-----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, JLJCjISiVIqlmO8bO+Y5SDxtxnMqgFwuPQUUKWXmpp+gd4OR55HR0SNgekmUd0mF 4Q6KHcEe0qAOQJW30AalaQ== 0000352363-01-000005.txt : 20010402 0000352363-01-000005.hdr.sgml : 20010402 ACCESSION NUMBER: 0000352363-01-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLAIBORNE LIZ INC CENTRAL INDEX KEY: 0000352363 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 132842791 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10689 FILM NUMBER: 1585091 BUSINESS ADDRESS: STREET 1: 1441 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2123544900 MAIL ADDRESS: STREET 1: 1441 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 10-K 1 0001.txt LIZ CLAIBORNE, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2000 Commission File Number 0-9831 LIZ CLAIBORNE, INC. (Exact name of registrant as specified in its charter) Delaware 13-2842791 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1441 Broadway, New York, New York 10018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 212-354-4900 Securities registered pursuant to Section 12(b) of the Act: Title of class Name of each exchange on which registered Common Stock, par value $1 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X___ No_____ Indicate 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. [ ] Based upon the closing sale price on the New York Stock Exchange composite tape on March 21, 2001, the aggregate market value of the registrant's Common Stock, par value $1 per share, held by non-affiliates of the registrant on such date was approximately $2,421,475,036. Number of shares of the registrant's Common Stock, par value $1 per share, outstanding as of March 21, 2001: 52,468,933 shares. Documents Incorporated by Reference: Registrant's Proxy Statement relating to its Annual Meeting of Stockholders to be held on May 17, 2001 - Part III. 2 PART I Item 1. Business. OVERVIEW Liz Claiborne, Inc. designs and markets an extensive range of branded women's and men's fashion apparel and accessories, appropriate for occasions ranging from casual to dressy. The Company also markets fragrances for women and men. The Company's brands include CLAIBORNE, CRAZY HORSE, CURVE, DANA BUCHMAN, ELISABETH, EMMA JAMES, FIRST ISSUE, LAUNDRY BY SHELLI SEGAL, LIZ CLAIBORNE, LUCKY BRAND, MEG ALLEN, MONET, RUSS, SIGRID OLSEN and VILLAGER. In addition, the Company holds exclusive licenses to design, produce, market and sell DKNY(R) JEANS and DKNY(R) ACTIVE men's, junior's and women's sportswear, jeanswear and activewear in the Western Hemisphere, women's sportswear under the CITY DKNY(R) trademark, women's apparel products under the KENNETH COLE NEW YORK, UNLISTED.COM and REACTION KENNETH COLE trademarks in North America and CANDIE'S fragrance, cosmetic and beauty products worldwide. Products are manufactured to the Company's specifications in the United States and abroad and are marketed through leading department and specialty stores, mass merchandisers, national chains and other channels in the United States, Canada, Europe, Asia, and Central and South America. The Company believes that it is the largest "better" women's branded apparel company in the United States. Generally, the Company's sportswear products are conceived and marketed as "designer" items, but are priced in the "better" apparel range. The Company also offers products at "bridge" and "moderate" price points. At March 20, 2001, the Company's order book reflected unfilled customer orders for approximately $610 million of merchandise, as compared to approximately $785 million at March 17, 2000. Substantially all such orders will be filled within the 2001 fiscal year. Order book data at any given date is materially affected by the timing of recording orders and of shipments and seasonal factors. Accordingly, order book data should not be taken as indicative of eventual actual shipments or net sales, or as providing meaningful period-to-period comparisons. As used herein, the term "Company" refers to Liz Claiborne, Inc., a Delaware corporation, together with its consolidated subsidiaries. NARRATIVE DESCRIPTION OF BUSINESS In order to reach a broad spectrum of consumers, the Company offers an array of products under its portfolio of brands through a variety of distribution channels at a broad range of price points. In its product offerings, the Company seeks to provide versatility to consumers in terms of individual items, price points and key item classifications. The Company operates the following business segments: Wholesale Apparel, Wholesale Non-Apparel and Retail. In addition, the Company licenses to third parties the right to manufacture, market and sell at wholesale selected products bearing the Company's trademarks. Wholesale Apparel consists of businesses that design, manufacture and market to the Company's wholesale customers women's and men's apparel under various trademarks owned or licensed by the Company. Wholesale Non-Apparel consists of businesses that design, manufacture and market to the Company's wholesale customers accessories, cosmetics and jewelry products under various trademarks owned or licensed by the Company. Retail consists of businesses that sell merchandise designed and manufactured by the Wholesale Apparel and Wholesale Non-Apparel segments to the public through Company-operated specialty retail and outlet stores, as well as leased departments. Wholesale Apparel. The Company offers a variety of women's and men's apparel products. Substantially all products in each sportswear collection are sold at retail as separate items. The Casual business offers casual sportswear in misses and petite sizes under three of the Company's trademarks: LIZSPORT, which offers all-American sportswear, including twill products, for less formal work settings and casual occasions; LIZWEAR, which offers denim and denim-related sportswear, including twills and fashion coordinates; and LIZ & CO., which offers versatile casual knitwear. The ELISABETH business offers classic careerwear, weekend casual and wardrobe basics in large sizes (including petite proportions) under the Company's ELISABETH and ELISABETH-LIZ & CO. trademarks and large-sized denim and denim-related sportswear under the ELISABETH-INDIGO trademark. The CLAIBORNE business offers men's business-casual wear, sportswear and dress shirts under the CLAIBORNE trademark. 3 The Career (COLLECTION) business offers professional careerwear with desk-to-dinner versatility in misses and petite sizes under the LIZ CLAIBORNE trademark. The DANA BUCHMAN business offers collections of products for the women's "bridge" market (the market between the "better" and "designer" markets) with elegant styling in distinctive fabrics, in misses, large and petite sizes under the Company's DANA BUCHMAN trademark and a line of "upscale" specialty store products under the DANA BUCHMAN LUXE trademark. In September 1999, the Company introduced a line of fashion forward specialty store casual products under the DANA BUCHMAN INTUITION trademark, with shipping commencing in the first quarter of 2000. The Special Markets business offers women's updated career and casual clothing at more moderate prices under five Company trademarks: EMMA JAMES (related separates for the casual workplace, sold in department stores nationally and in Japan), VILLAGER (relaxed separates for soft career and weekend dressing, sold in regional department stores), FIRST ISSUE (relaxed career and everyday wear, sold in Sears department stores), RUSS (casual separates, sold in Wal-Mart stores), and CRAZY HORSE (casual separates, sold in J.C. Penney stores). Commencing in the third quarter of 2001, a line of casual, related outfits in easy-care fabrics under the MEG ALLEN trademark will be offered through Target Stores. See "Competition; Certain Risks" below. In 2000, the Company introduced a line of moderate priced men's wear under the CRAZY HORSE trademark; shipping commenced in February of 2000. The Company holds the exclusive license to design, produce, market and sell men's, junior's and women's sportswear, jeanswear and activewear under the DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and logos for sale in the Western Hemisphere. The Company also holds the exclusive license to design, produce, market and sell a line of women's career and casual sportswear for the "better" market, under the CITY DKNY (R) trademark; shipping of this line commenced in January 2001. In February 1999, the Company acquired 84.5% of the equity of Segrets, Inc. ("Segrets"); during 2000, the Company increased its equity interest in Segrets to 97.5%. Segrets offers a range of women's sportswear in misses, large and petite sizes under several trademarks, including SIGRID OLSEN SPORT, SIGRID OLSEN COLLECTION, SO BLUE BY SIGRID OLSEN, SIGRID OLSEN WOMAN and SIGRID OLSEN PETITES. Each of the above businesses presented four seasonal collections during 2000, except DANA BUCHMAN which presented three seasonal collections. The LUCKY BRAND business, which the Company owns by virtue of its acquisition, in June 1999, of 85% of the equity interest of Lucky Brand Dungarees, Inc. ("Lucky"), offers women's and men's denim-based sportswear under various Lucky trademarks. The Company holds the exclusive license to manufacture, design, market and distribute, in North America, "better" women's contemporary sportswear under the KENNETH COLE NEW YORK label (which commenced shipping in the third quarter of 2000), a women's status denim and sportswear line under the REACTION KENNETH COLE label (which commenced shipping in January 2001), and a junior-sized apparel line under the UNLISTED.COM label. The Company also holds the exclusive license to manufacture, design, market and distribute socks and belts bearing the KENNETH COLE NEW YORK label (with socks first shipping in the third quarter of 2000 and belts first shipping in the fourth quarter of 2000), the REACTION KENNETH COLE label (which launched in March 2001) and the UNLISTED.COM label. The Laundry business, which the Company acquired in November 1999, offers contemporary womens' sportswear and dresses under the LAUNDRY BY SHELLI SEGAL and SHELLI SEGAL labels, primarily to select department and specialty stores. For further information regarding the Segrets, Lucky, and Laundry businesses, see Note 2 of Notes to Consolidated Financial Statements. For further information regarding the DKNY and Kenneth Cole licensing arrangements, see Note 3 of Notes to Consolidated Financial Statements. In February 2000, the Company licensed the right to design, manufacture, market, distribute and sell dresses under the LIZ CLAIBORNE DRESSES and ELISABETH DRESSES trademarks to Leslie Fay Marketing, Inc., a subsidiary of Leslie Fay Company, Inc. The Company continues to produce dresses as part of the COLLECTION, LIZSPORT, LIZWEAR, LIZ & CO. and ELISABETH sportswear lines. See Note 3 of Notes to Consolidated Financial Statements. Wholesale Non-Apparel. The Company offers a wide variety of women's accessory products and men's and women's cosmetic products through its non-apparel business. 3 4 The Accessories business offers an array of handbag/small leather goods and fashion accessories under the LIZ CLAIBORNE trademark. The Special Markets Accessories business offers jewelry, handbags and fashion accessories under the Company's CRAZY HORSE, VILLAGER and FIRST ISSUE trademarks. The Jewelry business offers a selection of jewelry under the LIZ CLAIBORNE trademark. In July 2000, the Company acquired substantially all of the assets comprising The Monet Group ("Monet"). Monet offers fashion jewelry under the MONET, TRIFARI and MARVELLA trademarks. For further information regarding the Monet business, see Note 2 of Notes to Consolidated Financial Statements. The offerings of our Accessories, Special Markets Accessories and Jewelry businesses mirror major fashion trends and are intended to complement many of the Company's other product lines. The Company's cosmetics business offers fragrance and bath and body-care products under the Company's LIZ CLAIBORNE, REALITIES, VIVID, CLAIBORNE FOR MEN, CLAIBORNE SPORT, CURVE (for women and men) and LIZSPORT trademarks. The Company commenced shipping a line of cosmetics under the LUCKY YOU LUCKY BRAND trademark in the third quarter of 2000. In addition, the Company holds the exclusive license to manufacture, market, distribute and sell worldwide a collection of CANDIE'S fragrances, cosmetics and beauty products. Retail. The Company operates specialty retail stores located throughout the United States, which carry solely Company products. At March 19, 2001, the Company operated a total of 111 retail stores consisting of the following: 30 LIZ CLAIBORNE stores, 44 ELISABETH large-size apparel stores, 2 CLAIBORNE men's stores, 4 Dana Buchman stores, 29 LUCKY BRAND DUNGAREES stores, and 2 LAUNDRY BY SHELLI SEGAL stores. The LIZ CLAIBORNE flagship store, an approximately 17,000 square foot facility, is located on Fifth Avenue in New York City. The other stores range in size from 900 to 12,000 square feet. During 2000, the Company closed several underperforming specialty retail stores. See Note 9 of Notes to Consolidated Financial Statements. At March 19, 2001, the Company operated 164 outlet stores in the United States, the majority of which are located in "outlet centers" comprised primarily of manufacturer-operated stores. In Western Europe, the Company's sales are made primarily through leased departments, or concessions. Licensing. The Company has twenty license arrangements pursuant to which third party licensees produce merchandise under Company trademarks in accordance with designs furnished or approved by the Company, the present terms of which (not including renewal terms) expire at various dates through 2010. Current licenses cover women's career, casual and sport shoes; dresses; home furnishing products; women's and men's outerwear; women's and men's slippers; women's swimwear and related merchandise; women's intimate apparel; women's and men's ophthalmic frames for prescription eyewear; women's and men's sunglasses and readers; men's accessories; men's dress pants, casual pants and shorts; men's formalwear and accessories; men's tailored clothing; men's and boys' neckwear; tabletop products; boys' apparel; children's apparel; and women's sleepwear apparel. Each of the licenses provides for the payment to the Company of a percentage of the licensee's sales of the licensed products against a guaranteed minimum royalty which generally increases over the term of the agreement. SALES AND MARKETING The Company's wholesale sales are made primarily to department store chains and specialty store customers throughout the United States. Retail sales are made through the Company's own retail stores and outlet stores, as well as to international customers, military exchanges and other outlets. At 2000 year-end, Company products were being sold in over 100 markets outside the United States. In Canada, the Company operates a wholesale business which sells the Company's LIZ CLAIBORNE, DANA BUCHMAN, EMMA JAMES, LUCKY BRAND, VILLAGER, DKNY(R) JEANS and KENNETH COLE NEW YORK products primarily to department store chains and specialty stores. The Company's sales in Western Europe are conducted primarily through leased departments, or concessions, and are concentrated in the United Kingdom and Spain, with additional concessions in Denmark, Belgium, Ireland and France. At 2000 year-end, the Company operated over 150 such leased departments/concessions in Western Europe. In addition, in June 2000 the Company opened its European-flagship store on Regent Street, London, England. 4 5 In other international markets, the Company operates principally through licenses with third parties which operate free-standing retail stores and dedicated department store shops. At 2000 year-end, international retail operations were comprised of 215 licensed stores and dedicated department store shop-in-shops in 31 countries. The Company distributes LIZ CLAIBORNE and DANA BUCHMAN products in Japan through a joint venture with Jusco Co. Ltd. Under a separate arrangement, Jusco Co. Ltd. manufactures customized EMMA JAMES branded apparel for sale in Japan, and operates dedicated department store shop-in-shops under the EMMA JAMES trademark. The Company's international accounts also purchase fragrances and related products through third-party distributors and apparel products direct from the Company. Approximately 87% of 2000 sales were made to the Company's 100 largest customers. Except for Dillard's Department Stores, Inc., which accounted for approximately 16% of 2000 and 15% of 1999 sales, no single customer accounted for more than 6% of 2000 or 1999 sales. However, certain of the Company's customers are under common ownership; when considered together as a group under common ownership, sales to the eight department store customers which were owned at year-end 2000 by The May Department Stores Company accounted for approximately 14% of 2000 and 16% of 1999 sales, and sales to the eight department store customers which were owned at year-end 2000 by Federated Department Stores, Inc. accounted for approximately 18% of 2000 and 17% of 1999 sales. See Note 7 of Notes to Consolidated Financial Statements. Many major department store groups make centralized buying decisions; accordingly, any material change in the Company's relationship with any such group could have a material adverse effect on the Company's operations. The Company expects that its largest customers will continue to account for a significant percentage of its sales. Sales to the Company's department and specialty store customers are made primarily through the Company's New York City showrooms. Orders from the Company's customers generally precede the related shipping periods by several months. The Company's largest customers discuss with the Company retail trends and their plans regarding their anticipated levels of total purchases of Company products for future seasons. These discussions are intended to assist the Company in planning the production and timely delivery of its products. The Company continually monitors retail sales in order to directly assess consumer response to its products. The Company has implemented in-stock reorder programs in several divisions to enable customers to reorder certain items through electronic means for quick delivery. See "Manufacturing" below. Many of the Company's retail customers participate in the Company's in-stock reorder programs through their own internal replenishment systems. During 2000, the Company continued to expand its in-store sales, marketing and merchandising programs designed to encourage multiple item, regular price sales, build one-on-one relationships with consumers and maintain the Company's merchandise presentation standards. The LIZEDGE program services the Company's LIZ CLAIBORNE and ELISABETH apparel brands by training sales associates on suggested selling, product, merchandise presentation and client development strategies. The Company's men's, accessories, jewelry, DANA BUCHMAN, Segrets, Laundry, LUCKY and licensed DKNY(R) and KENNETH COLE businesses have service and merchandising programs similar to LIZEDGE. In 2000, the Company further expanded its LIZVIEW program, designed to enhance the presentation of the Company's products on retail selling floors generally through the use of proprietary fixturing, merchandise presentations and in-store graphics. At year-end 2000, over 1,800 LIZVIEW shops were installed in more than 1,100 stores, representing over 2,000,000 square feet of upgraded selling space for LIZ CLAIBORNE brands. In addition, at year-end 2000, approximately 480 accessories, 520 CLAIBORNE, 17 DANA BUCHMAN, 150 EMMA JAMES, 8 LUCKY BRAND, 1,460 DKNY(R) JEANS and 68 KENNETH COLE NEW YORK shops were installed in domestic department stores. Furthermore, at year-end 2000, approximately 1,900 CRAZY HORSE shops were installed in JC Penney stores and approximately 175 FIRST ISSUE shops were installed in Sears stores. In 2001, the Company plans to install, in the aggregate, approximately 1,200 additional in-store shops. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Position, Capital Resources and Liquidity." The Company spent approximately $43 million on national advertising in 2000; current plans call for 2001 national advertising expenditures of a comparable amount. This compares with approximately $40 million spent in 1999. In addition, the Company maintains cooperative advertising programs under which it generally shares the costs of each customer's advertising and promotional expenditures, up to a stated percentage of the customer's purchases. The Company incurred costs under these cooperative advertising programs of approximately $75 million in 2000, compared with $64 million in 1999. The Company maintains three consumer websites: www.lizclaiborne.com, which provides information on LIZ CLAIBORNE branded apparel and accessories products; www.elisabeth.com, launched in November of 2000, which offers ELISABETH branded apparel for sale directly to consumers; and www.luckybrandjeans.com, which provides information on LUCKY BRAND branded apparel and offers a selection of LUCKY BRAND apparel for sale directly to consumers. 5 6 MANUFACTURING The Company does not own any product manufacturing facilities; all of its products are manufactured in accordance with its specifications through arrangements with independent suppliers. A very substantial portion of the Company's sales is represented by products produced abroad, mainly in the Far East, the Caribbean and Central America. The Company also sources in the United States and other regions. The Company does not itself own quota and, therefore, must obtain quota from its suppliers and vendors. During 2000, the Company's products were manufactured by several hundred suppliers. The Company's products are currently manufactured in approximately 32 different countries, including Saipan, China, Taiwan, the Dominican Republic, Hong Kong, Sri Lanka, Indonesia and the Philippines. The Company continually seeks additional suppliers throughout the world for its sourcing needs. The Company's largest supplier of finished products manufactured less than 6% of the Company's purchases of finished products during 2000. Approximately 35% of the Company's 2000 and 1999 purchases of finished products, as compared to 30% of the Company's 1998 purchases, were manufactured by its ten largest suppliers. The Company expects that the percentage of production represented by its largest suppliers will remain at its current level in light of the Company's ongoing worldwide factory certification initiative, under which the Company allocates large portions of its production requirements to suppliers which appear to have superior capacity, quality (of product and operations) and financial resources. The Company's purchases from its suppliers are affected through individual purchase orders specifying the price and quantity of the items to be produced. The Company does not have any long-term, formal arrangements with any of the suppliers which manufacture its products. The Company believes that it is the largest customer of many of its manufacturing suppliers and considers its relations with such suppliers to be satisfactory. Most of the Company's fabrics, trimmings and other materials are obtained in bulk from various foreign and domestic suppliers. Where the Company purchases completed product "packages" from its contractors, the contractor is responsible to purchase all necessary raw materials and other product components. Inasmuch as the Company intends to continue to move towards purchasing an increasing portion of its products as "packages," the Company continues its development of a group of "approved suppliers" to supply raw materials and other product components to its contractors for use in "packages"; the Company anticipates continuing the practice of purchasing a substantial portion of its products as "packages" in 2001. During 2000, the raw materials used in Company products were obtained from approximately two hundred suppliers, located primarily in the Korea, Taiwan, the United States, Japan, Turkey and Ireland. Approximately 32% of the Company's raw materials during 2000 and 29% during 1999 were obtained from its five largest raw material suppliers, with no single raw material supplier accounting for more than 9% of 2000 raw material purchases. The Company does not have any long-term, formal arrangements with any supplier of raw materials. To date, the Company has experienced little difficulty in satisfying its raw material requirements and considers its sources of supply adequate. The Company operates under substantial time constraints in producing each of its collections. See "Sales and Marketing." In order to deliver, in a timely manner, merchandise which reflects current tastes, the Company attempts to schedule a substantial portion of its materials and manufacturing commitments relatively late in the production cycle, thereby favoring suppliers able to make quick adjustments in response to changing production needs. However, in order to secure necessary materials and manufacturing facilities, the Company must make substantial advance commitments, often as much as seven months prior to the receipt of firm orders from customers for the items to be produced. The Company continues to seek to reduce the time required to move products from design to the customer. If the Company should misjudge its ability to sell its products, it could be faced with substantial outstanding fabric and/or manufacturing commitments, resulting in excess inventories. See "Competition; Certain Risks" below. The Company's arrangements with foreign suppliers are subject to the risks of doing business abroad, including currency fluctuations and revaluations, restrictions on the transfer of funds and, in certain parts of the world, political, economic and currency instability. The Company's operations have not been materially affected by any such factors to date. However, due to the large portion of the Company's products which are produced abroad, any substantial disruption of its relationships with its foreign suppliers could adversely affect the Company's operations. IMPORT AND IMPORT RESTRICTIONS Virtually all of the Company's merchandise imported into the United States is subject to United States duties. In addition, bilateral agreements between the major exporting countries and the United States impose quotas that limit the amount of certain categories of merchandise that may be imported into the United States. The majority of such agreements contain "consultation" clauses which allow the United States, under certain circumstances, to impose unilateral restrictions on the importation of certain categories of merchandise that are not subject to specified limits under the terms of an agreement. These bilateral agreements have been negotiated under the framework of the MultiFiber Arrangement ("MFA"), which has 6 7 been in effect since 1974. The United States, a participant in international negotiations known as the "Uruguay Round", ratified legislation enacting and implementing the various agreements of the Uruguay Round, effective January 1, 1995, including the Uruguay Round Agreement on Textiles and Clothing which requires World Trade Organization member countries to phase out textile and apparel quotas in three stages over a ten year period. In addition, it regulates trade in non-integrated textile and apparel quotas during the ten year transition period. However, even with respect to integrated textile and apparel quota categories, the United States remains free to establish numerical restraints in response to a particular product being imported in such increased quantities as to cause (or threaten) serious damage to the relevant domestic industry. United States legislation implementing the Uruguay Round also changed the rule of origin for many textiles and apparel products effective July 1, 1996, with certain minor exceptions. This change now determines country of origin based on "assembly" for most textile and apparel products. The Uruguay Round also incorporates modest duty reductions for textile and apparel products over a ten year staging schedule. This will likely result in a modification of current patterns of international trade with respect to apparel and textiles. See "Competition; Certain Risks" below. In addition, each of the countries in which the Company's products are sold have laws and regulations regarding import restrictions and quotas. Because the United States and other countries in which the Company's products are manufactured and sold may, from time to time, impose new quotas, duties, tariffs, surcharges or other import controls or restrictions, or adjust presently prevailing quota allocations or duty or tariff rates or levels, the Company maintains a program of intensive monitoring of import and quota-related developments. The Company seeks continually to minimize its potential exposure to import and quota-related risks through, among other measures, allocation of production to merchandise categories that are not subject to quota pressures, adjustments in product design and fabrication, shifts of production among countries and manufacturers, as well as through geographical diversification of its sources of supply. In light of the very substantial portion of the Company's products which are manufactured by foreign suppliers, the enactment of new legislation or the administration of current international trade regulations, or executive action affecting textile agreements, could adversely affect the Company's operations. DISTRIBUTION The Company distributes virtually all of its products through facilities that are owned or leased by the Company, Principal distribution facilities are located in Alabama, California, New Jersey and Pennsylvania. See "Properties" below. TRADEMARKS The Company owns and/or uses a variety of trademarks in connection with its businesses and products, including CLAIBORNE, CLAIBORNE SPORT, CRAZY HORSE, CURVE, DANA BUCHMAN, DANA BUCHMAN INTUITION, DANA BUCHMAN LUXE, ELISABETH, EMMA JAMES, FIRST ISSUE, J.H. COLLECTIBLES, LEATHER CO., LAUNDRY BY SHELLI SEGAL, LIZ, LIZ & CO., LIZ CLAIBORNE, LIZ CLAIBORNE COLLECTION, LIZ CLAIBORNE STUDIO, LIZSPORT, LIZWEAR, MEG ALLEN, MARVELLA, MONET, REALITIES, RUSS, SHELLI SEGAL, TRIFARI, VILLAGER, VIVID, its LC logomark, its triangular logomark and its leaf design. The Company has exclusive rights, under license, to the DKNY(R) JEANS and DKNY(R) ACTIVE trademarks and logos for men's and women's sportswear, jeanswear and activewear in the Western Hemisphere and to the CITY DKNY(R) trademark and logo for women's sportswear. The Company is also the exclusive licensee of the KENNETH COLE NEW YORK, UNLISTED.COM and REACTION KENNETH COLE trademarks for women's wear in North America, as well as the CANDIE'S trademark for fragrance, cosmetic and beauty products worldwide. See Note 3 of Notes to Consolidated Financial Statements. By virtue of its ownership interests, the Company controls the Segrets' trademarks, which include SIGRID OLSEN SPORT, SIGRID OLSEN COLLECTION, SO BLUE BY SIGRID OLSEN, SIGRID WOMAN and SIGRID OLSEN PETITES, and the Lucky trademarks, which include LUCKY BRAND, LUCKYVILLE, LUCKY YOU LUCKY BRAND and Lucky's four leaf clover design and pocket design. The Company has registered or applied for registration of a multitude of trademarks, including those referenced above, for use on apparel and apparel-related products, including accessories, cosmetics and jewelry in the United States as well as numerous foreign territories. The Company also has a number of design patents. The Company regards its trademarks and other proprietary rights as valuable assets and believes that they have significant value in the marketing of its products. The Company vigorously protects its trademarks and other intellectual property rights against infringement. COMPETITION; CERTAIN RISKS The apparel and related product markets are highly competitive, both within the United States and abroad. 7 8 The Company's ability to successfully compete depends on a number of factors, including the Company's ability to effectively anticipate, gauge and respond to changing consumer demands and tastes, to translate market trends into appropriate, saleable product offerings relatively far in advance, and to operate within substantial production and delivery constraints. In addition, consumer and customer acceptance and support (especially by the Company's largest customers) depend upon, among other things, product, value and service. The Company believes that, based on sales, it is among the largest apparel companies operating in the United States. Although the Company is unaware of any comprehensive trade statistics, it believes, based on its knowledge of the market and available trade information, that measured by sales, it is the largest "better" women's branded apparel company in the United States. Principal competitors within the "better" women's sportswear market include Jones Apparel Group, Inc., Polo Ralph Lauren Corporation and Tommy Hilfiger Corporation. In addition to the competitive factors described above, the Company's business, including its revenues and profitability, is influenced by and subject to a number of factors which are inherently uncertain and therefore difficult to predict, including, among others: changes in regional, national and global microeconomic and macroeconomic conditions, including the levels of consumer confidence and spending, consumer income growth, higher personal debt levels, rising energy costs, increasing interest rates and increased stock market volatility; risks related to retailer and consumer acceptance of the Company's products; risks associated with competition and the marketplace, including the financial condition of, and consolidations, restructurings and other ownership changes in, the apparel (and related products) industry and the retail industry, the introduction of new products or pricing changes by the Company's competitors, and the Company's ability to effectively remain competitive with respect to product, value and service; risks relating to retailers' buying patterns and purchase commitments for apparel products in general and the Company's products specifically; risks associated with the Company's dependence on sales to a limited number of large department store customers, including risks related to customer requirements for vendor margin support and those related to extending credit to customers; uncertainties relating to the Company's ability to successfully implement its growth strategies, integrate recent or future acquisitions, maintain product licenses, or successfully launch new products and lines; the Company's ability to correctly balance the level of its fabric and/or merchandise commitments with actual orders; the Company's ability to effectively warehouse and distribute its products, including its ability to distribute its products within its targeted markets (including distribution to and through wholesale accounts and Company operated retail stores and concession locations); risks related to the Company's ability to establish, defend and protect its trademarks and other proprietary rights and other risks relating to managing intellectual property issues; risks associated with the possible inability of the Company's unaffiliated manufacturers to manufacture and deliver products in a timely manner, to meet quality standards or to comply with the Company's policies regarding labor practices; the chance of substantial disruption of the Company's relationships with its suppliers, manufacturers and employees; and risks associated with changes in social, political, economic and other conditions affecting foreign operations and sourcing. See also Note 7 of Notes to Consolidated Financial Statements. With respect to foreign sourcing, the Company notes that legislation which would further restrict the importation and/or increase the cost of textiles and apparel produced abroad has periodically been introduced in Congress. Although it is unclear whether any new legislation will be enacted into law, it appears likely that various new legislative or executive initiatives will be proposed. These initiatives may include a reevaluation of the trading status of certain countries, including Permanent Normal Trade Relations treatment for the People's Republic of China (which was renewed in July 2000 for an additional year), and/or retaliatory duties, quotas or other trade sanctions, which, if enacted, would increase the cost of products purchased from suppliers in such countries. In light of the very substantial portion of the Company's products which are manufactured by foreign suppliers, the enactment of new legislation or the administration of current international trade regulations, or executive action affecting international textile agreements, could adversely affect the Company's operations. See "Import and Import Restrictions" and "Sales and Marketing" above. The Company from time to time reviews its possible entry into new markets, either through internal development activities, acquisitions or licensing. The entry into new markets (including the development and launch of new product categories and product lines), such as the Company's entry into the moderate market, and the acquisition of businesses, such as the Company's acquisitions of LAUNDRY, LUCKY, MONET and SEGRETS, and the licensing of brands such as DKNY(R) JEANS and DKNY(R) ACTIVE, CITY DKNY(R), KENNETH COLE NEW YORK, REACTION KENNETH COLE and UNLISTED.COM, are accompanied by risks inherent in any new business venture and may require methods of operations and marketing strategies different from those employed in the Company's other businesses. Moreover, certain new businesses may be lower margin businesses and may require the Company to achieve significant cost efficiencies. In addition, new markets product categories, product lines and businesses may involve buyers, store customers and/or competitors different from the Company's historical buyers, customers and competitors. Furthermore, the Company's acquisition of other businesses entails the normal risks inherent in such transactions, including, without limitation, possible difficulties, delays and/or unanticipated costs in integrating the businesses, operations, personnel, and/or systems of the acquired entity; risks that projected or satisfactory level of sales, profits and/or return on investment will not be generated; risks that expenditures required for capital items or working capital will be higher than anticipated; risks involving the Company's ability to retain and appropriately motivate key personnel of the acquired business; and risks associated with unanticipated events and unknown or uncertain liabilities. In addition, businesses licensed by the Company are subject to 8 9 risks inherent in such transactions, including compliance with terms set forth in the applicable license agreements, including among other things the maintenance of certain levels of sales, and the public perception and/or acceptance of the licensor's brands or other product lines, which are not within the Company's control. EMPLOYEES At December 30, 2000, the Company had approximately 8,300 full-time employees worldwide, as compared with approximately 7,700 full-time employees at January 1, 2000. The Company is bound by a national collective bargaining agreement with the Union of Needletrades, Industrial and Textile Employees (UNITE), agreements with various locals and a Jobbers Agreement with UNITE. These agreements cover approximately 1,700 of the Company's full-time employees and expire on May 31, 2003. Most of the UNITE-represented employees are employed in warehouse and distribution facilities the Company operates in New Jersey, Pennsylvania and Alabama. In addition, the Company is bound by an agreement with the Industrial Professional & Technical Workers International Union, covering approximately 150 of the Company's full-time employees at its Santa Fe Springs, California facility and expiring on May 14, 2005. The Company considers its relations with its employees to be satisfactory and to date, has not experienced any interruption of operations due to labor disputes. Item 2. Properties. The Company's showrooms and executive offices, as well as its sales, merchandising and design staffs, are located at 1441 Broadway, New York, New York, where the Company leases approximately 287,000 square feet under a master lease which expires at the end of 2012 and contains certain renewal options and rights of first refusal for additional space. The Company currently leases office space at two other buildings in New York City covering approximately 29,000 and 93,000 square feet (with terms expiring in 2003 and 2013, respectively) and licenses space in another building covering approximately 39,000 square feet. All of the Company's business segments use the properties described above. The Company owns an approximately 450,000 square foot New Jersey warehouse and distribution facility (plus mezzanine space of approximately 170,000 square feet) located at One Claiborne Avenue, North Bergen, New Jersey. This facility also houses the Company's production and certain administrative personnel. The Company also owns an approximately 300,000 square foot office facility at this location. The Company presently leases approximately 955,000 square feet in other New Jersey warehouse and distribution facilities, the current terms of which expire through 2008. The Company also owns a warehouse and distribution facility located on 80 acres in Mt. Pocono, Pennsylvania. This facility consists of approximately 630,000 square feet (plus mezzanine space of approximately 600,000 square feet) of warehouse and distribution space. In addition, the Company occupies an approximately 150,000 square foot warehouse and distribution facility in Mt. Pocono, Pennsylvania under a sublease which expires in 2002. In California, the Company leases an approximately 600,000 square foot warehouse and distribution facility and an approximately 125,000 square foot warehouse and distribution facility, located in Santa Fe Springs and Vernon, respectively. The Company leases, pursuant to industrial development financing, an approximately 290,000 square foot (plus mezzanine space of approximately 380,000 square feet) warehouse and distribution facility located on a 124 acre site in Montgomery, Alabama. The Company also occupies an approximately 120,000 square foot warehouse facility in Montgomery, Alabama under a lease which, pursuant to a renewal option exercised by the Company in 1999, expires at the end of 2001. The Company also leases showroom, warehouse and office space in various other domestic and international locations. These properties are used in each of the Company's business segments. The Company also uses unaffiliated third parties to provide distribution services at several additional facilities. The Company is seeking to sell its approximately 270,000 square foot facility in Augusta, Georgia (located on a 98-acre site and previously used in connection with a dyeing and finishing joint venture), which is currently sublet to a third-party. In addition, the Company has commenced construction of an approximately 600,000 square foot (plus mezzanine space of approximately 250,000 square feet) warehouse and distribution center in Westchester, Ohio. This project will be financed by the Company through a synthetic lease arrangement. See Note 7 of Notes to Consolidated Financial Statements. The Company leases space for its 111 retail specialty stores (aggregating approximately 415,000 square feet) and its 164 outlet stores (aggregating approximately 1,200,000 square feet). The Company believes that its existing facilities are well maintained, in good operating condition and, upon occupancy of additional space, will be adequate for its present level of operations. See Note 7 of Notes to Consolidated Financial Statements. 9 10 Item 3. Legal Proceedings. Various legal actions are pending against the Company. Although the outcome of any such actions cannot be determined with certainty, management is of the opinion that the final outcome of any of these actions should not have a material adverse effect on the Company's results of operations or financial position. See Note 7 and Note 19 of Notes to Consolidated Financial Statements. In January 1999, two actions were filed in California naming as defendants more than a dozen United States-based apparel companies that source garments from Saipan (Commonwealth of the Northern Mariana Islands) and a large number of Saipan-based garment factories. The actions assert that the Saipan factories engage in unlawful practices relating to the recruitment and employment of foreign workers and that the apparel companies, by virtue of their alleged relationship with the factories, have violated various federal and state laws. One action, filed in California Superior Court in San Francisco by a union and three public interest groups, alleges unfair competition and false advertising (the "State Court Action"). The State Court Action seeks equitable relief, unspecified amounts for restitution and disgorgement of profits, interest and an award of attorney's fees. The second, filed in the United States District Court for the Central District of California, and later transferred to the District of Hawaii is brought on behalf of a purported class consisting of the Saipan factory workers (the "Federal Action"). The Federal Action alleges claims under the civil RICO statute and the Alien Tort Claims Act, premised on supposed violations of the federal anti-peonage and indentured servitude statutes, as well as other violations of Saipan and international law, and seeks equitable relief and unspecified damages, including treble and punitive damages, interest and an award of attorney's fees. A third action, brought in Federal Court in Saipan solely against the garment factory defendants on behalf of a putative class of their workers, alleges violations of federal and Saipanese wage and employment laws. The Company sources products in Saipan but was not named as a defendant in the actions. The Company, and certain other apparel companies not named as defendants, were advised in writing, however, that they would be added as parties if a consensual resolution of the claims could not be reached. In the wake of that notice, which was accompanied by a draft complaint, the Company entered into settlement negotiations and subsequently entered into an agreement to settle all claims that were or could have been asserted in the Federal or State Court Actions. To date, more than a dozen other apparel companies have also settled these claims. As part of the settlement, the Company has since been named as a defendant, along with certain other settling apparel companies, in a Federal Court action styled Doe I, et al. v. Brylane, L.P. et al., currently pending in the United States District Court for the District of Hawaii, that mirror portions of the larger State and Federal Actions but does not include RICO and certain of the other claims alleged in those Actions . The newly filed action against the Company will remain inactive unless the settlement is not finally approved by the Federal Court. The agreements concluded by the Company and other retailers are subject to federal court approval, which has been delayed by virtue of the Hawaii District Court's June 23, 2000 decision to transfer the Federal Action to Saipan. Plaintiffs have petitioned the Ninth Circuit Court of Appeals for the Writ of Mandamus reversing that ruling and the Federal Action has effectively been stayed pending the Court of Appeals' decision. Under the terms of the settlement agreement, if the settlement does not receive final federal court approval, the Company will be entitled to a refund of the entire settlement amount except for funds of up to $10,000 spent on costs of notice to the settlement class. Because the litigation is at a preliminary stage, with no merits discovery having taken place, if the settlement is not finally approved by the federal court, we cannot at this juncture determine the likelihood of a favorable or unfavorable outcome or the magnitude of the latter if it were to occur. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report. Executive Officers of the Registrant. Information as to the executive officers of the Company, as of March 21, 2001, is set forth below:
Name Age Position(s) ---- --- ----------- Paul R. Charron 58 Chairman of the Board and Chief Executive Officer Michael Scarpa 45 Vice President and Chief Financial Officer Lawrence D. McClure 52 Senior Vice President - Human Resources John R. Thompson 49 Senior Vice President - Supply Chain Integration Robert J. Zane 61 Senior Vice President - Sourcing and Logistics
10 11 Executive officers serve at the discretion of the Board of Directors. Mr. Charron joined the Company as Vice Chairman and Chief Operating Officer, and became a Director, in 1994. In 1995, Mr. Charron became President (a position he held until October 1996) and Chief Executive Officer of the Company. In 1996, Mr. Charron became Chairman of the Board of the Company. Prior to joining the Company, Mr. Charron served in various executive capacities with VF Corporation, an apparel manufacturer, from 1988. Mr. Charron is also a director of C-Bridge Internet Solutions, Inc., a provider of Internet-based solutions. Mr. Scarpa joined the Company in 1983 as budget manager and served in various management positions thereafter. In 1991, Mr. Scarpa was promoted to Vice President - Divisional Controller and in 1995 he was promoted to Vice President - Financial Planning and Operations. Effective July 2000, he became Vice President - Chief Financial Officer. Mr. McClure joined the Company in 2000 as Senior Vice President - Human Resources. Prior to joining the Company, Mr. McClure served as Vice President, Human Resources of Dexter Corporation, a specialty materials company, from 1995. Mr. Thompson joined the Company in 1995 and served from 1995 to 2000 as Senior Vice President of Service, Systems and Reengineering, Chief Information Officer. In 2000, Mr. Thompson became Senior Vice President - Supply Chain Integration. Prior to joining the Company, Mr. Thompson served as Executive Vice President for Business Systems/Logistics and Chief Information Officer of Goody's Family Clothing, Inc., an apparel retailer, from 1993 to 1995. Mr. Zane joined the Company in 1995 and served from 1995 to 2000 as Senior Vice President - Manufacturing and Sourcing. In 2000, Mr. Zane became Senior Vice President - Sourcing and Logistics. Prior to joining the Company, Mr. Zane owned and operated Medallion Tekstil, a private label manufacturing company he founded in 1989. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock trades on the New York Stock Exchange ("NYSE") under the symbol LIZ. The table below sets forth the high and low closing sale prices of the Common Stock (based on the NYSE composite tape) for the periods indicated.
Calendar Period High Low --------------- ---- --- 2000: 1st Quarter 47 3/16 31 1/4 2nd Quarter 46 7/8 34 15/16 3rd Quarter 45 1/8 35 7/16 4th Quarter 45 1/16 35 1/16 1999: 1st Quarter 38 3/16 31 7/16 2nd Quarter 39 1/16 31 7/16 3rd Quarter 39 5/8 31 4th Quarter 40 32 1/4
On March 21, 2001, the closing sale price of the Company's Common Stock was $46.40. As of March 21, 2001, the approximate number of record holders of Common Stock was 7,500. 11 12 The Company has paid regular quarterly cash dividends since May 1984. Quarterly dividends for the last two fiscal years were paid as follows:
Calendar Period Dividends Paid per Common Share --------------- ------------------------------- 2000: 1st Quarter $.1125 2nd Quarter $.1125 3rd Quarter $.1125 4th Quarter $.1125 Calendar Period Dividends Paid per Common Share --------------- ------------------------------- 1999: 1st Quarter $.1125 2nd Quarter $.1125 3rd Quarter $.1125 4th Quarter $.1125
The Company currently plans to continue paying quarterly cash dividends on its Common Stock. The amount of any such dividend will depend on the Company's earnings, financial position, capital requirements and other relevant factors. In December 1989, the Board of Directors first authorized the repurchase, as market and business conditions warranted, of the Company's Common Stock for cash in open market purchases and privately negotiated transactions. From time to time thereafter, the Board has authorized additional repurchases. As of March 16, 2001, the Company had expended an aggregate of $1.454 billion of the $1.675 billion authorized under its stock repurchase program, covering approximately 42 million shares. See Note 7 to Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth certain information regarding the Company's operating results and financial position and is qualified in its entirety by the consolidated financial statements and notes thereto which appear elsewhere herein: (All dollar amounts in thousands except per common share data)
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Net sales $ 3,104,141 $ 2,806,548 $ 2,535,268 $ 2,412,601 $ 2,217,518 Gross profit 1,233,872 1,097,582 997,102 969,658 876,435 Net income 184,595* 192,442 169,377* 184,644 155,665 Working capital 552,672 506,298 711,942 729,763 815,429 Total assets 1,512,159 1,411,801 1,392,791 1,305,285 1,382,750 Stockholders' equity 834,285 902,169 981,110 921,627 1,020,492 Per common share data: Basic earnings 3.46* 3.13 2.59* 2.65 2.15 Diluted earnings 3.43* 3.12 2.57* 2.63 2.14 Book value at year end 16.29 15.91 15.34 13.94 14.37 Dividends paid .45 .45 .45 .45 .45 Weighted average common shares outstanding 53,406,599 61,523,465 65,502,852 69,619,167 72,396,130 Weighted average common shares and share equivalents outstanding 53,747,443 61,719,591 65,846,776 70,191,115 72,845,100
* Includes the after tax effects of a restructuring charge of $13,466 ($21,041 pretax) or $.25 per common share and a special investment gain of $5,606 ($8,760 pretax) or $.10 per common share in 2000 and a restructuring charge of $17,100 ($27,000 pretax) or $.26 per common share in 1998. 12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following table sets forth items in the Consolidated Statements of Income of the Company as a percent of net sales and the percentage change of those items as compared to the prior year.
FISCAL YEARS YEAR TO YEAR PERCENT OF SALES % CHANGE ----------------------------------------------------------- 2000 1999 vs. vs. 2000 1999 1998 1999 1998 ---- ---- ---- ---- ---- NET SALES 100.0% 100.0% 100.0% 10.6% 10.7% Cost of goods sold 60.3 60.9 60.7 9.4 11.1 GROSS PROFIT 39.7 39.1 39.3 12.4 10.1 Selling, general and administrative expenses 29.3 28.4 28.1 14.0 12.0 OPERATING INCOME (before restructuring charge) 10.5 10.7 11.2 8.3 5.3 Restructuring charge 0.7 -- 1.1 N/A (100.0) OPERATING INCOME 9.8 10.7 10.2 1.3 16.3 Other income (expense)-net 0.2 -- -- N/A 56.2 Interest (expense) income-net (0.7) 0.1 0.4 N/A (71.0) INCOME BEFORE PROVISION FOR INCOME TAXES 9.3 10.7 10.5 (4.4) 13.1 Provision for income taxes 3.3 3.9 3.8 (4.9) 12.2 NET INCOME 5.9 6.9 6.7 (4.1) 13.6 NET INCOME (before restructuring charge and special investment gain) 6.4% 6.9% 7.4% 2.9% 3.2%
We have the following business segments: Wholesale Apparel, Wholesale Non-Apparel and Retail. Our Wholesale Apparel segment consists of businesses that design, manufacture and market to our wholesale customers women's and men's apparel under various trademarks (capitalized herein) owned or licensed by the Company; this segment includes our career (COLLECTION), casual (LIZSPORT, LIZWEAR and LIZ & CO.), bridge (DANA BUCHMAN), large size (ELISABETH), men's (CLAIBORNE), moderate priced special markets (CRAZY HORSE, EMMA JAMES, FIRST ISSUE, RUSS, 13 14 VILLAGER and MEG ALLEN), specialty apparel (SIGRID OLSEN), premium denim (LUCKY BRAND DUNGAREES) and contemporary sportswear and dress (LAUNDRY) businesses, as well as our licensed DKNY(R) JEANS, DKNY(R) ACTIVE, and CITY DKNY(R) businesses and our licensed KENNETH COLE NEW YORK, REACTION KENNETH COLE and UNLISTED.COM businesses. Our Wholesale Non-Apparel segment consists of businesses that design, manufacture and market to our wholesale customers women's handbags, small leather goods, fashion accessories, jewelry, and women's and men's cosmetics under various of the above and other trademarks owned or licensed by us, including our newly acquired MONET, TRIFARI and MARVELLA labels. Our Retail segment consists of businesses that sell merchandise designed and manufactured by our Wholesale Apparel and Wholesale Non-Apparel segments to the public through our 113 specialty retail and 164 outlet stores as well as leased departments. All data with respect to our individual segments included within "Management's Discussion and Analysis" are presented before applicable intercompany eliminations (see Note 16 of Notes to Consolidated Financial Statements). 2000 VS. 1999 Our net sales for 2000 were $3.10 billion, an increase of 10.6%, compared to $2.81 billion in 1999 (both periods include 52 weeks). This increase reflected an 8.0% increase in our Wholesale Apparel segment to $2.37 billion, an increase of 23.8% in Wholesale Non-Apparel to $423 million, and an increase in Retail of 10.1% to $490 million. The increase in net sales of our Wholesale Apparel segment primarily reflected continued strength in our Special Markets business due to higher unit volume and higher net average unit selling prices, and the inclusion of a full year's sales of our SIGRID OLSEN, LUCKY BRAND DUNGAREES and LAUNDRY businesses, all acquired in 1999 (hereinafter referred to as our "recently acquired businesses"), our CRAZY HORSE Men's apparel line (launched in March 2000), and our licensed KENNETH COLE NEW YORK women's apparel line (launched in August 2000), which together accounted for $162 million, or 54%, of our 2000 total net sales increase. The increase also reflected sales increases in our CLAIBORNE men's business due to higher unit volume partially offset by lower net average unit selling prices. These gains were partially offset by sales decreases resulting from the licensing of our Dress business in February 2000; sales declines in our DANA BUCHMAN business due to lower net average unit selling prices reflecting increased retailer support, partially offset by slightly higher unit volume; and slight sales declines in our Casual business due to lower unit volume, as well as sales declines in our Career business due to lower unit volume and lower net average unit selling prices. The increase in our Wholesale Non-Apparel segment was due to significant net sales increases in our Cosmetics business, due primarily to the inclusion of sales for a full year of our licensed CANDIE'S(R) fragrance, as well as the launch of our LUCKY YOU fragrance in August 2000. The increase also reflected gains in our Jewelry business, due primarily to the inclusion of the sales of our MONET business which we acquired in July 2000. We also experienced modest gains in our Handbags business due to higher unit volume partially offset by lower net average unit selling prices. These gains were partially offset by a decline in our Fashion Accessories business due primarily to lower net average unit selling prices partially offset by higher unit volume. The increase in net sales of our Retail segment reflected increased Outlet store sales, primarily due to an increase (net after store closings) of 20 stores in the year partially offset by a low single-digit comparable store sales decrease. Our Specialty Retail store sales increased slightly, due to an increase (net after store closings) of 14 stores, with a significant increase due to the inclusion of the sales of 17 additional LUCKY BRAND DUNGAREES stores, offset by a low single-digit decline in comparable store sales in the balance of our Specialty Retail stores. The decline in comparable store sales in our Outlet and Specialty Retail stores reflects the challenging retail apparel environment and the specialty stores' heavy reliance on better-priced women's apparel. Gross profit dollars increased $136 million, or 12.4%, in 2000 over 1999. Gross profit margins increased to 39.7% in 2000, from 39.1% in 1999. This increase in gross profit rate reflected lower initial unit costs as a result of lower cost global sourcing, reflecting continued consolidation, configuration and certification of our supplier base, combined with our improved matching of production orders with customer orders at the SKU level through the use of new systems and revamped business processes implemented in late 1999. These processes also enabled us to better manage our inventories and continue to improve margins on the sale of excess inventories. Our gross profit rate also benefited from the licensing of our lower margin Dress business and the purchase of the higher margin MONET business, as well as increased penetration of our recently acquired businesses, which generally run at relatively higher gross margin rates than the Company average. These increases were partially offset by increased financial support paid to our retail customers across our better-priced apparel businesses, significantly lower margins in our DKNY(R) JEANS Women's business, and lower margins within, and increased penetration of, our Special Markets business, which runs at a lower gross profit rate than the Company average. Selling, general and administrative expenses ("SG&A"), before our 2000 restructuring charge (see Note 9 of the Notes to Consolidated Financial Statements), increased $111 million, or 14.0%, in 2000 over 1999. These expenses, before the 2000 restructuring charge, increased to 29.3% of net sales in 2000 from 28.4% in 1999. These results principally reflect 14 15 relatively higher SG&A rates in our recently acquired businesses and our MONET business, the planned dilution from the start-up costs of the new KENNETH COLE and CITY DKNY(R) licenses, and the planned increase in distribution costs resulting from the start-up of our new automated facility constructed in Mt. Pocono, PA, as well as the increase in depreciation and amortization of leasehold improvements at our New York offices and the significant investment over the past several years in the technological upgrading of our distribution facilities and information systems. The reduced sales penetration of our relatively lower cost Casual apparel business also contributed to the rate increase. These factors were partially offset by increased penetration of our Special Markets business, which is supported by relatively lower SG&A levels. The increase in the dollar level of our SG&A was mitigated by the acceleration of our expense management and cost reduction initiatives during the second half of the year. In September 2000, we recorded a net restructuring charge of $5.4 million (pretax), representing a charge of $6.5 million, principally to cover the closure of eight under-performing Specialty Retail stores, the closure of one of our divisional offices, and severance related costs, offset by the $1.1 million deemed no longer necessary of the Company's restructuring liability originally recorded in December 1998. In December 2000, we recorded a restructuring charge of $15.6 million (pretax) to further maximize business segment synergies. This charge consisted of $10.6 million for operating and administrative costs associated with the elimination of 270 jobs and $5.0 million for real estate consolidations. Significant items included in the charge are estimated contract termination costs, severance and related benefits for staff reductions, estimated occupancy costs and asset writedowns. The 2000 restructuring charges reduced net income by $13.5 million, or $.25 per common share. The Company anticipates savings associated with this restructuring to be between $13-$16 million. As a result of the factors described above, operating income, before the impact of the 2000 restructuring charge of $21 million, increased $25 million, or 8.3%, to $324.7 million, and operating income as a percent of sales decreased to 10.5%, compared to 10.7% in 1999. Segment operating income in our Wholesale Apparel segment increased to $280 million (11.8% of sales) in 2000 compared to $267 million (12.2% of sales) in 1999, primarily due to the inclusion of a full year's profits from our recently acquired businesses and increased sales in our Special Markets business. Segment operating income in our Wholesale Non-Apparel segment increased to $45 million (10.6% of sales) in 2000 compared to $33 million (9.6% of sales) in 1999, primarily due to the inclusion of the profits from our MONET business and increased sales and gross profit rates in our Cosmetics business. Segment operating income in our Retail segment increased to $59 million (12.0% of sales) in 2000 compared to $58 million (13.1% of sales) in 1999, primarily due to the opening of new stores and the inclusion of a full year's profits from the stores of our recently acquired businesses. Including the impact of the 2000 restructuring charge, operating income increased $4 million, or 1.3%, in 2000 compared to 1999, and decreased to 9.8% of sales in 2000 from 10.7% in 1999. Other income, net in 2000 was $6.7 million compared to other expense of $1.0 million in 1999. This year's other income includes a special investment gain of $8.8 million related to our sale of marketable equity securities, net of associated expenses, partially offset by minority interest and other non-operating expenses. Net interest expense for 2000 was $21.9 million compared to interest income of $2.8 million in 1999. This $24.7 million change reflects higher net interest costs incurred to finance our strategic initiatives including the repurchase of common stock, capital expenditures primarily related to the technological upgrading of our distribution facilities and information systems and in-store merchandise shops and costs associated with our recently acquired businesses. The provision for income taxes decreased $5.3 million in 2000 and decreased as a percent to sales to 3.3% in 2000 from 3.9% in 1999, primarily reflecting a lower pretax income and a lower effective tax rate of 36.0% for 2000 as compared to 36.2% in 1999. Due to the factors described above, 2000 net income before the impact of the 2000 restructuring charge and special investment gain was virtually flat against 1999 and decreased as a percentage of sales to 6.2% from 6.9% in 1999. Including the impact of the 2000 restructuring charge and special investment gain, 2000 net income was $8 million lower than in 1999, and decreased as a percentage of sales to 5.9% in 2000. Diluted earnings per common share, excluding the restructuring charge and special investment gain, increased 14.7% to $3.58 in 2000. Diluted earnings per common share, including the restructuring charges and special investment gain, increased 9.9% to $3.43 in 2000 from $3.12 in 1999. Diluted earnings per common share reflected a lower number of average outstanding common shares and share equivalents in 2000 as a result of our repurchase of approximately 6.2 million shares in 2000 for $248 million. 15 16 1999 VS. 1998 Our net sales for 1999 were $2.81 billion, an increase of 10.7%, compared to $2.54 billion in 1998 (both periods include 52 weeks). This increase reflected a 10.6% increase in Wholesale Apparel to $2.20 billion, a 6.6% increase in Wholesale Non-Apparel to $341 million and a 3.2% increase in Retail to $445 million. The increase in net sales of our Wholesale Apparel segment was broad-based, reflecting our acquisition and brand development activities as well as growth in our overall core apparel businesses. This increase primarily reflected the inclusion of the partial year sales of our recently acquired businesses, which accounted for $113 million, or 42%, of our 1999 total net sales increase, as well as sales increases in our Special Markets business due to higher unit volume and higher average unit selling prices, and in our DKNY(R) JEANS and DKNY(R) ACTIVE businesses due to higher unit volume. This increase also reflected higher sales in our core Casual, Men's and ELISABETH businesses, due in each case principally to higher unit volume. These increases were partially offset by decreases in our Career, DANA BUCHMAN and Dress businesses, due to lower unit volume, and lower average unit selling prices reflecting weakness in demand. The increase in our Wholesale Non-Apparel net sales reflected increased sales in our Cosmetics business, which launched the licensed CANDIE'S(R) fragrance during August 1999, and in our Jewelry business, due principally to higher unit volume. These sales increases were partially offset by decreased sales in our Handbags business due primarily to lower average unit selling prices. The increase in net sales of our Retail segment reflected increased Outlet store sales primarily due to 28 new stores, and the inclusion of the partial year sales of one LUCKY BRAND DUNGAREES store and four LAUNDRY stores. This increase was partially offset by a decline in sales of our Specialty Retail stores resulting primarily from the closure of 30 underperforming stores during 1999, partially offset by the inclusion of the partial year sales of 11 LUCKY BRAND DUNGAREES stores and one LAUNDRY store. Gross profit dollars increased $100 million, or 10.1%, in 1999 over 1998, while gross profit as a percent of sales declined to 39.1% in 1999, from 39.3% in 1998. These results principally reflect a decline in the gross profit rate in our Wholesale Non-Apparel segment resulting primarily from higher markdown allowances in our Handbags and Fashion Accessories businesses. In our Wholesale Apparel segment, we experienced a higher gross profit rate, as lower margins within our DANA BUCHMAN business, continued depressed margins within our Career and Dress businesses and the larger proportion of sales represented by our Special Markets business (which operates at a lower gross profit rate than the Company average) were offset by the inclusion of our recently acquired businesses (which operate at a higher gross profit rate than the Company average) and lower cost global sourcing of our merchandise. We also experienced a higher gross profit rate in our Retail segment, due principally to the closure of 30 underperforming stores mentioned above. SG&A, before our 1998 restructuring charge (see Note 9 of Notes to Consolidated Financial Statements), increased $85 million, or 12.0%, in 1999 over 1998. These expenses, before the 1998 restructuring charge, increased to 28.4% of net sales in 1999 from 28.1% in 1998, principally reflecting our recently acquired businesses (which operate at higher SG&A rates than the Company average), marketing costs associated with the launch of the CANDIE'S(R) fragrance, higher incentive compensation expense relative to 1998's depressed level, and an increase in depreciation and amortization expense related to our significant investments over the past three years in the technological upgrading of our distribution centers and information systems and the expansion of our in-store merchandise shop programs. These increases were partially offset by lower salary and related expenses reflecting headcount reductions, as well as increased penetration of our Special Markets business, which is supported by lower SG&A levels. As a result of the factors described above, operating income, before the impact of the 1998 restructuring charge, increased $15 million, or 5.3%, in 1999 compared to 1998, and decreased to 10.7% of net sales in 1999 from 11.2% in 1998. Segment operating profit in our Wholesale Apparel segment increased to $267 million (12.2% of net sales) in 1999 from $244 million (12.3% of net sales) in 1998, primarily due to increased sales and gross profit rates in our core Casual, Men's, and ELISABETH businesses and the inclusion of the profits from our recently acquired businesses. Segment operating profit in Wholesale Non-Apparel decreased to $33 million (9.6% of net sales) in 1999 from $47 million (14.5% of net sales) in 1998, primarily due to decreased sales and higher markdown allowances in our Handbags business. Segment operating profit in Retail increased to $58 million (13.1% of net sales) in 1999 from $45 million (10.5% of net sales) in 1998, primarily due to the opening of new stores, the closure of 30 underperforming stores and the inclusion of the stores of our recently acquired businesses. Including the impact of the 1998 restructuring charge, operating income increased $42 million, or 16.3%, in 1999 compared to 1998, and increased to 10.7% of sales in 1999 from 10.2% in 1998. 16 17 Net interest income-net decreased by $7 million in 1999 compared to 1998 due to a decrease in our cash and marketable securities portfolio and the incurrence of debt primarily to fund our ongoing stock repurchase program and growth initiatives. The provision for income taxes increased $11.8 million in 1999 and increased as a percent of sales to 3.9% in 1999 from 3.8% in 1998, primarily reflecting higher pretax income as a percent of sales in 1999, partially offset by a reduction in our effective tax rate to 36.0% during the third and fourth quarters of 1999 from 36.5% in the comparable 1998 periods. Due to the factors described above, 1999 net income, before the impact of the 1998 restructuring charge, increased $6 million over 1998 and decreased as a percentage of sales to 6.9% from 7.4% in 1998. Including the impact of the 1998 restructuring charge, 1999 net income was $23 million higher than in 1998, and increased as a percentage of net sales from 6.7% in 1998. Before the impact of the 1998 restructuring charge, 1999 diluted earnings per common share increased 10.2% to $3.12 compared to $2.83 in 1998. Including the impact of the 1998 restructuring charge, diluted earnings per common share increased 21.4% to $3.12 in 1999 from $2.57 in 1998. Diluted earnings per common share reflected a lower number of average outstanding common shares and share equivalents in 1999 as a result of our repurchase of 7.4 million shares in 1999. FORWARD OUTLOOK While the macroeconomic and retail environments are challenging, the Company remains optimistic that for 2001, with our diversified portfolio, we can generate a sales increase of 5% to 7% and an EPS increase of 11% to 13% (before this year's restructuring charge and special investment gain, and before any incremental acquisitions or share repurchases). For the first and second quarters of 2001, we remain optimistic that we can achieve sales increases in the low to mid single digits and EPS increases in the upper single digits, excluding the impact of this year's restructuring charges and special investment gain or any future stock repurchases. In the second half of 2001, we remain optimistic that we can achieve sales increases in the mid to upper single digits and EPS increases in the low to mid teens, excluding the impact of this year's restructuring charges and special investment gain or any future stock repurchases. FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY Our primary ongoing cash requirements are to fund growth in working capital (primarily accounts receivable and inventory) to support increased sales, investment in the technological upgrading of our distribution centers and information systems and other expenditures related to retail store expansion, in-store merchandise shops and normal maintenance activities. In 2000, we required cash to fund our ongoing stock repurchase program and our acquisition program. Sources of liquidity to fund these cash requirements include cash flows from operations, cash and cash equivalents, securities on hand and bank lines of credit. 2000 VS. 1999 We ended 2000 with cash and cash equivalents of $55 million compared to $38 million of cash and cash equivalents at year end 1999, and $269 million of debt at year end 2000 compared to $116 million of debt outstanding at year end 1999. This $136 million change in our cash and debt position was due primarily to $248 million for the repurchase of common stock, $88 million for capital expenditures primarily related to the technological upgrading of our distribution facilities and information systems and in-store merchandise shops and $55 million for purchase price payments in connection with acquisitions, offset by cash provided from operating activities. Net cash provided by operating activities was $268 million in 2000, compared to $301 million in 1999. This $33 million decrease was due primarily to a $28 million use of cash for working capital in 2000, compared to cash generated from a $23 million decrease in net working capital investment in 1999 and the $21 million restructuring charge recorded in 2000. Accounts receivable decreased $31 million, or 10%, at year end 2000 compared to year end 1999. This decrease in accounts receivable primarily reflected our continued focus on working capital management along with the acceleration of Holiday shipments within the fourth quarter. Inventory increased $61.5 million, or 14.7%, at year end 2000 compared to year end 1999. This increase was primarily due to inventories of our recently acquired and launched businesses, incremental in-transit wholesale inventories for Spring 2001, and an increase in Outlet inventories to support our additional store base. Our average inventory turnover rate improved slightly to 4.3 times in 2000, compared to 4.2 times in 1999. 17 18 Net cash used in investing activities was $148 million in 2000, compared to $240 million in 1999. The 2000 net cash used primarily reflected capital and in-store merchandise shop expenditures of $88 million, $40 million for the purchase of MONET and $15 million in additional payments related to the purchase of our interests in LUCKY BRAND DUNGAREES and SIGRID OLSEN, compared to the 1999 acquisition costs of $178 million for our interests in our recently acquired businesses and capital and in-store merchandise shop expenditures of $98 million, as well as $29 million for an equity investment in Kenneth Cole Productions, Inc. partially offset by disposals of investments of $65 million. Net cash used in financing activities was $99 million in 2000, compared to net cash used of $188 million in 1999. This $89 million decrease primarily reflected a decrease of $33 million in stock repurchase expenditures in 2000 over 1999, partially offset by net borrowings of $153 million compared to $116 million in 1999 and an increase in net proceeds from the exercise of stock options of $14 million. As of March 7, 2001, we have expended approximately $1.454 billion of the $1.675 billion authorized to date under our stock repurchase program. Our borrowings peaked at $482 million during the year. Our anticipated capital expenditures for 2001 approximate $75 million. These expenditures consist primarily of the continued technological upgrading and expansion of our management information systems and distribution facilities (including certain building and equipment expenditures), leasehold improvements at our New York offices, the planned opening of an additional 23 Specialty Retail stores and 16 Outlet stores and in-store merchandise shops. Capital expenditures and working capital cash needs will be financed with net cash provided by operating activities and our revolving credit and trade letter of credit facilities. In November 2000, the Company received a $750 million financing commitment under a bank revolving credit facility to finance our liquidity needs, replacing our existing $600 million facility. This bank facility, which has received credit ratings of BBB from Standard & Poors and Baa2 from Moody's Investor Services, may be either drawn upon or used as a liquidity facility to support the issuance of A2/P2 rated commercial paper. At year end 2000, we had $269 million outstanding under our commercial paper program. In addition, we have in place $385 million of letter of credit facilities primarily to support our merchandise purchasing requirements. At year end 2000, we had $271 million outstanding under these letter of credit facilities. We anticipate that our cash flows from operations, commercial paper program and bank and letter of credit facilities will be sufficient to fund our future liquidity requirements and that we will be able to adjust the amounts available under these facilities if necessary. 1999 VS. 1998 In 1999, we ended the year with cash and cash equivalents of $38 million compared to $230 million of cash, cash equivalents and marketable securities at year end 1998, and $116 million of debt at year end 1999 compared to no debt outstanding at year end 1998. This $308 million change in our cash and debt position was due primarily to the significant investments we made in 1999, including our expenditure of $281 million to repurchase common stock, an aggregate of $178 million for purchase price payments in connection with our recently acquired businesses, net of cash acquired, $98 million for capital expenditures primarily related to our warehouse automation and information system initiatives and in-store merchandise shops, as well as $29 million for an equity investment in Kenneth Cole Productions, Inc., partially offset by cash provided from operating activities. Net cash provided by operating activities was $301 million in 1999, compared to $137 million in 1998. This $164 million increase was due primarily to cash generated from a $23 million decrease in net working capital investment in 1999, compared to a $126 million use of cash for working capital in 1998, $12 million higher depreciation and amortization expense in 1999 and the $27 million restructuring charge in 1998. Accounts receivable increased $47 million, or 19%, at year end 1999 over year end 1998. Approximately 50% of this increase reflected the assumption of accounts receivable of our recently acquired businesses. The balance of the increase reflected higher net sales in 1999. Inventory decreased $57 million, or 12%, in 1999 compared to 1998 notwithstanding the increase in net sales. Excluding the inventories of the recently acquired businesses, inventory declined by $80 million, or 17%, compared to year end 1998. This decrease reflected the inventory management initiatives implemented at the end of 1998, which focused on improving inventory productivity in our replenishment and essential programs and increasing the ratio of our sales to our inventory ownership levels. As a result of these efforts, we reduced our inventory levels and improved our average inventory turnover rate by 10% in 1999, to 4.2 times from 3.8 times in 1998. Net cash used in investing activities was $240 million in 1999, compared to net cash provided by investing activities of $22 million in 1998. This $262 million decrease reflected net disposals of investments of $65 million in 1999, compared to a net disposal of investments of $155 million in 1998. The decrease from 1998 also reflected the 1999 18 19 acquisition costs of our recently acquired businesses, our investment in Kenneth Cole Productions, Inc., and our acquisition of an additional license from Donna Karan International, Inc. Net cash used in financing activities was $188 million in 1999, compared to $131 million in 1998. This $57 million increase primarily reflected an increase of $165 million in stock repurchase expenditures in 1999 over 1998, partially offset by net borrowings during 1999 of $116 million compared to none in 1998. Our borrowings peaked at $141 million during 1999. At year end 1999, we had $116 million outstanding under our commercial paper program and we had $265 million outstanding under these letter of credit facilities. CERTAIN INTEREST RATE AND FOREIGN CURRENCY RISKS We finance our capital needs through available cash, operating cash flow, letter of credit and bank revolving credit facilities and commercial paper issuances. Our floating rate bank revolving credit facility and commercial paper program expose us to market risk for changes in interest rates. We mitigate the risks associated with changes in foreign currency rates through foreign exchange forward contracts to hedge transactions denominated in foreign currencies for periods of less than one year and to hedge expected payment of intercompany transactions with our non-U.S. subsidiaries primarily relating to inventory purchases. Gains and losses on contracts which hedge specific foreign currency denominated commitments are recognized in the period in which the transaction is completed. The table below presents the amount of contracts outstanding, the contract rate and unrealized gain or (loss), as of December 30, 2000:
U.S. DOLLAR CONTRACT UNREALIZED $ IN THOUSANDS AMOUNT RATE GAIN (LOSS) - -------------- ------- ---- ----------- Canadian dollars $ 9,420 0.6729 $65 British pound sterling $ 1,832 1.4659 ($36) Euro $ 1,352 0.9016 ($67)
NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133," which amended certain provisions of SFAS No. 133. The Company adopted SFAS No. 133 and the corresponding amendments under SFAS No. 138 effective prospectively for the Company's financial statements beginning in 2001. The Company believes that the impact of adopting SFAS No. 133, as amended by SFAS No. 138, is not significant. INFLATION The rate of inflation over the past few years has not had a significant impact on our sales or profitability. FORWARD-LOOKING STATEMENTS Statements contained herein and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases, and in oral statements made by, or with the approval of, authorized personnel that relate to the Company's future performance, including, without limitation, statements with respect to the Company's anticipated results of operations or level of business for 2001, or any other future period, are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements, which are indicated by words or phrases such as "plan", "anticipate", "estimate", "project", "management expects", "the Company believes", "remains optimistic" or "currently envisions" and similar phrases are based on current expectations only, and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. 19 20 Among the factors that could cause actual results to materially differ include changes in regional, national, and global microeconomic and macroeconomic conditions, including the levels of consumer confidence and spending, consumer income growth, higher personal debt levels, rising energy costs, increasing interest rates and increased stock market volatility; risks related to retailer and consumer acceptance of the Company's products; risks associated with competition and the marketplace, including the financial condition of, and consolidations, restructurings and other ownership changes in, the apparel (and related products) industry and the retail industry, the introduction of new products or pricing changes by the Company's competitors, and the Company's ability to effectively remain competitive with respect to product, value and service; risks associated with the Company's dependence on sales to a limited number of large department store customers, including risks related to customer requirements for vendor margin support, and those related to extending credit to customers; risks relating to retailers' buying patterns and purchase commitments for apparel products in general and the Company's products specifically; the Company's ability to correctly balance the level of its commitments with actual orders; the Company's ability to effectively distribute its product within its targeted markets; risks related to the Company's ability to establish, defend and protect its trademarks and other proprietary rights and other risks relating to managing intellectual property issues; uncertainties relating to the Company's ability to successfully implement its growth strategies, integrate recent or future acquisitions, maintain product licenses, or successfully launch new products and lines; risks associated with the entry into new markets, either through internal development activities or acquisitions; risks associated with the possible inability of the Company's unaffiliated manufacturers to manufacture and deliver products in a timely manner, to meet quality standards or to comply with the Company's policies regarding labor practices; and risks associated with changes in social, political, economic and other conditions affecting foreign operations and sourcing. With respect to foreign sourcing, the Company notes that legislation which would further restrict the importation and/or increase the cost of textiles and apparel produced abroad has been periodically introduced in Congress. Although it is unclear whether any new legislation will be enacted into law, it appears likely that various new legislative or executive initiatives will be proposed. These initiatives may include a reevaluation of the trading status of certain countries, and/or retaliatory duties, quotas or other trade sanctions, which, if enacted, would increase the cost of products purchased from suppliers in such countries. In light of the very substantial portion of the Company's products, which are manufactured by foreign suppliers, the enactment of new legislation or the administration of current international trade regulations, or executive action affecting international textile agreements could adversely affect the Company's operations. The Company from time to time reviews its possible entry into new markets, either through internal development activities, acquisitions or licensing. The entry into new markets (including the development and launch of new product categories and product lines), such as the Company's entry into the moderate market, the acquisition of businesses, such as the Company's acquisitions of SEGRETS, LUCKY BRAND DUNGAREES, LAUNDRY and MONET, and the licensing of brands such as DKNY(R) JEANS and DKNY(R) ACTIVE, CITY DKNY(R), KENNETH COLE NEW YORK, REACTION KENNETH COLE and UNLISTED.COM, are accompanied by risks inherent in any such new business venture and may require methods of operations and marketing and financial strategies different from those employed in the Company's other businesses. Moreover, certain new businesses may be lower margin businesses and may require the Company to achieve significant cost efficiencies. In addition, new markets, product categories, product lines and businesses may involve buyers, store customers and/or competitors different from the Company's historical buyers, customers and competitors. Furthermore, the Company's acquisition of other businesses entails the normal risks inherent in such transactions, including, without limitation, possible difficulties, delays and/or unanticipated costs in integrating the business, operations, personnel, and/or systems of the acquired entity; risks that projected or satisfactory level of sales, profits and/or return on investment will not be generated; risks that expenditures required for capital items or working capital will be higher than anticipated; risks involving the Company's ability to retain and appropriately motivate key personnel of the acquired business; and risks associated with unanticipated events and unknown or uncertain liabilities. In addition, businesses licensed by the Company are subject to risks inherent in such transactions, including compliance with terms set forth in the applicable license agreements, including among other things the maintenance of certain levels of sales, and the public perception and/or acceptance of the licensor's brands or other product lines, which are not within the Company's control. Reference is also made to the other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices as are set forth in this Annual Report on Form 10-K, including, without limitation, those set forth under the heading "Business-Competition; Certain Risks". The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 20 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the "Index to Consolidated Financial Statements and Schedules" appearing at the end of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. With respect to Executive Officers of the Company, see Part I of this Annual Report on Form 10-K. Information with respect to Directors of the Company which is called for by this Item 10 is incorporated by reference to the information set forth under the heading "Election of Directors" in the Company's Proxy Statement relating to its 2001 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A (the "Company's 2001 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. Information called for by this Item 11 is incorporated by reference to the information set forth under the heading "Executive Compensation" in the Company's 2001 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information called for by this Item 12 is incorporated by reference to the information set forth under the headings "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Company's 2001 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information called for by this Item 13 is incorporated by reference to the information set forth under the headings "Proposal 1-Election of Directors" and "Executive Compensation-Employment Arrangements" in the Company's 2001 Proxy Statement. 21 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. PAGE REFERENCE -------------- 2000 FORM 10-K -------------- MANAGEMENT'S REPORT AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3 FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 30, 2000 and January 1, 2000 F-4 Consolidated Statements of Income for the Three Fiscal Years Ended December 30, 2000 F-5 Consolidated Statements of Retained Earnings, Comprehensive Income and Changes in Capital Accounts for the Three Fiscal Years Ended December 30, 2000 F-6 to F-7 Consolidated Statements of Cash Flows for the Three Fiscal Years Ended December 30, 2000 F-8 Notes to Consolidated Financial Statements F-9 to F-25 2. Schedule. SCHEDULE II - Valuation and Qualifying Accounts F-26 NOTE: Schedules other than those referred to above and parent company condensed financial statements have been omitted as inapplicable or not required under the instructions contained in Regulation S-X or the information is included elsewhere in the financial statements or the notes thereto. 22 23 3. Exhibits.
