Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE WARNACO GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<Page>
THE WARNACO GROUP, INC.
90 PARK AVENUE
NEW YORK, NEW YORK 10016
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 2003
-------------------
To the Stockholders of
THE WARNACO GROUP, INC.:
NOTICE IS HEREBY GIVEN that the 2003 Annual Meeting of Stockholders of The
Warnaco Group, Inc. (the 'Company') will be held at the Doral Park Avenue Hotel,
70 Park Avenue, New York, New York 10016 on Wednesday, May 28, 2003, at 10:00
a.m., local time, or at any adjournments or postponements thereof (the 'Annual
Meeting') for the following purposes:
1. To elect six directors to serve until the next annual meeting and
until their successors have been elected and qualified;
2. To approve The Warnaco Group, Inc. 2003 Stock Incentive Plan;
3. To approve The Warnaco Group, Inc. Incentive Compensation Plan;
4. To ratify the appointment by the Company's Board of Directors of
Deloitte & Touche LLP as the Company's independent auditors for the fiscal
year ending January 3, 2004; and
5. To transact such other business as may properly come before the
Annual Meeting.
The proxy statement describes the matters to be considered at the Annual
Meeting. The Board of Directors has fixed the close of business on April 21,
2003 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting. A list of stockholders entitled to vote
at the Annual Meeting will be available at the principal executive offices of
the Company located at 90 Park Avenue, New York, New York, 10016 for at least
ten days prior to the Annual Meeting and will also be available for inspection
at the Annual Meeting.
Whether or not you expect to attend, WE URGE YOU TO SIGN, DATE AND PROMPTLY
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. If you
attend the Annual Meeting, you may vote your shares in person which will revoke
any previously executed proxy.
If your shares are held of record by a broker, bank or other nominee and you
wish to attend the Annual Meeting, you must obtain a letter from the broker,
bank or other nominee confirming your beneficial ownership of the shares and
bring it to the Annual Meeting. In order to vote your shares at the Annual
Meeting, you must obtain from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important. Please
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By Order of the Board of Directors
/s/ JAY A. GALLUZZO
JAY A. GALLUZZO
Vice President and General Counsel
New York, New York
April 28, 2003
<Page>
THE WARNACO GROUP, INC.
90 PARK AVENUE
NEW YORK, NEW YORK 10016
-------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 2003
-------------------
INTRODUCTION
------------
This proxy statement (the 'Proxy Statement') and the accompanying proxy are
being furnished in connection with the solicitation of proxies on behalf of the
Board of Directors of The Warnaco Group, Inc., a Delaware corporation (the
'Company'), for use at the 2003 Annual Meeting of Stockholders to be held at the
Doral Park Avenue Hotel, 70 Park Avenue, New York, New York 10016 on Wednesday,
May 28, 2003, at 10:00 a.m., local time, or at any adjournments or postponements
thereof (the 'Annual Meeting'), for the purposes set forth in the accompanying
Notice of Annual Meeting. The Notice of Annual Meeting, Proxy Statement and
accompanying proxy are first being mailed on or about April 28, 2003 to
stockholders of record as of the close of business on April 21, 2003.
You can ensure that your shares are voted at the Annual Meeting by signing,
dating and promptly returning the enclosed proxy in the envelope provided.
Sending in a signed proxy will not affect your right to attend the Annual
Meeting and vote in person. You may revoke your proxy at any time before it is
voted at the Annual Meeting by (1) notifying the Company's Transfer Agent, Wells
Fargo Corporate Trust, Sixth & Marquette, Minneapolis, MN 55479, in writing,
(2) providing the Company with a subsequently properly executed proxy or
(3) attending the Annual Meeting and voting in person, provided, that if your
shares are held of record by a broker, bank or other nominee and you wish to
attend, and vote at, the Annual Meeting, you must (a) obtain a letter from the
broker, bank or other nominee confirming your beneficial ownership of the
shares, (b) obtain a proxy issued in your name from the record holder and (c)
bring both the letter and the proxy to the Annual Meeting.
The Company's principal executive offices are located at 90 Park Avenue, New
York, New York 10016.
VOTING OF PROXIES
All properly executed proxies received prior to the Annual Meeting will be
voted in accordance with the instructions specified thereon. As to any matter
for which no choice has been specified in a properly executed proxy, the shares
represented thereby will be voted 'FOR' the election of all six nominees for the
Board of Directors, 'FOR' the adoption of The Warnaco Group, Inc. 2003 Stock
Incentive Plan (the '2003 Stock Incentive Plan'), 'FOR' the adoption of The
Warnaco Group, Inc. Incentive Compensation Plan (the 'Incentive Compensation
Plan'), 'FOR' the ratification of the appointment by the Board of Directors of
Deloitte & Touche LLP ('Deloitte & Touche') as the Company's independent
auditors for the fiscal year ending January 3, 2004 and in the discretion of the
persons named in the proxy in connection with any other business that may
properly come before the Annual Meeting. The Board of Directors knows of no
other business to come before the Annual Meeting; however, if other matters
properly come before the Annual Meeting, it is intended that the persons named
in the proxy will vote thereon in accordance with their best judgment.
Directors shall be elected by a plurality of the votes of the shares of the
Company's common stock, par value $0.01 per share (the 'Common Stock'), present
at the Annual Meeting, in person or by properly executed proxy, and entitled to
vote. Under applicable Delaware law, in determining whether such nominees have
received the requisite number of affirmative votes, abstentions and broker
non-votes will have no effect on the outcome of the vote.
<Page>
Approval of the proposals relating to the adoption of the 2003 Stock
Incentive Plan, the adoption of the Incentive Compensation Plan and the
ratification of the appointment of Deloitte & Touche as the Company's
independent auditors each require the affirmative vote of a majority of the
shares of Common Stock present at the Annual Meeting, in person or by properly
executed proxy, and entitled to vote. Under applicable Delaware law, in
determining whether such proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will be counted and will
have the same effect as a vote against the proposal.
OUTSTANDING VOTING SECURITIES
As of the close of business on April 21, 2003, the record date for
determining stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote 44,999,973 shares of Common Stock. Each share
of Common Stock is entitled to one vote per share. Only stockholders of record
as of the close of business on April 21, 2003 will be entitled to vote.
SOLICITATION OF PROXIES
The cost of soliciting proxies for the Annual Meeting will be borne by the
Company. In addition to solicitation by mail, solicitations may also be made by
personal interview, facsimile transmission, telegram, telephone and other
methods of communication. The Company is using the services of Morrow & Co.,
Inc. to assist in soliciting proxies. The Company expects that the fees and
expenses for such services will not exceed $10,000. Arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries to forward
proxy materials to their beneficial owners, and the Company will reimburse them
for their reasonable expenses incurred in connection therewith. Directors,
officers and other regular employees of the Company, as yet undesignated, may
also request the return of proxies by telephone, telegram, personal visit or
otherwise.
ELECTION OF DIRECTORS
---------------------
At the Annual Meeting, six directors are to be elected to serve until the
next annual meeting and until their successors have been elected and qualified.
Currently, the members of the Board of Directors are Antonio C. Alvarez II,
David A. Bell, Stuart D. Buchalter, James P. Fogarty, Richard Karl Goeltz,
Harvey Golub, Joseph R. Gromek and Charles R. Perrin. The six nominees for
directors are Antonio C. Alvarez II, David A. Bell, Stuart D. Buchalter, Richard
Karl Goeltz, Joseph R. Gromek and Charles R. Perrin. Mr. Fogarty and Mr. Golub
will not stand for re-election at the Annual Meeting. Certain biographical
information regarding the six nominees is set forth below.
The accompanying proxy will be voted 'FOR' the election of the Board of
Directors' nominees unless contrary instructions are given. If one or more of
the Board of Directors' nominees is unable to serve, which is not anticipated,
the persons named as proxies intend to vote, unless the number of nominees is
reduced by the Board of Directors, for such other person or persons as the Board
of Directors may designate.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE ELECTION
OF ITS NOMINEES, WHICH IS DESIGNATED AS ITEM NO. 1
ON THE ENCLOSED PROXY CARD.
BIOGRAPHICAL INFORMATION
------------------------
Set forth below are the name, age (as of April 25, 2003), positions and
offices with the Company, if applicable, and other selected biographical
information of each (1) director nominee and (2) non-director executive officer
of the Company.
BIOGRAPHICAL INFORMATION OF THE DIRECTOR NOMINEES
Stuart D. Buchalter, 65, currently serves as Non-Executive Chairman of the
Board of Directors. Mr. Buchalter was elected to the Board of Directors in
February 2000 and served as a member of the Board of Directors' Restructuring
Committee from June 2001 to February 2003. Mr. Buchalter is Of
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Counsel to the law firm of Buchalter, Nemer, Fields & Younger P.C.
Mr. Buchalter serves as a director of City National Corporation. He also serves
as the Chairman of the Board of Trustees of Otis College of Art & Design.
Antonio C. Alvarez II, 54, was elected to the Board of Directors in March
2002. From March 2002 until February 2003, Mr. Alvarez served as a member of the
Board of Directors' Restructuring Committee. From November 16, 2001 until April
15, 2003, he served as President and Chief Executive Officer of the Company.
Prior to his election to these positions, Mr. Alvarez served the Company as
Chief Restructuring Officer from June 11, 2001 to November 16, 2001. From April
30, 2001 to June 11, 2001, Mr. Alvarez served as Chief Restructuring Advisor to
the Company while employed by Alvarez & Marsal, Inc. ('A&M'), a leading
turnaround and crisis management consulting firm. Mr. Alvarez is a co-founding
Managing Director of A&M. Over the last 18 years, Mr. Alvarez has served as
restructuring officer, consultant or operating officer of numerous troubled
companies.
