31, 1997, the Company repurchased 141,500 shares of its Class A common stock under this program for approximately $4.6 million. The Company has a credit agreement with participating banks. This arrangement provides a $60 million revolving credit facility and a $40 million revocable demand line of credit for cash borrowings, issuance of commercial paper and letters of credit. The agreement expires in June, 2000. 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, remaining special charges, and business development needs. Dividends on the Company's Class A and Class B common stock totaled $.28 per share and $.24 per share, respectively, in 1997 and 1996. Inflation The effects of inflation on the Company's operating results and financial condition were not significant. Outlook The information contained in this outlook section is based on current assumptions and expectations. This information is forward-looking and as such, is subject to certain risks and uncertainties. Actual results may differ materially. The Company's 1996 comprehensive strategic planning initiative identified, among other things, that the Company's children's wear products had become widely distributed in the United States. Management then reached a strategic decision to shrink distribution over a two year period and continues to complete the process of reducing its distribution. As a result, the Company anticipates a slight reduction in its wholesale business for the first quarter of 1998. Preliminary order bookings for the Company's fall back-to-school season indicate that the Company's wholesale unit shipments for the third quarter of 1998 are estimated to be up approximately 4% over the third quarter of 1997. Actual unit shipments during these periods are contingent on a number of factors, including the Company's ability to manufacture or source products in a time frame which permits on- time shipments, the financial strength of the retail industry, the level of consumer spending for apparel, particularly in the children's wear segment, as well as overall consumer acceptance of the Company's product styling. Current Company plans for 1998 call for the addition of approximately 8 new OshKosh B'Gosh retail stores. For 1998, the Company currently anticipates comparable store sales gains in the middle single digit range. The Company's gross profit margin is impacted by a number of factors, including product mix, the competitive pricing environment within the children's wear segment of the apparel industry, unit volume of products "closed out" at significantly reduced prices, and the Company's ability to successfully move labor intensive segments of the manufacturing process offshore. The Company currently anticipates continued modest improvement in its gross profit margin during 1998 as compared to 1997. The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. The Company currently anticipates an increase in its net royalty income from licensees of approximately 15%. The Company currently expects its effective tax rate to be approximately 40% for 1998. This estimate is based on current tax law and is subject to change. Capital expenditures for 1998 are currently budgeted at approximately $13.0 million, including an approximate $8.0 million related to an upgrade of the Company's distribution systems and White House, Tennessee distribution facilities. Depreciation and amortization expense is currently estimated to be approximately $9.0 million. The Company's future results of operations and the other forward- looking statements contained in this outlook section involve a number of risks and uncertainties. In addition to the factors discussed above, other factors could cause actual results to differ materially. Such factors include, but are not limited to, business conditions and the general economy, competitive factors, risk of non-payment of accounts receivable, failure of Company suppliers to timely deliver needed raw materials, as well as risks associated with foreign operations. In addition, the inability to ship Company products within agreed time frames due to unanticipated manufacturing delays or the failure of Company contractors to deliver products within scheduled time frames, 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. If the current financial and related difficulties were to adversely impact the Company's contractors in the Asia region, 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 such forward-looking statements to reflect subsequent events or circumstances. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Financial Statements: Report of Independent Auditors 28 Consolidated Balance Sheets - December 31, 1997 and 1996 29 Consolidated Statements of Income - years ended December 31, 1997, 1996 and 1995 30 Consolidated Statements of Changes in Shareholders' Equity - years ended December 31, 1997, 1996 and 1995 31 Consolidated Statements of Cash Flows - years ended December 31, 1997, 1996 and 1995 32 Notes to Consolidated Financial Statements 33 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors OshKosh B'Gosh, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of OshKosh B'Gosh, Inc. and Subsidiaries (the Company) as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overal financial statement presentation. We believe that our audits provide a reasonable basis of 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 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. ERNST & YOUNG LLP Milwaukee, Wisconsin January 30, 1998 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except share and per share amounts) December 31, 1997 1996 ASSETS Current assets Cash and cash equivalents $ 13,779 $ 31,201 Short-term investments 8,700 10,040 Accounts receivable, less allowances of $4,225 in 1997 and $5,474 in 1996 23,278 20,504 Inventories 68,226 66,799 Prepaid expenses and other current assets 1,265 1,890 Deferred income taxes 15,800 18,500 Total current assets 131,048 148,934 Property, plant and equipment, net 32,955 41,782 Deferred income taxes 5,500 3,400 Other assets 5,285 1,917 Total assets $174,788 $196,033 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 10,273 $ 5,408 Accrued liabilities 38,013 38,885 Total current liabilities 48,286 44,293 Employee benefit plan liabilities 13,345 13,663 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 -- 8,672,903 shares in 1997, 10,525,571 shares in 1996 87 105 Class B, authorized -- 3,750,000 shares; Issued and outstanding -- 1,182,282 shares in 1997, 1,260,704 shares in 1996 12 13 Retained earnings 113,058 137,349 Cumulative foreign currency ranslation adjustments -- 610 Total shareholders' equity 113,157 138,077 Total liabilities and shareholders' equity $174,788 $196,033 See notes to consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollars in thousands, except per share amounts) Year ended December 31, 1997 1996 1995 Net sales $395,196 $444,766 $432,266 Cost of products sold 250,815 300,495 294,770 Gross profit 144,381 144,271 137,496 Selling, general and administrative expenses 115,439 122,055 120,589 Special charges and plant closings -- 32,900 2,700 Royalty income, net (7,945) (6,100) (5,737) Operating income (loss) 36,887 (4,584) 19,944 Other income (expense): Interest expense (305) (1,088) (1,772) Interest income 1,797 1,326 1,383 Miscellaneous (192) 249 633 Other income - net 1,300 487 244 Income (loss) before income taxes 38,187 (4,097) 20,188 Income taxes (benefit) 15,629 (5,216) 9,241 Net income $ 22,558 $ 1,119 $ 10,947 Net income per common share Basic $ 2.05 $ .09 $ .85 Diluted 2.03 .09 .85 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)
Cumulative Foreign Common Stock Additional Currency Class A Class B Paid-In Retained Translation Shares Amount Shares Amount Capital Earnings Adjustments Balance-December 31, 1994 12,234 $122 1,268 $13 $ -- $158,933 $(254) Net income -- -- -- -- -- 10,947 -- Dividends - Class A ($.28 per share) -- -- -- -- -- (3,260) -- ) - Class B ($.24 per share) -- -- -- -- -- (304) -- Foreign currency translation adjustments -- -- -- -- -- -- 487 Conversions of common shares 2 -- (2) -- -- -- -- Repurchase of common shares, net (1,046) (10) -- -- -- (16,596) -- Balance-December 31, 1995 11,190 112 1,266 13 -- 149,720 233 Net income -- -- -- -- -- 1,119 -- Dividends - Class A ($.28 per share) -- -- -- -- -- (3,091) -- - Class B ($.24 per share) -- -- -- -- -- (303) -- Foreign currency translation adjustments -- -- -- -- -- -- 377 Conversions of common shares 5 -- (5) -- -- -- -- Stock options exercised 3 -- -- -- 45 -- -- Repurchase of common shares, net (673) (7) -- -- (45) (10,096) -- Balance-December 31, 1996 10,525 105 1,261 13 -- 137,349 610 Net income -- -- -- -- -- 22,558 -- Dividends - Class A ($.28 per share) -- -- -- -- -- (2,698) -- - Class B ($.24 per share) -- -- -- -- -- (293) -- Foreign currency translation adjustments -- -- -- -- -- -- (610) Conversions of common shares 37 -- (37) -- -- -- -- Stock options exercised 9 -- -- -- 126 -- -- Repurchase of common shares (1,898) (18) (42) (1) (126) (43,858) -- Balance-December 31, 1997 $8,673 $ 87 $1,182 $12 $-- $113,058 $ --
See notes to consolidated financial statements OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in thousands) Year Ended December 31, 1997 1996 1995 Cash flows from operating activities Net income $ 22,558 $ 1,119 $ 10,947 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 12,301 10,998 10,591 Amortization 707 712 765 Loss on disposal of assets 275 242 79 Provision for deferred income taxes 600 (13,200) (59) Benefit plan expense, net of contributions (318) 1,827 (1,331) Special charges and plant closings -- 32,900 2,700 Changes in operating assets and liabilities: Accounts receivable (2,774) 4,187 (834) Inventories (1,427) 28,944 (1,827) Prepaid expenses and other current assets 625 1,237 (617) Accounts payable 4,865 (8,502) 4,474 Accrued liabilities (1,482) (4,847) (5,416) Net cash provided by operating activities 35,930 55,617 19,472 Cash flows from investing activities Additions to property, plant and equipment (6,602) (7,274) (9,728) Proceeds from disposal of assets 2,853 3,246 3,722 Sale (purchase) of short-term investments, net 1,340 (10,040) -- Changes in other assets (4,075) 731 (1,392) Net cash used in investing activities (6,484) (13,337) (7,398) Cash flows from financing activities Dividends paid (2,991) (3,394) (3,564) Repurchase of common shares, net (43,877) (10,103) (16,606) Net cash used in financing activities (46,868) (13,497) (20,170) Net increase (decrease) in cash and cash equivalents (17,422) 28,783 (8,096) Cash and cash equivalents at beginning of year 31,201 2,418 10,514 Cash and cash equivalents at end of year $ 13,779 $ 31,201 $ 2,418 Supplementary disclosures Cash paid for interest $ 178 $ 948 $ 1,547 Cash paid for income taxes $ 13,565 $ 5,213 $ 8,544 See notes to consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share and 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 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. 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 and cash equivalents are stated at cost, which approximates market value. Short-term investments - Short-term investments are classified as available-for-sale securities and are highly liquid debt instruments. These securities have a put option feature that allows the Company to liquidate the investments at their discretion and are backed by a letter of credit from financial institutions. These investments are stated at cost, which approximates market value. Inventories - Inventories are stated at the lower of cost or market. Inventories stated on the last-in, first-out (LIFO) basis represent 99.8% of total 1997 and 99.0% of total 1996 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. Depreciation and amortization for financial reporting purposes is 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 Foreign currency translation - The functional currency for certain foreign subsidiaries was the local currency. Accordingly, assets and liabilities were translated at year end exchange rates, and income statement items were translated at average exchange rates prevailing during the year. Such translation adjustments were recorded as a separate component of shareholders' equity. Revenue recognition - Revenue within wholesale operations is recognized at the time merchandise is shipped to customers. Retail store revenues are recognized at the time of sale. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising - Advertising costs are expensed as incurred and totaled $11,165, $11,448, and $12,213 in 1997, 1996, and 1995, respectively. Earnings per share - In February, 1997 the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings per Share," which specifies the computation, presentation and disclosure requirements of earnings per share. All earnings per share amounts for all periods have been presented to conform to SFAS No. 128 disclosure requirements. The numerator for the calculation of basic and diluted earnings per share is net income. The denominator is computed as follows (in thousands): 1997 1996 1995 Denominator for basic earnings per share--weighted average shares 11,017 12,339 12,865 Employee stock options (treasury stock method) 75 8 4 Denominator for diluted earnings per share 11,092 12,347 12,869 Fiscal year - In November, 1997 the Company approved a change in its fiscal year from a calendar year to a 52/53 week year ending on the Saturday closest to December 31, beginning in 1998. Pending accounting standard - In June, 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes the standards for the manner in which public enterprises are required to report financial and descriptive information about their operating segments. The statement defines operating segments as components of an enterprise for which separate financial information is available and evaluated regularly as a means for assessing segment performance and allocating resources to segments. A measure of profit or loss, total assets and other related information are required to be disclosed for each operating segment. In addition, this statement requires the annual disclosure of information concerning revenues derived from the enterprise's products or services, countries in which it earns revenue or holds assets, and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131 will not affect the Company's results of operations or financial position, but may affect the disclosure of segment information. Note 2. Special charges During the second half of 1996, the Company experienced increasing difficulties in selling its idle manufacturing facilities and equipment. In addition, in October 1996 a long standing customer contract for apparel finishing services was not renewed, creating significant excess capacity in the Company's garment finishing facility. These events along with related adverse changes in the economic environment affecting U.S. apparel manufacturers necessitated that the Company reevaluate the fair market value of its remaining manufacturing property and equipment in the fourth quarter of 1996. As a result of this analysis, and a decision to close the Company's Columbia, Kentucky sewing facility, the Company recorded pre-tax special charges of $12,000 in the fourth quarter of 1996 which, net of income tax benefits, reduced net income by $7,200 ($.58 per share). The special charge included asset impairments of approximately $9,500 and severance and related benefits for approximately 500 manufacturing employees totaling approximately $2,500. All impacted manufacturing assets being used in production were written down to management's estimate of fair value (approximately $10,900) as part of this special charge. During the second quarter of 1996, the Company recorded special charges of $20,900 which amounted to $8,000 ($.65 per share), net of tax benefits, related to the discontinuance of the Company's Genuine Kids retail store chain, wind-down of the Company's European subsidiaries and transfer of the European business to a licensee, and the closing of its Red Boiling Springs and Celina, Tennessee sewing facilities. These actions eliminate the underperforming Genuine Kids and European components of the Company's business. The plant closings accelerated the Company's strategic direction to source product based solely on price, quality and delivery factors, which has resulted in more product being sourced outside of the United States. These decisions affected approximately 1,100 employees, including approximately 500 retail store employees throughout the United States, approximately 550 manufacturing employees from the Company's plants in Tennessee, and approximately 50 employees from the Company's European subsidiaries. This special charge included severance and related benefits totaling approximately $3,900. The second quarter special charges included approximately $6,900 related to other exit costs, including estimated lease settlements and anticipated costs to dispose of certain operating assets as part of the exit plan and $2,000 related to anticipated losses on inventory disposals. Through December 31, 1997, approximately $5,500 of these other exit costs have been incurred. The special charges also included approximately $8,100 related to impaired assets, recognized in accordance with SFAS No. 121. The Company's decision to implement the aforementioned changes resulted in unamortized retail leasehold improvements and excess manufacturing space in Tennessee. In 1997, the Company sold or entered into agreements to sell its excess manufacturing space. The wind-down of the European entities permitted the recognition of certain U.S. tax deductions previously unrecognized, resulting in an approximate $4,500 income tax benefit. This income tax benefit, along with the $8,400 income tax credit resulting from the special charges, reduced the net impact on Company earnings in 1996 by $12,900. The Company has completed substantially all of the strategic changes related to these special charges, and is not currently anticipating any increase in the amount of special charges recorded in 1996. In total, all 1996 special charges cash outlays of $7,200 were more than offset by the cash generated from the income tax benefit and asset sales. No additional material cash outlays are anticipated related to the 1996 special charges. During the third quarter of 1995, the Company recorded a pre-tax charge for plant closings of $2,700. This plant closing charge (net of income tax benefit) reduced net income by $1,600 ($.13 per share) in 1995. As a part of the Company's ongoing review of its manufacturing capacity, operational effectiveness, and alternative sourcing opportunities, the Company decided to close its Hermitage Springs and McEwen, Tennessee facilities and downsize its Oshkosh, Wisconsin sewing facility. The $2,700 pre-tax charge for plant closings included approximately $1,900 of severance and related costs pertaining to workforce reductions as well as $800 for facility closings and the write-down of the related assets. These plant closings were completed in early 1996, with no material changes in previously estimated costs to fully effect these plant closings. The Company's cash expenditures (net of income tax benefit) to carry out these plant closings were approximately $1,000. The remaining reserve at December 31, 1997 of approximately $500 is expected to be settled in cash. These special charges and plant closings are based on management's best estimates of costs related to these decisions. The actual costs the Company will ultimately incur are dependent on certain risks and uncertainties and could differ from the amounts used to record the estimated effect of these decisions. Note 3. Inventories A summary of inventories follows: December 31, 1997 1996 Finished goods $49,400 $51,584 Work in process 14,782 10,698 Raw materials 4,044 4,517 Total $68,226 $66,799 The replacement cost of inventory exceeds the above LIFO costs by $14,138 and $15,100 at December 31, 1997 and 1996, respectively. Partial liquidation of certain LIFO layers in 1997 and 1996 increased net income by approximately $577 and $660, respectively. Note 4. Property, plant and equipment A summary of property, plant and equipment follows: December 31, 1997 1996 Land and improvements $ 3,677 $ 3,910 Buildings 15,035 17,999 Leasehold improvements 14,036 15,231 Machinery and equipment 27,630 30,607 Construction in progress 1,814 -- Total 62,192 67,747 Less: accumulated depreciation and amortization 29,237 25,965 Property, plant and equipment, net $32,955 $41,782 Note 5. Lines of credit The Company maintains an unsecured credit agreement with a number of banks which provides a $60,000 revolving credit facility and a $40,000 revocable demand line of credit for cash borrowings, issuance of commercial paper, and letters of credit. All borrowing and commercial paper issues under this agreement are supported by the revolving credit facility which expires in June, 2000. Under the terms of the agreement, interest rates are determined at the time of borrowing and are based on London Interbank Offered Rates plus .625% or the prime rate. Commitment fees of .125% are required on the revolving credit facility. The Company is required to maintain certain financial ratios in connection with this agreement. There were no outstanding borrowings against these credit arrangements at December 31, 1997. Letters of credit of approximately $28,000 were outstanding at December 31, 1997, with $72,000 of the unused credit facilities available for borrowing. Note 6. Accrued liabilities A summary of accrued liabilities follows: December 31, 1997 1996 Compensation $ 4,526 $ 5,063 Workers' compensation 10,250 10,750 Income taxes 6,936 5,292 Restructuring costs 7,938 10,694 Other 8,363 7,086 Total $38,013 $38,885 Note 7. Leases The Company leases certain property and equipment including retail sales facilities and regional sales offices 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: Year Ending December 31, 1998 $ 11,611 1999 10,498 2000 8,339 2001 5,966 2002 4,743 Thereafter 8,230 Total minimum lease payments 49,387 Total rent expense charged to operations for all operating leases is as follows: Year Ended December 31, 1997 1996 1995 Minimum rentals $15,005 $17,691 $15,760 Contingent rentals 800 493 279 Total rent expense $15,805 $18,184 $16,039 Note 8. Income taxes Income tax expense (benefit) is comprised of the following: Year Ended December 31, 1997 1996 1995 Current: Federal $12,396 $ 7,224 $ 7,440 State and local 2,633 760 1,860 15,029 7,984 9,300 Deferred 600 (13,200) (59) Total $15,629 $(5,216) $ 9,241 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 31, 1997 1996 [Assets (Liabilities)] Current deferred taxes Accounts receivable allowances $ 1,026 $ 1,552 Inventory valuation 5,112 5,562 Accrued liabilities 5,412 5,595 Restructuring costs 3,670 5,188 Other 580 603 Total net current deferred tax assets $ 15,800 $ 18,500 Non-current deferred taxes Depreciation $ (115) $ (2,583) Deferred employee benefits 5,259 5,438 Trademark 498 545 Other (142) -- Total net non-current deferred tax assets $ 5,500 $ 3,400 For financial reporting purposes, income (loss) before income taxes includes the following components: Year Ended December 31, 1997 1996 1995 Income (loss) before income taxes: United States $ 37,263 $ 6,308 $ 24,513 Foreign 924 (10,405) (4,325) Total $ 38,187 $ (4,097) $ 20,188 A reconciliation of the federal statutory income tax rate to the effective tax rates reflected in the consolidated statements of income follows: Year Ended December 31, 1997 1996 1995 Federal statutory tax rate 35.0% (35.0%) 35.0% Differences resulting from: State and local income taxes, net of federal income tax benefit 4.7 (4.6) 4.7 Tax effect of foreign losses -- 13.6 7.5 U.S. tax deductions related to European subsidiaries -- (109.8) -- Other 1.2 8.5 (1.4) Total 40.9% (127.3%) 45.8% As discussed in Note 2, the wind-down of the Company's European subsidiaries permitted the recognition of certain U.S. tax deductions previously unrecognized, resulting in a 1996 income tax benefit of approximately $4,500. Note 9. 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 $2,950, $3,795, and $4,002 for 1997, 1996, and 1995, respectively. Defined benefit pension plans - The Company sponsors several qualified defined benefit pension plans covering certain hourly and salaried employees. In addition, the Company maintains a supplemental unfunded salaried pension plan to provide those benefits otherwise due employees under the salaried plan's benefit formulas, but which are in excess of benefits permitted by the Internal Revenue Service. The benefits provided are based primarily on years of service and average compensation. The pension plans' assets are comprised primarily of listed securities, bonds, treasury securities, commingled equity and fixed income investment funds and cash equivalents. The Company's funding policy for qualified plans is to contribute amounts which are actuarially determined to provide the plans with sufficient assets to meet future benefit payment requirements consistent with the funding requirements of federal laws and regulations. The actuarial computations utilized the following assumptions: December 31, 1997 1996 1995 Discount rate 7.0% 7.5% 7.0% Expected long-term rate of return on assets 9.0% 8.0% 8.0% Rates of increase in compensation levels 0-4.5% 0-4.5% 0-4.5% Net periodic pension cost was comprised of: Year Ended December 31, 1997 1996 1995 Service cost - benefits earned during the period $1,685 $2,315 $1,923 Interest cost on projected benefit obligations 2,004 2,230 1,947 Actual return on plan assets (4,444) (2,572) (4,818) Net amortization and deferral 2,457 1,047 3,982 Net periodic pension cost $1,702 $3,020 $3,034 In conjunction with the special charges discussed in Note 2, the Company curtailed defined benefit plans for the affected plants in 1996 and settled the plan obligations in 1997. Curtailment and settlement costs of approximately $655 are included in the special charges originally recorded in 1996. The following table sets forth the funded status of the Company's defined benefit plans and the amount recognized in the Company's consolidated balance sheets. The funded status of plans with assets exceeding the accumulated benefit obligation (ABO) is segregated by column, from that of plans with the ABO exceeding assets. December 31, 1997 1996 Assets ABO Assets ABO Exceed Exceeds Exceed Exceeds ABO Assets ABO Assets Actuarial present value of benefit obligations: Vested benefits $19,215 $ 1,247 $ 16,397 $ 4,686 Nonvested benefits 788 -- 633 86 Total accumulated benefit obligation $20,003 1,247 17,030 4,772 Projected benefit obligation $29,096 $ 2,156 $ 25,974 $ 5,364 Plan net assets at fair value 27,864 -- 22,888 3,186 Projected benefit obligation in excess of plan net assets (1,232) (2,156) (3,086) (2,178) Unamortized transition asset (927) -- (1,125) (13) Unrecognized prior service cost 2,751 80 2,336 941 Unrecognized net (gain) loss (6,291) 185 (4,883) (193) Accrued pension liability at December 31 $(5,699)$(1,891) $ (6,758)$(1,443) Defined contribution plan - 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 $828, $627, and $923 for 1997, 1996, and 1995, respectively. In 1996, the Company initiated a profit-sharing 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 $376 and $89 for 1997 and 1996, 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 $44, $59, and $45 for 1997, 1996, and 1995, respectively. Deferred employee benefit plans - The Company has deferred compensation and supplemental retirement arrangements with certain key officers. Postretirement health and life insurance plan - The Company sponsors an unfunded defined benefit postretirement health insurance plan that covers eligible salaried employees. Life insurance benefits are provided under the plan to qualifying retired employees. The postretirement health insurance plan is offered, on a shared cost basis, only to employees electing early retirement. This coverage ceases when the employee reaches age 65 and becomes eligible for Medicare. Retiree contributions are adjusted periodically. The following table sets forth the funded status of the plan and the postretirement benefit cost recognized in the Company's consolidated balance sheets: December 31, 1997 1996 Accumulated postretirement benefit obligation: Retirees $ 159 $ 112 Fully eligible active plan participants 226 297 Other active plan participants 1,063 808 1,448 1,217 Plan assets -- -- Unrecognized net gain 180 249 Accrued postretirement benefit cost $1,628 $1,466 Net periodic postretirement benefit cost was comprised of: Year Ended December 31, 1997 1996 1995 Service cost-benefits attributed to employee service during the year $ 117 $ 78 $ 42 Interest cost on accumulated postretirement benefit obligation 90 84 48 Net amortization and deferral (4) (8) (34) Net periodic postretirement benefit cost $ 203 $ 154 $ 56 The discount rate used in determining the accumulated postretirement benefit obligation was 7.0% in 1997, 7.5% in 1996, and 7.0% in 1995. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 12%, declining gradually to 6% by 2012 and then declining further to an ultimate rate of 4% by 2022. The health care cost trend rate assumption has a significant impact on the amounts reported. Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation at December 31, 1997 by approximately $67 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1997 by approximately $11. Note 10. 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 $3.75 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 $3.75 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. In August, 1997 the Company purchased approximately 1,657,000 shares of its Class A common stock and approximately 42,000 shares of its Class B common stock under the terms of its Dutch auction tender offer for approximately $37.7 million. Under the terms of the Dutch auction tender offer, all shares were purchased at $22 per share. On August 25, 1997, the Company's Board of Directors authorized an additional 500,000 share repurchase program of the Company's Class A common stock. Through December 31, 1997, the Company repurchased 141,500 shares of its Class A common stock under this program for approximately $4.6 million. On August 6, 1996, the Company's Board of Directors authorized a one million share repurchase program of the Company's Class A common stock. The Company repurchased 772,600 shares of its Class A common stock under this program for approximately $11.7 million during 1996 and 1997 to conclude this program. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its employee stock options. Under APB 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, no compensation expense is recognized. The Company's 1994 Incentive Stock Option Plan has authorized the grant of options to management personnel and directors for up to 1,470,000 shares of the Company's common stock. As of December 31, 1997, 976,400 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 1997, 1996, and 1995, respectively: risk- free interest rates of 6.42%, 5.81%, and 7.47%; dividends of $.28 per share in all years; volatility factors of the expected market price of the Company's common stock of .406, .409, and .415; 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: Year Ended December 31, 1997 1996 1995 Net income as reported $ 22,558 $ 1,119 $ 10,947 Pro forma net income 22,230 880 10,814 Net income per share as reported Basic 2.05 .09 .85 Diluted 2.03 .09 .85 Pro forma net income per share Basic 2.02 .07 .84 Diluted 2.01 .07 .84 A summary of the Company's stock option activity and related information follows:
Year Ended December 31, 1997 1996 1995 Options Weighted-average Options Weighted-average Options Weighted-average (000) exercise price (000) exercise price (000) exercise price Outstanding-beginning of year 302 $ 15 156 $ 15 -- $ -- Granted 170 15 162 16 161 15 Exercised (9) 15 (3) 15 -- -- Forfeited (31) 15 (13) 15 (5) 15 Outstanding-end of year 432 15 302 15 156 15 Exerciseable at end of year 103 15 45 15 -- -- Weighted-average fair value of options granted during year $ 4.94 $ 5.12 $ 5.01