Exhibit No. Description - ------- ------------ 3(a) - Restated Certificate of Incorporation of Registrant (incorporated herein by reference from Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the period ended June 26, 1993). 3(b) - By-laws of Registrant, as amended (incorporated herein by reference from Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1992 [the "1992 Annual Report"]). 4(a) - Specimen certificate for Registrant's Common Stock, par value $1.00 per share (incorporated herein by reference from Exhibit 4(a) to the 1992 Annual Report). 4(b) - Rights Agreement, dated as of December 4, 1998, between Registrant and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference from Exhibit 1 to Registrant's Form 8-A dated as of December 4, 1998). 10(a) - Reference is made to Exhibit 4(b) filed hereunder, which is incorporated herein by this reference. 10(b)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as amended and restated (incorporated herein by reference from Exhibit 10(f) to Registrant's Annual report on Form 10-K for the fiscal year ended December 30, 1989 [the "1989 Annual Report"]). 10(b)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz Claiborne, Inc. and IDS Trust Company (incorporated herein by reference from Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q for the period ended July 2, 1994). 10(c)+ - Amendment Nos. 1 and 2 to the Savings Plan (incorporated herein by reference from Exhibit 10(g) to the 1992 Annual Report). 10(c)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan (incorporated herein by reference from Exhibit 10(g)(i) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1993 [the "1993 Annual Report"]).
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). 23 24
Exhibit No. Description - ------- ------------ 10(c)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended July 2, 1994). 10(c)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by reference from Exhibit 10(e) (iii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 [the "1996 Annual Report"]). 10(c)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by reference from Exhibit 10(e)(iv) to the 1996 Annual Report). 10(c)(v)+ - Amendment No. 8 to the Savings Plan (incorporated herein by reference from Exhibit 10(e)(v) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 [the "1997 Annual Report"]. 10(c)(vi)+ - Amendment No. 9 to the Savings Plan (incorporated herein by reference from Exhibit 10(e)(vi) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1999 [the "1998 Annual Report"]). 10(d)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement Plan (the "Profit-Sharing Plan") (incorporated herein by reference from Exhibit 10(h) to the 1992 Annual Report). 10(e)+ - Trust Agreement related to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(jj) to the 1983 Annual Report). 10(e)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(i)(i) to the 1993 Annual Report). 10(e)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended October 1, 1994). 10(e)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended July 1, 1995). 10(e)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(g)(iv) to the 1996 Annual Report). 10(e)(v)+ - Amendment No. 6 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(g)(v) to the 1998 Annual Report). 10(f)+ - Merger Amendment to the Profit-Sharing Plan, the Lucky Brand Employee Retirement Plan andTrust, the Segrets, Inc. 401(k) Profit Sharing Plan, and the Savings Plan (incorporated herein by reference from Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 [the "1999 Annual Report"]). 10(g)+* - The Liz Claiborne 401(K) Savings and Profit Sharing Plan, as amended and restated. 10(h)+* - National Collective Bargaining Agreement, made and entered into as of June 1, 2000, by and between Liz Claiborne, Inc. and the Union of Needletrades, Industrial and Textile Employees (UNITE) for the period June 1, 2000 through May 31, 2003.
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). * Filed herewith. 24 25
Exhibit No. Description - ------- ------------ 10(h)(i)+* - Jobbers Agreement, made and entered into as of June 1, 2000, by and between Liz Claiborne, Inc. and the Union of Needletrades, Industrial and Textile Employees (UNITE) for the period June 1, 2000 through May 31, 2003. 10(i)+* - Description of Liz Claiborne, Inc. 2000 Salaried Employee Incentive Bonus Plan. 10(j) - Lease, dated as of January 1, 1990 (the "1441 Lease"), for premises located at 1441 Broadway, New York, New York between Registrant and Lechar Realty Corp. (incorporated herein by reference from Exhibit 10(n) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990). 10(j)(i) - First Amendment: Lease Extension and Modification Agreement, dated as of January 1, 1998, to the 1441 Lease.(incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual Report). 10(j)(ii) - Second Amendment to Lease, dated as of September 19, 1998, to the 1441 Lease (incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual Report). 10(j)(iii) - Third Amendment to Lease, dated as of September 24, 1999, to the 1441 Lease (incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual Report). 10(k)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors' 1991 Stock Ownership Plan (the "Outside Directors' 1991 Plan") (incorporated herein by reference from Exhibit 10(m) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [the "1995 Annual Report"]). 10(k)(i)+ - Form of Option Agreement under the Outside Directors' 1991 Plan (incorporated herein by reference from Exhibit 10(m)(i) to the 1996 Annual Report). 10(l)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992 Plan") (incorporated herein by reference from Exhibit 10(p) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10(l)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein by reference from Exhibit 10(p)(i) to the 1993 Annual Report). 10(l)(ii)+ - Amendment No. 2 to the 1992 Plan (incorporated herein by reference from Exhibit 10(n)(ii) to the 1997 Annual Report). 10(l)(iii)+ - Amendment No. 3 to the 1992 Plan (incorporated herein by reference from Exhibit 10(n)(iii) to the 1998 Annual Report). 10(m)+ - Form of Option Agreement under the 1992 Plan (incorporated herein by reference from Exhibit 10(r) to the 1992 Annual Report). 10(n)+ - Form of Option Grant Certificate under the 1992 Plan (incorporated herein by reference from Exhibit 10(q) to the 1996 Annual Report). 10(o)+ - Form of Restricted Career Share Agreement under the 1992 Plan (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995). 10(p)+ - Form of Restricted Transformation Share Agreement under the 1992 Plan (incorporated herein by reference from Exhibit 10(s) to the 1997 Annual Report).
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). * Filed herewith. 25 26
Exhibit No. Description - ------- ------------ 10(q)+* - Description of Supplemental Life Insurance Plans. 10(r)+ - Description of unfunded death/disability benefits for certain executives (incorporated herein by reference from Exhibit 10(u) to the 1992 Annual Report). 10(s)+ - Amended and Restated Liz Claiborne Section 162(m) Cash Bonus Plan (incorporated herein by reference from Exhibit 10(t) to the 1999 Annual Report). 10(t)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan (as amended and restated effective as of January 1, 1997) (incorporated herein by reference from Exhibit 10(w) to the 1996 Annual Report). 10(u)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated herein by reference from Exhibit 10(x) to the 1996 Annual Report). 10(v)+ - Employment Agreement dated as of May 9, 1994, between Registrant and Paul R. Charron (the "Charron Agreement") (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended April 2, 1994). 10(v)(i)+ - Amendment to the Charron Agreement, dated as of November 20, 1995 (incorporated herein by reference from Exhibit 10(x)(i) to the 1995 Annual Report). 10(v)(ii)+ - Amendment to the Charron Agreement, dated as of September 19, 1996, (including the Liz Claiborne Retirement Income Accumulation Plan for the benefit of Mr. Charron) (incorporated herein by reference from Exhibit 10(y)(ii) to the 1996 Annual Report). 10(v)(iii)+* -Executive Termination Benefits Agreement, between Registrant and Paul R. Charron. 10(w)+ - Employment Agreement dated as of September 26, 1996 between Registrant and Denise V. Seegal (the "Seegal Agreement") (incorporated herein by reference from Exhibit 10(z) to the 1996 Annual Report). 10(w)(i)+ - Amendment to the Seegal Agreement, dated as of February 18, 2000 (incorporated herein by reference from Exhibit 10(x)(i) to the 1999 Annual Report). 10(w)(ii)+* - Separation Agreement entered into as of February 7, 2001 by and between Registrant and Denise V. Seegal. 10(x)* - Three Year Credit Agreement, dated as of November 16, 2000, among Registrant, various lending parties and The Chase Manhattan Bank (as administrative agent). 10(y)* - 364 Day Credit Agreement, dated as of November 16, 2000, among Registrant, various lending parties and The Chase Manhattan Bank (as administrative agent). 10(z)+ - Liz Claiborne, Inc. 2000 Stock Incentive Plan (the "2000 Plan") (incorporated herein by reference from Exhibit 4(e) to Registrant's Form S-8 dated as of January 25, 2001.) 10(z)(i)+* - Form of Option Grant Certificate under the 2000 Plan.
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). * Filed herewith. 26 27
Exhibit No. Description - ------- ------------ 21* - List of Registrant's Subsidiaries. 23* - Consent of Independent Public Accountants. 27* - Financial Data Schedule. 99* - Undertakings. (b) - Reports on Form 8-K. Not Applicable.
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). * Filed herewith. 27 28 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 29, 2001. LIZ CLAIBORNE, INC. By: /s/ Michael Scarpa By: /s/ Elaine H. Goodell ------------------------------ ---------------------- Michael Scarpa, Elaine H. Goodell, Vice President and Vice President-Corporate Controller Chief Financial Officer and Chief Accounting Officer (principal financial officer) (principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on March 29, 2001.
SIGNATURE TITLE - --------- ----- /s/ Paul R. Charron Chairman of the Board, Chief Executive Officer and Director - ------------------------ (principal executive officer) Paul R. Charron /s/ Bernard W. Aronson Director - ------------------------ Bernard W. Aronson /s/ Raul J. Fernandez Director - ------------------------ Raul J. Fernandez /s/ J. James Gordon Director - ------------------------ J. James Gordon /s/ Nancy J. Karch Director - ------------------------ Nancy J. Karch /s/ Kenneth P. Kopelman Director - ------------------------ Kenneth P. Kopelman /s/ Kay Koplovitz Director - ------------------------ Kay Koplovitz /s/ Arthur C. Martinez Director - ------------------------ Arthur C. Martinez /s/ Christine A. Poon Director - ------------------------ Christine A. Poon /s/ Paul E. Tierney, Jr. Director - ------------------------ Paul E. Tierney, Jr.
28 29 LIZ CLAIBORNE, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Page Number MANAGEMENT'S REPORT AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 to F-3 FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 30, 2000 and January 1, 2000 F-4 Consolidated Statements of Income for the Three Fiscal Years Ended December 30, 2000 F-5 Consolidated Statements of Retained Earnings, Comprehensive Income and Changes in Capital Accounts for the Three Fiscal Years Ended December 30, 2000 F-6 to F-7 Consolidated Statements of Cash Flows for the Three Fiscal Years Ended December 30, 2000 F-8 Notes to Consolidated Financial Statements F-9 to F-25 SCHEDULE II - Valuation and Qualifying Accounts F-26 NOTE: Schedules other than those referred to above and parent company condensed financial statements have been omitted as inapplicable or not required under the instructions contained in Regulation S-X or the information is included elsewhere in the financial statements or the notes thereto. F-1 30 MANAGEMENT'S REPORT The management of Liz Claiborne Inc. is responsible for the preparation, objectivity and integrity of the consolidated financial statements and other information contained in this Annual Report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include some amounts that are based on management's informed judgments and best estimates. To help assure that financial information is reliable and assets are safeguarded, management maintains a system of internal controls and procedures which we believe is effective in accomplishing these objectives. These controls and procedures are designed to provide reasonable assurance, at appropriate costs, that transactions are executed and recorded in accordance with management's authorization. The independent public accountants have audited our consolidated financial statements as described in their report. In the course of their audits, the independent public accountants have developed an overall understanding of the Company's accounting and financial controls and have conducted other tests as they considered necessary to support their opinion on the financial statements. The independent public accountants report their findings and recommendations to management and the Audit Committee of the Board of Directors. Control procedures are implemented or revised as appropriate to respond to these recommendations. There have not been any material control weaknesses brought to the attention of management or the Audit Committee during the periods covered by the report of the independent public accountants. However, in as much as the independent public accountants' audits consisted of selected tests of control policies and procedures and did not cover the entire system of internal control, they would not necessarily disclose all weaknesses which might exist. The Audit Committee, which consists solely of non-management directors, meets with the independent public accountants, internal auditors and management periodically to review their respective activities and the discharge of their respective responsibilities. Both the independent public accountants and the internal auditors have unrestricted access to the Audit Committee, with or without management, to discuss the scope and results of their audits and any recommendations regarding the system of internal controls. /s/Paul R. Charron /s/Michael Scarpa - ---------------------------- ---------------------------- Paul R. Charron Michael Scarpa Chairman of the Board Vice President and and Chief Executive Officer Chief Financial Officer F-2 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Liz Claiborne, Inc.: We have audited the accompanying consolidated balance sheets of Liz Claiborne, Inc. (a Delaware corporation) and subsidiaries as of December 30, 2000 and January 1, 2000, and the related consolidated statements of income, retained earnings, comprehensive income and changes in capital accounts and cash flows for each of the three fiscal years in the period ended December 30, 2000. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Liz Claiborne, Inc. and subsidiaries as of December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2000 in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to consolidated financial statements and schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP New York, New York February 19, 2001 F-3 32 CONSOLIDATED BALANCE SHEETS LIZ CLAIBORNE, INC. AND SUBSIDIARIES
All amounts in thousands except share data DECEMBER 30, 2000 JANUARY 1, 2000 ----------------- --------------- Assets Current Assets: Cash and cash equivalents $ 54,630 $ 37,940 Accounts receivable - trade 267,772 298,924 Inventories 479,845 418,348 Deferred income taxes 27,698 27,764 Other current assets 80,631 75,633 ----------- ----------- Total current assets 910,576 858,609 Property and Equipment - Net 297,424 284,171 Goodwill and Intangibles - Net 276,213 227,663 Other Assets 27,946 41,358 ----------- ----------- $ 1,512,159 $ 1,411,801 =========== =========== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 199,254 $ 184,556 Accrued expenses 151,280 160,220 Income taxes payable 7,370 7,535 ----------- ----------- Total current liabilities 357,904 352,311 Long-Term Debt 269,219 116,085 Other Non-Current Liabilities 15,000 15,000 Deferred Income Taxes 31,019 23,111 Commitments and Contingencies (Note 7) Minority Interest 4,732 3,125 Stockholders' Equity: Preferred stock, $.01 par value, authorized shares - 50,000,000, issued shares - none -- -- Common stock, $1 par value, authorized shares - 250,000,000, issued shares - 88,218,617 88,219 88,219 Capital in excess of par value 83,808 80,257 Retained earnings 1,985,091 1,827,720 Accumulated other comprehensive loss (7,656) (3,263) ----------- ----------- 2,149,462 1,992,933 Common stock in treasury, at cost - 37,009,400 shares in 2000 and 31,498,577 shares in 1999 (1,315,177) (1,090,764) ----------- ----------- Total stockholders' equity 834,285 902,169 ----------- ----------- $ 1,512,159 $ 1,411,801 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 33 CONSOLIDATED STATEMENTS OF INCOME LIZ CLAIBORNE, INC. AND SUBSIDIARIES
FISCAL YEARS ENDED ------------------ (52 WEEKS) (52 WEEKS) (52 WEEKS) All dollar amounts in thousands except per common share data DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 ----------------- --------------- --------------- Net Sales $3,104,141 $2,806,548 $2,535,268 Cost of goods sold 1,870,269 1,708,966 1,538,166 ---------- ---------- ---------- Gross Profit 1,233,872 1,097,582 997,102 Selling, general and administrative expenses 909,142 797,829 712,424 Restructuring charge 21,041 -- 27,000 ---------- ---------- ---------- Operating Income 303,689 299,753 257,678 Other income (expense)- net 6,658 (956) (612) Interest (expense) income - net (21,917) 2,789 9,611 ---------- ---------- ---------- Income Before Provision for Income Taxes 288,430 301,586 266,677 Provision for income taxes 103,835 109,144 97,300 ---------- ---------- ---------- Net Income $ 184,595 $ 192,442 $ 169,377 ========== ========== ========== Net Income per Common Share: Basic $ 3.46 $ 3.13 $ 2.59 ======= ======= ======= Diluted $ 3.43 $ 3.12 $ 2.57 ======= ======= ======= Dividends Paid per Common Share $ .45 $ .45 $ .45 ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 34 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME AND CHANGES IN CAPITAL ACCOUNTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES
COMMON STOCK Accumulated ------------------------ Capital in Other Number of Excess of Retained Comprehensive All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss) - -------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 3, 1998 88,218,617 88,219 30,731 1,540,928 (1,707) Net income -- -- -- 169,377 -- Other comprehensive income (loss), net of tax: Translation adjustment -- -- -- -- (348) Adjustment to unrealized gains (losses) on available for sale securities -- -- -- -- (666) Total comprehensive income -- -- -- -- -- Exercise of stock options and related tax benefits -- -- 4,801 (8,006) -- Cash dividends declared -- -- -- (29,327) -- Proceeds from sale of put warrants -- -- 231 -- -- Reclassification of put warrant obligations, net -- -- 14,665 -- -- Purchase of common stock -- -- -- -- -- Issuance of common stock under restricted stock and employment agreements, net -- -- -- (10,737) -- BALANCE, JANUARY 2, 1999 88,218,617 88,219 50,428 1,662,235 (2,721) TREASURY SHARES --------------------------- Number of All dollar amounts in thousands Shares Amount Total - --------------------------------------------------------------------------------- BALANCE, JANUARY 3, 1998 22,120,305 (736,544) 921,627 Net income -- -- 169,377 Other comprehensive income (loss), net of tax: Translation adjustment -- -- (348) Adjustment to unrealized gains (losses) on available for sale securities -- -- (666) ------- Total comprehensive income -- -- 168,363 Exercise of stock options and related tax benefits (562,929) 22,330 19,125 Cash dividends declared -- -- (29,327) Proceeds from sale of put warrants -- -- 231 Reclassification of put warrant obligations, net -- -- 14,665 Purchase of common stock 3,092,513 (116,618) (116,618) Issuance of common stock under restricted stock and employment agreements, net (381,932) 13,781 3,044 BALANCE, JANUARY 2, 1999 24,267,957 (817,051) 981,110
35 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME AND CHANGES IN CAPITAL ACCOUNTS (CONTINUED) LIZ CLAIBORNE, INC. AND SUBSIDIARIES
COMMON STOCK Accumulated ------------------------ Capital in Other Number of Excess of Retained Comprehensive All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss) - -------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 2, 1999 88,218,617 88,219 50,428 1,662,235 (2,721) Net income -- -- -- 192,442 -- Other comprehensive income (loss), net of tax: Translation adjustment -- -- -- -- (431) Adjustment to unrealized gains (losses) on available for sale securities -- -- -- -- (111) Total comprehensive income -- -- -- -- -- Exercise of stock options and related tax benefits -- -- 1,031 (2,799) -- Cash dividends declared -- -- -- (27,821) -- Exercise of put warrants -- -- (1,996) -- -- Reclassification of put warrant obligations, net -- -- 30,794 -- -- Purchase of common stock -- -- -- -- -- Issuance of common stock under restricted stock and employment agreements, net -- -- -- 3,663 -- BALANCE, JANUARY 1, 2000 88,218,617 $88,219 $80,257 $1,827,720 ($3,263) TREASURY SHARES --------------------------- Number of All dollar amounts in thousands Shares Amount Total - ----------------------------------------------------------------------------------- BALANCE, JANUARY 2, 1999 24,267,957 (817,051) 981,110 Net income -- -- 192,442 Other comprehensive income (loss), net of tax: Translation adjustment -- -- (431) Adjustment to unrealized gains (losses) on available for sale securities -- -- (111) ------- Total comprehensive income -- -- 191,900 Exercise of stock options and related tax benefits (219,306) 7,976 6,208 Cash dividends declared -- -- (27,821) Exercise of put warrants -- 1,996 0 Reclassification of put warrant obligations, net -- -- 30,794 Purchase of common stock 7,388,300 (281,167) (281,167) Issuance of common stock under restricted stock and employment agreements, net 61,626 (2,518) 1,145 BALANCE, JANUARY 1, 2000 31,498,577 ($1,090,764) $902,169
F-6 36 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME AND CHANGES IN CAPITAL ACCOUNTS (CONTINUED) LIZ CLAIBORNE, INC. AND SUBSIDIARIES
COMMON STOCK Accumulated ------------------------ Capital in Other Number of Excess of Retained Comprehensive All dollar amounts in thousands Shares Amount Par Value Earnings Income (Loss) - -------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 2000 88,218,617 88,219 80,257 1,827,720 (3,263) Net income -- -- -- 184,595 -- Other comprehensive income (loss), net of tax: Translation adjustment -- -- -- -- (3,625) Adjustment to unrealized gains (losses) on available for sale securities -- -- -- -- (768) Total comprehensive income -- -- -- -- -- Exercise of stock options and related tax benefits -- -- 3,551 (4,517) -- Cash dividends declared -- -- -- (24,027) -- Purchase of common stock -- -- -- -- -- Issuance of common stock under restricted stock and employment agreements, net -- -- -- 1,320 -- BALANCE, DECEMBER 30, 2000 88,218,617 88,219 83,808 1,985,091 (7,656) TREASURY SHARES --------------------------- Number of All dollar amounts in thousands Shares Amount Total - --------------------------------------------------------------------------------- BALANCE, JANUARY 1, 2000 31,498,577 (1,090,764) 902,169 Net income -- -- 184,595 Other comprehensive income (loss), net of tax: Translation adjustment -- -- (3,625) Adjustment to unrealized gains (losses) on available for sale securities -- -- (768) ------- Total comprehensive income -- -- 180,202 Exercise of stock options and related tax benefits (659,094) 23,718 22,752 Cash dividends declared -- -- (24,027) Purchase of common stock 6,155,305 (247,670) (247,670) Issuance of common stock under restricted stock and employment agreements, net 14,612 (461) 859 BALANCE, DECEMBER 30, 2000 37,009,400 (1,315,177) 834,285
The accompanying notes to consolidated financial statements are an integral part of these statements. F-7 37 CONSOLIDATED STATEMENTS OF CASH FLOWS LIZ CLAIBORNE, INC. AND SUBSIDIARIES
FISCAL YEARS ENDED (52 WEEKS) (52 WEEKS) (52 WEEKS) All dollar amounts in thousands DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 ----------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 184,595 $ 192,442 $ 169,377 Adjustments to reconcile net income to net Cash provided by operating activities: Depreciation and amortization 77,033 67,836 55,785 Deferred income taxes, net 510 9,839 (3,654) Restructuring charge 21,041 -- 27,000 Other-net 12,318 7,797 14,285 Change in current assets and liabilities: Decrease (increase) in accounts receivable - trade 29,245 (39,996) (70,742) (Increase) decrease in inventories (46,408) 80,438 (78,828) Decrease in other current assets 16,811 17,771 11,102 Increase (decrease) in accounts payable 9,834 (43,489) 49,588 (Decrease) increase in accrued expenses (36,849) 11,822 (33,356) (Decrease) in income taxes payable (165) (3,499) (3,995) --------- --------- --------- Net cash provided by operating activities 267,965 300,961 136,562 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment instruments (14,573) -- (217,083) Disposals of investment instruments 14,573 65,459 371,741 Purchases of property and equipment (66,711) (75,130) (88,496) Purchases of trademarks and licenses (3,683) (6,400) (30,000) Purchase of restricted equity investment -- (29,000) -- Payments for acquisitions, net of cash acquired (55,178) (177,825) -- Payments for in-store merchandise shops (21,381) (22,879) (13,032) Other-net (1,335) 6,252 (1,480) --------- --------- --------- Net cash (used in) provided by investing activities (148,288) (239,523) 21,650 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Commercial paper - net 153,134 116,085 -- Proceeds from exercise of common stock options 19,201 5,177 14,324 Dividends paid (24,027) (27,821) (29,327) Purchase of common stock, net of put warrant premiums (247,670) (281,167) (116,387) --------- --------- --------- Net cash used in financing activities (99,362) (187,726) (131,390) --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,625) (431) (348) --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 16,690 (126,719) 26,474 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,940 164,659 138,185 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 54,630 $ 37,940 $ 164,659 ========= ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-8 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES NOTE 1: SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Liz Claiborne, Inc. is engaged primarily in the design and marketing of a broad range of apparel, accessories and fragrances. Products are sold principally in the United States. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Liz Claiborne, Inc. and its wholly-owned and majority-owned subsidiaries (the "Company"). All intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent gains and losses at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of cash and cash equivalents and receivables approximate their carrying value due to their short-term maturities. The fair value of long-term debt instruments approximates the carrying value and is estimated based on the current rates offered to the Company for debt of similar maturities. CASH AND CASH EQUIVALENTS All highly liquid investments with a remaining maturity of three months or less at the date of purchase are classified as cash equivalents. MARKETABLE SECURITIES Investments are stated at market. The estimated fair value of the marketable securities is based on quoted prices in an active market. Gains and losses on investment transactions are determined using the specific identification method and are recognized in income based on settlement dates. Unrealized gains and losses are included in accumulated other comprehensive income (loss) until realized. Dividends on equity securities are recorded in income based on payment dates. Interest is recognized when earned. There were no available-for-sale marketable securities at December 30, 2000 and January 1, 2000. For 2000, 1999 and 1998, gross realized gains on sales of available-for-sale securities totaled $10,044,000, $1,793,000 and $2,871,000, respectively. INVENTORIES Inventories are stated at the lower of cost (using the first-in, first-out method) or market. PROPERTY AND EQUIPMENT Property and equipment is stated at cost less accumulated depreciation and amortization. Buildings and building improvements are depreciated using the straight-line method over their estimated useful lives of 20 to 39 years. Machinery and equipment and furniture and fixtures are depreciated using the straight-line method over their estimated useful lives of five to seven years. Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful lives of the assets. GOODWILL AND INTANGIBLES Goodwill and intangibles consist principally of goodwill, which is amortized using the straight-line method over a period of 20 to 25 years. Goodwill was $220.7 million, net of accumulated amortization of $12.7 million as of December 30, 2000. As of January 1, 2000, goodwill was $174.3 million, net of accumulated amortization of $3.6 million. Also included are trademarks owned or licensed, which are amortized on a basis consistent with the projected revenue stream of 15 to 25 F-9 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES years and amounted to $55.5 million in 2000 and $53.4 million in 1999, net of accumulated amortization of $6.5 million as of December 30, 2000 and $5.1 million as of January 1, 2000. The recoverability of the carrying values of intangible assets is evaluated periodically based on a review of forecasted operating cash flows and the profitability of the related business. For the three-year period ended December 30, 2000, there were no material adjustments to the carrying values of intangible assets resulting from these evaluations. FOREIGN CURRENCY TRANSLATION Assets and liabilities of non-U.S. subsidiaries have been translated at year end exchange rates. Revenues and expenses have been translated at average rates of exchange in effect during the year. Resulting translation adjustments have been included in accumulated other comprehensive loss. Gains and losses on translation of intercompany loans with foreign subsidiaries of a long-term investment nature are also included in this component of stockholders' equity. FOREIGN EXCHANGE FORWARD CONTRACTS The Company enters into foreign exchange forward contracts to hedge transactions denominated in foreign currencies for periods of less than one year and to hedge expected payment of intercompany transactions with its non-U.S. subsidiaries. Gains and losses on contracts which hedge specific foreign currency denominated commitments are recognized in the period in which the transaction is completed and are accounted for as part of the underlying transaction. Transaction gains and losses included in income were not significant in fiscal 2000, 1999, and 1998. As of December 30, 2000, the Company had forward contracts maturing through June 2001 to sell 14.0 million Canadian dollars, 1.3 million British pounds sterling, and 1.5 million European Euros. The aggregate U.S. dollar value of the foreign exchange contracts was approximately $12.6 million at year end 2000, as compared with approximately $22.1 million at year end 1999. Unrealized gains and losses for outstanding foreign exchange forward contracts were not material at December 30, 2000 and January 1, 2000. REVENUE RECOGNITION Revenue within wholesale operations is recognized at the time merchandise is shipped from the Company's distribution centers. Retail store revenues are recognized at the time of sale. All revenue is net of returns. ADVERTISING AND PROMOTION All costs associated with advertising and promoting products are expensed when the advertising takes place. Costs associated with cooperative advertising programs, under which the Company, at it's discretion, shares the costs of each customer's advertising and promotional expenditures, are expensed when the related revenues are recognized. Advertising and promotion expenses were $118 million in 2000, $104 million in 1999 and $89 million in 1998. FISCAL YEAR The Company's fiscal year ends on the Saturday closest to December 31. The 2000, 1999 and 1998 fiscal years each reflected a 52-week period. PRIOR YEARS' RECLASSIFICATION Certain items previously reported in specific captions in the accompanying financial statements have been reclassified to conform with the current year's classifications. NOTE 2: ACQUISITIONS On July 26, 2000, the Company completed the purchase of the majority of the assets of the Monet Group ("Monet") for a total purchase price of $40.2 million. Monet is a leading designer and marketer of branded fashion jewelry sold through department stores, popular priced merchandisers and internationally under the Monet, Monet Pearl, Monet Signature, Monet2, Trifari and Marvella brands. Excess purchase price over fair market value of the underlying net assets was allocated to F-10 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES goodwill and property based on preliminary estimates of fair values, and is subject to adjustment. Goodwill is being amortized on a straight-line basis over 20 years. The fair value of assets acquired was $46.4 million and liabilities assumed were $16.0 million. Annual net sales of Monet in 1999 were approximately $96 million. Unaudited pro forma information related to this acquisition is not included, as the impact of this transaction is not material to the consolidated results of the Company. On November 2, 1999, the Company completed the purchase of the entire equity interest of Podell Industries, Inc., whose core business consists of the Laundry by Shelli Segal apparel line ("Laundry"). Laundry is marketed primarily to select department and specialty stores. The acquisition was accounted for using the purchase method of accounting. The total purchase price of Laundry, including the repayment of indebtedness, was approximately $44.7 million. The excess purchase price over the fair market value of the underlying net assets was allocated to goodwill and property based on estimates of fair values. The estimated fair value of assets acquired was $6.5 million, and estimated liabilities assumed was $5.3 million. Goodwill is being amortized on a straight-line basis over 20 years. Annual net sales of Laundry in 1998 were approximately $76 million. Unaudited pro forma information related to this acquisition is not included, as the impact of this transaction is not material to the consolidated results of the Company. On June 8, 1999, the Company completed the purchase of 85.0 percent of the equity interest of Lucky Brand Dungarees, Inc., whose core business consists of the Lucky Brand line of women's and men's denim-based sportswear. The acquisition was accounted for using the purchase method of accounting. The total purchase price consists of a cash payment made at the closing date of approximately $85 million, and a payment to be made on March 31, 2003 of at least $15 million, which may be increased to a maximum of $45 million based on the achievement of certain earnings targets. An additional payment of $13 million was made in 2000 for tax-related purchase price adjustments. The excess purchase price over the fair market value of the underlying net assets of $8.1 million was allocated to goodwill and property based on estimates of fair values. The estimated fair value of assets acquired was $16.1 million and estimated liabilities assumed was $8.0 million. Goodwill is being amortized on a straight-line basis over 25 years. After a 5-year period, the Company may be required to purchase the remaining equity interest at an amount equal to its then fair market value, or elect to purchase the remaining equity interest at its then fair market value, or under certain circumstances at a 20% premium on such value. Annual net sales of Lucky Brand Dungarees, Inc. in 1998 were approximately $60 million. Unaudited pro forma information related to this acquisition is not included, as the impact of this transaction is not material to the consolidated results of the Company. On February 12, 1999, the Company completed the purchase of 84.5 percent of the equity interest of Segrets, Inc., whose core business consists of the Sigrid Olsen women's apparel lines. In the fourth quarter of 1999, the Company purchased an approximately 3.0 percent additional equity interest. In November 2000, the Company increased its equity interest to 97.5 percent. The acquisition was accounted for using the purchase method of accounting. The excess purchase price over the fair market value of the underlying net assets of $13.1 million was allocated to goodwill and property based on estimates of fair values. Goodwill is being amortized on a straight-line basis over 25 years. The total amount of funds required to acquire the interest and refinance certain indebtedness was approximately $56 million. The fair value of assets acquired was $23.3 million and liabilities assumed was $10.2 million. After a 5-year period, the Company may elect to, or be required to, purchase the remaining equity interest at an amount equal to its then fair market value. Annual net sales of Segrets, Inc. in 1998 were approximately $60 million. Unaudited pro forma information related to this acquisition is not included, as the impact of this transaction is not material to the consolidated results of the Company. NOTE 3: LICENSING COMMITMENTS In August 1999, the Company consummated an exclusive license agreement with Kenneth Cole Productions, Inc. to manufacture, design, market and distribute women's apparel products under the trademarks "Kenneth Cole New York,""Reaction Kenneth Cole" and "Unlisted.com" (the "Kenneth Cole Marks"). Under the agreement, the Company is obligated to pay a royalty equal to a percentage of net sales of products bearing the Kenneth Cole Marks. The initial term of the license agreement runs through December 31, 2004 with an option to renew for three additional 5-year periods if certain sales thresholds are met. In addition, the Company consummated the purchase of one million shares of Kenneth Cole Productions, Inc. Class A stock at a price of $29 per share. This amount, $29 million, is recorded at cost as a component of other assets as of January 1, 2000 and other current assets as of December 30, 2000. In March 2000, a three-for-two stock split increased the amount of shares owned by the Company to 1,500,000 shares. Certain restrictions apply to the Company's stock ownership, including the Company's agreement not F-11 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES to dispose of its position until August 24, 2001. Upon expiration of these restrictions, the Company will reflect the investment in such stock in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Market value of the stock at December 30, 2000 is higher than cost. In March 2000 and April 2000, the Company consummated two additional exclusive license agreements with Kenneth Cole Productions, Inc. to manufacture, design, market and distribute certain women's accessories products under the Kenneth Cole Marks. Under the agreement, the Company is obligated to pay a royalty equal to a percentage of net sales of the products bearing the Kenneth Cole Marks. The initial term of the license agreement runs through December 31, 2004 with an option to renew for three additional 5-year periods if certain sales thresholds are met. In February 2000, the Company consummated a license agreement with Leslie Fay Marketing, Inc., a subsidiary of Leslie Fay Company, Inc. to design, manufacture, market, distribute and sell dresses under the Liz Claiborne Dresses and Elisabeth Dresses labels. Not included in the agreement are dresses sold as part of the Liz Claiborne Collection, Lizsport, Lizwear, Liz & Co. and Elisabeth sportswear lines. The initial term of the license agreement runs through February 28, 2005, with an option to renew for two additional 5-year terms if certain sales thresholds are met. In January 1998, the Company consummated a license agreement with an affiliate of Donna Karan International, Inc. to design, produce, market and sell men's and women's sportswear, jeanswear and activewear products under the "DKNY(R) Jeans" and "DKNY(R) Active" marks and logos. Under the agreement, the Company is obligated to pay a royalty equal to a percentage of net sales of the "DKNY(R) Jeans" and "DKNY(R) Active" products. The initial term of the license agreement runs through December 31, 2012, with an option to renew for an additional 15-year period, if certain sales thresholds are met. Subject to the terms of the license agreement, aggregate minimum royalties for the initial 15 year term total $152 million. In December 1999, the Company consummated an additional exclusive license agreement with an affiliate of Donna Karan International, Inc. to design, produce, market and sell a new line of career and casual sportswear for the "better" market under the trademark CITY DKNY(R). Under the agreement, the Company is obligated to pay a royalty equal to a percentage of net sales of the licensed products. The initial term of the license agreement runs through December 31, 2005, with an option to renew for two additional 5-year periods if certain sales thresholds are met. In July 1998, the Company consummated a license agreement with Candie's, Inc. to manufacture, market, distribute and sell a line of fragrances for men and women using the "Candie's" marks and logos. Under the agreement, the Company is obligated to pay a royalty equal to a percentage of net sales of the "CANDIE'S(R)" products. The initial term of the license agreement runs through December 31, 2013, with an option to renew for an additional 10-year period if certain sales thresholds are met. NOTE 4: INVENTORIES, NET Inventories are summarized as follows:
In Thousands December 30, 2000 January 1, 2000 - - ------------ --------------- --------------- Raw materials $ 21,181 $ 24,028 Work in process 6,233 7,516 Finished goods 452,431 386,804 -------- -------- $479,845 $418,348 ======== ========
F-12 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES NOTE 5: PROPERTY AND EQUIPMENT Property and equipment consists of the following:
In thousands December 30, 2000 January 1, 2000 - - ------------ --------------- --------------- Land and buildings $133,342 $131,681 Machinery and equipment 267,004 243,262 Furniture and fixtures 74,794 67,928 Leasehold improvements 165,827 145,100 -------- -------- 640,967 587,971 Less: Accumulated depreciation and amortization 343,543 303,800 -------- -------- $297,424 $284,171 ======== ========
NOTE 6: INCOME TAXES The provisions for income taxes are as follows:
FISCAL YEAR ENDED (52 WEEKS) (52 WEEKS) (52 WEEKS) In thousands DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- --------------- Current: Federal $ 79,403 $ 83,023 $ 77,265 Foreign 5,708 2,717 2,914 State & local 10,750 10,400 9,700 -------- -------- -------- 95,861 96,140 89,879 Deferred - net 7,974 13,004 7,421 -------- -------- -------- $103,835 $109,144 $ 97,300 ======== ======== ========
Liz Claiborne, Inc. and its U.S. subsidiaries file a consolidated federal income tax return. Deferred income tax benefits and deferred income taxes represent the tax effects of revenues, costs and expenses which are recognized for tax purposes in different periods from those used for financial statement purposes. The current income tax provisions exclude $3,551,000 in 2000, $1,031,000 in 1999, and $4,801,000 in 1998 arising from the exercise of nonqualified stock options. These amounts have been credited to capital in excess of par value. The effective income tax rate differs from the statutory federal income tax rate as follows:
FISCAL YEAR ENDED (52 WEEKS) (52 WEEKS) (52 WEEKS) DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 --------------- --------------- --------------- Federal tax provision at statutory rate 35.0% 35.0% 35.0% State and local Income taxes, net of federal benefit 2.4 2.2 2.4 Tax-exempt interest income -- -- (0.7) Other-net (1.4) (1.0) (0.2) ----- ----- ----- 36.0% 36.2% 36.5% ===== ===== =====
F-13 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES The components of net deferred taxes arising from temporary differences as of December 30, 2000 and January 1, 2000 are as follows:
DECEMBER 30, 2000 JANUARY 1, 2000 DEFERRED DEFERRED DEFERRED DEFERRED TAX TAX TAX TAX IN THOUSANDS ASSET LIABILITY ASSET LIABILITY ------------ -------- --------- -------- --------- Inventory valuation 12,524 -- $16,133 $ -- Unremitted earnings from foreign subsidiaries -- 16,419 -- 16,419 Restructuring charge 9,958 -- 1,770 - Deferred compensation -- 9,405 -- 7,486 Nondeductible accruals 7,734 -- 10,550 -- Accounts receivable valuation -- -- 1,711 -- Unrealized investment (gains)/losses (326) -- (118) -- Depreciation (432) -- (462) Other-net (2,192) 5,627 (2,282) (332) ------- ------- ------- ------- $27,698 $31,019 $27,764 $23,111 ======= ======= ======= =======
Management believes that the deferred tax benefits will be fully realized through future taxable income and reversals of deferred tax liabilities. NOTE 7: COMMITMENTS, CONTINGENCIES AND OTHER MATTERS The Company leases office, showroom, warehouse/distribution and retail space and computers and other equipment under various noncancelable operating lease agreements which expire through May 2016. Rental expense for 2000, 1999, and 1998 was approximately $71,523,000, $67,113,000, and $62,966,000, respectively. The above rental expense amounts exclude associated costs such as real estate taxes and common area maintenance. At December 30, 2000, the minimum aggregate rental commitments are as follows:
(IN THOUSANDS) (IN THOUSANDS) FISCAL YEAR OPERATING LEASES FISCAL YEAR OPERATING LEASES - - --------------------------------------------------------------------------------------------- 2001 $62,991 2004 $ 45,171 2002 56,374 2005 39,269 2003 50,929 Thereafter 168,085
Certain rental commitments have renewal options extending through the year 2031. Some of these renewals are subject to adjustments in future periods. Many of the leases call for additional charges, some of which are based upon various escalations, and, in the case of retail leases, the gross sales of the individual stores above base levels. At December 30, 2000 and January 1, 2000, the Company had entered into commitments for the purchase of raw materials and for the production of finished goods totaling approximately $526,151,000 and $539,065,000, respectively. There were no put warrants outstanding at December 30, 2000 and January 1, 2000. In 1999, in connection with the Company's ongoing stock repurchase program, put warrants on 500,000 shares of common stock were exercised and put warrants on 400,000 shares of common stock expired unexercised. F-14 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES In the normal course of business, the Company extends credit, on open account, to its retail customers, after a credit analysis is performed based on a number of financial and other criteria. In the past, a number of corporate groups which include certain of the Company's largest department store customers were involved in highly leveraged financial transactions and certain of these customers filed for protection under Chapter 11 of the Federal Bankruptcy Code. Subsequently, certain customers have emerged from protection under Chapter 11. In 2000, three corporate groups of department store customers accounted for 18%, 16% and 14%, respectively, of wholesale net sales. In 1999, three corporate groups of department store customers accounted for 17%, 16%, and 15%, respectively, of wholesale net sales. In 1998, three corporate groups of department store customers accounted for 18%, 17% and 15%, respectively, of wholesale net sales. The Company does not believe that this concentration of sales and credit risk represents a material risk of loss with respect to its financial position as of December 30, 2000. At December 30, 2000, approximately 18% of the Company's work force was covered by collective bargaining agreements. The agreements currently in effect will expire in May 2003. The Company considers its relations with its employees to be satisfactory and to date has not experienced any interruption of operations due to labor disputes. On January 11, 2001, the Company entered into a $7 million bridge lease arrangement in anticipation of entering into a proposed synthetic lease agreement to acquire and construct various land, building, equipment and real property improvements associated with a warehouse/distribution facility in Ohio. Estimated costs to complete this facility are expected to be between $55-$60 million. The Company is a party to several pending legal proceedings and claims. Although the outcome of such actions cannot be determined with certainty, management is of the opinion that the final outcome should not have a material adverse effect on the Company's results of operations or financial position. NOTE 8: DEBT AND LINES OF CREDIT On November 16, 2000, the Company received a $750,000,000 credit facility (the "Agreement"), replacing the expiring $600,000,000, 364-day unsecured credit facility. The Agreement consists of a $500,000,000, 364-day unsecured credit facility and a $250,000,000, 3-year unsecured credit facility due November 16, 2003. Repayment of the 364-day facility can be extended for one year after the maturity date. The Agreement has two borrowing options, an "Alternative Base Rate" option, as defined in the Agreement, or a Eurodollar rate option with a spread based on the Company's long-term credit rating. The Agreement contains certain financial covenants relating to the Company's debt leverage and fixed charge coverage. The Company believes it is in compliance with such covenants. The Agreement may be directly drawn upon, or used, to support the Company's $750,000,000 commercial paper program, which is used from time to time to fund working capital and other general corporate requirements. At December 30, 2000, approximately $269 million was outstanding under the commercial paper program, with a weighted average interest rate of 7.5%. The carrying amount of the Company's borrowings under the commercial paper program approximate fair value because the interest rates are based on floating rates, which are determined by prevailing market rates. The commercial paper is classified as long-term debt as of December 30, 2000 as it is the Company's intent and ability to refinance such obligations on a long-term basis. As of December 30, 2000, the Company had lines of credit aggregating $385,000,000, which were primarily available to cover trade letters of credit. At December 30, 2000 and January 1, 2000, the Company had letters of credit of $271,470,000 and $265,352,000, respectively. These letters of credit, which have terms ranging from one to ten months, primarily collateralize the Company's obligations to third parties for the purchase of inventory. The fair value of these letters of credit approximates contract values. F-15 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES NOTE 9: RESTRUCTURING CHARGE In September 2000, the Company recorded a net restructuring charge of $5.4 million (pretax), representing a charge of $6.5 million, principally to cover the closure of eight under-performing Specialty Retail stores, the closure of one of our divisional offices, and severance related costs, offset by the $1.1 million deemed no longer necessary of the Company's previous restructuring liability originally recorded in December 1998. In December 2000, the Company recorded a restructuring charge of $15.6 million (pretax) to further maximize business segment synergies. This charge consisted of $10.6 million for operating and administrative costs associated with the elimination of nearly 270 jobs and $5.0 million for real estate consolidations. Significant items included in the charge are estimated contract termination costs, severance and related benefits for staff reductions, estimated occupancy costs and asset writedowns. Asset writedowns of $2.4 million consist principally of showrooms and administrative offices deemed no longer necessary in our Wholesale Apparel segment. These asset writedowns are expected to be completed in early 2002. The fiscal 2000 restructuring charges reduced net income by $13.5 million, or $.25 per common share. The remaining balance of the restructuring liability as of December 30, 2000 was $19.5 million. In December 1998, the Company recorded a $27.0 million (pretax) restructuring charge. The amount included $14.4 million related to the closure of 30 underperforming Specialty Retail stores and $12.6 million for the streamlining of operating and administrative functions. Principal items included in the charge are estimated contract termination costs, severance and related benefits for staff reductions and the write-off of certain assets. This charge reduced net income by $17.1 million, or $.26 per common share. During the 1999 fiscal year, $2.7 million of the liability was deemed to be no longer necessary. This amount was taken as a reduction to the restructuring charge through earnings and was offset with a restructuring reserve of an equal amount to recognize the anticipated exit cost associated with the closure of seven additional under-performing retail stores. A summary of the charges in the restructuring reserves is as follows:
ESTIMATED STORE OPERATING AND OCCUPANCY COSTS CLOSURE ADMINISTRATIVE AND ASSET WRITE IN MILLIONS COSTS EXIT COSTS DOWNS TOTAL - ----------------------------------------------------------------------------------------- Original Reserve $ 14.4 $ 12.6 $ -- $ 27.0 1999 spending (11.2) (10.7) -- (21.9) 1999 reserve reduction (0.8) (1.9) -- (2.7) 1999 exit costs charge 2.7 -- -- 2.7 ------- ------- -------- ------- Balance at January 1, 2000 $ 5.1 $ -- -- $ 5.1 ======= ======= ======== ======= 2000 reserve 5.4 11.8 5.0 22.2 2000 spending (3.9) (0.4) (2.4) (6.7) 2000 reserve reduction (1.1) -- -- (1.1) ------- ------ ------- ------- Balance at December 30, 2000 $ 5.5 $ 11.4 $ 2.6 $ 19.5 ======= ====== ======= =======
F-16 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES NOTE 10: OTHER INCOME (EXPENSE) - NET Other income (expense) - net consists of the following:
FISCAL YEAR ENDED (52 WEEKS) (52 WEEKS) (52 WEEKS) IN THOUSANDS DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 ----------------- --------------- --------------- INVESTMENT GAIN $8,760 $ -- $ 75 MINORITY INTEREST (2,218) (1,402) -- OTHER 116 446 (687) ------- ------- ------- $6,658 $ (956) $(612) ======= ======= =======
NOTE 11: STOCK PLANS The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its stock-based compensation plans, which are described below. Accordingly, no compensation cost has been recognized for its fixed stock option grants. Had compensation costs for the Company's stock option grants been determined based on the fair value at the grant dates for awards under these plans in accordance with SFAS No. 123 "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts as follows:
FISCAL YEAR ENDED IN THOUSANDS EXCEPT FOR (52 WEEKS) (52 WEEKS) (52 WEEKS) PER COMMON SHARE DATA DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2,1999 - ------------------------------------------------------------------------------------------------------------------------- Net income: As reported $184,595 $192,422 $169,377 Pro forma $175,281 $185,814 $164,738 Basic earnings per share: As reported $3.46 $3.13 $2.59 Pro forma $3.28 $3.02 $2.51 Diluted earnings per share: As reported $3.43 $3.12 $2.57 Pro forma $3.26 $3.01 $2.50
For this purpose, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000, 1999, and 1998, respectively: dividend yield of 1.1%, 1.3%, and 1.0%, expected volatility of 40%, 37%, and 31%, risk free interest rates of 5.0%, 5.3%, and 5.4%, and expected lives of five years, five years, and four years. In March 1992 and March 2000, the Company adopted the "1992 Plan" and "2000 Plan," respectively, under which nonqualified options to acquire shares of common stock may be granted to officers, other key employees and directors selected by the plans' administrative committee ("the committee"). Payment by option holders upon exercise of an option may be made in cash or, with the consent of the committee, by delivering previously acquired shares of Company common stock. Stock appreciation rights may be granted in connection with all or any part of any option granted under the plans, and may also be granted without a grant of a stock option. The grantee of a stock appreciation right has the right, with the consent of the committee, to receive either in cash or in shares of common stock, an amount equal to the appreciation in the fair market value of the covered shares from the date of grant to the date of exercise. Options and rights are exercisable over a period F-17 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES of time designated by the committee and are subject to such other terms and conditions as the committee determines. Vesting schedules will be accelerated upon merger of the Company or the happening of certain other change of control events. Options and rights may not be transferred during the lifetime of a holder. Awards under the 2000 Plan may also be made in the form of incentive stock options, dividend equivalent rights, restricted stock, unrestricted stock and performance shares. To date, no stock appreciation rights, incentive stock options, dividend equivalent rights or performance shares have been granted under the 2000 Plan. Exercise prices for awards under the 2000 Plan are determined by the committee; to date, all stock options have been granted at an exercise price not less than the quoted market value of the underlying shares on the date of grant. The 2000 Plan provides for the issuance of up to 5,000,000 shares of common stock with respect to options, stock appreciation rights and other awards granted under the 2000 Plan. At December 30, 2000, there were available for future grant 4,924,800 shares under the 2000 Plan. The 2000 Plan expires in 2010. Upon shareholder approval of the 2000 Plan in May 2000, the Company ceased issuing grants under the 1992 Plan; awards made thereunder prior to its termination remain in effect in accordance with their terms. Since January 1990, the Company has delivered treasury shares upon the exercise of stock options. The difference between the cost of the treasury shares, on a first-in, first-out basis, and the exercise price of the options has been reflected in retained earnings. Changes in common shares under option for the three fiscal years in the period ended December 30, 2000 are summarized as follows:
2000 1999 1998 ---- ---- ---- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------- ---------------- --------- -------------- --------- ---------------- Beginning of year 2,834,471 $ 34.76 2,340,594 $ 35.45 2,208,310 $ 30.73 Granted 1,881,200 36.94 1,292,200 32.82 979,738 40.58 Exercised (659,094) 29.13 (219,306) 23.61 (562,929) 25.43 Cancelled (442,302) 38.56 (579,017) 37.58 (284,525) 36.29 --------- --------- --------- --------- --------- --------- End of year 3,614,275 $ 36.46 2,834,471 $ 34.76 2,340,594 $ 35.45 ========= ========= ========= ========= ========= ========= Exercisable at end of year 855,837 $ 36.92 921,345 $ 32.63 652,258 $ 30.24 ========= ========= ========= ========= ========= ========= Weighted average fair value of options granted during the year $ 14.42 $ 12.22 $ 11.98
The following table summarizes information about options outstanding at December 30, 2000:
Options Outstanding Options Exercisable ------------------- ------------------- Weighted Average Range of Outstanding at Remaining Weighted Average Exercisable at Weighted Average Exercise Prices Dec. 30, 2000 Contractual Life Exercise Price Dec. 30, 2000 Exercise Price - --------------- ------------- ---------------- -------------- ------------- -------------- $15.00 - $25.00 17,428 0.8 years $18.95 17,428 $18.95 25.01 - 35.00 969,901 7.8 years 31.94 250,071 30.44 35.01 - 65.00 2,626,946 8.3 years 38.25 588,338 40.20 $15.00 - $65.00 3,614,275 8.1 years $36.46 855,837 $36.92
F-18 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES In January 2001, the committee authorized the grant of 517,000 shares of common stock to a group of key executives. These shares are subject to restrictions on transfer and subject to risk of forfeiture until earned by continued employment. The restrictions expire in January 2007. The expiration of restrictions may be accelerated if the total return on the Company's common stock exceeds that of a predetermined group of competitors or upon the occurrence of certain other events. The unearned compensation is being amortized over a period equal to the anticipated vesting period. On January 16, 2001, nonqualified options to acquire approximately 1,800,000 shares of common stock were granted to officers and other key employees with an exercise price of $44.8125. In 1998, the committee granted 366,650 shares of common stock to a group of key executives. As of December 30, 2000, 260,480 of these shares remained outstanding. These shares are subject to restrictions on transfer and subject to risk of forfeiture until earned by continued employment. The restrictions expire on July 6, 2007. Given that the total return on the Company's common stock exceeded that of a predetermined group of competitors for the period of January 1, 1998 through March 1, 2001, the expiration of the restrictions on 80% of such shares was accelerated as of March 1, 2001. During the first quarter of 2001, the Company will record a charge to operating income of approximately $5 million as compensation expense to reflect such accelerations. The shares that did not vest on an accelerated basis remain restricted; the expiration of restrictions may be accelerated if the total return of the Company's common stock exceeds that of a predetermined group of competitors or upon the occurrence of certain other events. The unearned compensation on such unvested shares is being amortized over a period equal to the anticipated vesting period. In May 1994, the committee granted 85,000 shares of common stock in connection with the hiring of a key executive. These shares are subject to restrictions on transfer and subject to risk of forfeiture until earned by continued employment. The restrictions expire on the last day of each of the Company's fiscal years 1994 through 2001. The expiration of the restrictions may be accelerated if the market value of the common stock attains certain predetermined levels or upon the occurrence of certain other events. In 1996, one-third of the then 65,000 unvested restricted shares (or 21,665 shares) vested in accordance with the accelerated vesting provisions of the employment agreement. The remaining shares were scheduled to vest at the rate of 6,667 shares of common stock per year through the year 2000 and 10,000 shares in the year 2001. During 1997, the common stock attained the predetermined level which allowed the remaining shares to vest on January 2, 1999. The unearned compensation related to all restricted stock grants as of December 30, 2000, January 1, 2000, and January 2, 1999 is $7,551,000, $9,097,000, and $12,781,000, respectively, and is included in retained earnings. In 1992, options were granted to certain of the Company's senior officers at a price of $58.50 per share, representing 150% of the market price at the date of grant. At December 30, 2000, none of these options remained outstanding; 50,000 of these options became exercisable on October 21, 1998 and expired on October 21, 2000. The Company's outside directors' stock ownership plan provides non-employee directors, as part of their annual retainer, shares of common stock with a value of $15,000 on the first business day of each fiscal year. The shares so issued are nontransferable for a period of three years following the grant date, subject to certain exceptions. In 2000, 1,613 shares of common stock were issued under this plan. This plan also provides each non-employee director a grant of options to purchase 1,000 shares of common stock on the first business day of each fiscal year. Not more than one half of one percent (0.50%) of the shares of common stock outstanding from time to time may be issued under the plan, which will expire in 2006. Additionally, effective July 2000, each non-employee director is entitled to receive on the first business day of each fiscal year a grant of options to purchase 2,000 shares under the 2000 Plan. NOTE 12: PROFIT-SHARING RETIREMENT, SAVINGS AND DEFERRED COMPENSATION PLANS The Company maintains a qualified defined contribution plan (the "401(k)/Profit Sharing Plan") for eligible U.S. employees of the Company and adopting affiliates, which has two component parts: a cash or deferred arrangement under section 401(k) of the Internal Revenue Code and a profit sharing portion. To be eligible to participate in either portion of the 401(k)/Profit Sharing Plan, employees must be at least age 21 and not covered by a collective bargaining agreement; there are additional eligibility and vesting rules for each of the 401(k)/Profit Sharing Plan components. Full-time employees may begin to make pre-tax contributions to the F-19 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES 401(k) portion of the 401(k)/Profit Sharing Plan after six months of employment with the Company, while part-time employees must complete a 12-month period in which they are credited with 1000 hours of service; to be eligible for matching contributions in the 401(k) portion of the 401(k)/Profit Sharing Plan, all eligible employees must have at least a year of service, measured as 12 months of elapsed service for full-time employees and a 12-month period with at least 1000 hours of credited service for part-time employees. The 1000-hour rule applies to all eligible employees for purposes of entering the profit sharing portion of the 401(k)/Profit Sharing Plan; in addition, a participant generally must be credited with 1000 hours of service during, and be employed by the Company or one of its affiliates on the last day of, the calendar year to share in the profit sharing contribution for that year. Company matching contributions vest (i.e., become nonforfeitable) on a schedule of 20% for the first two years of elapsed service with the Company and its affiliates and 20% for each year of service thereafter. Profit sharing contributions, if any, are made annually at the discretion of the Board of Directors, and vest 100% after five years of elapsed service (except for pre-1997 participants who were grandfathered under the previous 2-6 year graded schedule). Under the 401(k) portion of the 401(k)/Profit Sharing Plan, participants may, subject to applicable IRS limitations, contribute from 1% to 15% of their salaries on a pretax basis; the 401(k)/Profit Sharing Plan provides for automatic enrollment (at a contribution rate of 3%) when an eligible employee first becomes entitled to participate in the 401(k) portion of the 401(k)/Profit Sharing Plan, unless the employee elects otherwise. Participants' pretax contributions are matched at the rate of $.50 for each dollar contributed by the participant that does not exceed 6% of eligible compensation. The Company's aggregate 401(k)/Profit Sharing Plan contribution expense for 2000, 1999 and 1998, which is included in selling, general and administrative expenses, was $6,888,000, $6,515,000 and $6,424,000, respectively. The Company has a supplemental retirement plan for executives whose benefits under the 401(k)/Profit Sharing Plan are expected to be constrained by the operation of certain Internal Revenue Code limitations. The supplemental plan provides a benefit equal to the difference between the contribution that would be made for an executive under the tax-qualified plan absent such limitations and the actual contribution under that plan. The supplemental plan also allows participants to defer up to 15% of their salary. Supplemental benefits attributable to participant deferrals are fully vested at all times and the balance of a participant's benefits vests on the same basis as the matching contribution under the 401(k)/Profit Sharing Plan. Under a separate bonus deferral plan, participants may defer up to 100% of their annual bonus. These supplemental plans are not funded. The Company's (recoveries) expenses related to these plans, which are included in selling, general and administrative expenses, were ($224,000), $2,223,000 and $1,909,000 in 2000, 1999 and 1998, respectively. In 1996, the Company established an unfunded deferred compensation arrangement for a senior executive which accrues over a six year period as of the first day of each fiscal year beginning in 1996, based on an amount equal to 15% of the sum of the senior executive's base salary and bonus. The accrued amount plus earnings will become fully vested on December 28, 2002, provided the senior executive is the Chairman of the Board and Chief Executive Officer of the Company on such date. This arrangement also provides for the deferral of an amount equal to the portion of the executive's base salary that exceeds $1 million. The deferred amount plus earnings will be fully vested at all times. NOTE 13: STOCKHOLDER RIGHTS PLAN In December 1998, the Company adopted a new Stockholder Rights Plan to replace the then expiring plan originally adopted in December 1988. Under the new Plan, one preferred stock purchase right is attached to each share of common stock outstanding. The rights are nominally exercisable under certain circumstances, to buy 1/100 share of a newly created Series A Junior Participating Preferred Stock for $150. If any person or group (referred to as an "Acquiring Person") becomes the beneficial owner of 15% or more of the Company's common stock (20% or more in the case of certain acquisitions by institutional investors), each right, other than rights held by the Acquiring Person which become void, will become exercisable for common stock having a market value of twice the exercise price of the right. If anyone becomes an Acquiring Person and afterwards the Company or 50% or more of its assets is acquired in a merger, sale or other business combination, each right (other than voided rights) will become exercisable for common stock of the acquirer having a market value of twice the exercise price of the right. The rights, which F-20 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES expire on December 21, 2008 and do not have voting rights, may be amended by the Company's Board of Directors and redeemed by the Company at $.01 per right at any time before any person or group becomes an Acquiring Person. NOTE 14: EARNINGS PER COMMON SHARE The following is an analysis of the differences between basic and diluted earnings per common share in accordance with SFAS No.128 "Earnings per Share."