David A. Bell, 59, has been a director of the Company since April 25, 2003.
In February 2003, Mr. Bell was named Chairman and Chief Executive Officer of The
Interpublic Group of Companies ('Interpublic'). Previously, he served as
Interpublic's Vice Chairman. From March 1999 to 2001, he served as Chairman and
Chief Executive Officer of True North Communications, Inc. From 1992 to March
1999, he served as Chairman and Chief Executive Officer of Bozell World Wide. He
is currently Chairman of the Advertising Educational Foundation, PRO-AD PAC and
the Ad Council. Mr. Bell also serves on the Board of Directors of Primedia Inc.
and The New York City Partnership. He is a Trustee of the Convent of the Sacred
Heart School in New York City and the Pittsburgh Theological Seminary.
Richard Karl Goeltz, 60, has been a director of the Company since July 2002.
Mr. Goeltz served as Vice Chairman and Chief Financial Officer of the American
Express Company from 1996 to 2000. Previously, Mr. Goeltz was Group Chief
Financial Officer and a member of the Board of Directors of NatWest Group
('NatWest'), the parent company of National Westminister Bank PLC. Prior to
joining NatWest, Mr. Goeltz served The Seagram Company for over 20 years in a
variety of management positions. Mr. Goeltz previously held various financial
positions in the treasurer's department of Exxon Corporation in New York and
Central America. Mr. Goeltz is a director of the New Germany Fund, a member of
the Board of Overseers of Columbia Business School, a director of Opera
Orchestra of New York, a member of the Council on Foreign Relations and a member
of the Court of Governors of the London School of Economics and Political
Science.
Joseph R. Gromek, 56, was elected President and Chief Executive Officer of
the Company on April 15, 2003, at which time he was also elected to the Board of
Directors. From 1996 to 2002, Mr. Gromek served as President and Chief Executive
Officer of Brooks Brothers, Inc. Over the last 25 years, Mr. Gromek has held
senior management positions with Saks Fifth Avenue, Limited Brands, Inc. and Ann
Taylor Stores Corporation. Mr. Gromek is the Vice Chairman of the Board of
Trustees of Volunteers of America.
Charles R. Perrin, 57, has been a director of the Company since April 25,
2003. Mr. Perrin served as Chairman of Avon Products, Inc. ('Avon') from May
1999 to November 1999 and Chief Executive Officer of Avon from July 1998 to
November 1999. He served as Avon's Vice Chairman from January 1998 to May 1999
and Avon's Chief Operating Officer from January 1998 to July 1998. Mr. Perrin
served as Chairman and Chief Executive Officer of Duracell International, Inc.
from 1994 to 1996. He is a Trustee of Trinity College, Vice Chairman of Ability
Beyond Disability, Chairman of Clearpool, Inc. and currently serves as a
director of Campbell Soup Company.
BIOGRAPHICAL INFORMATION OF THE NON-DIRECTOR EXECUTIVE OFFICERS
James P. Fogarty, 34, was elected Senior Vice President -- Finance and Chief
Financial Officer of the Company on December 20, 2001. Prior to his election to
these positions, Mr. Fogarty was employed by the Company as Senior Vice
President from June 11, 2001 to December 20, 2001. From April 30, 2001 to June
11, 2001, he served as an advisor to the Company while employed by A&M during
that period. Mr. Fogarty, a Managing Director of A&M, has been associated with
A&M since August 1994. As part of his work with A&M, Mr. Fogarty has held
management positions with Bridge Information Systems, DDS Partners LLC, AM
Cosmetics, Inc. and Color Tile, Inc. In addition, Mr. Fogarty provided
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<Page>
restructuring advisory services to Fruehauf Trailer and Homeland Stores, Inc.
Mr. Fogarty was associated with the accounting firm KPMG from June 1990 until
July 1994. Mr. Fogarty currently serves on the Company's Board of Directors
(since February 4, 2003) but is not standing for re-election at the Annual
Meeting.
Jay A. Galluzzo, 28, has served as Vice President and General Counsel of the
Company since March 2003. Mr. Galluzzo was formerly associated with the law firm
of Skadden, Arps, Slate, Meagher & Flom LLP ('Skadden Arps'). Prior to joining
Skadden Arps in October 2000, Mr. Galluzzo served as a law clerk to the Hon.
Charles L. Brieant, United States District Judge for the Southern District of
New York.
Stanley P. Silverstein, 50, has served as Senior Vice President -- Corporate
Development of the Company since March 2003 and as Chief Administrative Officer
since December 2001. Mr. Silverstein served as Vice President and General
Counsel of the Company from December 1990 until February 2003. Mr. Silverstein
served as Assistant Secretary of the Company from June 1986 until his
appointment as Secretary in January 1987.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
-----------------------------------------------------
The Board of Directors held ten meetings in the fiscal year ended January 4,
2003 ('Fiscal 2002'). During Fiscal 2002, all of the directors attended at least
75% of the meetings of the Board of Directors and the respective committees of
the Board of Directors of which they were a member.
In Fiscal 2002, the Board of Directors had the following standing
committees: Restructuring Committee, Audit Committee, Pension Committee,
Nominating Committee and Compensation Committee.
RESTRUCTURING COMMITTEE
The Restructuring Committee, which met 28 times in Fiscal 2002, was created
by the Board of Directors on May 7, 2001 and operated through February 4, 2003.
Initially, the Restructuring Committee was authorized to assist in the
development and implementation of the Company's restructuring plans and
strategy. Subsequently, the Board of Directors expanded the authority of the
Restructuring Committee, granting it the full power and authority of the Board
of Directors in the management of the business and affairs of the Company,
subject to the provisions of the Company's Amended and Restated Certificate of
Incorporation, its By-laws and applicable Delaware law.
During Fiscal 2002 and through February 4, 2003, the members of the
Restructuring Committee were Mr. Alvarez, Mr. Buchalter and Mr. Golub, Chairman.
AUDIT COMMITTEE
The Audit Committee, which met 15 times in Fiscal 2002, is primarily
responsible for (1) monitoring the quality and integrity of the Company's
financial statements and related disclosure and systems of internal controls
regarding risk management, finance and accounting; (2) monitoring the Company's
compliance with legal and regulatory requirements; (3) monitoring the
independent auditors' qualifications and independence; (4) monitoring the
performance of the Company's internal audit function and independent auditors;
(5) providing an avenue of communication among the independent auditors,
management, the internal auditing department and the Board of Directors; and
(6) issuing the report required by the Securities and Exchange Commission
('SEC') to be included in the Company's annual proxy statement.
During Fiscal 2002, the members of the Audit Committee were Mr. Buchalter,
Mr. Joseph A. Califano, Jr., Chairman, Mr. Goeltz (beginning September 24, 2002)
and Dr. Manuel T. Pacheco. Currently, the members of the Audit Committee are
Mr. Buchalter, Mr. Goeltz, Chairman, and Mr. Perrin (effective April 25, 2003).
The members of the Audit Committee during Fiscal 2002 were, and the current
members are, 'independent directors' within the meaning of Rule 4200(a)(14) of
the National Association of Securities Dealers' listing standards.
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The Audit Committee operates under a written charter (the 'Audit Committee
Charter') which is attached as Appendix A hereto.
PENSION COMMITTEE
The Pension Committee, which met four times in Fiscal 2002, was responsible
for (1) reviewing and making recommendations concerning the Company's pension,
profit sharing and other employee benefit plans; (2) recommending the
appointment of accountants and actuaries for each of the Company's pension and
profit sharing plans; and (3) consulting with the persons so appointed.
During Fiscal 2002, the members of the Pension Committee were
Mr. Buchalter, Mr. Golub and Dr. Pacheco, Chairman.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee (named the 'Nominating
Committee' prior to February 5, 2003), which met once in Fiscal 2002, has as its
primary purposes (1) assisting the Board of Directors by actively identifying
individuals qualified to become directors; (2) recommending to the Board of
Directors the director nominees for election at annual meetings of stockholders;
(3) recommending to the Board of Directors nominees to serve on committees of
the Board of Directors; (4) monitoring significant developments in the law and
practice of corporate governance and of the duties and responsibilities of
directors of public companies; (5) leading the Board of Directors, each
committee of the Board of Directors and management in its annual performance
self-evaluation, including establishing criteria to be used in connection with
such evaluation; (6) overseeing compliance with the Company's code of conduct;
and (7) developing, recommending to the Board of Directors and administering the
Corporate Governance Guidelines of the Company.
During Fiscal 2002, the members of the Nominating Committee were
Mr. Buchalter and Mr. Golub. Currently, the members of the Nominating and
Corporate Governance Committee are Mr. Alvarez, Mr. Bell (effective April 25,
2003), Mr. Buchalter, Chairman, and Mr. Goeltz.
The Nominating and Corporate Governance Committee will consider stockholder
nominations to the Board of Directors which are sent to the Nominating and
Corporate Governance Committee, c/o the Secretary of The Warnaco Group, Inc., 90
Park Avenue, New York, New York 10016.
The Nominating and Corporate Governance Committee operates under a written
charter which is attached as Appendix B hereto.
COMPENSATION COMMITTEE
The primary purpose of the Compensation Committee, which met once in Fiscal
2002, is to discharge the responsibilities of the Board of Directors relating to
all compensation, including equity compensation, of the Company's executive
officers. The Compensation Committee has overall responsibility for evaluating
and making recommendations to the Board of Directors regarding (1) compensation
of the Company's directors and (2) equity-based and incentive compensation
plans, policies and programs of the Company. The Compensation Committee is also
responsible for producing an annual report on executive compensation for
inclusion in the Company's annual proxy statement, in accordance with applicable
rules and regulations. In addition, the Compensation Committee, in consultation
with the Company's management, is currently developing an equity retention
policy for senior executives and directors.