Exercise prices for options outstanding as of December 31, 1997 ranged from $14 to $17. The weighted-average remaining contractual life of those options is approximately 8.1 years. Note 11. Business and credit concentrations The Company provides credit, in the normal course of business, to department and specialty stores which are not concentrated in any geographic region. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. In 1997, sales to a customer, as a percentage of net sales, amounted to approximately 11%. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 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 1, 1998. 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 1, 1998. 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 1, 1998. 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 1, 1998. 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 they are not applicable, 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 A Form 8-K was filed on November 12, 1997 to disclose the Company's change to a 52/53 week fiscal year. (c) Exhibits 3.1 Certificate of Incorporation of OshKosh B'Gosh, Inc., as restated, May 7, 1993, previously filed as Exhibit 99.3 to the Registrant's Current Report on Form 8-K dated October 25, 1995, Commission File Number 0-13365, is incorporated herein by reference. 3.2 By-laws of OshKosh B'Gosh, Inc., as amended through the date hereof. *10.1 Employment Agreement dated July 7, 1980, between OshKosh B'Gosh, Inc. and Charles F. Hyde as extended by "Request For Later Retirement" dated April 15, 1986 and accepted by the Board of Directors' resolution on May 2, 1986, previously filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, Commission File Number 0-13365, is incorporated herein by reference. *10.2 Employment Agreement dated July 7, 1980, between OshKosh B'Gosh, Inc. and Thomas R. Wyman, previously filed as Exhibit 10.2 to the Registrant's Registration Statement No. 2-96586 on Form S-1, is incorporated herein by reference. *10.3 OshKosh B'Gosh, Inc. Profit Sharing Plan, as amended on November 4, 1997. *10.4 OshKosh B'Gosh, Inc. Restated Excess Benefit Plan, as amended on March 1, 1997. *10.5 OshKosh B'Gosh, Inc. Executive Deferred Compensation Plan, as amended on March 1, 1997. *10.6 OshKosh B'Gosh, Inc. Officers Medical and Dental Reimbursement Plan, as amended, previously filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Commission File Number 0-13365, is incorporated herein by reference. 10.7 Acknowledgment of Guaranty Agreement between City of Liberty, Casey County, Kentucky and OshKosh B'Gosh, Inc., dated October 4, 1984, and related Contract of Lease and Rent dated as of November 26, 1968, previously filed as Exhibit 10.14 to the Registrant's Registration Statement No. 2-96586 on Form S-1, is incorporated herein by reference. 10.8 Indemnity Agreement between OshKosh B'Gosh, Inc. and William P. Jacobsen (former Vice President and Treasurer of OshKosh B'Gosh, Inc.) dated as of June 8, 1987, previously filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Commission File Number 0-13365, is incorporated herein by reference. (Note: Identical agreements have been entered into by the Company with each of the following officers: Douglas W. Hyde, Michael D. Wachtel and Kenneth H. Masters). *10.9 OshKosh B'Gosh, Inc. Executive Non-Qualified Profit Sharing Plan, as amended on March 1, 1997. 10.10 Employment agreement dated and effective May 1, 1994, by and among OshKosh B'Gosh, Inc., Essex Outfitters, Inc. and Barbara Widder-Lowry previously filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Commission File Number 0-13365, is incorporated herein by reference. 10.11 Employment agreement dated and effective May 1, 1994 by and among OshKosh B'Gosh, Inc., Essex Outfitters, Inc. and Paul A. Lowry previously filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Commission File Number 0-13365, is incorporated herein by reference. 10.12 Credit agreement between OshKosh B'Gosh, Inc. and Firstar Bank Milwaukee, N.A. and participating banks as amended, dated as of November 21, 1997. *10.13 OshKosh B'Gosh, Inc. 1994 Incentive Stock Plan previously filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Commission File Number 0-13365, is incorporated herein by reference. 10.14 OshKosh B'Gosh, Inc. 1995 Outside Director's Stock Option Plan, as amended February 26, 1997. *10.15 OshKosh B'Gosh, Inc. Flexible Nonstandardized 401(k) Adoption Agreement and Smith Barney Prototype Defined Contribution Plan Document #05 previously filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, Commission File Number 0-13365, is incorporated herein by reference. * Represents a plan that covers compensation, benefits and/or related arrangements for executive management. 21. The following is a list of subsidiaries of the Company as of December 31, 1997. The consolidated financial statements reflect the operations of all subsidiaries as they existed on December 31, 1997. State or Other Jurisdiction of Incorporation or Name of Subsidiary Organization Grove Industries, Inc. Delaware Manufacturera International Apparel, S.A. Honduras OshKosh B'Gosh International Sales, Inc. Virgin Islands OshKosh B'Gosh Europe, SNC (Inactive) France OshKosh B'Gosh Asia/Pacific Ltd. (Inactive) Hong Kong OshKosh B'Gosh U.K. Ltd. (Inactive) United Kingdom OshKosh B'Gosh Deutschland GmbH (Inactive) Germany 23. Consent of Ernst & Young LLP, Independent Auditors 27. Financial Data Schedule SIGNATURES Date: March 31, 1998 Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 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 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 Registrant 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 /S/ DAVID L. OMACHINSKI Vice President-Finance, Treasurer and Chief Financial Officer /S/ STEVEN R. DUBACK Secretary and Director /S/ WILLIAM F. WYMAN Vice President Domestic Licensing Date: March 31, 1998 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts (Dollars in Thousands) Year Ended December 31, 1997 1996 1995 Accounts receivable - allowances: Balance at beginning of period $ 5,474 $ 3,970 $ 3,700 Charged to costs and expenses 11,836 10,392 8,084 Deductions - bad debts written off, net of recoveries and other allowances (13,085) (8,088) (7,814) Year Ended December 31, 1997 1996 1995 Restructuring costs - allowances: Balance at beginning of period $ 10,694 $ 334 $ 2,381 Charged to cost and expenses - 15,300 - Actual restructuring costs incurred (2,756) (4,940) (2,047) Balance at end of period $ 7,938 $ 10,694 $ 334 EXHIBIT 23 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. 333-01053) of OshKosh B'Gosh, Inc. of our report dated January 30, 1998, with respect to the consolidated financial statements and schedule of OshKosh B'Gosh, Inc. and Subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 1997. ERNST & YOUNG LLP Milwaukee, Wisconsin March 24, 1998 EX-3 2 EX. 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 23-24 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) BYLAWS OF OSHKOSH B'GOSH, INC. STATED TO INCLUDE ALL AMENDMENTS ADOPTED THROUGH NOVEMBER 4, 1997 TABLE OF CONTENTS Page OFFICES 1 SEAL 1 STOCKHOLDERS' MEETING 1 Place of Meeting 1 Annual Meeting 1 Notice of Annual Meeting 1 Quorum 2 Voting of Shares 2 Special Meetings 2 Notice of Special Meetings 3 DIRECTORS 3 General Powers 3 Number 3 Office 3 Vacancies 3 Removal 4 COMMITTEES 4 Executive Committee 4 Audit Committee 4 Nominating Committee 5 Retirement Plan Committee 6 Compensation Committee 6 Other Committees 6 COMPENSATION OF DIRECTORS 7 MEETINGS OF DIRECTORS 7 Annual Meeting 7 Regular Meeting 7 Special Meetings 7 Quorum 7 Action By Written Consent of Directors 8 Participation By Conference Telephone 8 OFFICERS 8 Number 8 Election and Term of Office 8 Removal 9 Vacancies 9 Chairman of the Board 9 Vice-Chairman of the Board 9 President 9 Executive Vice President 10 The Vice Presidents 10 Shared Functions 10 The Secretary 10 The Treasurer 11 Assistant Secretaries and Assistant Treasurers 11 Other Assistants and Acting Officers 11 Additional Officers 11 Salaries 11 CERTIFICATES OF STOCK AND THEIR TRANSFER 12 Certificates 12 Facsimile Signatures 12 Transfers of Stock 12 CLOSING OF TRANSFER BOOKS 13 In General 13 List of Stockholders Available for Inspection 13 REGISTERED STOCKHOLDERS 13 LOST CERTIFICATES 14 CHECKS 14 FISCAL YEAR 14 DIVIDENDS 14 DIRECTORS' ANNUAL STATEMENT 15 NOTICES 15 Notice 15 Waiver of Notice 15 AMENDMENTS 15 INDEMNIFICATION OF OFFICERS AND DIRECTORS 16 Mandatory Indemnification 16 Right to Indemnification: How Determined 19 Termination of an Action is Nonconclusive 21 Advance Payment 21 Partial Indemnification: Interest 22 Nonexclusivity of Section 49 23 Insurance 23 Witness Expenses 24 Contribution 24 Severability 25 Amendment 25 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 the 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 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 of 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 any 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 not 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 15.01 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, composed of three (3) 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 and who are free of any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of their independent judgment as members of the Audit Committee. A majority of the members of the Audit Committee shall constitute a quorum for the transaction of all business of the committee. The Audit Committee shall provide assistance to the directors in fulfilling their responsibilities relating to corporate accounting, reporting practices of the corporation, and the quality and integrity of the financial reports of the corporation. In assisting the directors in carrying out these responsibilities, the Audit Committee shall have the following powers, duties and functions: (a) To review the corporation's accounting functions, operations and management; (b) To consider and review the adequacy and effectiveness of the corporation's internal auditing methods and procedures; (c) To consider and recommend to the board of directors for appointment independent auditors for the corporation; (d) To meet and consult with the independent auditors and with the corporation's financial and accounting personnel and internal auditors; (e) To review and approve the scope of the annual independent audit and the budget for independent audit fees; (f) To review with the independent auditors their report of the audit; and (g) To report, from time to time, to the board of directors on the activities and findings of the Audit Committee and to make recommendations to the board based on such findings. 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 resolutions 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 meeting 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, 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 23.01 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. 23.02 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. 23.03 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. 23.04 Vacancies. A vacancy is any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of that term. 23.05 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. 23.06 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. 23.07 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. 23.08 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 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. 23.09 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. 23.10 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. 23.11 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 incidental 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. 23.12 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 moneys 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 incidental 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. 23.13 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 Treasurer 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. 23.14 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. 23.15 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. 23.16 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 a 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. 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 of 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 bylaws may be altered, amended or repealed or new bylaws 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 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 reasonable 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 actions(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 such 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 furnished 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 on 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 reasonable 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 3 EX. 10.3 EXHIBIT 10.3 OSHKOSH B'GOSH, INC. PROFIT SHARING PLAN EFFECTIVE: JANUARY 1, 1994 OSHKOSH B'GOSH, INC. PROFIT SHARING PLAN TABLE OF CONTENTS Chapter Page INTRODUCTION I. DEFINITIONS 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 III. CONTRIBUTIONS AND ALLOCATIONS 11 3.01 Determination of Employer Contributions 11 3.02 Allocation of Employer Contributions and Forfeitures 11 IV. CONTRIBUTION LIMITATIONS 12 4.01 Definitions 12 4.02 Maximum Annual Additions 13 4.03 Reduction of Annual Additions 13 4.04 Limitations if Participant in Other Plan(s) 14 V. INVESTMENT OF ACCOUNTS 15 5.01 Funding Policy 15 5.02 Employee Direction of Investments 15 5.03 Expenses 15 VI. VESTING OF ACCOUNTS 16 6.01 100% Vesting Situations 16 6.02 Vesting Schedule 16 6.03 Bad-Boy Provision 16 6.04 Forfeitures 16 6.05 Resumption of Participation 18 VII. PAYMENT OF BENEFITS 19 7.01 Commencement of Benefits 19 7.02 Form of Payment 19 7.03 Incidental Death Benefits 19 7.04 Transfers 21 7.05 Distribution of Small Amounts 21 7.06 Direct Rollover 21 VIII.TOP-HEAVY PROVISIONS 24 8.01 Provisions Will Control 24 8.02 Definitions 24 8.03 Minimum Allocation 27 8.04 Nonforfeitability of Minimum Allocation 27 8.05 Minimum Vesting Schedules 28 8.06 Compensation Limitation 28 IX. ADJUSTMENT OF ACCOUNTS 29 9.01 Allocation of Trust Earnings 29 9.02 Allocation of Employer Contributions and Forfeitures 29 X. DESIGNATION OF BENEFICIARY 30 10.01 Beneficiary Designation 30 10.02 Priority if no Designated Beneficiary 30 XI. AMENDMENT OF THE PLAN 31 11.01 Amendment by Employer 31 11.02 Conformance to Law 32 11.03 Right to Terminate 32 11.04 Merger, Consolidation, or Transfer 32 XII. CLAIMS PROCEDURE 33 12.01 Written Claim 33 12.02 Claim Denial 33 12.03 Request for Review of Denial 33 12.04 Decision on Review 33 12.05 Additional Time 34 XIII.MISCELLANEOUS PROVISIONS 35 13.01 Reversion of Assets 35 13.02 Equitable Adjustment 35 13.03 Reasonable Compensation 35 13.04 Indemnification 35 13.05 Protection From Loss 36 13.06 Protection From Liability 36 13.07 Adoption of Rules and Procedures 36 13.08 Assignment of Benefits 36 13.09 Mental Competency 37 13.10 Authentication 37 13.11 Not an Employment Contract 37 13.12 Appointment of Auditor 37 13.13 Uniform Treatment 38 13.14 Interpretation 38 13.15 Plural and Gender 38 13.16 Headings 38 13.17 Expenses 38 13.18 Unclaimed Accounts 38 XIV. EMPLOYER STOCK SAVINGS ACCOUNTS AND INVESTMENTS 39 14.01 Stock Savings Accounts 39 14.02 Employer Stock Defined 39 14.03 Distributions from Stock Savings Accounts 39 14.04 Employer Stock Valuation 39 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 1 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 are 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(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, which means a Plan Year in which the Employee does not complete an aggregate or 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. 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 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 Employer's records 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 the Employer to the extent that the amounts are includable in gross income (or such Compensation paid or accred 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 reimbursement or other expense allowances, fringe benefits (cash and noncash), 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, 1998, Compensation in excess of $200,000 (as adjusted as permitted under Code Section 401(a)(17) from time to time) shall be disregarded. Further, in determining the Compensation of a Participant who is a highly compensated employee as defined in Code Section 414(q) for purposes of this dollar limitation, the family member aggregation rules of Code Section 414(q)(6) shall apply, except that in applying such rules, the term "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the end of the Plan Year under consideration. If the $200,000 adjusted Compensation limit applies to a Participant and one or more family members under the rules of the preceding sentence, then any benefits affected will be adjusted by prorating the $200,000 adjusted limit among the affected individuals who are Participants pro rata to each such individual's Compensation determined without regard to the $200,000 adjusted limit. 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 period 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 to the first Plan Year beginning on or after January 1, 1994, the OBRA `93 annual compensation limit is $150,000. i. Contributions to the Plan by the Employer and the Participant shall include: 1. "Employer Contributions" shall mean Employer contributions made to the Plan. 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 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, 1994. l. Employee is any person employed directly by the Employer and for whom the Employer pays Social Security taxes and who is a salaried employee covered by the Employer's security code classification number 220, 320, 370, 710 (but only if a regional sales manager), 750 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 non-discriminatory testing under Code Section 410. m. Employer is OshKosh B'Gosh, Inc. and any successor corporation or partnership by merger, purchase, or otherwise. Unless specifically included, Absorba,Inc. and Essex Outfitters, Inc. and other subsidiaries of OshKosh B'Gosh, Inc. are not considered as an Employer. Due to the change of Essex Outfitters from a subsidiary to a division as of May 31, 1994, and notwithstanding the preceding sentence, Essex Outfitters shall be deemed an Employer as of June 1, 1994. Employees of Essex Outfitters shall become Participants the first of the month coincident with or next following their satisfaction of the Plan's minimum age and service requirements after May 31, 1994. Such employees shall receive Years of Vesting Service credit for service prior to June 1, 1994. 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 a190 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 of 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, 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 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 other members of an Affiliated Employer. Hours of Service will also be credited for employment with other members of an 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. s. Participant is an Employee who has met the eligibility requirements of Chapter II, or a person who has an Account balance under this Plan. 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 6.02) of a Participant who terminates employment and who returns to the employ of the 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 nondiscretionary 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, 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 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 the 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 the 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 the 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 1.011.) 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 1.011.) 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 Employer agrees 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's contribution for any particular Plan Year shall not exceed the amount (including the amount of any credit-carryovers from prior years available to the Employer) which the Employer 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 Employer or by court order); b. Amounts forfeited by non-vested previous Participants; and c. Non-deductible voluntary Employee Contributions. 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 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. 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 or 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). 4.02 Maximum Annual Additions. The maximum amount of Annual Additions which can be made to the Combined Accounts of a Participant for an 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. 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 specifications 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 Employer 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 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 Vesting Service Vested 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, he commits an act which would constitute a crime against the 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 the Employer before he is fully Vested in his Regular Account, receives a distribution and he is later rehired by the 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 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. A Participant may not defer the commencement date of his benefit payments beyond the April 1st following the calendar year in which he attains age 70 1/2 even if he is still employed. 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 as 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 of 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 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 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 as 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 that 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 has been the Participant. d. For purposes of 7.04c. 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. 7.04 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 the effect with the Committee and such distribution is permitted by law. To the extent permitted by applicable law, neither the Employer, the Committee, the Plan Administrator, nor the Trustee will incur 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 (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 limitation; 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; and 9. 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(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(s) 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 Employee's 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 and 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. Key Employees: 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 Play 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. b. 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%. c. 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 accred 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 the 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 i. who is not a Key Employee but who was a Key Employee in a prior year, or ii. who has not received any compensation from 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. Deductible employee contributions will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans the value of the account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. d. 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. e. Required Aggregation Group: 1. Each qualified plan of the Employer in which at least one Key Employee participates, 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. f. 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. g. 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. h. 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 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 the 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 1.01h. 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 Vesting Service Vested 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 11.01c. 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 Dated, 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 10.01Benficiary Designation. Each Participant may name, or change the name of his Benificiary(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. 10.02Priority 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 OF THE PLAN 11.01Amendment 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 the 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 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; 3. the date written notice of the amendment is given to the Participants. 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. 11.02Conformance 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. 11.03Right to Terminate. The Board of Directors may, by resolution, terminate the Trust and/or this Plan at any time. However, if the Plan is terminated (either wholly or partially), or if there is a complete discontinuance of Employer contributions to the Trust, each 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. 11.04Merger, 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 12.01Written 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. 12.01Claim 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. 12.03Request 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. 12.04Decision 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. 12.05Additional 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 13.01Reversion of Assets. This Plan and Trust are for the exclusive benefit of the Employees of the Employer 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 the 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 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 a deduction for 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 Employer within one year after such disallowance. c. In the event the Plan is terminated as provided for in Chapter XI. 13.02Equitable 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. 13.03Reasonable 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 Employer, then the Committee will readjust the Account of such Participant to reflect only the "reasonable" compensation of said Participant. 13.04Indemnification. 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. 13.05Protection 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. 13.06Protection From Liability. To any extent allowed by law, the Trustee, the Plan Administrator and the Employer shall be free from all liability, joint or several, for their acts, omissions, and conduct, agents, designees and employees, 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 form 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). 13.07Adoption 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. 13.08Assignment 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 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. 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 a qualified domestic relations order, 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)). 13.09Mental Competency. Every person receiving or claiming benefits under the Plan and Trust will be presumed to e 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 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. 13.10Authentication. The 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. 13.11Not an Employment Contract. This Plan and Trust will not be construed as creating or modifying any contract of employment between the Employer and the Employee. 13.12Appointment 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 this Trust. 13.13Uniform 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. 13.14Interpretation. 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. 13.15Plural 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. 13.16Headings. 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. 13.17Expenses. The Employer 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. 13.18Unclaimed 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 Employer's discretionary contribution for a Plan Year, and finally, if necessary from a special one-time Employer contribution made solely for this purpose. CHAPTER XIV EMPLOYER STOCK SAVINGS ACCOUNTS AND INVESTMENTS 14.01Stock 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. 14.02Employer 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). 14.03Distributions from Stock Savings Accounts. To the extent Employer Stock is held in Participant's 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). 14.04Employer 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. EX-10 4 EX. 10.4 EXHIBIT 10.4 OSHKOSH B'GOSH, INC. RESTATED EXCESS BENEFIT PLAN (As Amended and Restated as of March 1, 1997) PREAMBLE WHEREAS, Oshkosh B'Gosh, Inc., a Delaware corporation (the "Company"), has heretofore maintained the Oshkosh B'Gosh, Inc. Profit Sharing Plan (the "Profit Sharing Plan"), and the Oshkosh B'Gosh Pension Plan (the "Pension Plan") as tax-qualified retirement plans for the benefit of its eligible employees and their beneficiaries; and WHEREAS, the Company has heretofore established the Oshkosh B'Gosh, Inc. Excess Benefit Plan, effective as of January 1, 1983 (the "Excess Benefit Plan") to provide make whole benefits for participants in either or both of the Profit Sharing Plan or the Pension Plan which would have otherwise become payable thereunder but for Section 415 of the Internal Revenue Code which places certain limitations on the amount of annual additions to any participant's account(s) in the Profit Sharing Plan, on the amount of benefits receivable by any participant in the Pension Plan and on the total combined amount of both such annual additions and benefits receivable in the case of an individual who is a participant in both such Plans; and WHEREAS, effective as of January 1, 1989, Section 401(a)(17) of the Internal Revenue Code limits the amount of annual compensation which may be taken into account in the calculation of contributions to such Plans; and WHEREAS, effective January 1, 1989, the Company established the Oshkosh B'Gosh Executive Non-Qualified Profit Sharing Plan (the "Non-Qualified Plan") to provide benefits to certain employees who were excluded from further participation in the Profit Sharing Plan in an amount equal to the benefits such excluded employees otherwise would have been entitled to under the Profit Sharing Plan; and WHEREAS, effective as of January 1, 1991, "accrued" compensation is no longer included in the calculation of benefits under the Pension Plan, or the calculation of contributions to be credited under the Profit Sharing Plan or Non-Qualified Plan; and WHEREAS, the Company wishes to maintain such levels of retirement benefits for its employees who are eligible to participate in the Profit Sharing Plan, the Pension Plan, or the Non-Qualified Plan as would otherwise become payable, but for the limitations under Sections 415 and 401(a)(17) of the Internal Revenue Code, by means of supplementary unfunded payments made by the Company under the Excess Benefit Plan as herein amended and restated; and WHEREAS, the Company wishes to maintain such levels of retirement benefits for its employees who are eligible to participate in the Pension Plan or the Non-Qualified Plan as would otherwise become payable, but for the limitations related to "accrued" compensation by means of supplementary unfunded payments made by the Company under the Excess Benefit Plan as herein amended and restated; NOW, THEREFORE, the Company hereby amends and restates the Excess Benefit Plan as of January 1, 1991, upon the following terms and conditions: ARTICLE I Definitions 1.1 "Account" shall mean the bookkeeping reserve account for a Participant which shall be established by the Company under Article IV hereof solely as a device for determining the amount of supplementary profit sharing benefits under either the Profit Sharing Plan or Non-Qualified Plan which may become payable thereunder. 