FISCAL YEAR ENDED (52 WEEKS) (52 WEEKS) (52 WEEKS) IN THOUSANDS DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 - -------------------------------------------------------------------------------------------------------------------- Net income: $184,595 $192,442 $169,377 Weighted average common shares outstanding 53,407 61,523 65,503 Effect of dilutive securities: Stock options and restricted stock grants 340 190 272 Put warrants -- 7 72 Weighted average common shares and common share equivalents 53,747 61,720 65,847
NOTE 15: CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES During fiscal 2000, 1999, and 1998, the Company made income tax payments of $94,742,000, $89,374,000, and $91,342,000, respectively. The Company made interest payments of $20,438,000, $2,186,000, and $0 in 2000, 1999, and 1998, respectively. Other non-cash investing activities in 1999 included a future payment of $15.0 million associated with the Lucky Brand Dungarees, Inc. acquisition and $3.5 million contingent payment for the Laundry acquisition (see Note 2 of Notes to Consolidated Financial Statements). NOTE 16: SEGMENT REPORTING The Company has three segments: Wholesale Apparel, Wholesale Non-Apparel and Retail. The Wholesale Apparel segment consists of women's and men's apparel designed and marketed under various trademarks owned or licensed by the Company. The Wholesale Non-Apparel segment consists of accessories, jewelry and cosmetics designed and marketed under certain of those and other trademarks. The Retail segment operates specialty retail and outlet stores that sell these apparel and non-apparel products to the public. The Company evaluates performance and allocates resources based on operating profits or losses. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales are recorded at cost. There is no intercompany profit or loss on intersegment sales, however, the wholesale segments are credited with their proportionate share of the operating profit generated by the Retail segment. The profit credited to the wholesale segments from the Retail segment is eliminated in consolidation. F-21 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES The Company's segments are business units that offer either different products or distribute similar products through different distribution channels. The segments are each managed separately because they either manufacture and distribute distinct products with different production processes or distribute similar products through different distribution channels.
DECEMBER 30, 2000 WHOLESALE WHOLESALE CORPORATE/ IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS - --------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $2,196,125 $403,924 $489,566 $ 14,526 $3,104,141 Intercompany sales 175,349 18,680 -- (194,029) -- Depreciation and amortization expense 57,448 5,497 11,339 2,749 77,033 Segment operating profit (loss) 279,648 44,669 58,667 (79,295) 303,689 Segment assets 1,295,046 161,768 151,575 193,928 1,802,317 Expenditures for long-lived assets 70,762 42,288 16,010 -- 129,060 JANUARY 1, 2000 WHOLESALE WHOLESALE CORPORATE/ IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS - --------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $2,032,542 $320,491 $444,722 $ 8,793 $2,806,548 Intercompany sales 163,973 20,911 -- (184,884) -- Depreciation and amortization expense 47,024 4,130 10,608 6,074 67,836 Segment operating profit (loss) 267,146 32,645 58,105 (58,143) 299,753 Segment assets 1,311,090 86,549 121,613 200,121 1,719,373 Expenditures for long-lived assets 243,786 1,615 31,851 -- 277,252 JANUARY 2, 1999 WHOLESALE WHOLESALE CORPORATE/ IN THOUSANDS APPAREL NON-APPAREL RETAIL ELIMINATIONS TOTALS - --------------------------------------------------------------------------------------------------------------------------- Revenues from external customers $1,802,832 $296,713 $430,839 $ 4,884 $2,535,268 Intercompany sales 183,218 23,602 -- (206,820) -- Depreciation and amortization expense 34,985 4,143 12,527 4,130 55,785 Segment operating profit (loss) 243,708 46,590 45,341 (77,961) 257,678 Segment assets 1,119,680 98,701 142,156 367,344 1,727,881 Expenditures for long-lived assets 102,870 12,282 14,420 -- 129,572
In the 2000 and 1999 "Corporate/Eliminations" column, the segment assets consists primarily of corporate buildings, machinery and equipment and licenses and trademarks purchased by the Company. In the 1998 "Corporate/Eliminations" column, the segment assets consists primarily of the Company's investment portfolio. The segment operating loss consists primarily of the elimination of the profit transfer from the Retail segment to the wholesale segments, and $21,041,000 and $27,000,000 of restructuring charges in 2000 and 1998, respectively. F-22 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES A reconciliation to adjust segment assets to consolidated assets follows:
IN THOUSANDS DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 ----------------- --------------- --------------- Total segment assets $ 1,802,317 $ 1,719,373 $ 1,727,881 Intercompany receivables (12,859) (24,640) (22,415) Investments in wholly-owned subsidiaries (290,869) (292,249) (338,267) Other 13,570 9,317 25,592 ----------- ----------- ----------- Total consolidated assets $ 1,512,159 $ 1,411,801 $ 1,392,791 =========== =========== ===========
NOTE 17: OTHER COMPREHENSIVE INCOME During 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income" which requires reporting of comprehensive income and its components in a financial statement. The following table contains the components of the adjustment to unrealized gains (losses) on available for sale securities included in the Consolidated Statements of Retained Earnings, Comprehensive Income and Changes in Capital Accounts.
IN THOUSANDS DECEMBER 30, 2000 JANUARY 1, 2000 JANUARY 2, 1999 - --------------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) on available for sale securities, net of tax: Unrealized holding gain (loss) $(1,212) $ (166) $(1,627) Reclassification adjustment 444 55 961 ----- ------ -------- Net unrealized gain (loss) $(768) $(111) $ (666) ====== ====== ========
NOTE 18: NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No.133," which amended certain provisions of SFAS No. 133. The Company adopted SFAS No. 133 and the corresponding amendments under SFAS No. 138 effective prospectively for the Company's financial statements beginning in 2001. The Company believes that the impact of adopting SFAS No. 133, as amended by SFAS No. 138, is not significant. NOTE 19: LEGAL PROCEEDINGS In January 1999, two actions were filed in California naming as defendants more than a dozen United States-based apparel companies that source garments from Saipan (Commonwealth of the Northern Mariana Islands) and a large number of Saipan-based garment factories. The actions assert that the Saipan factories engage in unlawful practices relating to the recruitment and employment of foreign workers and that the apparel companies, by virtue of their alleged relationships with the factories, have violated various federal and state laws. One action, filed in California Superior Court in San Francisco by a union and three public interest groups, alleges unfair competition and false advertising (the "State Court Action"). The State Court Action seeks equitable relief, unspecified amounts for restitution and disgorgement of profits, interest and an award of attorney's fees. The second, filed in Federal Court for the Central District of California and later transferred to the F-23 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES District of Hawaii, is brought on behalf of a purported class consisting of the Saipan factory workers (the "Federal Action"). The Federal Action alleges claims under the civil RICO statute and the Alien Tort Claims Act, premised on supposed violations of the federal anti-peonage and indentured servitude statutes, as well as other violations of Saipan and international law, and seeks equitable relief and unspecified damages, including treble and punitive damages, interest and an award of attorney's fees. A third action, brought in Federal Court in Saipan solely against the garment factory defendants on behalf of a putative class of their workers, alleges violations of federal and Saipanese wage and employment laws. The Company sources products in Saipan but was not named as a defendant in the actions. The Company and certain other apparel companies not named as defendants were advised in writing, however, that they would be added as parties if a consensual resolution of the complaint claims could not be reached. In the wake of that notice, which was accompanied by a draft complaint, the Company entered into settlement negotiations and subsequently entered into an agreement to settle all claims that were or could have been asserted in the Federal or State Court Action. To date, more than a dozen other apparel companies have also settled these claims. As part of the settlement, the Company has since been named as a defendant, along with certain other settling apparel companies, in a Federal Court action styled Doe I, et al. v. Brylane, L.P. et al., currently pending in the United States District Court for the District of Hawaii, that mirror portions of the larger State and Federal Actions but does not include RICO and certain of the other claims alleged in those Actions. The newly filed action against the Company will remain inactive unless the settlement is not finally approved by the Federal Court. The agreements concluded by the Company and other retailers are subject to federal court approval, which has been delayed by virtue of the Hawaii District Court's June 23, 2000 decision to transfer the Federal Action to Saipan. Plaintiffs have petitioned the Ninth Circuit Court of Appeals for a Writ of Mandamus reversing that ruling and the Federal Action has effectively been stayed pending the Court Appeals' decision. Under the terms of the settlement agreement, if the settlement does not receive final federal court approval, the Company will be entitled to a refund of the entire settlement amount except for funds of up to $10,000 spent on costs of notice. Because the litigation is at a preliminary stage, with virtually no merits discovery having taken place, if the settlement is not executed or is not finally approved by the federal court, we cannot at this junction determine the likelihood of a favorable or unfavorable outcome or the magnitude of the latter if it were to occur. Although the outcome of any such litigation cannot be determined with certainty, management is of the opinion that the final outcome should not have a material adverse effect on the Company's financial position or results of operations. NOTE 20: ACCRUED EXPENSES Accrued expenses at Decenber 30, 2000 and January 1, 2000 consisted of the following:
In thousands December 30, 2000 January 1, 2000 - ------------------------------------------------------------------------ Payroll and bonuses $ 29,539 $ 31,452 Taxes, other than taxes on income 16,162 20,864 Employee benefits 23,053 20,309 Advertising 15,505 19,776 Restructuring reserve 19,438 5,056 Other 47,583 62,763 -------- -------- $151,280 $160,220 ======== ========
F-24 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES NOTE 21: UNAUDITED QUARTERLY RESULTS Unaudited quarterly financial information for 2000 and 1999 is set forth in the table below:
MARCH JUNE SEPTEMBER DECEMBER ----- ---- --------- -------- ALL AMOUNTS IN THOUSANDS EXCEPT PER COMMON SHARE DATA 2000 1999 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- Net sales $809,459 $700,789 $661,667 $607,675 $879,025 $821,024 $753,990 $677,060 Gross profit 302,874 262,632 267,754 237,011 350,655 321,081 312,589 276,858 Net income 46,492(1) 44,713 31,452 31,561 67,072(2) 66,370 39,579(3) 49,798 Basic earnings per share $ .85(1) $ .70 $ .58 $ .50 $ 1.27(2) $ 1.08 $ .77(3) $ .85 Diluted earnings per share $ .84(1) $ .70 $ .58 $ .50 $ 1.26(2) $ 1.08 $ .76(3) $ .85 Dividends paid per common share $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11 $ .11
(1) Includes the after tax effect of a special investment gain of 2,122 ($3,316 pretax) or $.04 per share. (2) Includes the after tax effect of a special investment gain of $3,484 ($5,444 pretax) or $.06 per share and the after tax effect of a restructuring charge of $3,457 ($5,402 pretax) or $.06 per common share. (3) Includes the after tax effect of a restructuring charge of $10,009 ($15,639 pretax) or $.19 per share. F-25 55 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS LIZ CLAIBORNE, INC. AND SUBSIDIARIES
Column A Column B Column C Column D Column E ADDITIONS ---------------------------------- (In thousands) Balance at (1) Charged (2) Charged to Beginning to Costs and Other Accounts - Deductions - Balance at Description of period Expenses Describe Describe End of Period - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 30, 2000 Accounts Receivable - allowance for doubtful accounts $2,255 $1,438 $-- $998 (A) $2,695 Restructuring Reserve $5,056 $22,115 $(1,074)(C) $6,659 (B) $19,438 YEAR ENDED JANUARY 1, 2000 Accounts Receivable - allowance for doubtful accounts $2,165 $1,025 $-- $935 (A) $2,255 Restructuring Reserve $26,300 $2,700 $(2,700)(C) $21,244 (B) $5,056 YEAR ENDED JANUARY 2, 1999 Accounts Receivable - allowance for doubtful accounts $2,591 $231 $-- $657 (A) $2,165 Restructuring Reserve $-- $27,000 $-- $700 (B) $26,300
Notes: (A) Uncollectible accounts written off, less recoveries. (B) Charges to the restructuring reserve are for the purposes for which the reserve was created. (C) This amount of the restructuring reserve was deemed to no longer be necessary. As a result, this amount was taken as a reduction to the restructuring charge through earnings for the applicable fiscal year. F-26 56 INDEX TO EXHIBITS
Exhibit No. Description - ------- ------------ 3(a) - Restated Certificate of Incorporation of Registrant (incorporated herein by reference from Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the period ended June 26, 1993). 3(b) - By-laws of Registrant, as amended (incorporated herein by reference from Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1992 [the "1992 Annual Report"]). 4(a) - Specimen certificate for Registrant's Common Stock, par value $1.00 per share (incorporated herein by reference from Exhibit 4(a) to the 1992 Annual Report). 4(b) - Rights Agreement, dated as of December 4, 1998, between Registrant and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference from Exhibit 1 to Registrant's Form 8-A dated as of December 4, 1998). 10(a) - Reference is made to Exhibit 4(b) filed hereunder, which is incorporated herein by this reference. 10(b)+ - Liz Claiborne Savings Plan (the "Savings Plan"), as amended and restated (incorporated herein by reference from Exhibit 10(f) to Registrant's Annual report on Form 10-K for the fiscal year ended December 30, 1989 [the "1989 Annual Report"]). 10(b)(i)+ - Trust Agreement dated as of July 1, 1994, between Liz Claiborne, Inc. and IDS Trust Company (incorporated herein by reference from Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q for the period ended July 2, 1994). 10(c)+ - Amendment Nos. 1 and 2 to the Savings Plan (incorporated herein by reference from Exhibit 10(g) to the 1992 Annual Report). 10(c)(i)+ - Amendment Nos. 3 and 4 to the Savings Plan (incorporated herein by reference from Exhibit 10(g)(i) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1993 [the "1993 Annual Report"]).
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). 57
Exhibit No. Description - ------- ------------ 10(c)(ii)+ - Amendment No. 5 to the Savings Plan (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended July 2, 1994). 10(c)(iii)+ - Amendment No. 6 to the Savings Plan (incorporated herein by reference from Exhibit 10(e) (iii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 [the "1996 Annual Report"]). 10(c)(iv)+ - Amendment No. 7 to the Savings Plan (incorporated herein by reference from Exhibit 10(e)(iv) to the 1996 Annual Report). 10(c)(v)+ - Amendment No. 8 to the Savings Plan (incorporated herein by reference from Exhibit 10(e)(v) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1998 [the "1997 Annual Report"]. 10(c)(vi)+ - Amendment No. 9 to the Savings Plan (incorporated herein by reference from Exhibit 10(e)(vi) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1999 [the "1998 Annual Report"]). 10(d)+ - Amended and Restated Liz Claiborne Profit-Sharing Retirement Plan (the "Profit-Sharing Plan") (incorporated herein by reference from Exhibit 10(h) to the 1992 Annual Report). 10(e)+ - Trust Agreement related to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(jj) to the 1983 Annual Report). 10(e)(i)+ - Amendment Nos. 1 and 2 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(i)(i) to the 1993 Annual Report). 10(e)(ii)+ - Amendment No. 3 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended October 1, 1994). 10(e)(iii)+ - Amendment No. 4 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended July 1, 1995). 10(e)(iv)+ - Amendment No. 5 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(g)(iv) to the 1996 Annual Report). 10(e)(v)+ - Amendment No. 6 to the Profit-Sharing Plan (incorporated herein by reference from Exhibit 10(g)(v) to the 1998 Annual Report). 10(f)+ - Merger Amendment to the Profit-Sharing Plan, the Lucky Brand Employee Retirement Plan andTrust, the Segrets, Inc. 401(k) Profit Sharing Plan, and the Savings Plan (incorporated herein by reference from Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 [the "1999 Annual Report"]). 10(g)+* - The Liz Claiborne 401(K) Savings and Profit Sharing Plan, as amended and restated. 10(h)+* - National Collective Bargaining Agreement, made and entered into as of June 1, 2000, by and between Liz Claiborne, Inc. and the Union of Needletrades, Industrial and Textile Employees (UNITE) for the period June 1, 2000 through May 31, 2003.
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). * Filed herewith. 58
Exhibit No. Description - ------- ------------ 10(h)(i)+* - Jobbers Agreement, made and entered into as of June 1, 2000, by and between Liz Claiborne, Inc. and the Union of Needletrades, Industrial and Textile Employees (UNITE) for the period June 1, 2000 through May 31, 2003. 10(i)+* - Description of Liz Claiborne, Inc. 2000 Salaried Employee Incentive Bonus Plan. 10(j) - Lease, dated as of January 1, 1990 (the "1441 Lease"), for premises located at 1441 Broadway, New York, New York between Registrant and Lechar Realty Corp. (incorporated herein by reference from Exhibit 10(n) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990). 10(j)(i) - First Amendment: Lease Extension and Modification Agreement, dated as of January 1, 1998, to the 1441 Lease.(incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual Report). 10(j)(ii) - Second Amendment to Lease, dated as of September 19, 1998, to the 1441 Lease (incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual Report). 10(j)(iii) - Third Amendment to Lease, dated as of September 24, 1999, to the 1441 Lease (incorporated herein by reference from Exhibit 10(k) (i) to the 1999 Annual Report). 10(k)+ - Liz Claiborne, Inc. Amended and Restated Outside Directors' 1991 Stock Ownership Plan (the "Outside Directors' 1991 Plan") (incorporated herein by reference from Exhibit 10(m) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [the "1995 Annual Report"]). 10(k)(i)+ - Form of Option Agreement under the Outside Directors' 1991 Plan (incorporated herein by reference from Exhibit 10(m)(i) to the 1996 Annual Report). 10(l)+ - Liz Claiborne, Inc. 1992 Stock Incentive Plan (the "1992 Plan") (incorporated herein by reference from Exhibit 10(p) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10(l)(i)+ - Amendment No. 1 to the 1992 Plan (incorporated herein by reference from Exhibit 10(p)(i) to the 1993 Annual Report). 10(l)(ii)+ - Amendment No. 2 to the 1992 Plan (incorporated herein by reference from Exhibit 10(n)(ii) to the 1997 Annual Report). 10(l)(iii)+ - Amendment No. 3 to the 1992 Plan (incorporated herein by reference from Exhibit 10(n)(iii) to the 1998 Annual Report). 10(m)+ - Form of Option Agreement under the 1992 Plan (incorporated herein by reference from Exhibit 10(r) to the 1992 Annual Report). 10(n)+ - Form of Option Grant Certificate under the 1992 Plan (incorporated herein by reference from Exhibit 10(q) to the 1996 Annual Report). 10(o)+ - Form of Restricted Career Share Agreement under the 1992 Plan (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1995). 10(p)+ - Form of Restricted Transformation Share Agreement under the 1992 Plan (incorporated herein by reference from Exhibit 10(s) to the 1997 Annual Report).
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). * Filed herewith. 59
Exhibit No. Description - ------- ------------ 10(q)+* - Description of Supplemental Life Insurance Plans. 10(r)+ - Description of unfunded death/disability benefits for certain executives (incorporated herein by reference from Exhibit 10(u) to the 1992 Annual Report). 10(s)+ - Amended and Restated Liz Claiborne Section 162(m) Cash Bonus Plan (incorporated herein by reference from Exhibit 10(t) to the 1999 Annual Report). 10(t)+ - Liz Claiborne, Inc. Supplemental Executive Retirement Plan (as amended and restated effective as of January 1, 1997) (incorporated herein by reference from Exhibit 10(w) to the 1996 Annual Report). 10(u)+ - The Liz Claiborne, Inc. Bonus Deferral Plan (incorporated herein by reference from Exhibit 10(x) to the 1996 Annual Report). 10(v)+ - Employment Agreement dated as of May 9, 1994, between Registrant and Paul R. Charron (the "Charron Agreement") (incorporated herein by reference from Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended April 2, 1994). 10(v)(i)+ - Amendment to the Charron Agreement, dated as of November 20, 1995 (incorporated herein by reference from Exhibit 10(x)(i) to the 1995 Annual Report). 10(v)(ii)+ - Amendment to the Charron Agreement, dated as of September 19, 1996, (including the Liz Claiborne Retirement Income Accumulation Plan for the benefit of Mr. Charron) (incorporated herein by reference from Exhibit 10(y)(ii) to the 1996 Annual Report). 10(v)(iii)+* -Executive Termination Benefits Agreement, between Registrant and Paul R. Charron. 10(w)+ - Employment Agreement dated as of September 26, 1996 between Registrant and Denise V. Seegal (the "Seegal Agreement") (incorporated herein by reference from Exhibit 10(z) to the 1996 Annual Report). 10(w)(i)+ - Amendment to the Seegal Agreement, dated as of February 18, 2000 (incorporated herein by reference from Exhibit 10(x)(i) to the 1999 Annual Report). 10(w)(ii)+* - Separation Agreement entered into as of February 7, 2001 by and between Registrant and Denise V. Seegal. 10(x)* - Three Year Credit Agreement, dated as of November 16, 2000, among Registrant, various lending parties and The Chase Manhattan Bank (as administrative agent). 10(y)* - 364 Day Credit Agreement, dated as of November 16, 2000, among Registrant, various lending parties and The Chase Manhattan Bank (as administrative agent). 10(z)+ - Liz Claiborne, Inc. 2000 Stock Incentive Plan (the "2000 Plan") (incorporated herein by reference from Exhibit 4(e) to Registrant's Form S-8 dated as of January 25, 2001.) 10(z)(i)+* - Form of Option Grant Certificate under the 2000 Plan.
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). * Filed herewith. 60
Exhibit No. Description - ------- ------------ 21* - List of Registrant's Subsidiaries. 23* - Consent of Independent Public Accountants. 27* - Financial Data Schedule. 99* - Undertakings. (b) - Reports on Form 8-K. Not Applicable.
+ Compensation plan or arrangement required to be noted as provided in Item 14(a)(3). * Filed herewith. EX-10.G 2 0002.txt 401(K) SAVINGS AND PROFIT SHARING PLAN 1 Exhibit 10(g) THE LIZ CLAIBORNE 401(K) SAVINGS AND PROFIT SHARING PLAN As Amended and Restated Effective as of April 1, 2000 2 The Liz Claiborne 401(k) Savings and Profit Sharing Plan (As Amended and Restated Effective as of April 1, 2000) Preamble Effective January 1, 1985, Liz Claiborne, Inc. (the "Company") adopted the Liz Claiborne Savings Plan (the "Plan"), a stock bonus plan that provides for contributions pursuant to section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), which plan has been amended and restated from time to time. Effective January 1, 1983, the Company adopted the Liz Claiborne Profit Sharing Retirement Plan (the "Profit Sharing Plan"), a profit sharing plan that provides for employer profit sharing contributions, which plan has also been amended and restated from time to time. On June 9, 1999 the Company acquired approximately 85% of the stock of Lucky Brand Dungarees, Inc. ("Lucky"), the sponsor of the Lucky Brand Employee Retirement Plan and Trust (the "Lucky Plan"), a profit sharing plan providing for contributions under section 401(k) of the Code. On June 11, 1999, the Company acquired approximately 85% of the stock of Segrets, Inc. ("Segrets"), the sponsor of the Segrets, Inc. 401(k) Profit Sharing Plan (the "Segrets Plan"), a profit sharing plan providing for contributions under section 401(k) of the Code. On November 2, 1999 the Company acquired 100% of the stock of Podell Industries, Inc., the sponsor of the Podell Industries, Inc. 401(k) Profit Sharing Plan (the "Laundry Plan"), a profit sharing plan providing for contributions under section 401(k) of the Code. The Company now desires to amend and restate the Plan to reflect the merger into it of the Profit Sharing Plan, the Lucky Plan, and the Segrets Plan effective as of December 31, 1999 and the Laundry Plan effective as of April 1, 2000; and (ii) to further amend the Plan to comply with the provisions of the Small Business Job Protection Act of 1996 ("SBJPA"), the Uruguay Round Agreements Act (also referred to as "GATT"), the Taxpayer Relief Act of 1997 ("TRA 97") and the IRS Restructuring and Reform Act of 1998 (together, the "GUST provisions"), as well as other amendments determined by the Company to be appropriate to further the purposes of the Plan, effective as of the dates required by such provisions of law or as expressly set forth herein, and otherwise as of the date hereof. The Plan as amended and restated herein is intended to qualify as a profit sharing plan within the meaning of section 401(a) of the Code with a cash or deferred arrangement within the meaning of section 401(k) of the Code. 3 : ARTICLE I General 1.1 Effective Date. The effective date of this amendment and restatement is April 1, 2000. Except as expressly provided herein, the rights of a Participant or an Eligible Employee who has terminated employment and who does not have an Hour of Service on or after the Effective Date shall be determined by the terms of the Plan in effect immediately prior to the Effective Date. Notwithstanding the forgoing, certain provisions of this document are intended to comply with changes to the Code made by the GUST provisions, and shall have the effective dates of such changes. To the extent applicable, any provisions of the Plan intended to comply with the GUST provisions shall also be considered amendments to the prior version of this Plan, the Profit Sharing Plan, the Lucky Plan, the Segrets Plan and the Laundry Plan as of the relevant effective dates. 1.2 Definitions. Terms used frequently with the same meaning are capitalized; some terms are defined below, others in the section of the Plan to which they principally pertain. (a) When used in this Plan, the following terms shall have the designated meanings, unless a different meaning is clearly required by the context: (i) "Accounts". A Participant's Profit Sharing Contributions, Matching Contributions, Tax-Saver Contributions, Qualified Non-Elective Contributions, Buy-Back and Rollover Accounts. (ii) "Affiliate". A Controlled Group Member or an Affiliated Service Group Member. (iii) "Affiliated Service Group Member". Any (A) member of an affiliated service group, within the meaning of section 414(m) of the Code, that includes the Company or a Controlled Group Member, or (B) organization aggregated with the Company or a Controlled Group Member pursuant to section 414(o) of the Code, but only if and to the extent (including time period) required by such sections. (iv) "Appropriate Form". The form prescribed by the Recordkeeper for a particular purpose specified in the Plan, as more fully described in Section 14.1. (v) "Beneficiary". The person or persons entitled to benefits under the Plan following a Participant's death, pursuant to Article X. (vi) "Board of Directors". The Board of Directors of the Company, or any duly authorized committee thereof. -2- 4 (vii) "Buy-Back Account". A separate account maintained for a Participant which reflects his share of the Trust Fund attributable to his repayment of a prior distribution under Section 7.5. (viii) "Code". The Internal Revenue Code of 1986 as amended from time to time. Reference to a specific provision of the Code shall include such provision, any valid regulation or ruling promulgated thereunder and any comparable provision of future law that amends, supplements or supersedes such provision. (ix) "Committee". The administrative/investment committee provided for in Article XII. (x) "Common Stock". Common stock of the Company. (xi) "Company". Liz Claiborne, Inc. a Delaware Corporation, or any successor thereto by merger, consolidation or otherwise (xii) "Company Stock Fund. An Investment Fund invested primarily in Common Stock. (xiii) "Compensation". An individual's base salary or base wages and commissions paid by an Employer for services as an Eligible Employee, excluding bonuses, overtime, and all other forms of extra compensation, but determined before giving effect to any Contribution Agreement under this Plan, or any salary reduction or similar agreement under any plan described in section 401(k) or 125 of the Code. The total amount of a Participant's Compensation taken into account under the Plan for any Plan Year shall not exceed the maximum amount permitted for such Plan Year under section 401(a)(17) of the Code. (xiv) "Contribution Agreement". An agreement by an Eligible Employee to reduce his Compensation otherwise payable in cash in order to receive Tax-Saver Contributions under the Plan, which agreement may be either express or deemed to have been made as provided in Section 4.2. (xv) "Controlled Group Member". Any trade or business, whether or not incorporated, during such period in which it controls, is controlled by, or is under common control with the Company within the meaning of section 414(b) or 414(c) of the Code. (xvi) "Disability". A Participant has incurred a Disability if he is determined by the Committee to have become incapable of performing all of the duties of his normal occupation because of an illness or accidental injury that is expected to be permanent or of indefinite duration. In making its determination the Committee may treat as conclusive evidence of Disability a Participant's qualification for disability benefits under the Social Security Act. (xvii) "Effective Date". See Section 1.1. -3- 5 (xviii) "Eligible Employee". See Section 3.1. (xix) "Employer". The Company and any other Controlled Group Member which has adopted the Plan with the approval of the Company and which shall not have discontinued its sponsorship pursuant to Section 13.1. (xx) "Entry Date". The first day of each month and any other date established as an entry date by the Committee with respect to Eligible Employees generally, or such specified group of Eligible Employees as the Committee may prescribe in its discretion. (xxi) "ERISA". The Employee Retirement Income Security Act of 1974 as amended from time to time. Reference to a specific provision of ERISA shall include such provision, any valid regulation or ruling promulgated thereunder and any comparable provision of future law that amends, supplements or supersedes such provision. (xxii) "Full Time" and "Part Time". See Subparagraph 3.1(f)(i). (xxiii) "Highly Compensated Employee". For any Plan Year, an employee who received compensation from the Company and its Affiliates (as determined under section 414(q) of the Code) during the prior Plan Year in excess of $80,000 (as adjusted pursuant to section 414(q) of the Code) or who was a five percent (5%) owner (within the meaning of Section 414(q) of the Code) of the Company at any time during the current or prior Plan Year. (xxiv) "Hour of Service". Each hour for which an employee is paid or entitled to payment for the performance of duties for the Company, another Employer or an Affiliate, and each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company, an Employer or an Affiliate, disregarding payments made or due solely for purposes of complying with workers' compensation, unemployment compensation or disability insurance laws and payments which solely reimburse an employee for medical expenses and severance pay. Hours to be credited for reasons other than the performance of duties shall be determined and credited in accordance with the provisions of Department of Labor Regulation Section 2530.200b-2(b) and (c). With respect to employees for whom hourly employment records are not regularly kept, the Committee shall establish such equivalents as it deems appropriate in accordance with Department of Labor Regulation 2530.200b-3(c). (xxv) "Investment Fund". A portion of the Trust Fund which is separately invested pursuant to Section 6.5. (xxvi) "Leased Employee". An individual treated as an employee of non-adopting Controlled Group Member pursuant to Section 3.9. (xxvii) "Matching Contributions". Contributions made by an Employer for a Participant under Section 4.7, based on the Tax-Saver Contributions made for the Participant. -4- 6 (xxviii) "Matching Contributions Account". A separate account maintained for each Participant which reflects his share of the Trust Fund attributable to Matching Contributions. (xxix) "Maternity or Paternity Absence". An employee's absence from work because of the pregnancy of the employee, the birth of the employee's child or the adoption of a child by the employee or for purposes of caring for the employee's child immediately following such birth or adoption. The Committee may require the employee to furnish such information as it considers necessary to establish that such employee's absence was a maternity or paternity absence. (xxx) "Normal Retirement Date". An employee's 65th birthday. (xxxi) "One Year Break in Service": A continuous 12-month period of absence commencing on the earlier of the day an employee quits, retires, dies, or is discharged or, in the case of an absence for any other reason, the first anniversary of the first day of such absence if the employee is not paid or entitled to payment for the performance of duties for the Company or any Affiliate during such 12-month period. Solely for purposes of determining whether a One Year Break is Service has occurred, an employee who is absent from service beyond the first anniversary of the date on which his Maternity or Paternity Absence began shall be deemed to have terminated employment no later than the second anniversary of the date on which the Maternity or Paternity Absence began. (xxxii) "Participant". Any employee who has become a Participant in this Plan in accordance with Article II, and any other employee or former employee who has an undistributed Account balance under the Plan. (xxxiii) "Plan". The Liz Claiborne 401(k) Savings and Profit Sharing Plan (As Amended and Restated Effective as of April 1, 2000), as from time to time in effect. (xxxiv) "Plan Year". Each twelve-month period starting on January 1 and ending on December 31. (xxxv) "Profit Sharing Contributions". Contributions by an Employer under Section 4.13. (xxxvi) "Profit Sharing Contributions Account". A separate account maintained for each Participant which reflects his share of the Trust Fund attributable to Profit Sharing Contributions. (xxxvii) "Qualified Non-Elective Contributions". Discretionary contributions by an Employer for a Participant under Section 4.10. (xxxviii) "Recordkeeper". The entity which the Committee has employed to perform recordkeeping and certain other administrative functions for the Plan. -5- 7 (xxxix) "Rollover". A Participant's rollover contribution pursuant to Section 4.12. (xl) "Rollover Account". A separate account maintained for each Participant which reflects his share of the Trust Fund attributable to his Rollovers. (xli) "Tax-Saver Contributions Account". A separate Account maintained for each Participant which reflects his share of the Trust Fund attributable to Tax-Saver Contributions. (xlii) "Tax-Saver Contributions". Contributions made by an Employer for the benefit of a Participant under Section 4.1, based on the amount by which the Participant elected (or is deemed to have elected) to reduce the Compensation otherwise payable to him in cash in accordance with Section 4.2. (xliii) Termination Date. The date on which an employee's employment with the Company and its Affiliates terminates for any reason. (xliv) "Total Earnings". Total compensation (as that term is defined in Treas. Reg Section 1.415-2(d)(ll)(i)) paid by the Company or an Affiliate to an individual, but determined before giving effect to any Contribution Agreement under this Plan (or any other cash or deferred arrangement described in section 401(k) of the Code) or to any similar reduction agreement pursuant to any cafeteria plan (within the meaning of section 125 of the Code). For purposes of Sections 5.7 and 5.11, Total Earnings shall be limited to such compensation paid by an Employer or Affiliate to an individual for the portion of the Plan Year during which he was eligible to make Tax-Saver Contributions or eligible to receive Matching Contributions, as applicable. Total earnings taken into account under the Plan for any Plan Year shall not exceed the maximum amount permitted for such Plan Year under section 401(a)(17) of the Code. (xlv) "Treasury Regulations". Any regulation published by the Secretary of the Treasury with respect to any section of the Code, and any revenue ruling, notice or announcement of general application pertinent to any Code section published by the United States Treasury Department. (xlvi) "Trust Agreement". The trust agreement referred to in Article XI. (xlvii) "Trust Fund". All the assets held under the Plan by the Trustee as provided for in Article XI. (xlviii) "Trustee". The corporation, individual, individuals, or combination thereof which may at any time be acting as trustee under the Trust Agreement entered into in connection with the Plan. (xlix) "Valuation Date". Generally, each business day; for this purpose, a business day is any day on which the New York Stock Exchange is open. Notwithstanding the foregoing, the Committee, in its discretion, may suspend daily valuations for such period as it considers appropriate, or may designate a different -6- 8 valuation cycle (such as monthly or quarterly), as long as there is a valuation as of the last business day of each Plan Year. (l) "Year of Eligibility Service". See Section 2.2 (li) "Year of Vesting Service". See Section 2.3 (b) Where the context permits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. 1.3 Plan Supplements. The provisions of the Plan as applied to any Employer or any group of employees of any Employer may be modified or supplemented from time to time by the Company by the adoption of one or more "Supplements". Each Supplement shall form a part of the Plan as of the Supplement's effective date. In the event of any inconsistency between a Supplement and the Plan document, the terms of the Supplement shall govern. -7- 9 ARTICLE II Service 2.1 General. Service is used under the Plan to determine when an employee is able to participate in the different types of contributions available under the Plan and when he has earned a vested, nonforfeitable right to such contributions. Service is determined differently for different purposes under the Plan. 2.2 Year of Eligibility Service. An employee will have earned a "Year of Eligibility Service" at the end of a twelve consecutive month computation period during which the employee is credited with at least 1,000 Hours of Service; such computation period shall begin on (a) the first day for which the employee is paid or entitled to payment for the performance of duties for the Company or an Affiliate or (b) any anniversary of such first day. The employee need not be employed at the end of such computation period to be credited with a Year of Eligibility Service. 2.3 Years of Vesting Service. An employee will have "Years of Vesting Service" equal to the number of years, computed to a fraction based upon 365 days comprising a year, elapsed since the first date for which the employee has an Hour of Service and ending on the day he last severs employment with the Company and its Affiliates, subject to the following: (a) An employee will have severed employment with the Company and its Affiliates on the earlier of (i) the day he quits, retires, dies or is discharged, or (ii) the first anniversary of the first day of an absence for any other reason. (b) If an employee's employment with the Company and its Affiliates is terminated and he incurs a One Year Break in Service, he shall not be credited with service for the period between the date he severed employment with the Company and its affiliates and the date, if any, of his reemployment by the Company or an Affiliate. (c) Any absence that is shorter than twelve full months shall count as vesting service. (d) The period between the first anniversary of the first day of a Maternity or Paternity Absence and the second anniversary shall be considered neither vesting service nor any part of a One Year Break in Service. (e) Vesting service earned by an employee after five (5) consecutive One Year Breaks in Service shall be disregarded in determining the vested percentage of his benefit under the Plan derived from Matching and Profit Sharing Contributions accrued prior to such break. (f) If an employee or Participant terminates employment with the Company and its Affiliates without having a vested interest in any portion of an Account and such employee or Participant incurs six (6) consecutive One Year Breaks in Service, his employment prior to the first such One Year break in Service shall be disregarded and he shall be treated as a new hire for purpose of when he may begin participation in the Plan -8- 10 and Section 3.1 after his reemployment. The foregoing rule of parity shall not affect an individual's retention of his Years of Vesting Service earned prior to his reemployment by the Company or an Affiliate for purposes of determining his vested interest in any Employer contributions first allocated to his Account after his reemployment. 2.4 Changes in Employment Status and Application of Different Service Crediting Rules to the Determination of Eligibility. In the event that an individual changes status from a Full Time employee to a Part Time employee or vice-versa (whether in connection with a termination of employment or otherwise) the following rules shall apply: (a) an employee who moves from Part Time status to Full Time status shall be credited with the greater of (i) the period of elapsed-time service that would be credited under Section 2.3 during the entire computation period in which the transfer occurs or (ii) the service creditable under Section 2.2 as of the date of transfer; and (b) An employee who moves from Full Time to Part Time status shall receive credit for Hours of Service in the computation period in which the transfer occurs for any elapsed time service earned prior to the date of transfer, determined by multiplying 45 by the number of weeks worked in any fractional part of a year credited under Section 2.3 prior to the transfer. For purposes of the foregoing, the transfer will be deemed to have occurred on the date the employee returns to work when the change in status occurs in connection with an interruption of active employment. Notwithstanding the foregoing, if an individual changes from Full Time to Part Time status after he has received his initial enrollment kit, he will continue to be treated as a Full Time employee for purposes of subparagraph 3.1(f)(i). 2.5 Service With Acquired Companies or Businesses. Notwithstanding the foregoing provisions of this Article II, in the event that the Company or an Employer acquires a business not previously included in the Company's "controlled group" of businesses within the meaning of section 414 of the Code, the Committee in its discretion may decide to recognize service with such business prior to the acquisition as though it were service with an Affiliate, to the extent that, and in accordance with such rules as, the Committee deems appropriate. -9- 11 ARTICLE III Participation in the Plan 3.1 Eligibility to Participate in the Plan. An employee who was a Participant in the Plan (or in the Profit Sharing Plan) prior to the Effective Date with respect to eligibility to make Tax-Saver Contributions, eligibility to receive Matching Contributions or eligibility to share in Profit Sharing Contributions shall continue as a Participant with respect to such right(s) after the Effective Date if such employee is still employed in a group to which the Plan has been extended on the Effective Date. Each other employee of an Employer shall be an "Eligible Employee" with respect to a particular portion of the Plan as of the Entry Date coincident with or next following the date on which he first satisfies all of the following requirements: (a) he is employed in the continental United States in a group to which the Plan (or the relevant portion thereof) has been extended by the Company or his Employer; for this purpose an Employer may, in its discretion, determine that employees in a specified division, subdivision, plant, location or job classification of such Employer shall not be Eligible Employees, provided that any such determination shall not discriminate in favor of officers, shareholders or highly compensated employees so as to prevent the Plan from qualifying under section 401(a) of the Code; (b) he does not perform services for the Company or an Employer under a contract, agreement, arrangement or understanding that purports to treat him as an independent contractor, a fragrance demonstrator or the employee of a leasing organization, agency or other entity, even if he is subsequently determined (by judicial action or otherwise) to have instead been a common law employee of such Employer; (c) his employment with the Company or his Employer is not covered by a collective bargaining agreement, unless participation in the Plan has been extended to him under the terms of such collective bargaining agreement; (d) he has attained age 21; (e) he is not a non-resident alien; and (f) he has satisfied the applicable service requirement for that portion of the Plan, as follows: (i) with respect to Tax-Saver Contributions, if he is a "Full Time" employee (that is, he is scheduled to work a full work week determined by the customary practice of his location, business unit or job description as determined by the Committee in its sole discretion), he has completed one half (1/2) of a Year of Vesting Service, or if he is a "Part Time" employee (that is, he is not a Full Time employee), he has completed a Year of Eligibility Service; (ii) with respect to Matching Contribution, if he is a Full Time employee, he has completed a Year of Vesting Service (or has a Year of Eligibility Service for the -10- 12 computation period ending in the 2000 Plan Year), and if he is a Part Time employee, he has completed a Year of Eligibility Service; (iii) with respect to Profit Sharing Contributions, he has completed a Year of Eligibility Service, whether he is a Full Time or Part Time employee; and (iv) there is no service requirement for Rollover Contributions with respect to an otherwise eligible employee. 3.2 Transfer to Eligible Employment. If an employee transfers from a position with an Employer or Affiliate that is not covered by the Plan to a position with an Employer that is covered by the Plan, he shall become a Participant on the later of (a) the first Entry Date coincident with or next following the date of such transfer, or (b) the first Entry Date on which he could have become a Participant pursuant to Section 3.1 if his prior employment by the Employer or Affiliate had been in a position eligible for participation in the Plan. 3.3 Reemployment. If an employee who has terminated employment is rehired into an eligible group, he shall commence or resume participation under the Plan on the later of (a) the date of such rehire, or (b) the Entry Date coinciding with or next following that date he satisfies all of the requirements of Section 3.1, unless such employee is treated as a new hire for eligibility purposes under paragraph 2.3(f), in which case he must again satisfy the service requirements of paragraph 3.1(f). 3.4 Inactive Participation. If an individual ceases to meet all of the eligibility requirements of Section 3.1, such individual shall be considered an inactive Participant in the Plan for as long as any amount is credited to his Account under the Plan, but: (a) no contributions shall be made by or for him; and (b) except as otherwise expressly provided herein, he may not make a withdrawal or borrow under Section X after he ceases to be an employee of an Employer or an Affiliate. 3.5 Transfers Between Employers. If a Participant transfers from employment as an Eligible Employee with one Employer to employment as an Eligible Employee with another Employer his participation in the Plan shall not be interrupted and his Contribution Agreement (if any) with his prior Employer shall be deemed to apply to his second Employer in the same manner as it applied to his prior Employer. 3.6 No Employment Rights. The establishment of the Plan shall not be construed as conferring any rights upon any employee or any person for a continuation of his employment, nor shall it be construed as limiting in any way the right of any Employer or Affiliate to discharge any employee or to treat him without regard to the effect which such treatment might have upon him as a Participant under the Plan. 3.7 Rollover Participation. An employee who satisfies all of the requirements of Section 3.1 other than paragraphs (d) and (f) may make a Rollover Contribution pursuant to Section 4.12 and thereby become a Participant as of the date of such contribution (if he has not previously become a Participant) only for the purposes of such Rollover, and shall not be eligible to share in -11- 13 Tax-Saver, Matching or Profit Sharing Contributions until he has qualified for such contributions in accordance with the applicable provisions of Section 3.1. 3.8 Participation Voluntary For Certain Purposes. Participation with respect to Tax-Saver and Matching Contributions in this Plan shall be voluntary and any person otherwise eligible may decline to participate in those portions of the Plan; participation with respect to Profit Sharing Contributions shall be automatic. 3.9 Leased Employees. If a person satisfies the requirements of section 414(n) of the Code and applicable Treasury Regulations for treatment as a "Leased Employee", such Leased Employee shall not be eligible to participate in this Plan but, to the extent required by section 414(n) of the Code and applicable Treasury Regulations, such person shall be treated as if the services performed by him in such capacity were performed by him as an employee of a Controlled Group Member which has not adopted the Plan, provided, however, that no such service shall be credited for any period during which not more than 20% of the non-Highly Compensated Employees of the Company and its Affiliates consists of Leased Employees and the Leased Employee is a participant in a money purchase pension plan maintained by the leasing organization which (a) provides for a non-integrated employer contribution of at least 10 percent of compensation, (b) provides for full and immediate vesting, and (c) covers all employees of the leasing organization (beginning with the date they become employees), other than those employees excluded under section 414(n)(5) of the Code. -12- 14 ARTICLE IV Contributions 4.1 Tax-Saver Contributions. Subject to the terms and conditions of the Plan, including Article V, an Eligible Employee may elect to have his Compensation reduced and a corresponding amount of Tax-Saver Contributions made on his behalf for each payroll period in an amount equal to any whole percentage of his Compensation for such payroll period between 1% and 15%, inclusive, provided that a whole percentage of his Compensation for a payroll period shall not be required if necessary or appropriate to comply with any applicable limitations on the amount of Tax-Saver Contributions permitted. Notwithstanding the foregoing, the Committee shall decrease the rate of a Participant's Tax-Saver Contributions for any payroll period to the extent the amount of the corresponding reduction, plus the amount of the Participant's deductions for such payroll period for welfare benefits sponsored by the Employer and any other withholding from pay required by law, would exceed the Participant's Compensation for such payroll period. 4.2 Contribution Agreement for Tax-Saver Contributions. Prior to April 1, 2000, to become a Participant for purposes of Tax-Saver Contributions an Eligible Employee must have completed and returned a Contribution Agreement. On and after April 1, 2000, an Eligible Employee, upon first becoming eligible to make Tax-Saver Contributions, shall be deemed to have completed a Contribution Agreement under which he agrees to reduce the Compensation otherwise payable to him in cash on each subsequent payroll date by 3% (or such other amount as the Committee may specify on a uniform and nondiscriminatory basis); provided, however, that any such individual may elect not to have such automatic contributions made on his behalf, or to have contributions made in a different amount, by providing such notification as the Committee may specify. 4.3 Time of Tax-Saver Contributions. Tax-Saver Contributions shall be contributed by the Participant's Employer as soon as reasonably practicable after the payroll date to which such contributions relate. 4.4 Change in Contribution Rate. Any Eligible Employee or Participant who previously has declined to make Tax-Saver Contributions and any Participant who has a Contribution Agreement in effect may prospectively increase or decrease the percentage of Tax-Saver Contributions to be made on his behalf within the limits specified in Section 4.1, effective as of a future payroll date, by giving notice on the Appropriate Form to the Committee at least thirty (30) days before such date or within such other period as the Committee may prescribe. 4.5 Voluntary Suspension of Tax-Saver Contributions. A Participant may voluntarily suspend his Contribution Agreement effective as of a future payroll date by giving notice to the Committee on the Appropriate Form at least thirty (30) days before such date or within such other advance period as the Committee may prescribe. No Tax-Saver Contributions or Matching Contributions shall be made for any Participant with respect to any period during which his Contribution Agreement has been so suspended. An Eligible Employee may reinstate his -13- 15 Contribution Agreement as of the first day of any payroll period, by giving notice on the Appropriate Form at least thirty (30) days before the first day of such payroll period (or within such other advance period as the Committee may prescribe). 4.6 Mandatory Suspension of Tax-Saver Contributions. The Contribution Agreement of a Participant who makes a hardship withdrawal from his Tax-Saver Contributions Account pursuant to Section 8.3 shall be suspended as of the payroll period in which the withdrawal is made until the next payroll period that is at least 12 months after the date of such withdrawal. An Eligible Employee may reinstate his Contribution Agreement as of the first day of any payroll period following a period of mandatory suspension under this Section 4.6, by giving advance notice to the Committee on the Appropriate Form so that it is received by the Committee within such period as the Committee shall prescribe. 4.7 Matching Contributions. Matching Contributions shall be made with respect to Tax-Saver Contributions in accordance with the following: (a) For each payroll period beginning on or after the Effective Date the Employers shall make Matching Contributions to the Plan for each Participant who had a Contribution Agreement in effect during such payroll period, in an amount equal to 50% of such Participant's Tax-Saver Contributions for such payroll period that do not exceed 6% of his Compensation for that payroll period. (b) Prior to the Effective Date, at the end of each calendar quarter, the Employers would determine whether the Matching Contributions made pursuant to paragraph (a) above on a payroll-by-payroll basis equal, for that calendar quarter, 50% of the Participant's Tax-Saver Contributions for that quarter that do not exceed 5% of his Compensation for that quarter or, if shorter, so much of the quarter during which he was a Participant. If the amount contributed under paragraph (a) did not equal the amount required by this paragraph (b), the Employers would contribute the additional amount necessary to make the Participant whole. No such true-up contribution shall be made with respect to any calendar quarter commencing on or after the Effective Date. 4.8 Payment of Matching Contributions. Matching Contributions made with respect to a payroll period under paragraph 4.7(a) shall be paid to the Trustee as soon as reasonably practicable after the end of such period, and any true-up Matching Contributions made under paragraph 4.7(b) for a quarter shall be made as soon as practicable after such quarter, but in no event later than the due date (including extensions) of the Employer's federal income tax return for the tax year to which such contribution relates. Such Matching Contributions shall be allocated to the Participant's Matching Contributions Account as of such Valuation Date within the Plan Year as the Committee shall direct. 4.9 Matching Contributions Only For Permissible Tax-Saver Contributions. No Matching Contributions shall be made with respect to (i) Excess Tax-Saver Contributions (as defined in Section 5.8) distributable pursuant to Section 5.9, (ii) Tax-Saver Contributions in excess of the elective deferral limit (as defined in Section 5.4), or (iii) excess Annual Additions that are refunded under Section 5.3. Any amounts paid into the Trust Fund with the intention that they constitute Matching Contributions with respect to such amounts shall be retained in the -14- 16 Trust Fund and applied to meet the obligation of the Employers to make contributions under this Article IV. 4.10 Qualified Non-Elective Contributions. For each Plan Year, each Employer shall contribute to the Trust Fund, in cash, such additional amounts (if any) as the Committee, in its sole discretion, shall determine to be necessary or desirable in order to meet the requirements of Sections 5.6 and 5.10 for such Plan Year. Such additional contributions shall be made at such time as shall be required by applicable Treasury Regulations. The Committee shall designate any such amounts as "qualified non-elective contributions" (within the meaning of section 401(m)(4)(C) of the Code) and shall determine the group of Eligible Employees (who shall not be Highly Compensated Employees) eligible to share in such Qualified Non-Elective Contributions, the method of apportionment under which such Eligible Employees shall share in such contributions and the Investment Funds in which such contributions shall initially be invested. Anything in this Plan to the contrary notwithstanding, each Participant, at all times, shall have a fully vested and nonforfeitable right to 100% of the amounts in his Accounts attributable to Qualified Non-Elective Contributions, and such contributions shall be treated as Tax-Saver Contributions for purposes of determining when they may be distributed under the Plan, except that no such amounts may be withdrawn prior to age 59 1/2 or separation from service, even on account of hardship. At the direction of the Committee, Qualified Non-Elective Contributions may be used to satisfy the Average Deferral Percentage test under Section 5.6 or the Contribution Percentage test under Section 5.10 in accordance with applicable Treasury Regulations. 4.11 Contributions for Military Service. Effective December 12, 1994, notwithstanding any provisions of this Plan to the contrary, contributions (including Profit Sharing Contributions) shall be made with respect to a period in which an individual would have been a Participant but for his military service to the extent required by Chapter 43 of Title 38 of the United States Code (USERRA) and in accordance with section 414(u) of the Code. The amount of any such Tax-Saver Contributions and of Matching Contributions in respect thereof shall be based upon such individual's election made following his return to employment with the Employer following such military service (and within the time during which he had reemployment rights) in accordance with procedures established by the Committee; provided that no such Tax-Saver Contributions may exceed the amount the individual would have been permitted to elect to contribute had the individual remained continuously employed by the Employer throughout the period of such military service (and Matching Contributions shall be limited accordingly). Such contributions (and Profit Sharing Contributions) shall be taken into account as Annual Additions for purposes of Section 5.2 in the Plan Year to which they relate, and for purposes of applying the elective deferral limit set forth in Section 5.4 in the Plan Year to which they relate, rather than in the Plan Year in which made, and shall be disregarded for purposes of applying the limits described in Sections 5.6 and 5.10. Any such contribution shall be made no later than five years from the date of such return to employment or, if less, a period equal to three times the period of such military service. 4.12 Rollovers. The Committee, in its sole discretion, may authorize Eligible Employees to make Rollovers which qualify as rollover contributions under applicable provisions of the Code. The Committee shall exercise such discretion on a nondiscriminatory basis. All Rollovers shall -15- 17 be received and held in the Trust Fund, and shall be credited to the Participant's Rollover Account as of such date as the Committee shall specify. 4.13 Profit Sharing Contributions. For each Plan Year the Employers shall contribute to the Trust Fund such amount (if any) as shall have been determined by the Company. Such determination may be made at any time prior to the due date (including extensions) of the Company's Federal income tax return for its fiscal year ending with or within such Plan Year. 4.14 Eligibility to Share in Profit Sharing Contributions. A Participant shall be eligible to share in Profit Sharing Contributions for a Plan Year only if (a) he has completed at least 1,000 Hours of Service during the Plan Year and he is employed by an Employer or Affiliate on the December 31 of such year (or on the latest earlier date during such year which the Committee determines is necessary or appropriate in order for the Plan to satisfy the requirements of Section 410(b) of the Code), or (b) during such Plan Year his employment ended after he (i) died, (ii) reached his Normal Retirement Date, (iii) reached age 60 and completed at least 6 Years of Vesting Service, (iv) completed at least 20 Years of Vesting Service or (v) incurred a Disability. 4.15 Allocation of Profit Sharing Contributions and Forfeitures. Profit Sharing Contributions for a Plan Year shall be allocated as of the last business day of such year to the Profit Sharing Accounts of all Participants who are eligible to share in such contributions, in the ratio that each such Participant's Compensation for the Plan Year bears to the total Compensation of all such Participants for that Plan Year. For this purpose, Compensation paid before the day participation began for purposes of Section 4.14 shall not be taken into account. 4.16 Contributions May Not Exceed Amount Deductible. In no event shall contributions under this Article IV for any taxable year exceed the maximum amount (including amounts carried forward) deductible for that taxable year under section 404(a)(3) of the Code, and all such contributions are conditioned on their deductibility. 4.17 Form of Payment to Trustee. Profit Sharing, Tax-Saver, Matching and Qualified Non-Elective Contributions shall be made in cash; provided that, to the extent Profit Sharing, Matching or Tax-Saver Contributions are to be invested in the Company Stock Fund, the Employers may contribute shares of Common Stock having a fair market value (determined as of the date such contributions are to be allocated to the Participants' Accounts) equal to the amount of the contributions so required. Shares so contributed may be authorized but unissued shares, treasury shares, shares purchased for the purpose of making such contribution, or any combination of the foregoing. The Company is authorized to contribute cash or Common Stock to the Plan on behalf of any other Employer, and to the extent that the Company makes any such contribution, such Employer shall reimburse the Company therefor. 4.18 Time of Payment of Profit Sharing Contribution. All Profit Sharing Contributions shall be paid or delivered by the Employer to the Trustee by the due date (including extensions) of the Employer's Federal income tax return for its fiscal year to which such contributions relate. 4.19 Profits Not Required. Each Employer shall make all contributions to the Plan without regard to current or accumulated earnings and profits. -16- 18 ARTICLE V Limits on Contributions 5.1 Reduction of Contribution Rates. To conform the operation of the Plan to sections 401(a)(4), 401(k)(3), 401(m)(2), 402(g) and 415(c), the Committee may establish limits on Tax-Saver Contribution rates that may be elected by the Participant, may unilaterally modify or revoke a Contribution Agreement, and may reduce the rate of Matching Contributions (even to zero) payable with respect to a Participant or group of Participants. 5.2 Limitations on Annual Additions. Notwithstanding any other provisions of the Plan to the contrary, a Participant's Annual Additions (as defined below) for any Plan Year shall not exceed an amount equal to the lesser of: (a) $30,000 (as adjusted for cost-of-living increased under section 415(d) of the Code); or (b) 25 percent of the Participant's Total Earnings for that Plan Year, calculated as if each Section 415 Affiliate (defined below) were an Affiliate, reduced by any Annual Additions for the Participant for the Plan Year under any other defined contribution plan of an Employer or an Affiliate or Section 415 Affiliate, provided that, if any other such plan has a similar provision, the reduction shall be pro rata. The term "Annual Additions" means, with respect to any Participant for any Plan Year, the sum of all contributions allocated to a Participant's Accounts under the Plan for such year, excluding Rollovers and any Tax-Saver Contributions that are distributed as excess deferrals, but including any Tax-Saver or Matching Contributions treated as excess contributions or excess aggregate contributions under Sections 5.8 or 5.11. The term Annual Additions shall also include employer contributions allocated for a Plan Year to any individual medical account (as defined in section 415(l) of the Code) of a Participant and any amount allocated for a Plan Year to the separate account of a Participant for payment of post-retirement medical benefits under a funded welfare benefit plan (as described in section 419A (d)(2) of the Code), which is maintained by the Employer or an Affiliate or Section 415 Affiliate. "Section 415 Affiliate" means any entity that would be a Controlled Group Member if the ownership test of section 414 of the Code was "more than 50%" rather than "at least 80%". 5.3 Excess Annual Additions. If, as a result of a reasonable error in estimating a Participant's Total Earnings, a reasonable error in determining the amount of Tax-Saver Contributions that may be made with respect to a Participant under the limits of section 415 of the Code or such other mitigating circumstances as the Commissioner of Internal Revenue shall prescribe, the Annual Additions for a Participant for a Plan Year exceed the limitations set forth in section 5.2, the excess amounts shall be treated, as necessary, in accordance with Treasury Regulations Section 1.415-6(b)(6)(ii), after any Tax-Saver Contributions, and any income, losses, appreciation or depreciation attributable thereto, are first returned to the Participant to reduce the excess amount. To the extent applicable to the foregoing, reference to section 415(e) -17- 19 of the Code under prior versions of this Plan or any other plan merged into this Plan shall be disregarded effective January 1, 2000. 5.4 Limitation on Elective Deferrals. Notwithstanding any other provision of this Plan, no Tax-Saver Contributions may be made on behalf of any Participant for a Plan Year in an amount in excess of the elective deferral limit for that Plan Year. A Participant's Tax-Saver Contributions under Section 4.1 shall be discontinued for the remainder of a Plan Year when, in the aggregate, they equal the elective deferral limit for such Plan Year. For purposes of this Section 5.4, the "elective deferral limit" means the maximum amount permitted for that Plan Year under section 402(g)(5) of the Code ($10,500 for the 2000 Plan Year), reduced by the amount of elective deferrals (as defined in section 402(g)(3) of the Code) made by the Participant during that calendar year under any plans or agreements maintained by an Employer or by an Affiliate other than this Plan (and, in the sole discretion of the Committee, any plans or agreements maintained by any other employer, if reported to the Committee at such time and in such manner as the Committee shall prescribe). The elective deferral limit with respect to a Participant who has received a hardship withdrawal from his Tax-Saver Contributions Account under this Plan as provided in Section 8.3, or a hardship withdrawal with respect to his elective deferrals under any other plan or agreement of any Employer or Affiliate, for his taxable year following the taxable year of such withdrawal, shall be reduced by the amount of the elective deferrals made by the Participant during the taxable year of the withdrawal under this Plan and all such other plans and agreements. Each such other plan or agreement shall be deemed amended by reason of this provision and the Participant's execution of the Appropriate Form to the extent necessary to give full effect to any reduction required under the preceding sentence. 5.5 Distribution of Excess Deferrals. If the elective deferrals made by a Participant during his taxable year under this Plan and any other plans or agreements maintained by an Employer or Affiliate exceed the elective deferral limit, the excess Tax-Saver Contributions, adjusted for any income or loss attributable to such Tax-Saver Contributions up to the date of distribution, in the sole discretion of the Committee, may be distributed no later than April 15 of the following Plan Year. If the Participant's Tax-Saver Contributions Account is invested in more than one Investment Fund, such distribution shall be made pro rata, to the extent practicable, from all such Investment Funds. Any Matching Contributions made with respect to such excess Tax-Saver Contributions and allocated to his Matching Contributions Account shall be forfeited and used to reduce Employer contributions. A Participant also may request that excess Tax-Saver Contributions be distributed to him, by delivering a written claim to the Committee by March 1 of the Plan Year of distribution. Such claim must include (a) a statement that the Participant's elective deferral limit will be exceeded unless the excess Tax-Saver Contributions are distributed and (b) an acknowledgement that any Matching Contributions made with respect to such excess Tax-Saver Contributions and allocated to his Matching Contributions Account will be forfeited. The amount of excess deferrals to be distributed pursuant to this Section 5.5 for a taxable year will be reduced by the amount of Excess Contributions previously distributed with respect to such Participant for the Plan Year beginning in such taxable year under Section 5.8. 5.6 Section 401(k) Limit on Tax-Saver Contributions. Notwithstanding anything in this Plan to the contrary, effective January 1, 1997, Tax-Saver Contributions for any Plan Year for a Participant who is a Highly Compensated Employee for such year shall be reduced if and to the extent deemed necessary or advisable by the Committee in order that the Average Deferral -18- 20 Percentage (as defined in Section 5.7) for Participants who are Highly Compensated Employees for that Plan Year shall not exceed the percentage determined in the following schedule, based on the Average Deferral Percentage for that Plan Year for all Eligible Employees who are not Highly Compensated Employees for that Plan Year:
Column 1 Column 2 Average Deferral Percentage Average Deferral for Eligible Employees Percentage for Eligible Who are Not Highly Compensated Employees Who Are Employees for the Highly Compensated Plan Year Employees for the Plan Year (i) Less than 2% (i) Two (2) times the percentage in Column 1 (ii) 2% - 8% (ii) The percentage in Column 1, plus 2% (iii) More than 8% (iii) One and one-quarter (1-1/4) times the percentage in Column 1
5.7 Determination of Average Deferral Percentages. For purposes of Section 5.6, the "Average Deferral Percentage" for any group of individuals who are eligible to enter into a Contribution Agreement for a portion of a Plan Year means the average of the individual ratios, for each person in such group, of (a) his Tax-Saver Contributions (and Qualified Non-Elective Contributions, if applicable) for the Plan Year to (b) his Total Earnings for such Plan Year. The individual ratios, and the Average Deferral Percentage for any group of eligible individuals, shall be calculated to the nearest one-hundredth of one percent (0.01%). 5.8 Treatment of Excess Tax-Saver Contributions. For purposes of this Section 5.8, "Excess Contributions" means, with respect to any Plan Year, a dollar amount equal to the excess of (a) the aggregate amount of Tax-Saver Contributions actually paid into the Plan on behalf of Highly Compensated Employees for such Plan Year, over (b) the maximum amount of Tax-Saver Contributions permitted for such Plan Year under the limitations set forth in Section 5.6, determined by reducing the deferral percentages under the leveling method prescribed in applicable Treasury Regulations and calculating the aggregate dollar amount of lost contributions from such reductions. The aggregate amount of such lost contributions shall be the Excess Contributions for the Plan Year, which shall be distributed in cash to Highly Compensated Employees on the basis of the respective amounts of Tax-Saver Contributions (and amounts taken into account as Tax-Saver Contributions) made on their behalf, reducing the Highly Compensated Employee with the largest amount of Tax-Saver Contributions first, and the next highest and so forth, until the entire amount of such Excess Contributions is distributed. Excess Contributions for a Plan Year with respect to any Highly Compensated Employee shall be distributed in cash no later than March 15 of the following Plan Year if possible, and in any -19- 21 event by the close of such following Plan Year. If the Accounts of an affected Participant are invested in more than one Investment Fund, such distribution shall be made pro rata, to the extent practicable, from all such Investment Funds. The amount of Excess Contributions distributed to any such Participant shall be adjusted for any income or loss attributable to such Excess Contributions up to the date of distribution. The amount of Excess Contributions to be distributed for a Plan Year (determined before adjustment for any income or loss allocable thereto) shall be reduced by the amount of excess elective deferrals previously distributed pursuant to Section 5.5 for the same Plan Year. 5.9 Section 401(k)(3) Testing for Collective Bargaining Unit Employees. The provisions of Sections 5.6, 5.7 and 5.8 shall be applied separately to employees in any collective bargaining unit participating in the Plan. If employees in more than one bargaining unit are eligible under the Plan, the Committee, in its discretion, may apply such provisions separately to each separate collective bargaining unit, on an aggregate basis with respect to all collective bargaining units, or separately with respect to such collective bargaining units or combinations of bargaining units as it determines, provided that such treatment is determined on a basis that is reasonable and reasonably consistent from year to year. 5.10 Section 401(m) Limit on Matching Contributions. Notwithstanding anything in this Plan to the contrary, effective January 1, 1997, Matching Contributions for any Plan Year for an Eligible Employee who is a Highly Compensated Employee shall be reduced to the extent necessary in order that the Contribution Percentage (defined in Section 5.11) for Eligible Employees who are Highly Compensated Employees for that Plan Year does not exceed the percentage determined in the following schedule, based on the Contribution Percentage for the Plan Year for all Eligible Employees who are not Highly Compensated Employees:
Column 1 Column 2 Contribution Percentage for Eligible Contribution Percentage for Eligible Employees Who Are Not Highly Employees Who Are Highly Compensated Employees for the Plan Year Compensated Employees for the Plan Year (i) Less than 2% (i) Two (2) times the percentage in Column 1 (ii) 2% - 8% (ii) The percentage in Column 1, plus 2% (iii) More than 8% (iii) One and one-quarter (1-1/4) times the percentage in Column 1
The foregoing percentages in Column 2 shall be adjusted, as necessary, to satisfy the aggregate limit set forth in Section 5.13. 5.11 Determination and Correction of Excess Matching Contributions. For purposes of Section 5.10, the Contribution Percentage for any group of individuals means the average of the individual ratios, for each person in such group who is eligible to receive Matching -20- 22 Contributions during the Plan Year and who is not covered by a collective bargaining agreement, of (a) his share of Matching Contributions for the Plan Year to (b) his Total Earnings for the Plan Year. For purposes of calculating part (a) of the Contribution Percentage, Qualified Non-Elective Contributions and Tax-Saver Contributions may be taken into account in accordance with applicable Treasury Regulations to the extent such contributions are not taken into account for purposes of the Average Deferral Percentage test of Section 5.6. The individual ratios, and the Contribution Percentage for any group of eligible individuals, shall be calculated to the nearest one-hundredth of one percent (0.01%). If the Plan fails to meet the section 401(m) test for a Plan Year. the total amount of excess Matching Contributions shall be determined, and allocated to individuals within the Highly Compensated Employee group using the same two-part leveling methodology as that described in Section 5.8. Excess Matching Contributions shall be eliminated by (a) forfeiting such amounts that are not vested or with respect to which the related Tax-Saver Contributions have been returned under Section 5.5 or Section 5.8, or (b) if vested (and with respect to which the Plan has retained the related Tax-Saver Contributions), by paying such contributions to the Participant in cash no later than March 15 of the following Plan Year, if at all possible, and in any event, no later than the close of the following Plan Year. If any Account from which a distribution or forfeiture is to be made pursuant to this Section 5.11 is invested in more than one Investment Fund, such distribution or forfeiture shall be made pro rata, to the extent practicable, from all such Investment Funds. The amount of excess Matching Contributions distributed or forfeited under this Section 5.11 shall be adjusted for any income or loss through to the date of distribution or forfeiture. 5.12 Special Testing Rules. The following rules shall apply to the tests described in Sections 5.6 and 5.10. (a) Separate Testing for Early Eligibles. Effective for Plan Years beginning on or after January 1, 1999, if the Company elects to apply section 410(b)(4)(B) of the Code in determining whether the Plan meets the requirements of section 401(k)(3)(A)(i) of the Code, the Company in determining whether the Plan meets the limits of Section 5.6 and 5.10 may exclude from consideration Eligible Employees (other than Highly Compensated Employees) who have not yet met the minimum age and service requirements of Code section 410(a)(1)(A). (b) Multiple Arrangements for Highly Compensated Employees Combined. If more than one plan providing for a cash or deferred arrangement, or for matching contributions, or employee contributions (within the meaning of sections 401(k) and 401(m) of the Code) is maintained by the Employer or an Affiliate, the individual ratios of any Highly Compensated Employee who participates in more than one such plan or arrangement shall, for purposes of determining the Average Deferral Percentage (as defined in Section 5.7) and Contribution Percentage (as defined in Section 5.11), be determined as if all such arrangements were a single plan or arrangement. (c) Aggregation of Plans. In the event that this Plan satisfies the requirements of section 410(b) of the Code only if aggregated with one or more other plans, then Sections 5.6 and 5.10 shall be applied by determining the Average Deferral Percentage and Contribution Percentage of Eligible Participants as if all such plans were a single plan. Plans may be aggregated under this paragraph (c) only if they have the same plan year. -21- 23 5.13 Aggregate Limit Under Section 401(m) of the Code. For purposes of this Article V, the Aggregate Limit for any Plan Year shall mean a percentage equal to the greater of the sum described in (a) or (b) below: (a) The sum of: (i) 125 percent of the greater of (A) the Average Deferral Percentage for the Plan Year for eligible individuals who are not Highly Compensated Employees for such year or (B) the Contribution Percentage for such year of such eligible individuals, and (ii) two percent plus the lesser of (i) (A) or (i) (B) above; in no event, however, shall the amount determined under this clause (ii) exceed 200 percent of the lesser of (A) or (B) above; or (b) The sum of: (i) 125 percent of the lesser of (A) the Average Deferral Percentage for the Applicable Plan Year for Eligible Participants who are not Highly Compensated Employees for such year or (B) the Contribution Percentage for such year of such Eligible Participants, and (ii) two percent plus the greater of (i) (A) or (i) (B) above; in no event, however, shall the amount determined under this clause (ii) exceed 200 percent of the greater of (i) (A) or (i) (B) above. The Aggregate Limit shall be calculated to the nearest one-hundredth of one percent (0.01%). The Aggregate Limit shall not apply to reduce allocations otherwise permissible for a Plan Year unless the Average Deferral Percentage and the Contribution Percentage for Eligible Employees who are Highly Compensated Employees for the Plan Year each exceeds 125% of the corresponding percentages determined for Eligible Employees who are not Highly Compensated Employees for the Plan Year. In that event, Tax-Saver Contributions for Participants who are Highly Compensated Employees for the Plan Year shall be further reduced in order that the sum of the Average Deferral Percentage plus the Contribution Percentage for Participants who are Highly Compensated Employees for the Plan Year does not exceed the Aggregate Limit. -22- 24 ARTICLE VI Accounts and Investment Funds 6.1 Accounts. The Committee shall cause the following "Accounts" to be maintained in the name of each Participant: (a) a "Profit Sharing Contributions Account," which shall reflect Profit Sharing Contributions, if any, made on his behalf and the income, losses, appreciation, depreciation and depreciation and expenses attributable thereto; (b) a "Tax-Saver Contributions Account," which shall reflect Tax-Saver Contributions, if any, made on his behalf and the income, losses, appreciation, depreciation and expenses attributable thereto; (c) a "Matching Contributions Account," which shall reflect Matching Contributions made on his behalf and the income, losses, appreciation, depreciation and expenses attributable thereto; (d) a "Qualified Non-Elective Contributions Account," which shall reflect Qualified Non-Elective Contributions, if any, made on his behalf, and the income, losses, appreciation, depreciation and expenses attributable thereto; (e) a "Rollover Account," which shall reflect Rollover Contributions, if any, made by him and the income, losses, appreciation, depreciation and expenses attributable thereto; (f) a "Buy Back Account", which shall reflect any previously-distributed amounts returned by him upon his reemployment to avoid a forfeiture of the unvested portion of his Accounts in accordance with Section 7.5. In addition, the Committee may maintain subaccounts within the Tax-Saver Contributions Account to distinguish contributions eligible to be matched from contributions above the matching limit, as well as subaccounts to reflect balances transferred to this Plan from another qualified plan that are subject to special rules. The Accounts and subaccounts provided for in this Section 6.1 shall be for accounting purposes only, and there shall be no segregation of assets within the Investment Funds among the separate Accounts. Reference to the "balance" in a Participant's Accounts means the aggregate of the balances in the subaccounts maintained in the Investment Funds attributable to those Accounts. 6.2 Allocation of Contributions. Subject to the provisions of Article V, contributions shall be allocated as follows: (a) Tax-Saver Contributions, Matching Contributions contributed with respect to payroll periods, Rollover Contributions and amounts paid back to avoid a forfeiture under Section 7.5 made on behalf of a Participant shall be allocated to that Participant's -23- 25 appropriate Accounts as of the Valuation Date coinciding with the paycheck or payment date to which such contribution relates. (b) Matching Contributions made with respect to a calendar quarter shall be allocated as of the last day of that quarter and Profit Sharing Contributions and Qualified Non-Elective Contributions for a Plan Year shall be allocated as of the last day of such Plan Year. Notwithstanding the foregoing, unless the Committee establishes uniform rules to the contrary, contributions made to the Plan shall share in the gains and losses of the Investment Funds only when received by the Trustee with verified data. 6.3 Correction of Error. In the event of an error in the adjustment of a Participant's Account, the Committee, in its sole discretion, may correct such error by either crediting or charging the adjustment required to make such correction to or against income and expenses of the Trust for the Plan Year in which the correction is made or the Employer may make an additional contribution to permit correction of the error. No Participant shall have a vested right to any amounts erroneously credited to his Accounts. Except as provided in this Section 6.3 the Accounts of other Participants shall not be readjusted on account of such error. 6.4 Statement of Plan Interest. As soon as practicable after the last day of each Plan Year and at such other intervals as the Committee may determine, the Committee shall provide each Participant with a statement reflecting the balances of his Accounts. Each Participant is responsible for reviewing his statement and any Participant who discovers an error shall bring it to the attention of the Committee within 90 days of receipt of his statement; after such 90 days the Participant shall be deemed to have confirmed the accuracy of the statement unless he has so notified the Committee of an error. 6.5 Investment Funds. The Committee shall establish and cause the Trustee to maintain one or more "Investment Funds" or "Funds" for the investment of Participants' Accounts. The Committee in its discretion may add additional Investment Funds, may delete any Investment Fund or may change the investment strategy or categories of permitted investments of any Investment Plan without prior notice to Participants. One of the Investment Funds shall be a "Company Stock Fund" invested in Common Stock and cash or cash equivalents held for liquidity purposes. 6.6 Investment Fund Accounting. The Committee shall maintain or cause to be maintained separate subaccounts for each Participant in each of the Investment Funds to separately reflect his interest in each such Fund and the portion of such interest that is attributable to each of his Accounts. The Committee, in it sole discretion, may establish uniform rules for reporting the value of each Participant's interest in an Investment Fund that has the effect of blending the value of the cash or cash equivalents that comprise part of that Fund with the value of the securities in which the Fund is primarily invested, as in "unit" accounting. 6.7 Allocation of Fund Earnings and Changes in Value. As of each Valuation Date, interest, dividends and changes in value and expenses of each Investment Fund since the preceding Valuation Date shall be allocated to each Participant's subaccounts invested in such Investment Fund by adjusting upward or downward the balance of his subaccounts invested in -24- 26 such Investment Fund in the ratio which the subaccounts of such Participant invested in such Investment Fund bears to the total of the subaccounts of all Participants invested in such Investment Fund as of such Valuation Date, excluding therefrom, for purposes of this allocation only, all Tax-Saver, Matching, Profit Sharing, Qualified Non-Elective and Rollover Contributions and amounts paid into Buy Back Accounts received since the preceding Valuation Date, so that the total of the subaccounts of all Participants in each Investment Fund shall equal the total value of such fund (exclusive of such contributions) as determined by the Trustee in accordance with uniform procedures consistently applied. The Plan shall use a daily valuation system, which generally shall mean that Accounts will be updated each business day to reflect activity for that day, such as new contributions received by the Trustee, changes in Participant's investment elections, and changes in the value of the Investment Funds under the Plan. Such daily valuation shall be dependent upon the Plan's Recordkeeper receiving complete and accurate information from a variety of different sources on a timely basis. Since events may occur that cause an interruption in this process, affecting a single Participant or a group of Participants, there shall be no guarantee by the Plan that any given transaction will be processed on the anticipated day. In the event of any such interruption, any affected transaction shall be processed as soon as administratively feasible and no attempt shall be made to reconstruct events as they would have occurred absent the interruption, regardless of the cause, unless the Committee in its sole discretion directs the Plan's Recordkeeper to do so. 6.8 Investment Fund Elections. A Participant may specify the percentage of contributions subsequently credited to his Accounts that are to be invested in each of the Investment Funds in accordance with uniform rules established by the Committee. Any such investment direction shall be deemed to be a continuing direction until changed by the Participant. During any period in which no such direction has been given in accordance with rules established by the Committee, contributions credited to a Participant shall be invested in the Investment Funds as determined by the Committee. A Participant may modify his investment direction prospectively by making a new investment election prior to the effective time of the change in accordance with uniform rules established by the Committee, which rules may be modified from time to time without prior notice. The Plan is intended to satisfy the requirements of section 404(c) of ERISA with respect to Participant's investment elections. To the extent permitted by law, neither the Company, any Employer, the Committee, the Trustee nor any other fiduciary of the Plan shall be liable for any loss resulting from a Participant's exercise of his right to direct the investment of his Accounts. 6.9 Transfers Between Investment Funds. Subject to uniform rules established by the Committee, each Participant may elect to transfer the value of his Accounts held in any Investment Fund to any other Investment Fund then made available to such Participant. Any such election shall be made prior to the time it is to be effective in accordance with uniform rules established by the Committee. The Committee may change any such investment election rules at any time without prior notice to Participants. -25- 27 6.10 Liquidity. In order to accommodate investment changes and other elections by Participants in a timely manner, a certain portion of each of the Investment Funds may be held in cash or cash equivalents. The percentage of assets held in each Investment Fund in cash or cash equivalents may differ from Fund to Fund and from time to time, as considered appropriate by the Committee (or its delegate). The rate of return of each Investment Fund will be a combination of the short term earnings (or losses) on the cash portion of the Fund and the earnings (or losses) of the securities or other investments in which such Fund is primarily invested, determined in accordance with uniform rules established by the Committee (or its delegate). 6.11 Voting and Tendering of Common Stock. Notwithstanding any other provisions of the Plan: (a) Effective January 1, 1999, Common Stock held by the Trustee shall be voted as follows: (i) Before each meeting of the Company's shareholders, each Participant shall be furnished with a proxy statement for the meeting, together with an appropriate form on which the Participant may provide voting instructions (including instruction on matters not specified in the proxy statement which may come before the meeting) for the Common Stock allocated to the Participant's Accounts under the Plan on the Valuation Date coinciding with or next preceding the record date for such meeting for which the number of such shares has been provided to the Plan administrator. Upon timely receipt of such instructions, such shares shall be voted as instructed. (ii) Common Stock for which the Trustee does not receive timely voting directions shall be voted in the same proportion as all Common Stock held under the Plan (including shares held in a separate trust fund) with respect to which directions are received by the Trustee. (b) Tender and exchange rights with respect to Common Stock held by the Trustee shall be exercised as follows: (i) Each Participant shall be furnished with a notice of any tender or exchange offer for, or a request or invitation for tender of, Common Stock, together with an appropriate form on which such Participant may instruct the Trustee with respect to the tender or exchange of Common Stock allocated to his Accounts. Common Stock as to which the Trustee has received timely instructions shall be tendered or exchanged in accordance with such instructions. (ii) Common Stock allocated to Participant's Accounts for which instructions are not timely received shall not be tendered or exchanged. (c) The Committee and the Trustee shall take all reasonable steps necessary to assure that Participants' individual directions shall remain confidential. Notwithstanding the foregoing, the Trustee shall provide such information with respect to the tender or exchange of Common Stock as the Recordkeeper may require for operation of the Plan, if the Recordkeeper agrees to keep such information confidential. The Trustee shall -26- 28 execute such ballots, proxies or other instruments as may be necessary or desirable in order to effectuate the provisions of this Section 6.11. 6.12 Allocation Shall Not Vest Title. The fact that allocation is made and amounts credited to the Accounts of a Participant shall not vest in such Participant any right, title or interest in and to any assets except at the time or times and upon the terms and conditions expressly set forth in this Plan, nor shall the Trustee be required to segregate physically the assets of the Trust Fund by reason thereof. 6.13 Committee Modifications. Notwithstanding the preceding provisions of this Article VI, the Committee may in its sole discretion: (a) limit or restrict a Participant's ability to change the allocation of his Accounts among the Investment Funds and/or to designate the allocation of future contributions among the Investment Funds, in order to conform to the practices and provisions of any investment media held in any such Investment Fund; and (b) vary the procedure otherwise provided for in this Article VI relating to the determination and allocation of the investment return among Participants' Accounts, in order to facilitate the administration of the Plan on an equitable and practicable basis. -27- 29 ARTICLE VII Vesting 7.1 Matching and Profit Sharing Contributions. A Participant's Matching and Profit Sharing Contributions Accounts shall vest in accordance with the schedules set forth below. (a) Each Participant's Matching Contributions Account shall vest in accordance with the following:
Years of Vesting Service Vested Percentage Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 100%
(b) Subject to paragraph (c) below, the Profit Sharing Contributions Accounts of Participants credited with an Hour of Service before January 1, 1997 shall vest in accordance with the following:
Years of Vesting Service Vested Percentage Less than 2 0 percent 2 20 percent 3 40 percent 4 60 percent 5 80 percent 6 100 percent
(c) The Profit Sharing Contributions Accounts for Participants who are credited with their first Hour of Service on or after January 1, 1997, or who had an Hour of Service -28- 30 before such date but had ceased earning vesting service prior to such date and had no vested interest under paragraph (b) as of such date, shall vest as follows:
Years of Vesting Service Vested Percentage Less than 5 0 percent 5 100 percent
7.2 Tax-Saver, Qualified Non-Elective, Buy Back and Rollover Contributions Accounts. A Participant's interest in his Tax-Saver, Qualified Non-Elective, Buy Back and Rollover Contributions Accounts shall be fully vested and nonforfeitable at all times. 7.3 Accelerated Vesting. Notwithstanding the foregoing provisions of this Article VII, a Participant shall have a fully vested, nonforfeitable interest in all of his Accounts if, while employed by the Company and its Affiliates, he attains his Normal Retirement Date, dies or incurs a Disability. In addition, the Accounts of all affected employees shall become fully vested and nonforfeitable in the event of the Plan's termination (in accordance with Section 13.3), partial termination (in accordance with applicable Treasury Regulations) or the complete discontinuance of Employer contributions to the Plan. 7.4 Forfeitures. If a Participant's employment with the Company and its affiliates terminates before he is 100% vested in his Profit Sharing Contributions Account and/or Matching Contributions Account, the non-vested portions of his Profit Sharing and Matching Contributions Accounts shall be forfeited as of the Valuation Date coincident with or next following the earlier of the day as of which he receives (or is deemed to receive) the vested portion of his Accounts or the day he incurs five consecutive One Year Breaks in Service. For purposes of the foregoing, if a Participant's vested interest in his Accounts has a value of zero, the Participant shall be deemed to have received a single sum distribution of such zero vested interest upon his Termination Date. 7.5 Restoration of Forfeiture and Buy Back Requirement. If a Participant who has forfeited the non-vested portion of his Profit Sharing and/or Matching Contributions Accounts is reemployed by the Company or one of its Affiliates before he incurs five consecutive One Year Breaks in Service, the amounts forfeited shall be restored to his Profit Sharing and Matching Contributions Accounts as soon as administratively practicable after his reemployment date, if the Participant repays the full amount of the distribution to the Plan (other than the portion, if any, attributable to his Rollover Account) before the earlier of (a) five years after the first date on which the Participant is reemployed or (b) the date the Participant incurs five consecutive One Year Breaks in Service following the date of distribution. The vested amount repaid by the Participant upon his reemployment pursuant to this Section 7.5 shall be credited to a Buy Back Account in his name, his interest in which shall always remain 100% vested and nonforfeitable. The restoration of the non-vested portion of his Accounts shall be funded by forfeitures, and to the extent forfeitures are inadequate for this purpose, by a special contribution -29- 31 which his Employer shall be required to make for this purpose (without regard to the otherwise applicable limitations of the Plan). 7.6 Subaccount for Restored Amount. Any portion of a Participant's Matching Contributions Account or Profit Sharing Contributions Account which is restored pursuant to Section 7.5 after being contingently forfeited shall be maintained in a special subaccount within his Matching Contributions Account or Profit Sharing Contributions Account, as applicable. In order to prevent an acceleration of vesting in such a Participant's Matching Contributions Account or Profit Sharing Contributions Account, the vested portion of any such subaccount as of any subsequent time shall be expressed by the formula: P(A+D)-D where P is the Participant's vested percentage at such time determined without regard to this sentence, A is the amount in such subaccount at such time, and D is the amount of any distribution or partial distribution previously made to him. 7.7 Application of Forfeitures. All forfeitures however occurring shall be applied first to restore previously forfeited amounts as provided in Section 7.5, and to the extent not needed for this purpose, to reduce future Employer contributions to the Plan. -30- 32 ARTICLE VIII Withdrawals and Loans During Employment 8.1 Withdrawals At Age 59 1/2. Except as provided in Sections 8.2 and 8.3, there shall be no withdrawals of amounts credited to a Participant's Accounts under the Plan while a Participant remains employed by the Company and its Affiliates, until the Participant attains age 59 1/2, at which time he may withdraw all or any portion of the vested balance of his Accounts for any reason. 8.2 Withdrawal from Rollover Account. A Participant may elect to withdraw all or a portion of his Rollover Account at any time, but no more frequently than once in any Plan Year. 8.3 Hardship Withdrawals. Subject to the further provisions of this Article VIII, if a Participant has not yet attained age 59 1/2 and he has already received all other amounts available to him as a withdrawal under Section 8.2 or as a loan under Section 8.7, the Participant may elect to make a hardship withdrawal from his remaining Accounts (excluding any loan balances) in the following amounts and order of priority: (a) all or a part of his Buy-Back Account, (b) if his Buy-Back Account has been exhausted, all or a part of the vested portion of his Matching Contributions Account; (c) if the vested portion of his Matching Contributions Account has been exhausted, all or a part of the vested portion of his Profit Sharing Contributions Account; and (d) if the vested portion of his Profit Sharing Contributions Account has been exhausted, all or some of his Tax-Saver Contributions and any earnings on such contributions credited to his Accounts before 1989. No amount attributable to Qualified Non-Elective Contributions may be withdrawn under this Section 8.3. 8.4 Hardship Defined. To qualify as a "hardship" withdrawal, the withdrawal must be necessary to satisfy one or more of the following needs: (a) medical expenses previously incurred by the Participant, or the Participant's spouse or dependents (as defined in section 152 of the Code) or expenses necessary in order for such persons to obtain medical care described in section 213(d) of the Code (which expenses will never be covered by insurance); (b) tuition payments, related educational fees (not including books and supplies), and room and board expenses, for the next 12 months of post-secondary education of a Participant or a Participant's spouse, child or dependent (as defined in section 152 of the Code); (c) costs (other than mortgage payments) directly related to the purchase of the principal residence of a Participant; (d) payments necessary to prevent the eviction of the Participant from the Participant's principal residence or foreclosure on the mortgage on that residence; or (e) such other expense as the Secretary of Treasury indicates qualifies as a hardship in Treasury Regulations. -31- 33 In addition, a withdrawal will not be considered to be made on account of hardship unless it is necessary to meet the condition of hardship affecting such Participant. Before allowing a hardship withdrawal, the Committee shall require a Participant to first take all other amounts available to him as a loan or a distribution other than on account of hardship as herein defined, under this Plan and all other plans maintained by any Employer or Affiliate. A Participant making a hardship withdrawal shall be subject to the mandatory suspension and limitation adjustment of Sections 4.6 and 5.4. A withdrawal made pursuant to the foregoing restrictions and penalties shall be deemed to be necessary to alleviate the Participant's condition of hardship. 8.5 Vesting Adjusted to Reflect Withdrawals. Notwithstanding any other provision of this Plan, in the event that a Participant makes a withdrawal from his Matching Contributions Account or Profit Sharing Contributions Account at a time when he is less than 100% vested in such Account, and if his employment subsequently terminates (or he requests another withdrawal therefrom) prior to the time his interest in such Account is 100% vested, such Participant's vested interest in his Matching Contributions Account and/or Profit Sharing Contributions Account shall be adjusted to reflect such prior withdrawal in accordance with the principles applicable to restored subaccounts under Section 7.6, in order to avoid an acceleration of vesting in his Matching Contributions Account or Profit Sharing Contributions Account. 8.6 Withdrawal Payment. A withdrawal request under Section 8.2 or Section 8.3 shall be made by filing the Appropriate Form with the Committee, within such time as the Committee may prescribe. The withdrawal shall be effective as of the Valuation Date on which the Recordkeeper processes the withdrawal and, subject to obtaining such consents and waivers as the Committee considers necessary to comply with applicable Treasury Regulations, payment of the withdrawn amount shall be made on or as soon as administratively practicable after such Valuation Date. The Appropriate Form with respect to a hardship withdrawal from his Tax-Saver Contributions Account shall include an acknowledgement of the mandatory suspension of contributions described in Section 4.6, and to a similar suspension of "elective deferrals" (as defined in section 402(g)(3) of the Code) and of employee contributions under this Plan and each other qualified and nonqualified plan of deferred compensation (excluding mandatory employee contributions under any defined benefit plan), or stock option, stock purchase, or similar plans, of any Employer or Affiliate until the first anniversary of the date of such withdrawal, and to the adjustment described in Section 5.4 of the "elective deferral limit" with respect to the Participant for the year following the year of the withdrawal. Each such other plan shall be deemed amended by reason of this provision and the Participant's execution of the Appropriate Form to the extent necessary to give full effect to such agreement. A Participant may direct on the Appropriate Form, at such time and in such manner as the Committee may prescribe and subject to Committee consent, the proportions in which any withdrawal from his Accounts pursuant to this Article VIII shall be allocated among the Investment Funds; failing such direction or consent, the allocation shall be made pro rata. 8.7 Loans. A Participant who is a "party in interest" with respect to the Plan (within the meaning of section 3(14) of ERISA), may borrow from the vested balance of his Accounts, subject to such uniform rules as the Committee shall establish from time to time. No more than one loan may be outstanding at the same time. The loan request shall be made on the Appropriate Form and submitted to the Recordkeeper together with such application fee as the Committee may authorize (if any). The Recordkeeper shall notify the Participant in writing -32- 34 within a reasonable time of the approval or denial of such loan request, and such notification by the Recordkeeper shall be final. The Committee may at any time suspend authorization for future loans to Participants, but no such suspension shall affect any loan then outstanding under this Section 8.7. 8.8 Loan Requirements. A loan pursuant to Section 8.7 shall not be made to a Participant unless such loan meets all of the following requirements: (a) Amount. Such loan must be in an amount of not less than one thousand dollars ($1,000), and shall not exceed the lowest of (i) fifty thousand dollars ($50,000), (ii) one-half of the fully vested balance of the Participant's Accounts, or (iii) such other amount as may be determined by the Committee in the event that the Participant's Accounts are invested (in whole or in part) in an Investment Fund that restricts the liquidation of investments to fund Participant loans or otherwise. The limitations under each of clause (i) and (ii) above shall be reduced by the outstanding balance (if any) of all other loans to the Participant from any qualified plan (within the meaning of Section 401(a) of the Code maintained by the Company or any Affiliate. The fifty thousand dollars ($50,000) in clause (i) above shall be further reduced by the excess, if any, of the highest outstanding loan balance of all loans described in the preceding sentence during the twelve (12) month period preceding the loan, over the outstanding loan balance of all loans described in the preceding sentence. If any outstanding balance of a loan from another plan is required to be taken into account under clause (i) or (ii) above, the value of the Participant's interest under that plan from which such loan was made shall also be taken into account under clause (ii) above. (b) Adequate Security. Such loan must be adequately secured by the assignment, as collateral security, of the value of the Participant's fully vested Accounts. If the Loan Administrator subsequently determines that the loan is no longer adequately secured, he may require additional security in such form as he deems acceptable. (c) Interest. Such loan must bear interest, payable at quarterly intervals (or more frequent intervals, if the Recordkeeper shall so require), at a rate commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. The Recordkeeper shall at regular intervals (but no less frequently than quarterly) determine such rate on the basis of a review of pertinent information. (d) Repayment Term. Such loan must provide for substantially level amortization (within the meaning of section 72(p)(2)(C) of the Code) with payments made at least quarterly for a period no longer than five (5) years. If a Participant terminates employment with the Employers and Affiliates, his loan shall accelerate and become immediately due and payable as of the Participant's Termination Date. -33- 35 Notwithstanding the foregoing, a Participant shall have the right to prepay the full outstanding balance of his loan without penalty, on the first day of any calendar quarter or such other Valuation Date as the Committee may direct. (e) Promissory Note. Such loan must be evidenced by a promissory note executed by the Participant and, if the Recordkeeper shall in his sole discretion determine, also executed by the Participant's spouse. Such note shall provide that if the Participant is actively employed by an Employer, the loan is to be repaid by regular deductions from his pay in each pay period in which the loan is outstanding, and shall contain such terms and provisions as the Recordkeeper in his sole discretion shall determine. 8.9 Valuation for Loan Processing. The Recordkeeper will generally process a loan based on the Valuation Date immediately preceding receipt of the loan request, provided that the portion of the Participant's Accounts that may be borrowed pursuant to paragraph 8.8(a) shall be fixed as of the Valuation Date coinciding with the date the loan distribution is actually processed by the Recordkeeper. 8.10 Funding of Participant Loans. A Participant's loan shall be funded solely by reduction of the Participant's Account balances as of the effective date of the loan. Such reduction shall affect the Participant's Accounts in the following order: (a) Rollover Account (if any); (b) Buy Back Account (if any); (c) Matching Contributions Account; (d) Profit Sharing Contributions Account and (e) Tax-Saver Contributions Account. The promissory note executed pursuant to paragraph 8.8(c) by a Participant who receives a loan shall be held by the Trustee as a Trust asset and allocated solely to such Participant's Account. For all purposes hereunder, the value of such promissory note shall be considered to be the outstanding unpaid balance of the note. A loan to a Participant shall be his individual directed investment. 8.11 Allocation of Loan Among Investment Funds. If a Participant's Account is invested in more than one Investment Fund, the loan proceeds shall be obtained from each Investment Fund pro rata in accordance with uniform rules established by the Committee. 8.12 Loan Repayment. Payments of principal and interest on a Participant's loan shall be used to restore the Participant's Accounts from which the loan was made in the following order: (a) Tax-Saver Contributions Account; (b) Profit Sharing Contributions Account (c) Matching Contributions Account; (d) Buy-Back Account; and (e) Rollover Account. Such payments shall be allocated to such Investment Funds as the Participant shall have designated for future contributions. If a Participant fails to give timely and complete instructions as to the allocation among Investment Funds, the payment of principal and interest shall be invested in such Investment Fund or Funds as the Committee may direct. 8.13 Loan Expenses. The Recordkeeper may determine to charge any fees, taxes or other expenses (including, without limitation, any asset liquidation charge or similar extraordinary expense) incurred in connection with a loan to the Accounts of the Participant obtaining such loan. Such charges shall be imposed on a uniform and nondiscriminatory basis. 8.14 Disposition of Loan Upon Certain Events. In the event that distribution of a Participant's Accounts is to be made under the terms of the Plan before the Participant repays an -34- 36 outstanding loan, the Trustee shall reduce the value of the Participant's Accounts by the amount of the Participant's outstanding loan before making a distribution to the Participant or his Beneficiary. 8.15 Compliance with Applicable Law. The Recordkeeper shall take such actions as he may deem appropriate in order to assure full compliance with all applicable laws and regulations relating to Participants loans and the granting and repayment thereof. 8.16 Loan Default. A loan made pursuant to Section 8.7 shall be in default if a scheduled payment of principal or interest is not received by the Recordkeeper by the end of the calendar quarter following the quarter in which the payment was due. Notwithstanding the foregoing, a Participant who terminates employment with the Company and its Affiliates must repay the entire balance of his loans within 30 days of his termination of employment to avoid a default, whether or not such Participant is receiving an actual distribution of any other part of his Account in connection with such termination. Upon default of the loan, the entire outstanding principal amount and accrued interest of the loan shall become immediately due and payable, and the Plan may execute upon the its security interest in the Participant's Accounts to satisfy the debt; provided, however, that the execution shall occur only when, and to the extent that, the Participant's Accounts become distributable to the Participant consistent with the requirements for qualification of the Plan under section 401(a) of the Code. Furthermore, the Committee may take any other action it deems appropriate to obtain payment of the outstanding amount of principal and accrued interest, which may include accepting payments of principal and interest that were not made on schedule and permitting the loan to remain outstanding under its original payment schedule. Any costs incurred by the Plan in collecting, or attempting to collect, amounts in default shall be charged against the Participant's Accounts. -35- 37 ARTICLE IX Distributions to Participants After Termination of Employment 9.1 Distributions to Participants After Termination of Employment. When a Participant's Termination Date occurs (for a reason other than his death), his Accounts shall be distributed in accordance with the following provisions of this Section 9.1, unless the Participant is reemployed by the Company or an Affiliate before such distribution is processed. (a) Effective January 1, 1998, if the value of the Participant's Accounts does not exceed $5,000, his Accounts will be distributed to him in a lump sum payment as soon as practicable after the Plan's Recordkeeper is notified of his termination of employment. Whether this paragraph (a) applies and the amount of the payment to be made hereunder will be determined as of the Valuation Date coinciding with the date the payment is processed. (b) If the value of the Participant's Accounts exceeds $5,000, the Participant may withdraw his Accounts on the Distribution Date (as defined in paragraph (c) below) he elects, in either of the following forms of payment he selects: (i) a lump sum or (ii) monthly, quarterly, semi-annual or annual installments (to be as nearly equal as practicable) for a period not to exceed his life expectancy or the joint life expectancy of himself and his Beneficiary. (c) A "Distribution Date" shall mean the date as of which a payment is made to the Participant pursuant to this Section 9.1, without regard to any administrative delay. A Participant may elect that his Distribution Date occur as soon as practicable after his Termination Date or on any Valuation Date thereafter, but not later than the April 1 following the year in which he attains age 70 1/2, provided that no election of Distribution Date will be valid if it is made more than 90 days prior to such date. Any election under paragraph (b) or (c) above shall be modified, as necessary, to conform to Section 9.11. 9.2 Distribution Only Upon Separation From Service. Notwithstanding any other provision of the Plan to the contrary, a Participant may not commence distribution of the portion of this Accounts attributable to his Tax-Saver Contributions pursuant to this Article IX prior to the date he attains age 59 1/2 or becomes Disabled, even though his employment with the Company and its Affiliates has terminated, unless or until he also has a "separation from service" within the meaning of section 401(k)(2)(B) of the Code. The foregoing restriction shall not apply, however, if the Participant's termination of employment occurs in connection with either (a) the sale by the Company or an Employer to an unrelated corporation of at least 85% of the assets of a trade or business or (b) the disposition of its interest in a subsidiary to an unrelated person or persons, and the requirements for distribution under applicable Treasury Regulations on account of such sale or disposition are met. -36- 38 9.3 Form of Payment. Distributions from the Company Stock Fund shall be made in cash unless the Participant elects to have all or a portion of his interest in such fund distributed in shares of Common Stock. Distributions from the other Investment Funds shall be made in cash, unless the Participant elects that some or all of the balances of such funds be transferred to the Company Stock Fund and distributed in shares of Common Stock in accordance with uniform rules established by the Committee. 9.4 Direct Rollover Option. In accordance with uniform rules established by the Committee, each Participant, surviving spouse of a Participant or alternate payee under a qualified domestic relations order within the meaning of section 414(p) of the Code who is due to receive an eligible rollover distribution from the Plan may direct the Trustee to transfer all or a portion of such distribution directly to another eligible retirement plan. For purposes of this Section 9.4, the terms "eligible rollover distribution" and "eligible retirement plan" as applied to any such individual shall have the meaning accorded such terms under section 401(a)(31) of the Code (or any successor provision thereto) and applicable regulations thereunder. 9.5 Put Option. If Common Stock acquired by the Plan, when distributed, is not readily tradable on an established market, a Participant who is entitled to a distribution of such stock shall have the right to require that the Company repurchase it under a fair valuation formula in compliance with any applicable regulations. Such put option shall be exercisable for a period of at least sixty (60) days following the date of distribution of such Common Stock, and if the put option is not exercised within such sixty (60) day period, for an additional period of at least sixty (60) days in the following Plan Year as provided in applicable regulations. The Company shall make full payment of the purchase price for Common Stock which is the subject of a put option that is properly exercised by a Participant within 30 days after the Participant surrenders to the Company certificates representing such Common Stock, duly endorsed or accompanied by a stock power duly executed, in either case with his signature duly guaranteed, and accompanied by all required stock transfer stamps; provided that, in the event the shares put to the Company were distributed to the Participant as part of a total distribution, the Company may elect to make such payment in substantially equal annual installments over a period beginning within 30 days after the date the put option is exercised and not exceeding five years if the Company provides adequate security and pays a reasonable interest rate with respect thereto. 9.6 Facility of Payment. Notwithstanding the provisions of Sections 9.1 or 10.1, if in the Company's opinion, a Participant or other person entitled to benefits under the Plan is under a legal disability or is in any way incapacitated so as to be unable to manage his financial affairs, the Committee may direct the Trustee to make payment to a relative or friend of such person for his benefit until claim is made by a conservator or other person legally charged with the care of his person or his estate. Thereafter, any benefits under the Plan to which such Participant or other person is entitled shall be paid to such conservator or other person legally charged with the care of his person or his estate. 9.7 Interests Not Transferable. The interests of Participants and other persons entitled to benefits under the Plan are not subject to the claims of their creditors and may not be voluntarily or involuntarily assigned, alienated or encumbered, except in the case of a properly documented levy of the Internal Revenue Service, required tax withholding or qualified domestic relations orders that relate to the provision of child support, alimony or marital rights of a spouse, child or -37- 39 other dependent and which meet such other requirements as may be imposed by section 414(p) of the Code or applicable Treasury Regulations. Notwithstanding any other provision of the Plan to the contrary, distribution of the entire portion of a Participant's Accounts awarded to his alternate payee may be made in a lump sum payment, as soon as practicable after the Committee (or its delegate) determines that such order is qualified, without regard to whether the Participant would himself be entitled under the terms of the Plan to withdraw or receive a distribution of such lump sum amount at that time, but only if the terms of the order provide for such immediate distribution either specifically or by general reference to any manner of distribution permitted under the Plan. 9.8 Absence of Guaranty. None of the Company, the Trustee, or the Employers in any way guarantee the assets of the Plan from loss or depreciation, or guarantee any payment to any person. The liability of the Trustee to make any payment is limited to the available assets of the Plan held under the Trust. 9.9 Missing Participants or Beneficiaries. Each Participant and each designated Beneficiary must file with the Recordkeeper from time to time in writing his post office address and each change of post office address. Any communication, statement or notice addressed to a Participant or designated Beneficiary at his last post office address filed with the Recordkeeper, or, in the case of a Participant, if no address is filed with the Recordkeeper, then at his last post office address as shown on the Employer's records, will be binding on the Participant and his designated Beneficiary for all purposes of the Plan. None of the Company, the Employers, or the Trustee will be required to search for or locate a Participant or designated Beneficiary. 9.10 Doubt as to Right to Payment. In the event that at any time any doubt exists as to the right of any person to any payment hereunder or the amount or time of such payment (including, without limitation, any case of doubt as to identity, or any case in which any notice has been received from any other person claiming any interest in amounts payable hereunder, or any case in which a claim from other persons may exist by reason of community property or similar laws), the Committee shall be entitled, in its discretion, to direct the Trustee to hold such sum as a segregated amount in trust until such right or amount or time is determined or until order of a court of competent jurisdiction, or to pay such sum into court in accordance with appropriate rules of law in such case then provided, or to make payment only upon receipt of a bond or similar indemnification (in such amount and in such form as is satisfactory to such Committee). 9.11 Limits on Commencement and Duration of Payments. Except as expressly provided below, the following provisions shall be applied in accordance with sections 401(a)(9) and 401(a)(14) of the Code and applicable Treasury Regulations and shall act as a restriction on (and not an enlargement of ) any other distribution provisions set forth herein: (a) Unless the Participant elects otherwise (which election may be passive), payment to a Participant under this Article IX shall be made or commenced not later than the 60th day after the close of the Plan Year in which occurs the later of his Termination Date or his Normal Retirement Date. (b) Distribution of the Participant's Accounts shall be made or shall commence no later than the April 1 following the calendar year in which later of the following occurs: -38- 40 (i) the Participant attains age 70 1/2 or (ii) the Participant terminates employment with the Company and its Affiliates. (c) A Participant who commences payment of his Accounts pursuant to paragraph (b) may choose his form of payment in accordance with paragraph 9.1(b), subject to the remaining provisions of this Section 9.11. (d) Distribution shall be made over the life of the Participant or over the lives of the Participant and his Beneficiary (or over a period not extending beyond the life expectancy of such Participant or the point life expectancies of the Participant and his Beneficiary). For this purpose, life expectancy will not be recalculated each year. (e) If a Participant dies after distribution of his Accounts has begun, the remainder of his Accounts shall be distributed to his Beneficiary at least as rapidly as under the payment schedule commenced before his death. (f) If a Participant dies before distribution of his Accounts has begun, distribution to his Beneficiary shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death, provided that this five-year rule shall not apply to a natural person designated as a Beneficiary by the Participant or under the terms of the Plan, if (i) the Participant's Accounts will be distributed over the life (or life expectancy) of such designated Beneficiary, and (ii) the distribution to the Beneficiary begins not later than December 31 of the calendar year following the calendar year of the Participant's death or, if the Beneficiary is the Participant's surviving spouse, not later than the December 31 following the calendar year in which the Participant would have attained age 70 1/2. (g) If the Participant's surviving spouse is his Beneficiary and the spouse dies before distribution to the spouse begins, paragraph (f) shall be applied as though the spouse were the Participant. 9.12 Contributions Subsequent to Distribution. Any Employer contribution made subsequent to the complete distribution of the balance of a Participant's Accounts shall be paid to the Participant (or his Beneficiary, if applicable) as soon as practicable after the date of such contribution. 9.13 Payments to Minors. If at any time a person entitled to receive any payment hereunder is a minor, such payment, in the sole discretion of the Committee, may be made for the benefit of such minor to his parent, guardian or the person with whom he resides, or to the minor himself, and the release of any such parent, guardian, person or minor shall be a valid and complete discharge for such payment. 9.14 Identity of Proper Payee. The determination of the Committee as to the identity of the proper payee of any payment and the amount properly payable shall be conclusive, and payment -39- 41 in accordance with such determination shall constitute a complete discharge of all obligations on account thereof. 9.15 Inability to Locate Payee. Notwithstanding any other provision of the Plan, in the event that the Committee cannot locate any person to whom a payment is due under this Plan, the benefit in respect of which such payment is to be made shall be forfeited at such time as the Committee shall determine in its sole discretion (but in all events prior to the time such benefit would otherwise escheat under any applicable law); provided that, such benefit shall be reinstated (from current forfeitures (if any), from investment gains within the Trust Fund or from a special Employer contribution, as determined by the Committee), if such person subsequently makes a valid claim for such benefit prior to termination of the Plan. 9.16 Estoppel of Participants and Their Beneficiaries. The Employers, Committee and Trustee may rely upon any certificate, statement or other representation made to them by any employee, Participant, spouse or other beneficiary with respect to age, length of service, leave of absence, date of cessation of employment, marital status, or other fact required to be determined under any of the provisions of this Plan, and shall not be liable on account of the payment of any moneys or the doing of any act in reliance upon any such certificate, statement or other representation. Any such certificate, statement or other representation made by an employee or Participant shall be conclusively binding upon such employee or Participant and his spouse or other beneficiary, and such employee, Participant, spouse or beneficiary shall thereafter and forever be stopped from disputing the truth and correctness of such certificate, statement or other representation. Any such certificate, statement or other representation made by a Participant's spouse or other beneficiary shall be conclusively binding upon such spouse or beneficiary, and such spouse or beneficiary shall thereafter and forever be stopped from disputing the truth and correctness of such certificate, statement or other representation. 9.17 Community Property Laws. Notwithstanding any provision to the contrary contained in this Plan, the Committee may require consent of a Participant's spouse to any election (or revocation of an election) with respect to the form of payment of the Participant's benefits under the Plan, if the Committee, in its sole discretion, deems such consent necessary or advisable in light of the possible application thereto of community property or similar laws. -40- 42 ARTICLE X Distribution Upon Death of Participant 10.1 Distribution to Beneficiary. If a Participant dies before his vested Account balance has been fully paid to him, payment of the remainder of such vested balance shall be paid to his Beneficiary in accordance with the following: (a) If the Participant dies before payment to him has commenced, his Beneficiary may elect, subject to Section 9.11, either (i) a lump sum payment, (ii) monthly, quarterly, semi-annual or annual installment payments for a period not exceeding the Beneficiary's life expectancy, or (iii) if the Beneficiary is the Participant's Surviving Spouse, an annuity purchased for the Beneficiary from a commercial insurance company, commencing as of such Distribution Date the Beneficiary elects that is not later than the date that would have been the Participant's Normal Retirement Date (or as soon as practicable after the Participant's death if his death occurs after his Normal Retirement Date), provided that if the Participant's vested Account balance is $5,000 or less, payment shall automatically be made in a lump sum as soon as practicable after the Participant's death is confirmed, and provided further that if the Beneficiary does not elect payment in one of the permitted forms in a timely manner so as to comply with this paragraph (a) and Section 9.11, the Beneficiary shall be paid in a lump sum.. (b) If the Participant dies after commencing to receive installment payments in accordance with the clause 7.1(b)(ii), payment shall continue in the same form to his Beneficiary. 10.2 Designation of Beneficiary. Subject to the further provisions of this Article X, each Participant may designate, at such time and in such manner as the Committee shall prescribe, a Beneficiary or Beneficiaries (who may be a natural person, executor, administrator, trust, foundation or other entity) to receive the vested balance of his Accounts after his death. Such designation of a Beneficiary or Beneficiaries shall not be effective for any purpose unless and until it has been filed by the Participant with the Committee, provided, however, that a designation mailed by the Participant to the Committee prior to death and received by it after his death shall take effect upon such receipt, but prospectively only and without prejudice to any payor or payee on account of any payments made before receipt by the Committee. Notwithstanding the foregoing, a Participant's sole Beneficiary shall be his Surviving Spouse, if the Participant has a surviving spouse, unless the Participant has designated another Beneficiary with Spousal Consent. For purposes of this Section 10.2 the term "Spouse" or "Surviving Spouse" shall mean a Participant's legal spouse as of the date of his death. A former legal spouse will be treated as the Participant's Spouse to the extent provided in a qualified domestic relations order (as defined in section 414(p) of the Code). The term "Spousal Consent" shall mean written consent by a Participant's Spouse to an election, Beneficiary designation or similar action by the Participant. A Spousal Consent shall be ineffective unless it acknowledges the effect of such election, Beneficiary designation or action and is witnessed by a notary public and, with respect to Spousal Consent pertaining to a Beneficiary designation, unless such designation -41- 43 specifically identifies the Participant's Beneficiaries (and alternate Beneficiaries) by name or class. If the Committee is satisfied that such Spousal Consent cannot be obtained because there is no Spouse, because the Spouse cannot be located, or because of other circumstances which may be permitted under applicable law, Spousal Consent shall be deemed to have been given. Any consent or deemed consent with respect to a Spouse which satisfies the foregoing requirements shall be effective only with respect to the Spouse by whom given (or deemed to be given), and may not be revoked by such Spouse with respect to the election, Beneficiary designation or other action to which such consent pertains. 10.3 Change of Beneficiary. A Participant, from time to time in such manner as the Committee shall prescribe, may change his designated Beneficiary or Beneficiaries, but any such designation which has the effect of naming a person other than the Surviving Spouse as sole Beneficiary is subject to the Spousal Consent requirement of Section 10.2. 10.4 Failure to Designate Beneficiary. If a Participant has failed to properly designate a Beneficiary to receive the Participant's death benefits, or a Beneficiary previously designated has predeceased the Participant and no alternative designation has become effective, such benefits shall be distributed to the Participant's Surviving Spouse, if any, or if no Spouse survives the Participant, to the Participant's estate. 10.5 Proof of Death. The Committee, as a condition precedent to making payment to any Beneficiary, may require that a death certificate, burial certificate or other evidence of death, and/or a court order or other evidence of the status and authority of the Beneficiary or of any legal representative of the Beneficiary, acceptable to it be furnished. 10.6 Discharge of Liability. If distribution in respect of a Participant's Accounts is made to a person reasonably believed by the Committee or its delegate (taking into account any document purporting to be a valid consent of the Participant's spouse, or any representation by the Participant that he is not married) to properly qualify as the Participant's Beneficiary under the foregoing provisions of this Article X, the Plan shall have no further liability with respect to such Accounts (or the portion thereof distributed). -42- 44 ARTICLE XI Trust Fund 11.1 Trust Agreement. By adopting the Plan, each Employer shall automatically become a party to the Trust Agreement between the Company and the Trustee under which the Trustee shall receive the contributions made by the Employers under the Plan and shall hold, invest and distribute the Trust Fund in accordance with the terms and provisions of the Trust Agreement. Any and all rights or benefits which may accrue to any person under the Plan shall be subject to all the terms and provisions of the Trust Agreement. In the event that the Trustee shall be a bank or similar financial institution supervised by the United States or a State, the Committee, in its discretion, may authorize the Trustee to invest all or a part of the Plan's assets in deposits which bear a reasonable interest rate in such bank or financial institution. 11.2 No Diversion of Trust Fund. The Trust Fund shall in no event be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries (including the payment of the expenses of the administration of the Plan and of the Trust Fund), except that, at the Committee's request, a contribution that is made by an Employer by a mistake of fact may be returned to such Employer within one year after the payment of the contribution. 11.3 Duration of Trust. The Trust shall continue for such time as may be necessary to accomplish the purposes for which it is created. 