The Compensation Committee operates under a written charter (the
'Compensation Committee Charter') which is attached as Appendix C hereto.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 2002, the members of the Compensation Committee were
Mr. Califano, Mr. Donald G. Drapkin and Mr. Golub, Chairman, all of whom were
non-employee directors. From February 4, 2003 until April 25, 2003, the members
of the Compensation Committee were Mr. Buchalter, Mr. Goeltz
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and Mr. Golub, all of whom were non-employee directors. Currently, the members
of the Compensation Committee are Mr. Bell (effective April 25, 2003),
Mr. Buchalter and Mr. Perrin (effective April 25, 2003), Chairman, all of whom
are non-employee directors.
COMPENSATION OF DIRECTORS
-------------------------
In Fiscal 2002, non-employee directors of the Company (other than Mr.
Buchalter) received an annual retainer fee of $50,000 in cash, payable
quarterly, plus fees of $1,500 per day for attendance at meetings of the Board
of Directors and $1,000 per day for attendance at meetings of its committees. In
addition, the Chairmen of the Audit, Restructuring, Compensation and Pension
Committees were paid additional fees of $4,375, $4,375, $1,458 and $1,458,
respectively. Directors of the Company were also reimbursed for out-of-pocket
expenses incurred in connection with attendance at meetings of the Board of
Directors and its committees.
Effective February 4, 2003, non-employee directors of the Company (other
than Mr. Buchalter) receive an annual retainer fee of $65,000, payable 60% in
cash and 40% in Common Stock, plus fees of $2,500 per day for attendance at
meetings of the Board of Directors and $1,000 per day for attendance at meetings
of its committees, and the Chairmen of the Audit, Compensation and Nominating
and Corporate Governance Committees are paid additional annual fees of $10,000,
$5,000 and $5,000, respectively. Directors of the Company are also reimbursed
for out-of-pocket expenses incurred in connection with attendance at meetings of
the Board of Directors and its committees.
For his service from November 2001 through February 4, 2003 as Non-Executive
Chairman of the Board of Directors, Mr. Buchalter was paid an annual fee of
$500,000 in cash, paid semi-monthly. As reported in the Company's plan of
reorganization (the 'Plan') which was confirmed by the United States Bankruptcy
Court for the Southern District of New York (the 'Bankruptcy Court'),
Mr. Buchalter was to receive $500,000 per year for his continued service as
Non-Executive Chairman of the Board of Directors after February 4, 2003.
Effective April 25, 2003, this amount was reduced to $250,000 per year as a
result of the hiring of Mr. Gromek as President and Chief Executive Officer on
April 15, 2003 and the election of Messrs. Bell and Perrin to the Board of
Directors on April 25, 2003. In connection with the consummation of the Plan on
February 4, 2003 (the 'Effective Date'), Mr. Buchalter was paid a cash bonus of
$210,004. In addition, Mr. Buchalter will receive 12,975 shares of Common Stock,
subject to approval by the stockholders of the Company of the 2003 Stock
Incentive Plan at the Annual Meeting. Effective February 4, 2003, Mr. Buchalter
will also receive an annual retainer fee of $26,000, payable in Common Stock
(which annual retainer fee is equivalent to the 40% portion of the other
non-employee directors' annual retainer fees payable in Common Stock).
The Company does not pay any additional remuneration to employees who serve
as directors of the Company.
6
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------
FORMER EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of January 4, 2003 with respect
to the Company's Class A Common Stock, par value $0.01 per share, existing prior
to the Company's reorganization (the 'Old Common Stock'), issuable under the
Company's former equity compensation plans:
<Table>
<Caption>
NUMBER OF
SECURITIES
REMAINING
NUMBER OF AVAILABLE FOR
SECURITIES TO WEIGHTED- FUTURE ISSUANCE
BE ISSUED UPON AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING
OPTIONS, OPTIONS, SECURITIES
WARRANTS AND WARRANTS AND REFLECTED IN
PLAN CATEGORY RIGHTS RIGHTS COLUMN (A))(b)
------------- ------ ------ --------------
(A) (B) (C)
Equity Compensation Plans
approved by stockholders
1991 Stock Option Plan...... 59,900 $26.74 143,025
1993 Stock Plan............. 1,177,613 $22.54 12,954,701
1993 Non-Employee Director
Stock Plan................ 70,000 $20.21 330,000
1998 Stock Plan for Non-
Employee Directors........ 340,000 $12.45 60,000
Equity Compensation Plans not
approved by stockholders
1988 Employee Stock Purchase
Plan...................... -- n/a 278,700
1997 Stock Option Plan(a)... 2,044,850 $19.03 9,844,515
</Table>
- ---------
(a) Provided for issuance of shares of Old Common Stock up to the number of
shares held in the Company's treasury.
(b) Pursuant to the terms of the Plan, the Old Common Stock and derivative
securities relating to the Old Common Stock, including all outstanding
options, were cancelled on the Effective Date.
DESCRIPTION OF FORMER NON-STOCKHOLDER APPROVED EQUITY COMPENSATION PLANS
1988 Employee Stock Purchase Plan
The 1988 Employee Stock Purchase Plan (the '1988 Plan') provided for the
sale of shares of Old Common Stock to certain key employees and directors of the
Company. The number of shares subject to the 1988 Plan was subject to equitable
adjustment in the event of certain corporate events such as mergers,
consolidations, recapitalizations and stock splits. The 1988 Plan was
administered by the Compensation Committee, which had the authority to determine
the number of shares to be sold or granted, the time at which restrictions on
shares would lapse, voting requirements and other terms and conditions of the
purchase agreement between the Company and the participant to whom shares were
granted or sold. Generally, shares granted or sold under the 1988 Plan vested
over a four-year period, were subject to repurchase (if the participant's
employment or service terminated) and were subject to restrictions on transfer
of any interest in such shares.
1997 Stock Option Plan
The 1997 Stock Option Plan (the '1997 Plan') provided for the grant of stock
options on Old Common Stock and restricted shares of Old Common Stock to
selected employees (including employees who were directors) of the Company.
Shares to be issued under the 1997 Plan were treasury shares of the Company and,
thus, were exempted from the stockholder approval requirements of the New York
Stock Exchange (the 'NYSE') on which exchange the Old Common Stock was traded
under
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the symbol 'WAC' prior to suspension by the NYSE on June 11, 2001 of the Old
Common Stock's trading. The 1997 Plan was administered by the Compensation
Committee, which had the authority to determine the persons to whom awards were
to be granted and the terms and conditions of awards, provided that the per
share exercise price of options granted under the 1997 Plan could not be less
than 100% of the fair market value of a share of Old Common Stock on the date of
grant. Adjustments in the number and kind of shares subject to awards granted
under the 1997 Plan were to be made in the event that the Compensation Committee
determined that a dividend or other distribution, recapitalization, stock split,
reorganization, merger, consolidation or other corporate events affected the
shares such that an adjustment was necessary in order to prevent dilution or
enlargement of the benefits intended to be made available under the 1997 Plan.
In the event that any award, or any shares subject to an award, under the 1997
Plan were forfeited, or were returned to the Company following the exercise or
vesting of an award, or an award otherwise terminated or was cancelled, the
shares so forfeited would become available for future grants under the 1997
Plan. Awards granted under the 1997 Plan were generally non-transferable, and
rights under such awards were exercisable only by the participant during such
participant's lifetime.
TREATMENT OF FORMER EQUITY COMPENSATION PLANS UNDER THE PLAN
As of January 4, 2003, there remained outstanding options to purchase shares
of Old Common Stock and restricted shares of Old Common Stock, which awards were
previously granted to employees and directors of the Company under various
Company equity compensation plans, including awards granted under the 1988 Plan
and the 1997 Plan. Pursuant to the terms of the Plan, the Old Common Stock and
derivative securities relating to the Old Common Stock, including all
outstanding options, were cancelled on the Effective Date.
ADOPTION OF 2003 STOCK INCENTIVE PLAN
On March 12, 2003, the Board of Directors approved the adoption of the 2003
Stock Incentive Plan and the granting of an aggregate of 750,000 shares of
restricted stock and options to purchase 3,000,000 shares of Common Stock, the
exercise price of which is the fair market value of the Common Stock at the date
of grant. The 2003 Stock Incentive Plan and the aforementioned awards are
subject to approval of the Company's stockholders at the Annual Meeting. For a
discussion of the 2003 Stock Incentive Plan, see 'COMPENSATION PLANS -- 2003
Stock Incentive Plan.'
BENEFICIAL OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth certain information with respect to
beneficial ownership of Common Stock as of April 25, 2003 by (1) each of the
Company's directors, (2) each of the Company's executive officers, (3) all of
the directors and executive officers as a group and (4) each person or entity
known by the Company to own five percent or more of any class of the Company's
voting securities.