1.2 "Actuarial Equivalent" shall have the same meaning as used in the Pension Plan. 1.3 "Beneficiary" shall be any person or persons (including, but not limited to, a trust) designated by the Participant. Such designation shall be effected by filing written notification with the Company in the form prescribed by it and may be changed from time to time by similar action. If no Beneficiary is designated, the benefits shall be distributed to the Participant's estate. 1.4 "Effective Date" means January 1, 1983. 1.5 "IRS Limitations" means the limits on contributions or benefits imposed under Sections 415 and 401(a)(17) of the Internal Revenue Code and any reduction in benefits under the Pension Plan or decrease in the amount credited under the Non-Qualified Plan (but not the Profit Sharing Plan) due to the exclusion of accrued compensation in 1991 including, but not limited to, bonuses under the Key Employee Incentive Bonus Plan. 1.6 "Firstar Bank Milwaukee, N.A. Prime Rate" means the rate of interest adopted by the Firstar Bank Milwaukee, N.A., from time to time, as the base rate for interest rate determinations. 1.7 "Non-Qualified Plan" means the Oshkosh B'Gosh, Inc. Executive Non-Qualified Profit Sharing Plan established January 1, 1989. 1.8 "Normal Form of Benefit" shall have the same meaning as used in the Pension Plan. 1.9 "Joint and Survivor Annuity" shall have the same meaning as used in the Pension Plan. 1.10 "Participant" shall have the same meaning as used in the Profit Sharing Plan, the Pension Plan or the Non- Qualified Plan as the case may be. ARTICLE II Purpose 2.1 This Plan is intended to provide benefits to eligible persons in a manner so as to maintain the level of total retirement benefits which, but for the IRS Limitations, would otherwise have been payable under the Profit Sharing Plan, Pension Plan or Non-Qualified Plan. This Plan shall maintain such total retirement benefit levels by means of supplementary unfunded payments made by the Company to the individuals eligible for such payments, as set forth in Articles III and IV hereof. ARTICLE III Supplementary Pension Benefits 3.1 Any Participant or Beneficiary who qualifies for commencement of a benefit under the terms of the Pension Plan on or after the Effective Date and whose benefit pursuant thereto is less than what it otherwise would be because of the IRS Limitations shall be eligible to receive supplementary pension benefits hereunder. 3.2 The amount of such supplementary pension benefits shall be an amount equal in value to the reduction in the benefits payable under the terms of the Pension Plan resulting from the application of IRS Limitations calculated as if payable in the Normal Form of Benefit. 3.3 Payment of such supplementary pension benefits shall be accomplished by unfunded payments directly from the Company to the Participant or the Beneficiary (as the case may be) in one of the forms determined by the Company, in its sole discretion, as follows: (a) in the Normal Form of Benefit if the Participant is not married on the later of the date such Participant first receives a benefit from the Pension Plan or the date of the Participant's termination of service with the Company, or (b) as a Joint and Survivor Annuity if such Participant is married on such date or if such Participant is married and dies while in the employ of the Company under circumstances such that such Participant's spouse is his Beneficiary and such spouse becomes entitled to a benefit under the terms of the Pension Plan because of such Participant's death, or (c) in a single lump sum of Actuarial Equivalent value, but only if Termination of Employment is due to retirement, death, or disability (but under circumstances where small amount lump sums are the automatic form of distribution from the Pension Plan or would be if the supplementary pension benefit were the only benefit considered, such small amount lump sum payments may also be made hereunder, even if the Participant or Beneficiary has not yet qualified for commencement of a benefit under the terms of the Pension Plan), or (d) a term certain annuity for 120 months, or 180 months. All forms of payment of supplementary pension benefits under this Plan shall be Actuarial Equivalents in value. ARTICLE IV Supplementary Profit Sharing Benefits 4.1 Any Participant or Beneficiary who qualifies for commencement of a benefit under the terms of the Profit Sharing Plan or Non-Qualified Plan on or after the Effective date whose benefit pursuant thereto is less than what it otherwise would be because of the IRS Limitations shall be eligible to receive supplementary profit sharing benefits hereunder. 4.2 The amount of such supplementary profit sharing benefits shall be an amount equal to the difference between the aggregate amount of Company contributions and forfeitures which would have been allocated to the Participant's account in the Profit Sharing Plan or to the Company bookkeeping account for purposes of the Non-Qualified Plan if the IRS Limitations had been disregarded. The amount of such difference for a Participant shall be determined annually and shall be credited to his Account as of the end of the fiscal year quarter during which the amount of such difference can first be determined. The amount so credited to such Participant's Account shall be further credited as of the end of each succeeding quarter with an amount equal to interest at the average Firstar Bank Milwaukee, N.A. Prime Rate in effect during such quarter (an "Interest Equivalent Credit") and all amounts standing to the credit of the Participant's Account as of the end of each fiscal year quarter including any prior Interest Equivalent Credits, shall receive an Interest Equivalent Credit. 4.3 Payment of such supplementary profit sharing benefits shall be accomplished by unfunded payments directly from the Company to the Participant or the Beneficiary (as the case may be) in one of the following methods: (a) in annual installments to commence on about March 15th of the year following the year in which the Participant's service terminates, with one-tenth of the balance in his Account becoming then payable and with the remaining installments being paid on each anniversary thereof according to the following schedule: Anniversary of First Portions of Participant's Payment Date Account To Be Paid 1st 1/9 2nd 1/8 3rd 1/7 4th 1/6 5th 1/5 6th 1/4 7th 1/3 8th 1/2 9th Remainder Interest Equivalent Credits shall continue to be applied on the balance in the Participant's Account in accordance with Section 4.2 until final payment thereof has been made. (b) in any other payment plan approved by the Company in its sole discretion. It shall be the obligation of any Participant under this Section 4.3 hereof to keep the Company advised of his current address and the Company shall have no obligation to commence payout of such Participant's Account unless and until it shall have received the written request therefor specifying his current address. ARTICLE V Amendment or Termination 5.1 The Board of Directors of the Company reserves the right to amend, terminate or discontinue this Plan at any time; provided, however, no such action shall reduce or eliminate any supplementary pension benefits under Article III hereof or supplementary profit sharing benefits under Article IV hereof which are in pay status or which have accrued hereunder prior to the date of such action and which also would otherwise ultimately have become payable hereunder. 5.2 It is recognized and acknowledged that as cost of living adjustments are made from time to time in the IRS Limitations under the provisions of the Internal Revenue Code, accruals of what otherwise would have been needed supplementary pension benefits under Article III hereof may be eliminated in whole or in part because the same can be provided under the terms of the Pension Plan, but that under present law, future cost of living changes in those parts of the IRS Limitations dealing with the Profit Sharing Plan will not eliminate or reduce the need for any otherwise required accruals of supplementary profit sharing benefits under Article IV hereof. No Participant or Beneficiary shall ever be entitled to any benefit payments whatsoever under this Plan unless and until such Participant or Beneficiary first qualifies for a benefit under the Pension Plan (as required by Section 3.1 hereof), under the Profit Sharing Plan (as required by Section 4.1 hereof) or under the Non-Qualified Plan (as required by Section 4.1 hereof). ARTICLE VI Miscellaneous 6.1 Any amount payable to a Participant or Beneficiary hereunder shall not be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, garnishment or encumbrance of any kind, by will, or by inter vivos instrument. Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such payment, whether present or thereafter payable, shall not be recognized by the Company. Any payment due hereunder shall not in any manner be subject to the debts or liabilities of the Participant or Beneficiary. If the Participant or Beneficiary shall attempt to alienate, sell, transfer, assign, pledge or otherwise encumber his or her payments under this Plan or any part thereof, or if by reason of his or her bankruptcy or other event happening at any time, such payments would devolve upon anyone else or would not be enjoyed by him or her, then the Company, in its sole discretion, may terminate his or her interest in any such benefit, and hold or apply it to or for the benefit of the Participant or Beneficiary, his or her spouse, children, or other dependents, or any of them, in such manner as the Company may deem proper. 6.2 Every person receiving or claiming payments under this Plan shall be conclusively presumed to be mentally competent until the date on which the Company receives a written notice, in form and manner acceptable to it, that such person is incompetent and that a guardian, conservator, or other person legally vested with the care of his estate has been appointed. In the event a guardian or conservator of the estate of any person receiving or claiming payments under the Plan shall be appointed by a court of competent jurisdiction, payments may be made to such guardian or conservator provided that proper proof of appointment and continuing qualification is furnished in a form and manner acceptable to the Company. Any such payment so made shall be a complete discharge of any liability therefor. 6.3 Participation in this Plan, or any modifications thereof, or the payments of any benefits hereunder, shall not be construed as giving to the Participant any right to be retained in the service of the Company, limiting in any way the right of the Company to terminate the Participant's employment at any time, evidencing any agreement or understanding, express or implied, that the Company will employ the Participant in any particular position or at any particular rate of compensation and/or guaranteeing the Participant any right to receive a salary increase in any fiscal year, such increase being granted only at the sole discretion of the Board of Directors of the Company. 6.4 All payments hereunder shall be paid in cash from the general funds of the Company and no special or separate fund shall be established and no other segregation of assets shall be made to assure the payment of benefits hereunder. A Participant or Beneficiary shall have no right or title or interest whatever in or to any investments which the Company may make to aid it in meeting its obligations hereunder. Nothing in this Plan and no action taken pursuant hereto shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and any Participant or Beneficiary. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of an unsecured creditor. 6.5 To the extent not pre-empted by the laws of the United States, this document shall be construed, administered and governed under and by the internal laws of the State of Wisconsin. 6.6 Neither the Company nor any officer or director of the Company or any other person shall be liable for any act or failure to act hereunder, except for gross negligence or fraud. 6.7 Any benefits payable under the Pension Plan and the Profit Sharing Plan shall be paid solely in accordance with the terms of such Plans and nothing in this document shall operate or be construed in any way to modify, amend or affect the terms of such Plans. 6.8 The claims procedure provided in the Profit Sharing Plan shall apply in full to this Excess Benefits Plan. EX-10 5 EX. 10.5 EXHIBIT 10.5 OSHKOSH B'GOSH, INC. EXECUTIVE DEFERRED COMPENSATION PLAN (As Amended and Restated as of March 1, 1997) WHEREAS, Oshkosh B'Gosh, Inc., a Delaware corporation (the "Company") wishes to establish a deferred compensation program for certain of its key management employees in order to aid the Company in attracting and retaining qualified personnel upon whose efforts the continued successful operation of the Company will depend, NOW, THEREFORE, the Company hereby establishes such a program, to be known as the Oshkosh B'Gosh, Inc. Executive Deferred Compensation Plan (the "Plan"), upon the following terms and conditions: ARTICLE I Definitions 1.1 "Account" means the bookkeeping reserve account for each Participant which shall be established by the Company solely as a device for determining the amounts which may become payable to the Participant hereunder. Such Account shall not constitute or be treated as a trust fund of any kind, it being expressly provided that the amounts credited to such Account shall at all times be and remain the sole property of the Company. The Participant shall have no proprietary rights of any nature whatsoever with respect thereto, unless and until such time as a payment thereof is made to the Participant (or his beneficiaries) as provided in this Plan. 1.2 "Deferred Compensation" means the portion of a Participant's compensation for any Fiscal Year, or part thereof that has been deferred pursuant to this Plan. 1.3 "Officer" means an employee of the Company who is either an elected or appointed officer of the Company. 1.4 "Fiscal Year" means the fiscal year of the Company. 1.5 "Interest Equivalent Credits" means such amounts as shall have been credited to a Participant's Account pursuant to Article III hereof. 1.6 "Participant" means an Officer participating in this Plan whose Deferred Compensation amounts, Supplemental Contributions (as defined in Section 2.2 hereof) and Interest Equivalent Credits have not been wholly distributed. 1.7 "Early Retirement Date" and "Disability" shall have the same meanings as used in the Company's qualified pension plan covering Participants, as the same exists from time to time. ARTICLE II Deferred Compensation Election 2.1 Each Officer may elect to have a designated amount or a percentage (subject to Company approval) of his total compensation, including bonuses, if any, otherwise receivable by him or paid to him on account of services performed, during any Fiscal Year commencing on or after January 1, 1984 deferred in accordance with the terms of this Plan. An Officer desiring to exercise such election as to any such Fiscal Year shall, prior to the beginning of such Fiscal Year (or prior to the beginning of the Officer's initial employment if such employment is to commence other than at the beginning of a Fiscal Year), notify the Company in writing of his election of the amount or percentage of such total compensation for such Fiscal Year that he elects to be so deferred by completing, signing and delivering to the Company a deferral election form substantially in the form attached hereto as Exhibit A. The Officer may revoke or change any prior deferral election form by giving at least 30 days prior written notice of such revocation or change to the Company. Any such revocation or change will be given prospective effect only and will not affect prior deferrals. 2.2 The Company shall make a contribution for each Fiscal Year, which shall be credited to each Participant's Account, of an amount equal to the decrease, if any, in the amount of contributions and forfeitures allocable to the Participant's account under any defined contribution plan (e.g., a profit sharing plan) of the Company (or which would have been allocated as a contribution or forfeiture but for the fact that the Participant is excluded from continuing or commencing participation in such defined contribution plan because of the exclusions in the definition of the eligible class of employees made by the Company in 1989), resulting from the fact that compensation which the Participant elects to defer under this plan is not taken into account as "wages," "salary" or "compensation" in determining the amount of the Company's contribution under such a defined contribution plan and the allocation of that contribution to the Participant's account under such plan. The amount to be so credited is hereinafter referred to as a "Supplemental Contribution." Such Supplemental Contribution shall become nonforfeitable pursuant to the vesting schedule, if any, provided under the Company's defined contribution plan for which the Supplemental Contribution is made. 2.3 The amount of a Participant's Deferred Compensation shall be credited to his Account as of the date, absent an election under this Plan, on which he would have received such amount. The amount of any Supplemental Contribution for a Participant shall be credited to his Account once a year as of the end of the quarter during which the proper amount of such Supplemental Contribution can be determined. ARTICLE III Interest Equivalent Credits 3.1 Any and all amounts of Deferred Compensation, Supplemental Contributions and previously credited interest standing to the credit of each Participant's Account as of the end of each quarter of the Fiscal Year shall receive an Interest Equivalent Credit based upon the average Firstar Bank Milwaukee, N.A. prime rate of interest in effect during such quarter. In calculating such quarterly Interest Equivalent Credit, the amounts which comprise Participant's Account balance as of the end of such quarter shall earn interest commencing with the date such amounts were credited to the Participant's Account (but in no event earlier than the first day of such quarter). By way of illustration, if a Participant's Account had been credited with Deferred Compensation on January 15 of a Fiscal Year, such Deferred Compensation would be entitled to be credited with interest on March 31 of such year based on the period between January 15 and March 31 of such year. The phrase "average Firstar Bank Milwaukee, N.A. prime rate of interest in effect during each quarter" means the weighted average rate of interest adopted by the Firstar Bank Milwaukee, N.A., from time to time during such quarter, as the base rate for interest rate determinations. ARTICLE IV Payments From Account 4.1 The Participant shall become entitled to commence receiving the nonforfeitable amounts credited to his Account upon his termination of employment with the Company at or after his Early Retirement Date or because of his death or Disability. 4.2 The nonforfeitable amounts credited to a Participant's Account shall be paid to him in one of the following methods: (a) In annual installments, to commence on or about March 15th of the year following the year of termination of service, with one-tenth of the balance in his Account becoming then payable and with the remaining installments being paid on each anniversary thereof according to the following schedule: Anniversary of First Portion of Participant's Payment Date Account To Be Paid 1st 1/9 2nd 1/8 3rd 1/7 4th 1/6 5th 1/5 6th 1/4 7th 1/3 8th 1/2 9th Remainder (b) Any other payment plan approved by the Company in it sole discretion. 4.3 Should the Participant's employment with the Company terminate for reasons other than specified in Section 4.1 above or other than because of death while in the employ of the Company, the Participant shall become entitled to commence receiving the nonforfeitable amounts credited to his Account on or after his attainment of age 65 in the manner described in Section 4.2 above. Notwithstanding the foregoing, the Company, in its sole discretion, may commence an earlier payout of such Participant's Account. It shall be the obligation of any Participant under this Section 4.3 to keep the Company advised of his current address and the Company shall have no obligation to commence payout of such Participant's Account unless and until it shall have received the written request therefor specifying his current address. 4.4 Interest Equivalent Credits shall continue to be applied on the balance in the Participant's Account in accordance with Section 3.1 until the Participant or his designated beneficiary or beneficiaries have received the final payment of such balance. 4.5 The Participant shall have the right to designate a beneficiary or beneficiaries to receive any portion of his Account remaining unpaid at his death. Such designation shall be effected by filing a written notification with the Company in the form prescribed by it and may be changed from time to time by similar action. If the Participant fails to make such designation, any such unpaid portion of his Account shall be paid to his estate. The nonforfeitable balance in a Participant's Account shall become distributable in accordance with this Section 4.5 upon a Participant's death while in the Company's employ or upon his death after termination of employment with the Company. 4.6 The Company may, in its sole discretion, on request of a Participant who remains in the Company's employ, determine to make a distribution and the manner of the distribution to such Participant of a portion or all of his nonforfeitable Account, on the basis of personal financial hardship. In the case of personal financial hardship, distribution may be made only when such Participant has established to the satisfaction of the Company that a severe personal financial hardship exists necessitating his request. Without limitation, such a personal financial hardship may arise from unusual or extraordinary medical expenses not covered by insurance of the Participant, of other persons who rely upon the Participant for financial support or education expenses. The purchase or maintenance of a principal residence for the Participant, or other investment opportunities will not be considered financial hardship. ARTICLE V Supplemental Payments 5.1 By way of a payment supplemental to the payments provided for by Article IV hereof, the Company agrees to also pay to a Participant (or to anyone else entitled thereto as a beneficiary of the Participant under the terms of any defined benefit plan (e.g., a pension plan of the Company) an amount or amounts equal to the decrease, if any, in the amounts payable under any such defined benefit plan, resulting from the fact that compensation which the Participant elects to defer under this Plan is not taken into account as "wages," "salary" or "compensation" in determining the amount of any benefit payment under such a defined benefit plan. The Company shall determine, in its sole discretion, the method of payment under this Section 5.1. The purpose of this provision is to assure to a Participant that he receive the same total pension benefits that he would have received had he not elected to defer any of his compensation under this Plan. ARTICLE VI Miscellaneous 6.1 Any amount payable from the Participant's Account shall not be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment, garnishment or encumbrance of any kind, by will, or by inter vivos instrument (other than permitted beneficiary designations under Section 4.5 hereof). Any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any such payment, whether presently or thereafter payable, shall not be recognized by the Company. Any payment due hereunder shall not in any manner be subject to the debts or liabilities of the Participant. If the Participant shall attempt to alienate, sell, transfer, assign, pledge or otherwise encumber his payments under this Plan or any part thereof, or if by reason of his bankruptcy or other event happening at any time, such payments would devolve upon anyone else or would not be enjoyed by him, then the Company, in its sole discretion, may terminate his interest in any such benefit, and hold or apply it to or for the benefit of the Participant, his spouse, children, or other dependents, or any of them, in such manner as the Company may deem proper. Notwithstanding the foregoing, the Plan shall recognize an ownership interest on the part of the Participant's spouse in any portion of the Participant's Account, if such ownership interest is created under any marital or community property law or similar law, or any marital or community property agreement executed pursuant to such law. 6.2 Every person receiving or claiming payments under this Plan shall be conclusively presumed to be mentally competent until the date on which the Company receives a written notice, in form and manner acceptable to it, that such person is incompetent and that a guardian, conservator, or other person legally vested with the care of his estate has been appointed. In the event a guardian or conservator of the estate of any person receiving or claiming payments under the Plan shall be appointed by a court of competent jurisdiction, payments may be made to such guardian or conservator provided that proper proof of appointment and continuing qualification is furnished in a form and manner acceptable to the Company. Any such payment so made shall be a complete discharge of any liability therefor. 6.3 Participation in this Plan, or any modifications thereof, or the payments of any benefits hereunder, shall not be construed as giving to the Participant any right to be retained in the service of the Company, limiting in any way the right of the Company to terminate the Participant's employment at any time, evidencing any agreement or understanding, express or implied, that the Company will employ the Participant in any particular position or at any particular rate of compensation and/or guaranteeing the Participant any right to receive a salary increase in any Fiscal Year, such increase being granted only at the sole discretion of the Board of Directors of the Company. 6.4 By electing to participate in this Plan, the Officer agrees that any of his compensation which he elects to defer under this Plan will not be taken into account as "wages," "salary" or "compensation" in determining the amount of any payment or allocation, or for any other purpose, under any pension, retirement or deferred profit sharing plan of the Company. 6.5 The Plan shall be construed, administered and governed in all respects under and by the laws of the State of Wisconsin. 6.6 Neither the Company nor any officer or director of the Company or any other person shall be liable for any act or failure to act hereunder, except for gross negligence or fraud. 6.7 The Board of Directors of the Company reserves the right to amend, modify, terminate, or discontinue this Plan at any time; provided, however, no such action shall reduce the amount then credited to the Participant's Account or change the time and manner of payment of such amount, without the consent of the Participant, if living, or his designated beneficiary or beneficiaries, if the Participant is not living. 6.8 The claims procedure provided in the Oshkosh B'Gosh, Inc. Profit Sharing Plan shall apply in full to this Plan. EXHIBIT A OSHKOSH B'GOSH, INC. EXECUTIVE DEFERRED COMPENSATION PLAN DEFERRAL ELECTION In accordance with the terms and conditions of the Oshkosh B'Gosh, Inc. Executive Deferred Compensation Plan I hereby elect that the following percentages (or amount) of any salary and bonuses which may become payable to me on account of services performed for Oshkosh B'Gosh, Inc. during the calendar year 19____ and future calendar years, shall be deferred for payment at a later time, and credited to the Account established in my name, in accordance with and subject to the terms and conditions of such Plan: ______% or $_____* of regular gross salary to be taken out of each monthly paycheck. _____% or $_____** of any bonus which may be declared by Oshkosh B'Gosh, Inc. and which is payable to me. I understand that this deferral election shall remain in full force and effect until I revoke and/or change it by properly executing the filing a new deferral election in accordance with the terms and conditions of the Plan. I hereby expressly revoke all prior deferral elections by me and reserve the right to revoke and/or change this deferral election in the manner provided under the terms and conditions of the Plan. Date Received by Oshkosh B'Gosh, Inc. on , 19____. By: _______________________________ *You may choose either a % or a specific dollar amount to be withheld from each paycheck. **You may choose either a % or a specific dollar amount of any bonus that may de declared; if you choose a dollar amount it will, of course, be subject to a top limit of the actual total amount of any bonuses declared to you on account of services performed by you during the calendar year. EX-10 6 EX. 10.9 EXHIBIT 10.9 OSHKOSH B'GOSH, INC. EXECUTIVE NON-QUALIFIED PROFIT SHARING PLAN (As Amended and Restated As Of March 1, 1997) WHEREAS, Oshkosh B'Gosh, Inc. (the "Company") maintains the Oshkosh B'Gosh, Inc. Profit Sharing Plan (the "Profit Sharing Plan"), a tax-qualified deferred profit sharing plan, and amended such Profit Sharing Plan effective as of January 1, 1989 to exclude certain classes of employees formerly eligible from continuing participation therein including the President, all Vice Presidents and any employee whose title includes designation as a director of a particular aspect of the Company's business (the "Excluded Key Employee Group"), and WHEREAS, the members of the Excluded Key Employee Group will continue to have their account balances held in the Profit Sharing Plan pending ultimate distribution upon their separation of service from the Company or otherwise in accordance with the terms of such Plan and such accounts will continue to share in the investment experience of the Plan until such distribution, but after January 1, 1989, will no longer receive any further allocations of Company contributions or forfeitures, and WHEREAS, the Company wishes to provide by means of this document both (i) a "make whole" non-qualified plan that will provide for payments to certain identified members of the Excluded Key Employee Group equivalent to the additional sums they would have been able to accrue under the Profit Sharing Plan but for their exclusion from continuing participation as of January 1, 1989, or beginning participation at any later date; and (ii) a non-qualified profit sharing plan for certain identified key management or highly compensated employees who are not otherwise eligible for participation in the Profit Sharing Plan, NOW, THEREFORE, the Company hereby establishes such a "make whole" program, to be known as the Oshkosh B'Gosh, Inc. Executive Non-Qualified Profit Sharing Plan (the "Non-Qualified Plan"), as follows: 1. Objectives. This Non-Qualified Plan is intended to provide for a "make whole" payment to certain members of the Excluded Key Employee Group and to certain other key management or highly compensated employees who are not otherwise eligible for participation in the Profit Sharing Plan identified on Exhibit A attached hereto, including such executives and key employees as the Board of Directors or Executive Committee may determine to add from time to time (the "Participants"). 