11.4 Company as Agent. The Company is hereby authorized to act as agent for all other Employers in dealings with the Trustee under the Plan. -43- 45 ARTICLE XII Administration 12.1 Committee. A committee (the "Committee") consisting of not less than two (2) members shall be appointed by the Board of Directors to administer the Plan and oversee the investment of its assets. Each member of the Committee may resign or may be removed at any time by the Board of Directors. In the event that a vacancy or vacancies shall occur on the Committee, the remaining member or members shall act as the Committee until the Board of Directors fills such vacancy or vacancies. A member of the Committee shall serve without compensation for his services as such member, and in the event of the removal, death or resignation of any member, his successor shall be appointed by the Board of Directors. No person shall be ineligible to be a member of a Committee because he is, was or may become entitled to benefits under the Plan or because he is a director and/or officer of an Employer or Affiliate or a Trustee; provided, that no member of a Committee shall participate in any determination by the Committee specifically relating to the disposition of his own Account. The members of the Committee shall serve without bond except to the extent required by applicable law. 12.2 Committee Powers and Authority. Except as otherwise expressly provided in the Plan or in the Trust Agreement, or by the Board of Directors: (a) The Committee shall be responsible for the administration of the Plan as set forth herein. Otherwise, the Company shall be the plan administrator of the Plan within the meaning of section 3(16)(A) or ERISA and 414(g) of the Code. (b) The Committee shall be responsible for making appropriate provision for the investment and reinvestment of the Trust Fund. (c) The Committee shall have all powers necessary or helpful for the carrying out of its responsibilities hereunder, and the decisions or actions of the Committee in respect of any matter hereunder shall be conclusive and binding upon all parties concerned. (d) The Committee may delegate to one or more of its members, to the Recordkeeper or to any other duly appointed agent of the Committee, including but not limited to any individual employed in the Benefits Department of the Company, the right to act on its behalf in any one or more matters connected with the administration of the Plan. (e) Without limiting the generality of the foregoing, the Committee shall have the power and absolute discretion to: (i) make rules and regulations for the administration of the Plan which are not inconsistent with the terms and provisions of the Plan; (ii) construe all terms, provisions, conditions and limitations of the Plan, resolve ambiguities, remedy inconsistencies and supply omissions; -44- 46 (iii) make all relevant factual findings; and (iv) conclusively determine all questions arising out of or in connection with the provisions of the Plan or its administration in any and all cases in which the Committee deems such a determination advisable, including but not limited to the power to determine the eligibility of employees to participate in the Plan and the rights of Participants and other persons entitled to benefits under the Plan and their respective benefits. The foregoing list of powers is not intended to be either complete or exclusive, and the Committee, in addition, shall have such other discretionary powers as may be necessary for the performance of its duties under the Plan and the Trust Agreement. 12.3 Limitation of Liability and Indemnification. Except as otherwise provided by law, no person who is a member of the Committee, or who is an employee, director or officer of an Employer or any Affiliate, shall incur any liability whatsoever on account of any matter connected with or related to the Plan or the administration of the Plan, unless such person shall have acted in bad faith, or have willfully neglected his duties, in respect of the Plan. The Company shall indemnify and save each such person harmless against any and all loss, liability, claim, damage, cost and expense which may arise by reason of, or be based upon, any matter connected with or related to the Plan or the administration of the Plan (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or in settlement of any such claim whatsoever), to the fullest extent permitted under the Certificate of Incorporation and By-Laws of the Company. 12.4 Committee Action. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. The Committee shall select from among its members a Chairman, and shall appoint (from its members or otherwise) a Secretary. The Committee may act by vote or consent of the majority of its members then in office and may establish its own procedures. The Committee may authorize any one or more of its members or the Secretary of the Committee to sign and deliver any instrument, certificate or other paper or document on its behalf. Notwithstanding the preceding provisions of this Section 12.4, if the Committee shall consist of only two members, both members shall be necessary to establish a quorum for the transaction of business and action may be taken only by unanimous vote, unless the action in question directly concerns one of the Committee member's benefits under the Plan, in which event the other member shall act as the Committee. 12.5 Subcommittees, Counsel and Agents. The Committee may appoint from its members such subcommittees (of one or more such members), with such powers, as the Committee shall determine. The Committee may employ such counsel (including legal counsel, who may be counsel for an Employer or any Affiliate) and agents and such clerical and other services as it may require in carrying out the provisions of the Plan, and may charge the fees, charges and costs resulting from such employment as an administrative expense to the Plan. Unless otherwise required by law, persons employed by the Committee as counsel, or as its agents or otherwise, may include members of the Committee, or of the Board or Boards of -45- 47 Directors of any Employer or Affiliate, or firms with which members of the Committee or Board or Boards of Directors of any Employer or Affiliate are associated as partners, employees or otherwise. Persons serving on the Committee or on any subcommittee shall be fully protected in acting or refraining from acting in accordance with the advice of legal or other counsel. 12.6 Reliance on Information. The members of the Committee and any Employer and Affiliate and their respective officers, directors and employees, shall be entitled to rely upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, trustee, insurance company, counsel, physician or other expert who shall be engaged by the Committee, an Employer or any Affiliate, and the members of the Committee and any Employer and Affiliate and their respective officers, directors and employees, shall be fully protected in respect of any action taken or suffered by them in good faith in reliance thereon, and all action so taken or suffered shall be conclusive upon all persons affected thereby. 12.7 Instructions to Trustee. The Committee shall provide appropriate instructions in accordance with the Trust Agreement to enable the Trustee to make the distributions provided for in the Plan. 12.8 Fiduciaries. The provisions of this Section 12.8 shall apply notwithstanding any contrary provision of the Plan or of the Trust Agreement. (a) Named Fiduciaries. The named fiduciaries under the Plan shall be (i) the Company, (ii) the Committee and each of its members, and (Iii) a Participant to the extent such Participant has directed the investment of his Accounts under Article VI. (b) Allocation of Fiduciary and Other Responsibilities. The Committee shall have the right, which shall be exercised in accordance with the procedures set forth in the Plan or in the Trust Agreement for action by the Committee, to allocate responsibilities (fiduciary or otherwise) among its members, and it shall have the right to designate persons other than the Committee to carry out responsibilities (fiduciary or otherwise) under the Plan. (c) Service in Multiple Capacities. Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. (d) Advisers. The Committee, and any fiduciary designated by the Committee pursuant to paragraph (b) above to whom such power is granted by the Committee, may employ one or more persons to render advice with regard to any responsibility such fiduciary has under the Plan. (e) Investment Manager. The Committee may appoint an investment manager or managers, as defined in ERISA, to manage (including the power to acquire, invest and dispose of) any assets of the Plan. (f) Limitation of Liability. Except to the extent otherwise provided by law, if any duty or responsibility of a named fiduciary has been allocated or delegated to any other person in accordance with any provision of this Plan or of the Trust Agreement, then such named fiduciary shall not be liable for any act or omission of such person in carrying out such duty or responsibility. -46- 48 12.9 Genuineness of Documents. The Committee, and any Employer and Affiliate and their respective officers, directors and employees, shall be entitled to rely upon any notice, request, consent, letter, telegram or other paper or document believed by them or any of them to be genuine, and to have been signed or sent by the proper person, and shall be fully protected in respect of any action taken or suffered by them in good faith in reliance thereon. 12.10 Proper Proof. In any case in which an Employer or the Committee shall be required under the Plan to take action upon the occurrence of any event, they shall be under no obligation to take such action unless and until proper and satisfactory evidence of such occurrence shall have been received by them. 12.11 Claims Procedure. The Committee shall establish a claims procedure in accordance with applicable law and shall afford a reasonable opportunity to any Participant or Beneficiary whose claim for benefits has been denied for a full and fair review of the decision denying such claim. 12.12 Recordkeeper. The Committee may appoint a Recordkeeper to perform such administrative functions as the Committee may determine from time to time, including but not limited to the processing of loans, withdrawals and distributions, and contribution and in accordance with Investment Fund elections by Participant, in accordance with the terms of the Plan. 12.13 Administrative Expenses. Except as otherwise determined by the Company, the expenses of administering the Plan and the fees and expenses incurred in connection with the collection, administration, management, investment, protection and distribution of the Plan assets under the Trust shall be paid directly by the Trust out of Plan assets or, if paid by one or more Employers, reimbursed by the Trust, to the maximum extent permitted by law, and shall be allocated to Participants' Accounts in accordance with rules established by the Committee in its sole discretion. -47- 49 ARTICLE XIII Discontinuing Participation and Right of Company to Amend or Terminate 13.1 Discontinuance of Participation By an Employer. An Employer's participation in the Plan shall cease in accordance with the following: (a) Any Employer may elect, at any time, to discontinue its participation hereunder in whole or in part with respect to any of its divisions or locations, by filing written notice thereof with the Board of Directors and the Committee and specifying the group or groups of Participants affected by such election. (b) The Plan shall be discontinued as to all Participants of any Employer which shall be declared bankrupt or which makes any general assignment for the benefit of creditors. (c) The Plan shall be discontinued as to Participants of any Employer in the event of the dissolution, merger, consolidation, or sale or other disposition of all of the business and assets or stock of such Employer, unless provision is made for the continuance of the Plan by a successor. (d) The Plan shall be discontinued as to Participants of any Employer that ceases to be a Controlled Group Member, unless the Board of Directions expressly permits its continued participation in the Plan. In such event the Committee shall either make such current or deferred distribution to the Participants affected by such discontinuance as it shall deem appropriate and in accordance with the Plan, or in lieu thereof, direct that the portion of the Trust Fund allocable to such Participants be transferred to a successor qualified plan or funding medium, if provision is made for coverage for such Participants under such plan or funding medium. No Participant shall make any contributions to the Plan, after discontinuance of his Employer's participation in the Plan with respect to him. 13.2 Amendment. The Company shall have the right to amend the Plan by resolution of the Board of Directors, by resolution of any duly authorized committee thereof or by written action of any duly authorized officer of the Company, to any extent that it may deem advisable, and all Employers, employees, Participants, and Beneficiaries shall be bound thereby. Where deemed necessary or advisable in order to ensure compliance with applicable law (including administrative interpretations thereof), amendments may be put into effect in practice and in communications to Participants prior to the time that they are embodied in formal amendments to the Plan document. No amendment shall reduce a Participant's interest to the Plan to an amount less that what his interest would have been if his Termination Date had occurred on the day of the amendment. 13.3 Termination. The Plan may be terminated at any time by resolution of the Board of Directors, provided that no such action shall permit any part of the corpus or income of the Trust -48- 50 Fund to be used for or diverted to purposes other than for the exclusive benefit of the Participants and their Beneficiaries under the Plan and for the payment of the administrative costs of the Plan prior to the satisfaction of all liabilities under the Plan. 13.4 Plan Merger. The Company may determine that the Plan should be merged with, or the Company or the Committee may determine that all or a portion of the Plan's assets should be transferred to, any other qualified plan within the meaning of section 401(a) of the Code, and the Committee in its discretion may permit the Plan to accept a transfer of all or a portion of the assets of another qualified plan. In the case of any merger or consolidation with, or transfer of assets or liabilities to or from, any other plan, each Participant in this Plan shall be entitled to a benefit immediately after the merger, consolidation, or transfer (if such other plan then terminated) which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then been terminated). In the event of a transfer or merger into the Plan, the provisions of the other plan that pertain to optional forms of benefit and other rights that may not be eliminated by amendment shall be incorporated herein by reference to the extent necessary to comply with Section 411(d)(6) of the Code and applicable Treasury Regulations until such time as a separate supplement setting forth such protected features is added to the Plan. -49- 51 ARTICLE XIV Miscellaneous 14.1 Appropriate Forms and Filing with Committee. For all purposes of this Plan, the date on which an Appropriate Form, Contribution Agreement, or any other document is returned to or filed with the Committee shall be the date on which such Appropriate Form, Contribution Agreement or other document is actually received by the Committee or its designated agent. As and to the extent determined by the Committee from time to time, an appropriate form may consist of electronic or voice communication, provided that a Participant's designation of a Beneficiary and any Spousal Consent required in connection with any such designation shall be in writing. The Committee shall prescribe the conditions for use of the Appropriate Form. Any submission by a Participant of an election through an electronic or voice communication system shall constitute his valid signature for purposes of any transaction effected thereby. An election made through any such system shall be considered received on the day it is transmitted, unless such transmission is received after the applicable cut-off date and/or time prescribed by the Recordkeeper. The availability of electronic, internet or interactive phone access to the Plan's recordkeeping system shall not guaranty access to any Participant at a particular time. 14.2 Governing Laws. The Plan shall be governed by and construed and administered under the laws of the State of [New Jersey], except to the extent such laws are preempted by Federal law. 14.3 Separability. If any provision of this Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions of the Plan and the Plan shall be construed and enforced as if such provisions had not been included therein. 14.4 Captions. The captions contained herein and the table of contents prefixed hereto are inserted only as a matter of convenience and for reference and in no way define, limit, enlarge or describe the scope or intent of this Plan nor in any way shall affect the Plan or the construction of any provision thereof. 14.5 Limitation of Liability. Except to the extent otherwise provided by law, no liability shall attach to or be incurred by any stockholder, officer or director of any Employer or any Affiliate, and if an Employer or Affiliate shall be a partnership, any partner thereof, under or by reason of the terms, conditions and provisions contained in this Plan or in the Trust Agreement, or for the acts or decisions taken or made thereunder or in connection therewith; and as a condition precedent to his participation in the Plan or the receipt of benefits thereunder, or both, such liability, if any, is expressly waived and released by each Participant and Beneficiary, and by any and all persons claiming under or through such persons, such waiver and release to be conclusively evidenced by any act or participation in or the acceptance of benefits or the making of elections under this Plan. 14.6 Construction. The Plan is intended to constitute a qualified plan under section 401(a) of the Code (which includes a qualified cash or deferred arrangement within the meaning of section 401(k) of the Code) and to comply with applicable provisions of ERISA. Accordingly, the Plan -50- 52 shall, at all times, be construed and administered in a manner consistent with the requirements of said sections 401(a) and 401(k) of the Code and the requirements of ERISA. 14.7 Action by Employers. Except as otherwise provided herein, any action required or permitted to be taken by the Company or any other Employer which is a corporation shall be by resolution of its Board of Directors or a duly authorized committee thereof or by written action of a duly authorized officer of the Company or the Employer. Any action required or permitted to be taken by an Employer that is a partnership shall be by a general partner of such partnership or by a duly authorized officer thereof. -51- 53 ARTICLE XV "Top-Heavy" Provisions 15.1 Applicable Plans. For purposes of this Article XV, "Applicable Plans" shall include (a) each plan of an Employer or an Affiliate in which a Key Employee (as defined in Section [15.2] below for this Plan, and as defined in section 416(i) of the Code for each other Applicable Plan) participates during the five (5)-year period ending on such plan's "Determination Date" (as described in Section 151.4 below) and (b) each other plan of an Employer or an Affiliate which, during such period, enables any plan in clause (a) of this sentence to meet the requirements of section 401(a)(4) or 410 of the Code. Any plan not required to be included under the preceding sentence may also be included, at the option of the Company, provided that the requirements of sections 401(a)(4) and 410 of the Code continue to be satisfied for the group of Applicable Plans after such inclusion. Applicable Plans shall include terminated plans, frozen plans and, to the extent that benefits are provided with respect to service with an Employer or an Affiliate, multiemployer plans (described in section 414(f) of the Code) and multiple employer plans (described in section 413(c) of the Code) to which an Employer or an Affiliate makes contributions. 15.2 Key Employee. For purposes of this Article XV, "Key Employee" for any Plan Year shall mean an employee (including a former employee whether or not deceased) of an Employer or an Affiliate who, at any time during a given Plan Year or any of the four (4) preceding Plan Years, is one or more of the following. (a) An officer of an Employer or an Affiliate having Top-Heavy Compensation of more than fifty percent (50%) of the dollar amount in effect under section 415(b)(1)(A) of the Code for any such Plan Year; provided, that the number of employees treated as officers shall be no more than fifty (50) or, if fewer, the greater of three (3) employees or ten percent (10%) of the employees (exclusive of employees described in section 414(q)(5) of the Code). (b) One of the ten (10) employees (i) having Top-Heavy Compensation of more than the dollar limit under section 415(c)(1)(A) and (ii) owning or considered as owning within the meaning of section 416(i) of the Code) the largest percentage interests in value of an Employer or an Affiliate, provided that such percentage interest exceeds one-half percent (.5%) in value. If two employees have the same interest in the Employer or an Affiliate, the employee having the greater Total Compensation shall be treated as having a larger interest. (c) A person owning (or considered as owning, within the meaning of section 416(i) of the Code) more than five percent (5%) of the outstanding stock of an Employer or an Affiliate, or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or an Affiliate (or having more than five percent (5%) of the capital or profits interest in any Employer or an Affiliate that is not a corporation, determined under similar principles). -52- 54 (d) A one percent (1%) owner of an Employer or an Affiliate having Top-Heavy Compensation of more than one hundred fifty thousand dollars ($150,000). "One percent (1%) owner" means any person who would be described in paragraph (c) of Section [15.1.2] if "one percent (1%)" were substituted for "five percent (5%)" in each place where it appears in paragraph (c). For purposes of this Section [15.2], "Top-Heavy Compensation" means "compensation" as that term is defined in section 414(q)(4) of the Code. 15.3 Top Heavy Condition. In any Plan Year for which the sum, for all Key Employees (as defined in Section 15.2 above for this Plan and as defined in section 416(i) of the Code for each other Applicable Plan), of the present value of the cumulative accrued benefits under all Applicable Plans which are defined benefit plans (determined based on the actuarial assumptions set forth in the "top-heavy" provisions of such plans) and the aggregate of their accounts under all Applicable Plans which are defined contribution plans, exceeds sixty percent (60%) of a similar sum determined for all participants in such plans (but excluding participants who are former Key Employees), the Plan shall be deemed "Top-Heavy." 15.4 Determination Date. The determination as to whether this Plan is "Top-Heavy" for a given Plan Year shall be made on the last day of the preceding Plan Year (the "Determination Date"); and other plans shall be included in determining whether this Plan is "Top-Heavy" based on the determination date as defined in section 416(g)(4)(C) of the Code for each such plan which occurs in the same calendar year as such Determination Date for this Plan. 15.5 Valuation. The value of account balances and the present value of accrued benefits for each Applicable Plan will be determined, subject to section 416 of the Code and the regulations thereunder, as of the most recent valuation date that falls within or ends with the 12-month period ending on the applicable determination date for such plan. 15.6 Distribution within Five Years. Subject to Section 15.7 below, distributions from the Plan or any other Applicable Plan during the five (5)-year period ending on the applicable Determination Date shall be taken into account in determining whether the Plan is "Top-Heavy." 15.7 No Services within Five Years. Benefits and distributions shall not be taken into account with respect to any individual who has not rendered any services to any Employer or Affiliate at any time during the five (5)-year period ending on the applicable Determination Date. 15.8 Compliance with Code Section 416. 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 Code section 416 and the regulations thereunder. 15.9 Deductible Employee Contributions. Deductible employee contributions will not be taken into account for purposes of computing the "top-heavy" ratio. 15.10 Beneficiaries. The terms "Key Employee" and "Participant" include their Beneficiaries. 15.11 Accrued Benefit Under Defined Benefit Plans. Solely for purposes of determining whether this Plan or any other Applicable Plan is "Top-Heavy" for a given Plan Year, the -53- 55 accrued benefit under any defined benefit plan of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer or an Affiliate, or (b) if there is no such method, as if such benefit accrued not more rapidly than at the slowest accrual rate permitted under the fractional accrual rule of section 411(b)(1)(C) of the Code. 15.12 Provisions Applicable in "Top-Heavy" Years. For any Plan Year in which the Plan is deemed to be "Top-Heavy," the following provisions shall apply to any Participant who has not terminated employment before such Plan Year: (a) Required Allocation. The amount of Employer contributions and forfeitures which shall be allocated to the Account of any Participant who (a) is employed by an Employer or an Affiliate on the last day of the Plan Year and (b) is not a Key Employee shall be (i) at least three percent (3%) of such member's Total Compensation for such Plan Year, or, (ii) if less, an amount equal to such Total Compensation multiplied by the highest allocation rate for any Key Employee. For purposes of the preceding sentence, the allocation rate for each individual Key Employee shall be determined by dividing the Employer contributions and forfeitures allocated to such Key Employee's account (including elective contributions) under all Applicable Plans considered together by his Total Compensation; provided, however, that clause (ii) above shall not apply if this Plan enables a defined benefit plan required to be aggregated with this Plan under Section 15.1 above to meet the requirements of section 401(a)(4) or 410 of the Code. The minimum allocation provisions of this Section 15.12 shall, to the extent necessary, be satisfied by special Employer contributions made by the Employer for that purpose. Notwithstanding the foregoing, the minimum allocations otherwise required by this Section 15.12 shall not be required to be made for any Participant (y) if such Participant is covered under a defined benefit plan maintained by an Employer or an Affiliate which provides the minimum benefit required under section 416(c)(1) of the Code, and/or (z) to the extent that the minimum allocation otherwise required by this Section 15.12 is made under another defined contribution plan maintained by an Employer or an Affiliate. In addition, any minimum allocation required to be made for a Participant who is not a Key Employee shall be deemed satisfied to the extent of the benefits provided by any other qualified plan maintained by an Employer or an Affiliate. For Plan Years beginning on or after January 1, 1989, Tax-Saver Contributions by a non-Key Employee shall be disregarded in determining the amount of contributions required to be allocated for his benefit under this Section 15.12. For Plan Years beginning on or after January 1, 1989, Matching Contributions for a non-Key Employee that are taken into account to meet the minimum allocation requirements of this Section 15.12 shall be disregarded in applying the provisions of Sections 5.6 and 5.10 of the Plan. (b) Multiplier. Except as otherwise provided by law, "1.00" shall be substituted for the multiplier "1.25" required by section 415(e)(2)(B)(i) and (3)(B)(i) of the Code, to the extent applicable, unless the following conditions are met:: (a) the percentage described in Section 15.3 above does not exceed ninety percent (90%), and (b) "four percent (4%)" is substituted for "three percent (3%)" in paragraph (a) above -54- 56 Notwithstanding any other provision of this Plan, if the sum of the combined limitation fractions described in section 415(e)(2) and (3) of the Code, calculated by substituting "1.00" for "1.25" in applying section 415(e)(2)(B)(i) and (3)(B)(i) of the Code, for any Participant exceeds one hundred percent (100%) for the last Plan Year before the Plan becomes "Top-Heavy," such fractions shall be adjusted, in accordance with applicable regulations, so that their sum does not exceed 100% for such Plan Year. (c) Vesting. Any Participant shall be vested in his Profit Sharing and Matching Contributions Account on a basis at least as favorable as is provided under the following schedule:
Years of Service Vested Percentage Less Than 2 Years 0% 2 Years But Less Than 3 20% 3 Years But Less Than 4 40% 4 Years But Less Than 5 60% 5 Years But Less Than 6 80% 6 Years or More 100%
In any Plan Year in which the Plan is not deemed to be "top- heavy," the vested percentage shall be no less than that which was determined as of the last day of the last Plan Year in which the Plan was deemed to be "top-heavy." The minimum vesting schedule set out above shall apply to all benefits within the meaning of Code section 411(a)(7) except those attributable to employee contributions, including benefits accrued before the effective date of this Article XV and benefits accrued before the Plan became "top-heavy." Any vesting schedule change caused by alterations in the Plan's "top-heavy" status shall be deemed to result from a Plan amendment giving rise to the right of election required by Code section 411(a)(10)(B) (d) Bargaining Unit Employees. The provisions of paragraphs (a) and (c) above shall not apply to any employee included in a unit of employees covered by a collective bargaining agreement if, within the meaning of section 416(i)(4) of the Code, retirement benefits were the subject of good faith bargaining. -55- 57 IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officers, the 1st day of April, 2000. LIZ CLAIBORNE, INC. By: /s/ Roberta S. Karp ------------------- Roberta S. Karp ATTEST: /s/ Nicholas J. Rubino ---------------------- Nicholas J. Rubino -56- 58
Table of Contents Page ---- ARTICLE I General.................................................................................. 2 1.1 Effective Date........................................................................... 2 1.2 Definitions.............................................................................. 2 1.3 Plan Supplements......................................................................... 7 ARTICLE II Service.................................................................................. 8 2.1 General.................................................................................. 8 2.2 Year of Eligibility Service.............................................................. 8 2.3 Years of Vesting Service................................................................. 8 2.4 Changes in Employment Status and Application of Different Service Crediting Rules to the Determination of Eligibility......................................................... 9 2.5 Service With Acquired Companies or Businesses............................................ 9 ARTICLE III Participation in the Plan................................................................ 10 3.1 Eligibility to Participate in the Plan................................................... 10 3.2 Transfer to Eligible Employment.......................................................... 11 3.3 Reemployment............................................................................. 11 3.4 Inactive Participation................................................................... 11 3.5 Transfers Between Employers.............................................................. 11 3.6 No Employment Rights..................................................................... 11 3.7 Rollover Participation................................................................... 11 3.8 Participation Voluntary For Certain Purposes............................................. 12 3.9 Leased Employees......................................................................... 12 ARTICLE IV Contributions............................................................................ 13 4.1 Tax-Saver Contributions.................................................................. 13 4.2 Contribution Agreement for Tax-Saver Contributions....................................... 13 4.3 Time of Tax-Saver Contributions.......................................................... 13 4.4 Change in Contribution Rate.............................................................. 13 4.5 Voluntary Suspension of Tax-Saver Contributions.......................................... 13 4.6 Mandatory Suspension of Tax-Saver Contributions.......................................... 14 4.7 Matching Contributions................................................................... 14 4.8 Payment of Matching Contributions........................................................ 14 4.9 Matching Contributions Only For Permissible Tax-Saver Contributions...................... 14 4.10 Qualified Non-Elective Contributions..................................................... 15 4.11 Contributions for Military Service....................................................... 15 4.12 Rollovers................................................................................ 15 4.13 Profit Sharing Contributions............................................................. 16 4.14 Eligibility to Share in Profit Sharing Contributions..................................... 16
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Table of Contents (continued) Page ---- 4.15 Allocation of Profit Sharing Contributions and Forfeitures............................... 16 4.16 Contributions May Not Exceed Amount Deductible........................................... 16 4.17 Form of Payment to Trustee............................................................... 16 4.18 Time of Payment of Profit Sharing Contribution........................................... 16 4.19 Profits Not Required..................................................................... 16 ARTICLE V Limits on Contributions.................................................................. 17 5.1 Reduction of Contribution Rates.......................................................... 17 5.2 Limitations on Annual Additions.......................................................... 17 5.3 Excess Annual Additions.................................................................. 17 5.4 Limitation on Elective Deferrals......................................................... 18 5.5 Distribution of Excess Deferrals......................................................... 18 5.6 Section 401(k) Limit on Tax-Saver Contributions.......................................... 18 5.7 Determination of Average Deferral Percentages............................................ 19 5.8 Treatment of Excess Tax-Saver Contributions.............................................. 19 5.9 Section 401(k)(3) Testing for Collective Bargaining Unit Employees....................... 20 5.10 Section 401(m) Limit on Matching Contributions........................................... 20 5.11 Determination and Correction of Excess Matching Contributions............................ 20 5.12 Special Testing Rules.................................................................... 21 5.13 Aggregate Limit Under Section 401(m) of the Code......................................... 22 ARTICLE VI Accounts and Investment Funds............................................................ 23 6.1 Accounts................................................................................. 23 6.2 Allocation of Contributions.............................................................. 23 6.3 Correction of Error...................................................................... 24 6.4 Statement of Plan Interest............................................................... 24 6.5 Investment Funds......................................................................... 24 6.6 Investment Fund Accounting............................................................... 24 6.7 Allocation of Fund Earnings and Changes in Value......................................... 24 6.8 Investment Fund Elections................................................................ 25 6.9 Transfers Between Investment Funds....................................................... 25 6.10 Liquidity................................................................................ 26 6.11 Voting and Tendering of Common Stock..................................................... 26 6.12 Allocation Shall Not Vest Title.......................................................... 27 6.13 Committee Modifications.................................................................. 27 ARTICLE VII Vesting.................................................................................. 28 7.1 Matching and Profit Sharing Contributions................................................ 28 7.2 Tax-Saver, Qualified Non-Elective, Buy Back and Rollover Contributions Accounts.......... 29
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Table of Contents (continued) Page ---- 7.3 Accelerated Vesting...................................................................... 29 7.4 Forfeitures.............................................................................. 29 7.5 Restoration of Forfeiture and Buy Back Requirement....................................... 29 7.6 Subaccount for Restored Amount........................................................... 30 7.7 Application of Forfeitures............................................................... 30 ARTICLE VIII Withdrawals and Loans During Employment.................................................. 31 8.1 Withdrawals At Age 59 1/2................................................................ 31 8.2 Withdrawal from Rollover Account......................................................... 31 8.3 Hardship Withdrawals..................................................................... 31 8.4 Hardship Defined......................................................................... 31 8.5 Vesting Adjusted to Reflect Withdrawals.................................................. 32 8.6 Withdrawal Payment....................................................................... 32 8.7 Loans.................................................................................... 32 8.8 Loan Requirements........................................................................ 33 8.9 Valuation for Loan Processing............................................................ 34 8.10 Funding of Participant Loans............................................................. 34 8.11 Allocation of Loan Among Investment Funds................................................ 34 8.12 Loan Repayment........................................................................... 34 8.13 Loan Expenses............................................................................ 34 8.14 Disposition of Loan Upon Certain Events.................................................. 34 8.15 Compliance with Applicable Law........................................................... 35 8.16 Loan Default............................................................................. 35 ARTICLE IX Distributions to Participants After Termination of Employment............................ 36 9.1 Distributions to Participants After Termination of Employment............................ 36 9.2 Distribution Only Upon Separation From Service........................................... 36 9.3 Form of Payment.......................................................................... 37 9.4 Direct Rollover Option................................................................... 37 9.5 Put Option............................................................................... 37 9.6 Facility of Payment...................................................................... 37 9.7 Interests Not Transferable............................................................... 37 9.8 Absence of Guaranty...................................................................... 38 9.9 Missing Participants or Beneficiaries.................................................... 38 9.10 Doubt as to Right to Payment............................................................. 38 9.11 Limits on Commencement and Duration of Payments.......................................... 38 9.12 Contributions Subsequent to Distribution................................................. 39 9.13 Payments to Minors....................................................................... 39 9.14 Identity of Proper Payee................................................................. 39 9.15 Inability to Locate Payee................................................................ 40 9.16 Estoppel of Participants and Their Beneficiaries......................................... 40 9.17 Community Property Laws.................................................................. 40
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Table of Contents (continued) Page ---- ARTICLE X Distribution Upon Death of Participant................................................... 41 10.1 Distribution to Beneficiary............................................................. 41 10.2 Designation of Beneficiary............................................................... 41 10.3 Change of Beneficiary.................................................................... 42 10.4 Failure to Designate Beneficiary......................................................... 42 10.5 Proof of Death........................................................................... 42 10.6 Discharge of Liability................................................................... 42 ARTICLE XI Trust Fund............................................................................... 43 11.1 Trust Agreement.......................................................................... 43 11.2 No Diversion of Trust Fund............................................................... 43 11.3 Duration of Trust........................................................................ 43 11.4 Company as Agent......................................................................... 43 ARTICLE XII Administration........................................................................... 44 12.1 Committee................................................................................ 44 12.2 Committee Powers and Authority........................................................... 44 12.3 Limitation of Liability and Indemnification.............................................. 45 12.4 Committee Action......................................................................... 45 12.5 Subcommittees, Counsel and Agents........................................................ 45 12.6 Reliance on Information.................................................................. 46 12.7 Instructions to Trustee.................................................................. 46 12.8 Fiduciaries.............................................................................. 46 12.9 Genuineness of Documents................................................................. 47 12.10 Proper Proof............................................................................. 47 12.11 Claims Procedure......................................................................... 47 12.12 Recordkeeper............................................................................. 47 12.13 Administrative Expenses.................................................................. 47 ARTICLE XIII Discontinuing Participation and Right of Company to Amend or Terminate................... 48 13.1 Discontinuance of Participation By an Employer........................................... 48 13.2 Amendment................................................................................ 48 13.3 Termination.............................................................................. 48 13.4 Plan Merger.............................................................................. 49 ARTICLE XIV Miscellaneous............................................................................ 50 14.1 Appropriate Forms and Filing with Committee.............................................. 50 14.2 Governing Laws........................................................................... 50 14.3 Separability............................................................................. 50 14.4 Captions................................................................................. 50 14.5 Limitation of Liability.................................................................. 50 14.6 Construction............................................................................. 50 14.7 Action by Employers...................................................................... 51
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Table of Contents (continued) Page ---- ARTICLE XV "Top-Heavy" Provisions................................................................... 52 15.1 Applicable Plans......................................................................... 52 15.2 Key Employee............................................................................. 52 15.3 Top Heavy Condition...................................................................... 53 15.4 Determination Date....................................................................... 53 15.5 Valuation................................................................................ 53 15.6 Distribution within Five Years........................................................... 53 15.7 No Services within Five Years............................................................ 53 15.8 Compliance with Code Section 416......................................................... 53 15.9 Deductible Employee Contributions........................................................ 53 15.10 Beneficiaries............................................................................ 53 15.11 Accrued Benefit Under Defined Benefit Plans.............................................. 53 15.12 Provisions Applicable in "Top-Heavy" Years............................................... 54
Supplement A Supplement B Supplement C Supplement D -v- 63 SUPPLEMENT A TO THE LIZ CLAIBORNE SAVINGS PLAN Special Provisions Applicable to Former Members of the Liz Claiborne Profit Sharing Retirement Plan This Supplement A sets forth special provisions of the Plan that apply to certain individuals who participated in the Liz Claiborne Profit Sharing Retirement Plan (the "Profit-Sharing Plan"), the assets of which were merged into this Plan as of December 31, 1999. A-1 Special Definitions. For purposes of this Supplement A: (a) "Company" means Liz Claiborne, Inc., a Delaware corporation. (b) "Merger" means the transfer of assets of the Profit Sharing Plan to this Plan effective as of December 31, 1999. (c) "Profit Sharing Participant" means an individual who had a Profit Sharing Account as of December 31, 1999. (d) "Profit Sharing Plan" means the Profit Sharing Plan, as in effect through December 31, 1999. (e) "Transferred Profit Sharing Account" means the account maintained under the Profit Sharing Plan for a Profit Sharing Member on December 31, 1999. A-2 Participation in Plan Effective January 1, 2000. Profit Sharing Plan Participants automatically become Members of the Plan effective January 1, 2000. A-3 Merger. Effective as of December 31, 1999, the assets of the Profit Sharing Plan and effective as of January 1, 2000 the terms of this Plan supersede in all respects the terms of the Profit Sharing Plan with respect to the Profit Sharing Accounts transferred to the Plan. A-4 Transfer of Accounts. Each Profit Sharing Account transferred to the Plan shall be held in a subaccount of the Profit Sharing Contributions Account established for each Participant under the Plan. A-5 Investment of Transferred Accounts. During a transition period commencing on the Merger date and ending as soon as practicable thereafter, as determined by the Committee in its sole discretion, Transferred Profit Sharing Accounts shall be invested in such manner as the Committee prescribes. After the transition period, any reallocation of the investment of such accounts, as well as the investment direction for any future contributions allocated to the Participant's Profit Sharing Contributions Account, shall be in accordance with the provisions of the Plan. A-6 Pre-Merger Elections and Designations. Notwithstanding any other provision of this Plan, withdrawals or distributions already in process prior to the Merger Date on account of deaths, terminations of employment or participant requests under the Profit -i- 64 Sharing Plan shall continue to be processed under the applicable procedures of the Profit Sharing Plan. A-7 Post-Merger Beneficiary Designation. Beneficiary designations made under the Profit Sharing Plan on or before December 31, 1999 by Profit Sharing Participants shall be of no effect with respect to participation in the Plan on and after January 1, 2000, as of which date only beneficiary designations made under the Plan shall be given effect. A-8 1999 Contribution. Prior to the filing deadline for its 1999 federal income tax return, the Company, in its sole discretion, may make a contribution to the Profit Sharing Plan with respect to each Profit Sharing Participant who was eligible to share in such a contribution under Article IV of the Profit Sharing Plan, by paying such contribution into the Plan as the continuation of the Profit Sharing Plan by reason of the Merger. Such contribution shall be allocated among such Profit Sharing Participants in accordance with the provisions of the Profit Sharing Plan governing contributions for the 1999 Year and accounted for under the Plan in the Participant's Profit Sharing Contributions Account. A-9 Profit Sharing Plan Amended. The provisions of this Supplement A shall be treated as an amendment to and part of the Profit Sharing Plan, to the extent necessary to give full effect to this Supplement. All provisions of the Plan as the continuation and amendment of the Profit Sharing Plan, shall be treated as effective with respect to the Profit Sharing Plan for periods prior to the Merger to the extent necessary for the Profit Sharing Plan to meet applicable requirements of all provisions of law that become effective since the last determination letter with respect to the Profit Sharing Plan effective as of their respective effective dates, including, without limitation, the Small Business Job Protection Act of 1996 ("SBJPA"), the Uruguay Round Agreements ("GATT"), the Taxpayer Relief Act of 1997, and the IRS Restructuring and Reform Act of 1998. -ii- 65 SUPPLEMENT B TO THE LIZ CLAIBORNE SAVINGS PLAN Special Provisions Applicable to Employees of Lucky Brand Dungarees This Supplement B sets forth special provisions of the Plan that apply to (a) certain employees of Lucky Brand Dungarees, Inc. ("Lucky") and (b) certain other individuals who had undistributed accounts under the Lucky Plan on December 31, 1999. Except as otherwise defined below, the terms used herein shall have the meanings set forth in the Plan. B-1 Special Definitions. For purposes of this Supplement B: (a) "Lucky Accounts" means the account or accounts maintained under the Lucky Plan for a Lucky Participant on December 31, 1999. (b) "Lucky Participant" means an individual who had a Lucky Account on December 31, 1999. (c) "Lucky Plan" means the Lucky Brand Employee Retirement Plan, and Trust as in effect through December 31, 1999. (d) "Merger" means the transfer of assets of the Lucky Plan to this Plan effective December 31, 1999. B-2 Merger. Effective as of December 31, 1999, the assets of the Lucky Plan are merged into this Plan and the trust thereunder, and the terms of this Plan supersede the terms of the Lucky Plan with respect to the Lucky Accounts. B-3 Requirement for Participation Effective January 1, 2000 for Tax-Saver and Matching Contributions. The following rules modify the provisions of paragraph 3.1(f) of the Plan with respect to Lucky Participants. (a) Any individual who was a Lucky Participant on December 31, 1999 shall automatically become a Participant on January 1, 2000 with respect to the Tax Saver and Matching Contributions portions of the Plan. (b) Any individual who was not a Lucky Participant on December 31, 1999, but who was on the Lucky payroll on that date and was eligible to join the Lucky Plan on January 1, 2000, shall instead be eligible to participate in the Tax Saver and Matching Contributions portions of the Plan on January 1, 2000. (c) Any other individual who was on the Lucky payroll on December 31, 1999 shall be eligible to participate in the Tax Saver and Matching Contributions portions of the Plan on the first day of the month after he reaches age 21 and completes 90 days of service. The eligibility for Plan participation of an individual whose date of hire by Lucky is after December 31, 1999 shall be determined solely in accordance with the normal provisions of the Plan. B-4 Profit Sharing Participation. A Lucky employee shall participate in the Profit Sharing portion of the Plan as of the first day of the month on or after January 1, 2000 after he has satisfied the requirements of Section 3.1 of the Plan. For purposes of paragraph 66 3.1(f) (iii), service with Lucky both before and after the Merger shall be taken into account in determining whether he has one Year of Eligibility Service. Once he has become a Participant with respect to the Profit Sharing portion of the Plan, such an individual shall be eligible to share in Profit Sharing Contributions only if he meets the requirements therefor under Section 4.14 of the Plan. B-5 Transfer of Accounts. Upon transfer to the Plan, a Participant's Lucky Accounts, if any, shall be allocated as follows: amounts in his Elective Account under the Lucky Plan shall be transferred to a Tax-Saver Contributions Account, amounts in his Participant's Account attributable to employer matching contributions shall be transferred to a Matching Contributions Account, and any amounts in a Participant's Rollover Account shall be transferred to a Rollover Account. B-6 Investment of Transferred Accounts. During a transition period commencing on the Merger date and ending as soon as practicable thereafter, as determined by the Committee in its sole discretion, Transferred Lucky Accounts shall be invested in such manner as the Committee prescribes. After the end of the transition period, any reallocation of the investment of such accounts, as well as the investment direction for any future contributions allocated to the Participant's Accounts, shall be made in accordance with the rules of the Plan. No transactions, including withdrawals or loans, shall be processed during the foregoing transition period except as provided in subsection B-11. B-7 Vesting in Matching Contributions Account. Individuals who were on the Lucky payroll on December 31, 1999 shall vest in their Matching Contributions Accounts (with regard to contributions made both before and after the Merger) in accordance with the following vesting schedule:
Years of Vesting Service Vested Percentage 1 20% 2 40% 3 60% 4 80% 5 100%
B-8 Vesting in Profit Sharing Contributions Account. With respect to any individual who was on the Lucky payroll on December 31, 1999, the vested portion of any Profit Sharing Contributions Account shall be determined in accordance with the normal rules of the Plan; provided, however, that in determining which vesting schedule under paragraph (b) or (c) of Section 7.1 shall apply, the individual's date of hire by Lucky shall be used in determining when an individual is first credited with an "Hour of Service." B-9 Calculation of Service for Vesting in Matching and Profit Sharing Contributions Accounts. For any individual who was on the Lucky payroll on December 31, 1999, "Years of Vesting Service" for purposes of calculating the vested portion of his Profit Sharing Contributions Account and Matching Contributions Account shall be calculated in -2- 67 accordance with the Plan; provided, however, that employment before the Merger shall be taken into account in determining Years of Vesting Service as though it were employment with an Affiliate, except that the first date that a Lucky Participant has an "Hour of Service" shall be deemed to be (i) June 1 of the calendar year of his actual date of hire by Lucky if such actual date of hire was August 1 or later, or (ii) June 1 of the calendar year preceding the calendar year of his actual date of hire by Lucky if such actual date of hire was before August 1s. B-10 Post-Merger Beneficiary Designation Required. Beneficiary designations made under the Lucky Plan through December 31, 1999 by Lucky Participants shall be of no effect with respect to participation in the Plan on and after January 1, 2000, as of which date only beneficiary designations made under the Plan shall be given effect. B-11 Pre-Merger Elections and Designations. Notwithstanding any other provision of this Plan, withdrawals, distributions or loans already in process prior to the Merger on account of deaths, terminations of employment or participant requests under the Lucky Plan shall continue to be processed under the applicable procedures of the Lucky Plan. B-12 Contributions. Prior to the filing deadline for its 1999 federal income tax, Lucky may, in its sole discretion, make a contribution to the Lucky Plan for the 1999 Plan Year with respect to each Lucky Participant who was eligible to share in such contribution under the terms of the Lucky Plan, by paying such contribution into the Plan as the continuation of the Lucky Plan by reason of the Merger. Such contribution shall be allocated among such Lucky Participants in accordance with the provisions of the Lucky Plan governing contributions for the 1999 Plan Year and accounted for under the Plan in the Participant's Matching Contributions Account. B-13 Lucky Plan Amended. The provisions of this Supplement B shall be treated as an amendment to and part of the Lucky Plan to the extent necessary to give full effect to this Supplement. All provisions of the Plan, in its capacity as a continuation and amendment of the Lucky Plan, shall be treated as effective with respect to the Lucky Plan for periods prior to the Merger to the extent necessary for the Lucky Plan to meet applicable requirements of law that became effective since the last determination letter with respect to the Lucky Plan, effective as of their respective effective dates, including, without limitation, the Small Business Job Protection Act of 1996 ("SBJPA"), the Uruguay Round Agreements Act ("GATT"), the Taxpayer Relief Act of 1997, and the IRS Restructuring and Reform Act of 1998. -3- 68 SUPPLEMENT C TO THE LIZ CLAIBORNE SAVINGS PLAN Special Provisions Applicable to Employees of Segrets, Inc. This Supplement C sets forth special provisions of the Plan that apply to (a) certain employees of Segrets, Inc. ("Segrets") and (b) other individuals who had undistributed accounts under the Segrets Plan on December 31, 1999. Except as otherwise defined below, the terms used herein shall have the meanings set forth in the Plan. C-1 Special Definitions. For purposes of this Supplement C: (a) "Segrets Accounts" means the account or accounts maintained under the Segrets Plan for a Segrets Participant on December 31, 1999. (b) "Segrets Participant" means an individual who had a Segrets Account on December 31, 1999. (c) "Segrets Plan" means the Segrets, Inc. 401(k) Plan, as in effect through December 31, 1999. (d) "Merger" means the transfer of assets of the Segrets Plan to this Plan effective as of December 31, 1999. C-2 Merger. Effective as of December 31, 1999, the assets of the Segrets Plan are merged into this Plan and the trust thereunder, and the terms of this Plan supersede the terms of the Segrets Plan with respect to the Segrets Accounts. C-3 Segrets Employees Eligible to Join the Plan Effective January 1, 2000 for Purposes of Tax-Saver and Matching Contributions. The following rules modify the provisions of paragraph 3.1(f) of the Plan with respect to Segrets Participants. (a) Any individual who was a Segrets Participant on December 31, 1999 shall automatically become a Participant in the Tax Saver and Matching Contributions portions of the Plan on January 1, 2000. (b) Any individual who was not a Segrets Participant on December 31, 1999, but who was on the Segrets payroll on that date and was eligible to join the Segrets Plan on January 1, 2000, shall instead be eligible to participate in the Tax Saver and Matching Contributions portions of the Plan on January 1, 2000. (c) Any other individual who was on the Segrets payroll on December 31, 1999 shall be eligible to join the Tax Saver and Matching Contributions portions of the Plan on the first day of the month after he or she reaches age 18 and completes one Year of Eligibility Service. 69 The eligibility for Plan participation of an individual whose date of hire by Segrets is after December 31, 1999 shall be determined solely in accordance with the normal provisions of the Plan. C-4 Profit Sharing Participation A Segrets employee shall participate in the Profit Sharing portion of the Plan as of the first day of the month on or after January 1, 2000 after he has satisfied the requirements of Section 3.1. For purposes of paragraph 3.1(f)(iii), service with Segrets both before and after the Merger shall be taken into account in determining whether he has one Year of Eligibility Service. Once he has become a Participant in the Profit Sharing portion of the Plan, such an individual shall be eligible to share in the Profit Sharing Contribution for a Plan Year only if he meets the requirements of Section 4.14 for that Plan Year. C-5 Transfer of Accounts. Upon transfer to the Plan, a Participant's Segrets Accounts, if any, shall be allocated as follows: amounts attributable to Salary Reduction Contributions will be transferred to a Tax-Saver Contributions Account, amounts attributable to employer Matching Contributions will be transferred to a Matching Contributions Account, and any amounts attributable to a participant Rollover Contribution will be transferred to a Rollover Account. C-6 Investment of Transferred Accounts. During a transition period commencing on the Merger date and ending as soon as practicable thereafter, as determined by the Committee in its sole discretion, Transferred Segrets Accounts shall be invested in such manner as the Committee prescribes. After the end of the transition period any reallocation of the investment of such accounts, as well as the investment direction for any future contributions allocated to the Participant's accounts, shall be in accordance with the rules of the Plan. No transactions shall be processed during the transition period, such as withdrawals, investments changes or loans, except as provided in subsection C-10. C-7 Vesting in Profit Sharing Contributions Account. With respect to any individual who was on the Segrets payroll on December 31, 1999, the vested portion of any Profit Sharing Contributions Account shall be determined in accordance with the normal rules of the Plan; provided, however, that in determining which vesting schedule under paragraph (b) or (c) of Section 7.1 shall apply, the individual's date of hire by Segrets shall be used in determining when an individual is first credited with an "Hour of Service." C-8 Calculation of Service for Vesting in Profit Sharing and Matching Contributions Accounts. With respect to any individual who was on the Segrets payroll on December 31, 1999, "Years of Vesting Service" for purposes of calculating the vested portion of his Profit Sharing and Matching Contributions Accounts shall be calculated in accordance with the Plan; provided, however, that employment with Segrets before the Merger shall be taken into account in determining Years of Vesting Service as though it were employment with an Affiliate, except that the first date for which such an individual has an "Hour of Service" shall be deemed to be (i) June 1 of the calendar year of his actual date of hire if such actual date of hire was August 1 or later, or (ii) June 1 of the calendar year preceding the calendar year of his actual date of hire if such actual date of hire was before August . C-9 Post-Merger Beneficiary Designation Required. Beneficiary designations made under the Segrets Plan through December 31, 1999 by Segrets Participants shall be of no -2- 70 effect with respect to the Plan on and after January 1, 2000, as of which date only beneficiary designations made under the Plan shall be given effect. C-10 Pre-Merger Elections and Designations. Notwithstanding any other provision of this Plan, withdrawals, distributions or loans already in process prior to the Merger on account of deaths, terminations of employment or participant requests under the Segrets Plan shall continue to be processed in accordance with the applicable provisions of the Segrets Plan. C-11 Contributions. Prior to the filing deadline for its 1999 federal income tax return, Segrets, in its sole discretion, may make a contribution to the Segrets Plan with respect to each Segrets Participant who was eligible to share in such contribution under section 4.04 of the Segrets Plan by paying such contribution into the Plan as the continuation of the Segrets Plan by reason of the Merger. Such contribution shall be allocated among such Segrets Participants in accordance with the provisions of the Segrets Plan governing contributions for the 1999 Plan Year and accounted for under the Plan in the Participant's Matching Contributions Account. C-12 Segrets Plan Amended. The provisions of this Supplement C shall be treated as an amendment to and part of the Segrets Plan to the extent necessary to give full effect to this Supplement. All provisions of the Plan, in its capacity as a continuation and amendment of the Segrets Plan, shall be treated as effective with respect to the Segrets Plan for periods prior to the Merger to the extent necessary for the Segrets Plan to meet applicable requirements of law that became effective since the last determination letter with respect to the Segrets Plan, effective as of their respective effective dates, including, without limitation, the Small Business Job Protection Act of 1996 ("SBJPA"), the Uruguay Round Agreements Act ("GATT"), the Taxpayer Relief Act of 1997, and the IRS Restructuring and Reform Act of 1998. -3- 71 SUPPLEMENT D TO THE LIZ CLAIBORNE SAVINGS PLAN Special Provisions Applicable to Former Participants in the Podell Industries, Inc. 401(k) Profit Sharing Plan This Supplement D sets forth special provisions of the Plan that apply to individuals who had account balances under the Laundry Plan on April 1, 2000. Except as otherwise defined below, the terms used herein shall have the meanings set forth elsewhere in the Plan. D-1 Special Definitions. For purposes of this Supplement D: (a) "Laundry" means Podell Industries, Inc. and its subsidiary Laundry, Inc. (b) "Laundry Accounts" means the account or accounts maintained under the Laundry Plan for a Laundry Participant on April 1, 2000. (c) "Laundry Participant" means an individual who had a Laundry Account on April 1, 2000. (d) "Laundry Plan" means the Podell Industries, Inc. 401(k) Profit Sharing Plan, as in effect through April 1, 2000. (e) "Merger" means the transfer of assets of the Laundry Plan to this Plan effective as of April 1, 2000. D-2. Merger. Effective as of April 1, 2000, the assets of the Laundry Plan are merged into this Plan and the trust thereunder and effective as of April 1, 2000 the terms of this Plan supersede in all respects the terms of the Laundry Plan with respect to the Laundry Accounts transferred to the Plan. D-3. Eligibility. The following rules modify the provisions of paragraph 3.1(f) of the Plan with respect to Laundry Participants. (a) Any individual who was a Laundry Participant on March 31, 2000 shall automatically become a Participant in the Plan on April 1, 2000 for purposes of making Tax Saver Contributions. (b) Any individual who was not a Laundry Participant on March 31, 2000, but who was on the Laundry payroll on that date shall be eligible to participate in the Plan for purposes of making Tax Saver Contributions on the date on or after April 1, 2000 on which he satisfies the eligibility requirements set forth in the Laundry Plan as of March 31, 2000. For purposes of this paragraph (b), service with Laundry or another Employer or Affiliate after the Merger will be counted in the same manner as service with Laundry prior to the Merger. (c) The eligibility for Plan participation of an individual whose date of hire by Laundry is after March 31, 2000 shall be determined solely in accordance with the regular provisions of the Plan. 72 (d) Participation in the Plan for purposes of receiving Matching Contributions and Profit Sharing Contributions shall be determined under Section 3.1, except that service with Laundry prior to its acquisition by the Company shall be deemed to be service with an Affiliate. D-4 Transfer of Accounts. Upon transfer to the Plan, a Participant's Laundry Accounts, if any, shall be allocated as follows: amounts in his Deferral Contributions Account under the Laundry Plan shall be transferred to a Tax-Saver Contributions Account, amounts in his Regular Matching Contributions Account shall be transferred to a Matching Contributions Account, and any amounts attributable to a rollover contribution shall be transferred to a Rollover Account. D-5 Investment of Transferred Amounts. During a transition period commencing on the Merger date and ending as soon as practicable thereafter, as determined by the Committee in its sole discretion, Transferred Laundry Accounts shall be invested in such manner as the Committee prescribes. After the end of the transition period, Participants may elect to have such accounts reallocated among the Investment Funds in accordance with the normal provisions of the Plan. No transactions, such as withdrawals or loans, shall be processed during the transition period except as provided in subsection D-11. D-6 Vesting in Matching Contributions Account. Individuals who were on the Laundry payroll on June 30, 2000 shall be vested in their Matching Contributions Account (with regard to contributions made both before and after the Merger) in accordance with the following vesting schedule.