<Table>
<Caption>
SHARES BENEFICIALLY OWNED
----------------------------------
NUMBER
OF PERCENT
NAME SHARES OF SHARES
---- ------ ---------
Antonio C. Alvarez II(a)............................... 266,400 *
David A. Bell(a)....................................... -- --
Stuart D. Buchalter(a)(b).............................. 12,975 *
James P. Fogarty(a).................................... -- --
Jay A. Galluzzo(a)(c).................................. 3,000 *
Richard Karl Goeltz(a)................................. -- --
Harvey Golub(a)........................................ -- --
Joseph R. Gromek(a)(c)................................. 150,000 *
Charles R. Perrin(a)................................... -- --
Stanley P. Silverstein(a)(c)........................... 33,000 *
All of the directors and executive officers as a
group................................................ 465,375 *
</Table>
(table continued on next page)
8
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(table continued from previous page)
<Table>
<Caption>
SHARES BENEFICIALLY OWNED
----------------------------------
NUMBER
OF PERCENT
NAME SHARES OF SHARES
---- ------ ---------
5% STOCKHOLDERS
The Bank of Nova Scotia(d)............................. 4,407,211 9.8%
Bank of America Corporation(e)......................... 2,692,655 6.0%
Chesapeake Partners Management Co., Inc.(f)............ 2,597,613 5.8%
Commerzbank Aktiengesellschaft(g)...................... 4,240,252 9.4%
General Electric Capital Corporation(h)................ 3,939,786 8.8%
JP Morgan Chase Bank(i)................................ 3,731,329 8.3%
Societe Generale(j).................................... 4,425,436 9.8%
</Table>
- ---------
* Less than 1%
(a) The business address of each of the directors and executive officers is c/o
The Warnaco Group, Inc., 90 Park Avenue, New York, New York 10016.
(b) Shares to be issued pursuant to the 2003 Stock Incentive Plan, subject to
stockholder approval at the Annual Meeting.
(c) Shares of restricted stock to be issued pursuant to the 2003 Stock Incentive
Plan, subject to stockholder approval at the Annual Meeting. Restrictions
lapse with respect to 25% of such shares on September 12, 2003 and with
respect to an additional 25% of such shares on each of the first, second and
third anniversaries of September 12, 2003.
(d) Information based solely on a Schedule 13G, dated February 10, 2003, filed
with the SEC by The Bank of Nova Scotia ('Scotiabank'), 44 West King Street
West, Toronto, Ontario, Canada, M5H 1H1, reporting the beneficial ownership
of the shares of Common Stock set forth in the table. According to the
Schedule 13G, Scotiabank has sole voting power and sole dispositive power
with respect to all such shares.
(e) Information based solely on a Schedule 13G, dated February 13, 2003, filed
with the SEC by Bank of America Corporation, 100 North Tryon Street,
Charlotte, North Carolina 28255, reporting the beneficial ownership of the
shares of Common Stock held by Bank of America Corporation ('BAC') and its
affiliates and subsidiaries (1) NB Holdings Corporation ('NB'); (2) Bank of
America, N.A. ('BACNA'); (3) BANA (#1) LLC ('LLC'); (4) Banc of America
Strategic Solutions, Inc. ('BASS'); (5) NationsBank Montgomery Holdings
Corporation ('NBC'); and (6) Banc of America Securities, LLC ('BACLLC').
According to the Schedule 13G (1) BAC has shared voting power and shared
dispositive power with respect to 2,692,655 shares; (2) NB has shared voting
power and shared dispositive power with respect to 2,692,655 shares; (3)
BACNA has sole voting power and sole dispositive power with respect to 8,500
shares and has shared voting power and shared dispositive power with respect
to 2,286,453 shares; (4) LLC has shared voting power and shared dispositive
power with respect to 2,286,453 shares; (5) BASS has sole voting power and
sole dispositive power with respect to 2,286,453 shares; (6) NBC has shared
voting power and shared dispositive power with respect to 397,702 shares;
and (7) BACLLC has sole voting power and sole dispositive power with respect
to 397,702 shares.
(f) Information based solely on a Schedule 13G, dated February 5, 2003, filed
with the SEC by Chesapeake Partners Management Co., Inc. ('CPMC'), 1829
Reisterstown Road, Suite 220, Baltimore, Maryland, 21208, reporting the
beneficial ownership of the shares of Common Stock held by CPMC and its
affiliates and subsidiaries (1) Chesapeake Partners Limited Partnership
('CPLP'); (2) Chesapeake Partners Institutional Fund Limited Partnership
('CPIFLP'); (3) Chesapeake Partners International Ltd. ('CPINTL'); and (4)
Barclay's Global Investors Event Driven Fund II ('Barclays'). According to
the Schedule 13G (1) CPMC has shared voting and shared dispositive power
with respect to 2,597,613 shares; (2) CPLP has shared voting power and
shared dispositive power with respect to 1,487,253 shares; (3) CPIFLP has
shared voting power and
(footnotes continued on next page)
9
<Page>
(footnotes continued from previous page)
shared dispositive power with respect to 52,045 shares; (4) CPINTL has
shared voting power and shared dispositive power with respect to 977,015
shares; and (5) Barclays has shared voting power and shared dispositive
power with respect to 81,300 shares.
(g) Information based solely on a letter, dated March 25, 2003, from Commerzbank
Aktiengesellschaft to the Company.
(h) Information based on a Schedule 13D, dated April 8, 2003, filed with the SEC
by GE Capital CFE, Inc. ('CFE'), 201 High Ridge Road, Stamford, CT 06927,
General Electric Capital Corporation ('GECC'), 260 Long Ridge Road,
Stamford, CT 06927, General Electric Capital Services, Inc. ('GECS'), 260
Long Ridge Road, Stamford, CT 06927, and General Electric Company ('GEC'),
3135 Easton Turnpike, Fairfield, CT 06431, reporting beneficial ownership of
the shares of Common Stock set forth in the table. According to the Schedule
13D, CFE has sole voting power and sole dispositive power with respect to
all such shares, and each of GECC, GECS and GEC disclaim voting and
dispositive power for such shares.
(i) Total represents the number of shares of Common Stock distributed to JP
Morgan Chase Bank on February 4, 2002 pursuant to the terms of the Plan.
(j) Total represents the number of shares of Common Stock distributed to Societe
Generale on February 4, 2002 pursuant to the terms of the Plan.
CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
----------------------------------------------
From April 30, 2001 to June 11, 2001 (the date upon which the Company filed
for bankruptcy protection), the Company paid A&M consulting fees of $1,256,000
pursuant to a consulting agreement. Under that consulting agreement, several
individuals who held or currently hold managerial positions with the Company
(including Messrs. Alvarez and Fogarty) provided services as advisors to the
Company. The A&M consulting agreement was terminated on June 11, 2001, and
certain A&M employees subsequently became employees of the Company, including
Mr. Alvarez who entered into the Alvarez Agreement (as defined below) with the
Company and Mr. Fogarty who entered into the Fogarty Agreement (as defined
below) with the Company. For a discussion of the Alvarez Agreement and the
Fogarty Agreement, see 'COMPENSATION OF EXECUTIVE OFFICERS -- Employment
Agreements.'
In anticipation of the Company's emergence from bankruptcy protection on
February 4, 2003, the Company entered into a second consulting agreement with
A&M on January 29, 2003 (as supplemented by a March 18, 2003 letter agreement,
collectively, the 'A&M Agreement'), pursuant to which it was agreed that
(1) Mr. Alvarez would continue to serve the Company as Chief Executive Officer
until the commencement of employment of a permanent Chief Executive Officer (the
'New CEO'); (2) Mr. Fogarty would continue to serve the Company as Chief
Financial Officer until the commencement of employment of a permanent Chief
Financial Officer (the 'New CFO'); and (3) certain other A&M employees would
continue to serve the Company in a consulting capacity. The A&M Agreement became
effective on February 4, 2003 and replaced and superceded the Alvarez Agreement
and the Fogarty Agreement. The A&M Agreement may be terminated by either party,
without cause, upon 30 days' written notice.
Pursuant to the terms of the A&M Agreement, effective February 4, 2003 and
continuing through a 15-day transition period following the appointment of the
New CEO, the Company pays A&M on account of Mr. Alvarez's services $125,000 per
month. Upon the appointment of Mr. Gromek as the New CEO on April 15, 2003 and
in accordance with the A&M Agreement, Mr. Alvarez began providing transitional
services to the Company. The A&M Agreement further provides that the Company
will pay A&M on account of Mr. Alvarez's services $750 per hour for any
additional transition services provided by Mr. Alvarez following the 15-day
transition period. The A&M Agreement also provides that, effective February 4,
2003, the Company pay A&M on account of Mr. Fogarty's services at a rate of $475
per hour. Upon the commencement of employment of the New CFO, Mr. Fogarty is
obligated to provide transitional assistance to the New CFO, as reasonably
required by the Company at a rate of $475 per hour. In addition, the A&M
Agreement (1) provides for awards to A&M of additional fees upon the
consummation of certain transactions involving the Company and
10
<Page>
(2) upon certain conditions, grants to A&M the right to participate in the
Incentive Compensation Plan during the periods Messrs. Alvarez and Fogarty
provide services to the Company. Mr. Alvarez, Mr. Fogarty and A&M are bound by
certain confidentiality, indemnification and non-solicitation obligations under
the terms of the A&M Agreement.
Mr. Alvarez is a co-founding Managing Director and Mr. Fogarty is a Managing
Director of A&M.
The Company leases certain real property from an entity controlled by Allen
Schwartz who is an employee of the Company and is the former owner of A.B.S. by
Allen Schwartz. The lease expires on May 31, 2005 and includes four five-year
renewal options. Rent expense related to the lease of this real property for
Fiscal 2002 was $500,000. The Company believes that the lease payments for this
property are at or below fair market values for similar property in that
geographic area.
DIRECTOR AND OFFICER SECURITIES REPORTS
---------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), requires that executive officers and directors of the Company
and stockholders who own more than ten percent of the Common Stock file reports
of ownership and changes in ownership with the SEC. Executive officers and
directors of the Company and greater than ten percent stockholders are required
by SEC regulations to furnish the Company with copies of all such Section 16(a)
forms that they file.