2. Bookkeeping Accounts. The Company shall cause bookkeeping reserve accounts (the "Account") to be established for each participant which shall be established solely as a device for determining the amounts which may become payable to a Participant hereunder. Such Account shall not constitute or be treated as a trust fund of any kind, it being expressly provided that the amounts credited to the Account shall at all times be and remain the sole property of the Company. The Participant shall have no proprietary rights of any nature with respect thereto, unless and until such time as a payment thereof is made to the Participant (or beneficiary) as provided herein. Amounts shall be credited (or debited, as the case may be) to each Participant's Account as follows: (a) For each Plan Year from and after January 1, 1989, for which a Participant would have received an allocation of Company contribution or forfeiture or both under the terms of the Profit Sharing Plan if such Participant had not been excluded therefrom (the "Prevented Allocations"), such Participant's Account shall be credited with a dollar amount equal to such Prevented Allocations. (b) For each Plan Year from and after January 1, 1989, for which a Participant's Account has been credited with Prevented Allocations such Account shall also be adjusted to reflect the additions or subtractions that would have resulted from actual investment experience under the Profit Sharing Plan had the Prevented Allocations been made under that Plan (the "Prevented Investment Adjustments"). The intent hereof is that the balance in each Participant's Account under this Non-Qualified Plan from time to time shall be equal to the balance that would have existed in the Profit Sharing Plan from time to time reflecting post-January 1, 1989 Company contributions, forfeitures and investment adjustments thereon that would have occurred under the terms of the Profit Sharing Plan if the Participant had been able to continue thereunder or, as the case may be, begin participation thereunder at any later date and continue until the date of termination of service with the Company. 3. Vesting. All individuals who are Participants as of December 31, 1996 shall at all times have a 100% vested interest in the Account balance established for them under this Non- Qualified Plan. All individuals who become Participants on or after January 1, 1997 shall become vested in their Account balances established hereunder on the same terms and conditions as apply in the Profit Sharing Plan, all of which are hereby incorporated by reference." 4. Incorporation by Reference of Profit Sharing Plan. The terms and conditions of the Profit Sharing Plan, as amended from time to time, are hereby incorporated by reference into this Non- Qualified Plan (subject however to the 100% vesting provision for accounts as set forth in paragraph 3 above). It is intended that the Accounts in this Non-Qualified Plan be subject to all of the terms and conditions of the Profit Sharing Plan, subject only to the following special limitations: (a) Prevented Allocations and Prevented Investment Adjustments shall be determined and credited or debited to Accounts hereunder, as the case may be, at the same time and in like amount as if the Account were held under the Profit Sharing Plan. (b) The Company shall commence payments of the vested Account balances under this Non- Qualified Plan on or about March 15th of the year following the year in which the Participant's service terminates, in accordance with (c) below. (c) Account balances under the Non-Qualified Plan shall be paid to the Participant (or Beneficiary, as the case may be), in one of the following methods: (i) In annual installments, to commence on or about March 15th of the year following the year of termination of service, with one-tenth of the balance in the Account becoming then payable and with the remaining installments being paid on each anniversary thereof according to the following schedule: Anniversary of Portion of Participant's First Payment Date Account to Be Paid 1st 1/9 2nd 1/8 3rd 1/7 4th 1/6 5th 1/5 6th 1/4 7th 1/3 8th 1/2 9th Remainder (ii) Any other payment plan approved by the Company on its sole discretion." (d) Participants may designate any person or persons (including, but not limited to, a trust) to be the "Beneficiary" hereunder. Such designation shall be effected by filing written notification with the Company in the form prescribed by it and may be changed from time to time by similar action. If no Beneficiary is designated, the benefits shall be distributed to the Participant's estate. 5. Claims Procedure. The claims procedure in the Profit Sharing Plan shall apply in full to this Non-Qualified Plan. 6. Company or Committee to Administer. The Company or the Committee (as defined under the Profit Sharing Plan) shall have full and complete discretionary power and authority to construe and interpret this Non-Qualified Plan and to resolve all questions hereunder. Neither the Company nor any member of the Committee or any other person shall be liable for any act or failure to act hereunder, except for gross negligence or fraud. 7. Unsecured Creditor. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of an unsecured creditor. 8. Amendment or Termination. The Board of Directors of the Company reserves the right to amend, terminate or discontinue this Non-Qualified Plan at any time; provided, however, no such action shall reduce or eliminate any amounts accrued in any Accounts hereunder prior to the date of such action and which also would otherwise ultimately have become payable hereunder. EXHIBIT A The following is a listing of employees currently (as of 3/1/97) participating in the Oshkosh B'Gosh, Inc. Executive Non- Qualified Profit Sharing Plan. Participants as of Participants Added On December 31, 1996 Or After January 1, 1997 (LIST) (LIST) EX-10 7 EX. 10.12 EXHIBIT 10.12 OshKosh B'Gosh, Inc. 112 Otter Avenuen Oshkosh, Wisconsin 54901-5008 CREDIT AGREEMENT June 24, 1994 Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Bank One, Milwaukee, NA 111 East Wisconsin Ave. Milwaukee, Wisconsin 53202 Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60603 Norwest Bank Wisconsin, National Association 100 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Gentlemen: OshKosh B'Gosh, Inc., a Delaware corporation with its principal offices located in the City of Oshkosh, Wisconsin (the "Company"), hereby requests that each of you (collectively the "Banks" and individually a "Bank") severally agree to make loans to the Company from time to time on the terms and conditions set forth below: ARTICLE I LOANS AND NOTES 1.1 Revolving Credit. From time to time prior to June 24, 1997 or the earlier termination in full of the Commitments (in either case the "Termination Date"), the Company may obtain loans from each of the Banks, pro rata according to each Bank's Percentage Interest, up to an aggregate principal amount equal to the amount by which (i) $60,000,000 (the "Aggregate Commitment" and as to each Bank's respective Percentage Interest thereof, its "Commitment"), as terminated or reduced pursuant to section 1.7, exceeds (ii) the sum of (A) the aggregate amount of Letter of Credit obligations (as defined in section 10.1(o) below), and (B) the aggregate face amount of outstanding Commercial Paper (as defined in section 10.1(d) below), including for this purpose all Nicolet Funding Corp. Loans (as defined in section 1.9(e)below). The Commitment and Percentage Interest of each Bank is set forth in the table below: Percentage Name of Bank Commitment Interest Firstar Bank Milwaukee, $19,500,000 32.5% National Association Bank One, Milwaukee, NA $16,500,000 27.5% Harris Trust and Savings $12,000,000 20.0% Bank Norwest Bank Wisconsin, $12,000,000 20.0% National Association Total: $60,000,000 100% The failure of any one or more of the Banks to lend in accordance with its Commitment shall not relieve the other Banks of their several obligations hereunder, but no Bank shall be liable in respect to the obligation of any other Bank hereunder or be obligated in any event to lend in excess of its Commitment. Subject to the limitations of section 2.2(d)(3) the Company may repay such loans and reborrow hereunder from time to time prior to the Termination Date. Each loan hereunder from the Banks collectively shall be in a multiple of $100,000 (except that any such loan subject to a LIBOR Pricing option shall be in an amount of $1,000,000 or any multiple of $100,000 in excess of such amount). The loans from each Bank advanced under this section 1.1 shall be evidenced by a single promissory note of the Company (each a "Revolving Credit Note", and collectively with the Demand Notes (as defined in section 1.2 below), sometimes called the "Notes") in the form of Exhibit 1.1 annexed hereto, payable to the order of the lending Bank. 1.2 Demand Line of Credit. There is hereby established a revocable line of credit in the aggregate principal amount of $40,000,000 (the "Demand Line") for the current use of the Company. The amount of the Demand Line provided by each Bank is set forth in the table below: Name of Bank Demand Line Firstar Bank Milwaukee, $13,000,000 National Association Bank one, Milwaukee, NA $11,000,000 Harris Trust and Savings Bank $8,000,000 Norwest Bank Wisconsin, National Association $8,000,000 Total: $40,000,000 Each Bank in its sole discretion may decline to make advances under the Demand Line at any time without having made demand for payment. Any Bank so declining to make advances shall immediately give written notice of such declination to the Company and the Agent, but failure to give such notice shall not affect the validity or effectiveness of such declination. Any loans under the Demand Line shall be made pro rata according to the participating Banks, respective shares of the Demand Line from time to time in effect, up to an aggregate principal amount equal to (i) $40,000,000 minus (ii) the amount by which (A) the sum of (1) the outstanding principal amount of all revolving credit loans made pursuant to section 1.1, (2) the aggregate amount of Letter of Credit Obligations, and (3) the aggregate face amount of outstanding Commercial Paper, including for this purpose all Nicolet Funding Corp. Loans, exceeds (E) the Aggregate Commitment. The Demand Line shall be unused for at least 90 consecutive days during each twelve-month period commencing July I of a given year and ending June 30 the following year. Each advance under the Demand Line from the Banks collectively shall be in a multiple of $100,000 (except that any such advance subject to a LIBOR Pricing Option shall be in an amount of $1,000,000 or any multiple of $100,000 in excess of such amount). The advances under the Demand Line from each Bank shall be evidenced by a single promissory note of the Company (each a "Demand Note", and collectively with the Revolving Credit Notes, sometimes called the "Notes"), payable on demand to the order of the lending Bank in the form of Exhibit 1.2 attached hereto. The Company acknowledges that all amounts due under the Demand Notes are payable on demand, regardless of whether the Company has breached any of the terms, covenants and conditions set forth in this Agreement, the Notes, any Collateral Document or any other document or agreement applicable to the loans described herein. 1.3 Notes. The Notes shall be executed by the Company and delivered to the Banks prior to the initial loans. Although the Notes shall be expressed to be payable in the full amounts specified above, the Company shall be obligated to pay only the amounts actually disbursed to or for the account of the Company, together with interest on the unpaid balance of sums so disbursed which remains outstanding from time to time, at the rates and on the dates specified in the Notes, together with the other amounts provided therein. 1.4 Letters of Credit. (a) Firstar Bank Milwaukee, N.A. and such other Bank or Banks as the Company may from time to time designate with the consent of the Agent (each an "LOC Bank") shall from time to time when so requested by the Company issue standby and import letters of credit, respectively (each a "Letter of Credit" and collectively the "Letters of Credit") for the account of the Company up to an aggregate face amount equal to the amount by which (i) the sum of (A) the Aggregate Commitment and (B) the Demand Line from time to time in effect exceeds (ii) the sum of (A) the outstanding principal amount of loans made pursuant to sections 1.1 and 1.2, (B) the aggregate amount of all unpaid Reimbursement obligations (as defined in section lo.l(r) below) and (C) the aggregate face amount of outstanding Commercial Paper, including for this purpose all Nicolet Funding Corp. Loans. In addition to the foregoing aggregate limitation on Letters of Credit, standby Letters of Credit shall not exceed $25,000,000 in aggregate face amount at any time outstanding and import Letters of Credit shall not exceed $35,000,000 in aggregate face amount at any time outstanding. Each LOC Bank hereby grants to each other Bank, and each other Bank hereby agrees to take, a pro rata participation in each Letter of Credit issued hereunder and all rights (including rights to reimbursement from the Company under paragraph (c) below) and obligations associated therewith in accordance with the Percentage Interest of each Bank. In the event of any drawing on a Letter of Credit which is not reimbursed by or on behalf of the Company, each Bank shall pay to the appropriate LOC Bank a proportionate amount of such drawing equal to its Percentage Interest therein. Each LOC Bank shall divide the proceeds of any reimbursement of a drawing on a Letter of Credit with the other Banks that have made payment to the LOC Bank pursuant to the foregoing sentence, pro rata according to the respective contributions of such other Banks. (b) The Company agrees to pay to the Agent for the pro rata benefit of the Banks a letter of credit fee in respect of each standby Letter of Credit in the amount of three quarters of one percent (3/4!k) per annum of the face amount of such standby Letter of Credit. Such fees shall be payable quarterly in arrears on the first day of each calendar quarter. (c) The Company hereby unconditionally promises to pay to the appropriate LOC Bank upon demand, without defense, setoff or counterclaim, the amount of each drawing under Letters of Credit issued by such LOC Bank plus interest on the foregoing from the date due at the Prime Rate (as defined in section 2.2(b)(2)). (d) Reliance on Documents. Delivery to the LOC Banks of any documents strictly complying on their face with the requirements of any Letter of Credit shall be sufficient evidence of the validity, genuineness and sufficiency thereof and of the good faith and proper performance of drawers and users of such Letter of Credit, their agents and assignees; and the LOC Banks may rely thereon without liability or responsibility with respect thereto, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged. (e) Non-Liability for Other Matters. The LOC Banks shall not be liable to the Company for (i) honoring any requests for payment under any Letter of Credit which strictly comply on their face with the terms of such Letter of Credit, (ii) any delay in giving or failing to give any notice, (iii) errors, delays, misdeliveries or losses in transmission of telegrams, cables, letters or other communications or documents or items forwarded in connection with any Letter of Credit or any draft, (iv) accepting and relying upon the name, signature or act of any party who is or purports to be acting in strict compliance with the terms of any Letter of Credit; or (v) any other action taken or omitted by the LOC Banks in good faith in connection with any Letter of Credit or any draft; except only that the Company shall have a claim against an LOC Bank, and such LOC Bank shall be liable to the Company, to the extent of damages suffered by the Company which the Company proves were caused by (A) the LOC Bank's willful misconduct or gross negligence or (B) the LOC Bank's willful and wrongful failure to pay under any Letter of Credit after the presentation to it of documents strictly complying with the terms and conditions of the Letter of Credit. 1.5 Use of Proceeds. The Company represents, warrants and agrees that: (a) The proceeds of the loans made hereunder will be used solely for the following purposes: (i) contemporaneously with the making of the initial loan hereunder, the proceeds of such initial loan shall be used to the extent necessary to pay all indebtedness of Company outstanding under its demand lines of credit with Firstar Bank Milwaukee, N.A. and Norwest Bank Wisconsin; and (ii) all other proceeds shall be used (A) for the repayment at maturity of outstanding Commercial Paper (to the extent necessary), and (B) for working capital and other lawful corporate purposes. (b) No part of the proceeds of any loan made hereunder will be used to "purchase" or "carry" any "margin stock" or to extend credit to others for the purpose of "purchasing" or "carrying" any "margin stock" (as such terms are defined in the Regulation U of the Board of Governors of the Federal Reserve System), and the assets of the Company and its Subsidiaries do not include, and neither the Company nor any Subsidiary has any present intention of acquiring, any such security. 1.6 Commitment Fee. The Company shall pay to the Agent for the account of the Banks, pro rata according to their respective Percentage Interests, a commitment fee computed at the rate of one-eighth of one percent (1/8W) per annum on the Aggregate Commitment (as reduced pursuant to section 1.7). Such commitment fees shall accrue during the period from the date of this Agreement to and including the Termination Date and be payable quarterly in advance on the date of the initial loan and on the first day of each calendar quarter thereafter. 1.7 Termination or Reduction. (a) The Company shall have the right, upon five business days' prior written notice to each Bank, to ratably reduce in part the Commitments, provided, however, that (i) each partial reduction of the Aggregate Commitment shall be in the amount of $100,000 or an integral multiple thereof, and (ii) no reduction shall reduce the Aggregate Commitment to an amount less than the sum of (A) the aggregate principal amount of outstanding revolving credit loans made under Section 1.1, (B) the aggregate amount of Letter of Credit obligations, and (C) the aggregate face amount of outstanding Commercial Paper, including for this purpose all Nicolet Funding Corp. Loans. Subject to the limitations of the preceding sentence, the entire Commitments of all of the Banks may be terminated in whole at any time upon five Business Days, prior written notice to each Bank. (b) Each Bank in its sole discretion may at any time reduce or terminate its individual Demand Line by giving written notice of such reduction or termination to the Agent and the Company. If any Bank shall decline to make additional advances pursuant to the Demand Line or shall demand payment of any amount outstanding under its Demand Note, the aggregate Demand Line shall automatically be reduced by an amount equal to such Bank's individual Demand Line. 1.8 Optional Prepayment. The Notes may be prepaid in whole or in part at the option of the Company at any time without premium or penalty except as otherwise provided in section 2.2(d)(3). All prepayments shall be applied as set forth in section 2.4(b) pro rata among the Banks in accordance with their respective Percentage Interests. All prepayments shall be accompanied by interest accrued on the amount prepaid through the date of prepayment. 1.9 Commercial Paper. (a) The Company may issue Commercial Paper from time to time, including sales of Commercial Paper through one or more of the Banks acting as placement agent pursuant to separate agreements between the Company and such Bank or Banks. The aggregate face amount of all outstanding Commercial Paper (but not including for this purpose any Nicolet Funding Corp. Loans) shall not at any time exceed the lesser of (i) $60,000,000 and (ii) the amount by which (A) the sum of (1) the Aggregate Commitment and (2) the Demand Line in effect from time to time, exceeds (B) the sum of (1) the outstanding principal amount of loans made pursuant to sections 1.1 and 1.2, (2) the aggregate amount of Letter of Credit Obligations and (3) the outstanding principal amount of all Nicolet Funding Corp. Loans. No Commercial Paper shall have a term to maturity greater than 100 days. (b) The Company shall pay a Commercial Paper placement fee in respect of Commercial Paper placed by any of the Banks computed at a rate of one-quarter of one percent (1/4%) per annum of the aggregate face amount of such Commercial Paper, payable at the time such Commercial Paper is issued as follows: (i) one- eighth of one percent (1/8%) to the Bank acting as placement agent for the sale of such Commercial Paper and (ii) one-eighth of one percent (1/8%) to the Agent for the pro rata benefit of the Banks. (c) The Company will give written notice to the Agent in the form of Part 1 to Exhibit 2.1 hereto on each Business Day on which there is any change in the aggregate outstanding face amount of Commercial Paper and Nicolet Funding Corp. Loans, setting forth the aggregate principal amount of all Commercial Paper and Nicolet Funding Corp. Loans then outstanding after giving effect to the issuance or repayment of Commercial Paper and Nicolet Funding Corp. Loans (as the case may be) taking place on such Business Day. (d) For all purposes of this Agreement, the outstanding face amount of all Commercial Paper (but not including for this purpose any Nicolet Funding Corp. Loans) shall be deemed to be use of the Aggregate Commitment. The principal amount of outstanding loans (including Nicolet Funding Corp. Loans) and the face amount of outstanding Letters of Credit shall be deemed to be use of the Aggregate Commitment to the extent that the Aggregate Commitment exceeds the face amount of outstanding Commercial Paper (but not including for this purpose any Nicolet Funding Corp. Loans) from time to time, and otherwise shall be deemed to be use of the Demand Line. (e) The Company may also obtain direct loans from Nicolet Funding Corp. ("Nicolet Funding Corp. Loans") from time to time. The aggregate principal amount of such loans at any time outstanding shall not exceed the lesser of (i) $20,000,000 and (ii) the sum of (A) the amount by which the Aggregate Commitment exceeds the aggregate principal amount of Commercial Paper from time to time outstanding, plus (B) the amount available to be borrowed from time to time under the Demand Line provided by Norwest Bank Wisconsin, National Association. Such loans shall have maturities not exceeding 100 days, and shall bear interest at rates to be agreed upon by the Company and Nicolet Funding Corp. ARTICLE II ADMINISTRATION OF CREDIT 2.1 Borrowing Procedure. Loans hereunder shall he made at the principal banking office of the Agent in Milwaukee, Wisconsin, on written or telephonic notice from the Company to the Agent received not later than 10:30 a.m. on the date of the proposed borrowing (subject to the notice requirement of section 2.2(c)(2) if the Company wishes to elect a LIBOR Pricing option with respect to such loan), which notice shall specify the date and the aggregate principal amount of such borrowing. Each written request for a borrowing hereunder shall be given in the form of Part 2 to Exhibit 2.1 hereto; each telephonic request for a borrowing hereunder shall be confirmed within three (3) Business Days of the borrowing date by delivery of a written request in such form. Upon its receipt of such notice from the Company, the Agent shall promptly give notice to the other Banks, each of which shall have its respective portion of the loans available to the Agent in Milwaukee in immediately available funds not later than 2:00 p.m. on the date of the borrowing. Out of thefunds received from the Banks for the making of the loans hereunder, the Agent will make a loan to the Company in such amount on behalf of such Banks. Notes and other required documents delivered to the Agent for the account of each Bank shall be promptly delivered to such Bank, or in accordance with instructions received from it, together with copies of such other documents received in connection with the borrowing as such Bank shall request. 2.2 Interest Calculation. (a) Interest. The principal amount of the indebtedness from time to time evidenced by the Notes shall accrue and bear interest at a rate per annum which shall at all times equal the Applicable Rate (as defined in section 2.2(b)). To the extent that any portion of the indebtedness evidenced by the Notes bears interest at the Prime Rate (defined below), the Company will pay such interest monthly in arrears on the last day of each month. On the last day of each LIBOR Interest Period or on any earlier termination of any LIBOR Pricing Option, the Company will pay the accrued and unpaid interest on the indebtedness evidenced by the Notes which was subject to the LIBOR Pricing Option which expired or terminated on such date. On any stated or accelerated maturity of the indebtedness evidenced by the Notes all accrued and unpaid interest on such indebtedness shall be forthwith due and payable, including without limitation any accrued and unpaid interest on such indebtedness which is subject to a LIBOR Pricing Option. In addition, the Company will, on demand, pay interest on any overdue installments of principal and pay interest during the continuance of any Event of Default both at a rate per annum which is at all times equal to the sum of (a) the Applicable Rate (or, if more than one Applicable Rate is then in effect, the weighted average of the Applicable Rates then in effect), plus (b) 2%r per annum. (b) Applicable Rate. The term "Applicable Rate" shall mean: (1) With respect to any portion of the indebtedness evidenced by the Notes which is at the time subject to an effective LIBOR Pricing Option, the applicable LIBOR Rate set forth in section 2.2(c)(1)(D). (2) With respect to any portion of the indebtedness evidenced by the Notes which is not at the time subject to an effective LIBOR Pricing Option, the rate announced by Firstar Bank Milwaukee, N.A. from time to time as its prime rate (changing as and when such prime rate changes) (the "Prime Rate"). (c) The LIBOR Pricing Options. The following provisions shall apply to the LIBOR Pricing Options: (1) Certain Definitions. For purposes of this Agreement: (A) The term "Basic LIBOR Rate" as applied to any LIBOR Interest Period shall mean the per annum rate of interest determined by the Agent (which shall be applicable to all of the Banks) to be the average (rounded up, if necessary, to the nearest 1/16 of 1%) of the offered rates for deposits in U.S. dollars for the applicable LIBOR Interest Period which appear on the Reuters Screen LIBO Page (or such other page on which the appropriate information may be displayed), on the electronic communications terminals in the Agent's money center as of 11:00 a.m. (London time) on the day which is two Business Days prior to the first day of such LIBOR Interest Period ("Calculation Date"), except as provided below. if fewer than two offered rates appear for the applicable LIBOR Interest Period or if the appropriate screen is not accessible as of such time, the term "Basic LIBOR Rate" shall mean the per annum rate of interest determined by the Agent (but which shall be applicable to all of the Banks) to be the average (rounded up, if necessary, to the nearest 1/16 of 1%) of the rates at which deposits in U.S. dollars are offered to the Agent by four major banks in the London interbank market, as selected by the Agent ("Reference Banks"), at approximately 11 a.m., London time, on the Calculation Date for the applicable LIBOR Interest Period and in an amount equal to the principal amount of the loans subject to the applicable LIBOR Pricing Option. The Agent will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the applicable rate will be the mean of the quotations. If fewer than two quotations are provided as requested, the applicable rate will be the mean of the rates quoted by major banks in New York City, selected by the Agent, at approximately 11 a.m., New York City time, on the Calculation Date for loans in U.S. dollars to leading European banks for the applicable LIBOR Interest Period and in an amount equal to the principal amount of the loans subject to the applicable LIBOR Pricing Option. (B)The term "LIBOR Interest Period" shall mean any period, selected as provided below in this section 2.2(c) of one, two or three months, each commencing on any Business Day. Such LIBOR Interest Period shall end on the day in the succeeding calendar month which corresponds numerically to the beginning day of such LIBOR Interest Period, provided, however, that if there is no such numerically corresponding day in such succeeding month, such LIBOR Interest Period shall end on the last Business Day of such succeeding month. If any LIBOR Interest Period so selected would otherwise end on a date which is not a Business Day, such LIBOR Interest Period shall instead end on the immediately succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new month, such LIBOR Interest Period shall end on the immediately preceding Business Day. (C) The term "LIBOR Pricing Options" shall mean the options granted pursuant to this section 2.2(c) to have the interest on all or any portion of the principal amount of indebtedness evidenced by the Notes computed with reference to a LIBOR Rate. (D) The term "LIBOR Rate" for any LIBOR Interest Period shall mean a rate per annum equal to the sum of (i) the quotient of (A) the Basic LIBOR Rate applicable to that LIBOR Interest Period divided by (B) one minus the LIBOR Reserve Requirement (expressed as a decimal) applicable to that LIBOR Interest Period, plus (ii) five-eighths of one percent (5/8%). The LIBOR Rate shall be rounded, if necessary, to the next higher 1/16 of 1%. (E) The term "LIBOR Reserve Requirement" shall mean, with respect to each LIBOR Interest Period, the stated rate of all reserve requirements (including all basic, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements during such LIBOR Interest Period) that is specified on the first day of such LIBOR Interest Period by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board of Governors) applicable to the Agent. (F)The term "Regulatory Change" means any change enacted or issued after the date of this Agreement of any (or the adoption after the date of this Agreementof any new) federal or state law, regulation, interpretation, direction, policy or guideline, or any court decision, which in any case has general application to banks of the class of which any Bank is a member and which affects the treatment of any loans of such Bank, all as set forth below. (2) Election of LIBOR Pricing Options. Subject to all the terms and conditions hereof, the Company may, by notice to the Agent received not later than 10:30 a.m. (Milwaukee time) on the day which is three Business Days prior to the first day of the LIBOR Interest Period selected in such notice, elect to have all or such portion of the principal amount of indebtedness then evidenced (or to be evidenced at the commencement of such LIBOR Interest Period) by the Notes as the Company may specify in such notice (in the minimum amount of $1,000,000 or any multiple of $100,000 in excess of such amount) accrue and bear daily interest during the LIBOR Interest Period so selected at a per annum rate equal to the LIBOR Rate for such LIBOR Interest Period; provided, however, that no such election shall become effective if the Agent determines (which determination shall be binding and conclusive on all parties) that (i) by reason of circumstances affecting the London interbank market adequate and reasonable means do not exist for ascertaining the applicable LIBOR Rate; (ii) the LIBOR Rate does not accurately reflect the cost to the Banks of making or maintaining LIBOR-based loans in general; or (iii) any Default or Event of Default has occurred and is continuing. Each notice of election of a LIBOR Pricing Option shall be irrevocable. (d) Special Provisions. (1) Increased Costs. If any Regulatory Change, (A) shall subject any Bank to any tax, duty or other charge with respect