Years of Service Vested Percentage less than 2 0% 2 33-1/3% 3 66-2/3% 4 or more 100%
D-7 Calculation of Service for Vesting in Matching Contributions Account. With respect to any individual who was on the Laundry payroll on March 31, 2000, "Years of Vesting Service" for purposes of calculating the vested portion of his Matching Contributions Account shall be calculated in accordance with the Plan; provided, however, that for this purpose (a) employment both before and after the Merger shall be taken into account, and (b) the first date for which such an individual has an "Hour of Service" shall be deemed to be (i) June 1 of the calendar year of his actual date of hire if such actual date of hire was August 1 or later, or (ii) June 1 of the calendar year preceding the calendar year of his actual date of hire if such actual date of hire was before August 1. D-8 Vesting in Profit Sharing Contributions Account. With respect to any individual who was on the Laundry payroll on March 31, 2000, the vested portion of any Profit Sharing Contributions Account shall be determined in accordance with the normal rules of the Plan; provided, however, that in determining which vesting schedule under paragraph (b) or (c) of Section 7.1 shall apply, the individual's date of hire by Laundry shall be used in determining when such an individual is first credited with an "Hour of Service." -5- 73 D-9 Calculation of Service for Vesting in Profit Sharing Contribution Account. For any individual who was on the Laundry payroll on March 31, 2000, "Years of Vesting Service" for purposes of calculating the vested portion of his Profit Sharing Contributions Account shall be calculated in accordance with the Plan; provided, however, that employment with Laundry both before and after the Merger shall be taken into account in determining such individual's Years of Vesting Service. D-10 Post-Merger Beneficiary Designation Required. Beneficiary designations made under the Laundry Plan through March 31, 2000 by Laundry Participants shall be of no effect with respect to the Plan on and after April 1, 2000, as of which date only beneficiary designations made under the Plan shall be given effect. D-11 Pre-Merger Elections and Designations. Notwithstanding any other provision of this Plan, withdrawals, distributions or loans in process prior to the Merger on account of deaths, or terminations of employment or participant requests occurring or made prior to April 1, 2000 shall continue to be processed under the applicable procedures of the Laundry Plan. D-12 Laundry Plan Amended. The provisions of this Supplement D shall be treated as an amendment to and part of the Laundry Plan, to the extent necessary to give full effect to this Supplement. All provisions of the Plan, in its capacity as a continuation and amendment of the Laundry Plan, shall be treated as effective with respect to the Laundry Plan for periods prior to the Merger to the extent necessary for the Laundry Plan to meet applicable requirements of all provisions of law that become effective since the last determination letter with respect to the Laundry Plan effective as of their respective effective dates, including, without limitation, the Small Business Job Protection Act of 1996 ("SBJPA"), the Uruguay Round Agreements ("GATT"), the Taxpayer Relief Act of 1997, and the IRS Restructuring and Reform Act of 1998. -6- EX-10.H 3 0003.txt NATIONAL COLLECTIVE BARGAINING AGREEMENT 1 EXHIBIT 10(h) NATIONAL COLLECTIVE BARGAINING AGREEMENT By and Between: LIZ CLAIBORNE, INC. AND UNION OF NEEDLETRADES, INDUSTRIAL AND TEXTILE EMPLOYEES (UNITE) Effective: June 1, 2000 Expires: May 31, 2003 2
TABLE OF CONTENTS ARTICLE 1: UNION RESPONSIBILITY - 2 - ARTICLE 2: BARGAINING UNIT AND UNION RECOGNITION - 3 - ARTICLE 3: UNION MEMBERSHIP - 4 - ARTICLE 4: EMPLOYER'S OBLIGATIONS - 6 - ARTICLE 5: AFTER ACQUIRED AND NEW FACILITIES - 6 - ARTICLE 6: TRIAL PERIOD - 7 - ARTICLE 7: HIRING RATES AND MINIMUM WAGE SCALES - 8 - ARTICLE 8: CHANGE IN LEGAL MINIMUMS - 8 - ARTICLE 9: COST OF LIVING ADJUSTMENT - 9 - ARTICLE 10: JOB SECURITY/HANDLING AND DISTRIBUTION OF PRODUCT - 10 - ARTICLE 11: CHANGE IN PAY SYSTEMS - 11 - ARTICLE 12: WAGE INCREASES - 11 - ARTICLE 13: CHECK-OFF - 12 - ARTICLE 14: NO DISCRIMINATION - 12 - ARTICLE 15: EMPLOYMENT STANDARDS - 13 - ARTICLE 16: HEALTH AND SAFETY - 14 - ARTICLE 17: HOURS OF WORK AND OVERTIME - 15 - ARTICLE 18: TEMPORARY EMPLOYEES - 15 - ARTICLE 19: HOLIDAYS, PERSONAL DAYS/PAID TIME OFF AND SICK DAYS - 16 - ARTICLE 20: BEREAVEMENT LEAVE - 18 - ARTICLE 21: SHOP STEWARD - 18 - ARTICLE 22: SENIORITY/LAYOFF - 18 - ARTICLE 23: WORK ASSIGNMENTS - 19 - ARTICLE 24: DISCHARGES - 19 - ARTICLE 25: LEAVES OF ABSENCE - 19 - ARTICLE 26: TIME CLOCK - 21 - ARTICLE 27: RIGHT TO VISIT SHOP - 22 - ARTICLE 28: EMPLOYEE BENEFIT FUNDS - 22 -
3 ARTICLE 30: GRIEVANCES AND ARBITRATION - 30 - ARTICLE 31: NO STRIKE/NO LOCKOUT PLEDGES - 33 - ARTICLE 32: NO REDUCTION OF WAGES OR OTHER BENEFITS - 33 - ARTICLE 33: STRUCK WORK-LABOR DISPUTE CROSSING PICKET LINES - 34 - ARTICLE 34: TEMPORARY APPOINTMENT TO UNION STAFF - 35 - ARTICLE 35: CONFORMITY TO LAW - 35 - ARTICLE 36: JURY DUTY - 35 - ARTICLE 37: UNION ACTIVITIES - 36 - ARTICLE 38: JOINT LABOR-MANAGEMENT COMMITTEE - 36 - ARTICLE 39: VACATIONS - 36 - ARTICLE 40: CUTTING - 37 - ARTICLE 41: REPORTING PAY - 37 - ARTICLE 42: NO WAIVER - 37 - ARTICLE 43: MANAGEMENT RIGHTS - 37 - ARTICLE 44: DURATION OF AGREEMENT - 38 -
4 THIS AGREEMENT is made and entered into as of June 1, 2000 by and between LIZ CLAIBORNE INC., (hereinafter designated as the "Company") and the Union of Needletrades, Industrial and Textile Employee (hereinafter designated as the "Union" or UNITE"). W I T N E S S E T H: WHEREAS, the Company is engaged in an integrated process of production, handling and distribution of garments; and WHEREAS, the Employer owns or leases and operates several distribution centers and samplerooms in which the Union represents the majority of the employees employed by the Employer, and the Employer recognizes the Union as the exclusive bargaining representative of its warehouse and sampleroom employees; and WHEREAS, the various distribution centers and samplerooms have been governed by separate collective bargaining agreements covering individual facilities; and WHEREAS, to provide uniformity of conditions and ease of administration, the parties choose to consolidate the separate bargaining units and collective bargaining agreements into a national multi-plant agreement, to be supplemented by local agreements covering specific facilities; and WHEREAS, the Employer and the Union are parties to a Jobber's Agreement which governs, among other things, the Employer's use of contractors to produce its garments but does not govern the terms and conditions of employment of any of the employees of the Employer; and WHEREAS, the parties desire to cooperate in establishing conditions which will tend to secure a living wage, fair conditions and standards of employment and to provide for a fair and peaceful adjustment of all disputes so as to secure uninterrupted operation of work. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1: UNION RESPONSIBILITY 5 The Union shall have the sole responsibility for administering and enforcing this Agreement and for obtaining compliance with its terms. The sole persons authorized or having the power to act as agents of the Union, or to bind the Union legally with respect to matters arising out of this Agreement or arising out of the relations between the Employer and the Union, or to subject the Union to any liability whatever by reason of any acts or omissions is the President of the Union and the managers of the signatory Locals thereof or such substitute or additional persons as the Union may hereafter formally designate by written notice to the Employer. The Union shall not be responsible for the acts or omissions of any other person, including members and employees of the Union. ARTICLE 2: BARGAINING UNIT AND UNION RECOGNITION 2.1 The scope of the bargaining unit covers the following distribution centers and samplerooms presently located at: 1 Claiborne Avenue, North Bergen, NJ 4 Emerson Lane, Secaucus, New Jersey 10 Oxford Drive, Moonachie, New Jersey 1441 Broadway and 1450 Broadway, New York, New York 1 Liz Way, Mt. Pocono, Pennsylvania, including Pocono 2 151 Folmer Parkway, Montgomery, Alabama 15 Thatcher Road, Dayton, New Jersey 1015 Newman Avenue, Seekonk, Massachusetts 120 Herrod Boulevard, Dayton, New Jersey 2.2 The bargaining unit consists of all distribution center and sampleroom employees, including cutters and related crafts, employed by the Employer at the covered facilities. Local supplemental agreements may further define the bargaining unit at specific facilities. It is agreed that the Union represents a majority of said employees and that during the term of this Agreement the Union shall be the sole and exclusive bargaining representative of all employees in the bargaining unit as hereinabove described. Office, clerical, supervisory and executive employees, as well as any employees who may be employed at the retail facility at any location, are excluded from the provisions hereof. 2.3 "Workers" or "employees" as used in this Agreement means those employees covered by the bargaining unit as well as those who may be hereinafter included. 6 2.4 This Agreement shall be the National Agreement. There shall be Supplemental Agreements which govern certain terms and conditions of employment at individual facilities. In case of conflict between this National Agreement and a Supplemental Agreement, the Supplemental Agreement shall govern. Any dispute unresolved as to whether a conflict exists between the National and a Supplemental Agreement or whether a particular dispute is subject to resolution under the provisions of the National or a Supplemental Agreement shall be subject to arbitration pursuant to Article of this National Agreement. ARTICLE 3: UNION MEMBERSHIP 3.1 Good standing membership in the Union shall be a condition of employment with the Employer for all bargaining unit employees who have such membership on the date of execution of this Agreement; it shall also be a condition of employment with the Employer for all other bargaining unit employees on and after the thirtieth (30th) day following the execution or effective date of this Agreement, or on or after the thirtieth (30th) day following the beginning of their employment, whichever is the later. If the foregoing is prohibited by law, then at the corresponding time all employees shall be required as a condition of employment (unless prohibited by law) to pay to the Union a service charge to reimburse it for the cost of negotiating and administering this agreement. 3.2 Good standing membership in the Union for purposes of this Article means such membership in the Union through membership in any affiliate of UNITE. 3.3 In the event that paragraph may not be lawfully applied, all employees shall be informed by the Employer of the existence of this Agreement and the terms thereof and shall be advised by the Employer that, in its opinion, good labor-management relations are and will be best served and promoted if such employees become and remain members of the Union. The Employer agrees to implement and promote this provision by posting copies of the following notice near all time clocks and in other prominent places such as bulletin boards in its plants: "NOTICE TO ALL EMPLOYEES" This plant is being operated under the terms of an agreement with the Union of Needletrades, Industrial and Textile Employees, AFL-CIO. All wages, hours and other conditions of employment are regulated by the terms of this agreement. Good labor management relations will be best served and promoted, in our opinion, if all our employees covered by this agreement become and remain members of this Union. Signed: Name of Employer: 7 ARTICLE 4: EMPLOYER'S OBLIGATIONS All of the terms and provisions of this Agreement shall be binding upon the Employer and upon its subsidiaries, successors and assigns. In the event the Employer sells or transfers its business to another, it shall nevertheless continue to be liable for the complete performance of the terms and provisions of this Agreement by the purchaser or transferee until the purchaser or transferee expressly, in writing, assumes such performance and agrees to be fully bound by the terms and provisions of this Agreement. ARTICLE 5: AFTER ACQUIRED AND NEW FACILITIES 5.1 This National Agreement shall be binding on those presently existing facilities described in Article above as well as all future facilities operated by and either owned or leased by the Employer, but not including retail stores. Local conditions for any future or after-acquired facility shall be negotiated between the Employer and the Union. 5.2 When the Employer acquires a new facility by merger, acquisition or consolidation, it shall advise the Union within one (1) year after such merger, acquisition or consolidation whether the facility will be maintained by the Employer or disposed of in some fashion. If the Employer advises the Union that the facility will not be maintained by the Employer, then the Employer either must dispose of the facility within six (6) months from the date of such notice (unless the parties mutually agree to an extension) or Article will apply. If the facility is maintained by the Employer, this Agreement shall become binding on that facility no later than eighteen (18) months from the date that the facility was initially acquired. 5.3 If the facility is a manufacturing facility, the time periods set forth in Article above will apply, but the employees of said manufacturing facility will be treated as a separate bargaining unit, and a separate collective bargaining agreement will be negotiated by the parties for that facility. ARTICLE 6: TRIAL PERIOD 8 The first thirty (30) calendar days of employment for newly- hired employees shall be deemed their trial period during which time they may be discharged without regard to cause. The trial period may be extended for another fourteen (14) calendar days with the written consent of the Union. Upon the expiration of the trial period, the newly-hired employee will be deemed a regular employee. The trial period shall not be abused by the Employer and any claim of abuse shall be the subject of arbitration hereunder. ARTICLE 7: HIRING RATES AND MINIMUM WAGE SCALES 7.1 The hiring rates in effect in the various facilities and job classifications, if any shall be set forth in the local Supplemental Agreements. 7.2 All hiring rates at all facilities covered by this agreement shall increase $0.25 effective June 4, 2001 and an additional $0.25 effective June 3, 2002. The hiring rates may not be decreased. They may increase only upon mutual agreement of the parties. 7.3 Upon satisfactory completion of the trial period, an employee shall receive an additional $0.50 per hour. 7.4 All employees who have completed their trial period as of June 1, 2000 shall receive at least $0.25 an hour above the newly-established minimum wage rate in Paragraph . Employees who are in their trial period on June 1, 2000 shall receive the greater of the wage increase effective on June 3, 2000 or $0.50 above the June 3, 2000 hiring minimum, but not both. ARTICLE 8: CHANGE IN LEGAL MINIMUMS 9 If, during the term of this Agreement, a new applicable federal or state minimum wage law is enacted or becomes effective which increases the applicable minimum wage hereunder, then the minimum wage set forth herein shall be automatically increased so that such minimum wage shall be no less than 15% above any newly-established state or federally mandated legal minimum ARTICLE 9: COST OF LIVING ADJUSTMENT Should the cost of living, as reflected in the U.S. Consumer Price Index for the period of June 2000 through November 2001 increase ten (10%) percent over the consumer Price Index for May 2000, as published in June 2000, then the regular hourly wages of all employees shall be increased ten cents ($0.10) per hour. Additionally, hourly increases of five cents ($0.05) per hour shall be paid for each additional increase in the cost of living of one-half of one percent (.5%). Cost of living increases payable under this provision shall not exceed twenty-five cents ($0.25) per hour. Rises in the consumer Price Index shall be measured over an eighteen (18) month period, as set forth above, by utilizing the consumer Price Indices for the Urban Wage Earners and clerical workers, U.S. Cities, Average, printed and released in the months of July 2000 through December 2001. Wage increases due hereunder shall be effective January 4, 2002. ARTICLE 10: JOB SECURITY/HANDLING AND DISTRIBUTION OF PRODUCT 10 10.1 No employee shall be involuntarily permanently laid off as a direct result of the Employer's use of a third party contractor to distribute its product. 10.2 To protect the job security of the employees of the Employer and to preserve labor standards among workers who are employed in the integrated process of production of the Employer's garments, the parties agree to the following: In the event the Employer engages a third party contractor to operate a distribution facility entirely dedicated to the distribution of the Employer's garments for a period in excess of two (2) years, or if the Employer engages a third party contractor where the Employer's garments will take over 50% of the square footage of the third party's facility for more than three (3) months, such third party contractor must have a collective bargaining relationship with UNITE or an affiliate thereof. 10.3 Subject to the protections set forth above, nothing contained herein or in any Local Supplement shall be deemed to restrain the Employer in its determination as to the methods or means by which its products are handled and distributed, including, but not limited to, the allocation of products and functions among the Employer's facilities or the use of facilities not owned, leased or operated by the Employer. ARTICLE 11: CHANGE IN PAY SYSTEMS 11 The Employer reserves the right to change the method of payment for some of the general distribution or quality assurance employees to an incentive system. Employees on the incentive system shall not be paid less than their current hourly rate. The Union may assert reasonable challenges to the fairness of the proposed incentive system. Any disputes regarding the implementation of such systems may be submitted to the arbitrator for resolution. ARTICLE 12: WAGE INCREASES 12.1 The wage increases for employees shall be as follows: Effective June 5, 2000, employees shall receive a wage increase of $0.75 per hour. Effective June 4, 2001, employees shall receive a wage increase of $0.60 per hour. Effective June 3, 2002, employees shall receive a wage increase of $0.55 per hour. 12.2 To correct market-created inequities and to promote greater uniformity among facilities, the employees at the Mt. Pocono, PA and Montgomery, AL facilities shall receive a raise of $0.25 effective June 5, 2000 in addition to any other wage increases. ARTICLE 13: CHECK-OFF 13.1.1 Subject to the requirements of law concerning authorization and 12 assignment by the employees individually, the Employer shall deduct membership dues (which shall be deemed to include periodic fixed dues, initiation fees and assessments) or, to the extent permitted by law, service charges, from the earnings of its employees monthly and transmit the same to the Union within 48 hours thereafter. 13.2 The Employer agrees to honor check-off authorizations for political contributions to the UNITE Campaign Committee and AFL-CIO COPE from employees who are members of the Union. 13.3 Sums deducted by the Employer under the provisions of Paragraphs and this Article shall be kept separate and apart from general funds of the Employer and shall be held in trust by the Employer for the benefit of the Union, the UNITE Campaign Committee, and AFL-CIO COPE, as the case may be. ARTICLE 14: NO DISCRIMINATION The Employer shall not discriminate against any employee on the basis of race, creed, religion, color, national origin, sex, age, sexual orientation, citizenship status, disability, veteran's status or membership in or activities on behalf of the Union, unless required by this Agreement. The Employer, however, shall not employ children or adolescents where such employment is prohibited by an applicable federal or state law or regulation. ARTICLE 15: EMPLOYMENT STANDARDS 15.1 All wages, earnings, overtime and holiday pay shall be paid on the day they were customarily paid, but no later than the Friday following the week in which they were earned. 15.2 The Employer shall not charge an employee for any damage to materials unless caused willfully. 13 15.3 The Employer shall supply necessary machines and tools to its employees. 15.4 No officer of the Employer, supervisory employee or any other person outside of the bargaining unit shall perform any work covered by this Agreement, except as specified in Article or in the event of unexpected absenteeism, an emergency, or for training purposes. 15.5 All paid breaks shall be fifteen (15) minutes. 15.6 Employees may elect to receive their pay by having the Employer make a direct deposit to the employee's designated account. 15.2 ARTICLE 16: HEALTH AND SAFETY 16.1 The Employer shall fully comply with all standards, laws and regulations of health, sanitation and safety, including all regulations of the local fire department. 16.2 The Employer shall provide an adequate number of drinking fountains. Restrooms and work areas shall be kept in a clean, sanitary condition, and will be well-lighted and heated. Air conditioning shall be maintained in the Employer's facilities where it currently exists. 16.3 A worker may refuse to perform work which he reasonably believes would pose a serious threat of injury or illness. 16.4 The Employer shall be exclusively responsible for health, safety and sanitation conditions in its shop. Neither the Union nor its agents or representatives shall be liable for any job-related injury, illness or death. 16.5 The Joint Labor-Management Committee set forth in Article shall address issues of health and safety and may make recommendations for the correction of unsafe or harmful conditions and practices and may make 14 recommendations for rules and procedures to prevent accidents and disease and for the promotion of the health, safety and sanitation of the workers. 16.5.1 The Employer shall facilitate limited safety training of employees by, at the Union's request: 1) providing one day's paid leave of absence per year to one employee in each shop designated by the Union to attend health and safety training, and 2) permitting all employees to participate in one paid hour per year of safety training in the shop during working time. The parties shall schedule such training at a mutually convenient time. This safety-training paragraph does not diminish in anyway the Employer's responsibility to provide a safe and healthful workplace under this Agreement. The Union will provide such training only to the extent feasible and is not obligated to provide such training. ARTICLE 17: HOURS OF WORK AND OVERTIME The provisions governing hours of work and overtime, including overtime premiums shall be set forth in the local supplemental agreements covering the individual facilities and the practices developed thereunder shall continue. ARTICLE 18: TEMPORARY EMPLOYEES 18.1 The Employer, from time to time, may have the need for additional temporary employees. Such temporary employees shall not be employed by the Employer for longer than forty (40) consecutive days. 18.2 Temporary employees shall not be considered to be in the bargaining unit. The temporary employees shall be informed of their temporary status when hired and shall acknowledge the same in writing, a copy of which shall be provided to the Union. 15 18.3 In the event that a temporary employee remains employed beyond the forty (40) day period, then such employee shall be placed in the bargaining unit and benefit fund contributions for that employee shall be paid retroactively form the original date of hire. Union obligations for such employee shall be computed on the basis of the original date of hire. 18.4 The Employer shall not employ temporary employees if any of the bargaining unit employees performing such work are on layoff. The Employer agrees that the job security and earning opportunities shall not be diminished for the regular bargaining unit employees when temporary employees are used. The Employer shall not abuse its right to use temporary employees to avoid hiring regular bargaining unit employees. ARTICLE 19: HOLIDAYS, PERSONAL DAYS/PAID TIME OFF AND SICK DAYS 19.1 Each Supplemental Agreement shall set forth the number of designated holidays and sick days, personal days or paid days off that shall be granted. Employees shall be eligible for holidays at time of hire and those employees who have completed their trial period shall be eligible for paid time off, sick days, personal days or paid days off. 19.2 Employees may refrain from working one (1) additional day each year on a national or ethnic holiday of their choice, but without pay. 19.3 An employee shall not be eligible for holiday pay if: 19.3.1 He or she is absent from work on the work day immediately before or after the holiday, except for a justifiable cause, which shall include absence from work when the shop is not in operation; or 19.3.2 He or she becomes disabled and the holiday falls on a day beyond the sixtieth (60th) day after the said employee last worked in the shop. 16 19.4 When personal days are provided, they must be scheduled with the approval of the Employer. Sick days and/or personal days may be taken in one-half (1/2) day increments. 19.5 Employees shall be paid for unused sick days, personal days and paid days off at the end of the applicable leave year. The local Supplemental Agreements shall set forth the system for accruing days off, that is, calendar year, contract year or anniversary date. 19.6 The Employer shall not count any compensated time off as absences for disciplinary purposes. 19.7 Holiday pay shall be paid at an employee's regular hourly rate. When an incentive system is in effect, the applicable local Supplemental Agreement shall set forth the computation for holidays and other paid days off, which shall not be lower than the extant holiday rate. 19.8 When a holiday falls during an employee's vacation, the employee shall receive the holiday pay and shall not be charged a vacation day for that day. ARTICLE 20: BEREAVEMENT LEAVE The provisions governing bereavement leave shall be set forth in the local supplemental agreements covering the individual facilities and the practices developed thereunder shall continue. ARTICLE 21: SHOP STEWARD There shall be in the facility of the Employer Shop Steward(s)designated by the Union. The Shop Steward(s)shall be compensated by the Employer for time unavoidably lost during working hours in the process of adjusting grievances. For purposes of layoff only, shop Steward(s) shall have super-seniority over other bargaining unit employees. 17 ARTICLE 22: SENIORITY/LAYOFF The provisions governing seniority and lay off shall be set forth in the local supplemental agreements covering individual facilities and the practices developed thereunder shall continue. ARTICLE 23: WORK ASSIGNMENTS The provisions governing transfers, promotions, job classifications, cross-training and job postings shall be set forth in the local supplemental agreements covering individual facilities and the practices developed thereunder shall continue. ARTICLE 24: DISCHARGES AND DISCIPLINE 24.1 No employee shall be discharged without just and sufficient cause, except during his trial period. If the discharge or disciplinary act is found to be unjustified, the employee shall be reinstated and may be compensated for his loss of earnings during the period of such discharge or disciplinary act. 24.2 All disciplinary notices, including those for absences, shall be of no effect one year after the occurrence. 24.3 The Employer shall inform the Union of all discipline imposed on an employee, including verbal warnings. ARTICLE 25: LEAVES OF ABSENCE 18 25.1 The Employer shall grant reasonable leaves of absence to employees for a justifiable cause. Except as may be required by law, the Employer is not required to grant a leave for a period of less than five (5) consecutive work days. Employees on leaves of absence shall not lose any job rights and shall be entitled to return to their regular job prior to such absence. 25.2 RETURN FROM MILITARY SERVICE - Any employee who has been conscripted, inducted or drafted into the military service of the United States Government, shall, upon termination of such service, be restored to his former position or to a position of like seniority status and pay provided he applied for re-employment within ninety (90) days after the date of his discharge. 25.3 FAMILY AND MEDICAL LEAVE 25.3.1 The Employer shall grant, upon request of the Union, up to six (6) months' leave of absence without pay to male and female employees for the employee's own serious health condition as defined by the Family and Medical Leave Act ("FMLA"), or for the birth or adoption of a child or for the care of family member or live-in partner with a serious health condition. 25.3.2 The Employer may hire a provisional employee for a period not to exceed six (6) months to take the place of any employee who is on Family Leave. Upon the date of hire, the Employer shall give the Union and the provisional employee notice of the employee's provisional status. During such period, provisional employees shall be entitled to all the rights of regular employees under this Agreement. The Employer may retain a provisional employee as long as such action does not displace the employee on Family Leave or any other regular employee. An employee on Family Leave 19 shall be entitled to return to his or her regular job prior to such absence, or an equivalent position, and, subject to the foregoing, shall not lose any rights or privileges under this Agreement. 25.3.3 The employee, whether or not s/he is eligible under the FMLA, may use family and medical leave on an intermittent basis (as defined by the FMLA) to the extent that such use is permitted under the rules and regulations promulgated under the FMLA. 25.4 The Employer may require proper medical certification for leaves relating to an employee's own serious health condition, or for the care of a seriously ill family member or live-in partner. 25.5 An employee's medical leave for work-related or non-work related injury or illness may last up to one year. FMLA leave runs concurrently with contractual medical leave. ARTICLE 26: TIME CLOCK The Employer shall maintain an adequate number of time clocks on its premises, and each employee covered by this Agreement shall punch his or her time card before starting work and at the completion of work and before and after lunch. 20 ARTICLE 27: RIGHT TO VISIT SHOP Duly authorized representatives of the Union, including engineers and accountants, shall have the right to visit the premises of the Employer at reasonable times for the purpose of ascertaining whether the provisions of this Agreement are being complied with. Such visits shall be conducted so as not to cause interference with operations. In addition, the Employer shall provide access to relevant accounting books and records as the Union may reasonably request in order to ascertain whether the provisions of this Agreement are being complied with. ARTICLE 28: EMPLOYEE BENEFIT FUNDS 28.1 The Employer shall pay monthly to the Union a cents per hour contribution and/or an amount equivalent to a percentage, as described below or in the applicable Supplemental Agreement, of each total gross weekly payroll (before deduction for federal, state or local taxes), including direct holiday pay, vacation pay and bonuses, of all bargaining unit employees (whether Union or non-Union employees, and whether regular or trial period employees) employed in its facility. All payments shall be due on the tenth (10th) day of the following month. Such payments shall be allocated towards the following Funds: 28.1.1 Towards the ILGWU National Retirement Fund, a trust fund established by collective agreement for the purpose of providing pensions or annuities on retirement or death of employees. 28.1.2 Towards the ILGWU Eastern States Health and Welfare Fund, a trust fund established by collective agreement for the purpose of providing employees with health, welfare and recreation benefits and services. 21 28.1.3 The Employer shall contribute to substitute employee benefit funds as may be required by local Supplemental Agreement. 28.2 For those facilities participating in the ILGWU National Retirement Fund (the "NRF"), the Employer shall contribute to the NRF to provide the prior basic benefit and to provide the new, enhanced benefit [NRF 2000] at a rate set forth in the local supplemental agreement. The Employer shall provide the Union, for the NRF, on a monthly basis (within thirty (30) days of the end of each month), the name, social security number, gross wages paid to each covered employee and the number of hours paid for in the period (or such other information as the Union may require in the future related to the NRF 2000 Benefit.) The Union may, in its sole discretion, assign collection of employer contributions to the ILGWU National Retirement Fund or any other designee. 28.3 In addition to the regular employer contribution to the Union relating to the ILGWU Eastern States Health and Welfare fund required by this Article, the Employer shall pay monthly to the Union, as additional employer contributions toward the ILGWU Eastern States Health and Welfare Fund for cafeteria plan benefits, twenty-three dollars ($23.00) for individual coverage and an additional thirty-two ($32.00) dollars, for a total of fifty-five ($55.00) dollars, for dependent coverage per month per eligible employee. Such additional employer contributions due under this Paragraph shall be paid to the Union in advance for the quarter and no later than the first day of each quarter . In addition to the regular reports and information the Employer is required to provide to the Union pursuant to this Article, the Employer shall submit to the Union together with such reports a special monthly report in the form prescribed by the Health and Welfare Fund listing at least: (a) the name and Social Security Number of each employee 22 for whom the Employer is required to submit additional contributions by virtue of the said Cafeteria Plan, and (b) the amounts of additional employer contributions attributable to such individual employee's contribution obligations. An eligible employee is an employee who is eligible to receive hospital, medical, surgical and major medical benefits under the ILGWU Eastern States Health and Welfare Fund solely in accordance with the Amended By-Laws, Rules and Regulations of the Fund. In addition to any other requirements which the Fund may establish concerning an employee's eligibility to participate in and/or receive benefits from the Fund, it is also understood that no contributions will be required for any employee or former employee of the Employer who is participating in and/or receiving benefits from the Fund as a result of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). The Union shall provide the Employer with a copy of all benefit enrollment forms for employees who have elected family coverage through the Health and Welfare Fund. If those enrollment forms are not available on hard copy, the Union shall provide the Employer with access to such data in whatever form it is maintained. Additionally, the Union shall promptly supply copies of enrollment forms reflecting a change in status to the Employer as soon as such forms are completed. 28.4 If at any time during the life of this Agreement, as a result of government mandated requirements, a benefit or a cost of any of the benefits shall be increased, or a new benefit required, or the cost to any fund of providing existing or new benefits is increased, the Union shall have the right to request additional company contributions to cover the expense thereof. 28.5 The said Health and Welfare Fund shall continue to be maintained 23 and administered by the Board of Trustees in accordance with the by-laws or rules and regulations adopted by the Board of Trustees for that purpose. The Employer shall have no legal or equitable right, title, claim or interest in or to said Fund, or the administration thereof. No individual employee shall have any legal or equitable right, title or interest in, or claim against, his or any other employer's payments towards the Health and Welfare Fund, or against said Fund, except as may be provided by the by-laws or rules and regulations of said Fund. 28.6 The said Retirement Fund shall be administered in accordance with its by-laws or rules and regulations by a Board of Trustees. Each Board of Trustees shall be composed of Union representatives and an equal number of representatives of employer contributors to that Fund. In the event that the Board of Trustees shall be deadlocked on any issue or matter arising in connection with its Fund, the same shall be decided by a neutral person as set forth in the by-laws or rules and regulations of said Fund, and his decision shall be final and binding. The parties hereto hereby ratify, confirm and approve the composition and membership of each Board of Trustees as now or hereafter constituted. 28.7 Each Board of Trustees mentioned in Paragraph or above shall adopt and promulgate such by-laws or rules and regulations to effectuate the purpose of its Fund as it may deem necessary and desirable, including the detailed basis upon which payments from the Fund will be made, and shall have the power to modify the same from time to time without notice, whenever it may deem it necessary or desirable to do so. The parties hereby agree to be bound thereby and they are hereby incorporated in and made part of this Agreement. It is agreed that such Boards of Trustees may not increase the Company's level of contribution during the term of this Agreement. 24 28.7.1 The Board of Trustees or other body administering any of the benefit funds, except the ILGWU National Retirement Fund, is hereby authorized and empowered, in its sole discretion and upon such basis as it deems desirable, to transfer or mingle the assets of or to merge said Fund with any other fund or funds now existing or hereafter established and provided for in a collective agreement with UNITE or an affiliate thereof. In the event of such mingling, transfer or merger, the amounts hereinabove provided to be allocated towards the respective funds shall thereafter be paid over to the fund or funds with which there has been such mingling, transfer or merger. 28.7.2 The Board of Trustees of the ILGWU National Retirement Fund is hereby authorized and empowered, in its sole discretion and upon such basis as it deems desirable, to transfer or mingle the assets of said Fund or to merge said Fund with any other retirement fund or funds. 28.8 None of the monies paid into the Retirement Fund shall be used for any purpose other than to provide for pensions or annuities on retirement or death of employees and to pay the operating and administrative expenses thereof. The monies of the other benefit funds shall be kept separate and apart from all other monies except as allowed in Paragraphs and . 28.9 Only the assets of each benefit fund shall be available for the payment of the benefits provided by that benefit fund and only to the extent that such benefit fund is financially able to make such payments. 28.10 The Employer shall have no legal or equitable right, title, claim or interest in or to said Funds. No individual employee shall have any legal or equitable right, title or interest in, or claim against, his or any other 25 employer's payments towards said Funds or against said Funds, except as may be provided by the by-laws or rules and regulations of said Funds. 28.11 An annual audit of each Fund shall be made by accountants designated by the Board of Trustees. A statement of the results of such audit shall be made available for inspection by interested persons at the principal office of the Fund and at such other places as may be designated by its Board of Trustees. 28.12 In the event benefit fund contributions are collected on behalf of a health and welfare fund other than the Health and Welfare Fund listed in Paragraph , the person who collected the contributions shall remit the contributions to the proper health and welfare fund. 28.13 The Union or the Board of Trustees of a Fund, or both of them, shall be proper parties-in-interest to enforce collection of payments due from the Employer towards said Funds. Should the matter be submitted to arbitration and the arbitrator find against the Employer, he may also order and direct the Employer to pay interest at the current prime rate of interest as set by the Amalgamated Bank of New York, 1710 Broadway, New York, New York. He may also order and direct the Employer to pay the cost of investigation of payments due. Should the matter be submitted to arbitration and the arbitrator find against the Employer, the arbitrator may order and direct the Employer to pay the cost of investigation together with reasonable attorneys' fees and other expenses incurred in connection with the matter. In addition, the arbitrator may grant such other relief as he deems appropriate under the circumstances. 28.14 The Union or the appropriate Board of Trustees or Boards of Trustees shall have the right to enforce this Article, including the provisions pertaining to delinquent contributions, by proceeding through 26 arbitration or by instituting appropriate action before a court or governmental agency or by pursuing any other remedies provided by law or this Agreement. 28.15 The Employer shall contribute one dollar ($1.00) per month for each employee after s/he has completed ninety (90) days of employment for the purposes of education and scholarship to a fund designated in the local supplement. ARTICLE 29: DISABILITY Disability benefits currently in effect shall continue and shall be specified in the applicable Supplemental Agreement. ARTICLE 30: GRIEVANCES AND ARBITRATION 30.1 Any and all disputes between the Union or any employees and the Employer involving an alleged breach or issue of application or interpretation of this Agreement or a local Supplemental Agreement shall be adjusted as follows: 30.1.1 The shop steward, together with a representative of the Union, shall attempt to settle the matter with a representative of the Employer. No adjustment shall be deemed binding on the Union unless approved by the Manager of the Union or the designated Business Agent servicing the facility. Disputes not specific to an employee or group of employees may be brought by a representative of the aggrieved party. 30.1.2 A grievance is time barred if it is not submitted in writing to the Employer within sixty (60) working days of the occurrence of the condition or such time as the affected employee or the Union knew of the condition giving rise to the grievance. In the case of a continuing violation, a remedy may be granted for up to one year prior to the filing of 27 the grievance. The time limit for filing grievances shall not apply to disputes concerning payment of benefit fund contributions or disputes regarding Article . 30.1.3 If they shall fail satisfactorily to dispose of any such grievance, the matter shall be submitted to an arbitrator selected by mutual agreement from the panel set forth herein. If the parties cannot agree on an arbitrator, they shall select an arbitrator by alternately striking members of the panel. The arbitrator who heard the previous case shall be struck first. The panel shall consist of: Daniel Brent Robert Light Joan Parker Rosemary Townley The arbitration panel and method of selecting a member of the panel for disputes arising solely in the Alabama facility shall be set forth in the applicable local supplement. The arbitrator shall base his decision on this Agreement and/or the applicable local supplement and shall not alter or amend this Agreement and/or a local supplement. 30.2 Either party desiring to use the arbitration procedure as herein provided shall transmit a written notice to the other party no later than four (4) months after the filing of the grievance. The award or decision of the arbitrator, in addition to granting such other relief as the arbitrator may deem proper, may contain provisions commanding affirmative acts or restraining acts and conduct of the parties. If either party shall default in appearing before the arbitrator, he is empowered nevertheless to take the proof of the party appearing and render an award thereon. Any award or decision of the arbitrator shall be final and binding and shall be 28 enforceable by appropriate proceedings at law or in equity. His fee shall be borne equally by the parties hereto. 30.2.1 The parties agree that any papers, notices or processes to initiate or continue an arbitration hereunder may be served by mail, and all papers, notices or processes in any application to a court to confirm or enforce an arbitration award hereunder, including service of the papers conferring jurisdiction of the parties upon the court, may be served by certified or regular mail, directed to the last-known address of the Employer or the Union. 30.3 The procedure herein established for the adjustment of disputes shall be the exclusive means for the determination of all disputes, complaints, controversies, claims or grievances whatsoever, including the arbitrability of any dispute. It is intended that this provision shall be interpreted as broadly and inclusively as possible. Neither party shall institute any action or proceeding in a court of law or equity, State or Federal, or before an administrative tribunal, other than to compel arbitration, as provided in this Agreement, or with respect to the award of an arbitrator. This provision shall be a complete defense to and also grounds for a stay of any action or proceeding instituted contrary to this Agreement. 30.4 Any dispute, complaint, controversy, claim or grievance hereunder which any employee may have against the Employer may be instituted and processed only by the Union in the manner herein provided. No employee shall have the right individually to institute or process any action or proceeding with reference to any dispute, complaint, controversy, claim or grievance, or to initiate or compel arbitration in the event the Union fails or refuses to proceed with arbitration. 29 ARTICLE 31: NO STRIKE/NO LOCKOUT PLEDGES There shall be no strikes or lock-outs during the term of this Agreement for any reason whatsoever, except as set forth in Article . ARTICLE 32: NO REDUCTION OF WAGES OR OTHER BENEFITS Wages and other terms and conditions of employment now existing or hereafter established at any facility of the Employer shall not be lowered, except by mutual agreement. Any custom or practice existing in a facility at the time of the execution of this Agreement more favorable to the employees than the provisions hereof shall be continued as heretofore. ARTICLE 33: STRUCK WORK-LABOR DISPUTE CROSSING PICKET LINES To the extent that a contractor's manufacturing work involves the integrated process of production of the Employer's garments, the Employer and its contractors have a close unity of interest with each other and in any labor dispute, and to such extent, the Employer and its contractors are not neutrals with respect to each other but are jointly engaged in an integrated production effort. Accordingly, to the extent permitted by law, it shall not be considered a breach of this agreement on the part of the Union, any of its affiliates or on the part of any employee if such worker refuses to cross any lawful picket line recognized by the Union or its affiliates or to enter upon the lawfully picketed premises of said contractor, either of his or her own volition or by direction of the Union or the International or to refuse to handle garments from a contractor with whom the Union or any of its affiliates has a lawful labor dispute. 30 ARTICLE 34: TEMPORARY APPOINTMENT TO UNION STAFF The Union shall have the right to appoint an employee to its staff on a temporary basis, not to exceed nine (9) months, without said employee losing his seniority rights. ARTICLE 35: CONFORMITY TO LAW 35.1 If any provision of this Agreement or the enforcement or performance of such provision is or shall at any time be determined to be contrary to law by or enjoined by a court or administrative agency, then such provision shall not be applicable or enforced or performed except to the extent permitted by law. The Union and the Employer shall thereupon negotiate a substitute provision. 35.2 If any provision of this Agreement or its application is held invalid or enjoined, the remainder of this Agreement shall not be affected thereby. ARTICLE 36: JURY DUTY Jury duty leave shall be set forth in the local supplemental agreement. ARTICLE 37: UNION ACTIVITIES 31 37.1 Any employee who is called from his or her employment to serve on the Union's Negotiating Committee shall be paid his or her full wage during the entire time he or she shall serve on the Union's Negotiating Committee. A maximum of one committee member for every twenty-five (25) bargaining unit employees shall receive this benefit. 37.2 The Union shall have access to bulletin boards in the facilities. ARTICLE 38: JOINT LABOR-MANAGEMENT COMMITTEE The Employer and the Union shall designate an equal number of representatives to form a Joint Labor-Management Committee. The Committee shall meet regularly at least one (1) time per month. The Employer shall compensate employees at their regular rate of pay for serving on the Committee during working time. ARTICLE 39: VACATIONS Vacation pay and time off shall be set forth in the applicable local Supplemental Agreements. ARTICLE 40: CUTTING Any cutting and related tasks, such as marking, grading and digitizing, shall be performed under the conditions specified in the Supplemental Agreement covering employees represented by Local 10. ARTICLE 41: REPORTING PAY Employees shall receive reporting (call-in) pay as set forth in the applicable local Supplement Agreements. ARTICLE 42: NO WAIVER 32 The failure of either party to this Agreement to require strict performance of any provision of the Agreement shall not be deemed a waiver or abandonment of any of the rights or remedies provided herein for violation of the Agreement or any provision thereof; nor shall it constitute a waiver or abandonment of any right or remedy herein provided for a subsequent violation of any provision of the Agreement. ARTICLE 43: MANAGEMENT RIGHTS All rights and prerogatives which may lawfully be exercised by management and which are not specifically abridged or limited by this Agreement or the applicable local Supplemental Agreement are reserved to the Employer. ARTICLE 44: DURATION OF AGREEMENT 33 This Agreement shall be effective June 1,2000 and continue in effect until midnight of the 31st day of May, 2003. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals the year and date hereinabove written. LIZ CLAIBORNE, INC. By: /s/ John Moroz UNION OF NEEDLETRADES INDUSTRIAL AND TEXTILE EMPLOYEES By: /s/ Bruce Raynor ---------------- Bruce Raynor, Secretary-Treasurer LOCAL 10 By: /s/ Richard Rumelt ------------------ Richard Rumelt, Manager LOCAL 23-25 By: /s/ Edgar Romney ------------ Edgar Romney, Manager LOCAL 99 By: /s/ Christine Kerber -------------------- Christine Kerber, Manager 34 NEW ENGLAND JOINT BOARD By: /s/ Ron Alman ------------- Ron Alman, Manager NEW YORK JOINT BOARD By: /s/ John Gillis --------------- John Gillis, Manager NEW YORK-NEW JERSEY REGIONAL JOINT BOARD By: /s/ William Lee --------------- William Lee, Manager PENNSYLVANIA, OHIO AND SOUTH JERSEY JOINT BOARD, LOCAL 109 By: /s/ David Melman ---------------- David Melman, Co-Manager SOUTHERN REGIONAL JOINT BOARD, LOCAL 310 By: /s/ Harris Raynor ------------------ Harris Raynor, Manager EX-10.H.I 4 0004.txt JOBBERS AGREEMENT 1 EXHIBIT 10(h)(i) JOBBERS AGREEMENT By and Between: LIZ CLAIBORNE, INC. AND UNION OF NEEDLETRADES, INDUSTRIAL AND TEXTILE EMPLOYEES (UNITE) 2
TABLE OF CONTENTS ARTICLE 1: DEFINITIONS 2 ARTICLE 2: SCOPE OF AGREEMENT 3 ARTICLE 3: COMPANY'S CONTINUING OBLIGATIONS-- SUCCESSORS AND SUBSIDIARIES 3 ARTICLE 4: CONTRACTORS 4 ARTICLE 5: STRUCK WORK--LABOR DISPUTE-- CROSSING PICKET LINES 5 ARTICLE 6: COMPANY'S RESPONSIBILITY FOR CONTRACTORS' PAYMENTS 6 ARTICLE 7: EXAMINATION OF BOOKS AND RECORDS 8 ARTICLE 8: UNION LABEL 9 ARTICLE 9: BENEFIT FUNDS 9 ARTICLE 10: UNION AGENCY 10 ARTICLE 11: COUNCIL FOR AMERICAN FASHION 10 ARTICLE 12: CONSIDERATION 11 ARTICLE 13: ARBITRATION AND ADJUSTMENT OF DISPUTES 11 ARTICLE 14: CODE OF CONDUCT 14 ARTICLE 15: CONFORMITY TO LAW--SAVING CLAUSE 14 ARTICLE 16: NO WAIVER 14 ARTICLE 17: TERM 15
3 This AGREEMENT is made and entered into this 1st day of June 2000, by and between Liz Claiborne, Inc., hereinafter designated as the "Company" and the Union of Needletrades, Industrial and Textile Employees, hereinafter designated as "UNITE" or the "Union". WHEREAS, the Company was a member of the New York Skirt and Sportswear Association, Inc. (the "Association") for many years and was bound by the collective bargaining agreements between the Association and Locals 23-25 and Local 10, affiliates of UNITE, whose predecessor was the I.L.G.W.U. ( the "Association Agreement"); and WHEREAS, the Association Agreement governed, inter alia, relations between the Company and the Union and its affiliates, including the Company's use as a jobber of contractors to manufacture its garments as part of the integrated process of production; and WHEREAS, the Company has withdrawn from the Association and has bargained individually with the Union and its affiliates; and WHEREAS, the parties wish to preserve certain terms and conditions from the Association Agreement; and WHEREAS, the parties wish to cooperate in establishing conditions which will tend to insure the stability of the industry and to provide methods for a fair and peaceful adjustment of all disputes so as to secure uninterrupted operation of work; NOW, THEREFORE, the parties agree as follows: 3 4 ARTICLE 1: DEFINITIONS For the purposes of this Agreement, the following words are defined as follows: 1.1 "Union" means Union of Needletrades, Industrial and Textile Employees ("UNITE"). 1.2 "Manufacturer" means one who manufactures all or part of its garments in its inside shop and which may also produce its garments in contractors' shops. 1.3 "Jobber" means one who does not manufacture garments in its own shop but who has all of its garments produced (sewn, finished, pressed and sometimes cut) by contractors and who may or may not employ cutters and/or sample makers and/or distribution workers or others. 1.4 "Contractor" means one who produces garments in the continental United States from cut or uncut goods for a manufacturer or jobber, including accessories, belts, covered buttons, buckles, neckwear, artificial flowers, bias binding, tubular piping, shoulder pads or embroideries, or who performs processing services, including hemstitching, pleating and tucking, or performs cutting work, all of which are part of the integrated process of production in the apparel and clothing industry. 1.5 "Inside shop" means a shop, wherever situated, owned, operated, or controlled by the Company in which it manufactures its garments. 1.6 "Outside system of production" means the system in the apparel and clothing industry of having garments produced in contractors' shops. 1.7 "Jobbers Agreement" means this Agreement between the Company and the Union. 1.8 "Union Contractor" means a contractor bound to a collective bargaining agreement with UNITE or any of its affiliates. 4 5 ARTICLE 2: SCOPE OF AGREEMENT 2.1 This Jobbers Agreement governs the overall relationship between the Company and the Union including the Company's use of contractors to produce its garments in the continental United States. The terms of this Agreement are applicable solely in the continental United States and shall have no force and effect to any entities or operations outside of the continental United States. The only exception to the foregoing is when Canada is explicitly mentioned in Article 4.5, Article 5 or Appendix "A" and then only for the sole purpose described therein. 2.2 The terms and conditions of employment of the Company's bargaining unit employees are not governed by this Agreement, but are governed by a National Collective Bargaining Agreement, and local supplemental agreements thereto. ARTICLE 3: COMPANY'S CONTINUING OBLIGATIONS--SUCCESSORS AND SUBSIDIARIES All of the terms and provisions of this Agreement shall be binding upon the Company and upon its subsidiaries, successors and assigns. In the event the Company sells or transfers its business to another, it shall nevertheless continue to be liable for the complete performance of the terms and provisions of this Agreement by the purchaser or transferee until the purchaser or transferee expressly, in writing, assumes such performance and agrees to be fully bound by the terms and provisions of this Agreement. 5 6 ARTICLE 4: CONTRACTORS 4.1 The Union has a bona fide interest in the labor conditions existing in all shops manufacturing garments in the continental United States and a close unity of interest exists among the workers manufacturing garments regardless of the particular shops in which they are employed. 4.2 The Company and the contractors that manufacture garments or parts thereof or otherwise perform work for it are closely allied and have a close unity of interest with each other in the manufacture of garments, and in any labor dispute, to the extent of any work performed on its garments, the Company and its contractors are not "neutrals" with respect to each other but are jointly engaged in an integrated process of production. 4.3 For the purpose of eliminating substandard labor conditions, protecting the employment opportunities and labor standards of all workers manufacturing garments in the continental United States for the Company, whether employed in inside shops or contractors' shops, the Company agrees that it shall follow the procedures set forth in Appendix "A" of this Agreement. 4.4 Except as expressly limited by this Agreement, the determination of quality, standards, price and availability, and all other terms of engagement of contractors (which shall include the Company's Human Rights Standards of Engagement), and revisions of same, are within the sole discretion of the Company. Except as expressly limited by this Agreement, the Company has the sole and exclusive right to retain and terminate the services of any contractor it has engaged, and the foregoing shall not be subject to the arbitration procedure. 6 7 4.5 As soon as administratively possible after a contract for the production of garments in the continental United States or Canada is let, whether union or non-union, the Company shall provide the Union the name and address of the contractor, the product and the approximate number of pieces. 4.6 The Company shall inform non-Union contractors to which it is sending work: (i) of the Company's obligations under this Article, (ii) that the Company will automatically accept that a contractor is in compliance with the Company's Human Rights Standards of Engagement if that contractor has a collective bargaining agreement with UNITE or any affiliate thereof, (iii) that in the Company's opinion the contractor should enter into a collective bargaining agreement with UNITE or an affiliate thereof, and (iv) that the Company may have to withdraw work from the contractor in the event the contractor is struck or lawfully picketed by UNITE or any affiliate thereof. 4.7 Nothing contained in this Article shall be deemed to create or enlarge any existing obligation to the workers employed in any contractor's shop. Nothing herein shall be interpreted as making the Company responsible for any of the acts of its contractors, except to the extent expressly set forth in this Agreement. ARTICLE 5: STRUCK WORK--LABOR DISPUTE--CROSSING PICKET LINES The Company and its contractors have a close unity of interest with each other and in any labor dispute, the Company and its contractors are not neutrals with respect to each other but are jointly engaged in an integrated production effort. Accordingly, the parties agree as follows: 7 8 a. Whenever it shall appear that the Company is giving work to a contractor against whom a lawful strike has been declared or approved by the Union or any of its affiliates, or against whom a lawful picket line has been established by the Union or any of its affiliates, the Company shall, upon notice to it, immediately stop giving work to such contractor, shall withdraw work which has not been put into production, and shall within a reasonable time withdraw work which has been put into production. Notwithstanding the foregoing, withdrawal of work which has been put into production shall be orderly with due regard to the Company's seasonal and inventory requirements so as not to unfairly affect the Company's competitive position. b. To the extent permitted by law, it shall not be considered a breach of this Agreement on the part of the Union or any of its affiliates or on the part of any employee of any of its contractors performing part of the integrated process of production of the Company's garments, if such worker refuses to cross any lawful picket line recognized by the Union or any of its affiliates or to enter upon the lawfully picketed premises of said contractor, either of his or her own volition or by direction of the Union or any of its affiliates. ARTICLE 6: COMPANY'S RESPONSIBILITY FOR CONTRACTORS' PAYMENTS To safeguard employment opportunities and labor standards and to provide for the full payments of all amounts due to and/or on behalf of workers who produce the Company's garments in its contractors' shops: 8 9 6.1 The Company shall pay each of its Union contractors an amount at least sufficient to enable it to provide such workers with the wages, earnings, overtime, and holiday pay and to pay benefit fund contributions provided in the applicable collective bargaining agreement. In the event a Union contractor is not required under its collective bargaining agreement to pay benefit fund contributions, the Company may in its sole discretion agree to pay the said contributions directly to the applicable funds. 6.2 No part of the amount so paid by the Company to its contractor shall be used by the contractor as payment for overhead and services. To insure against diversion of monies intended for the workers, the Company shall, in addition to the foregoing amount, pay to its contractor a reasonable amount for overhead and/or services that shall be separately agreed upon between them or their representatives. 6.3 If the Company's contractor fails to pay the wages, earnings, overtime, or holiday pay due to bargaining unit workers in its shop for work produced for the Company, the latter shall be liable to its contractor's workers for the payment of the foregoing. The Company's liability shall be limited to such payment for ten (10) full days' work in every instance. 6.3.1 If the Company fails to pay its contractors on or before the Tuesday following the week that such work was done, the Company's liability for wages, earnings, overtime, and holiday pay shall be deemed extended beyond ten (10) days by one (1) additional day for each additional day that such workers were not so paid because the Company failed to make such required payments to the contractor. 9 10 6.3.2 Where the workers in the shop of a contractor do not receive their holiday pay on or before the Tuesday following the week in which the holiday occurred, by reason of the fact that the shop was closed because of lack of work, the liability of the Company for the ten (10) full working days shall commence to run in every instance from the Tuesday following the day on which production in such shop is resumed. 6.3.3 The Union shall give the Company notice of the contractor's failure to make payments under this paragraph 6.3 as soon as practicable. 6.4 The Union agrees that the provisions of this article do not in any manner whatsoever bind the Company to any other agreement. 6.5 The Company, after being given notice from the Union that a contractor is delinquent in its contributions to the applicable funds, will immediately stop giving work to such contractor, shall withdraw work which has not been put into production, and shall within a reasonable time withdraw work which has been put into production. Notwithstanding the foregoing, withdrawal of work which has been put into production shall be orderly with due regard to the Company's seasonal inventory requirements so as not to unfairly affect the Company's competitive position. The Company shall assist the Union in its collection efforts. ARTICLE 7: EXAMINATION OF BOOKS AND RECORDS In the event the Company, in its sole discretion, contributes directly to a benefit fund on behalf of a contractor, the Union or applicable benefit fund shall have the right to examine the relevant books and records of the Company to determine compliance with the terms of that Agreement. 10 11 ARTICLE 8: UNION LABEL The Company shall affix the UNITE Union Label to all garments and accessories manufactured by or for the Company by its inside shops, if any, and Union contractors in accordance with the Union label rules, regulations and procedures, which, together with any amendments thereof, shall be deemed incorporated in this Agreement with the same force and effect as if fully set forth herein. All such labels shall be purchased by the Company from the Union. ARTICLE 9: BENEFIT FUNDS 9.1 In the event the Company contracts with a contractor that is party to a collective bargaining agreement with the Union or an affiliate thereof, the terms of which do not require the contractor to pay benefit fund contributions, the Company may in its sole discretion pay to the applicable fund(s) the amounts required under the terms of a written participation agreement between the Company and the applicable fund(s) covering that contractor and the period of time during which the Company agrees to make contributions. Any such written participation agreement will refer to the terms of the applicable plan document(s). Any payment to the said funds shall neither bind nor commit the Company to the terms of, nor make the Company party to any collective bargaining agreement covering its contractors' employees nor shall the Company be party to or bound by the terms of any trust agreement as a result of any of its obligations under this Jobbers Agreement. 9.2 The Company shall not be responsible for paying benefit fund contributions based on 11 12 work sent to Union contractors. 9.3 If the Company, in its sole discretion, determines to make contributions to the applicable benefit fund(s) and executes a written participation agreement in accordance with the foregoing, the benefit fund(s) shall have all applicable rights under the Employee Retirement Income Security Act of 1974 to recover unpaid contributions. ARTICLE 10: UNION AGENCY The parties agree that the sole persons authorized or having the power to act as agents of the Union, or to bind the Union legally with respect to matters arising out of this Agreement or arising out of the relations between the Company and the Union, or to subject the Union to any liability whatever by reason of any act or omission are the President of the Union and such additional persons as the Union may formally designate by written notice to the Company. The Union shall not be responsible for the acts or omissions of any other person, including members and employees of the Union. 12 13 ARTICLE 11: COUNCIL FOR AMERICAN FASHION The Company shall contribute on an annual basis $29,500 dollars to the Council For American Fashion Labor-Management Industry Development Fund ("CAF"). CAF is an industry wide labor management committee established to, among other things: expand and improve working relationships between labor and management, enhance economic development, improve technology, increase the competitiveness of the industry and help resolve related industry problems. ARTICLE 12: CONSIDERATION 12.1 For the benefit of employees and retirees in the industry, and to deal with the cyclical nature of the industry, the Company agrees to make the following contributions to the Eastern States Health and Welfare Fund: June 1, 2000 to May 31, 2001 $500,000 June 1, 2001 to May 31, 2002 $1,000,000 June 1, 2002 to May 31, 2003 $1,000,000 The said consideration shall be paid by the Company within fourteen (14) days of the end of each contract year. These are the sole contributions to be made to the Eastern States Health and Welfare Fund under this Jobbers Agreement except for any obligation the Company undertakes in its sole discretion under Article 9 of this Agreement. ARTICLE 13: ARBITRATION AND ADJUSTMENT OF DISPUTES 13 14 13.1 In the event either party believes that a breach of this Agreement has occurred or a dispute arises over the interpretation or application of any of the terms of this Agreement, the parties shall resolve the dispute as follows. The aggrieved party shall submit its complaint in writing to the other party. A meeting between the Company and the Union shall be held within five (5) calendar days of the written complaint being submitted. If the dispute is not resolved within that five (5) day period, either party may submit the dispute to arbitration by written notice to the other party within forty-five (45) days thereafter. 13.2 The parties have designated the following four (4) impartial arbitrators to serve during the term of this Agreement: (i) Rosemary Townley , (ii) Daniel Brent, (ii) Robert Light, and (iv) Joan Parker. If either the Union or the Company refers a matter to arbitration, the parties shall attempt to agree on an impartial arbitrator from the four (4) arbitrators so chosen to hear the matter. If the parties fail to agree on the name of an impartial arbitrator within ten (10) days from the date the request for arbitration was submitted by the aggrieved party to the other party, then they shall select an arbitrator by alternately striking members of the panel. The arbitrator who heard the previous case shall be struck first. The parties shall alternate cases as to who shall strike first. 13.3 The arbitrator shall not have the authority to alter or amend this Agreement, or to substitute any new provision for an existing provision of this Agreement, or to bind the Company to any other agreement. 14 15 13.4 The arbitrator may, in addition to the award of damages as provided by this Agreement, command or restrain acts and conduct of the parties in order to effectuate compliance with the terms of this Agreement. With regard, however, to Article 4.3 and Appendix "A" of this Agreement, the arbitrator shall not be authorized nor empowered, and shall not under any circumstances whatsoever, command or restrain any action, or provide any remedy except as expressly set forth in Appendix "A" of this Agreement. 13.5 If either party shall default in appearing before the arbitrator, after reasonable notice has been provided to the party, the arbitrator is empowered nevertheless to take the proof of the party appearing and render an award thereon. Any award or decision of the arbitrator shall be final and binding and shall be enforceable by appropriate proceedings at law or in equity. The arbitrator shall require witnesses to testify upon oath or affirmation upon the request of either party. The arbitrator's fee shall be borne equally by the parties hereto. 13.6 Any papers, notices or process to initiate or continue an arbitration hereunder may be served by mail, and all papers, notices or processes in any application to a court to confirm or enforce an arbitration award hereunder, including the service of the papers conferring jurisdiction of the parties upon the court, may be served by certified mail, in all cases directed to the Company, Attention: General Counsel, 1441 Broadway, New York, New York 10018, and to the Union, Attention: President, 1710 Broadway, New York, New York 10019. 15 16 13.7 The procedure herein established for the adjustment of disputes shall be the exclusive means for the determination of all disputes, complaints, controversies, claims or grievances whatsoever, including the arbitrability of any dispute. It is intended that this provision shall be interpreted as broadly and inclusively as possible. Neither party shall institute any action or proceeding in a court of law or equity, State or Federal, or before an administrative tribunal, other than to compel arbitration, as provided in this Agreement, or with respect to the award of an arbitrator. This provision shall be a complete defense to and also grounds for a stay of any action or proceeding instituted contrary to this Agreement. ARTICLE 14: CODE OF CONDUCT The Company is a signatory to the terms of Code of Conduct and Monitoring procedures established by the Presidential Task Force on the Apparel Industry and intends to comply with same. This Article is not subject to enforcement under the arbitration provisions of this Agreement or otherwise. ARTICLE 15: CONFORMITY TO LAW - SAVING CLAUSE 15.1 The interpretation and enforcement of this Agreement shall be governed by federal law 16 17 and by the laws of the State of New York not inconsistent therewith. 15.2 If any provision of this Agreement or the enforcement or performance of such provision is or shall at any time be determined to be contrary to law or enjoined by a court or administrative agency, then such provision shall not be applicable or enforced or performed except to the extent permitted by law. The Union and the Company shall thereupon negotiate a substitute provision. 15.3 If any provision of this Agreement or its application to the Company or any person or circumstance is held invalid or enjoined, the remainder of this Agreement or the application of such provision to other circumstances shall not be affected thereby. ARTICLE 16: NO WAIVER 17 18 The failure of either party to this Agreement to require strict performance of any provision of the Agreement shall not be deemed a waiver or abandonment of any of the rights or remedies provided herein for violation of the Agreement or any provision thereof; nor shall it constitute a waiver or abandonment of any right or remedy herein provided for a subsequent violation of any provision of the Agreement. ARTICLE 17: TERM This Agreement shall go into effect June 1, 2000 and shall continue in effect up to and including May 31, 2003. IN WITNESS WHEREOF, the parties have hereunto set their respective hands and seals, and caused this Agreement to be signed by their respective officials this 31st day of January, 2001. LIZ CLAIBORNE, INC. UNION OF NEEDLETRADES, INDUSTRIAL AND TEXTILE EMPLOYEES (UNITE) By /s/ Roberta Karp By /s/ Bruce Raynor -------------------- --------------------- Roberta Karp, Esq. Bruce Raynor, Secretary-Treasurer APPENDIX "A" I. When the Employer determines to contract out the manufacture of woven apparel and denim jeans under the following LCI brands: Collection, LizSport, LizWear, Liz&Co., Elizabeth and Claiborne to contracting shops within the continental United States or Canada, it shall give such work directly to and employ the services of only those contractors who are signatories to a collective bargaining agreement with UNITE or one of its affiliates. Effective January 1, 2001, the obligations for the aforementioned LCI brands shall include cut and sewn knits and sweaters. 19 A. In the event that the work described above is assigned directly by the Employer to a non-union contractor, the Union after demanding of the Employer that such work immediately cease and all work in process be withdrawn may apply to any of the Arbitrators named in this agreement for an ex parte order to have such work immediately withdrawn from the non-union contractor. The Employer must immediately comply with said Order, unless it can show the Arbitrator, as its sole defense, that it is in factual compliance with Paragraph I above. This provision shall not apply to work being performed by non-union contractors who have been assigned the work by the UNITE contractor to whom the Employer directly assigned such work. In that case the Union's sole remedy shall be against the union contractor that assigned the work to a non-union contractor. II. For all other of the Employer's brands and labels, not mentioned in Paragraph I above which the Employer determines to be manufactured in the continental United States, the Employer and the Union shall cooperate for the purpose of attempting in good faith to find companies subject to collective bargaining agreements with UNITE or an affiliate thereof which could perform the work in production facilities that meet the Employer's manufacturing criteria and at the price, quality and service standards the Employer requires of all manufacturers who apply for such approval. A. The Employer shall hire and/or designate an executive ("Employer Executive") to be responsible for the identification, evaluation and development of garment manufacturers under contract with UNITE or one of its affiliates who manufacture in the continental United States. The Union shall hire and/or designate an executive ("Union Executive")with knowledge of garment manufacturing facilities in the continental United States to act as liaison with the aforementioned Employer Executive. B. The Employer Executive in response to the recommendations of the Union Executive will arrange evaluation visits to all potential facilities to determine if they meet the LCI Manufacturing Criteria which will be published by the Employer and furnished to the Union Executive. Those manufacturers recommended by the Union Executive that the Employer Executive agrees meet the LCI Manufacturing Criteria will be given a test order. In the event the Union Executive recommends a manufacturer from Canada, the employer shall give such manufacturer the same consideration under this Paragraph II as a manufacturer from the continental United States. (1) In the event the Employer Executive and the Union Executive disagree on the eligibility of any manufacturer recommended by the Union Executive, the parties shall, if the Union demands, select a third party from a mutually agreed upon list of reputable consultants to the apparel industry whose practices include factory evaluation and development. For the term of this agreement, the parties have agreed to utilize the services of Emanuel Weintraub Associates. The third party shall visit the factory in question and determine whether or not the factory meets 20 the LCI Manufacturing Criteria. The parties shall be bound by his/her decision and a test order shall be assigned, if the consultant so orders. The cost and expenses of the consultant shall be borne equally by the parties. (2) If the test order is manufactured in accordance with the standards set by the Employer, the manufacturer shall thereafter be placed on the Employer's approved list of manufacturers and shall be given the opportunity to manufacture garments for the Employer in accordance with the Employer's domestic sourcing procedures. (3) Once a test order is given under any of the procedures set forth in Paragraph II of this Appendix "A", the manufacturer thereafter becomes a contractor within the meaning of Subsection 4.4 of the Jobbers Agreement and the contractor's selection, retention or termination shall be in the sole discretion of the Employer, however, the said contractor with a collective bargaining agreement with UNITE or one of its affiliates shall be given the right of first refusal before a final selection is made for the product in question. In the event, under this procedure, production of the product would be awarded to a non-union contractor over said union contractor, the Employer may not award it to the non-union contractor if the non union contractor provides no benefits to its full time workers other than wages and legally required fringe benefits. EX-10.I 5 0005.txt DESC. OF 2000 SALARIED EMPLOYEE INC. BONUS PL 1 EXHIBIT 10(i) DESCRIPTION OF LIZ CLAIBORNE, INC. 2000 SALARIED EMPLOYEE INCENTIVE BONUS PLAN For the 2000 fiscal year, Liz Claiborne, Inc. maintained a bonus plan for full time salaried employees under which bonuses were earned based upon a combination of return on invested operating capital and earnings per share, as measured against pre-established targets, and, as applicable, achievement of targeted levels of divisional direct operating profit and/or departmental performance considerations and the achievement of individual goals, subject to certain terms and conditions. A similar bonus plan is anticipated for 2001. EX-10.Q 6 0006.txt DESCRIPTION: SUPPLEMENTAL LIFE INSURANCE PLANS 1 EXHIBIT 10(q) DESCRIPTION OF SUPPLEMENTAL LIFE INSURANCE PLANS Vice Presidents of Liz Claiborne, Inc. (the "Company") receive universal life insurance policies which provide coverage equal to two times annual base salary. The Company pays the premiums on each policy during the employment period, enabling the employee to have a portable life insurance policy with a minimal cash surrender value. EX-10.V.III 7 0007.txt EXECUTIVE TERMINATION BENEFITS AGREEMENT 1 EXHIBIT 10(v)(iii) LIZ CLAIBORNE, INC. EXECUTIVE TERMINATION BENEFITS AGREEMENT This Executive Termination Benefits Agreement (this "Agreement"), dated as of the 1st day of January, 2001, is by and between LIZ CLAIBORNE, INC., a Delaware corporation (the "Company"), and PAUL R. CHARRON (the "Executive"). WHEREAS, the Company's Board of Directors (the "Board") recognizes that the possibility of a change in control of the Company and the uncertainty and questions which it may raise may result in the departure or distraction of the Executive to the detriment of the Company and its stockholders; WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Executive to his/her assigned duties in the face of the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by the possibility, threat or occurrence of a change in control of the Company; WHEREAS, should the Company be faced with a possible change in control situation, in addition to the Executive's regular duties, he/she may be called upon to assist in the assessment of proposals, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate. NOW, THEREFORE, to assure the Company that it will have the continued undivided attention and services of the Executive and the availability of his/her advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company in such a circumstance, for the benefit of the Company and its shareholders, and for other good and valuable consideration, the Company and the Executive agree as follows: 2 1. Term of Agreement. (a) Except as otherwise provided in Section 1(b) below, (i) this Agreement shall be effective as of the date hereof and shall continue in effect through December 31, 2003 and (ii) commencing on January 1, 2004 and each January 1 thereafter, this Agreement shall be automatically extended for one additional year unless, not later than June 30th of the preceding year, either party to this Agreement gives notice to the other that this Agreement shall not be extended under this Section 1(a); provided, however, that no such notice by the Company shall be effective, and this Agreement shall be extended for an additional year, if a Change in Control or Potential Change in Control (both as defined in Section 2 below) shall have occurred or occurs at any time prior to the date of such notice or within the 12-month period beginning on the date of such notice. (b) If a Change in Control shall have occurred at any time during the period in which this Agreement is effective, then notwithstanding any provision hereof to the contrary, this Agreement shall be effective and continue in effect for (i) the remainder of the month in which the Change in Control occurred and (ii) a term of thirty-six (36) months beyond the month in which such Change in Control occurred; provided that if any obligations of the Company hereunder shall not have been fully and finally discharged at the end of such thirty six (36) month period, this Agreement shall remain in effect until such obligations shall have been finally discharged in full. The period commencing on the earlier of a Potential Change in Control (if applicable) or Change in Control and ending with the conclusion of such thirty-sixth month period shall be referred to hereinafter as the "Protected Period." 2. Change in Control and Potential Change in Control. (a) For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred: (i) if any person as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act (a "Person"), but excluding the Company, any subsidiary of the Company and any employee benefit plan sponsored or maintained by the Company or any subsidiary of the Company (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act, as amended from time to time) of Company securities representing 25% or more of either (i) the then outstanding shares of the Company's common stock or (ii) the combined voting power of the Company's then 2 3 outstanding voting securities entitled to vote generally in the election of directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), or (B) any acquisition by any corporation or similar entity pursuant to a reorganization, merger or consolidation if following such reorganization, merger or consolidation, the conditions described in sub-clauses (1), (2), and (3) of Section 2(a)(iii) below have been satisfied; or (ii) if individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) upon consummation of a reorganization, merger or consolidation of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company and the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors immediately prior to such Business Combination beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (2) no Person (excluding (A) any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination and (B) any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, 25% or more of, respectively, the then outstanding shares of the common stock of the Company, or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement relating to, or of the action of the Incumbent Board providing for, such Business Combination; or (iv) upon consummation of the sale or other disposition of all or substantially all of the assets of the Company, unless following such transaction (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company and the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election 3 4 of directors immediately prior to such transaction beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the acquiring corporation (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (2) no Person (excluding (A) any employee benefit plan (or related trust) of the Company or such acquiring corporation and (B) any Person beneficially owning, immediately prior to such transaction, 25% or more of, respectively, the then outstanding shares of the common stock of the Company, or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the acquiring corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (3) at least a majority of the members of the board of directors of the acquiring corporation were members of the Incumbent Board at the time of the execution of the initial agreement relating to, or of the action of the Incumbent Board providing for, such sale or disposition; or (v) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. (b) For purposes of this Agreement, a "Potential Change in Control" shall be deemed to have occurred if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred; provided that the Board shall not be precluded from adopting a resolution to the effect that for purposes of this Agreement, it is the good faith opinion of the Board that a Potential Change in Control has been abandoned and that a Potential Change in Control no longer exists. (c) For purposes of Sections 3 through 9 of this Agreement, the term "Company" shall include Liz Claiborne, Inc. and any successor thereto, whether by merger, reorganization, consolidation, acquisition of substantially all of its assets or any other means. 3. Covered Termination. (a) In the event that Executive's employment is terminated during the Protected Period either (i) by the Company without Cause (as defined in Section 3(c) below) or (ii) by the Executive for Good 4 5 Reason (as defined in Section 3(b) below) (each, a "Covered Termination"), the Company will provide the Executive with the payments and benefits set forth in Section 4 below. (b) For purposes of this Agreement, "Good Reason" shall mean the occurrence of one or more of the following events (regardless of whether any other reason, other than Cause as provided below, for such termination exists or has occurred, including without limitation other employment): (i) failure to elect or reelect or otherwise maintain Executive in the offices or positions, or substantially equivalent offices or positions, of or with the Company, which Executive held immediately prior to the Change of Control; (ii) a significant adverse change in the nature or scope of the authorities, powers, functions, duties or responsibilities attached to the position with the Company which the Executive held immediately prior to the Change in Control; (iii) a reduction by the Company, without the Executive's prior consent, in either (1) the Executive's annual base salary immediately prior to the Change in Control or (2) the Executive's target bonus opportunity (expressed as a percentage of Executive's annual base salary) immediately prior to the Change in Control; (iv) the Company's requiring the Executive, without the Executive's prior consent, to be based more than fifty (50) miles from the Company's offices at which the Executive is based immediately prior to the Change in Control (excluding for this purpose required travel on the Company's business to an extent substantially consistent with the Executive's business travel obligations immediately prior to the Change in Control), or, in the event the Executive consents to any such relocation of his/her offices, the failure by the Company to provide the Executive with all of the benefits of the Company's relocation policy as in effect immediately prior to the Change in Control; (v) the failure by the Company, without the Executive's prior consent, to pay to the Executive any portion of the Executive's current compensation (for purposes of this clause (v), "current compensation" shall mean the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time, plus the bonuses awarded to Executive pursuant to the Company's cash incentive bonus plan), or to pay to the Executive any portion of any installment of deferred compensation under any deferred compensation program of the Company within twenty (20) days after request for payment by the Executive after such deferred compensation is due; (vi) the failure by the Company to continue in effect any then ongoing compensation or benefit plan in which the Executive participates immediately prior to the Change in Control and which is significant to the Executive's total compensation opportunity on either an annual or long-term basis, including, but not limited to, the Company's 2000 Stock Incentive Plan, any other long-term incentive plan of the Company, or any substitute plan for any of the foregoing adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein on a basis not significantly less favorable to Executive, in terms of the amount of the compensation opportunities so provided, to those provided to Executive immediately 5 6 prior to the Change in Control, it being agreed, without limiting the foregoing, for the avoidance of doubt, that the Company shall be deemed to have failed to continue the Executive's participation in such plans on a basis not significantly less favorable to Executive in the event that Executive's target long-term incentive compensation opportunity (expressed as a percentage of Executive's base salary) subsequent to the Change of Control shall not equal or exceed his/her long-term incentive compensation opportunity (expressed as a percentage of Executive's base salary) as in effect immediately prior to the Change in Control; (vii) the failure by the Company to continue to provide the Executive with benefits comparable in the aggregate to those enjoyed by the Executive under the Company's retirement, life insurance, medical, dental, health, accident and disability plans in which the Executive was participating immediately prior to the Change in Control; (viii) the failure of the Company to obtain an agreement from any successor to assume and agree to perform this Agreement as contemplated by Section 9 below prior to the effective date of any such succession, or, if such an agreement is not so obtained, the failure of the Company, within three (3) business days after receiving a written request from the Executive for such agreement, to so provide such agreement; or (ix) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 5(a) below. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. Notwithstanding the foregoing, the occurrence of an event that would otherwise constitute Good Reason hereunder shall cease to be an event constituting Good Reason if the Executive does not provide a Notice of Termination to the Company within one hundred eighty (180) days of the date that the Executive first becomes aware of the occurrence of such event. (c) For purposes of this Agreement, "Cause" shall mean and be limited to (i) Executive's willful and intentional repeated failure or refusal, continuing after notice that specifically identifies the breach(es) complained of, to perform substantially his/her material duties, responsibilities and obligations (other than a failure resulting from Executive's incapacity due to physical or mental illness or other reasons beyond the control of Executive), and which failure or refusal results in demonstrable direct and material injury to the Company; (ii) any willful and intentional act or failure to act involving fraud, misrepresentation, theft, embezzlement, dishonesty or moral turpitude (collectively, "Fraud") which results in demonstrable direct and material injury to the Company; (iii) conviction of (or a plea of nolo 6 7 contendere to) an offense which is a felony in the jurisdiction involved or which is a misdemeanor in the jurisdiction involved but which involves Fraud; or (iv) the Executive's complete inability to perform his/her material duties, responsibilities and obligations on account of a physical or mental incapacity or impairment for a period of more than 180 consecutive days or for an aggregate of 240 days within a 360-day period, which incapacity or impairment continues for more than thirty (30) days after Executive's receipt of written notice from the Company given after such 180 or 240 day period has run without Executive's return, on a substantially full-time basis, to employment. For purposes of determining whether Cause exists, no act, or failure to act, on Executive's part shall be deemed "willful" or "intentional" unless done, or omitted to be done, by Executive in bad faith, and without reasonable belief that his/her action or omission was in the best interests of the Company. For purposes of clause (iv) above, a determination of Executive's complete inability to perform his/her material duties, responsibilities and obligations will be made by a single physician satisfactory to both Executive and the Company; provided that if Executive and the Company cannot agree as to a single physician, then each will select a physician and these two together will select a third physician, whose determination will be binding on Executive and the Company. Executive shall have the right to present to the Company and such physician such information and arguments on Executive's behalf as Executive deems appropriate, including the opinion of Executive's personal physician. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution (a "Cause Resolution") duly adopted by the affirmative vote of not less than two thirds (2/3) of the Board then in office at a meeting of the Board called upon reasonable notice to all Directors and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board at such meeting, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will 7 8 limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination and/or Cause Resolution. (d) Nothing contained in this Agreement is intended to, or shall operate to, preclude the payment of any amounts (other than cash severance benefits) otherwise payable to the Executive under any of the Company's employee benefit plans, stock plans, programs and arrangements and/or under any employment agreement, or to limit or otherwise adversely affect such rights as the Executive may have under any contract or agreement with the Company. 4. Severance Payments and Benefits. (a) In lieu of any other cash severance payments to which the Executive may otherwise be entitled (and which other cash severance payments the Executive hereby expressly waives), and subject to the provisions regarding cutback of benefits in certain circumstances as expressly provided in Section 6(h) below, the Company shall pay or provide to the Executive the following amounts (the "Severance Payments") upon the occurrence of a Covered Termination during the Protected Period: (i) An amount equal to three (3) times the amount of Executive's effective annual base salary rate, as in effect immediately prior to a Change of Control or the Date of Termination (as defined in Section 5(b), below), whichever amount is higher; (ii) an amount equal to three (3) times the average annual bonus earned by the Executive under the Company's cash incentive bonus plan in respect of the three fiscal years of the Company ending prior to (x) the date on which a Change of Control occurred or (y) the date on which the Date of Termination occurred, whichever amount is higher; (iii) an amount equal to the Executive's annual bonus earned or accrued in respect of any prior fiscal year of the Company but not yet paid as of the Date of Termination; and (iv) an amount equal to the product of (x) the greatest of (A) the Executive's target bonus opportunity under the Company's cash incentive bonus plan for the fiscal year in which the Date of Termination occurs; or (B) the average bonus the Executive earned for the three (3) fiscal years preceding the fiscal year in which the Change in Control occurred, multiplied by (y) a fraction, the numerator of which is the number of months and partial months expired in the fiscal year of the Company in which the Date of Termination occurs, through the Date of Termination, and the denominator of which is twelve (12). (b) In case of a Covered Termination during the Protected Period, in addition to the payments provided for in Section 4(a) above, the Company shall, during the period ending thirty six (36) months after the month in which the Date of Termination occurs, arrange at the Company's sole expense to 8 9 provide the Executive and his/her dependents with life, medical, dental, health, and disability insurance benefits at least equal, in type and level of coverage, to those which the Executive and his/her dependents were receiving immediately prior to the Notice of Termination (without, however, giving any effect to any reduction in such benefits subsequent to a Change in Control). Benefits otherwise receivable by the Executive pursuant to this Section 4(b) shall be reduced to the extent that comparable benefits equal in type and level of coverage are actually received by the Executive from, or made available to the Executive by, a subsequent employer without greater cost to him/her than as provided by the Company during such 24-month period (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive). In addition, in the event that the Executive and/or his/her dependents are ineligible under the terms of any of the Company's plans to continue to be so covered, the Company shall provide to the Executive a lump sum payment (determined on a present value basis using the interest rate provided for in Section 1274(b)(2)(B) of the Internal Revenue Code on the Date of Termination) in such amount, after taxes, that shall be equal to the cost to the Executive of procuring such coverage for such period. (c) In the case of a Covered Termination during the Protected Period (i) any unvested amount credited to Executive's bookkeeping account under the Company's Supplemental Executive Retirement Plan as in effect on the date hereof, and as the same may be amended prior to any Change of Control ("SERP"), will become fully vested as of the Date of Termination, and in such event such bookkeeping account shall be increased as of the Date of Termination by the aggregate amount of the unvested portion of any account maintained for Executive under any of the Company's "qualified" retirement plans as of the Executive's date of termination of employment; and (ii) Executive's SERP account shall be distributed to the Executive as provided under the terms of the SERP and in accordance with Executive's distribution election then in effect. (d) In the case of a Covered Termination during the Protected Period, notwithstanding anything contained in the Liz Claiborne Retirement Income Accumulation Plan as in effect on the date hereof, and as the same may be amended prior to any Change of Control (the "Accumulation Plan"), any unvested 9 10 amount credited to Executive's retirement income account under the Accumulation Plan will become fully vested as of the Date of Termination, and (ii) such account shall be distributed to the Executive as provided under the terms of the Accumulation Plan. (e) In the case of a Covered Termination during the Protected Period, notwithstanding anything to the contrary contained herein, all outstanding stock options and restricted share awards, if any, granted to Executive under any of the Company's stock incentive plans or other similar plans shall be subject to the applicable terms (including without limitation, except where otherwise specifically provided at the time such awards were granted, as to the accelerated vesting thereof under the terms of such plan) of the applicable plan and award agreement or certificate. (f) In the case of a Covered Termination during the Protected Period, the Company shall pay to the Executive all other amounts vested, accrued or earned by the Executive through the Date of Termination and amounts otherwise owing under the then existing plans and policies of the Company, including but not limited to all compensation or other amounts previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and all amounts vested under the Accumulation Plan. (g) The Company shall pay to the Executive the amount due pursuant to Section 4(a) in a lump sum cash payment as soon as practicable, but in any event by the fifth (5th) business day following the Date of Termination. 5. Notice of Termination and Date of Termination. (a) During the Protected Period, any termination of the Executive's employment by the Executive for Good Reason or by the Company for Cause shall be communicated by written Notice of Termination from the party terminating employment hereunder to the other party hereto in accordance with Section 10 below. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given in good faith and with a reasonable belief that Good Reason or Cause, as the case may be, has occurred, which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the 10 11 Executive's employment under the provision so indicated. Any Notice of Termination must specify a Date of Termination; any Notice of Termination for Cause shall include a copy of the relevant Cause Resolution. (b) For purposes of this Agreement, "Date of Termination" shall mean (i) in the case of a termination by the Company for Cause or by the Executive for Good Reason, the date specified as Executive's last day of employment in the Notice of Termination, which shall not be less than ten (10) business days after the date such Notice of Termination is deemed given in accordance with Section 10 below, or (ii) in any other case, the last day worked by the Executive as reflected on the Company's payroll records. 6. Tax Gross-Up; Potential Reduction in Severance Amount. (a) Anything in this Agreement to the contrary notwithstanding, but subject to Section 6(h), in the event that a Covered Termination shall occur during the Protected Period and it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 6) or distribution by the Company or any of its subsidiaries to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or pursuant to any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, restricted stock or deferred stock, or the lapse or termination of any restriction on, deferral period or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended Code") or any successor provision thereto, by reason of being considered "contingent on a change in ownership or control" of the Company within the meaning of Section 280G of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment") as provided herein. The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any 11 12 interest or penalties imposed with respect to such taxes), including any Excise Tax and any federal, state or local income tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 6(f) below, all determinations required to be made under this Section 6, including the determination as to whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within 30 calendar days after the date of the Change in Control, the Date of Termination, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 6(f) below and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment 12 13 shall be promptly paid by the Company to, or for the benefit of, the Executive within five (5) business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 6(b) above. Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (d) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall make proper payment of the amount of any Excise Payment, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his/her federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five business days after receipt of the Accounting Firm's determination pay to the Company the amount of such reduction. (e) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 6(b) above shall be borne solely by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of the payment thereof. (f) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a 13 14 Gross-Up Payment or any additional Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than ten (10) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (x) the expiration of the thirty (30)-calendar day period following the date on which he gives such notice to the Company and (y) the date that any payment of amount with respect to such claim is due. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such contest and payment of costs and expenses. Without limiting the foregoing provisions of this Section 6(f), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 6(f) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his/her own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive 14 15 shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (g) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 6(f)) above promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(f), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 6. (h) Notwithstanding any provision of this Agreement to the contrary, if but for this sentence, the Company would be obligated to make "parachute payments" to the Executive, whether under this Agreement, the terms of any stock-based compensation award or any other agreement, contract or arrangement, but the aggregate "present value" of all such parachute payments does not exceed (x) 1.05 multiplied by (y) three (3) times the Executive's "base amount," then the payments and benefits to be paid or provided under this Agreement will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of the total payments or benefits due to the Executive on account of a change in control of the Company, determined after the reduction under this Agreement, constitutes an "excess parachute payment." For purposes of this Section 6(h), the terms "change in control," "excess parachute payment," "present value," parachute payment," and "base amount" have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in such payments or benefits to be provided under this Agreement is required pursuant to the preceding sentence will be made, if requested by the Executive or the Company, at the expense of the Company by the 15 16 Company's regular outside accounting firm. The fact that the Executive's right to payments or benefits may be reduced by reason of the limitations contained in this Section 6(h) will not of itself limit or otherwise affect any other rights of the Executive other than pursuant to this Agreement. In the event that any payment or benefit intended to be provided under this Agreement is required to be reduced pursuant to this Section 6(h), the Executive will be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section 6(h). The Company will provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within ten (10) business days of the Termination Date, the Company may effect such reduction in any manner it deems appropriate. If, despite a reduction in payments and/or benefits in accordance with this Section 6(h), Executive is required, after notice to the Company pursuant to Section 6(f), to pay an Excise Tax, Executive shall be paid a Gross-Up Payment in accordance with Section 6(a), but shall not be entitled to any additional amounts relating to such reduction in payments and/or benefits, notwithstanding the failure of the reduction to achieve the goal of avoiding an Excise Tax liability. 7. No Mitigation Obligation or Permitted Offset. Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise, except as expressly provided in the penultinate sentence of Section 4(b) above with respect to the provision of comparable welfare benefits by a subsequent employer. The Company shall not be permitted to reduce any payment owed to Executive under this Agreement by any amount owed, or allegedly owed, to the Company by the Executive. 8. Arbitration; Payment of Legal Fees. (a) All claims by the Executive for payments and other benefits under this Agreement shall be in writing and directed to the Board. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the 16 17 denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board any decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Any dispute, claim or controversy arising out of or relating to this Agreement or the breach hereof shall be settled by arbitration in the State, City and County of New York in accordance with the rules then obtaining of the American Arbitration Association and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The parties hereto agree that any arbitral award may be enforced against the parties to an arbitration proceeding or their assets wherever they may be found. (b) In the event of any dispute, claim or controversy arising out of or in connection with this Agreement, including without limitation in connection with Executive's seeking to obtain or enforce any right or benefit provided by this Agreement, if the Executive prevails on any of the material issues involved in any such dispute, claim or controversy, the Company shall pay to the Executive immediately upon demand all reasonable expenses (including without limitation attorneys' fees) incurred by the Executive in connection therewith. Any such reimbursement shall be in addition to the Company's obligations to pay or reimburse Executive's fees and expenses as provided in Section 6 above. 9. Successors. (a) In addition to any obligation imposed by law upon any successor to the Company, the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If 17 18 the Executive dies while any amounts are payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his estate. 10. Notices. All notices or communications required or permitted hereunder will be given in writing by personal delivery; by confirmed facsimile transmission; by express delivery via any reputable express courier service; or by registered or certified mail, return receipt requested, postage prepaid, in each case addressed to the parties at the respective addresses set forth below or at such other address as may be designated in writing by either party to the other in the manner set forth herein. Notices and communications which are delivered personally, by confirmed facsimile transmission, or by courier as aforesaid, will be deemed effectively given on the date of delivery; those delivered by mail as aforesaid will be deemed effectively given upon the fifth (5th) calendar day subsequent to the postmark date thereof. If to the Company: Liz Claiborne, Inc. 1441 Broadway New York, NY 10047 Attention: Chief Executive Officer with a copy to: Liz Claiborne, Inc. One Claiborne Avenue North Bergen, NJ 07047 Attention: General Counsel If to the Executive: At the address set forth opposite Executive's name on the signature page hereof 11. Governing Law. This Agreement has been made and will be governed in all respects by the internal laws of the State of Delaware applicable to contracts made and to be wholly performed within such state (without regard to principles of conflict of laws) and the parties hereby irrevocably consent to the jurisdiction of the federal and state courts sitting in the State of Delaware for the purpose of enforcing this Agreement. 18 19 12. Miscellaneous. (a) No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. (b) This Agreement, taken together with the provisions of any employment agreement or other written agreement relating to Executive, sets forth the entire agreement by and between the Company and the Executive with respect to the subject matter hereof . (c) Nothing expressed or implied in this Agreement will create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company or any subsidiary prior to or following any Change in Control. (d) The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any law or government regulation or ruling. (e) In the event that the Company refuses or otherwise fails to make a payment when due and it is ultimately decided that the Executive is entitled to such payment, such payment shall be increased to reflect an interest factor, compounded annually, equal to the prime rate in effect as of the date the payment was first due plus five (5) points. For this purpose, the prime rate shall be based on the rate identified by Chase Manhattan Bank as its prime rate in New York City. (f) The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. (g) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except as provided in Section 9 above. Without limiting the foregoing, the Executive's right to receive payments 19 20 hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his/her will or by the laws of descent or distribution, and in the event of any attempted assignment or transfer by Executive contrary to this Section 12(g) the Company shall have no liability to pay any amount so attempted to be assigned or transferred to any person other than the Executive or, in the event of his/her death, his/her estate. (h) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above set forth. LIZ CLAIBORNE, INC. By: /s/ Michael Scarpa ------------------ Michael Scarpa Vice President-Finance and Chief Financial Officer PAUL R. CHARRON : /s/ Paul R. Charron ------------------- Address: *********************** *********************** Social Security Number: ***-**-**** 20 EX-10.W.II 8 0008.txt SEEGAL SEPARATION AGREEMENT 1 EXHIBIT 10(w)(ii) Denise V. Seegal February 6, 2001 Separation Agreement & Release of Claims The following constitutes a complete separation agreement and release of claims (hereinafter "Agreement") between you (including your successors, assigns and estate, collectively referred to as the "Associate") and Liz Claiborne, Inc. (including its subsidiaries, affiliates, officers, directors, agents, associates, successors, predecessors and assigns, collectively referred to as the "Company") regarding the terms of your employment and termination of employment at the Company. 1. Associate's employment with the Company is terminated effective as of December 8, 2000 (the "Termination Date"). 2. Following the effective date of this Agreement, the Company will: (i) pay as severance to Associate, the total sum of One Million Dollars and 00/100 ($1,000,000.00) ; less applicable deductions. The amount set forth in this Section 2(i) will be paid in a lump sum within ten (10) days following the effectiveness of this Agreement; (ii) pay Associate an additional lump sum amount of One Hundred Two Thousand Eight Hundred One Dollars and 75/100 ($102,801.75) , less applicable deductions, payable within ten (10) days following the effective date of this Agreement; . (iii)if Associate elects Cobra coverage, reimburse Associate up to Four Hundred Five Dollars and 35/100 ($405.35) a month, representing Associate's monthly Cobra premium payments through the earlier of (i) the date Associate becomes eligible for coverage under any group health plan as a result of Reemployment (defined below); and (ii) December 31, 2001; (iv) pay Associate the amount she would have received, less applicable deductions, as a result of the Company's contribution to the profit sharing component of the Liz Claiborne 401(k) Savings & Profit Sharing Plan and the amount she would have received, less applicable deductions, under the Company's "matching" arrangement as allowed under the Supplemental Executive Retirement Plan (the "SERP Plan"), had she been an active associate of the Company on December 31, 2000. Such payment shall be made at the same time that active Company associates eligible for such payments have such payments processed to their accounts under the applicable plan; and 2 (v) pay Associate a Year 2000 bonus in accordance with the Company's Pay for Performance Plan, without reduction based on her termination of employment and determined in good faith based on specified performance criteria. Such bonus will be paid to Associate in March 2001, at the same time as other senior executives of the Company receive their Year 2000 Pay for Performance bonus. Except as specifically set forth above or herein, all other nonstatutory benefits, including, without limitation, short & long term disability, accidental death and dismemberment, life insurance, and spouse and dependent life insurance will cease on the day following your termination date, except for conversion rights provided under such benefit plan or applicable law. "Reemployment" as used in this Agreement shall mean commencement of full-time employment with a company other than the Company or an entity primarily owned by Associate and used by Associate to do consulting. Associate agrees to notify Company of Associate's Reemployment within seventy-two (72) hours of such Reemployment. 3. Associate shall be entitled to receive financial counseling services provided by a third party group which has been retained by the Company, on such terms as are made available to other senior Company executives of a comparable level, for a period of one (1) year following Associate's Termination Date. 4. The Company shall reimburse Associate all reasonable and necessary out-of-pocket business expenses incurred through the Termination Date in accordance with the Company's standard policy in effect at such time. 5. The parties hereto acknowledge that the Agreement dated September 26, 1996, as amended by letter agreement dated February 19, 2000 (collectively the "Employment Agreement") shall be deemed terminated as of the Termination Date, except the provisions therein which by their terms survive. Section 7(b) of the Employment Agreement (which Section by its terms survives the Associate's termination of employment) shall be deemed amended to delete Calvin Klein, Inc., Donna Karan International, Inc. and Polo Ralph Lauren Corporation from the definition of "Competing Business" set forth therein. Associate acknowledges that Sections 6 & 7 (as amended herein) & 8 of her Employment Agreement shall survive the termination of her employment with the Company. 6. Associate shall be entitled to use the Company's designated outplacement service at the Company's expense for up to one (1) year following the Termination Date, unless Reemployment occurs beforehand. In lieu of using the outplacement service's offices to conduct a job search (but without waiving Associate's right to use the assistance of the outplacement service), Associate shall have the option of using an office designated by Company, at Company's offices in the Empire State Building in New York City (the "Facility") during normal business hours to conduct her job PAGE 2 3 search, until the earliest of (a) the date Associate finds Reemployment; (b) December 31, 2001; and (c) the date the Company ceases operations at the Facility. The earliest of such dates shall be known as the "Facility Use Expiration Date". Use of such office shall include the reasonable use of Company's telephone system. In addition, Company shall provide Associate with secretarial assistance (who shall be Associate's former secretary, if available) for up to three (3) days a week during normal business hours until the Facility Use Expiration Date. If the Facility Use Expiration Date occurs prior to the earlier of (i) the date Associate finds Reemployment, and (ii) December 31, 2001 (such earlier date to be known as the "Outplacement Service Expiration Date"), Associate shall thereafter be entitled to use the offices of the Outplacement Service to conduct her job search until the Outplacement Service Expiration Date. 7. (a) The terms of the Associate's stock option awards, granted as of January 6, 1998, January 4, 1999 and January 25, 2000, shall each be amended to provide that the options under such awards scheduled to vest in January 2001 and January 2002 (as set forth on Annex A attached hereto) shall vest instead as of the Termination Date. Such options shall otherwise be subject to the terms provided for in such awards, except to the extent otherwise provided for in clause (b) below with respect to the applicable exercise period. (b) The terms of all of the Associate's outstanding stock options vested as of the Termination Date (including those options whose vesting is accelerated under clause (a) above) shall be amended to provide that the Associate may exercise such vested options for the twelve (12) month period following the Termination Date on such terms and conditions as provided for under such awards. 8. Section 3.1 of the Associate's Restricted Transformation Share Agreement, dated as of January 6, 1998 (the "Agreement"), shall be amended to permit the Associate's 29,500 Restricted Transformation Shares (as defined in the Agreement) to remain outstanding solely for the purpose of permitting such Restricted Transformation Shares to vest to the same extent and on the same terms as Restricted Transformation Shares of Company executive officers are permitted to vest with respect to the achievement of vesting criteria during 2001. Nothing herein is intended or shall be construed to guarantee any vesting of Associate's Restricted Transformation Shares or to provide that Associate's Restricted Transformation Shares are to remain outstanding for any other purpose. Stock certificates or book-entry registrations with respect to any of the Associate's Restricted Transformation Shares which do not vest as provided for in this Section 8 shall be cancelled, and the Dividend Escrow Account (as defined in the Agreement) shall thereupon be terminated, and no payment whatsoever shall be due to the Associate in connection with such cancellation or termination. PAGE 3 4 9. Associate represents that she does not have any claim or legal action of any kind pending against the Company (defined above), including, but not limited to, any relating to her employment with the Company or termination thereof, or otherwise involving facts which occurred on or prior to the date on which she has signed this Agreement. 10. In exchange for the above consideration, Associate releases and forever discharges the Company from any and all causes of action, claims or demands up to the date of this Agreement, known or unknown, including, but not limited to, those relating to her employment with the Company and the termination thereof; in tort, such as wrongful or retaliatory discharge in violation of public policy, for emotional distress, defamation, slander, libel or false imprisonment; in contract, whether express or implied; under any Company policy, procedure or benefit plan (except vested benefits, if any, in the Company's 401(k) Savings and Profit Sharing Plan and SERP Plan); for reinstatement, attorneys fees, back pay or front pay; and under any federal, state or local law or ordinance, including, but not limited to, Title VII of the Civil Rights Act, the Civil Rights Acts of 1871 and 1991, the Pregnancy Discrimination Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act, the Federal Family and Medical Leave Act, the Fair Labor Standards Act, the Equal Pay Act, the Workers' Adjustment and Retraining Notification Act, the New York Human Rights Law, Executive Law Section 290, et seq. ("HRL"); the New York Retaliatory Action By Employers Law, Labor Law Section 740, et seq. ("RAEL"); the New York Civil Rights Law, Section 1, et seq. ("CRL"); the New York Nondiscrimination for Legal Actions Law, Labor Law Section 201-d, et seq. ("NLAL"); the New York Wage-Hour Law, Labor Law Section 220, et seq. ("NYWH"); the New York Workers' Compensation Law, Section 1, et seq. ("NYWC"); the New York Wage Payment Law, Labor Law Section 190, et seq. ("HRL"); the New York City Human Rights Law, N.Y.C. Admin. Code Section 8-101, et seq. ("NYCHRL") and for harassment, discrimination and retaliation of any kind, or any other cause of action. The foregoing release shall not cover any amounts due under the Separation Agreement or any rights of indemnification under applicable law or the Company's charter and bylaws or any rights of indemnification Associate may be entitled to pursuant to the Company's directors' and officers' liability insurance. 11. By signing this Agreement, the Company does not admit to any wrongdoing or violation of any statutory, regulatory or common law obligation owed to Associate by the Company. Accordingly, this Agreement shall not be admissible in Court as an admission, but only in an action to enforce it. 12. Associate agrees not to apply for reemployment with the Company, unless requested to do so by the Company. 13. Associate agrees to immediately turn over any Company records or property in her possession including, without limitation, ID cards, keys, credit cards, personal computers, files, software, business equipment and instruction PAGE 4 5 manuals. Notwithstanding the immediately preceding sentence, Associate shall be entitled to keep the SONY VAIO laptop computer issued to her by the Company during her employment. 14. Associate agrees to keep the terms of this Agreement confidential (unless such terms are publicly released by Company), and shall not disclose such information to any person or entity, including, but not limited to, current, former or future associates of the Company. This confidentiality requirement, however, shall not prohibit Associate from disclosure to her immediate family (spouse, siblings, parents), accountant or attorney, if any, or the limitations on her activities to any potential employer, or to tax agencies, as required, provided that they too keep such information confidential. Associate understands that she is responsible, not only for her unauthorized disclosure, but also that by anyone to whom she discloses such information. Associate agrees that she will not solicit or encourage any former, current or future associate of the Company to pursue claims against the Company. 15. Associate understands that this Agreement covers only those claims arising prior to the date it was signed, including those related to her employment with the Company and/or termination thereof. Associate acknowledges that the above-referenced consideration is the total payment she will receive from the Company, that it exceeds that to which she would otherwise be entitled, and that she is not entitled to any additional payments under the Company's policies or benefit or severance plans (except vested benefits, if any, under the Company's 401(k) Savings and Profit Sharing Plan and SERP Plan). 16. Associate acknowledges that she was given the opportunity to fully consider this Agreement for a period of up to twenty-one (21) days. Associate has been advised to consult counsel as part of her review of this Agreement. Associate understands that Associate has seven (7) days from her execution of this document to revoke this Agreement. It is further understood that this Agreement shall not become effective or enforceable nor shall any of the consideration described in this Agreement be paid or provided by the Company until both parties have signed it and the seven (7) day revocation period has expired whichever is later. 17. Associate agrees that if she should violate the provisions of the Employment Agreement which survive Associate's termination of employment, or Paragraphs 9, 12, 13, 19(a) or 20 of this Agreement, in addition to any and all other equitable and legal remedies which may be available to it, the Company shall be entitled to cancel its portion of the Agreement, withhold any payment or other benefits provided in this Agreement and/or shall be entitled to recover the payments already made to Associate in accordance with the terms of this Agreement, together with any and all attorney's fees incurred thereby and together with interest PAGE 5 6 thereon. Associate acknowledges that the Company's remedies are a reasonable measure of compensation for breach of this Agreement, and are not punitive in nature. The Company's rights to recover payments made hereunder shall survive for a period of two (2) years from the date such payment is made. 18. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications and to this end the provisions of this Agreement are declared to be severable. 19. (a) Associate shall not with willful intent to damage economically or as to reputation or vindictively disparage the Company, its subsidiaries or their respective past or present officers, directors or employees (the "Protected Group"), provided that the foregoing shall not apply to (i) actions or statements taken or made by the Associate while employed by the Company in good faith as fulfilling the Associate's duties with the Company or otherwise at the request of the Company, (ii) truthful statements made in compliance with legal process or governmental inquiry, (iii) as the Associate in good faith deems necessary to rebut any untrue or misleading public statements made about her or any other member of the Protected Group; (iv) statements made in good faith by the Associate to rebut untrue or misleading statements made about her or any other member of the Protected Group by any member of the Protected Group, and (v) normal commercial puffery in a competitive business situation. No member of the Protected Group shall be a third party beneficiary of this Section 19(a). (b) Company agrees to advise Paul Charron, Jorge Figueredo, Bob Zane, John Thompson, Gail Cook, Kim Roy, Angela Ahrendts and Bob Negron that while they are employed by Company, not to make any negative statements about Associate, nor do anything which derogates Associate or which damages Associate in any business relationship. 20. This Agreement constitutes the complete understanding and entire Agreement of the parties and it cannot be amended, terminated, discharged or waived, except by a suitable writing signed by Associate and the Company. The laws of the State of New York shall govern and control without giving effect to its choice of law provisions. The parties further agree that the only venue for any claim a party might make against the other or for an action to enforce the terms of this Agreement shall be in a court of appropriate jurisdiction located in the City of New York. 21. The parties agree that should there be a question of interpretation of this Agreement or a part thereof, there shall be no presumption against the drafter of this Agreement. 22. Associate fully understands all of the terms and intent of this Agreement and does hereby execute it voluntarily and with full knowledge of its significance. Associate represents and acknowledges in executing this PAGE 6 7 Agreement that she does not rely and has not relied upon any representation or statement made by the Company or by any of the Company's agents, representatives or attorneys, with regard to the subject matter, basis or effect of this Agreement or otherwise, other than as specifically stated in this written Agreement. 23. Following Associate's termination of employment with the Company, Associate agrees to fully cooperate with the Company in connection with current or future third party claims, which arise from matters in which she was involved as an executive of the Company, which cooperation shall include, without limitation, attendance at depositions and court proceedings and execution of affidavits and other documents in form reasonably satisfactory to Associate, and at times reasonably convenient to Associate with due regard to her other commitments and to the Company's legal requirements. DENISE V. SEEGAL By: /s/Denise V. Seegal ---------------- Denise V. Seegal Date: February 7, 2001 LIZ CLAIBORNE, INC. By: /s/Paul R. Charron --------------- Paul R. Charron Date: February 9, 2001 PAGE 7 8 ANNEX A
OPTIONS VESTING OPTIONS VESTING AWARD DATE JANUARY 2001 JANUARY 2002 EXERCISE PRICE January 6, 1998 9,450 0 $41.125 January 4, 1999 7,000 14,000 $32.5625 January 25, 2000 12,500 12,500 $35.8125
PAGE 8 EX-10.X 9 0009.txt THREE YEAR CREDIT AGREEMENT 1 EXHIBIT 10(x) [CHASE LOGO] THREE-YEAR CREDIT AGREEMENT dated as of November 16, 2000 among LIZ CLAIBORNE, INC. The Lenders Party Hereto FLEET NATIONAL BANK, as Syndication Agent BANK ONE, NA, as Documentation Agent and THE CHASE MANHATTAN BANK, as Administrative Agent $250,000,000 THREE-YEAR REVOLVING CREDIT FACILITY 2 TABLE OF CONTENTS
Page ---- ARTICLE I Definitions..................................................................... 1 SECTION 1.01.Defined Terms ................................................ 1 SECTION 1.02.Terms Generally .............................................. 15 SECTION 1.03.Accounting Terms; GAAP ....................................... 15 ARTICLE II The Credits..................................................................... 16 SECTION 2.01.Commitments .................................................. 16 SECTION 2.02.Loans and Borrowings ......................................... 16 SECTION 2.03.Requests for Borrowings ...................................... 16 SECTION 2.04.Funding of Borrowings ........................................ 17 SECTION 2.05.Interest Elections ........................................... 18 SECTION 2.06.Termination and Reduction of Commitments ..................... 19 SECTION 2.07.Repayment of Loans; Evidence of Debt ......................... 19 SECTION 2.08.Prepayment of Loans .......................................... 20 SECTION 2.09.Fees ......................................................... 20 SECTION 2.10.Interest ..................................................... 21 SECTION 2.11.Alternate Rate of Interest ................................... 21 SECTION 2.12.Increased Costs .............................................. 22 SECTION 2.13.Break Funding Payments ....................................... 23 SECTION 2.14.Taxes ........................................................ 23 SECTION 2.15.Payments Generally; Pro Rata Treatment; Sharing of Set-offs .. 24 SECTION 2.16.Mitigation Obligations; Replacement of Lenders ............... 25 SECTION 2.17.Source of Funds .............................................. 26 ARTICLE III Representations and Warranties.................................................. 26 SECTION 3.01.Organization; Powers ......................................... 26 SECTION 3.02.Authorization; Enforceability ................................ 26 SECTION 3.03.Governmental Approvals; No Conflicts ......................... 27 SECTION 3.04.Financial Condition; No Material Adverse Change .............. 27
3 SECTION 3.05.Properties; Liens ............................................ 27 SECTION 3.06.Litigation and Environmental Matters ......................... 28 SECTION 3.07.Compliance with Laws and Agreements .......................... 28 SECTION 3.08.No Default ................................................... 28 SECTION 3.09.Investment and Holding Company Status ........................ 28 SECTION 3.10.No Burdensome Restrictions ................................... 28 SECTION 3.11.Taxes ........................................................ 28 SECTION 3.12.Federal Regulations .......................................... 29 SECTION 3.13.Subsidiaries ................................................. 29 SECTION 3.14.ERISA ........................................................ 29 SECTION 3.15.Disclosure ................................................... 29
ARTICLE IV Conditions...................................................................... 29 SECTION 4.01.Effective Date ............................................... 29 SECTION 4.02.Each Credit Event ............................................ 31 ARTICLE V Affirmative Covenants........................................................... 31 SECTION 5.01.Financial Statements ......................................... 31 SECTION 5.02.Certificates; Other Information .............................. 32 SECTION 5.03.Notices of Material Events ................................... 32 SECTION 5.04.Existence; Conduct of Business ............................... 33 SECTION 5.05.Payment of Obligations ....................................... 33 SECTION 5.06.Maintenance of Properties and Trademarks; Insurance .......... 33 SECTION 5.07.Books and Records; Inspection Rights ......................... 33 SECTION 5.08.Environmental Laws ........................................... 34 SECTION 5.09.Compliance ................................................... 34 SECTION 5.10.Additional Subsidiaries ...................................... 34 SECTION 5.11.Use of Proceeds .............................................. 34 ARTICLE VI Negative Covenants.............................................................. 34 SECTION 6.01.Financial Covenants .......................................... 34 SECTION 6.02.Indebtedness ................................................. 35 SECTION 6.03.Liens ........................................................ 36 SECTION 6.04.Fundamental Changes .......................................... 37 SECTION 6.05.Investments, Loans, Advances, Guarantees and Acquisitions; Hedging Agreements ........................................... 38 SECTION 6.06.Limitation on Sale of Assets ................................. 39 SECTION 6.07.Restricted Payments .......................................... 39
4 SECTION 6.08.Transactions with Affiliates ................................. 39 SECTION 6.09.Changes in Fiscal Periods .................................... 39 SECTION 6.10.Lines of Business ............................................ 40
ARTICLE VII Events of Default............................................................... 40 ARTICLE VIII The Administrative Agent........................................................ 42 ARTICLE IX Miscellaneous................................................................... 44 SECTION 9.01.Notices ...................................................... 44 SECTION 9.02.Waivers; Amendments .......................................... 44 SECTION 9.03.Expenses; Indemnity; Damage Waiver ........................... 45 SECTION 9.04.Successors and Assigns ....................................... 46 SECTION 9.05.Survival ..................................................... 48 SECTION 9.06.Counterparts; Integration; Effectiveness ..................... 49 SECTION 9.07.Severability ................................................. 49 SECTION 9.08.Right of Setoff .............................................. 49 SECTION 9.09.Governing Law; Jurisdiction; Consent to Service of Process ... 49 SECTION 9.10.WAIVER OF JURY TRIAL ......................................... 50 SECTION 9.11.Headings ..................................................... 50 SECTION 9.12.Confidentiality .............................................. 50
SCHEDULES: Schedule 2.01 - Commitments Schedule 3.06 - Disclosed Matters Schedule 3.13 - Subsidiaries Schedule 6.02 - Existing Indebtedness Schedule 6.03 - Existing Liens Schedule 6.05(i) - Existing Investments Schedule 6.05(ii) - Borrower's Investment Policy EXHIBITS: Exhibit A - Form of Assignment and Acceptance Exhibit B - Form of Opinion of Borrower's Counsel Exhibit C - Form of Subsidiary Guarantee 5 THREE-YEAR CREDIT AGREEMENT dated as of November 16, 2000, among LIZ CLAIBORNE, INC., the LENDERS party hereto, FLEET NATIONAL BANK, as Syndication Agent, BANK ONE, NA, as Documentation Agent and THE CHASE MANHATTAN BANK, as Administrative Agent. The parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agreement" means this Three-Year Credit Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Alternate Base Rate" means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, as applicable. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Applicable Rate" means, for any day, with respect to any Eurodollar Revolving Loan or ABR Revolving Loan, as the case may be, or with respect to the facility fees payable hereunder, the applicable rate per annum set forth below under the caption "Eurodollar Spread," 6 2 "ABR Spread" or "Facility Fee Rate," based upon the ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt:
Eurodollar Facility Fee Utilization Level Index Debt Rating Spread ABR Spread Rate Fee Rate - -------------------------------------------------------------------------------------------------------------------- I >= A-/A3 0.325% 0.00% 0.125% 0.125% II BBB+/Baa1 0.475% 0.00% 0.15% 0.125% III BBB/Baa2 0.575% 0.00% 0.175% 0.125% IV BBB-/Baa3 0.75% 0.00% 0.25% 0.25% V <= BB+/Ba1 1.025% 0.025% 0.30% 0.25%
For purposes of the foregoing, (i) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different Levels, the Applicable Rate shall be based on the higher of the two ratings (i.e., the lower Level number) unless one of the two ratings is two or more Levels lower than the other, in which case the Applicable Rate shall be determined by reference to the Level next below that of the higher of the two Levels; and (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation. If, on any date, the outstanding principal amount of the Loans or the "Loans" under the 364-Day Credit Agreement exceeds 50% of the aggregate amount of the Commitments or the "Commitments" under the 364-Day Credit Agreement, as the case may be (or, during the period after the Commitments or such "Commitments", as the case may be, have terminated, 50% of the aggregate amount of the Commitments or such "Commitments", as the case may be, immediately prior to such termination), the Eurodollar Spread or ABR Spread, as the case may be, for such date shall increase by the amount set forth in the above grid under the caption "Utilization Fee Rate," based upon the ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt. "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be reasonably 7 3 determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Liz Claiborne, Inc., a Delaware corporation. "Borrowing" means Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" means the obligations of the Borrower and its Subsidiaries to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a consolidated balance sheet of the Borrower under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of shares representing more than 33 1/3% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated. 8 4 "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.12(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.06 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. "Conduit Lender" means any special purpose corporation organized and administered by any Lender for the purpose of making Loans hereunder otherwise required to be made by such Lender and designated by such Lender in a written instrument, subject to the consent of the Borrower (which, in each case, shall not be unreasonably withheld or delayed); provided, that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all consents and waivers required or requested under this Agreement with respect to its Conduit Lender; and provided further, that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Section 2.12, 2.13, 2.14 or 9.03 than the designating Lender would have been entitled to receive in respect of the extensions of credit made by such Conduit Lender or (b) be deemed to have any Commitment hereunder. "Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income or franchise tax expense, (b) interest expense, both expensed and capitalized, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring non-cash expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, non-cash losses on sales of assets outside of the ordinary course of business), and (f) any other non-cash charges, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income, (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the 9 5 sales of assets outside of the ordinary course of business) and (c) any other non-cash income, all as determined on a consolidated basis. "Consolidated EBITDAR" means, with respect to any period, Consolidated EBITDA for such period plus the Consolidated Rental Expense of the Borrower for such period. "Consolidated Interest Expense" means, for any period, (a) the total amount of interest expense, both expensed and capitalized, of the Borrower and its Subsidiaries determined on a consolidated basis, without duplication, in accordance with GAAP for such period minus (b) the amount of interest income of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP for such period "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of a Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of such Borrower or is merged into or consolidated with such Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of such Borrower) in which such Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by such Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of such Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under the Agreement) or Requirement of Law applicable to such Subsidiary. "Consolidated Rental Expense" means, for any period, the aggregate amount of fixed and contingent rentals payable by the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP with respect to leases of real property minus the aggregate amount of rental income (including licensee related income from licensees operating on the store premises of the Borrower and its Subsidiaries) payable to the Borrower and its Subsidiaries for such period in accordance with GAAP with respect to leases of real and personal property. "Consolidated Total Debt" means, at any date, the aggregate principal amount of the Indebtedness of the Borrower and its Subsidiaries at such date set forth on the Borrower's consolidated balance sheet opposite the captions "Current Portion of Long Term Borrowings," "Long Term Borrowings" and "Short Term Borrowings," determined on a consolidated basis in accordance with GAAP. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. 10 6 "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06. "Documentation Agent" means Bank One, NA. "dollars" or "$" refers to lawful money of the United States of America unless otherwise specified. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "Environmental Laws" means all applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, which relate in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to human health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary, directly or indirectly, resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract or agreement pursuant to which liability is incurred by the Borrower or any Subsidiary with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any 11 7 Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.16(b)), any United States withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or at the time such Lender changes its applicable lending office or is attributable to such Foreign Lender's failure or inability to comply with Section 2.14(e), except to the extent that such Foreign Lender's assignor (if any) or such Foreign Lender, in the case of a Lender that changes its applicable lending office, was entitled, at the time of assignment or at the time of the change in applicable lending office, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.14(a). "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the Senior Vice-President - Finance and Administration, chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "Fixed Charge Coverage Ratio" means, as at the last day of any period, Consolidated EBITDAR divided by the sum of Consolidated Interest Expense plus Consolidated Rental Expense. 12 8 "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, and all other substances or wastes regulated under any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of 13 9 Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include, without duplication, the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Index Debt" means senior, unsecured, long-term indebtedness for borrowed money of the Borrower that is not guaranteed by any other Person or subject to any other credit enhancement. "Interest Election Request" means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.05. "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. "Interest Period" means with respect to any Eurodollar Loan, the period commencing on the date of such Loan and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or to the extent available to all Lenders, nine or twelve months) thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Loan that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made or if initially an ABR Loan, on the date initially converted and, in the case of a Eurodollar Loan, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "Leverage Ratio" means, as at the last day of any period, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period. 14 10 "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means this Agreement, the Subsidiary Guarantee and any Notes. "Loan Parties" means the Borrower and each Subsidiary that is a party to a Loan Document. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement and the Subsidiary Guarantee. "Material Indebtedness" means Indebtedness (other than the Loans), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $25,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Maturity Date" means November 16, 2003. "Moody's" means Moody's Investors Service, Inc. 15 11 "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Note" has the meaning set forth in Section 2.07(e). "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Acquisition" means any acquisition by the Borrower or any Subsidiary of any of the assets of, or capital stock in, a Person or of a division or line of business of a Person if, immediately after giving effect thereto, (a) no Default has occurred and is continuing or would result therefrom, (b) the principal business of any such acquired Person, division or line of business shall be a Permitted Line of Business, (c) all actions required to be taken under Section 5.10 with respect to any Subsidiary acquired or newly formed in connection with such acquisition have been taken, (d) the Borrower and its Subsidiaries are in compliance, on a pro forma basis after giving effect to such acquisition, with the covenants contained in Section 6.01 recomputed as at the last day of the most recently ended fiscal quarter of the Borrower for which financial statements are available, as if such acquisition had occurred on the first day of each relevant period for testing such compliance and (e) the Borrower has delivered to the Administrative Agent an officers' certificate to the effect set forth in clauses (a), (b), (c) and (d) above, together with all relevant financial information for the Person or assets to be acquired and reasonably detailed calculations demonstrating satisfaction of the requirement set forth in clause (d) above. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.05; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.05; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) Liens granted and deposits made to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and 16 12 (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Permitted Lines of Business" means (a) the business of the Borrower as conducted on the Effective Date, (b) any wholesale, retail or other distribution of products (including catalogue and internet) or services under any Trademark or any derivative thereof, (c) any similar business and any business which provides a service and/or supplies products in connection with any business described in clause (a) or (b) above or (d) any reasonable modification or extension thereof. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Register" has the meaning set forth in Section 9.04(c). "Regulation U" means Regulation U of the Board as in effect from time to time. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time. "Requirement of Law" means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. 17 13 "Responsible Officer" means the chief executive officer, president, any vice president or Financial Officer of the Borrower, but in any event, with respect to financial matters, a Financial Officer of the Borrower. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Borrower. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans at such time. "Revolving Loan" means a Loan made pursuant to Section 2.03. "S&P" means Standard & Poor's Ratings Services, a division of the McGraw Hill Companies, Inc. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Indebtedness" means any Indebtedness of the Borrower, provided that with respect to any such Indebtedness (i) no part of the principal of such Indebtedness is stated to be payable or is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the Maturity Date and the payment of principal of which and (subject to clause (ii) below) any other obligations of the Borrower in respect thereof are subordinated to the prior payment in full of principal of and interest (including post-petition interest) on the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent and the Lenders hereunder on terms and conditions first approved in writing by the Required Lenders, (ii) no part of the interest accruing on such Indebtedness (other than interest payable solely in kind which shall be similarly subordinated) is payable, without the prior written consent of the Required Lenders, after a Default or Event of Default has occurred and is continuing, and (iii) such Indebtedness otherwise contains terms, covenants and conditions in form and substance reasonably satisfactory to the Required Lenders, as evidenced by their prior written approval thereof. 18 14 "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any wholly-owned subsidiary of the Borrower and any other subsidiary of the Borrower that the Borrower and the Administrative Agent agree in writing to designate as a "Subsidiary", it being understood that the Borrower and the Administrative Agent have agreed to designate each of the entities set forth on Schedule 3.13 as a Subsidiary. "Subsidiary Guarantee" means the Subsidiary Guarantee, substantially in the form of Exhibit C, among the Subsidiary Guarantors signatories thereto and the Administrative Agent, for the benefit of the Lenders. "Subsidiary Guarantor" means each Subsidiary indicated on Schedule 3.13 as being a "Subsidiary Guarantor", together with each other Subsidiary that becomes a party to the Subsidiary Guarantee in compliance with Section 5.10. "Syndication Agent" means Fleet National Bank "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. "364-Day Credit Agreement" means the 364-Day Credit Agreement dated as of November 16, 2000, (as amended, supplemented or otherwise modified from time to time in accordance with its terms) among the Borrower, the financial institutions party thereto, the Syndication Agent, Documentation Agent and the Administrative Agent, providing for a 364-Day credit facility in an initial aggregate amount of $500,000,000. "Trademarks" has the meaning set forth in Section 5.06. 19 15 "Transactions" means the execution, delivery and performance by the Borrower of this Agreement and by the Subsidiary Guarantors of the Subsidiary Guarantee, the borrowing of Loans, the use of the proceeds thereof. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the LIBO Rate or the Alternate Base Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein," "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.03. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. 20 16 ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures exceeding the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.11, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $1,000,000; provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of 15 Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the 21 17 Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the case of the Borrower, the interest rate otherwise applicable to such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. 22 18 SECTION 2.05. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such 23 19 Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.06. Termination and Reduction of Commitments. Unless previously terminated, the Commitments shall terminate on the Maturity Date. (a) The Borrower may at any time terminate, or from time to time reduce, the Commitments without penalty; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.08, the sum of the Revolving Credit Exposures would exceed the total Commitments. (b) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (a) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. 24 20 (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note (a "Note"). In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.08. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part without penalty, except as provided in Section 2.13, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.06, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.06. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing, and the remainder of such Borrowing after giving effect to such prepayment, shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.10. SECTION 2.09. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Rate on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the Effective Date to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, 25 21 commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees and utilization fees, to the Lenders. Fees paid shall not be refundable under any circumstances. SECTION 2.10. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided above. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion and (iv) all accrued interest shall be payable upon termination of the Commitments (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.11. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: 26 22 (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowing, then the other Type of Borrowing shall be permitted. SECTION 2.12. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (including the type referred to in clause (b) of the definition of "Statutory Reserve Rate" in Section 1.01 ); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive 27 23 absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than three months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the three-month period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.13. Break Funding Payments. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement, (c) the making of a prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto, (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.16. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued or assigned for the period from the date of such prepayment or of such failure to borrow, convert or continue or assign to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, or assign the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Rate included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. SECTION 2.14. Taxes. (a) Any and all payments by or an account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. 28 24 (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender within 30 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or under Section 2.12, 2.13 or 2.14, or otherwise) prior to 3:00 p.m. New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except that payments pursuant to Sections 2.12, 2.13, 2.14 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such 29 25 parties, and (ii) second, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. (e) If any Lender shall fail to make any payment required to be made by it pursuant to 2.04(b) or 2.15(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.16. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such 30 26 designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) if such assignee is not a Lender, the Borrower shall have received the prior written consent of the Administrative Agent which consent shall not be unreasonably withheld or delayed, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. SECTION 2.17. Source of Funds. None of the funds to be lent pursuant to this Agreement are assets of an employee benefit plan or constitute "plan assets" within the meaning of Department of Labor Regulation Section 2510.3-101. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in 31 27 accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries in a manner which could reasonably be expected to have a Material Adverse Effect, and (d) will not result in the creation or imposition of any material Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended January 1, 2000, reported on by Arthur Andersen LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 2000, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. The Borrower and its Subsidiaries do not have any material Guarantees, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the financial statements referred to in this paragraph or in the notes thereto (and, in the case of such lease or commitment, which is required in accordance with GAAP to be reflected in such statements or notes) or which has not otherwise been disclosed to the Lenders in writing. (b) Since September 30, 2000, there has been no development, event or circumstance that has had or could reasonably be expected to have a Material Adverse Effect. SECTION 3.05. Properties; Liens. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, and none of such property is subject to any Lien, except as permitted by Section 6.03. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 32 28 SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement, any other Loan Document or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law, (ii) is subject to any Environmental Liability, (iii) has received any written notice of any claim with respect to any Environmental Liability or (iv) has knowledge of any reason to reasonably conclude that Environmental Liability will be incurred. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.08. No Default. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation or any order, award or decree of any Governmental Authority or arbitrator binding upon it or its properties in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 3.09. Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.10. No Burdensome Restrictions. Neither the Borrower nor any Subsidiary is a party to any indenture, agreement, lease or other instrument which is so unusual or burdensome such that it could be reasonably expected to have a Material Adverse Effect. SECTION 3.11. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and have paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. 33 29 SECTION 3.12. Federal Regulations. No part of the proceeds of any Loans hereunder will be used, directly or indirectly, for "buying" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board as now and from time to time hereafter in effect or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of such Board. If requested by the Agent or any Lender, the Borrower will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. SECTION 3.13. Subsidiaries. Schedule 3.13 sets forth as of the date hereof the name, and, where applicable, the jurisdiction of organization, number of authorized and issued shares and ownership of each Subsidiary of the Borrower. SECTION 3.14. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan, except to the extent any such excess (individually or in the aggregate) could not reasonably be expected to have a Material Adverse Effect, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of all such underfunded Plans except to the extent any such excess (individually or in the aggregate) could not reasonably be expected to have a Material Adverse Effect. SECTION 3.15. Disclosure. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contain any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. ARTICLE IV Conditions SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): 34 30 (a) The Administrative Agent (or its counsel) shall have received (i) either (A) a counterpart of this Agreement, executed and delivered by a duly authorized officer of the Borrower or (B) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (ii) a counterpart of the Subsidiary Guarantee, executed and delivered by a duly authorized officer of each Subsidiary Guarantor. (b) The Administrative Agent shall have received favorable written opinions (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of (i) Kramer Levin Naftalis & Frankel LLP, counsel for the Borrower, substantially in the form of Exhibit B-1, and (ii) Roberta S. Karp, General Counsel of the Borrower, substantially in the form of Exhibit B-2, and each opinion covering such other matters relating to the Borrower, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received all government approvals necessary or, in the discretion of the Administrative Agent, advisable in connection with the financing contemplated hereby and the continuing operations of the Borrower and its Subsidiaries shall have been obtained and be in full force and effect. (d) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower and its Subsidiaries, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel. (e) The Administrative Agent shall have received (i) audited consolidated financial statements of the Borrower for the two most recent fiscal years ended prior to the Effective Date as to which such financial statements are available and (ii) unaudited interim consolidated financial statements of the Borrower for each quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available. (f) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the president, a vice president or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02 (with such paragraph (a) being deemed for this purpose not to include the parenthetical clause included therein). (g) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. 35 31 The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on November 16, 2000 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrower set forth in this Agreement (except the representations set forth in Section 3.04(b), Section 3.06 and the first sentence of Section 3.08) shall be true and correct in all material respects on and as of the date of such Borrowing, except for representations and warranties which are made as of a specific date which shall be true and correct as of such date. (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements. The Borrower will furnish to the Administrative Agent and each Lender: (a) as soon as available, but in any event within 2 Business Days after the end of 90 days following the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Arthur Andersen LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event within 2 Business Days after the end of 45 days following the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of 36 32 such quarter, setting forth in each case in comparative form the figures for the previous year, signed by a Responsible Officer (subject to normal year-end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). SECTION 5.02. Certificates; Other Information. The Borrower will furnish to the Administrative Agent and each Lender (or, in the case of clause (d), to the relevant Lender): (a) concurrently with the delivery of the financial statements referred to in Section 5.01(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of any financial statements pursuant to Section 5.01, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, a Certificate containing all information and calculations necessary for determining compliance by the Borrower and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be; (c) within five days after the same are sent, copies of all financial statements and reports that the Borrower sends to the holders of any class of its debt securities or public equity securities and, within five days after the same are filed, copies of all financial statements and reports that the Borrower may make to, or file with, the Securities and Exchange Commission, or any Governmental Authority; and (d) promptly, such additional financial and other information as any Lender may from time to time reasonably request. SECTION 5.03. Notices of Material Events. The Borrower will promptly (and in any event within five days after the Borrower knows of the following events) furnish to the Administrative Agent and each Lender written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; 37 33 (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to have a Material Adverse Effect; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.04. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of Permitted Lines of Business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.04. SECTION 5.05. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.06. Maintenance of Properties and Trademarks; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, provided that the Borrower shall, in good faith, determine when to repair any property, (b) take all action reasonably necessary or desirable in accordance with good business practices to (i) maintain in full force and effect such domestic and foreign patents, trademarks, service marks, trade names, copyrights and licenses and such material rights with respect to the foregoing, now or hereafter acquired, in each case necessary for the conduct of its business (collectively, the "Trademarks") and (ii) protect all domestic and foreign Trademarks against infringement by third parties and (c) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as a prudent Person engaged in the same or similar business of a similar size and otherwise similarly situated would maintain. SECTION 5.07. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit on an annual basis (or at any time and from time to time after the occurrence and during the continuance of a Default or Event of Default) any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, 38 34 finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.08. Environmental Laws. The Borrower will, and will use reasonable best efforts to cause each of its Subsidiaries to: (a) Comply in all material respects with, and use reasonable best efforts to ensure compliance in all material respects by their tenants and subtenants, if any, with, all applicable Environmental Laws, except for such matters of noncompliance which could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (b) Except to the extent being contested in good faith, conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws or by Governmental Authorities. SECTION 5.09. Compliance. The Borrower will, and will cause each of its Subsidiaries to, comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 5.10. Additional Subsidiaries. The Borrower will, with respect to any Person that, subsequent to the Effective Date, becomes a Subsidiary organized in a jurisdiction within the United States, promptly cause such new Subsidiary to become a party to the Subsidiary Guarantee pursuant to documentation which is in form and substance satisfactory to the Administrative Agent; provided that the Administrative Agent and the Borrower may agree in writing that any non-material or less than wholly-owned Subsidiary need not become a Subsidiary Guarantor. SECTION 5.11. Use of Proceeds. The proceeds of the Loans will be used only to refinance existing debt, provide working capital and for other general corporate purposes of the Borrower, including, without limitation, capital expenditures, stock repurchases, Permitted Acquisitions and support of its commercial paper facility. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X. ARTICLE VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. Financial Covenants. 39 35 (a) Leverage Ratio. The Borrower will not permit the Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower to exceed 2.50 to 1.00. (b) Fixed Charge Coverage Ratio. The Borrower will not permit the Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower to be less than (i) 2.25 to 1.00 from the Closing Date until but excluding the first anniversary thereof, (ii) 2.50 to 1.00 from the first anniversary of the Closing Date until but excluding the second anniversary thereof and (iii) 2.75 to 1.00 from and after the second anniversary of the Closing Date. SECTION 6.02. Indebtedness. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness created hereunder; (b) Indebtedness existing on the date hereof and set forth in Schedule 6.02; (c) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary; (d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary; (e) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, provided that (i) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (e) shall not exceed $150,000,000 at any time outstanding; (f) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that (i) such Indebtedness exists or is committed at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (ii) the Borrower and its Subsidiaries are in compliance, on a pro forma basis after giving effect to such acquisition, with the covenants contained in Section 6.01 recomputed as at the last day of the most recently ended fiscal quarter of the Borrower for which financial statements are available, as if such acquisition had occurred on the first day of each relevant period for testing such compliance; (g) Indebtedness of the Borrower or any Subsidiary incurred (a) as an account party in respect of trade letters of credit issued in the ordinary course of business and (b) in connection with standby letters of credit in an aggregate principal amount not exceeding $25,000,000 at any time outstanding; 40 36 (h) Indebtedness of the Borrower or any Subsidiary in respect of commercial paper; provided that the aggregate amount of such Indebtedness, when added to the aggregate amount of outstanding Loans and "Loans" under the 364-Day Credit Agreement, shall not exceed the aggregate amount of the Commitments and the "Commitments" under the 364-Day Credit Agreement; (i) Subordinated Indebtedness; (j) any refinancings, refundings, renewals or extensions of Indebtedness permitted hereunder that do not increase the outstanding principal amount of such Indebtedness; (k) additional Indebtedness not otherwise permitted hereunder secured by Liens and not exceeding $100,000,000 in aggregate principal amount at any time outstanding; (l) Indebtedness not otherwise permitted hereunder, not secured by any Lien and incurred after the date hereof; provided that the Borrower and its Subsidiaries are in compliance, on a pro forma basis after giving effect to such Indebtedness, with the covenants contained in Section 6.01 recomputed as at the last day of the most recently ended fiscal quarter of the Borrower for which financial statements are available, as if such Indebtedness had been incurred on the first day of each relevant period for testing such compliance; and (m) Indebtedness created under the 364-Day Credit Agreement. SECTION 6.03. Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.03; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (c) Liens arising by the terms of letters of credit entered into in the ordinary course of business to secure reimbursement obligations and other obligations in connection therewith; (d) Liens solely constituting the right of any other Person to a share of any licensing royalties (pursuant to a licensing agreement or other related agreement entered into by the Borrower or any of its Subsidiaries with such Person in the ordinary course of the Borrower's or such Subsidiary's business) otherwise payable to the Borrower or any 41 37 of its Subsidiaries, provided that such right shall have been conveyed to such Person for consideration received by the Borrower or such Subsidiary on an arm's-length basis; (e) Liens arising by reason of any judgment, decree or order of any court or other Governmental Authority for the payment of money in aggregate amount not to exceed $25,000,000 at any time outstanding; (f) Liens arising in connection with factoring accounts receivable related to any acquired Subsidiary; provided that such factoring shall not continue for a period longer than one year from the date such Subsidiary is acquired; (g) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (h) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by clause (e) of Section 6.02, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; and (i) Liens securing Indebtedness permitted under Sections 6.02(j) and 6.02(k); provided that with respect to Indebtedness incurred pursuant to Section 6.02(j) no such Lien is spread to cover additional property. SECTION 6.04. Fundamental Changes. Except in connection with transactions otherwise permitted pursuant to Section 6.05 or 6.06, the Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto, no Default shall have occurred and be continuing (i) any Person may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Person may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary and, if required to be so under Section 5.10, a Subsidiary Guarantor, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary which is 42 38 a Subsidiary Guarantor and (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided that any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.05. SECTION 6.05. Investments, Loans, Advances, Guarantees and Acquisitions; Hedging Agreements. (a) The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (i) existing investments not otherwise permitted under this Agreement and described in Schedule 6.05(i) hereto; (ii) investments made in accordance with the investment policy of the Borrower as set forth on Schedule 6.05(ii) hereto; as provided that any material amendment or other material modification to such policy is subject to the approval of the Administrative Agent in its reasonable discretion; (iii) investments by the Borrower in the capital stock of its Subsidiaries; (iv) Permitted Acquisitions; (v) investments received in connection with the bona fide settlement of any defaulted Indebtedness or other liability owed to the Borrower or any Subsidiary; (vi) advances or loans made in the ordinary course of business to employees of the Borrower or any of its Subsidiaries in an aggregate amount not to exceed $10,000,000 at any time outstanding; (vii) loans or advances to third party contractors, suppliers or customers in the ordinary course of business and consistent with past practice; (viii) loans or advances made by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary; (ix) guarantees by the Borrower or any Subsidiary of obligations of the Borrower or any other Subsidiary which do not constitute Indebtedness; (x) Guarantees constituting Indebtedness permitted by Section 6.02; and (xi) any other investments in, advances or loans to or Guarantees of, any Person in an aggregate amount not to exceed $200,000,000 at any time outstanding; 43 39 (b) The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business (including, without limitation, Hedging Agreements in connection with the Borrower's stock repurchase program) to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. SECTION 6.06. Limitation on Sale of Assets. Except in the ordinary course of business, the Borrower will not, and will not permit any of its Subsidiaries to, sell, convey, lease, transfer or otherwise dispose of (other than as otherwise permitted by Section 6.04 or 6.05) all or any substantial part of its assets; provided that the foregoing shall not prohibit any such sale, conveyance, lease, transfer or disposition (i) which (x) is for a price not materially less than the fair market value of such assets of the Borrower or such Subsidiary, (y) would not materially impair the ability of the Borrower to perform its obligations under this Agreement and (z) together with all other such sales, conveyances, leases, transfers and dispositions, would have no Material Adverse Effect, (ii) of assets that individually or in the aggregate constitute less than 15% of the total assets of the Borrower and its Subsidiaries taken as a whole or (iii) of assets in connection with factoring arrangements with respect to any acquired Subsidiary, provided that such factoring arrangements do not continue longer than a year after such Subsidiary is acquired by the Borrower. SECTION 6.07. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) so long as no Default or Event of Default has occurred and is continuing, the Borrower may declare and pay dividends with respect to its capital stock, (c) any Subsidiary may declare and pay dividends to the Borrower or, in the case of any Subsidiary that is wholly owned by another Subsidiary, to such other Subsidiary, (d) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (e) so long as no Default or Event of Default has occurred and is continuing, the Borrower may repurchase its capital stock pursuant to its stock repurchase program and (f) so long as no Default or Event of Default has occurred and is continuing, the Borrower may make Restricted Payments in connection with the repurchase of the Capital Stock of Lucky Brands, Inc. and Segrets, Inc. SECTION 6.08. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.07. SECTION 6.09. Changes in Fiscal Periods. The Borrower will not, and will not permit any of its Subsidiaries to, permit the fiscal year of such Borrower to end on a day other 44 40 than the last Saturday closest to December 31 or change such Borrower's method of determining fiscal quarters. SECTION 6.10. Lines of Business. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any business, either directly or through any Subsidiary, except for Permitted Lines of Business. ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days; (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof, shall prove to have been materially incorrect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.04 (with respect to the Borrower's existence) or 5.11 or in Article VI; (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of any Lender) to the Borrower; (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable (after giving effect to any applicable period of grace); (g) any default or any event of default with respect to any Material Indebtedness which results in such Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the 45 41 lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $25,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; or (m) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent with the consent of the Required Lenders may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments 46 42 shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII The Administrative Agent Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, 47 43 instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facility provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in 48 44 taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. Neither the Documentation Agent or Syndication Agent shall have any duties or responsibilities hereunder in its capacity as such. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows: (a) if to the Borrower, to it at Liz Claiborne, Inc., One Claiborne Avenue, North Bergen, New Jersey 07047, Attention of Robert Vill (Facsimile No. 201-295-7825); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Jesus Sang (Facsimile No. (212) 270-0002), with a copy to The Chase Manhattan Bank, 1411 Broadway, New York 10018, Attention of Liz Claiborne Relationship Manager (Facsimile No. (212) 391-7118); and (c) if to any other Lender, to it at its address (or number) set forth in its Administrative Questionnaire. Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. 49 45 (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.15(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) except in connection with transactions otherwise permitted pursuant to Section 6.04, 6.05 or 6.06, release all or substantially all of the Subsidiary Guarantors from their obligations under the Subsidiary Guarantee, without the written consent of each Lender, or (vi) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and Chase Securities Inc., including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facility provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by any Administrative Agent or any Lender, including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof. (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the 50 46 foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions or any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly no later than seven (7) days after written demand therefor. SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender other than a Conduit Lender, each of the Borrower and the Administrative Agent must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and 51 47 deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (a), (b), (h) or (i) of Article VII has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled, (with respect to the period prior to such assignment ) to the benefits of Sections 2.12, 2.13, 2.14 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. Notwithstanding the foregoing, any Conduit Lender may assign at any time to its designating Lender hereunder with the consent of the Borrower, any or all of the Loans it may have funded hereunder and pursuant to its designation agreement. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and 52 48 (iv) all Participants shall represent, for the benefit of Borrower, that none of the participation interests are being acquired with assets of an employee benefit plan or with assets that constitute "plan assets" under Department of Labor Regulation Section 2510.3-101 . Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Sections 2.12, 2.13 or 2.14 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.14 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.14(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. (h) Each of the Borrower, the Subsidiary Guarantors and each Lender hereby confirms that it will not institute against a Conduit Lender or join any other Person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided, however, that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance. SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is 53 49 outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12, 2.13, 2.14 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured provided that such Lender shall promptly notify the Borrower of such setoff. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any 54 50 such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Confidentiality. Each of the Administrative Agent and the Lenders expressly agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an 55 51 agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information, provided, however, in no event less than reasonable care. 56 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. LIZ CLAIBORNE, INC. by /s/Robert Vill ----------------------- Name: Robert Vill Title: Vice President Treasury, Investor Relations and Treasurer THE CHASE MANHATTAN BANK, individually and as Administrative Agent by /s/Thomas H. Bell ----------------------- Name: Thomas H. Bell Title: Vice President FLEET NATIONAL BANK, individually and as Syndication Agent by /s/Thomas J. Bullard ------------------------- Name: Thomas J. Bullard Title: Director BANK ONE, NA (MAIN OFFICE CHICAGO), individually and as Documentation Agent by /s/John D. Runger ---------------------- Name: John D. Runger Title: Senior Vice President 57 53 BANK OF AMERICA N.A. by /s/Deirdre B. Doyle ------------------------ Name: Deirdre B. Doyle Title: Principal SUNTRUST BANKS, INC. by /s/Laura Kahn ------------------ Name: Laura Kahn Title: Director, Senior Relationship Manager THE HUNTINGTON NATIONAL BANK by /s/Laura Conway -------------------- Name: Laura Conway Title: Vice President CREDIT SUISSE FIRST BOSTON by /s/Robert N. Finney ------------------------ Name: Robert N. Finney Title: Managing Director by /s/Vitaly G. Butenko ---------------------- Name: Vitaly G. Butenko Title: Assistant Vice President CITIBANK, N.A. by /s/Marc Merlino -------------------- Name: Marc Merlino Title: Vice President UNION BANK OF CALIFORNIA, N.A. by /s/Theresa L. Rocha -------------------------- Name: Theresa L. Rocha Title: Vice President 58 54 FIRSTAR BANK, N.A. by /s/Thomas L. Bayer ------------------------ Name: Thomas L. Bayer Title: Vice President FIRST UNION NATIONAL BANK by /s/Christopher M. McLaughlin ---------------------------- Name: Christopher M. McLaughlin Title: Vice President HSBC BANK USA by /s/Adriana Collins -------------------- Name: Adriana Collins Title: Vice President BANK LEUMI USA by /s/John Koenigsberg ------------------------- Name: John Koenigsberg Title: First Vice President by /s/Phyllis Rosenfeld ------------------------ Name: Phyllis Rosenfeld Title: Vice President COMERICA BANK by /s/ Joel S. Gordon ----------------------- Name: Joel S. Gordon Title: Account Officer 59 55 THE BANK OF NEW YORK by /s/Michael V. Flannery --------------------------- Name: Michael V. Flannery Title: Vice President WELLS FARGO BANK by /s/Peter M. Angolica ---------------------- Name: Peter M. Angolica Title: Vice President by /s/Bradley A. Hardy ---------------------- Name: Bradley A. Hardy Title: Vice President 60 SCHEDULE 2.01 COMMITMENTS