Based solely on a review of the copies of such reports furnished to the
Company, the Company believes that, during Fiscal 2002, all Section 16(a) filing
requirements applicable to the executive officers and directors of the Company
and greater than ten percent stockholders were complied with.
COMPENSATION OF EXECUTIVE OFFICERS
----------------------------------
Set forth below are tables prescribed by the proxy rules of the SEC which
present the compensation of (1) Mr. Alvarez, the Company's Chief Executive
Officer serving at January 4, 2003 and (2) the two most highly compensated
executive officers serving at January 4, 2003 other than Mr. Alvarez, namely,
Mr. Fogarty, Senior Vice President-Finance and Chief Financial Officer and
Mr. Silverstein, Senior Vice President-Corporate Development, Chief
Administrative Officer and Secretary (collectively, the 'Named Executives').
SUMMARY COMPENSATION TABLE
The following table discloses compensation paid or to be paid to the Named
Executives with respect to each of the three fiscal years ended December 30,
2000, January 5, 2002 and January 4, 2003.
<Table>
<Caption>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
SECURITIES
OTHER UNDERLYING ALL
ANNUAL OPTIONS/ OTHER
COMPEN- SARS COMPEN-
NAME OF OFFICER AND POSITION(S) YEAR SALARY BONUS SATION (SHARES) SATION
- ------------------------------- ---- ------ ----- ------ -------- ------
Antonio C. Alvarez II(a) ........ 2002 $1,500,058 $ -- (b) $ -- $ --
Former President and 2001 1,152,927 -- (b) -- --
Chief Executive Officer 2000 -- -- -- -- --
James P. Fogarty(c) ............. 2002 375,014 -- (b) -- 1,530(e)
Senior Vice President-Finance 2001 210,344 -- (b) -- --
and Chief Financial Officer 2000 -- -- -- -- --
Stanley P. Silverstein(f) ....... 2002 450,018 187,500(d) (b) -- --
Senior Vice President-Corporate 2001 450,018 187,500(d) (b) -- --
Development, Chief 2000 525,061 -- (b) 100,000 --
Administrative Officer and
Secretary
</Table>
(footnotes continued on next page)
11
<Page>
(footnotes continued from previous page)
(a) Mr. Alvarez was elected President and Chief Executive Officer of the Company
on November 16, 2001. Currently, Mr. Alvarez continues to serve as a
director; however, in connection with Mr. Gromek's appointment as the
Company's President and Chief Executive Officer, Mr. Alvarez no longer
serves as the Company's President and Chief Executive Officer.
(b) Other annual compensation was below the lesser of $50,000 or 10% of such
officer's annual salary and bonus for the fiscal year.
(c) Mr. Fogarty was elected Chief Financial Officer of the Company on December
20, 2001. Prior to his election to this position, Mr. Fogarty served the
Company as Senior Vice President from June 11, 2001 to December 20, 2001 and
served as an advisor to the Company (while employed by A&M) from April 30,
2001 to June 11, 2001.
(d) Represents retention bonus paid pursuant to the Key Domestic Employee
Retention Plan implemented in connection with the Company's bankruptcy
proceedings.
(e) Represents employer matching contributions under the Company's Employee
Savings Plan.
(f) In March 2003, Mr. Silverstein was appointed Senior Vice President-Corporate
Development and continued to serve as Chief Administrative Officer and
Secretary. Prior to March 2003, Mr. Silverstein served as Vice President,
General Counsel, Secretary and Chief Administrative Officer.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
There were no Option/SAR grants to any employee, including the Named
Executives, in Fiscal 2002.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
There were no Option/SAR exercises by any employee, including the Named
Executives, in Fiscal 2002. Pursuant to the terms of the Plan, on the Effective
Date, all shares of Old Common Stock were cancelled. As of January 4, 2003, all
options (including Mr. Silverstein's options) were out-of-the money and were
cancelled on the Effective Date pursuant to the Plan.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTIONS/SAR
VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS AT FISCAL
YEAR-END(#)
EXERCISABLE/UNEXERCISABLE
-------------------------
Antonio C. Alvarez II....................................... 0/0
James P. Fogarty............................................ 0/0
Stanley P. Silverstein...................................... 792,077/50,000
</Table>
PENSION PLAN
The table below sets forth the annual pension benefits payable at age 65
pursuant to the Company's Pension Plan (the 'Pension Plan'), which Pension Plan
provides pension benefits to all qualified personnel based on the average
highest 12 consecutive calendar years' compensation multiplied by the years of
credited service. Such benefits payable are expressed as straight life annuity
amounts and are not subject to reduction for social security or other offset.
Effective December 31, 2002, benefits under the Pension Plan were frozen, and,
as a result, no future benefits will be earned by any participant in the Pension
Plan. As of January 4, 2003, the following Named Executives have credited years
of service under the Pension Plan: Mr. Fogarty (credit for one year, seven
months of service) and Mr. Silverstein (credit for 18 years, nine months of
service). Pursuant to the terms of his employment agreements, Mr. Alvarez was
not eligible to participate in the Pension Plan in Fiscal 2002. The current
maximum
12
<Page>
remuneration covered by the Pension Plan for each such individual is $170,000.
Such amounts are included in the above Summary Compensation Table under 'Salary'
and 'Bonus.'
PENSION PLAN TABLE
<Table>
<Caption>
YEARS OF SERVICE
AVERAGE ANNUAL COMPENSATION ---------------------------------------------------------
BEST 12 YEARS 5 10 15 20 25 30
------------- ------- ------- ------- ------- ------- -------
$100,000.............................. $ 6,884 $13,767 $20,651 $27,535 $34,418 $41,302
$150,000.............................. 10,884 21,767 32,651 43,535 54,418 65,302
$200,000.............................. 11,350 22,701 34,051 45,401 56,752 68,102
$250,000.............................. 11,350 22,701 34,051 45,401 56,752 68,102
$300,000.............................. 11,350 22,701 34,051 45,401 56,752 68,102
</Table>
EMPLOYMENT AGREEMENTS
Antonio C. Alvarez II
The services of Mr. Alvarez to the Company were initially governed by a
consulting contract with A&M, dated April 30, 2001, pursuant to which Mr.
Alvarez served as the Company's Chief Restructuring Advisor while employed by
A&M. The Company then entered into an employment agreement with Mr. Alvarez,
effective June 11, 2001, pursuant to which Mr. Alvarez served as the Company's
Chief Restructuring Officer. The employment agreement was amended in connection
with Mr. Alvarez's election to the positions of President and Chief Executive
Officer in November 2001 (the employment agreement, as amended, the 'Alvarez
Agreement'). The Alvarez Agreement, as further amended, was subsequently
approved by the Bankruptcy Court on February 21, 2002. The term of the Alvarez
Agreement was further amended on July 16, 2002 to extend through the earlier of
April 30, 2003 or the consummation of a plan of reorganization for all or
substantially all of the Company entities involved in the Company's bankruptcy
proceedings before the Bankruptcy Court (which entities consisted of the
Company, 36 of its 37 U.S. subsidiaries and Warnaco of Canada Company and are
hereinafter referred to as the 'Debtors'). The Alvarez Agreement provided for
Mr. Alvarez's employment as President and Chief Executive Officer of the Company
at a monthly base salary of $125,000. Under the Alvarez Agreement, Mr. Alvarez
was not entitled to participate in the Company's benefit plans or programs,
including its pension or group health care programs. The Alvarez Agreement
provided that Mr. Alvarez would be entitled to earn an incentive bonus of no
less than $2.25 million (the 'Minimum Bonus'), payable following the 'Final
Payment Date,' which was defined in the Alvarez Agreement as the earlier of (1)
the expiration of the Alvarez Agreement, (2) the date on which there is a
complete disposition of the Company (whether by a sale of substantially all of
the Company's stock or assets or otherwise), (3) the date on which a plan of
reorganization is consummated or (4) the date on which Mr. Alvarez's employment
is terminated by the Company without 'Cause' or by Mr. Alvarez for 'Good Reason'
(each term as defined in the Alvarez Agreement). If certain financial targets
were met, all or part of the Minimum Bonus could have become payable earlier
than the Final Payment Date. Mr. Alvarez was also entitled to earn an
incremental bonus (the 'Incremental Bonus') based on the value of the pool of
funds available for distribution to creditors under the Plan. No Incremental
Bonus was to be payable until the value of the pool of funds available for
distribution to creditors under the Plan exceeded $625 million. The amount of
the Incremental Bonus was to be calculated as an escalating percentage of the
amount by which the value of the pool of funds available for distribution to
creditors under the Plan exceeded $625 million. The Incremental Bonus, if
earned, was to be payable following the Final Payment Date, but portions of the
Incremental Bonus may have been paid earlier than the Final Payment Date if
certain financial targets were met. The Alvarez Agreement provided that the
Incremental Bonus was to be paid in cash, debt or securities in the same
proportions as the value of the pool of funds available for distribution to
creditors under the Plan, except that no less than $2.25 million of the
Incremental Bonus was to be paid in cash. Pursuant to the Plan and to the
Alvarez Agreement, on the Effective Date, Mr. Alvarez received an incentive
bonus (comprised of the Minimum Bonus plus the Incremental Bonus) of
approximately $1.950 million in cash, Second Lien Notes due 2008 (issued by the
Company pursuant to the Plan) in the principal
13
<Page>
amount of $942,000 and approximately 0.59% of the Common Stock (266,400 shares).
Effective February 4, 2003, the Alvarez Agreement was replaced with, and
superceded by, the A&M Agreement. For a discussion of the A&M Agreement, see
'CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS.'