to any of its loans, Letters of Credit or participations therein, or Reimbursement Obligations owed to it hereunder, or shall change the basis of taxation of payments to any Bank of the principal of or interest on its loans hereunder or Reimbursement Obligations owed to it, or any other amounts due under this Agreement in respect of such loans or Reimbursement obligations, or its obligation to make loans hereunder or issue Letters of Credit or participate therein (except for changes in the rate of tax on the overall net income of such Bank); (B) shall impose, modify or make applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve included in the determination of the LIBOR Rate), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank; or (C) shall impose on any Bank any other condition affecting its loans, Letters of Credit or participations therein, or any Reimbursement Obligation owed to it hereunder; and the result of any of the foregoing is to increase the cost to (or in the case of Regulation D or any other analogous law, rule or regulation, to impose a cost on) such Bank of making or maintaining any loans, issuing or maintaining any Letter of Credit, or participating therein, or to reduce the amount of any sum received or receivable by such Bank under this Agreement and any document or instrument related hereto, then after 30 days' notice from such Bank (which notice shall be sent to the Agent and the Company and shall be accompanied by a statement setting forth in reasonable detail the basis of such increased cost or other effect on the loans, Letters of Credit or Reimbursement obligations), the Company shall pay directly to such Bank, on demand, such additional amount or amounts as will compensate such Bank for such increased cost or such reduction incurred on or after the date of the giving of such notice to the Agent and the Company. Each of the Banks represents to the Company that, as of the date hereof, it is not aware of any fact or circumstance that would give rise to any increased cost under this section 2.2(d)(1). Each Bank further agrees that, for purposes of this section 2.2(d)(1), it will not treat the Company in a manner different from its other commercial loan customers having similar loan relationships with the Bank. (2) Changes in Law Rendering Certain Loans Unlawful. In the event that any Regulatory Change should make it (or, in the good faith judgment of a Bank, should raise substantial questions as to whether it is) unlawful for a Bank to make, maintain or fund a loan subject to a LIBOR Rate, then (i) such Bank shall promptly notify each of the other parties hereto, (ii) the obligation of all Banks to make such loan shall, upon the effectiveness of such event, be suspended for the duration of such unlawfulness, and (iii) to the extent that it is unlawful for such Bank to maintain an outstanding loan subject to a LIBOR Rate, such loan shall thereafter bear interest at the Prime Rate or such other lower rate as may be agreed upon by the Company and the Bank. (3) Funding Losses. The Company hereby agrees that upon demand by any Bank (which demand shall be sent to the Agent and the Company and shall be accompanied by a statement setting forth in reasonable detail the basis for the calculations of the amount being claimed) the Company will indemnify such Bank against any net loss or expense which such Bank may sustain or incur (including, without limitation, any net loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain loans hereunder), as reasonably determined by such Bank, as a result of (i) any payment or prepayment of any loan subject to a LIBOR Rate of such Bank on a date other than the last day of a LIBOR Interest Period for such loan whether or not required by any other provision of this Agreement, or (ii) any failure of the Company to borrow any loans on a date specified therefor in a notice of borrowing pursuant to this Agreement. (4) Discretion of Banks as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its loans hereunder in any manner it sees fit. (5) Capital Adequacy. If any Regulatory Change affects the treatment of any loan, Letter of Credit or participation therein of a Bank as an asset or other item included for the purpose of calculating the appropriate amount of capital to be maintained by such Bank or any corporation controlling such Bank and has the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of the obligations of such Bank hereunder to a level below that which such Bank or such corporation could have achieved but for such Regulatory Change (taking into account such Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed in good faith by such Bank to be material, then after 30 days' notice from such Bank to the Company and the Agent of such Regulatory Change, the Company shall pay to such Bank, on demand, such additional amount or amounts as will compensate such Bank or such corporation, as the case may be, for such reduction incurred on or after the date of the giving of such notice to the Agent and the Company. Such Bank shall submit, to the Agent and the Company, a statement as to the amount of such compensation, prepared in good faith and in reasonable detail. Each of the Banks represents to the Company that, as of the date hereof, it is not aware of any fact or circumstance that would give rise to a claim for compensation under this section 2.2(d)(5). (6) Conclusiveness of Statements; Survival of Prov isions.Determinations and statements of any Bank pursuant to sections 2.2(d)(1), (2), (3) and (5) shall be rebuttably presumptive evidence of the correctness of the determinations and statements and shall be conclusive absent manifest error if the Company fails to deliver written notice to the Agent within 30 days of (i) the date of mailing of such statement or (ii) the giving of notice of such determination if no such statement is mailed. The provisions of section 2.2(d)(1), (3) and (5) shall survive the obligation of the Banks to extend credit under this Agreement and the repayment of the loans and Reimbursement obligations. 2.3 Computations; Non-Business Days. All fees, and all interest payable on the Notes, shall be computed for the actual number of days elapsed using a daily rate determined by dividing the annual rate by 360. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a non- Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest under the Notes, or fees payable hereunder, as the case may be. 2.4 Application of Payments. (a) All payments of principal, interest and fees under this Agreement and the Notes shall be made to the Agent in immediately available funds for the ratable account of the Banks and the holders of the Notes then outstanding, as appropriate, in respect of amounts then due hereunder. The Agent shall promptly distribute to each such Bank or holder pro rata the amount of principal, interest or fees received by the Agent for the account of such holder. Any payment to the Agent for the account of a Bank or a holder of a Note under this Agreement shall constitute a payment by the Company to such Bank or holder of the amount so paid to the Agent, and any Notes or portions thereof so paid shall not be considered outstanding for any purpose after the date of such payment to the Agent. (b) All payments received by the Agent under this Agreement from any source shall be applied to the obligations of the Company hereunder in the following order of priority: (i) First, to the payment of all unreimbursed fees and expenses due hereunder; (ii) Second, to the repayment of all outstanding loans under the Demand Line and all accrued interest thereon; (iii) Third, to the payment of all outstanding loans under the Aggregate Commitment, to the extent then due and payable, and all accrued interest thereon; (iv) Fourth, to secure reimbursement of the outstanding face amount of all Letters of Credit issued against the Demand Line; (v) Fifth, to secure reimbursement of the outstanding face amount of all Letters of Credit issued against the Aggregate Commitment; and (vi) Sixth, to secure payment at maturity of all outstanding Commercial Paper, including for this purpose all Nicolet Funding Corp. Loans. 2.5 Pro Rata Treatment. All payments or prepayments of principal, interest or fees shall be made pro rata in accordance with the amounts of the Notes then due. In the event that any Bank shall receive from the Company or any other source (other than the sale of a participation to another commercial lender pursuant to section 10.10) any payment of, on account of, or for any obligation of the Company hereunder or under the Notes (whether pursuant to the exercise of any right of set off, banker's lien, realization upon any security held for or appropriated to such obligation, counterclaim or otherwise) other than as above provided, then such Bank shall immediately purchase, without recourse and for cash, an interest in the obligations of the same nature held by the other Banks so that each Bank shall thereafter have a percentage interest in all of such obligations eclual to the percentage interest which such Bank held in the Notes outstanding immediately before such payment; provided, that if any payment so received shall be recovered in whole or in part from such purchasing Bank, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Company specifically acknowledges and consents to the preceding sentence. 2.6 Set Off. In the event that the unpaid principal balance of the Notes or any other amount becomes immediately due and payable pursuant to section 7.2, each Bank may offset and apply any monies, balances, accounts and deposits (including certificates of deposit) of the Company then at such Bank toward the payment of the Note or Notes held by such Bank or other amounts owed to it hereunder. Promptly upon its charging any account of the Company pursuant to this section, the Bank shall give the Company notice thereof, provided that failure to give such notice shall not affect the obligations of the Company hereunder. ARTICLE III CONDITIONS OF BORROWING Without limiting any of the other terms of this Agreement, none of the Banks shall be required to make any loan to the Company hereunder or issue any Letter of Credit unless each of the following conditions has been satisfied: 3.1 Representations. The representations and warranties contained in Article IV hereof continue to be true and correct on the date of such loan and no Default or Event of Default hereunder shall have occurred and be continuing. 3.2 Insurance Certificate. Prior to the initial loan the Banks shall have received satisfactory evidence that the Company maintains hazard and liability insurance coverage reasonably satisfactory to the Banks. 3.3 Form U-1. Prior to the initial loan the Company shall have executed and delivered to the Banks a Federal Reserve Form U-1 provided for in Regulation U of the Board of Governors of the Federal Reserve System, and the statements made therein shall be such, in the reasonable opinion of the Banks, as to permit the transactions contemplated hereby without violation of Regulation U. 3.4 Counsel opinion. Prior to the initial loan the Banks shall have received from their special counsel and from Company's counsel, satisfactory opinions as to such matters relating to the Company and its Subsidiaries, the validity and enforceability of this Agreement, the loans to be made hereunder and the other documents required by this Article III as the Banks shall reasonably require. The Company shall execute and/or deliver to the Banks or their respective counsel such documents concerning its corporate status and the authorization of such transactions as may be requested. 3.5 Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated by this Agreement, and all instruments, authorizations and other documents applicable thereto, shall be satisfactory in form and substance to the Banks and their respective counsel. 3.6 Violation of Environmental Laws. In the reasonable opinion of the Banks there shall not exist any uncorrected violation by the Company or any Subsidiary of an Environmental Law or any condition which requires, or may require, a cleanup, removal or other remedial action by the Company or any Subsidiary under any Environmental Laws costing $2,500,000 or more in the aggregate. ARTICLE IV REPRESENTATIONS AND WARRANTIES In order to induce the Banks to make the loans as provided herein, the Company represents and warrants to the Banks as follows, except as set forth in a letter (the "Information and Exceptions Letter") delivered to the Banks not later than three (3) Business Days prior to the date of this Agreement. 4.1 Organization. The Company and each of its Subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction under which it was incorporated, and has all requisite power and authority, corporate or otherwise, to conduct its business and to own its properties. Set forth in the Information and Exceptions Letter is a complete and accurate list of all of its Subsidiaries, showing as of the date hereof (as to each such Subsidiary) the jurisdiction of its incorporation, the percentage of the outstanding shares of each class of capital stock owned (directly or indirectly) by the Company and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase, and similar rights. All of the outstanding stock of all of the Subsidiaries has been legally and validly issued, is fully paid and non- assessable except as provided by section 180.0622(2)(b) of the Wisconsin Business Corporation Law and its predecessor statute, as judicially interpreted, and is owned by the Company or one or more other Subsidiaries free and clear of all pledges, liens, security interests and other charges or encumbrances. The Company is duly licensed or qualified to do business in all jurisdictions in which such qualification is required, and failure to so qualify could have a material adverse effect on the property, financial condition or business operations of the Company. 4.2 Authority. The execution, delivery and performance of this Agreement, the Notes and the documents required by Article III (the "Collateral Documents") are within the corporate powers of the Company, have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Company, (ii) violate any provision of the articles of incorporation or by-laws of the Company or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Company or any Subsidiary; (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of the Company or any Subsidiary pursuant to, any indenture or other agreement or instrument under which the Company or any Subsidiary is a party or by which it or its properties may be bound or affected. This Agreement constitutes, and each of the Notes and each of the Collateral Documents when executed and delivered hereunder will constitute, legal, valid and binding obligations of the Company or other signatory enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy or similar laws affecting the enforceability of creditors' rights generally. 4.3 Investment Company Act of 1940. Neither the Company nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.4 Employee Retirement Income Security Act. All Plans are in compliance in all material respects with the applicable provisions of ERISA. Neither the Company nor any Subsidiary has incurred any material "accumulated funding deficiency" within the meaning of section 302(a)(2) of ERISA in connection with any Plan. There has been no Reportable Event for any Plan, the occurrence of which would have a materially adverse effect on the Company or any Subsidiary, nor has the Company or any Subsidiary incurred any material liability to the Pension Benefit Guaranty Corporation under section 4062 of ERISA in connection with any Plan. The Unfunded Liabilities of all Plans do not in the aggregate exceed $2,500,000. 4.5 Financial Statements. The consolidated and consolidating balance sheets of the Company and its Subsidiaries as of December 31, 1993, and the consolidated and consolidating statements of profit and loss and surplus of the Company and its Subsidiaries for the year ended on that date, as prepared by the Company and certified by Ernst & Young and heretofore furnished to the Banks, present fairly the financial condition of the Company and such Subsidiaries as of that date, and the results of their operations for the fiscal year ended on that date. Since December 31, 1993, there has been no material adverse change in the property, financial condition or business operations of the Company or any Subsidiary. 4.6 Liens. The Company and each Subsidiary has good and marketable title to all of its assets, real and personal, free and clear of all liens, security interests, mortgages and encumbrances of any kind, except Permitted Liens. To the best of the Company's knowledge and belief, all owned and leased buildings and equipment of the Company and its Subsidiaries are in good condition, repair and working order in all material respects and conform in all material respects to all applicable laws, regulations and ordinances. 4.7 Contingent Liabilities. Neither the Company nor any Subsidiary has any guarantees or other contingent liabilities outstanding (including, without limitation, liabilities by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss), except those permitted by section 5.7 hereof. 4.8 Taxes. Except as expressly disclosed in the financial statements referred to in section 4.5 above, neither the Company nor any Subsidiary has any material outstanding unpaid tax liability (except for taxes which are currently accruing from current operations and ownership of property, which are not delinquent), and no tax deficiencies have been proposed or assessed against the Company or any Subsidiary. The most recent completed audit of the Company's federal income tax returns was for the Company's income tax year ending December 31, 1989, and all taxes shown by such returns (together with any adjustments arising out of such audit, if any) have been paid. 4.9 Absence of Litigation. Neither the Company nor any Subsidiary is a party to any litigation or administrative proceeding, nor so far as is known by the Company is any litigation or administrative proceeding threatened against it or any Subsidiary, which in either case (i) relates to the execution, delivery or performance of this Agreement, the Notes, or any of the Collateral Documents, (ii) could, if adversely determined, cause any material adverse change in the property, financial condition or the conduct of the business of the Company and its Subsidiaries taken as a whole, (iii)asserts or alleges the Company or any Subsidiary violated Environmental Laws, (iv) asserts or alleges that Company or any Subsidiary is required to cleanup, remove, or take remedial or other response action due to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials, or (v) asserts or alleges that Company or any Subsidiary is required to pay all or a portion of the cost of any past, present or future cleanup, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials by Company or any Subsidiary, except with respect to violations, cleanups, removals and other remedial and response actions referred to clauses (iii), (iv) and (v) above which will cost the Company and its Subsidiaries less than $2,500,000 in the aggregate. 4.10 Absence of Default. No event has occurred which either of itself or with the lapse of time or the giving of notice or both, would give any creditor of the Company or any Subsidiary the right to accelerate the maturity of any indebtedness of the Company or any Subsidiary for borrowed money. Neither the Company nor any Subsidiary is in default under any other lease, agreement or instrument, or any law, rule, regulation, order, writ, injunction, decree, determination or award, non-compliance with which could materially adversely affect its property, financial condition or business operations. 4.11 No Burdensome Agreements. Neither the Company nor any Subsidiary is a party to any agreement, instrument or undertaking, or subject to any other restriction, (i) which materially adversely affects the property, financial condition or business operations of the Company and its Subsidiaries taken as a whole, or (ii) under or pursuant to which the Company or any Subsidiary is or will be required to place (or under which any other person may place) a lien upon any of its properties securing indebtedness either upon demand or upon the happening of a condition, with or without such demand, other than Permitted Liens. 4.12 Trademarks, etc. The Company and its Subsidiaries possess adequate trademarks, trade names, copyrights, patents, permits, service marks and licenses, or rights thereto, for the present and planned future conduct of their respective businesses substantially as now conducted, without any known conflict with the rights of others which might result in a material adverse effect on the Company and its Subsidiaries taken as a whole. 4.13 Partnerships; Joint Ventures. Neither the Company nor any Subsidiary is a member of any partnership or joint venture except as permitted under section 5.4. 4.14 Full Disclosure. No information, exhibit or report furnished by the Company or any Subsidiary to any Bank in connection with the negotiation or execution of this Agreement contained any material misstatement of fact as of the date when made or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading as of the date when made. 4.15 Fiscal Year. The fiscal year of the Company and each Subsidiary ends on December 31 of each year. 4.16 Environmental Conditions. To the Company's knowledge after reasonable investigation, there are no conditions existing currently or likely to exist during the term of this Agreement which would subject the Company or any Subsidiary to damages, penalties, injunctive relief or cleanup costs under any Environmental Laws or which require or are likely to require cleanup, removal, remedial action or other response pursuant to Environmental Laws by the Company or any Subsidiary, except for such matters which will cost the Company and its Subsidiaries less than $2,500,000 in the aggregate. 4.17 Environmental Judgments, Decrees and orders. Neither the Company nor any Subsidiary is subject to any judgment, decree, order or citation related to or arising out of Environmental Laws and neither the Company nor any Subsidiary has been named or listed as a potentially responsible party by any governmental body or agency in a matter arising under any Environmental Laws, except for such matters which will cost the Company and its Subsidiaries less than $2,500,000 in the aggregate. ARTICLE V NEGATIVE COVENANTS While any part of the credit granted to the Company is available and while any part of the principal of or interest on any Note remains unpaid or any Letter of Credit Obligation remains outstanding, the Company shall not do any of the following, or permit any Subsidiary to do any of the following, without the prior written consent of the Required Banks: 5.1 Restriction of Indebtedness. Create, incur, assume or have outstanding any indebtedness for borrowed money or the deferred purchase price of any asset (including obligations under Capitalized Leases), except: (a) the Notes issued under this Agreement; (b) outstanding indebtedness in respect of industrial revenue bond financing shown on the financial statements referred to in section 4.5 above, provided that such indebtedness shall not be renewed, extended or increased; (c) additional long-term indebtedness incurred pursuant to an offering of long-term notes, bonds or similar obligations of the Company; provided that, simultaneously with the closing of such debt offering, the Aggregate Commitment shall be reduced by an amount equal to the net proceeds to the Company of such long-term indebtedness; (d) indebtedness described in section lo.l(p)(iv), provided such indebtedness does not exceed an aggregate of $5,000,000 outstanding at any one time; (e) Commercial Paper in an aggregate face amount of not more than the amount permitted by section 1.9(a); (f) Nicolet Funding Corp. Loans in aggregate principal amount of not more than the amount permitted by section 1.9(e); (g) unsecured indebtedness which is subordinated to the prior payment of the Company's obligations under this Agreement in a manner satisfactory to the Banks; (h) indebtedness in respect of Capitalized Leases, provided that the aggregate lease payments thereunder do not exceed $1,000,000 in any fiscal year of the Company; and (i) other indebtedness not exceeding $5,000,000 in aggregate principal amount at any time outstanding. 5.2 Restriction on Liens. Create or permit to be created or allow to exist any mortgage, pledge, encumbrance or other lien upon or security interest in any property or asset now owned or hereafter acquired by the Company or any Subsidiary, except Permitted Liens. 5.3 Sale and Leaseback. Enter into any agreement providing for the leasing by the Company or a Subsidiary of property which has been or is to be sold or transferred by the Company or a Subsidiary to the lessor thereof, or which is substantially similar in purpose to property so sold or transferred, except for agreements relating to sales of property not exceeding $5,000,000 (in gross sales proceeds to the Company) in the aggregate. 5.4 Acquisitions and Investments. Acquire any other business or make any loan, advance or extension of credit to, or investment in, any other person, corporation or other entity (including without limitation Subsidiaries, partnerships and joint ventures), including investments acquired in exchange for stock or other securities or obligations of any nature of the Company or any Subsidiary, except: (a) investments in (i) bank repurchase agreements; (ii) savings accounts or certificates of deposit in a financial institution of recognized standing; (iii) obligations issued or fully guaranteed by the United States; and (iv) prime commercial paper maturing within 90 days of the date of acquisition by the Company or a Subsidiary; (b) loans and advances made to employees and agents in the ordinary course of business, such as travel and entertainment advances and similar items; (c) investments in the Company by a Subsidiary; (d) credit extended to customers in the ordinary course of business; (e) other investments outstanding on December 31, 1993, and shown on the financial statements referred to in section 4.5 above, provided that such investments shall not be increased; and (f)additional acquisitions and investments in present and future Subsidiaries and joint ventures, provided that all such acquisitions and investments (valued at original cost without regard to subsequent increases or decreases in the value thereof) shall not exceed (i)$15,000,000 in the aggregate and (ii)$5,000,000 with respect to any single entity. 5.5 Liquidation; Merger; Disposition of Assets. Liquidate or dissolve; or merge with or into or consolidate with or into any other corporation or entity except a merger of a wholly-owned Subsidiary into the Company or another wholly-owned Subsidiary; or sell, lease, transfer or otherwise dispose of all or any substantial part of its property, assets or business (other than sales made in the ordinary course of business), or any stock of any Subsidiary. 5.6 Accounts Receivable. Discount or sell with recourse, or sell for less than the face amount thereof, any of its notes or accounts receivable, whether now owned or hereafter acquired. 5.7 Contingent Liabilities. Guarantee or become a surety or otherwise contingently liable (including, without limitation, liable by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) for any obligations of others, except (i) pursuant to the deposit and collection of checks and similar items in the ordinary course of business, (ii) in connection with letters of credit issued for the account of the Company from time to time by Republic National Bank of New York, provided that (A) such letters of credit shall not exceed $10,000,000 in aggregate face amount at any time outstanding and (B) none of such letters of credit shall remain outstanding on or after June 1, 1995, and (iii) other contingent liabilities in respect of third party obligations not exceeding an aggregate of $5,000,000 outstanding at any one time. 5.8 Affiliates. Suffer or permit any transaction with any Affiliate, except on terms not less favorable to the Company or Subsidiary than would be usual and customary in similar transactions with non- affiliated persons. ARTICLE VI AFFIRMATIVE COVENANTS While any part of the credit granted to the Company is available and while any part of the principal of or interest on any Note remains unpaid or any Letter of Credit Obligation is outstanding, and unless waived in writing by the Required Banks, the Company shall: 6.1 Financial Status. Maintain: (a) At all times a Consolidated Current Ratio of at least 2.00 to 1.00; (b) A ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth of (i) not more than 1.00 to 1.00 at all times prior to January 1, 1996 and (ii) not more than 0.85 to 1.00 at all times after December 31, 1995; and (c) At the end of each fiscal quarter a Consolidated Fixed Charge Coverage Ratio for the four consecutive fiscal quarters then ended of at least 3.00 to 1.00. 6.2 Insurance. Maintain insurance in such amounts and against such risks as is customary by companies engaged in the same or similar businesses and similarly situated. 6.3 Corporate Existence; Obligations. Do, and cause each Subsidiary to do, all things necessary to: maintain its corporate existence (except for mergers permitted by section 5.5) and all rights and franchises necessary or desirable for the conduct of its business; (ii) comply in all material respects with all applicable laws, rules, regulations and ordinances, and all restrictions imposed by governmental authorities, including those relating to environmental standards and controls; and (iii) pay, before the same become delinquent and before penalties accrue thereon, all taxes, assessments and other governmental charges against it or its property, and all of its other liabilities, except to the extent and so long as the same are being contested in good faith by appropriate proceedings in such manner as not to cause any material adverse effect upon its property, financial condition or business operations, with adequate reserves provided for such payments. 6.4 Business Activities. Continue to carry on its business activities in substantially the manner such activities are conducted on the date of this Agreement and not make any material change in the nature of its business. 6.5 Properties. Keep and cause each Subsidiary to keep its properties (whether owned or leased) in good condition, repair and working order, ordinary wear and tear and obsolescence excepted, and make or cause to be made from time to time all necessary repairs thereto (including external or structural repairs) and renewals and replacements thereof consistent with the exercise of its reasonable business judgment. 