BANK COMMITMENT - ------------------------------------------------------ ------------------ The Chase Manhattan Bank ............................. $ 31,666,666.67 Fleet National Bank .................................. $ 28,333,333.33 Bank One, NA ......................................... $ 28,333,333.33 BankAmerica .......................................... $ 16,666,666.67 SunTrust Bank, Inc. .................................. $ 16,666,666.67 The Huntington National Bank ......................... $ 16,666,666.67 Credit Suisse First Boston ........................... $ 16,666,666.67 Citicorp ............................................. $ 16,666,666.67 Union Bank of California ............................. $ 11,666,666.67 Firstar Bank, N.A .................................... $ 10,000,000.00 First Union .......................................... $ 10,000,000.00 HSBC Bank USA ........................................ $ 10,000,000.00 Bank Leumi ........................................... $ 10,000,000.00 Comerica Bank ........................................ $ 10,000,000.00 The Bank of New York ................................. $ 10,000,000.00 Wells Fargo Bank ..................................... $ 6,666,666.67 TOTAL ................................................ $ 250,000,000.00
61 SCHEDULE 3.06 DISCLOSED MATTERS See Part II, Item 1- "Legal Proceedings" contained in Borrower's Quarterly Report on Form 10Q for the period ended September 30, 2000. 62 SCHEDULE 3.13 SUBSIDIARIES
Name Jurisdiction of Incorporation Liz Claiborne Cosmetics, Inc.* Delaware Liz Claiborne Accessories, Inc.* Delaware Liz Claiborne Accessories - Sales, Inc.* Delaware Liz Claiborne Export, Inc.* Delaware Liz Claiborne Foreign Holdings, Inc.* Delaware Monet Puerto Rico Inc.* Delaware L. C. Licensing, Inc.* Delaware Liz Claiborne Sales, Inc.* Delaware Liz Claiborne-Texas, Inc.* Delaware LCI Investments, Inc.* Delaware LCI Holdings, Inc.* Delaware L.C. Caribbean Holdings, Inc.* Delaware Liz Claiborne Shoes, Inc.* Delaware L.C. Service Company, Inc.* Delaware LC/QL Investments, Inc.* Delaware L.C. Dyeing, Inc.* Delaware L.C. Augusta, Inc.* Delaware L.C. Special Markets, Inc.* Delaware DB Newco Corp.* Delaware Liz Claiborne Japan, Inc.* Delaware LC Libra, LLC* Delaware L.C.K.C., LLC* Delaware Monet International Inc.* Delaware LCI Laundry Inc.* California Lucky Brand Dungarees, Inc. Delaware Lucky Brand Dungarees Stores, Inc. Delaware Liz Claiborne Puerto Rico Inc.* Delaware Liz Claiborne Foreign Sales Corporation British Virgin Islands Segrets, Inc. Delaware Segrets Stores, Inc. Delaware * Indicates a Subsidiary Guarantor
63 SCHEDULE 6.02 EXISTING INDEBTEDNESS
First Union National Bank L/C Credit Line $200,000,000 Fleet National Bank L/C Credit Line 125,000,000 Huntington National Bank L/C Credit Line 100,000,000 HSBC Bank Standby L/C Credit Line 10,000,000 Other HSBC - U.K. Standby L/C's 675,000 Other Fortio Bank - Netherlands Standby L/C's 182,000 Pennsylvania Industrial Development Authority Loan 504,730 Intecompany Debt - Liz Claiborne International 101,970,000 Synthetic Lease - Pending Sun Trust Bank - Midwest Distribution Center 60,000,000 Capitalized Leases Laundry - General Electric - IBM 124,573 Laundry - General Electric - Gerber 176,391 Conditional Purchase Price Payments Lucky Brands - ($15 minimum) 45,000,000 Segrets additional remaining equity investment Approximately 2.3% at fair market value - current estimate 600,000 ------------ $644,232,694
64 SCHEDULE 6.03 EXISTING LIENS None 65 SCHEDULE 6.05(i) EXISTING INVESTMENTS
10/31/00 Closing Price ------------- Vanguard 500 Index Fund 62,110.00 shares $132.02 $8,200,000.00 Kenneth Cole Productions Class A Stock 1,500,000 shares $45.00 $67,500,000.00 -------------- $75,700,000.00
66 SCHEDULE 6.05(ii) BORROWER'S INVESTMENT POLICY Effective: 08/24/99 ================================================================================ OBJECTIVE 1) To establish the policies and guidelines governing the investment of idle or surplus cash generated by the company 2) To define the minimum acceptable credit and maximum market exposure of an investment 3) To identify those individuals authorized to transact business on behalf of, and for the benefit of the company SCOPE Unless specifically limited in the text, these policies and guidelines are applicable to Liz Claiborne, Inc. and all of its subsidiaries. All currency representations within this policy are in U.S. Dollars. POLICY To maximize the utilization of idle or surplus cash by investing in accordance with principles of sound investment management and the guidelines set forth in this Investment Policy. The criteria for the selection of cash investments will be as follows: First: Preservation of Capital Second: Liquidity/Marketability Third: Maximization of after-tax yield INDIVIDUALS AUTHORIZED TO TRADE 1) CFO 2) VP Investor Relations and Treasury, Treasurer 3) VP Cash and Risk Management 4) Portfolio/Risk Manager 5) Cash Manager* * In the absence of the Cash Manager, the Senior Treasury Analyst may invest daily surplus cash in any of the approved Institutional Money Market Funds. 67 APPROVED INVESTMENT VEHICLES AND REQUIREMENTS See Appendix A, "Investment Guidelines" TIME LIMITATIONS One year, except for: a) Up to three years for Government Securities b) Up to 15 months for Federal Agency Securities c) Up to four years for Municipal Bonds providing the total average maturity of all tax exempt bonds does not exceed 2 1/2 years. CUSTODY Limited to any of the following: a) Bear Stearns b) Chase Manhattan Bank c) Merrill Lynch d) Salomon Smith Barney POLICY DEVIATION Any deviation from these guidelines must be approved, in writing, by two members of the Investment Committee (comprised of the Senior Vice President Finance and Administration; CFO; VP Investor Relations and Treasury, Treasurer; VP Cash and Risk Management). If a rating is lowered, approval to hold the security must also be obtained, in writing, from two members of the Investment Committee. 68 APPENDIX A LIZ CLAIBORNE, INC. INVESTMENT GUIDELINES Effective: 08/24/99
LIMIT PER MAXIMUM % SECURITY ISSUE OF REQUIRED MINIMUM RATINGS (000's) PORTFOLIO S&P MOODY'S ADDITIONAL REQUIREMENTS - ---------------------------- ---------- --------- ----------- --- -------------- ------------------------------------------------- TAXABLE Credit ratings may rely on credit support - ---------------------------- ---------- --------- ----------- --- -------------- ------------------------------------------------- Bankers Acceptances 10,000 25% A-1 AND P-1 - None Commercial Paper 25,000 75% A-1 AND P-1 - Must be Direct Corporate Obligation or Corporate Parent Guaranty Corporate Bonds and Notes 25,000 75% AA- OR Aa3 - None Domestic Bank CD's 10,000 25% A-1 AND P-1 - None Eurodollar Deposits 10,000 20% A-1 AND P-1 - None Federal Agency Securities None 100% N/A N/A - None Foreign Bank CD's/Time 10,000 20% A-1 AND P-1 - None Deposits Institutional Money Market 50,000 100% N/A N/A - Fund Investment objectives/parameters must Funds be consistent with this policy - Fund may not deviate from a $1 per share price Repurchase Agreements 25,000 50% N/A N/A - Limited to US Government and/or Agency securities with collateralization at no less than 102% - 4 day maximum term US Treasury Obligations None 100% N/A N/A - None Taxable Debt 25,000 50% AAA OR Aaa - No more than 20% of any one issue (7/28 day Auction Rate Securities) - ---------------------------- ---------- --------- ----------- --- -------------- ------------------------------------------------- TAX EXEMPT/ADVANTAGED - ---------------------------- ---------- --------- ----------- --- -------------- ------------------------------------------------- Institutional Money Market 50,000 100% N/A N/A - Fund Investment objective/parameters must be Funds consistent with this policy - Fund may not deviate from a $1 per share price Municipal Bonds/Notes - Issue must be at least $25 million - - Short term 10,0000 100% SP-1 or A-1 AND VMIG1, MIG1 or - - Long term 20,000 10% AAA OR P-1 Aaa Daily/Weekly Municipal Put 15,000 50% SP-1 or A-1 AND VMIG1, MIG1 or - Issue must be at least $25 million Bonds P-1 Municipal Preferreds 25,000 100% AAA AND Aaa - No more than 20% of any one issue Money Market Preferreds 25,000 50% AA- OR Aa3 - No more than 20% of any one issue (49 day Auction Rate Securities) Tax Exempt Commercial Paper 15,000 50% AA- OR Aa3 - None Tax Exempt Debt 15,000 50% AAA OR Aaa - No more than 20% of any one issue (35 day Auction Rate Securities)
EX-10.Y 10 0010.txt 364 DAY CREDIT AGREEMENT 1 EXHIBIT 10(y) [CHASE LOGO] CREDIT AGREEMENT dated as of NOVEMBER 16, 2000 among LIZ CLAIBORNE, INC. The Lenders Party Hereto FLEET NATIONAL BANK, as Syndication Agent BANK ONE, NA, as Documentation Agent and THE CHASE MANHATTAN BANK, as Administrative Agent $500,000,000 364-DAY REVOLVING CREDIT FACILITY 2
Page TABLE OF CONTENTS ARTICLE I Definitions................................................................................ 1 SECTION 1.01. Defined Terms....................................................... 1 SECTION 1.02. Terms Generally..................................................... 15 SECTION 1.03. Accounting Terms; GAAP.............................................. 15 ARTICLE II The Credits................................................................................ 16 SECTION 2.01. Commitments......................................................... 16 SECTION 2.02. Loans and Borrowings................................................ 16 SECTION 2.03. Requests for Borrowings............................................. 16 SECTION 2.04. Funding of Borrowings............................................... 17 SECTION 2.05. Interest Elections.................................................. 18 SECTION 2.06. Termination and Reduction of Commitments............................ 19 SECTION 2.07. Repayment of Loans; Evidence of Debt................................ 19 SECTION 2.08. Prepayment of Loans................................................. 20 SECTION 2.09. Fees................................................................ 20 SECTION 2.10. Interest............................................................ 21 SECTION 2.11. Alternate Rate of Interest.......................................... 22 SECTION 2.12. Increased Costs..................................................... 22 SECTION 2.13. Break Funding Payments.............................................. 23 SECTION 2.14. Taxes............................................................... 23 SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs......... 24 SECTION 2.16. Mitigation Obligations; Replacement of Lenders...................... 26 SECTION 2.17. Source of Funds..................................................... 26 ARTICLE III Representations and Warranties............................................................. 26 SECTION 3.01. Organization; Powers................................................ 26 SECTION 3.02. Authorization; Enforceability....................................... 27 SECTION 3.03. Governmental Approvals; No Conflicts................................ 27 SECTION 3.04. Financial Condition; No Material Adverse Change..................... 27
-i- 3 SECTION 3.05. Properties; Liens................................................... 27 SECTION 3.06. Litigation and Environmental Matters................................ 28 SECTION 3.07. Compliance with Laws and Agreements................................. 28 SECTION 3.08. No Default.......................................................... 28 SECTION 3.09. Investment and Holding Company Status............................... 28 SECTION 3.10. No Burdensome Restrictions.......................................... 29 SECTION 3.11. Taxes............................................................... 29 SECTION 3.12. Federal Regulations................................................. 29 SECTION 3.13. Subsidiaries........................................................ 29 SECTION 3.14. ERISA............................................................... 29 SECTION 3.15. Disclosure.......................................................... 29 ARTICLE IV Conditions................................................................................. 30 SECTION 4.01. Effective Date...................................................... 30 SECTION 4.02. Each Credit Event................................................... 31 ARTICLE V Affirmative Covenants...................................................................... 31 SECTION 5.01. Financial Statements................................................ 31 SECTION 5.02. Certificates; Other Information..................................... 32 SECTION 5.03. Notices of Material Events.......................................... 33 SECTION 5.04. Existence; Conduct of Business...................................... 33 SECTION 5.05. Payment of Obligations.............................................. 33 SECTION 5.06. Maintenance of Properties and Trademarks; Insurance................. 33 SECTION 5.07. Books and Records; Inspection Rights................................ 34 SECTION 5.08. Environmental Laws.................................................. 34 SECTION 5.09. Compliance.......................................................... 34 SECTION 5.10. Additional Subsidiaries............................................. 34 SECTION 5.11. Use of Proceeds..................................................... 34 ARTICLE VI Negative Covenants.............................. 35 SECTION 6.01. Financial Covenants................................................. 35 SECTION 6.02. Indebtedness........................................................ 35 SECTION 6.03. Liens............................................................... 36 SECTION 6.04. Fundamental Changes................................................. 37 SECTION 6.05. Investments, Loans, Advances, Guarantees and Acquisitions; Hedging Agreements.......................................................... 38 SECTION 6.06. Limitation on Sale of Assets........................................ 39 SECTION 6.07. Restricted Payments................................................. 39
-ii- 4 SECTION 6.08. Transactions with Affiliates........................................ 39 SECTION 6.09. Changes in Fiscal Periods........................................... 40 SECTION 6.10. Lines of Business................................................... 40 ARTICLE VII Events of Default.......................................................................... 40 ARTICLE VIII The Administrative Agent................................................................... 42 ARTICLE IX Miscellaneous.............................................................................. 44 SECTION 9.01. Notices............................................................. 44 SECTION 9.02. Waivers; Amendments................................................. 44 SECTION 9.03. Expenses; Indemnity; Damage Waiver.................................. 45 SECTION 9.04. Successors and Assigns.............................................. 46 SECTION 9.05. Survival............................................................ 48 SECTION 9.06. Counterparts; Integration; Effectiveness............................ 49 SECTION 9.07. Severability........................................................ 49 SECTION 9.08. Right of Setoff..................................................... 49 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process.......... 49 SECTION 9.10. WAIVER OF JURY TRIAL................................................ 50 SECTION 9.11. Headings............................................................ 50 SECTION 9.12. Confidentiality..................................................... 50
SCHEDULES: Schedule 2.01 -- Commitments Schedule 3.06 -- Disclosed Matters Schedule 3.13 -- Subsidiaries Schedule 6.02 -- Existing Indebtedness Schedule 6.03 -- Existing Liens Schedule 6.05(i) -- Existing Investments Schedule 6.05(ii) -- Borrower's Investment Policy EXHIBITS: Exhibit A -- Form of Assignment and Acceptance Exhibit B -- Form of Opinion of Borrower's Counsel Exhibit C -- Form of Subsidiary Guarantee -v- 5 364-DAY CREDIT AGREEMENT dated as of November 16, 2000, among LIZ CLAIBORNE, INC., the LENDERS party hereto, FLEET NATIONAL BANK, as Syndication Agent, BANK ONE, NA, as Documentation Agent and THE CHASE MANHATTAN BANK, as Administrative Agent. The parties hereto agree as follows: ARTICLE I Definitions ARTICLE I SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agreement" means this 364-Day Credit Agreement, as amended, supplemented or otherwise modified from time to time in accordance with its terms. "Alternate Base Rate" means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, as applicable. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments. "Applicable Rate" means, for any day, with respect to any Eurodollar Revolving Loan or ABR Revolving Loan, as the case may be, or with respect to the facility fees payable hereunder, the applicable rate per annum set forth below under the caption "Eurodollar Spread," "ABR Spread" or "Facility Fee Rate," based upon the ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt: 6 2
===================================================================================== Eurodollar Facility Fee Utilization Level Index Debt Rating Spread ABR Spread Rate Fee Rate ----- ----------------- ------ ---------- ---- -------- I >= A-/A3 0.35% 0.00% 0.10% 0.125% II BBB+/Baa1 0.50% 0.00% 0.125% 0.125% III BBB/Baa2 0.60% 0.00% 0.15% 0.125% IV BBB-/Baa3 0.80% 0.00% 0.20% 0.25% V <= BB+/Ba1 1.075% 0.75% 0.25% 0.25%
For purposes of the foregoing, (i) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different Levels, the Applicable Rate shall be based on the higher of the two ratings (i.e., the lower Level number) unless one of the two ratings is two or more Levels lower than the other, in which case the Applicable Rate shall be determined by reference to the Level next below that of the higher of the two Levels; and (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rate shall be determined by reference to the rating most recently in effect prior to such change or cessation. If, on any date, the outstanding principal amount of the Loans or the "Loans" under the Three-Year Credit Agreement exceeds 50% of the aggregate amount of the Commitments or the "Commitments" under the Three-Year Credit Agreement, as the case may be (or, during the period after the Commitments or such "Commitments", as the case may be, have terminated, 50% of the aggregate amount of the Commitments or such "Commitments", as the case may be, immediately prior to such termination), the Eurodollar Spread or ABR Spread, as the case may be, for such date shall increase by the amount set forth in the above grid under the caption "Utilization Fee Rate," based upon the ratings by Moody's and S&P, respectively, applicable on such date to the Index Debt. "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall 7 3 be reasonably determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Liz Claiborne, Inc., a Delaware corporation. "Borrowing" means Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" means the obligations of the Borrower and its Subsidiaries to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a consolidated balance sheet of the Borrower under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of shares representing more than 33 1/3% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated. 8 4 "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.12(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.06 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. "Conduit Lender" means any special purpose corporation organized and administered by any Lender for the purpose of making Loans hereunder otherwise required to be made by such Lender and designated by such Lender in a written instrument, subject to the consent of the Borrower (which, in each case, shall not be unreasonably withheld or delayed); provided, that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all consents and waivers required or requested under this Agreement with respect to its Conduit Lender; and provided further, that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Section 2.12, 2.13, 2.14 or 9.03 than the designating Lender would have been entitled to receive in respect of the extensions of credit made by such Conduit Lender or (b) be deemed to have any Commitment hereunder. "Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income or franchise tax expense, (b) interest expense, both expensed and capitalized, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring non-cash expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, non-cash losses on sales of assets outside of the ordinary course of business), and (f) any other non-cash charges, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income, (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the 9 5 sales of assets outside of the ordinary course of business) and (c) any other non-cash income, all as determined on a consolidated basis. "Consolidated EBITDAR" means, with respect to any period, Consolidated EBITDA for such period plus the Consolidated Rental Expense of the Borrower for such period. "Consolidated Interest Expense" means, for any period, (a) the total amount of interest expense, both expensed and capitalized, of the Borrower and its Subsidiaries determined on a consolidated basis, without duplication, in accordance with GAAP for such period minus (b) the amount of interest income of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP for such period "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of a Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of such Borrower or is merged into or consolidated with such Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of such Borrower) in which such Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by such Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of such Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under the Agreement) or Requirement of Law applicable to such Subsidiary. "Consolidated Rental Expense" means, for any period, the aggregate amount of fixed and contingent rentals payable by the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP with respect to leases of real property minus the aggregate amount of rental income (including licensee related income from licensees operating on the store premises of the Borrower and its Subsidiaries) payable to the Borrower and its Subsidiaries for such period in accordance with GAAP with respect to leases of real and personal property. "Consolidated Total Debt" means, at any date, the aggregate principal amount of the Indebtedness of the Borrower and its Subsidiaries at such date set forth on the Borrower's consolidated balance sheet opposite the captions "Current Portion of Long Term Borrowings," "Long Term Borrowings" and "Short Term Borrowings," determined on a consolidated basis in accordance with GAAP. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. 10 6 "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06. "Documentation Agent" means Bank One, NA. "dollars" or "$" refers to lawful money of the United States of America unless otherwise specified. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "Environmental Laws" means all applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, which relate in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to human health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary, directly or indirectly, resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract or agreement pursuant to which liability is incurred by the Borrower or any Subsidiary with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any 11 7 Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.16(b)), any United States withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or at the time such Lender changes its applicable lending office or is attributable to such Foreign Lender's failure or inability to comply with Section 2.14(e), except to the extent that such Foreign Lender's assignor (if any) or such Foreign Lender, in the case of a Lender that changes its applicable lending office, was entitled, at the time of assignment or at the time of the change in applicable lending office, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.14(a). "Extended Maturity Date" has the meaning set forth in Section 2.07. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the Senior Vice President - Finance and Administration, chief financial officer, principal accounting officer, treasurer or controller of the Borrower. 12 8 "Fixed Charge Coverage Ratio" means, as at the last day of any period, Consolidated EBITDAR divided by the sum of Consolidated Interest Expense plus Consolidated Rental Expense. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, and all other substances or wastes regulated under any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services 13 9 (excluding accounts payable incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include, without duplication, the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Index Debt" means senior, unsecured, long-term indebtedness for borrowed money of the Borrower that is not guaranteed by any other Person or subject to any other credit enhancement. "Interest Election Request" means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.05. "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. "Interest Period" means with respect to any Eurodollar Loan, the period commencing on the date of such Loan and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or to the extent available to all Lenders, nine or twelve months) thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Loan that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made or if initially an ABR Loan, on the date initially converted and, in the case of a Eurodollar Loan, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. 14 10 "Leverage Ratio" means, as at the last day of any period, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means this Agreement, the Subsidiary Guarantee and any Notes. "Loan Parties" means the Borrower and each Subsidiary that is a party to a Loan Document. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Agreement or (c) the rights of or benefits available to the Lenders under this Agreement and the Subsidiary Guarantee. "Material Indebtedness" means Indebtedness (other than the Loans), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $25,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. 15 11 "Maturity Date" means November 15, 2001. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Note" has the meaning set forth in Section 2.07(e). "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Acquisition" means any acquisition by the Borrower or any Subsidiary of any of the assets of, or capital stock in, a Person or of a division or line of business of a Person if, immediately after giving effect thereto, (a) no Default has occurred and is continuing or would result therefrom, (b) the principal business of any such acquired Person, division or line of business shall be a Permitted Line of Business, (c) all actions required to be taken under Section 5.10 with respect to any Subsidiary acquired or newly formed in connection with such acquisition have been taken, (d) the Borrower and its Subsidiaries are in compliance, on a pro forma basis after giving effect to such acquisition, with the covenants contained in Section 6.01 recomputed as at the last day of the most recently ended fiscal quarter of the Borrower for which financial statements are available, as if such acquisition had occurred on the first day of each relevant period for testing such compliance and (e) the Borrower has delivered to the Administrative Agent an officers' certificate to the effect set forth in clauses (a), (b), (c) and (d) above, together with all relevant financial information for the Person or assets to be acquired and reasonably detailed calculations demonstrating satisfaction of the requirement set forth in clause (d) above. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.05; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.05; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; 16 12 (d) Liens granted and deposits made to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Permitted Lines of Business" means (a) the business of the Borrower as conducted on the Effective Date, (b) any wholesale, retail or other distribution of products (including catalogue and internet) or services under any Trademark or any derivative thereof, (c) any similar business and any business which provides a service and/or supplies products in connection with any business described in clause (a) or (b) above or (d) any reasonable modification or extension thereof. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Register" has the meaning set forth in Section 9.04(c). "Regulation U" means Regulation U of the Board as in effect from time to time. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time. "Requirement of Law" means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, 17 13 treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means the chief executive officer, president, any vice president or Financial Officer of the Borrower, but in any event, with respect to financial matters, a Financial Officer of the Borrower. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Borrower. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans at such time. "Revolving Loan" means a Loan made pursuant to Section 2.03. "S&P" means Standard & Poor's Ratings Services, a division of the McGraw Hill Companies, Inc. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Indebtedness" means any Indebtedness of the Borrower, provided that with respect to any such Indebtedness (i) no part of the principal of such Indebtedness is stated to be payable or is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the Maturity Date or, if such Maturity Date is extended pursuant to Section 2.02, the Extended Maturity Date and the payment of principal of which and (subject to clause (ii) below) any other obligations of the Borrower in respect thereof are subordinated to the prior payment in full of principal of and interest (including post-petition interest) on the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent and the Lenders hereunder on terms and conditions first approved in writing by the Required Lenders, (ii) no part of the interest accruing on such Indebtedness (other than interest payable solely in kind which shall be similarly subordinated) is payable, without the prior written consent of the Required Lenders, after a Default or Event of 18 14 Default has occurred and is continuing, and (iii) such Indebtedness otherwise contains terms, covenants and conditions in form and substance reasonably satisfactory to the Required Lenders, as evidenced by their prior written approval thereof. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any wholly-owned subsidiary of the Borrower and any other subsidiary of the Borrower that the Borrower and the Administrative Agent agree in writing to designate as a "Subsidiary", it being understood that the Borrower and the Administrative Agent have agreed to designate each of the entities set forth on Schedule 3.13 as a Subsidiary. "Subsidiary Guarantee" means the Subsidiary Guarantee, substantially in the form of Exhibit C, among the Subsidiary Guarantors signatories thereto and the Administrative Agent, for the benefit of the Lenders. "Subsidiary Guarantor" means each Subsidiary indicated on Schedule 3.13 as being a "Subsidiary Guarantor", together with each other Subsidiary that becomes a party to the Subsidiary Guarantee in compliance with Section 5.10. "Syndication Agent" means Fleet National Bank "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. "Three-Year Credit Agreement" means the Three-Year Credit Agreement dated as of November 16, 2000, (as amended, supplemented or otherwise modified from time to time in accordance with its terms) among the Borrower, the financial institutions party thereto, the 19 15 Syndication Agent, Documentation Agent and the Administrative Agent, providing for a three-year credit facility in an initial aggregate amount of $250,000,000. "Trademarks" has the meaning set forth in Section 5.06. "Transactions" means the execution, delivery and performance by the Borrower of this Agreement and by the Subsidiary Guarantors of the Subsidiary Guarantee, the borrowing of Loans, the use of the proceeds thereof. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the LIBO Rate or the Alternate Base Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein," "hereof" and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.03. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. 20 16 ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures exceeding the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.11, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $1,000,000; provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of 15 Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date unless such Maturity Date is extended pursuant to Section 2.07, in which case such Interest Period shall not be permitted to end after the Extended Maturity Date. SECTION 2.03. Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or 21 17 telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the case of the Borrower, the interest rate otherwise applicable to such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. 22 18 SECTION 2.05. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such 23 19 Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.06. Termination and Reduction of Commitments. Unless previously terminated, the Commitments shall terminate on the Maturity Date. (a) The Borrower may at any time terminate, or from time to time reduce, the Commitments without penalty; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.08, the sum of the Revolving Credit Exposures would exceed the total Commitments. (b) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (a) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date. Notwithstanding the foregoing, the Borrower may request, in a notice provided to the Administrative Agent not less than 30 nor more than 60 days prior to the Maturity Date, that the Revolving Loans comprising any Borrowing outstanding on the Maturity Date mature on the date one year after the Maturity Date (such later date, the "Extended Maturity Date"), and the unpaid principal amount of such Revolving Loans shall then be due and payable on such date. The Administrative Agent shall promptly notify each Lender of such request. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable 24 20 thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note (a "Note"). In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.08. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part without penalty, except as provided in Section 2.13, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.06, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.06. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing, and the remainder of such Borrowing after giving effect to such prepayment, shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.10. SECTION 2.09. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Applicable Rate on the daily amount of the Commitment of such Lender (whether used or unused) during the period from and including the Effective Date to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after 25 21 its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees and utilization fees, to the Lenders. Fees paid shall not be refundable under any circumstances. SECTION 2.10. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided above. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion and (iv) all accrued interest shall be payable upon termination of the Commitments unless the Maturity Date has been extended pursuant to Section 2.07, in which case interest shall continue to be payable in arrears on each applicable Interest Payment Date. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 26 22 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.11. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowing, then the other Type of Borrowing shall be permitted. SECTION 2.12. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (including the type referred to in clause (b) of the definition of "Statutory Reserve Rate" in Section 1,01); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration 27 23 such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than three months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the three-month period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.13. Break Funding Payments. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement, (c) the making of a prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto, (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.16. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued or assigned for the period from the date of such prepayment or of such failure to borrow, convert or continue or assign to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, or assign the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Rate included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. SECTION 2.14. Taxes. (a) Any and all payments by or an account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for 28 24 any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender within 30 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or under Section 2.12, 2.13 or 2.14, or otherwise) prior to 3:00 p.m. New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except that payments pursuant to Sections 2.12, 2.13, 2.14 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment 29 25 hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. (e) If any Lender shall fail to make any payment required to be made by it pursuant to 2.04(b) or 2.15(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the 30 26 Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.16. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) if such assignee is not a Lender, the Borrower shall have received the prior written consent of the Administrative Agent which consent shall not be unreasonably withheld or delayed, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. SECTION 2.17. Source of Funds. None of the funds to be lent pursuant to this Agreement are assets of an employee benefit plan or constitute "plan assets" within the meaning of Department of Labor Regulation Section 2510.3-101. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the 31 27 jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries in a manner which could reasonably be expected to have a Material Adverse Effect, and (d) will not result in the creation or imposition of any material Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended January 1, 2000, reported on by Arthur Andersen LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 2000, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year -end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. The Borrower and its Subsidiaries do not have any material Guarantees, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the financial statements referred to in this paragraph or in the notes thereto (and, in the case of such lease or commitment, which is required in accordance with GAAP to be reflected in such statements or notes) or which has not otherwise been disclosed to the Lenders in writing. (b) Since September 30, 2000, there has been no development, event or circumstance that has had or could reasonably be expected to have a Material Adverse Effect. SECTION 3.05. Properties; Liens. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its 32 28 business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, and none of such property is subject to any Lien, except as permitted by Section 6.03. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement, any other Loan Document or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law, (ii) is subject to any Environmental Liability, (iii) has received any written notice of any claim with respect to any Environmental Liability or (iv) has knowledge of any reason to reasonably conclude that Environmental Liability will be incurred. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.08. No Default. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation or any order, award or decree of any Governmental Authority or arbitrator binding upon it or its properties in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 3.09. Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. 33 29 SECTION 3.10. No Burdensome Restrictions. Neither the Borrower nor any Subsidiary is a party to any indenture, agreement, lease or other instrument which is so unusual or burdensome such that it could be reasonably expected to have a Material Adverse Effect. SECTION 3.11. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and have paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.12. Federal Regulations. No part of the proceeds of any Loans hereunder will be used, directly or indirectly, for "buying" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board as now and from time to time hereafter in effect or for any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of such Board. If requested by the Agent or any Lender, the Borrower will furnish to the Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. SECTION 3.13. Subsidiaries. Schedule 3.13 sets forth as of the date hereof the name, and, where applicable, the jurisdiction of organization, number of authorized and issued shares and ownership of each Subsidiary of the Borrower. SECTION 3.14. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan, except to the extent any such excess (individually or in the aggregate) could not reasonably be expected to have a Material Adverse Effect, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of all such underfunded Plans except to the extent any such excess (individually or in the aggregate) could not reasonably be expected to have a Material Adverse Effect. SECTION 3.15. Disclosure. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contain any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such 34 30 information was prepared in good faith based upon assumptions believed to be reasonable at the time. ARTICLE IV Conditions SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) The Administrative Agent (or its counsel) shall have received (i) either (A) a counterpart of this Agreement, executed and delivered by a duly authorized officer of the Borrower or (B) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (ii) a counterpart of the Subsidiary Guarantee, executed and delivered by a duly authorized officer of each Subsidiary Guarantor. (b) The Administrative Agent shall have received favorable written opinions (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of (i) Kramer Levin Naftalis & Frankel LLP, counsel for the Borrower, substantially in the form of Exhibit B-1, and (ii) Roberta S. Karp, General Counsel of the Borrower, substantially in the form of Exhibit B-2, and each opinion covering such other matters relating to the Borrower, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received all government approvals necessary or, in the discretion of the Administrative Agent, advisable in connection with the financing contemplated hereby and the continuing operations of the Borrower and its Subsidiaries shall have been obtained and be in full force and effect. (d) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower and its Subsidiaries, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel. (e) The Administrative Agent shall have received (i) audited consolidated financial statements of the Borrower for the two most recent fiscal years ended prior to the Effective Date as to which such financial statements are available and (ii) unaudited interim consolidated financial statements of the Borrower for each quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available. 35 31 (f) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the president, a vice president or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02 (with such paragraph (a) being deemed for this purpose not to include the parenthetical clause included therein). (g) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on November 16, 2000 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrower set forth in this Agreement (except the representations set forth in Section 3.04(b), Section 3.06 and the first sentence of Section 3.08) shall be true and correct in all material respects on and as of the date of such Borrowing, except for representations and warranties which are made as of a specific date which shall be true and correct as of such date. (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements. The Borrower will furnish to the Administrative Agent and each Lender: (a) as soon as available, but in any event within 2 Business Days after the end of 90 days following the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated subsidiaries as at the end of such 36 32 year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Arthur Andersen LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event within 2 Business Days after the end of 45 days following the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, signed by a Responsible Officer (subject to normal year -end audit adjustments). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). SECTION 5.02. Certificates; Other Information. The Borrower will furnish to the Administrative Agent and each Lender (or, in the case of clause (d), to the relevant Lender): (a) concurrently with the delivery of the financial statements referred to in Section 5.01(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of any financial statements pursuant to Section 5.01, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, a Certificate containing all information and calculations necessary for determining compliance by the Borrower and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be; (c) within five days after the same are sent, copies of all financial statements and reports that the Borrower sends to the holders of any class of its debt securities or public equity securities and, within five days after the same are filed, copies of all financial statements and reports that the Borrower may make to, or file with, the Securities and Exchange Commission, or any Governmental Authority; and (d) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 37 33 SECTION 5.03. Notices of Material Events. The Borrower will promptly (and in any event within five days after the Borrower knows of the following events) furnish to the Administrative Agent and each Lender written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to have a Material Adverse Effect; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.04. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of Permitted Lines of Business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.04. SECTION 5.05. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.06. Maintenance of Properties and Trademarks; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, provided that the Borrower shall, in good faith, determine when to repair any property, (b) take all action reasonably necessary or desirable in accordance with good business practices to (i) maintain in full force and effect such domestic and foreign patents, trademarks, service marks, trade names, copyrights and licenses and such material rights with respect to the foregoing, now or hereafter acquired, in each case necessary for the conduct of its business (collectively, the "Trademarks") and (ii) protect all domestic and foreign Trademarks against infringement by third parties and (c) maintain, with financially sound and reputable insurance 38 34 companies, insurance in such amounts and against such risks as a prudent Person engaged in the same or similar business of a similar size and otherwise similarly situated would maintain. SECTION 5.07. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit on an annual basis (or at any time and from time to time after the occurrence and during the continuance of a Default or Event of Default) any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.08. Environmental Laws. The Borrower will, and will use reasonable best efforts to cause each of its Subsidiaries to: (a) Comply in all material respects with, and use reasonable best efforts to ensure compliance in all material respects by their tenants and subtenants, if any, with, all applicable Environmental Laws, except for such matters of noncompliance which could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (b) Except to the extent being contested in good faith, conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws or by Governmental Authorities. SECTION 5.09. Compliance. The Borrower will, and will cause each of its Subsidiaries to, comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 5.10. Additional Subsidiaries. The Borrower will, with respect to any Person that, subsequent to the Effective Date, becomes a Subsidiary organized in a jurisdiction within the United States, promptly cause such new Subsidiary to become a party to the Subsidiary Guarantee pursuant to documentation which is in form and substance satisfactory to the Administrative Agent; provided that the Administrative Agent and the Borrower may agree in writing that any non-material or less than wholly-owned Subsidiary need not become a Subsidiary Guarantor. SECTION 5.11. Use of Proceeds. The proceeds of the Loans will be used only to refinance existing debt, provide working capital and for other general corporate purposes of the Borrower, including, without limitation, capital expenditures, stock repurchases, Permitted Acquisitions and support of its commercial paper facility. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X. 39 35 ARTICLE VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. Financial Covenants. (a) Leverage Ratio. The Borrower will not permit the Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower to exceed 2.50 to 1.00. (b) Fixed Charge Coverage Ratio. The Borrower will not permit the Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower to be less than (i) 2.25 to 1.00 from the Closing Date until but excluding the first anniversary thereof and (ii) 2.50 to 1.00 from and after the first anniversary of the Closing Date. SECTION 6.02. Indebtedness. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness created hereunder; (b) Indebtedness existing on the date hereof and set forth in Schedule 6.02; (c) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary; (d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary; (e) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, provided that (i) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (e) shall not exceed $150,000,000 at any time outstanding; (f) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that (i) such Indebtedness exists or is committed at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (ii) the Borrower and its Subsidiaries are in compliance, on a pro forma basis after giving effect to such acquisition, with the covenants contained in Section 6.01 recomputed as at the last day of the most recently 40 36 ended fiscal quarter of the Borrower for which financial statements are available, as if such acquisition had occurred on the first day of each relevant period for testing such compliance; (g) Indebtedness of the Borrower or any Subsidiary incurred (a) as an account party in respect of trade letters of credit issued in the ordinary course of business and (b) in connection with standby letters of credit in an aggregate principal amount not exceeding $25,000,000 at any time outstanding; (h) Indebtedness of the Borrower or any Subsidiary in respect of commercial paper; provided that the aggregate amount of such Indebtedness, when added to the aggregate amount of outstanding Loans and "loans" under the Three-Year Credit Agreement, shall not exceed the aggregate amount of the Commitments and the "Commitments" under the Three-Year Credit Agreement; (i) Subordinated Indebtedness; (j) any refinancings, refundings, renewals or extensions of Indebtedness permitted hereunder that do not increase the outstanding principal amount of such Indebtedness; (k) additional Indebtedness not otherwise permitted hereunder secured by Liens and not exceeding $100,000,000 in aggregate principal amount at any time outstanding; (l) Indebtedness not otherwise permitted hereunder, not secured by any Lien and incurred after the date hereof; provided that the Borrower and its Subsidiaries are in compliance, on a pro forma basis after giving effect to such Indebtedness, with the covenants contained in Section 6.01 recomputed as at the last day of the most recently ended fiscal quarter of the Borrower for which financial statements are available, as if such Indebtedness had been incurred on the first day of each relevant period for testing such compliance; and (m) Indebtedness created under the Three-Year Credit Agreement. SECTION 6.03. Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.03; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; 41 37 (c) Liens arising by the terms of letters of credit entered into in the ordinary course of business to secure reimbursement obligations and other obligations in connection therewith; (d) Liens solely constituting the right of any other Person to a share of any licensing royalties (pursuant to a licensing agreement or other related agreement entered into by the Borrower or any of its Subsidiaries with such Person in the ordinary course of the Borrower's or such Subsidiary's business) otherwise payable to the Borrower or any of its Subsidiaries, provided that such right shall have been conveyed to such Person for consideration received by the Borrower or such Subsidiary on an arm's-length basis; (e) Liens arising by reason of any judgment, decree or order of any court or other Governmental Authority for the payment of money in aggregate amount not to exceed $25,000,000 at any time outstanding; (f) Liens arising in connection with factoring accounts receivable related to any acquired Subsidiary; provided that such factoring shall not continue for a period longer than one year from the date such Subsidiary is acquired; (g) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (h) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by clause (e) of Section 6.02, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; and (i) Liens securing Indebtedness permitted under Sections 6.02(j) and 6.02(k); provided that with respect to Indebtedness incurred pursuant to Section 6.02(j) no such Lien is spread to cover additional property. SECTION 6.04. Fundamental Changes. Except in connection with transactions otherwise permitted pursuant to Section 6.05 or 6.06, the Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one 42 38 transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto, no Default shall have occurred and be continuing (i) any Person may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Person may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary and, if required to be so under Section 5.10, a Subsidiary Guarantor, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary which is a Subsidiary Guarantor and (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided that any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.05. SECTION 6.05. Investments, Loans, Advances, Guarantees and Acquisitions; Hedging Agreements. (a) The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (i) existing investments not otherwise permitted under this Agreement and described in Schedule 6.05(i) hereto; (ii) investments made in accordance with the investment policy of the Borrower as set forth on Schedule 6.05(ii) hereto; as provided that any material amendment or other material modification to such policy is subject to the approval of the Administrative Agent in its reasonable discretion; (iii) investments by the Borrower in the capital stock of its Subsidiaries; (iv) Permitted Acquisitions; (v) investments received in connection with the bona fide settlement of any defaulted Indebtedness or other liability owed to the Borrower or any Subsidiary; (vi) advances or loans made in the ordinary course of business to employees of the Borrower or any of its Subsidiaries in an aggregate amount not to exceed $10,000,000 at any time outstanding; (vii) loans or advances to third party contractors, suppliers or customers in the ordinary course of business and consistent with past practice; (viii) loans or advances made by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary; 43 39 (ix) guarantees by the Borrower or any Subsidiary of obligations of the Borrower or any other Subsidiary which do not constitute Indebtedness; (x) Guarantees constituting Indebtedness permitted by Section 6.02; and (xi) any other investments in, advances or loans to or Guarantees of, any Person in an aggregate amount not to exceed $200,000,000 at any time outstanding; (b) The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business (including, without limitation, Hedging Agreements in connection with the Borrower's stock repurchase program) to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. SECTION 6.06. Limitation on Sale of Assets. Except in the ordinary course of business, the Borrower will not, and will not permit any of its Subsidiaries to, sell, convey, lease, transfer or otherwise dispose of (other than as otherwise permitted by Section 6.04 or 6.05) all or any substantial part of its assets; provided that the foregoing shall not prohibit any such sale, conveyance, lease, transfer or disposition (i) which (x) is for a price not materially less than the fair market value of such assets of the Borrower or such Subsidiary, (y) would not materially impair the ability of the Borrower to perform its obligations under this Agreement and (z) together with all other such sales, conveyances, leases, transfers and dispositions, would have no Material Adverse Effect, (ii) of assets that individually or in the aggregate constitute less than 15% of the total assets of the Borrower and its Subsidiaries taken as a whole or (iii) of assets in connection with factoring arrangements with respect to any acquired Subsidiary, provided that such factoring arrangements do not continue longer than a year after such Subsidiary is acquired by the Borrower. SECTION 6.07. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) so long as no Default or Event of Default has occurred and is continuing, the Borrower may declare and pay dividends with respect to its capital stock, (c) any Subsidiary may declare and pay dividends to the Borrower or, in the case of any Subsidiary that is wholly owned by another Subsidiary, to such other Subsidiary, (d) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries, (e) so long as no Default or Event of Default has occurred and is continuing, the Borrower may repurchase its capital stock pursuant to its stock repurchase program and (f) so long as no Default or Event of Default has occurred and is continuing, the Borrower may make Restricted Payments in connection with the repurchase of the Capital Stock of Lucky Brands, Inc. and Segrets, Inc. SECTION 6.08. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at 44 40 prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.07. SECTION 6.09. Changes in Fiscal Periods. The Borrower will not, and will not permit any of its Subsidiaries to, permit the fiscal year of such Borrower to end on a day other than the last Saturday closest to December 31 or change such Borrower's method of determining fiscal quarters. SECTION 6.10. Lines of Business. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any business, either directly or through any Subsidiary, except for Permitted Lines of Business. ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days; (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof, shall prove to have been materially incorrect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.04 (with respect to the Borrower's existence) or 5.11 or in Article VI; (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of any Lender) to the Borrower; 45 41 (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable (after giving effect to any applicable period of grace); (g) any default or any event of default with respect to any Material Indebtedness which results in such Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $25,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; or 46 42 (m) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent with the consent of the Required Lenders may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII The Administrative Agent Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have 47 43 knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facility provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. 48 44 Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. Neither the Documentation Agent or Syndication Agent shall have any duties or responsibilities hereunder in its capacity as such. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows: (a) if to the Borrower, to it at Liz Claiborne, Inc., One Claiborne Avenue, North Bergen, New Jersey 07047, Attention of Robert Vill (Facsimile No. 201-295-7825); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Jesus Sang (Facsimile No. (212) 270 -0002), with a copy to The Chase Manhattan Bank, 1411 Broadway, New York 10018, Attention of Liz Claiborne Relationship Manager (Facsimile No. (212) 391-7118); and (c) if to any other Lender, to it at its address (or number) set forth in its Administrative Questionnaire. Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective 49 45 unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.15(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) except in connection with transactions otherwise permitted pursuant to Section 6.04, 6.05 or 6.06, release all or substantially all of the Subsidiary Guarantors from their obligations under the Subsidiary Guarantee, without the written consent of each Lender, or (vi) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out -of -pocket expenses incurred by the Administrative Agent and Chase Securities Inc., including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facility provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by any Administrative Agent or any Lender, including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof. (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or 50 46 any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions or any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly no later than seven (7) days after written demand therefor. SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender other than a Conduit Lender, each of the Borrower and the Administrative Agent must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's 51 47 Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (a), (b), (h) or (i) of Article VII has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled, (with respect to the period prior to such assignment ) to the benefits of Sections 2.12, 2.13, 2.14 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. Notwithstanding the foregoing, any Conduit Lender may assign at any time to its designating Lender hereunder with the consent of the Borrower, any or all Loans it may have funded hereunder and pursuant to its designation agreement. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") 52 48 in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (iv) all Participants shall represent, for the benefit of Borrower, that none of the participation interests are being acquired with assets of an employee benefit plan or with assets that constitute "plan assets" under Department of Labor Regulation Section 2510.3-101 . Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Sections 2.12, 2.13 or 2.14 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.14 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.14(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. (h) Each of the Borrower, the Subsidiary Guarantors and each Lender hereby confirms that it will not institute against a Conduit Lender or join any other Person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided, however, that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance. SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by 53 49 the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12, 2.13, 2.14 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured provided that such Lender shall promptly notify the Borrower of such setoff. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. 54 50 (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Confidentiality. Each of the Administrative Agent and the Lenders expressly agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being 55 51 understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information, provided, however, in no event less than reasonable care. 56 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. LIZ CLAIBORNE, INC. by /s/Robert Vill ----------------------- Name: Robert Vill Title: Vice President Treasury, Investor Relations and Treasurer THE CHASE MANHATTAN BANK, individually and as Administrative Agent by /s/Thomas H. Bell ----------------------- Name: Thomas H. Bell Title: Vice President FLEET NATIONAL BANK, individually and as Syndication Agent by /s/Thomas J. Bullard ------------------------- Name: Thomas J. Bullard Title: Director BANK ONE, NA (MAIN OFFICE CHICAGO), individually and as Documentation Agent by /s/John D. Runger ---------------------- Name: John D. Runger Title: Senior Vice President 57 BANK OF AMERICA N.A. by /s/Deirdre B. Doyle ------------------------ Name: Deirdre B. Doyle Title: Principal SUNTRUST BANKS, INC. by /s/Laura Kahn ------------------ Name: Laura Kahn Title: Director, Senior Relationship Manager THE HUNTINGTON NATIONAL BANK by /s/Laura Conway -------------------- Name: Laura Conway Title: Vice President CREDIT SUISSE FIRST BOSTON by /s/Robert N. Finney ------------------------ Name: Robert N. Finney Title: Managing Director by /s/Vitaly G. Butenko ---------------------- Name: Vitaly G. Butenko Title: Assistant Vice President CITIBANK, N.A. by /s/Marc Merlino -------------------- Name: Marc Merlino Title: Vice President UNION BANK OF CALIFORNIA, N.A. by /s/Theresa L. Rocha -------------------------- Name: Theresa L. Rocha Title: Vice President 58 FIRSTAR BANK, N.A. by /s/Thomas L. Bayer ------------------------ Name: Thomas L. Bayer Title: Vice President FIRST UNION NATIONAL BANK by /s/Christopher M. McLaughlin ---------------------------- Name: Christopher M. McLaughlin Title: Vice President HSBC BANK USA by /s/Adriana Collins -------------------- Name: Adriana Collins Title: Vice President BANK LEUMI USA by /s/John Koenigsberg ------------------------- Name: John Koenigsberg Title: First Vice President by /s/Phyllis Rosenfeld ------------------------ Name: Phyllis Rosenfeld Title: Vice President COMERICA BANK by /s/ Joel S. Gordon ----------------------- Name: Joel S. Gordon Title: Account Officer 59 THE BANK OF NEW YORK by /s/Michael V. Flannery --------------------------- Name: Michael V. Flannery Title: Vice President WELLS FARGO BANK by /s/Peter M. Angolica ---------------------- Name: Peter M. Angolica Title: Vice President by /s/Bradley A. Hardy ---------------------- Name: Bradley A. Hardy Title: Vice President 60 SCHEDULE 2.01 COMMITMENTS
BANK COMMITMENT - ------------------------------------------------------ ------------------ The Chase Manhattan Bank ............................. $ 63,333,333.33 Fleet National Bank .................................. $ 56,666,666.67 Bank One, NA ......................................... $ 56,666,666.67 BankAmerica .......................................... $ 33,333,333.33 SunTrust Bank, Inc. .................................. $ 33,333,333.33 The Huntington National Bank ......................... $ 33,333,333.33 Credit Suisse First Boston ........................... $ 33,333,333.33 Citicorp ............................................. $ 33,333,333.33 Union Bank of California ............................. $ 23,333,333.33 Firstar Bank, N.A .................................... $ 20,000,000.00 First Union .......................................... $ 20,000,000.00 HSBC Bank USA ........................................ $ 20,000,000.00 Bank Leumi ........................................... $ 20,000,000.00 Comerica Bank ........................................ $ 20,000,000.00 The Bank of New York ................................. $ 20,000,000.00 Wells Fargo Bank ..................................... $ 13,333,333.33 TOTAL ................................................ $ 500,000,000.00
61 SCHEDULE 3.06 DISCLOSED MATTERS See Part II, Item 1- "Legal Proceedings" contained in Borrower's Quarterly Report on Form 10Q for the period ended September 30, 2000. 62 SCHEDULE 3.13 SUBSIDIARIES
Name Jurisdiction of Incorporation Liz Claiborne Cosmetics, Inc.* Delaware Liz Claiborne Accessories, Inc.* Delaware Liz Claiborne Accessories - Sales, Inc.* Delaware Liz Claiborne Export, Inc.* Delaware Liz Claiborne Foreign Holdings, Inc.* Delaware Monet Puerto Rico Inc.* Delaware L. C. Licensing, Inc.* Delaware Liz Claiborne Sales, Inc.* Delaware Liz Claiborne-Texas, Inc.* Delaware LCI Investments, Inc.* Delaware LCI Holdings, Inc.* Delaware L.C. Caribbean Holdings, Inc.* Delaware Liz Claiborne Shoes, Inc.* Delaware L.C. Service Company, Inc.* Delaware LC/QL Investments, Inc.* Delaware L.C. Dyeing, Inc.* Delaware L.C. Augusta, Inc.* Delaware L.C. Special Markets, Inc.* Delaware DB Newco Corp.* Delaware Liz Claiborne Japan, Inc.* Delaware LC Libra, LLC* Delaware L.C.K.C., LLC* Delaware Monet International Inc.* Delaware LCI Laundry Inc.* California Lucky Brand Dungarees, Inc. Delaware Lucky Brand Dungarees Stores, Inc. Delaware Liz Claiborne Puerto Rico Inc.* Delaware Liz Claiborne Foreign Sales Corporation British Virgin Islands Segrets, Inc. Delaware Segrets Stores, Inc. Delaware * Indicates a Subsidiary Guarantor
63 SCHEDULE 6.02 EXISTING INDEBTEDNESS
First Union National Bank L/C Credit Line $200,000,000 Fleet National Bank L/C Credit Line 125,000,000 Huntington National Bank L/C Credit Line 100,000,000 HSBC Bank Standby L/C Credit Line 10,000,000 Other HSBC - U.K. Standby L/C's 675,000 Other Fortio Bank - Netherlands Standby L/C's 182,000 Pennsylvania Industrial Development Authority Loan 504,730 Intecompany Debt - Liz Claiborne International 101,970,000 Synthetic Lease - Pending Sun Trust Bank - Midwest Distribution Center 60,000,000 Capitalized Leases Laundry - General Electric - IBM 124,573 Laundry - General Electric - Gerber 176,391 Conditional Purchase Price Payments Lucky Brands - ($15 minimum) 45,000,000 Segrets additional remaining equity investment Approximately 2.3% at fair market value - current estimate 600,000 ------------ $644,232,694
64 SCHEDULE 6.03 EXISTING LIENS None 65 SCHEDULE 6.05(i) EXISTING INVESTMENTS
10/31/00 Closing Price ------------- Vanguard 500 Index Fund 62,110.00 shares $132.02 $8,200,000.00 Kenneth Cole Productions Class A Stock 1,500,000 shares $45.00 $67,500,000.00 -------------- $75,700,000.00
66 SCHEDULE 6.05(ii) BORROWER'S INVESTMENT POLICY Effective: 08/24/99 ================================================================================ OBJECTIVE 1) To establish the policies and guidelines governing the investment of idle or surplus cash generated by the company 2) To define the minimum acceptable credit and maximum market exposure of an investment 3) To identify those individuals authorized to transact business on behalf of, and for the benefit of the company SCOPE Unless specifically limited in the text, these policies and guidelines are applicable to Liz Claiborne, Inc. and all of its subsidiaries. All currency representations within this policy are in U.S. Dollars. POLICY To maximize the utilization of idle or surplus cash by investing in accordance with principles of sound investment management and the guidelines set forth in this Investment Policy. The criteria for the selection of cash investments will be as follows: First: Preservation of Capital Second: Liquidity/Marketability Third: Maximization of after-tax yield INDIVIDUALS AUTHORIZED TO TRADE 1) CFO 2) VP Investor Relations and Treasury, Treasurer 3) VP Cash and Risk Management 4) Portfolio/Risk Manager 5) Cash Manager* * In the absence of the Cash Manager, the Senior Treasury Analyst may invest daily surplus cash in any of the approved Institutional Money Market Funds. 67 APPROVED INVESTMENT VEHICLES AND REQUIREMENTS See Appendix A, "Investment Guidelines" TIME LIMITATIONS One year, except for: a) Up to three years for Government Securities b) Up to 15 months for Federal Agency Securities c) Up to four years for Municipal Bonds providing the total average maturity of all tax exempt bonds does not exceed 2 1/2 years. CUSTODY Limited to any of the following: a) Bear Stearns b) Chase Manhattan Bank c) Merrill Lynch d) Salomon Smith Barney POLICY DEVIATION Any deviation from these guidelines must be approved, in writing, by two members of the Investment Committee (comprised of the Senior Vice President Finance and Administration; CFO; VP Investor Relations and Treasury, Treasurer; VP Cash and Risk Management). If a rating is lowered, approval to hold the security must also be obtained, in writing, from two members of the Investment Committee. 68 APPENDIX A LIZ CLAIBORNE, INC. INVESTMENT GUIDELINES Effective: 08/24/99
LIMIT PER MAXIMUM % SECURITY ISSUE OF REQUIRED MINIMUM RATINGS (000's) PORTFOLIO S&P MOODY'S ADDITIONAL REQUIREMENTS - ---------------------------- ---------- --------- ----------- --- -------------- ------------------------------------------------- TAXABLE Credit ratings may rely on credit support - ---------------------------- ---------- --------- ----------- --- -------------- ------------------------------------------------- Bankers Acceptances 10,000 25% A-1 AND P-1 - None Commercial Paper 25,000 75% A-1 AND P-1 - Must be Direct Corporate Obligation or Corporate Parent Guaranty Corporate Bonds and Notes 25,000 75% AA- OR Aa3 - None Domestic Bank CD's 10,000 25% A-1 AND P-1 - None Eurodollar Deposits 10,000 20% A-1 AND P-1 - None Federal Agency Securities None 100% N/A N/A - None Foreign Bank CD's/Time 10,000 20% A-1 AND P-1 - None Deposits Institutional Money Market 50,000 100% N/A N/A - Fund Investment objectives/parameters must Funds be consistent with this policy - Fund may not deviate from a $1 per share price Repurchase Agreements 25,000 50% N/A N/A - Limited to US Government and/or Agency securities with collateralization at no less than 102% - 4 day maximum term US Treasury Obligations None 100% N/A N/A - None Taxable Debt 25,000 50% AAA OR Aaa - No more than 20% of any one issue (7/28 day Auction Rate Securities) - ---------------------------- ---------- --------- ----------- --- -------------- ------------------------------------------------- TAX EXEMPT/ADVANTAGED - ---------------------------- ---------- --------- ----------- --- -------------- ------------------------------------------------- Institutional Money Market 50,000 100% N/A N/A - Fund Investment objective/parameters must be Funds consistent with this policy - Fund may not deviate from a $1 per share price Municipal Bonds/Notes - Issue must be at least $25 million - - Short term 10,0000 100% SP-1 or A-1 AND VMIG1, MIG1 or - - Long term 20,000 10% AAA OR P-1 Aaa Daily/Weekly Municipal Put 15,000 50% SP-1 or A-1 AND VMIG1, MIG1 or - Issue must be at least $25 million Bonds P-1 Municipal Preferreds 25,000 100% AAA AND Aaa - No more than 20% of any one issue Money Market Preferreds 25,000 50% AA- OR Aa3 - No more than 20% of any one issue (49 day Auction Rate Securities) Tax Exempt Commercial Paper 15,000 50% AA- OR Aa3 - None Tax Exempt Debt 15,000 50% AAA OR Aaa - No more than 20% of any one issue (35 day Auction Rate Securities)
EX-10.Z.I 11 0011.txt FORM OF OPTION GRANT CERTIFICATE 1 EXHIBIT 10(z)(i)
LIZ CLAIBORNE, INC. 2000 STOCK INCENTIVE PLAN STOCK OPTION GRANT DATE: 01/16/2001 GRANT PRICE: $44.8125 GOOD UNTIL: 01/16/2011 Social Security Number: 123456789 This Certifies That: Certificate Number: 01-001 SAMPLE Has an Option to Purchase 000 Shares
of Common Stock, $1.00 par value, of Liz Claiborne, Inc., a Delaware corporation, at $44.8125 per share subject to the terms and conditions set forth on the reverse side hereof and as set forth in the Liz Claiborne, Inc. 2000 Stock Incentive Plan. IN WITNESS WHEREOF, Liz Claiborne, Inc. has caused this certificate to be duly executed in its name by signature of its proper officers. LIZ CLAIBORNE, INC. /s/ Paul R. Charron /s/ Michael Scarpa Paul R. Charron Michael Scarpa Chairman and Chief Executive Officer Chief Financial Officer Stock Option Grant Certificate - Additional Terms I. Grant Option - Liz Claiborne, Inc. (the "Company") hereby grants to the person named on the face of this Certificate (the "Optionee") a nonqualified stock option (the "Option") to purchase the number of shares of common stock of the Company at a purchase price as specified on the face hereof. It is intended that the Option shall not qualify as an "incentive stock option" as defined in section 422 of the Internal Revenue Code of 1986, as amended. 2. Exercisability - Subject to the further terms included herein, the Option shall become exercisable with respect to 25% of the shares of Common Stock initially subject thereto on the first anniversary of the date of grant and with respect to an additional 25% and 50% of such shares on the second and third anniversaries of the grant date. Unless earlier terminated pursuant to the provisions of the 2000 Stock Incentive Plan (the "Plan"); the same has been and may be amended from time to time; the unexercised portion of the Option shall expire and cease to be exercisable at midnight on the tenth anniversary of the grant date of the option. The Option may be partially exercised from time to time up to the amount of shares exercisable at such time as set forth above. 3. Exercising Options - Subject to the terms and conditions of the Plan, the Optionee may exercise Options by giving notice of exercise to the Company or its designee accompanied by payment of the aggregate Option exercise price for the shares being purchased together with any amount which the Company or its subsidiaries may be required to withhold upon such exercise in respect of applicable foreign, federal (including FICA), state and local taxes, all in such manner as specified from time to time by the Company or its designee. Each such exercise notice shall specify the number of shares of Company common stock to be purchased, the Option exercise price, the grant date, and such other matters as may be required by the Company or the Company's Compensation Committee (the "Committee"). 4. Termination of Employment 4.1 Upon termination of the Optionee's employment for any reason, the Option shall terminate and expire, except as provided in Section 4.2 or 4.3 below. 4.2 If the Optionee's employment terminates for any reason other than disability, death, dismissal for cause or resignation without the Company's prior consent, the Option shall be exercisable but only to the extent it was exercisable at the time of such termination and only until the earlier of the expiration date of the Option, determined pursuant to Section 2 above, or the expiration of either (a) three months following employment termination or (b) in the case of Retirement (as defined), three years following the date of Retirement. "Retirement" shall mean Optionee's ceasing to be employed by the Company and any of its affiliates on or after Optionee's 65th birthday, on or after the date on which Optionee has attained age 60 and completed at least six years of Vesting Service (as defined in and determined under the Liz Claiborne Savings and Profit Sharing Plan, as the same has been and may from time to time be amended) or, if approved by the Committee, on or after the date Optionee has completed at least 20 years of Vesting Service. 4.3 If the Optionee dies while employed by the Company or after employment terminates but during a period in which the option is exercisable pursuant to Section 4.2 above, the Option shall be exercisable but only to the extent it was exercisable at the time of death and only until the earlier of the expiration date of the Option, determined pursuant to Section 2 above, or the first anniversary of the date of the Optionee's death. 4.4 If the Optionee's employment is terminated due to disability (as defined in the Plan), the Option shall be exercisable, but only to the extent it was exercisable at the time of such termination and only until the earlier of the expiration date of the Option, determined pursuant to Section 2 above, or the first anniversary of the date of the Optionee's termination of employment. 5. Plan Provisions to Prevail - The Option is subject to all of the terms and provisions of the Plan. Without limiting the generality of the foregoing, by accepting the grant of the Option the Optionee agrees that no member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any award thereunder or this Certificate. In the event that there is any inconsistency between the provisions of this Certificate and the Plan, the provisions of the Plan shall govern. 6. Notices - Any notice to be given to the Company hereunder shall be in writing and shall be addressed to the Senior Vice President, Finance and Administration, Liz Claiborne, Inc., One Claiborne Avenue, North Bergen, NJ 07047, or at such other address as the Company may hereafter designate to the Optionee by notice as provided in this Section 6. Any notice to be given to the Optionee hereunder shall be addressed to the Optionee's home address of record, or at such other address as the Optionee may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it. 7. Successors and Assigns - The terms of this Certificate shall be binding upon and inure to the benefit of the parties hereto and the successors and assigns of the Company and, to the extent consistent with Section 4.1 above and with the Plan, the heirs and personal representatives of the Optionee. 8. Governing Law - The Option and this Certificate shall be interpreted, construed and administered in accordance with the laws of the State of New York. 9. Receipt of Prospectus - By accepting delivery of this Certificate, the Optionee acknowledges that he or she has received a copy of the Prospectus relating to the options and the shares of Company common stock covered thereby under the Plan. EX-21 12 0012.txt LIST OF SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF LIZ CLAIBORNE, INC. Claiborne Limited Hong Kong Liz Claiborne Cosmetics, Inc. Delaware Liz Claiborne Accessories, Inc. Delaware Liz Claiborne Accessories-Sales, Inc. Delaware Liz Claiborne Export, Inc. Delaware Liz Claiborne Foreign Holdings, Inc. Delaware Liz Claiborne International Limited Hong Kong Monet Puerto Rico, Inc. Delaware L. C. Licensing, Inc. Delaware Liz Claiborne Sales, Inc. Delaware LCI Investments, Inc. Delaware LCI Holdings, Inc. Delaware Liz Claiborne (Canada) Limited Canada L.C. Caribbean Holdings, Inc. Delaware Liz Claiborne Shoes, Inc. Delaware L. C. Service Company, Inc. Delaware Liz Claiborne Europe U.K. LC/QL Investments, Inc. Delaware L.C. Dyeing, Inc. Delaware L.C. Augusta, Inc. Delaware Textiles Liz Claiborne Guatemala, S.A. Guatemala Liz Claiborne (Malaysia) SDN.BHD Malaysia Liz Claiborne B.V. Netherlands L.C. Special Markets, Inc. Delaware Liz Claiborne Foreign Sales Corporation US Virgin Islands Liz Claiborne GmbH Germany Liz Claiborne De El Salvador, S.A., de C. V. El Salvador Liz Claiborne Puerto Rico, Inc. Delaware DB Newco, Inc. Delaware LC Libra, LLC. Delaware Liz Claiborne Japan, Inc. Delaware Segrets, Inc. Delaware Lucky Brand Dungarees, Inc. Delaware Lucky Brand Dungarees Stores, Inc. Delaware LCI Laundry, Inc. California L.C.K.C., LLC Delaware Monet International, Inc. Delaware EX-23 13 0013.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, dated February 19, 2001, included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 2-77590, 2-95258, 2-33661, 33-51257, 033-63859, 333-09851, 333-48423 and 333-54560. /s/ Arthur Andersen LLP New York, New York March 29, 2001 EX-27 14 0014.txt FINANCIAL DATA SCHEDULE
5 0000352363 LIZ CLAIBORNE, INC. 1,000 YEAR DEC-30-2000 DEC-30-2000 54,630 0 267,772 0 479,845 910,576 640,967 343,543 1,512,159 357,904 0 0 0 88,219 746,066 1,512,159 3,104,141 3,104,141 1,870,269 1,870,269 930,183 0 23,677 288,430 103,835 184,595 0 0 0 184,595 3.46 3.43 THE EARNINGS PER SHARE INFORMATION HAS BEEN PREPARED IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER SHARE", AND THE BASIC AND DILUTED EARNINGS PER SHARE HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY DILUTED, RESPECTIVELY.
EX-99 15 0015.txt UNDERTAKINGS 1 EXHIBIT 99 To Be Incorporated By Reference Into Registration Statements on Forms S-8 (File Nos. 2-77590, 2-95258, 2-33661, 33-51257, 033-63859, 333-09851, 333-48423 and 333-54560) UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. -----END PRIVACY-ENHANCED MESSAGE-----