James P. Fogarty
Mr. Fogarty's services to the Company were initially governed by the
consulting contract with A&M, dated April 30, 2001, pursuant to which Mr.
Fogarty served as an advisor to the Company while employed by A&M. On June 11,
2001, the Company entered into an employment agreement with Mr. Fogarty (the
'Fogarty Agreement') which set forth the terms and conditions of Mr. Fogarty's
employment. The term of the Fogarty Agreement was amended on July 16, 2002 to
extend through the earlier of April 30, 2003 or consummation of a plan of
reorganization for all or substantially all of the Debtors. The Fogarty
Agreement could have been terminated by either party upon 30 days' written
notice. The Fogarty Agreement provided for Mr. Fogarty's employment as Senior
Vice President -- Finance at an annual base salary of $375,000 and certain other
benefits and reimbursement of expenses. Mr. Fogarty was elected to the
additional position of Chief Financial Officer on December 20, 2001. Mr. Fogarty
was entitled to participate in all of the Company's employee benefit plans and
programs, including its pension and group health benefit plans. Effective as of
February 4, 2003, the Fogarty Agreement was replaced with, and superceded by,
the A&M Agreement. For a discussion of the A&M Agreement, see 'CERTAIN
RELATIONSHIPS AND CERTAIN TRANSACTIONS.'
Key Domestic Employee Retention Plan
In connection with the Company's bankruptcy proceedings, the Company
instituted the Key Domestic Employee Retention Plan (the 'Retention Plan') which
was approved by the Bankruptcy Court. The Retention Plan provided for stay
bonuses, enhanced severance protection and discretionary transaction bonus
opportunities during the Company's bankruptcy proceedings. The stay bonuses
provided under the Retention Plan replaced the Company's existing bonus and
other cash incentive compensation programs for the participants. Approximately
245 key domestic employees, including Mr. Silverstein, were covered under the
Retention Plan. One-third of Mr. Silverstein's total stay bonus was paid to him
on December 10, 2001, one-third was paid on June 10, 2002 and one-third was paid
on February 7, 2003. No discretionary transaction bonus was paid to Mr.
Silverstein.
As a condition to participating in the Retention Plan, all participants were
required to execute the Employee Waiver, Release and Discharge of Claims, which
released the Company and its affiliates from claims by the Retention Plan
participants against the Company (except with respect to certain indemnification
rights and claims arising under the Company's retirement and savings plans).
COMPENSATION PLANS
------------------
2003 STOCK INCENTIVE PLAN
The Board of Directors is recommending that stockholders approve the 2003
Stock Incentive Plan. On March 4, 2003, subject to adoption of the 2003 Stock
Incentive Plan by the Board of Directors and the approval of Company
stockholders at the Annual Meeting, the Compensation Committee approved the form
of the 2003 Stock Incentive Plan and approved the terms and conditions of awards
to be granted under the 2003 Stock Incentive Plan. Upon the recommendation of
the Compensation Committee, on March 12, 2003, the Board of Directors adopted,
and approved grants of awards under, the 2003 Stock Incentive Plan, subject to
approval of stockholders at the Annual Meeting. If the stockholders approve the
2003 Stock Incentive Plan, it will become effective as the date of such
stockholder approval. If the stockholders do not approve the 2003 Stock
Incentive Plan, it will have no effect, and any awards granted thereunder will
be rescinded.
The following is a summary of the material terms and provisions of the 2003
Stock Incentive Plan and is qualified in its entirety by the full text of the
2003 Stock Incentive Plan, which is attached as Appendix D hereto.
14
<Page>
Purpose
The purpose of the 2003 Stock Incentive Plan is to promote the interests of
the Company and its stockholders by attracting and retaining qualified
directors, executive personnel, other key employees and consultants, motivating
such persons by means of performance-related incentives to achieve long-term
performance goals and enabling such persons to participate in the long-term
growth and financial success of the Company.
Administration of the 2003 Stock Incentive Plan
The 2003 Stock Incentive Plan will be administered by the Compensation
Committee. Each member of the Compensation Committee is a 'non-employee
director' within the meaning of Rule 16b-3 under the Exchange Act. The
Compensation Committee will have the full power and authority, subject to the
terms of the 2003 Stock Incentive Plan and applicable law, to:
o designate participants;
o determine the types of awards to be granted to participants;
o determine the number of shares to be covered by awards and
the terms, provisions (including provisions relating to a
change of control of the Company), conditions, restrictions
and performance goals (if any) relating to such awards;
o determine whether, to what extent, and under what
circumstances an award may be settled in cash, shares of
Common Stock or other securities;
o determine the methods by which awards may be settled,
exercised, cancelled, forfeited or suspended;
o determine whether and to what extent cash, shares of Common
Stock, other securities, other awards, other property and
other amounts payable with respect to an award may be
deferred;
o make certain adjustments to the performance goals as
described in the 2003 Stock Incentive Plan;
o construe and interpret the 2003 Stock Incentive Plan and any
award;
o establish, amend, suspend or waive such rules and
regulations and appoint such agents as deemed appropriate
for the administration of the 2003 Stock Incentive Plan;
o determine whether, or to what extent, performance goals are
achieved; and
o make all other determinations deemed necessary or desirable
for the administration of the 2003 Stock Incentive Plan.
Subject to the terms of the 2003 Stock Incentive Plan and applicable law,
the Compensation Committee may delegate its authority under the 2003 Stock
Incentive Plan to one or more officers or managers of the Company or to a
committee of officers or managers, except with respect to awards to those
participants who are subject to Section 16 of the Exchange Act with respect to
the Company. All determinations made by the Compensation Committee with respect
to the 2003 Stock Incentive Plan and any award will be final, conclusive and
binding upon all persons. Notwithstanding any provision of the 2003 Stock
Incentive Plan to the contrary (including provisions which allow the
Compensation Committee to reduce the exercise price of stock options granted in
the event that the Compensation Committee determines such reduction to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the 2003 Stock Incentive
Plan), the Compensation Committee does not have the authority to take any action
which has the effect of reducing the exercise price of a stock option granted
under the 2003 Stock Incentive Plan.
Shares Reserved for Issuance
The aggregate number of shares of Common Stock with respect to which awards
may be granted under the 2003 Stock Incentive Plan is 5,000,000. No executive
officer of the Company may receive awards under the 2003 Stock Incentive Plan in
any fiscal year of the Company that relate to more than 1,500,000 shares of
Common Stock. In the event that the Compensation Committee determines that any
dividend or other distribution, recapitalization, stock split, reorganization,
merger, consolidation, split-
15
<Page>
off, spin-off, combination, repurchase or exchange of shares, issuance of
warrants, other rights to purchase shares or other similar corporate transaction
or event affects the Common Stock such that an adjustment is determined by the
Compensation Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the 2003 Stock Incentive Plan, the Compensation Committee will, in any
manner as it may deem equitable, adjust any or all of the number or type of
shares or other securities with respect to which awards may be granted, the
number or type of shares subject to outstanding awards, and the grant or
exercise price with respect to any award or, if deemed appropriate, provide for
a cash payment to the holder of an outstanding award. Common Stock delivered
pursuant to an award may consist of authorized and unissued shares or treasury
shares. If any award granted under the 2003 Stock Incentive Plan is forfeited or
otherwise terminates or is cancelled without the delivery of Common Stock, then
the shares covered by the award, or to which the award relates, will again be
available for awards under the 2003 Stock Incentive Plan.
Eligibility
Any employee, including any officer or employee-director, any director of
the Company and any consultant to the Company who is an individual person will
be eligible to be designated a participant in the 2003 Stock Incentive Plan.
Currently, there are approximately 120 individuals who have been selected to
participate in the 2003 Stock Incentive Plan.
Types of Awards
The 2003 Stock Incentive Plan provides for the grant of stock options,
including options intended to be 'incentive stock options' within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the 'Code'),
restricted shares of Common Stock, stock awards and other stock-based awards.
Options. The Compensation Committee will have sole and complete authority to
determine the participants to whom options will be granted under the 2003 Stock
Incentive Plan, the number of shares to be subject to options and the terms and
conditions of options, provided that the exercise price of an option granted
under the 2003 Stock Incentive Plan may not be less than 100% of the Fair Market
Value (as defined in the 2003 Stock Incentive Plan) of the Common Stock on the
date of grant.
Restricted Stock. The Compensation Committee will have sole and complete
authority to determine the participants to whom awards of restricted stock will
be granted under the 2003 Stock Incentive Plan, the number of shares to be
subject to the awards and the terms and conditions of the awards, including
whether the vesting of such an award will be subject to the attainment of one or
more performance goals (as described below). Dividends paid on shares of
restricted stock may be paid directly to the participant or may be reinvested in
additional shares, as determined by the Compensation Committee.
Stock Awards. Under the 2003 Stock Incentive Plan, a stock award will
consist of an award of unrestricted shares of Common Stock for which a
certificate will be issued and delivered as soon as practicable after the date
on which the award is made.
Other Stock-Based Awards. Other stock-based awards, the form of which will
be determined by the Compensation Committee, will be valued in whole or in part
by reference to, or otherwise based on, shares of Common Stock. These awards may
be granted either alone or in addition to other awards under the 2003 Stock
Incentive Plan. The Compensation Committee will have sole and complete authority
to determine the participants to whom the awards will be granted and all terms
and conditions of the awards, including whether the vesting or payment of any
portion of any such award will be subject to the attainment of one or more
performance goals (as described below).