6.6 Accounting Records; Reports. Maintain and cause each Subsidiary to maintain a standard and modern system for accounting in accordance with generally accepted principles of accounting consistently applied throughout all accounting periods and consistent with those applied in the preparation of the financial statements referred to in section 4.5; and furnish to the Agent such information respecting the business, assets and financial condition of the Company and its Subsidiaries as any Bank may reasonably request and, without request, furnish to the Agent: (a) Within 45 days after the end of each of the first three quarters of each fiscal year of the Company (i) consolidated and consolidating balance sheets of the Company and all of its Subsidiaries as of the close of such quarter and of the comparable quarter in the preceding fiscal year; and (ii) consolidated and consolidating statements of income and surplus of the Company and all of its Subsidiaries for such quarter and for that part of the fiscal year ending with such quarter and for the corresponding periods of the preceding fiscal year; all in reasonable detail and certified as true and correct (subject to audit and normal year-end adjustments) by the chief financial officer of the Company; and (b) As soon as available, and in any event within 90 days after the close of each fiscal year of the Company, a copy of the audit report for such year and accompanying consolidated and consolidating financial statements of the Company and its Subsidiaries, as prepared by independent public accountants of recognized standing selected by the Company and reasonably satisfactory to the Required Banks, which audit report shall be accompanied by an opinion of such accountants, in form reasonably satisfactory to the Required Banks, to the effect that the same fairly present the financial condition of the Company and its Subsidiaries and the results of its and their operations as of the relevant dates thereof; and (c) As soon as available, copies of all reports or materials submitted or distributed to shareholders of the Company or filed with the Securities and Exchange Commission or other governmental agency having regulatory authority over the Company or any Subsidiary or with any national securities exchange; and (d) Promptly, and in any event within 10 days after an officer of the Company has actual knowledge thereof a statement of the chief financial officer of the Company describing: (i) any Default or Event of Default hereunder, or any other event which, either of itself or with the lapse of time or the giving of notice or both, would constitute a default under any other material agreement to which the Company or any Subsidiary is a party, together with a statement of the actions which the Company proposes to take with respect thereto; (ii) any pending or threatened litigation or administrative proceeding of the type described in section 4.9; and (iii) any fact or circumstance which is materially adverse to the property, financial condition or business operations of the Company and its Subsidiaries taken as a whole; and (e)(i) Promptly, and in any event within 30 days, after an officer of the Company acquires actual knowledge that any Reportable Event with respect to any Plan has occurred, a statement of the chief financial officer of the Company setting forth details as to such Reportable Event and the action which the Company proposes to take with respect thereto, together with a copy of any notice of such Reportable Event given to the Pension Benefit Guaranty Corporation if a copy of such notice is available to the Company, (ii) promptly after the filing thereof with the Internal Revenue Service, copies of each annual report with respect to each Plan administered by the Company and (iii) promptly after receipt thereof, a copy of any notice (other than a notice of general application) the Company, any Subsidiary or any member of the Controlled Group may receive from the Pension Benefit Guaranty Corporation or the Internal Revenue Service with respect to any Plan administered by the Company. The financial statements referred to in (a) and (b) above shall be accompanied by a certificate by the chief financial officer of the Company demonstrating compliance with the covenants in section 6.1 during the relevant period and stating that, as of the close of the last period covered in such financial statements, no condition or event had occurred which constitutes a Default hereunder or which, after notice or lapse of time or both, would constitute a Default hereunder (or if there was such a condition or event, specifying the same). The audit report referred to in (b) above shall be accompanied by a certificate by the accountants who prepared the audit report, as of the date of such audit report, stating that in the course of their audit, nothing has come to their attention suggesting that a condition or event has occurred which constitutes a Default hereunder or which, after notice or lapse of time or both, would constitute a Default hereunder (or if there was such a condition or event, specifying the same); but such accountants shall not be liable for any failure to obtain knowledge of any such condition or event. The Agent shall promptly furnish to each of the Banks (i) copies of the certificates delivered to the Agent pursuant to this paragraph, and (ii) copies of any statements delivered to the Agent pursuant to section 6.6(d) or (e) above. 6.7 Inspection of Records. Permit representatives of the Banks at their own expense to visit and inspect any of the properties and examine any of the books and records of the Company and its Subsidiaries at any reasonable time and as often as may be reasonably desired. 6.8 Compliance with Environmental Laws. Timely comply in all material respects, and cause each Subsidiary to comply in all material respects, with all applicable Environmental Laws. 6.9 Environmental Audit. Permit, at its expense, at the request of the Required Banks, an Environmental Audit solely for the benefit of the Banks, to be conducted by the Banks or an independent agent selected by the Banks, but only in the event of a circumstance or condition of the nature described in section 6.10 below which, in the reasonable judgment of the Required Banks, will cost the Company $2,500,000 or more in the aggregate. This provision shall not relieve the Company or any Subsidiary from conducting its own Environmental Audits or taking any other steps necessary to comply with Environmental Laws. 6.10 Orders, Decrees and other Documents. Provide to the Agent, immediately upon receipt, copies of any correspondence, notice, pleading, citation, indictment, complaint, order, decree, or other document from any source asserting or alleging a circumstance or condition which requires or may recfuire a financial contribution by the Company or any Subsidiary or a cleanup, removal, remedial action, or other response by or on the part of the Company or any Subsidiary under Environmental Laws or which seeks damages or civil, criminal or punitive penalties from the Company or any Subsidiary for an alleged violation of Environmental Laws; provided, however, such documentation need not be delivered to the Agent unless and until the circumstances or conditions referred to therein will, individually or in the aggregate with any other such matters, likely result in costs to the Company and its Subsidiaries of $1,000,000 or more. ARTICLE VII DEFAULTS 7.1 Defaults. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) The Company shall fail to pay (i) any interest due on any Revolving Credit Note, or any other amount payable hereunder (other than a principal payment on any Note or a Reimbursement Obligation) by five days after the same becomes due; or (ii) any principal amount due on any Revolving Credit Note or any Reimbursement Obligation when due; (b) The Company shall default in the performance or observance of any agreement, covenant, condition, provision or term contained in Article V (other than section 5.8) or section 6.1 of this Agreement; (c) The Company shall default in the performance or observance of any of the other agreements, covenants, conditions, provisions or terms in this Agreement or any Collateral Document and such default continues for a period of thirty days after written notice thereof is given to the Company by any of the Banks; (d) Any representation or warranty made by the Company herein or any certificate delivered pursuant hereto, or any financial statement delivered to any Bank hereunder, shall prove to have been false in any material respect as of the time when made or given; (e) The Company or any Subsidiary shall fail to pay as and when due and payable (whether at maturity, by acceleration or otherwise) all or any part of the principal of or interest on any indebtedness of or assumed by it (including without limitation the Demand Notes), or of the rentals due under any lease or sublease, or of any other obligation for the payment of money, in each case where such payments aggregate $1,000,000 or more, and such default shall not be cured within the period or periods of grace, if any, specified in the instruments governing such obligations; or default shall occur under any evidence of, or any indenture, lease, sublease, agreement or other instrument governing such obligations, and such default shall continue for a period of time sufficient to permit the acceleration of the maturity of any such indebtedness or other obligation or the termination of such lease or sublease, unless the Company or such Subsidiary shall be contesting such default in good faith by appropriate proceedings; (f) A final judgment which, together with all other outstanding final judgments against the Company and its Subsidiaries, or any of them, exceeds an aggregate of $100,000 shall be entered against the Company or any Subsidiary and shall remain outstanding and unsatisfied, unbonded, unstayed or uninsured after 60 days from the date of entry thereof; (g) The Company or any Subsidiary shall: (i) become insolvent; or (ii) be unable, or admit in writing its inability to pay its debts as they mature; or (iii) make a general assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its property; or (iv) become the subject of an "order for relief" within the meaning of the United States Bankruptcy Code; or (v) become the subject of a creditor's petition for liquidation, reorganization or to effect a plan or other arrangement with creditors; or (vi) apply to a court for the appointment of a custodian or receiver for any of its assets; or (vii) have a custodian or receiver appointed for any of its assets (with or without its consent); or (viii) otherwise become the subject of any insolvency proceedings or propose or enter into any formal or informal composition or arrangement with its creditors; (h) This Agreement, any Note or any Collateral Document shall, at any time after their respective execution and delivery, and for any reason, cease to be in full force and effect or be declared null and void, or be revoked or terminated, or the validity or enforceability thereof or hereof shall be contested by the Company, or the Company shall deny that it has any or further liability or obligation thereunder or hereunder, as the case may be; or (i) Any Reportable Event, which the Required Banks determine in good faith to constitute grounds for the termination of any Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any Plan, shall have occurred, or any Plan shall be terminated within the meaning of Title IV of ERISA, or a trustee shall be appointed by the appropriate United States District Court to administer any Plan, or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan or to appoint a trustee to administer any Plan, and in case of any event described in the preceding provisions of this subsection (i) the Required Banks determine in good faith that the aggregate amount of the Company's liability to the Pension Benefit Guaranty Corporation under ERISA shall exceed $1,000,000 and such liability is not covered, for the benefit of the Company, by insurance. 7.2 Termination of Aggregate Commitment and Acceleration of Obligations. Upon the occurrence of any Event of Default: (a) As to any Event of Default under section 7.1(a) and at any time thereafter, and in each case, the Required Banks (or the Agent with the written consent of the Required Banks) may, by written notice to the Company, immediately terminate the obligation of the Banks to make revolving credit loans and issue Letters of Credit hereunder and declare the unpaid principal balance of the Revolving Credit Notes, together with all interest accrued thereon, to be immediately due and payable; and the unpaid principal balance of such Notes and all unreimbursed amounts drawn on Letters of Credit, together with all interest accrued thereon, shall thereupon be due and payable without further notice of any kind, all of which are hereby waived, and notwithstanding anything to the contrary herein or in the Notes contained; (b) As to any Event of Default under section 7.1(g), the obligation of the Banks to make revolving credit loans and issue Letters of Credit hereunder shall immediately terminate and the unpaid principal balance of all Revolving Credit Notes and all unreimbursed amounts drawn on Letters of Credit, together with all interest accrued thereon, shall immediately and forthwith be due and payable, all without presentment, demand, protest, or further notice of any kind, all of which are hereby waived, notwithstanding anything to the contrary herein or in the Notes contained; (c) As to any Event of Default other than an Event of Default under section 7.1(a) or section 7.1(g) and at any time thereafter, and in each case, the Required Banks, with the written consent of all Banks that have acted as placement agent in the sale of any Commercial Paper then outstanding (or the Agent with the written consent of such Banks) may take the actions and exercise the remedies provided by this section 7.2. (d) As to each Event of Default, subject to the limitations set forth in section 7.2(c) above, the Banks shall have all the remedies for default provided by the Collateral Documents, as well as applicable law. (e) In the event that the unpaid principal balance of the Revolving Credit Notes becomes immediately due and payable pursuant to this section 7.2, the Company shall pay (i) to the appropriate LOC Bank the sum of the largest drafts which could then or thereafter be drawn under all outstanding Letters of Credit, which sum the LOC Bank may hold for the account of the Company, without interest, for the purpose of paying any draft presented, with the excess, if any, to be returned to the Company upon termination or expiration of such Letters of Credit, and (ii) to the Agent the aggregate face amount of all Commercial Paper (including for this purpose all Nicolet Funding Corp. Loans) then outstanding, which amount may be held by the Agent, without interest, to secure the payment in full of all such Commercial Paper at maturity, with the excess, if any, to be returned to the Company upon payment in full of all such Commercial Paper. ARTICLE VIII DEMAND NOTES 8.1 Right of each Bank to Demand Payment. All amounts outstanding under each of the Demand Notes are due ON DEMAND by the holder thereof in its sole discretion; provided that such holder shall give at least three Business Days' prior written notice of its intention to make such demand to the Company and the Agent. Notwithstanding the foregoing, the unpaid principal balance of the Demand Notes, together with all interest accrued thereon, shall automatically become immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby waived, if an Event of Default under section 7.1(g) shall occur. Notwithstanding reference to any Event of Default or termination in this Agreement or any Collateral Document (except for automatic acceleration provisions referred to above), such provisions shall have no application to, or otherwise restrict, each Bank's right to demand payment under its Demand Note at any time. 8.2 Cash Collateral. If at any time when demand for payment is made on any Demand Note, the aggregate outstanding face amount of all Letters of Credit shall exceed the Aggregate Commitment (net of all outstanding Commercial Paper and Nicolet Funding Corp. Loans issued by the Company thereunder), the Company shall immediately pay the amount of such excess to the Agent, which amount (together with all accrued interest thereon) may be held by the Agent in an interest-bearing account as cash collateral for the purpose of securing the repayment of any draft presented in respect of outstanding Letters of Credit, with the excess, if any, to be returned to the Company as and when such Letters of Credit terminate or expire. ARTICLE IX THE AGENT 9.1 Appointment and Powers. Each of the Banks hereby appoints Firstar Bank Milwaukee, National Association as Agent for the Banks hereunder, and authorizes the Agent to take such action as Agent on its behalf and to exercise such powers as are specifically delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. The duties of the Agent shall be entirely ministerial; the Agent shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, the Notes or any related document, or to enforce such performance, or to inspect the property (including the books and records) of the Company or any of its subsidiaries; and the Agent shall not be required to take any action which exposes the Agent to personal liability (unless indemnification with respect to such action satisfactory to the Agent in its sole discretion is provided to the Agent by the Required Banks) or which is contrary to this Agreement or the Notes or applicable law. Firstar Bank Milwaukee, National Association agrees to act as Agent upon the express terms and conditions contained in this Article IX. 9.2 Responsibility. The Agent (i) makes no representation or warranty to any Bank and shall not be responsible to any Bank for any oral or written recitals, reports, statements, warranties or representations made in or in connection with this Agreement or any Note; (ii) shall not be responsible for the due execution, legality, validity, enforceability, genuineness, sufficiency, collectibility or value of this Agreement or any Note or any other instrument or document furnished pursuant thereto; (iii) may treat the payee of any Note as the owner thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (iv) may execute any of its duties under this Agreement by or through employees, agents and attorneys in fact and shall not be answerable for the default or misconduct of any such employee, agent or attorney in fact selected by it with reasonable care; (v) may (but shall not be required to) consult with legal counsel (including counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with advice of such counsel, accountants or experts; (vi) shall be entitled to rely upon any note, notice, consent, waiver, amendment, certificate, affidavit, letter, telegram, telex, cable or other document or communication believed by it to be genuine and signed or sent by the proper party or parties, and may rely on statements contained therein without further inquiry or investigation. Neither the Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the Notes, except for its or their own gross negligence or willful misconduct. 9.3 Agent's Indemnification. The Banks agree to indemnify and reimburse the Agent (to the extent not reimbursed by the Company), ratably from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent as such in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, administration or enforcement of, or the preservation of any rights under, this Agreement to the extent that the Agent is not reimbursed for such expenses by the Company. 9.4 Rights as a Lender. With respect to its Commitment and the Notes issued to it, Firstar Bank Milwaukee, National Association, in its individual capacity as a Bank, shall have, and may exercise, the same rights and powers under this Agreement and the Notes payable to it as any other Bank has under this Agreement and Notes, and the terms "Bank" and "Banks", unless the context otherwise requires, shall include Firstar Bank Milwaukee, National Association in its individual capacity as a Bank. Firstar Bank Milwaukee, National Association and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of banking or trust business with, the Company or any of its subsidiaries and any person, firm or corporation who may do business with or own securities of the Company or any subsidiary, all as if it were not the Agent, and without any duty to account therefor to the Banks. 9.5 Credit Investigation. Each of the Banks severally represents and warrants to each of the other Banks and to the Agent that it has made its own independent investigation and evaluation of the financial condition and affairs of the Company and its Subsidiaries in connection with such Bank's execution and delivery of this Agreement and the making of its loans and has not relied on any information or evaluation provided by any other Bank or the Agent in connection with any of the foregoing (other than information provided by the Company to the Agent for transmittal to the Banks in connection with the foregoing); and each Bank represents and warrants to each other Bank and to the Agent that it shall continue to make its own independent investigation and evaluation of the credit- worthiness of the Company and its Subsidiaries while the Commitments and/or the Notes are outstanding. 9.6 Compensation. The Agent shall receive such compensation for its services as Agent under this Agreement as may be agreed from time to time by the Company and the Agent. ARTICLE X MISCELLANEOUS 10.1 Accounting Terms; Definitions. Except as otherwise provided, all accounting terms shall be construed in accordance with generally accepted accounting principles consistently applied and consistent with those applied in the preparation of the financial statements referred to in section 4.5, and financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. As used herein: (a) the term "Affiliate,, means any person, firm or corporation, which, directly or indirectly, controls, is controlled by, or is under common control with, the Company or a Subsidiary. (b) the term "Business Day" means any day other than a Saturday or Sunday on which banks in the States of Wisconsin and Illinois are open for the transaction of substantially all of their banking functions; provided, however, that for purposes of calculating the Basic LIBOR Rate, the LIBOR Interest Periods, and the election of LIBOR Pricing Options, the term "Business Day" shall mean in addition only those days on which dealings in U.S. dollar deposits are carried out by U.S. financial institutions in the London interbank market. (c) the term "Capitalized Lease,, means any lease which is capitalized on the books of the lessee, or should be so capitalized under generally accepted accounting principles. (d) the term "Commercial Paper" means (i) all commercial paper issued by the Company from time to time, including sales of commercial paper through one or more of the Banks acting as placement agent pursuant to separate agreements between the Company and such Bank or Banks, and (ii) where expressly so included by the terms of this Agreement, all Nicolet Funding Corp. Loans described in section 1.9(e). (e) the term "Consolidated Current Ratio,, means the relationship, expressed as a numerical ratio, between: (i) the amount of all assets which under generally accepted principles of accounting would appear as current assets on the consolidated balance sheet of the Company and its Subsidiaries, excluding prepaid expenses which are not refundable on the date the determination is made, And (ii) the amount of all liabilities which under generally accepted principles of accounting would appear as current liabilities on such balance sheet, including all indebtedness payable on demand or maturing (whether by reason of specified maturity, fixed prepayments, sinking funds or accruals of any kind, or otherwise) within 12 months or less from the date of the relevant statement, including all lease and rental obligations due in 12 months or less under leases, whether or not Capitalized Leases, and including customers' advances and progress billings on contracts. (f) the term "Consolidated Fixed Charge Coverage Ratio" means, for any period, the relationship, expressed as a numerical ratio, between: (i) the Consolidated Net Earnings of the Company for such period plus the sum of (A) depreciation, amortization and all other noncash deductions arising in the normal course of operations and shown on the Company's financial statements for such period, (B) net interest expense on indebtedness of the Company (including the interest component of Capitalized Leases) for such period and (C) rental expense under leases other than Capitalized Leases for such period; and (ii) the sum of (A) net interest expense on indebtedness of the Company (including the interest component of Capitalized Leases) for such period, (B) scheduled principal payments on indebtedness of the Company during such period, (C) the principal component of required payments in respect of Capitalized Leases during such period and (D) rental expense under leases other than Capitalized Leases for such period. (g) the term "Consolidated Total Liabilities,, means all liabilities of the Company and its Subsidiaries properly appearing on a consolidated balance sheet of the Company and its Subsidiaries in accordance with generally accepted accounting principles. (h) the term "Consolidated Net Earnings" means the excess of: (i) all revenues and income derived from operation in the ordinary course of business (excluding extraordinary gains and profits upon the disposition of investments and fixed assets), Over: (ii) all expenses and other proper charges against income (including payment or provision for all applicable income and other taxes, but excluding extraordinary losses and losses upon the disposition of investments and fixed assets), all as determined in accordance with generally accepted accounting principles as applied on a consolidated basis to the Company and its Subsidiaries. (i) the term "Consolidated Tangible Net Worth" means the total of all assets properly appearing on the consolidated balance sheet of the Company and its Subsidiaries in accordance with generally accepted accounting principles, less the sum of the following: the book amount of all such assets which would be treated as intangibles under generally accepted accounting principles, including, without limitation, all such items as good will, trademarks, trademark rights, trade names, tradename rights, brands, copyrights, patents, patent rights, licenses and unamortized debt discount and expense; any write-up in the book value of any such assets resulting from a revaluation thereof subsequent to December 31, 1993; (iii) all reserves, including reserves for depreciation, obsolescence, depletion, insurance, and inventory valuation, but excluding contingency reserves not allocated for any particular purpose and not deducted from assets; (iv) the amount, if any, at which any shares of stock of the Company or any Subsidiary appear on the asset side of such consolidated balance sheet; (v) all liabilities of the Company and its Subsidiaries shown on such balance sheet; and (vi) all investments in foreign affiliates and nonconsolidated domestic affiliates. (j) the term "Controlled Group" means a controlled group of corporations as defined in section 1563 of the Internal Revenue Code of 1986, as amended, of which the Company is a part. (k) The term "Default" means any event or condition which with the passage of time, the giving of notice or both would constitute an Event of Default. (1) The term "Environmental Audit" means a review for the purpose of determining whether the Company and each Subsidiary complies with Environmental Laws and whether there exists any condition or circumstance which requires or will require a cleanup, removal, or other remedial action under Environmental Laws on the part of the Company or any Subsidiary including, but not limited to, some or all of the following: (i) on site inspection including review of site geology, hydrogeology, demography, land use and population; (ii) taking and analyzing soil borings and installing ground water monitoring wells and analyzing samples taken from such wells; (iii) taking and analyzing of air samples and testing of underground tanks; (iv) reviewing plant permits, compliance records and regulatory correspondence, and interviewing enforcement staff at regulatory agencies; (v) reviewing the operations, procedures and documentation of the Company and its Subsidiaries; and (vi) interviewing past and present employees of the Company and its Subsidiaries. (m) The term "Environmental Laws" means all federal, state and local laws including statutes, regulations, ordinances, codes, rules and other governmental restrictions and requirements relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances including, but not limited to, the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental Responsibility Cleanup and Liability Act of 1980, regulations of the Environmental Protection Agency, regulations of the Nuclear Regulatory Agency, and regulations of any state department of natural resources or state environmental protection agency now or at any time hereafter in effect. (n) the term "ERISAII means the Employee Retirement Income Security Act of 1974, as the same may be in effect from time to time. (o) the term "Letter of Credit Obligations" means the aggregate undrawn face amounts of all outstanding Letters of Credit and all unpaid Reimbursement obligations. (p) the term "Permitted Liens" means: (i) liens on property financed with the proceeds of industrial revenue bonds permitted by section 5.1(b) given to secure indebtedness evidenced by such bonds and other obligations of the Company directly relating thereto; (ii) liens for taxes, assessments or governmental charges, and liens incident to construction, which are either not delinquent or are being contested in good faith by the Company or a Subsidiary by appropriate proceedings which will prevent foreclosure of such liens, and against which adequate reserves have been provided; and easements, restrictions, minor title irregularities and similar matters which have no adverse effect as a practical matter upon the ownership and use of the affected property by the Company or any Subsidiary; (iii) liens or deposits in connection with worker's compensation or other insurance or to secure customs, duties, public or statutory obligations in lieu of surety, stay or appeal bonds, or to secure performance of contracts or bids (other than contracts for the payment of money borrowed), or deposits required by law or governmental regulations or by any court order, decree, judgment or rule as a condition to the transaction of business or the exercise of any right, privilege or license; or other liens or deposits of a like nature made in the ordinary course of business; provided that the aggregate amount of liabilities (including interest and penalties, if any) of the Company secured by any stay or appeal bond shall not exceed $10,000,000 at any one time outstanding; and (iv) purchase money liens on property acquired in the ordinary course of business, to finance or secure a portion of the purchase price thereof, and liens on property acquired existing at the time of acquisition; provided that in each case such lien shall be limited to the property so acquired, the liability secured by such lien does not exceed either the purchase price or the fair market value of the asset acquired, and the indebtedness secured by such lien is permitted by section 5.1. (q) the term "Plan" means any employee pension benefit plan subject to Title IV of ERISA maintained by the Company, any of its Subsidiaries, or any member of the Controlled Group, or any such plan to which the Company, any of its Subsidiaries, or any member of the Controlled Group is required to contribute on behalf of any of its employees. (r) the term "Reimbursement obligations" means all obligations of the Company to reimburse each LOC Bank for all drawings under Letters of Credit. (s) the term "Reportable Event" means a reportable event as that term is defined in Title iv of ERISA. (t) The term "Required Banks" means Banks holding at least 66 2/3% of the Aggregate Commitment, or if the Aggregate Commitment has been terminated, Banks holding at least 66 2/3% in aggregate principal amount of the loans and Letter of Credit Obligations outstanding hereunder. (u) the term "Subsidiary" means a corporation of which the Company owns, directly or through another Subsidiary, at the date of determination, more than 50% of the outstanding stock having ordinary voting power for the election of directors, irrespective of whether or not at such time stock of any other class or classes might have voting power by reason of the happening of any contingency. (v) The term "Unfunded Liabilities" means, with regard to any Plan, the excess of the current value of the Plan's benefits guaranteed under ERISA over the current value of the Plan's assets allocable to such benefits. 