Performance Goals
Under the 2003 Stock Incentive Plan, the Compensation Committee has the
authority to determine that vesting or payment of an award under the 2003 Stock
Incentive Plan will be subject to the
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attainment of one or more performance goals. The performance goals may include
any or a combination of, or a specified increase in, the following:
o return on total stockholder equity;
o earnings per share (which may include the manner in which
such earnings goals were met);
o net income, before or after taxes;
o earnings before interest, taxes, depreciation and
amortization ('EBITDA');
o revenues;
o return on assets;
o market share; or
o cost reduction.
Termination of Employment
Under the 2003 Stock Incentive Plan, the Compensation Committee has the
discretion to determine the effect on awards of the termination of a
participant's employment with, or service to, the Company, which provisions will
be included in the agreement setting forth the terms and conditions of awards.
The Compensation Committee may determine (and has so determined, with respect to
certain awards granted under the 2003 Stock Incentive Plan, subject to
stockholder approval) that, upon the termination of a participant's employment
with, or service to, the Company for Cause (as defined in the 2003 Stock
Incentive Plan), in addition to forfeiture of all outstanding awards, such
participant will be required to forfeit to the Company (1) any shares of
previously restricted Common Stock that had become vested during the six-month
period prior to such termination and (2) any shares of Common Stock purchased
pursuant to the exercise of an option during the six-month period prior to such
termination. In the case of those forfeited shares of Common Stock purchased
pursuant to the exercise of an option, the Company would pay to such participant
the aggregate exercise price paid by such participant for such forfeited shares
of Common Stock. If any of the forfeited shares of Common Stock had previously
been sold, or otherwise disposed of, by the participant, such participant would
be required to pay to the Company the fair market value of such shares of Common
Stock as of the day of such sale or other disposition.
Transferability of Awards
Awards granted under the 2003 Stock Incentive Plan generally may not be sold
or otherwise transferred or encumbered by a participant other than by will or by
the laws of descent and distribution; however, the Compensation Committee may
determine that a participant, during such participant's lifetime, may transfer
certain awards to one or more members of the participant's immediate family or
trusts for the benefit of the participant or an immediate family member, subject
to conditions that the Compensation Committee may prescribe.
Term of the 2003 Stock Incentive Plan; Amendment or Termination of the 2003
Stock Incentive Plan; Amendment of Awards
The 2003 Stock Incentive Plan will become effective upon its approval by the
Company's stockholders at the Annual Meeting. No award may be granted under the
2003 Stock Incentive Plan after the tenth anniversary of the effective date of
the 2003 Stock Incentive Plan; however, the termination of the 2003 Stock
Incentive Plan will not adversely affect the terms of any award outstanding at
the time of such termination.
The Board of Directors may amend, alter, suspend, discontinue or terminate
the 2003 Stock Incentive Plan at any time, provided that no such amendment,
alteration, suspension, discontinuance or termination will be made without
stockholder approval, if such approval is, in the Board of Directors'
determination, necessary to comply with any tax or regulatory requirement. The
Compensation Committee may amend the 2003 Stock Incentive Plan in any manner it
deems necessary to have the 2003 Stock Incentive Plan conform with local rules
and regulations in any jurisdiction outside the United States.
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The Compensation Committee may waive any conditions or rights under, amend
any terms of, or cancel or terminate any outstanding award under, the 2003 Stock
Incentive Plan, provided that any action that would impair the rights of a
participant or any holder or beneficiary of any outstanding award will not be
effective without the consent of the participant, holder or beneficiary.
Benefits under the 2003 Stock Incentive Plan
The following table briefly summarizes the awards that have been granted to
participants in the 2003 Stock Incentive Plan, subject to approval of the plan
by the Company's stockholders at the Annual Meeting. Future grants under the
2003 Stock Incentive Plan will be determined by the Compensation Committee and
may vary from year to year and from participant to participant and are not
determinable at this time.
NEW PLAN BENEFITS
2003 STOCK INCENTIVE PLAN
<Table>
<Caption>
NUMBER
OF
SHARES NUMBER OF
SUBJECT SHARES
NAME AND POSITION TO OPTION OF STOCK(a)
- ----------------- --------- -----------
Antonio C. Alvarez II ...................................... -- --
Former President and Chief Executive Officer
James P. Fogarty ........................................... -- --
Senior Vice President -- Finance and Chief Financial
Officer
Stanley P. Silverstein ..................................... 132,000 33,000
Senior Vice President -- Corporate Development,
Chief Administrative Officer and Secretary
Executive Group............................................. 916,000 229,000
Non-Executive Director Group................................ -- 12,975
Non-Executive Officer Employee Group........................ 2,084,000 521,000
</Table>
- ---------
(a) Such awards may be awards of restricted shares of Common Stock or stock
awards, in each case as described above, under 'Restricted Stock' and 'Stock
Awards,' respectively.
Certain Federal Income Tax Effects
The following discussion of certain relevant federal income tax effects
applicable to stock options granted under the 2003 Stock Incentive Plan is a
summary only, and reference is made to the Code for a complete statement of all
relevant federal tax provisions. Different rules may apply in the case of a
participant who is subject to Section 16 of the Exchange Act with respect to the
Company.
Nonqualified Stock Options
A participant generally will not be subject to income tax upon the grant of
a nonqualified stock option ('NSO'). Rather, at the time of exercise of such
NSO, the participant will recognize ordinary income for federal income tax
purposes in an amount equal to the excess of the fair market value of the shares
purchased over the option price. The Company will generally be entitled to a tax
deduction at such time in the same amount that the participant recognizes
ordinary income.
If shares acquired upon exercise of an NSO are later sold or exchanged, then
the difference between the sales price and the fair market value of such stock
on the date that ordinary income was recognized with respect thereto will
generally be taxable as long-term or short-term capital gain or loss (if the
stock is a capital asset of the participant) depending upon the length of time
such shares were held by the participant.
Incentive Stock Options
A participant generally will not be subject to ordinary income tax upon the
grant or timely exercise of an incentive stock option ('ISO'). Exercise of an
ISO will be timely if made during its term and if
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the participant remains an employee of the Company or a subsidiary at all times
during the period beginning on the date of grant of the ISO and ending on the
date three months before the date of exercise (or one year before the date of
exercise in the case of a disabled participant). Exercise of an ISO will also be
timely if made by the legal representative of a participant who dies (1) while
employed by the Company or one of its subsidiaries or (2) within three months
after termination of employment. The tax consequences of an untimely exercise of
an ISO will be determined in accordance with the rules applicable to NSOs.
If stock acquired pursuant to the timely exercise of an ISO is later
disposed of, the participant will, except as noted below, recognize long-term
capital gain or loss (if the stock is a capital asset of the participant) equal
to the difference between the amount realized upon such sale and the option
price. Under these circumstances, the Company will not be entitled to any
federal income tax deduction in connection with either the exercise of the ISO
or the sale of such stock by the participant.
If, however, stock acquired pursuant to the exercise of an ISO is disposed
of by the participant prior to the expiration of two years from the date of
grant of the ISO or within one year from the date such stock is transferred to
such participant upon exercise (a 'disqualifying disposition'), any gain
realized by the participant generally will be taxable at the time of such
disqualifying disposition as follows: (1) at ordinary income rates, to the
extent of the difference between the option price and the lesser of the fair
market value of the stock on the date the ISO is exercised or the amount
realized on such disqualifying disposition, and, (2) if the stock is a capital
asset of the participant, as short-term or long-term capital gain, to the extent
of any excess of the amount realized on such disqualifying disposition over the
fair market value of the stock on the date which governs the determination of
the participant's ordinary income. In such case, the Company may claim a federal
income tax deduction at the time of such disqualifying disposition for the
amount taxable to the participant as ordinary income. Any capital gain
recognized by the participant will be long-term or short-term capital gain,
depending on the length of time such shares were held by the participant.
The amount by which the fair market value of the stock on the exercise date
of an ISO exceeds the option price will be an item of adjustment for purposes of
the 'alternative minimum tax' imposed by Section 55 of the Code.
Exercise with Shares
According to a published ruling of the Internal Revenue Service, a
participant who pays the option price upon exercise of an NSO, in whole or in
part, by delivering shares of a company's common stock already owned by such
participant (other than shares received by exercise of an ISO which have not met
the holding period requirements) will recognize no gain or loss for federal
income tax purposes on the shares surrendered, but such participant otherwise
will be taxed according to the rules described above for NSOs. With respect to
shares acquired upon exercise which are equal in number to the shares
surrendered, the basis of such shares will be equal to the basis of the shares
surrendered, and the holding period of shares acquired will include the holding
period of the shares surrendered. The basis of additional shares received upon
exercise will be equal to the fair market value of such shares on the date which
governs the determination of the participant's ordinary income, and the holding
period for such additional shares will commence on such date.
The accompanying proxy will be voted 'FOR' the approval of the 2003 Stock
Incentive Plan unless contrary instructions are given.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE APPROVAL OF
THE 2003 STOCK INCENTIVE PLAN, WHICH IS DESIGNATED AS ITEM NO. 2 ON
THE ENCLOSED PROXY CARD.
INCENTIVE COMPENSATION PLAN
The Board of Directors is recommending that stockholders approve the
Incentive Compensation Plan. On March 4, 2003, subject to adoption of the plan
by the Board of Directors and the approval of Company stockholders at the Annual
Meeting, the Compensation Committee approved the form of the
19
<Page>
Incentive Compensation Plan and approved the terms and conditions of awards to
be granted under the Incentive Compensation Plan. Following the recommendation
of the Compensation Committee, on March 12, 2003, the Board of Directors
adopted, and ratified the performance factors, plan participants, target levels
and grants of awards under, the Incentive Compensation Plan, subject to the
approval of stockholders at the Annual Meeting. If the stockholders approve the
Incentive Compensation Plan, it will be deemed to have taken effect as of
January 5, 2003. If the stockholders do not approve the Incentive Compensation
Plan, it will have no effect, and any awards granted thereunder will be
rescinded.