10.2 Amendments, Etc. No waiver, amendment, settlement or compromise of any of the rights of any Bank under this Agreement, any Note or any of the Collateral Documents shall be effective for any purpose unless it is in a written instrument executed and delivered by the parties authorized to act by this section 10.2. Subject to the provisions of this section 10.2, the Required Banks (or the Agent with the written consent of the Required Banks) and the Company may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to this Agreement, the Notes, or the Collateral Documents or changing in any manner the rights of the Banks or the Company hereunder or thereunder or waiving any Event of Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of all of the Banks: (a) Extend the maturity of any Note or reduce the principal amount thereof, or reduce the rate or amount or change the time of payment of interest or fees payable on any Note or otherwise under this Agreement. (b) Amend the definition of Required Banks. (c) Extend the Termination Date, or increase the amount of the Commitment of any Bank hereunder, or permit the Company to assign its rights under this Agreement. (d) Alter the provisions of section 2.5 of this Agreement. (e) Amend any provision of this Agreement requiring a pro rata sharing among the Banks. (f) Amend this section 10.2. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. 10.3 Expenses; Indemnity. (a) The Company shall pay, or reimburse each Bank for (i) all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) paid or incurred by such Bank in connection with the negotiation, preparation, execution, delivery, and administration of this Agreement, the Notes, the Collateral Documents and any other document required hereunder or thereunder, including without limitation any amendment, supplement, modification or waiver of or to any of the foregoing; provided that such costs and expenses of each Bank (other than the Agent) in connection with the negotiation, preparation, execution and delivery of this Agreement, the Notes and the Collateral Documents shall not exceed $2,500; (ii) all reasonable out-of- pocket costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) paid or incurred by such Bank after Default, before and after judgment, in enforcing, protecting or preserving its rights under this Agreement, the Notes, the Collateral Documents and any other document required hereunder or thereunder, including without limitation the enforcement of rights against, or realization on, any collateral or security therefor; and (iii) any and all recording and filing fees and any and all stamp, excise, intangibles and other taxes, if any, (including, without limitation, any sales, occupation, excise, gross receipts, franchise, general corporation, personal property, privilege or license taxes, but not including taxes levied upon the net income of such Bank by the federal government or the state (or political subdivision of a state) where such Bank's principal office is located), which may be payable or determined to be payable in connection with the negotiation, preparation, execution, delivery, administration or enforcement of this Agreement, the Notes, the Collateral Documents or any other document required hereunder or thereunder or any amendment, supplement, modification or waiver of or to any of the foregoing, or consummation of any of the transactions contemplated hereby or thereby, including all costs and expenses incurred in contesting the imposition of any such tax, and any and all liability with respect to or resulting from any delay in paying the same, whether such taxes are levied upon such Bank, the Company or otherwise. (b) The Company agrees to indemnify each Bank against any and all losses, claims, damages, liabilities and expenses, (including, without limitation, reasonable attorneys' fees and expenses) incurred by such Bank arising out of, in any way connected with, or as a result of (i) any acquisition or attempted acquisition of stock or assets of another person or entity by the Company or any subsidiary, (ii) the use of any of the proceeds of any loans made hereunder by the Company or any subsidiary for the making or furtherance of any such acquisition or attempted acquisition, (iii) the construction or operation of any facility owned or operated by the Company or any Subsidiary, or resulting from any pollution or other environmental condition on the site of, or caused by, any such facility, (iv) the negotiation, preparation, execution, delivery, administration, and enforcement of this Agreement, the Note, the Collateral Documents and any other document required hereunder or thereunder, including without limitation any amendment, supplement, modification or waiver of or to any of the foregoing or the consummation or failure to consummate the transactions contemplated hereby or thereby, or the performance by the parties of their obligations hereunder or thereunder, (v) any claim, litigation, investigation or proceedings related to any of the foregoing, whether or not any Bank is a party thereto; provided, however, that such indemnity shall not apply to any ouch losses, claims, damages, liabilities or related expenses arising from (A) any unexcused breach by such Bank of its obligations under this Agreement or any Collateral Document, (B) any commitment made by such Bank to a person other than the Company or any Subsidiary which would be breached by the performance of such Bank's obligations under this Agreement or (C) gross negligence or willful misconduct of such Bank. (c) The foregoing agreements and indemnities shall remain operative and in full force and effect regardless of termination of this Agreement, the consummation of or failure to consummate either the transactions contemplated by this Agreement or any amendment, supplement, modification or waiver, the repayment of any loans made hereunder, the termination of the Letter of Credit Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any of the Notes or any Collateral Document, or any other document required hereunder or thereunder, any investigation made by or on behalf of any Bank, the Company or any Subsidiary, or the content or accuracy of any representation or warranty made under this Agreement, any Collateral Document or any other document required hereunder or thereunder. (d) The foregoing indemnities shall remain operative and in full force and effect regardless of the termination of this Agreement, the consummation of the transactions contemplated by this Agreement, the repayment of the loans made hereunder, the invalidity or unenforceability of any term or provision of this Agreement or any of the Notes, any investigation made by or on behalf of the Bank or the Company, and the content of accuracy of any representation or warranty made under this Agreement. 10.4 Securities Act of 1933. Each Bank represents that it is acquiring the Notes payable to it without any present intention of making a sale or other distribution of such Notes, provided each Bank reserves the right to sell its Notes or participations therein. 10.5 No Agency. Except as expressly provided herein, nothing in this Agreement and no action taken pursuant hereto shall cause any Bank to be treated as the agent of any other Bank, or shall be deemed to constitute the Banks a partnership, association, joint venture or other entity. 10.6 Successors. The provisions of this Agreement shall inure to the benefit of any holder of one or more of the Notes, and shall inure to the benefit of and be binding upon any successor to any of the parties hereto. This Agreement shall not create any rights in favor of any other party (including without limitation any holder of Commercial Paper, including for this purpose Nicolet Funding Corp. Loans) and the Banks shall have no liability whatsoever to any holder of Commercial Paper as a result of this Agreement. No delay on the part of any Bank or any holder of any of the Notes in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege hereunder preclude other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein specified are cumulative and are not exclusive of any rights or remedies which the Banks or the holder of any of the Notes would otherwise have. 10.7 Survival. All agreements, representations and warranties made herein shall survive the execution of this Agreement, the making of the loans hereunder and the execution and delivery of the Notes. 10.8 Wisconsin Law. This Agreement and the Notes issued hereunder shall be governed by and construed in accordance with the internal laws of the State of Wisconsin, except to the extent superseded by federal law. 10.9 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. 10.10 Notices. All communications or notices required under this Agreement shall be deemed to have been given on the date when deposited in the United States mail, postage prepaid, and addressed as follows (unless and until any of such parties advises the other in writing of a change in such address): (a) if to the Company, with the full name and address of the Company as shown on this Agreement below; and (b) if to any of the Banks with the full name and address of such Bank as shown on this Agreement above, to the attention of the officer of the Bank executing the form of acceptance of this Agreement. 10.11 Participations. With the prior written consent of the Company and the Agent, each Bank may sell to another financial institution or institutions interests in its Notes (except that each Bank may sell such interests without such consent to other financial institutions owned directly or indirectly by it or by its controlling corporation) and, in connection with each such sale, and thereafter, disclose to any purchaser or potential purchaser of such interest any financial information such Bank may have concerning the Company and its Subsidiaries. 10.12 Entire Agreement; No Agency. This Agreement and the other documents referred to herein contain the entire agreement between the Banks and the Company with respect to the subject matter hereof, superseding all previous communications and negotiations, and no representation, undertaking, promise or condition concerning the subject matter hereof shall be binding upon the Banks unless clearly expressed in this Agreement or in the other documents referred to herein. Nothing in this Agreement or in the other documents referred to herein and no action taken pursuant hereto shall cause the Company to be treated as an agent of any Bank, or shall be deemed to constitute the Banks and the Company a partnership, association, joint venture or other entity. 10.13 Consent to Jurisdiction. The Company hereby consents to the jurisdiction of any state or federal court situated in Milwaukee County, Wisconsin, and waives any objection based on lack of personal jurisdiction, improper venue or forum non conveniens, with regard to any actions, claims, disputes or proceedings relating to this Agreement, any Note, any of the Collateral Documents, or any other document delivered hereunder or in connection herewith, or any transaction arising from or connected to any of the foregoing. Nothing herein shall affect the right of the Banks, or any of them, to serve process in any manner permitted by law, or limit the right of any Banks, or any of them, to bring proceedings against the Company or its property or assets in the competent courts of any other jurisdiction or jurisdictions. If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. When this instrument has been executed and delivered by all of the Banks, it will evidence a binding agreement between the Banks and the Company. Very truly yours, OSHKOSH BIGOSH, INC. Address: 112 Otter Avenue Oshkosh, WI 54901-5008 By: /S/ DAVID L. OMACHINSKI (CORPORATE SEAL) Vice President of Finance The foregoing Agreement is hereby confirmed and accepted as of the date thereof. FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION, as the Agent and as a Bank By: /S/ STEVE CARLTON Title: Assistant Vice President BANK ONE, MILWAUKEE, NA By: /S/ A.F. MAGGORIE Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /S/ GEORGE M. DELUHY Title: Vice President NORWEST BANK WISCONSIN, NATIONAL ASSOCIATION By: /S/ DANIEL G. FRAZIER Title: Vice President EXHIBIT 1.1 REVOLVING CREDIT NOTE $ 19- FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Wisconsin corporation, promises to pay to the order of , the principal sum of Dollars ($ ) at the Main Office of Firstar Bank Milwaukee, National Association in Milwaukee, Wisconsin, on June 24, 1997. The unpaid principal balance hereof shall bear interest, payable on the dates specified in the Credit Agreement referred to below, computed at the Applicable Rate as defined in such Credit Agreement. Principal amounts unpaid at the maturity hereof (whether by fixed maturity or acceleration) shall bear interest from and after maturity until paid computed at a rate equal to 2% per annum plus the rate otherwise payable hereunder. Principal of and interest on this Note shall be payable in lawful money of the United States of America. This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of June 24, 1994, among the undersigned and Firstar Bank Milwaukee, National Association, for itself and as Agent, and the other banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated. OSHKOSH BIGOSH, INC. By: Vice President of Finance (CORPORATE SEAL) EXHIBIT 1.2 DEMAND NOTE $ 19- FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Wisconsin corporation, promises to pay to the order of the principal sum of Dollars ($ ) at the Main Office of Firstar Bank Milwaukee, National Association, in Milwaukee, Wisconsin, ON DEMAND. The unpaid principal balance hereof shall bear interest, payable on the dates specified in the Credit Agreement referred to below, computed at the Applicable Rate as defined in such Credit Agreement. Principal amounts unpaid at the maturity thereof (whether by fixed maturity or acceleration) shall bear interest from and after demand until paid computed at a rate equal to 2% per annum plus the rate otherwise payable hereunder. Principal of and interest on this Note shall be payable in lawful money of the United States. This Note constitutes one of the Demand Notes issued under a Credit Agreement dated as of June 24, 1994 among the undersigned and Firstar Bank Milwaukee, National Association, for itself and as Agent, and the other banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which loans in part evidenced hereby were made and for a description of the terms and conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated. OSHKOSH B'GOSH, INC. By: Vice President of Finance (CORPORATE SEAL) EXHIBIT 2.1 COMMERCIAL PAPER REPORT/LOAN REQUEST 19- Memorandum to: Firstar Bank Milwaukee, National Association, as Agent 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Re: Credit Agreement Dated as of June 24, 1994 (the "Credit Agreement") Part 1: Commercial Paper Report The aggregate principal amount of all Commercial Paper (including for this purpose all Nicolet Funding Corp. Loans) of the Company now outstanding is $ Part 2: Loan Request The Company hereby applies to the Agent for a loan under the Credit Agreement to be made on 19 in the principal amount of $ . If such loan is to be subject to a LIBOR Pricing Option, the LIBOR Interest Period is months. The Company hereby certifies as follows: (a) All of the representations and warranties set forth in Article IV of the Credit Agreement continue to be true on the date hereof, except that the financial statements referred to in section 4.5 of the Credit Agreement shall be deemed to be the most recent consolidated financial statements of the Company delivered pursuant to section 6.6(a) or (b) of the Credit Agreement. (b) At the date hereof, no Default or Event of Default under the Credit Agreement has occurred and is continuing. OSHKOSH B'GOSH, INC. By: Title: AMENDMENT NO. 1 TO CREDIT AGREEMENT As of June 30, 1994 Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Bank one, Milwaukee, NA 111 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60603 Norwest Bank Wisconsin, National Association 100 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Gentlemen: Please refer to that certain Credit Agreement dated as of June 24, 1994 (the "Credit Agreement") between the undersigned Oshkosh B'Gosh, Inc., a Delaware corporation (the "Company") and you (the "Banks"). All capitalized terms used and not otherwise defined herein shall have the meanings given to such terms by the Credit Agreement. 1. Amendments to Credit Agreement. The Company requests that the Banks agree to amend the Consolidated Fixed Charge Coverage Ratio covenant set forth in section 6.1(c) of the Credit Agreement as set forth below. Subject to all of the terms and conditions hereof, the Banks agree to amend such covenant as set forth below. Therefore, subject to the terms and conditions set forth herein, the Credit Agreement shall be amended, as of the date first written above, as follows: (a) All references to the Credit Agreement in the Credit Agreement and in any of the Collateral Documents shall refer to the Credit Agreement as amended hereby. (b) Section 6.1(c) of the Credit Agreement is amended to read in its entirety as follows: (c) At the end of each fiscal quarter set forth in the table below, a Consolidated Fixed Charge Coverage Ratio for the four consecutive fiscal quarters then ended of at least the amount set forth opposite such fiscal quarter: Consolidated Fixed Fiscal Quarter Ending Charge Coverage Ratio 1. June 30, 1994 and 1.5:1.0 September 30, 1994 2. December 31, 1994, 2.0:1.0 March 31, 1995, June 30, 1995 and September 30, 1995 3. December 31, 1995, 2.5:1.0 March 31, 1996, June 30, 1996 and September 30, 1996 4. December 31, 1996 3.0:1.0 and thereafter 2. Representations. The Company repeats and reaffirms the representations and warranties set forth in Article IV of the Credit Agreement. The Company also represents and warrants that the execution, delivery and performance of this Amendment are within the corporate powers of the Company, have been duly authorized by all necessary corporate action and do not and will not (i) violate any provision of the certificate of incorporation or by-laws of the Company or of any law, regulation, order, or judgment presently in effect having applicability to the Company or (ii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; or (iii) result in any breach of or constitute a default under any indenture or other agreement or instrument under which the Company is a party. 3. Confirmation of Credit Agreement. Except as expressly provided above, the Credit Agreement shall remain in full force and effect. 4. Fees and Expenses. The Company shall be responsible for the payment of all fees and out-of- pocket disbursements incurred by the Banks in connection with the preparation, execution, delivery, administration and enforcement of this Amendment and including without limitation the reasonable fees and disbursements of counsel for the Agent. 5. Miscellaneous. The provisions of this Amendment shall inure to the benefit of and be binding upon any successor to any of the parties hereto. All agreements, representations and warranties made herein shall survive the execution of this Amendment and the extension of credit under the Credit Agreement, as so amended. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Wisconsin. This Amendment may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. Very truly yours, OSHKOSH BIGOSH, INC. By: /S/ DAVID L. OMACHINSKI Vice President of Finance (Corporate Seal) Agreed to as of the date first above written. FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION By: /S/STEVE CARLTON Title: Assistant Vice President BANK ONE, MILWAUKEE, NA By: /S/ A.F. MAGGIORE Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /S/GEORGE M. DELUHY Title: Vice President NORWEST BANK WISCONSIN, NATIONAL ASSOCIATION By: /S/ DANIEL G. FRAZIER Title: Vice President AMENDMENT NO. 2 TO CREDIT AGREEMENT As of December 31, 1994 Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Bank One, Milwaukee, NA 111 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60603 Norwest Bank Wisconsin, National Association 100 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Gentlemen: Please refer to that certain Credit Agreement dated as of June 24, 1994, as amended by Amendment No. 1 thereto dated as of June 30, 1994 (the "Credit Agreement") between the undersigned Oshkosh B'Gosh, Inc., a Delaware corporation (the "Company") and you (the Banks"). All capitalized terms used and not otherwise defined herein shall have the meanings given to such terms by the Credit Agreement. I.Amendments to Credit Agreement. The Company requests that the Banks agree to amend clause (ii) of section 5.7 of the Credit Agreement (Contingent Liabilities) permitting certain outstanding letters of credit issued for the account of the Company by Republic National Bank of New York. Subject to all of the terms and conditions hereof, the Banks agree to amend such covenant as set forth below. Therefore, subject to the terms and conditions set forth herein, the Credit Agreement shall be amended, as of the date first written above, as follows: (a) All references to the Credit Agreement in the Credit Agreement and in any of the Collateral Documents shall refer to the Credit Agreement as amended hereby. (b) Clause (ii) of section 5.7 of the Credit Agreement is amended to read in its entirety as follows: (ii) in connection with letters of credit issued for the account of the Company from time to time by Republic National Bank of New York, provided that (A) such letters of credit shall not exceed $15,000,000 in aggregate face amount at any time outstanding and (B) none of such letters of credit shall remain outstanding on or after October 1, 1995, and 2.Representations. The Company repeats and reaffirms the representations and warranties set forth in Article IV of the Credit Agreement as if made on and as of the date hereof. The Company also represents and warrants that the execution, delivery and performance of this Amendment are within the corporate powers of the Company, have been duly authorized by all necessary corporate action and do not and will not (i) violate any provision of the certificate of incorporation or by-laws of the Company or of any law, regulation, order, or judgment presently in effect having applicability to the Company or (ii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; or (iii) result in any breach of or constitute a default under any indenture or other agreement or instrument under which the Company is a party. 3.Confirmation of Credit Agreement. Except as expressly provided above, the Credit Agreement shall remain in full force and effect. 4.Fees and Expenses. The Company shall be responsible for the payment of all fees and out-of-pocket disbursements incurred by the Banks in connection with the preparation, execution, delivery, administration and enforcement of this Amendment and including without limitation the reasonable fees and disbursements of counsel for the Agent. 5.Miscellaneous. The provisions of this Amendment shall inure to the benefit of and be binding upon any successor to any of the parties hereto. All agreements, representations and warranties made herein shall survive the execution of this Amendment and the extension of credit under the Credit Agreement, as so amended. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Wisconsin. This Amendment may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. Very truly yours, OSHKOSH BIGOSH, INC. By: /S/ DAVID L. OMACHINSKI Vice President of Finance (Corporate Seal) Agreed to as of the date first above written. FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION By: /S/ STEVE CARLTON Title: Assistant Vice President BANK ONE, MILWAUKEE, NA By: /S/ A.F. MAGGORIE Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /S/ GEORGE M. DELUHY Title: Vice President NORWEST BANK WISCONSIN, NATIONAL ASSOCIATION By: /S/ DANIEL G. FRAZIER Title: Vice President AMENDMENT NO. 3 TO CREDIT AGREEMENT As of December 21, 1995 Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Bank One, Milwaukee, NA 111 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60603 Norwest Bank Wisconsin, National Association 100 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Gentlemen: Please refer to that certain Credit Agreement dated as of June 24, 1994, as amended through Amendment No. 2 thereto dated as of December 31, 1994 (the "Credit Agreement") between the undersigned Oshkosh B'Gosh, Inc., a Delaware corporation (the "Company") and you (the "Banks"). All capitalized terms used and not otherwise defined herein shall have the meanings given to such terms by the Credit Agreement. 1.Amendments to Credit Agreement. The Company requests that the Banks agree to amend the Consolidated Fixed Charge Coverage Ratio covenant set forth in section 6.1(c) of the Credit Agreement as set forth below. Subject to all of the terms and conditions hereof, the Banks agree to amend such covenant as set forth below. Therefore, subject to the terms and conditions set forth herein, the Credit Agreement shall be amended, as of the date first written above, as follows: (a) All references to the Credit Agreement in the Credit Agreement and in any of the Collateral Documents shall refer to the Credit Agreement as amended hereby. (b) Section 6.1(c) of the Credit Agreement is amended to read in its entirety as follows: (c) At the end of each fiscal quarter during each period set forth in the table below, a Consolidated Fixed Charge Coverage Ratio for the four consecutive fiscal quarters then ended of at least the amount set forth opposite such period: Consolidated Fixed Period Charge Coverage Ratio 1. From December 31, 2.0:1.0 1994 through and including December 31, 1996 2. From January 1, 2.5:1.0 1997 through and including September 30, 1997 3. From October 1, 3.0:1.0 1997 and thereafter 2. Representations. The Company repeats and reaffirms the representations and warranties set forth in Article IV of the Credit Agreement. The Company also represents and warrants that the execution, delivery and performance of this Amendment are within the corporate powers of the Company, have been duly authorized by all necessary corporate action and do not and will not (i) violate any provision of the certificate of incorporation or by-laws of the Company or of any law, regulation, order, or judgment presently in effect having applicability to the Company or (ii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; or (iii) result in any breach of or constitute a default under any indenture or other agreement or instrument under which the Company is a party. 3. Confirmation of Credit Agreement. Except as expressly provided above, the Credit Agreement shall remain in full force and effect. 4. Fees and Expenses. The Company shall be responsible for the payment of all fees and out-of- pocket disbursements incurred by the Banks in connection with the preparation, execution, delivery, administration and enforcement of this Amendment and including without limitation the reasonable fees and disbursements of counsel for the Agent. 5. Miscellaneous. The provisions of this Amendment shall inure to the benefit of and be binding upon any successor to any of the parties hereto. All agreements, representations and warranties made herein shall survive the execution of this Amendment and the extension of credit under the Credit Agreement, as so amended. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Wisconsin. This Amendment may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. Very truly yours, OSHKOSH BIGOSH, INC. BY /S/ DAVID L. OMACHINSKI Vice President of Finance (Corporate Seal) Agreed to as of the date first above written. FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION By: /S/STEVE CARLTON Title: Assistant Vice President BANK ONE, MILWAUKEE, NA By: /S/ A. F. MAGGORIE Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /S/ GEORGE M. DELUHY Title: Vice President NORWEST BANK WISCONSIN, NATIONAL ASSOCIATION By: /S/ DANIEL G. FRAZIER Title: Vice President AMENDMENT NO. 4 TO CREDIT AGREEMENT As of January 30, 1996 Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Bank One, Milwaukee, NA 111 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Harris Trust and Savings Bank ill West Monroe Street Chicago, Illinois 60603 Norwest Bank Wisconsin, National Association 100 East Wisconsin Avenue Milwaukee, Wisconsin 53202 The First National Bank of Boston 100 Federal Street Boston, Massachusetts 02110 Gentlemen: Oshkosh B,Gosh, Inc., a Delaware corporation (the "Company"), hereby agrees with each of you as follows: I. Definitions. Reference is made to that certain Credit Agreement dated as of June 24, 1994, as amended through Amendment No. 3 thereto dated as of December 21, 1995 (the "Credit Agreement") between the Company and each of you other than The First National Bank of Boston, pursuant to which the Company has issued (i) its Revolving Credit Notes to each of you other than The First National Bank of Boston in the aggregate principal amount of $60,000,000, and (ii) its Demand Notes to each of you other than The First National Bank of Boston in the aggregate principal amount of $40,000,000, each dated as of June 24, 1994 (collectively, the "Existing Notes"). All capitalized terms used and not otherwise defined herein shall have the meanings given to such terms by the Credit Agreement as amended hereby. 2. Addition of The First National Bank of Boston; New Notes. The Company has informed each of you that it wishes, and The First National Bank of Boston has informed the Company and each of you other than itself that it wishes, that The First National Bank of Boston become a party to the Credit Agreement on the terms and conditions herein and therein set forth. On the effective date of this Amendment, all loans made or continued pursuant to the Credit Agreement, including the unpaid balances of the Existing Notes, shall be evidenced by (i) new Revolving Credit Notes of the Company in the form of Exhibit 1.1 annexed hereto in the aggregate principal amount of $60,000,000, and (ii) new Demand Notes of the Company in the form of Exhibit 1.2 annexed hereto in the aggregate principal amount of $40,000,000, each to be dated as of the date hereof (collectively, the "New Notes"). The New Notes shall be executed by the Company and delivered to each of you on the date hereof against the return of the Existing Notes to the Company. Accrued interest on the Existing Notes outstanding on the date of issuance of the New Notes shall be included in the interest due on the New Notes issued in replacement of such Existing Notes on the first interest payment date specified therein. 3.Amendments to Credit Agreement. Subject to the terms and conditions set forth herein, the Credit Agreement shall be amended, as of the date first written above, as follows: (a) All references in the Credit Agreement to the Notes issued thereunder and the loans evidenced thereby shall refer to the New Notes issued hereunder and the loans evidenced thereby (including the unpaid balances of the Existing Notes). (b) All references to the Credit Agreement in the Credit Agreement and in any other agreements relating thereto shall refer to the Credit Agreement as amended hereby. (c) The first page of the Credit Agreement is amended by adding The First National Bank of Boston, at its address set forth on the first page of this Amendment, as an additional addressee. The First National Bank of Boston shall be included as one of the Banks for all purposes of the Credit Agreement, and all references to the Banks in the Credit Agreement and all other agreements relating thereto shall hereafter be deemed to refer collectively to Firstar Bank Milwaukee, National Association, Bank One, Milwaukee, NA, Harris Trust and Savings Bank, Norwest Bank Wisconsin, National Association, and The First National Bank of Boston. (d) The table set forth in Section 1.1 of the Credit Agreement (Revolving Credit) is amended to read in its entirety as follows: Percentage Name of Bank Commitment Interest Firstar Bank Milwaukee, National Association $18,000,000 30.0% Bank one, Milwaukee, NA $12,000,000 20.0% Harris Trust and Savings Bank $10,500,000 17.5% Norwest Bank Wisconsin, National Association $10,500,000 17.5% The First National Bank of Boston $ 9,000,000 15.0% TOTAL $60,000,000 100% (e) The table set forth in Section 1.2 of the Credit Agreement (Demand Line of Credit)is amended to read in its entirety as follows: Name of Bank Demand Line Firstar Bank Milwaukee, National Association $12,000,000 Bank One, Milwaukee, NA $ 8,000,000 Harris Trust and Savings Bank $ 7,000,000 Norwest Bank Wisconsin, National Association $ 7,000,000 The First National Bank of Boston $ 6,000,000 TOTAL $40,000,000 (f) The first clause of the definition of "Business Day" prior to the semicolon) set forth in Section l0.l(b) of the Credit Agreement is hereby amended to read in its entirety as follows: (b) the term "Business Day" means any day other than a Saturday or Sunday on which banks in the States of Wisconsin, Illinois and Massachusetts are open for the transaction of substantially all of their banking functions; 4. Representations. The Company repeats and reaffirms the representations and warranties set forth in Article IV of the Credit Agreement. The Company also represents and warrants that the execution, delivery and performance of this Amendment are within the corporate powers of the Company, have been duly authorized by all necessary corporate action and do not and will not (i) violate any provision of the certificate of incorporation or by-laws of the Company or of any law, regulation, order, or judgment presently in effect having applicability to the Company or (ii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; or (iii) result in any breach of or constitute a default under any indenture or other agreement or instrument under which the Company is a party. 5. Related Transactions; Computations. Upon issuance of the New Notes, (i) The First National Bank of Boston shall become a party to the Credit Agreement as amended hereby with the same force and effect as if a signatory thereto and shall have (a) the Commitment and Percentage Interest in the revolving credit loans to be made under the Credit Agreement set forth opposite its name in Section 1.1 of the Credit Agreement as amended hereby, and (b) its respective share of the Demand Line set forth in Section 1.2 of the Credit Agreement as amended hereby, (ii) each of you will make such adjustments among yourselves as are necessary so that after giving effect to such adjustments, the Percentage Interest of each of you in the revolving credit loans outstanding under the Credit Agreement will be the Percentage Interest set forth under Section 1.1 of the Credit Agreement as amended hereby, and your respective shares of the outstanding portion of the Demand Line will be as set forth under Section 1.2 of the Credit Agreement as amended hereby, and (iii) the obligations of the Company to The First National Bank of Boston under the Credit Agreement as amended hereby shall begin to accrue. The interest and commitment fees due each of you other than The First National Bank of Boston with respect to periods prior to the date hereof shall be determined in accordance with the Credit Agreement as in effect prior to the date hereof, and the interest and commitment fees due each of you with respect to the periods beginning on or after the date hereof shall be determined in accordance with the Percentage Interests in effect on and after the date hereof. 6. Conditions. Without limiting any of the other terms of the Credit Agreement as amended hereby, this Amendment shall not become effective, and the Banks shall not be required to make any further loans to the Company unless and until: (a) No Default or Event of Default shall have occurred and be continuing and neither the business nor the assets nor the financial condition of the Company shall have been materially adversely affected as the result of any event or development since December 31, 1994. (b) The Banks shall have received such documents concerning the corporate status of the Company and the authorization of the transactions contemplated hereby as may be reasonably requested, and such other matters as the Banks shall reasonably require; and (c) All proceedings taken in connection with the transactions contemplated by this Amendment and all instruments, authorizations and other documents applicable thereto shall be satisfactory in form and substance in the reasonable opinion of the Banks and their counsel. 7. Confirmation of Credit Agreement. Except as expressly provided above, the Credit Agreement shall remain in full force and effect. 8. Fees and Expenses. The Company shall be responsible for the payment of all fees and out-of- pocket disbursements incurred by the Banks in connection with the preparation, execution, delivery, administration and enforcement of this Amendment and including without limitation the reasonable fees and disbursements of counsel for the Agent. 9. Miscellaneous. The provisions of this Amendment shall inure to the benefit of and be binding upon any successor to any of the parties hereto. All agreements, representations and warranties made herein shall survive the execution of this Amendment and the extension of credit under the Credit Agreement, as so amended. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Wisconsin. This Amendment may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. Very truly yours, OSHKOSH BIGOSH, INC. By: /S/ DAVID L. OMACHINSKI Vice President of Finance (Corporate Seal) Agreed to as of the date first above written. FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION By: /S/ STEVE CARLTON Title: Vice President BANK ONE, MILWAUKEE, NA By: /S/ A.F. MAGGORIE Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /S/ GEORGE M. DELUHY Title: Vice President NORWEST BANK WISCONSIN, NATIONAL ASSOCIATION By: /S/ DANIEL G. FRAZIER Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By: /S/ PETER GRISWOLD Title: Director AMENDMENT NO. 5 TO CREDIT AGREEMENT As of June 28, 1996 Firstar Bank Milwaukee, NA 777 East Wisconsin Ave. Milwaukee, WI 53202 Bank One, Milwaukee, NA 111 East Wisconsin Ave. Milwaukee, WI 53202 Harris Trust and Savings Bank 111 West Monroe Street Chicago, IL 60603 Norwest Bank Wisconsin, NA 100 East Wisconsin Ave. Milwaukee, WI 53202 The First National Bank of Boston 100 Federal Street Boston, MA 02110 Gentlemen: OshKosh B'Gosh, Inc., a Delaware corporation (the "Company"), hereby agrees with each of you as follows: 1. Definitions. Reference is made to that certain Credit Agreement dated as of June 24, 1994, as amended through Amendment No. 4 thereto dated as of January 30, 1996 (the "Credit Agreement") between the Company and each of you, pursuant to which the Company has issued its Revolving Credit Notes to each of you in the aggregate principal amount of $60,000,000, each dated as of January 20, 1996 (collectively, the "Existing Notes"). All capitalized terms used and not otherwise defined herein shall have the meanings given to such terms by the Credit Agreement as amended hereby. 2. New Notes. The Company has informed each of you that it wishes to (I) extend the Termination Date to June 24, 1999, (ii) incorporate Competitive Bid Loans (as defined below) into the Credit Agreement, and (iii) make certain other changes in the Credit Agreement as set forth below. Subject to all of the terms and conditions hereof, you have agreed to such amendments to the Credit Agreement as provided below. On the effective date of this Amendment, all loans made or continued pursuant to the Revolving Credit established pursuant to section 1.1 of the Credit Agreement, including the unpaid balances of the Existing Notes, shall be evidenced by new Revolving Credit Notes of the Company in the form of Exhibit 1.1 annexed hereto in the aggregate principal amount of $60,000,000, each to be dated as of the date hereof (collectively, the "New Notes"). The New Notes shall be executed by the Company and delivered to each of you on the date hereof against the return of the Existing Notes to the Company. Accrued interest on the Existing Notes outstanding on the date of issuance of the New Notes shall be included in the interest due on the New Notes issued in replacement of such Existing Notes on the first interest payment date specifed therein. 3. Amendments to Credit Agreement. Subject to the terms and conditions set forth herein, the Credit Agreement shall be amended, as of the date first written above, as follows: (a) All references in the Credit Agreement to the Revolving Credit Notes issue thereunder and the loans evidenced thereby shall refer to the New Notes issued hereunder and the loans evidenced thereby (including the unpaid balances of the Existing Notes). (b) All references to the Credit Agreement in the Credit Agreement and in any other agreements relating thereto shall refer to the Credit Agreement as amended hereby. (c) The date of June 24, 1997 set forth in Section 1.1 of the Credit Agreement is amended to June 24, 1999. (d) The amount of $35,000,000 set forth in Section 1.4(a) of the Credit Agreement (relating to import Letters of Credit) is amended to $50,000,000. (e) The letter of credit fee of three-quarters of one percent (3/4%) per annum set forht in Section 1.4(b) of the Credit Agreement is amended to five-eighths of one percent (5/8%) per annum. (f) Section 1.9(e) is deleted from the Credit Agreement in its entirety. In addition, all references to "Nicolet Funding Corp. Loans" throughout the Credit Agreement are deleted and shall be of no further force or effect. (g) A new Section 1.10 is hereby added to the Credit Agreement reading in its entirety as follows: 1.10 Competitive Bid Loans. The Company may obtain loans under Sections 1.1 and 1.2 pursuant to the competitive bid procedures set forth in the Section 1.10 ("Competitive Bid Loans"), subject to the terms and conditions of Section 1.1 or 1.1 (as the case may be), except as otherwise provided in this Section 1.10. Each Bank may make such Competitive Bid Loans to the Company, subject to the terms and conditions hereof, in such amounts as such Bank, in its sole discretion, desires to make to the Company. Notwithstanding any contrary provision of Section 1.1, the aggregate outstanding amount of Competitive Bid Loans made against the Aggregate Commitment shall reduce each Bank's Commitment pro rata in accordance with its respective Percentage Interest, regardless of which Bank makes such Competitive Bid Loans. Any Competitive Bid Loan made under the Demand Line shall be due and payable upon demand in accordance with the terms of this Agreement, notwithstanding any of the terms of such Competitive Bid Loan. The procedure for making Competitive Bid Loans shall be as follows: (a) The Company may make requests for bids from the Banks to make Competitive Bid Loans ("Competitive Bids") not later than 9:00 a.m., Milwaukee time, on the proposed borrowing date for one or more Competitive Bid Loans. Each such request shall be given directly to each of the Banks, shall be given in writing (which may be a facsimile transmission) signed by the Company, and shall specify (I) the proposed borrowing date, which shall be a Business Day, (ii) the aggregate amount of the requested Competitive Bid Loans, which shall not be less than $1,000,000 or, for amounts in excess thereof, an integral multiple of $100,000, (iii) the interest period for each Competitive Bid Loan ("Loan Period"), which shall commence on the applicable borrowing date and end on a specified date thereafter not exceeding 180 days from such borrowing date (up to three (3) Loan Periods may be requested pursuant to each Competitive Bid), and the last day of each such Loan Period, and (iv) if more than one Loan Period is so specified, the principal amount allocable to each such Loan Period. (b) Each Bank in its sole discretion may (but is not obligated to) submit one or more Competitive Bids to the Company not later than 11:00 a.m., Milwaukee time, on the proposed borrowing date specified in such request for Competitive Bids (such 11:00 a.m. time being herein called the "Submission Deadline") by facsimile or in writing, and thereby irrevocably offer to make all or any part (any such part referred to as a "Portion") of any Competitive Bid Loan described in the relevant request for Competitive Bids at a fixed rate of interest per annum (each a "Bid Rate") specified therein, without reference to the LIBOR Rate or other basis for interest rates, in an aggregate principal amount of not less than $1,000,000 and, for amounts in excess thereof, an integral multiple of $100,000. Multiple Competitive Bids may be delivered by any Bank. (c) The Company shall, in its sole discretion but subject to paragraph (d) below, irrevocably accept or reject any such Competitive Bid (or any Portion thereof) not later than 12:00 noon on the proposed borrowing date by notice to the appropriate Bank by telephone (confirmed in writing promptly delivered to such Bank and the Agent the same day). If a Bank fails to receive notice from the Company of its acceptance or rejection of any Competitive Bids made by such Bank at or prior to 12:00 noon on such day, all such Competitive Bids shall be deemed to have been rejected by the Company. The Company's written acceptance of any Competitive Bid shall constitute a borrowing notice of the Company, and shall specify the amount, maturity date and Bid Rate for each Competitive Bid Loan. The Company will give written notice to the Agent in the form of Part 3 to Exhibit 2.1 hereto on each Business Day on which there is any change in the aggregate outstanding principal amount of Competitive Bid Loans, setting forth the aggregate principal amount of all Competitive Bid Loans then outstanding after giving effect to any Competitive Bid Loans made on such Business Day. (d) If the Company accepts a Portion of a proposed Competitive Bid Loan for a single Loan Period at the Bid Rate provided therefor in a Bank's Competitive Bid, such Portion shall be in a principal amount of $1,000,000 or, for amounts in excess thereof, an integral multiple of $100,000. If the Company accepts any Competitive Bid Loan or Portion offered in any Competitive Bid, the Company must accept Competitive Bids (and Competitive Bid Loans and Portions thereby offered) based exclusively upon the successively lowest Bid Rates within each Loan Period an no other criteria. If two (2) or more Banks submit Competitive Bids with identical Bid Rates for the same Loan Period and the Company accepts any thereof, the Company shall accept all such Competitive Bids as nearly as possible in proportion to the amounts of such Banks' respective Competitive Bids with identical Bid Rates for such Loan Period, provided, that if the amount of Competitive Bid Loans to be so allocated is not sufficient to enable each such Bank to make such Competitive Bid Loan (or Portions thereof) in an aggregate principal amount of $1,000,000, or for amounts in excess thereof, an integral multiple of $100,000, the Company shall round the Competitive Bid Loans (or Portions thereof) allocated to such Bank or Banks as the Company shall select as necessary to a minimum of $1,000,000 and, if greater than $1,000,000 the nearest multiple of $100,000, or select the Competitive Bid of only one of such Banks. (e) Not later than 1:30 p.m., Milwaukee time, on the relevant borrowing date, each Bank whose Competitive Bid was accepted by the Company shall make available to the Agent, in immediately available funds, the proceeds of such Bank's Competitive Bid Loan(s). Upon fulfillment of the applicable borrowing conditions, the Agent shall deposit in the Company's account maintained with the Agent or as the Company may otherwise direct in writing on the relevant borrowing date the proceeds of such Competitive Bid Loans, in immediately available funds. (h) Section 2.2(b) of the Credit Agreement is amended by adding an additional subparagraph (3) thereto, reading in its entirety as follows: (3) With respect to any portion of the indebtedness evidenced by the Notes which consists of Competitive Bid Loans made pursuant to Section 1.10, the applicable Bid Rate determined pursuant to the procedure set forth in Section 1.10. (i) Section 5.4 of the Credit Agreement is amended by adding an additional clause (v) at the end of subparagraph (a) thereor, reading in its entirety as follows: and (v) other short-term fixed income investments of high credit quality selected by the Company; (j) Section 6.1(c) of the Credit Agreement is amended to read in its entirety as follows: (k) At the end of each fiscal quarter during each period set forth in the table below, a Consolidated Fixed Charge Coverage Ratio for the four consecutive fiscal quarters then ended of at least the amount set forth opposite such period: Consolidated Fixed Charge Period Coverage Ratio From December 31, 1994 through and including December 31, 1997 2.0:1.0 From January 1, 1998 through and including December 31, 1998 2.5:1.0 From January 1, 1999 and thereafter 3.0:1.0 (1) Clause (i) of Section 10.1(f) of the Credit Agreement (definition of "Consolidated Fixed Charge Coverage Ratio") is amended to read in its entirety as follows: (i) the Consolidated Net Earnings of the Company for such period (without taking into account any effects of the $20.9 million pre-tax charge against income taken by the Company in the fiscal quarter ending June 30,1996) plus the sum of (A) depreciation, amortization and all other non-cash deductions arising in the normal course of operations and shown on the Company's financial statements for such period, (B) net (including the interest component of Capitalized Leases) for such period and (C) rental expense under leases other than Capitalized Leases for such period; and (m) Exhibit 2.1 to the Credit Agreement is amended to read as set forth in Exhibit 2.1 attached to this Amendment. 4. Representations. The Company repeats and reaffirms the representations and warranties set forth in Article IV of the Credit Agreement. The Company also represents and warrants that the execution, delivery and performance of this Amendment are within the corporate powers of the Company, have been duly authorized by all necessary corporate action and do not and will not (i) violate any provision of the certificate of incorporation or by-laws of the Company or of any law, regulation, order, or judgment presently in effect having applicability to the Company of (ii) require consent or approval of, or filing or registration with, any governmental body, agency or authority; or (iii) result in any breach of or constitute a default under any indenture or other agreement or instrument under which the Company is a party. 5. Conditions. Without limiting any of the other terms of the Credit Agreement as amended hereby, this Amendment shall not become effective, and the Banks shall not be required to make any further loans to the Company unless and until: (a) No Default or Event of Default shall have occurred and be continuing and neither the business nor the assets nor the adversely affected as the result of any event or development since December 31, 1995. (b) The Banks shall have received such documents concerning the corporate status of the Company and the authorization of the transactions contemplated hereby as may be reasonably requested, and such other matters as the Banks shall reasonably require; and (c) All proceedings taken in condition with the transactions contemplated by this Amendment and all instruments, authorizations and other documents applicable thereto shall be satisfactory in form and substance in the reasonable opinion of the Banks and their counsel. 6. Confirmation of Credit Agreement. Except as expressly provided above, the Credit Agreement shall remain in full force and effect. 7. Fees and Expenses. The Company shall be responsible for the payment of all fees and out-of-pocket disbursements incurred by the Banks in connection with the preparation, execution, delivery, administration and enforcement of this Amendment and including without limitation the reasonable fees and disbursements of counsel for the Agent. 8. Miscellaneous. The provisions of this Amendment shall inure to the benefit of and be binding upon any successor to any of the parties hereto. All agreements, representations and warranties made herein shall survive the execution of this Amendment and the extension of credit under the Credit Agreement, as so amended. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Wisconsin. This Amendment may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. Very truly yours, OSHKOSH B'GOSH, INC. BY: /s/David L. Omachinski Vice President of Finance (Corporate Seal) Agreed to as of the date fist above written. FIRSTAR BANK MILWAUKEE, NA BY: /s/Stephen Carlton Title: Vice President BANK ONE, MILWAUKEE, NA BY: /s/A.F. Maggiore Title: Vice President HARRIS TRUST AND SAVINGS BANK BY: Title: Vice President NORWEST BANK WISCONSIN, NA BY: /s/Daniel Frazier Title: Vice President THE FIRST NATIONAL BANK OF BOSTON BY: Title: Director EXHIBIT 1.1 PROMISSORY NOTE $ , 19 FOR THE VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of , the principal sum of Dollars ($ ) at the Main Office of Firstar Bank Milwaukee, National Association in Milwaukee, Wisbonsin, on June 24, 1999. The unpaid principal balance hereof shall bear interest, payable on the dates specified in the Credit Agreement referred to below, computed at the Applicable Rate as defined in such Credit Agreement. Principal amounts unpaid at the maturity hereof (whether by fixed maturity or acceleration) shall bear interest from and after maturity until paid computed at a rate equal to 2% per annum plus the rate otherwise payable hereunder. Principal of and interest on this Note shall be payable in lawful money of the United States of America. This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of June 24, 1994, as amended, among the undersigned and Firstar Bank Milwaukee, National Association, for itself and as Agent, and the other banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated. OSHKOSH B'GOSH, INC. BY: Vice President of Finance (CORPORATE SEAL) EXHIBIT 2.1 COMMERCIAL PAPER AND COMPETITIVE BID LOAN REPORT/LOAN REQUEST , 19 Memorandum to: Firstar Bank Milwaukee, NA, as Agent 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Re: Credit Agreement Dated as of June 24, 1994, as amended (the "Credit Agreement") Part 1: Commercial Paper Report The aggregate principal amount of all Commercial Paper of the Company now outstanding is $ . Part 2: Loan Request The Company hereby applies to the Agent for a loan under the Credit Agreement to be made on , 19 , in the principal amount of $ . If such loan is to be subject to a LIBOR Pricing Option, the LIBOR Interest Period is months. The Company hereby certifies as follows: (a) All of the representations and warranties set forth in Article IV of the Credit Agreement continue to be true on the date hereof, except that the financial statements referred to in Section 4.5 of the Credit Agreement shall be deemed to be the most recent consolidated financial statements of the Company delivered pursuant to Section 6.6(a) or (b) of the Credit Agreement. (b) At the date hereof, no Default or Event of Default under the Credit Agreement has occurred and is continuing. Part 3: Competitive Bid Loan Report The aggregate principal amount of all Competitive Bid Loans now outstanding is $ . The Portions of outstanding Competitive Bid Loans held by each of the Banks are as follows: Firstar Bank Milwaukee, NA $ Bank One, Milwaukee, NA $ Harris Trust and Savings Bank $ Norwest Bank Wisconsin, NA $ The First National Bank of Boston $ OSHKOSH B'GOSH, INC. By: Title: AMENDMENT NO. 6 TO CREDIT AGREEMENT As of November 21, 1997 Firstar Bank Milwaukee, National Association 777 East Wisconsin Avenue Milwaukee, WI 53202 Bank One, Wisconsin 111 East Wisconsin Avenue Milwaukee, WI 53202 Harris Trust and Savings Bank 111 West Monroe Street Chicago, IL 60603 Norwest Bank Wisconsin, National Association 100 East Wisconsin Avenue Milwaukee, WI 53202 BankBoston, N.A. 100 Federal Street Boston, MA 02110 Gentlemen: OshKosh B'Gosh, Inc., a Delaware corporation (the "Company"), hereby agrees with each of you as follows: 1. Definitions. Reference is made to that certain Credit Agreement dated as of June 24, 1994, as amended through Amendment No. 5 thereto dated as of June 28, 1996 (the "Credit Agreement") between the Company and each of you, pursuant to which the Company has issued its Revolving Credit Notes to each of you in the aggregate principal amount of $60,000,000, each dated as of June 28, 1996 (collectively, the "Existing Notes"). All capitalized terms used and not otherwise defined herein shall have the meanings given to such terms by the Credit Agreement as amended hereby. 2. New Notes. The Company has informed each of you that it wishes to (I) extend the Termination Date to June 24, 2000, and (ii) make certain other changes in the Credit Agreement as set forth below. Subject to all of the terms and conditions hereof, you have agreed to such amendments to the Credit Agreement as provided below. On the effective date of this Amendment, all loans made or continued pursuant to the Revolving Credit established pursuant to Section 1.1 of the Credit Agreement, including the unpaid balances of the Existing Notes, shall be evidenced by new Revolving Credit Notes of the Company in the form of Exhibit 1.1 annexed hereto in the aggregate principal amount of $60,000,000, each to be dated as of the date hereof (collectively, the "New Notes"). The New Notes shall be executed by the Company and delivered to each of you on the date hereof against the return of the Existing Notes to the Company. Accrued interest on the Existing Notes outstanding on the date of issuance of the New Notes shall be included in the interest due on the New Notes issued in replacement of such Existing Notes on the first interest payment date specified therein. 3. Amendments to Credit Agreement. Subject to the terms and conditions set forth herein, the Credit Agreement shall be amended, as of the date first written above, as follows: (a) All references in the Credit Agreement to the Revolving Credit Notes issued thereunder and the loans evidenced thereby shall refer to the New Notes issued hereunder and the loans evidenced thereby (including the unpaid balances of the Existing Notes). (b) All references to the Credit Agreement in the Credit Agreement and in any other agreements relating thereto shall refer to the Credit Agreement as amended hereby. (c) The date of June 24, 1999 set forth in Section 1.1 of the Credit Agreement is amended to June 24, 2000. (d) Section 6.1(c) of the Credit Agreement is amended to read in its entirety as follows: (c) At the end of each fiscal quarter during each period set forth in the table below, a Consolidated Fixed Charge Coverage Ratio for the four consecutive fiscal quarters then ended of at least the amount set forth opposite such period: Period Consolidated Fixed Charge Coverage Ratio 1. From December 31, 1994 2.0:1.0 through and including December 31, 1997. 2. From January 1, 1998 2.5:1.0 through and including December 31, 1999. 3. From January 1, 2000 and 2.75:1.0 thereafter. 4. Representations. The Company repeats and reaffirms the representations and warranties set forth in Article IV of the Credit Agreement. The Company also represents and warrants that the execution, delivery and performance of this Amendment are within the corporate powers of the Company, have been duly authorized by all necessary corporate action and do not and will not (i) violate any provision of the certificate of incorporation or by-laws of the Company or of any law, regulation, order, or judgment presently in effect having applicability to the Company or (ii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; or (iii) result in any breach of or constitute a default under any indenture or other agreement or instrument under which the Company is a party. 5. Conditions. Without limiting any of the other terms of the Credit Agreement as amended hereby, this Amendment shall not become effective, and the Banks shall not be required to make any further loans to the Company unless and until: (a) No Default or Event of Default shall have occurred and be continuing and neither the business nor the assets nor the financial condition of the Company shall have been materially adversely affected as the result of any event or development since December 31, 1996. (b) The Banks shall have received such documents concerning the corporate status of the Company and the authorization of the transactions contemplated hereby as may be reasonably requested, and such other matters as the Banks shall reasonably require; and (c) All proceedings taken in conjunction with the transactions contemplated by this Amendment and all instruments, authorizations and other documents applicable thereto shall be satisfactory in form and substance in the reasonable opinion of the Banks and their counsel. 6. Confirmation of Credit Agreement. Except as expressly provided above, the Credit Agreement shall remain in full force and effect. 7. Fees and Expenses. The Company shall be responsible for the payment of all fees and out-of-pocket disbursements incurred by the Banks in connection with the preparation, execution, delivery, administration and enforcement of this Amendment and including without limitation the reasonable fees and disbursements of counsel for the Agent. 8. Miscellaneous. The provisions of this Amendment shall inure to the benefit of and be binding upon any successor to any of the parties hereto. All agreements, representations and warranties made herein shall survive the execution of this Amendment and the extension of credit under the Credit Agreement, as so amended. This Amendment shall be governed by and construed in accordance with the internal laws of the State of Wisconsin. This Amendment may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. Very truly yours, OSHKOSH B'GOSH, INC. By: /s/ David L. Omachinski Vice President of Finance (Corporate Seal) Agreed to as of the date first above written. FIRSTAR BANK MILWAUKEE, NATIONAL ASSOCIATION By: Title: BANK ONE, WISCONSIN By: Title: EX-10 8 EX. 10.14 EXHIBIT 10.14 OSHKOSH B'GOSH, INC. 1995 OUTSIDE DIRECTOR'S STOCK OPTION PLAN 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 therefore 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 share of Company Stock that may be issued under the Plan shall not exceed Seventy Thousand (70,000) 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 therefore 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 the 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 nonqualified stock option to purchase Three Thousand (3,000) 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 exerciseable 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 or (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 paying 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 a 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 optioin by the substitution on an equitble 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 Nontrasferability. 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 exerciseable 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 transfered 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 desireable 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, prior to December 31, 2004, the date on which the Plan will expire, except as to options then outstanding under the Plan, which shall remain in effect until they have been exercised or have expired. 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-27 9 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 DEC-31-1997 13779000 8700000 27503000 4225000 68226000 131048000 62192000 29237000 174788000 48286000 0 0 0 99000 113058000 174788000 395196000 395196000 250815000 115439000 192000 0 305000 38187000 15629000 22558000 0 0 0 22558000 2.05 2.03
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