The following is a summary of the material terms and provisions of the
Incentive Compensation Plan and is qualified in its entirety by the full text of
the Incentive Compensation Plan, which is attached as Appendix E hereto.
Purpose
The purpose of the Incentive Compensation Plan is to align the interests of
key Company employees with those of the stockholders of the Company by
encouraging plan participants to achieve goals intended to increase stockholder
value.
Administration of the Incentive Compensation Plan
The Incentive Compensation Plan will be administered by the Compensation
Committee. Each member of the Compensation Committee will be an 'outside
director' within the meaning of Section 162(m) of the Code. The Compensation
Committee will have the authority, in its sole discretion, subject to the terms
of the Incentive Compensation Plan and applicable law, to administer the
Incentive Compensation Plan and to exercise all the powers and authorities
either specifically granted to it under the Incentive Compensation Plan or
necessary or advisable in the administration of the Incentive Compensation Plan,
including, without limitation, to:
o grant awards (and to determine to whom and the times at
which the awards will be granted);
o determine the terms, provisions (including provisions
relating to a change of control of the Company), conditions,
restrictions and performance factors relating to any award;
o determine whether, to what extent, and under what
circumstances an award may be settled, cancelled, forfeited
or surrendered;
o make certain adjustments in the performance factors as
described in the Incentive Compensation Plan;
o construe and interpret the Incentive Compensation Plan and
any award;
o prescribe, amend and rescind rules and regulations relating
to the Incentive Compensation Plan;
o determine whether, or to what extent, performance factors
are achieved; and
o make all other determinations deemed necessary or advisable
for the administration of the Incentive Compensation Plan.
Subject to Section 162(m) of the Code, and except as required by Rule 16b-3
under the Exchange Act, the Compensation Committee may delegate all or any part
of its authority under the Incentive Compensation Plan.
Eligibility
Awards may be granted to key employees of the Company or any of its
subsidiaries, or to key consultants or the entities employing such consultants,
in any case, in the sole discretion of the Compensation Committee, after
consultation with the Company's Chief Executive Officer. Currently, there are
approximately 195 key employees and other participants who may be eligible to be
selected to participate in the Incentive Compensation Plan.
20
<Page>
Performance Factor Attainment Required for Award Payment
The Incentive Compensation Plan provides for the payment of awards to
participants if, and only to the extent that, performance factor goals
established by the Compensation Committee are met with respect to the applicable
performance period (the 'Performance Period'). The Performance Period will be
each twelve-month period commencing on the first day of the Company's fiscal
year or such other period as the Compensation Committee may determine.
Performance Factors
The Compensation Committee will determine, in writing, on or prior to the
date on which 25% of a Performance Period has elapsed, the performance factors
which must be met during a Performance Period. The performance factors may
include any or all of the following:
o SVA (defined in the Incentive Compensation Plan as, with respect to
any designated division of the Company for any fiscal year, the sum of
(1) the product of such division's increase or decrease in EBITDA,
multiplied by the number four, and (2) Net Controllable Cash Flow
(as defined below);
o gross margin;
o operating margin;
o revenue growth;
o Net Controllable Cash Flow (defined in the Incentive
Compensation Plan as, with respect to a division of the
Company for any fiscal year, such division's EBITDA
(1) plus any decrease, or minus any increase, in accounts
receivable, (2) plus any decrease, or minus any increase, in
inventory, (3) plus any decrease, or minus any increase, in
prepaid expense, (4) plus any increase, or minus any
decrease, in accounts payable or accrued expenses and
(5) minus capital expenditures);
o free cash flow;
o operating cash flow;
o earnings per share (which may include the manner in which
such earnings goals were met);
o earnings before all or any of interest, taxes, depreciation
and/or amortization;
o economic value added;
o cash-flow return on investment;
o net income;
o total stockholder return;
o return on investment;
o return on equity; or
o return on assets.
The performance factors may be expressed in terms of an increase or decrease
of one or more specific criteria over a specified period. The performance
factors may relate to the performance of the Company, a subsidiary, a division,
any portion of the business, a product line, or any combination thereof.
Performance factors may include a threshold level of performance below which no
payment will be made, levels of performance below the target level but above the
threshold level at which specified percentages of the award will be paid, a
target level of performance at which the full award will be paid, levels of
performance above the target level but below the maximum level at which
specified multiples of the award will be paid and a maximum level of performance
above which no additional payment will be made. Performance factors may also
specify that payments for levels of performances between specified levels will
be interpolated.
21
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Compensation Committee Certification of Performance Factor Attainment
Before any awards for a particular Performance Period can be paid to those
employees whose compensation is covered by Section 162(m) of the Code (the
'Covered Employees'), the Compensation Committee must certify the extent to
which the performance factors have been attained.
Special Provisions Regarding Awards
In no event will payment in respect of awards granted for a Performance
Period be made to a Covered Employee in an amount that exceeds $2,500,000. Also,
in no event may the Compensation Committee increase the amount of an award
payable to a Covered Employee upon attainment of the specified performance
factors, but the Compensation Committee may do so with respect to other
participants. Subject to the general prohibition on increasing the amount
payable to a Covered Employee upon attainment of the specified performance
factors, the Compensation Committee may, in its discretion, provide that an
award under the Incentive Compensation Plan may be adjusted in light of a
participant's contribution to the long-term health of the Company.
Termination of Employment
Unless otherwise provided by the Compensation Committee, a participant must
be actively employed by the Company at the end of the Performance Period in
order to be eligible to receive such participant's award. Unless otherwise
provided by the Compensation Committee, if a participant's employment is
terminated as result of death, disability or retirement prior to the end of the
Performance Period, the participant will receive a pro rata portion of the award
that such participant would have received with respect to the applicable
Performance Period, which will be payable at such time that awards are payable
to other participants.
Change in Control
Except as otherwise provided under the terms of the Incentive Compensation
Plan, upon the occurrence of a Change of Control (as defined in the Incentive
Compensation Plan), the Company will pay to each participant, within 30 days
following such Change of Control, the pro rata portion of the award that each
participant would have received with respect to the applicable Performance
Period had the performance factors been achieved at 100% of target level.
Amendment or Termination of the Incentive Compensation Plan
Subject to certain limitations, the Board of Directors or the Compensation
Committee may, at any time, suspend or terminate the Incentive Compensation Plan
or revise or amend it in any respect whatsoever.
Benefits under the Incentive Compensation Plan
The following table briefly summarizes the awards that have been granted to
participants in the Incentive Compensation Plan, subject to approval of the plan
by the Company's stockholders at the Annual Meeting. Payment of the amounts
shown depends on achievement of target level performance for fiscal year 2003
under the Incentive Compensation Plan. Future awards under the Incentive
Compensation Plan will be determined by the Compensation Committee and may vary
from year to year and from participant to participant and are not determinable
at this time.
22
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NEW PLAN BENEFITS
INCENTIVE COMPENSATION PLAN
<Table>
<Caption>
DOLLAR VALUE
AT TARGET
PERFORMANCE
FOR
NAME AND POSITION FISCAL YEAR 2003
- ----------------- ----------------
Antonio C. Alvarez II ...................................... 208,334(a)
Former President and Chief Executive Officer
James P. Fogarty ........................................... 385,000(b)
Senior Vice President -- Finance and Chief Financial
Officer
Stanley P. Silverstein ..................................... 315,000
Senior Vice President -- Corporate Development,
Chief Administrative Officer and Secretary
Executive Group............................................. 2,063,334
Non-Executive Officer Employee Group........................ 8,435,812
</Table>
- ---------
(a) Amount represents target award pro-rated by reason of Mr.
Alvarez's resignation as the Company's President and Chief
Executive Officer, effective April 15, 2003.
(b) Amount actually paid to Mr. Fogarty will be pro-rated for a
partial year of employment when the New CFO is employed
during the 2003 fiscal year.
The accompanying proxy will be voted 'FOR' the approval of the Incentive
Compensation Plan unless contrary instructions are given.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE APPROVAL OF
THE INCENTIVE COMPENSATION PLAN, WHICH IS DESIGNATED AS ITEM
NO. 3 ON THE ENCLOSED PROXY CARD.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
-------------------------------------------------------
The Compensation Committee of the Board of Directors is responsible for
administering the executive compensation plans and programs of the Company and
for making recommendations to the Board of Directors regarding the compensation
of, and benefits provided to, the executive officers of the Company. The
Compensation Committee operates under the Compensation Committee Charter, and
none of the members of the Compensation Committee are employees of the Company.
GENERAL POLICIES REGARDING COMPENSATION OF EXECUTIVE OFFICERS
In establishing compensation and benefit levels for executive officers, the
Compensation Committee seeks to (1) attract and retain individuals of superior
ability and managerial talent; (2) motivate executive officers to increase
Company performance primarily for the benefit of its stockholders and also for
the benefit of its customers and other constituencies; and (3) reward executive
officers for exceptional individual contributions to the achievement of the
Company's business objectives. To these ends, the Company's executive
compensation package consists of annual salary, variable annual cash
compensation and stock-based, long-term incentive awards.
Base Salary
Salary levels generally are determined based on the Compensation Committee's
subjective assessment of prevailing salary levels among the Company's industry
peers and other companies with which, in the Compensation Committee's view, the
Company competes for executive talent (including non-public companies and
companies in related industries, such as retailing or general apparel
manufacturing).
In general, the Compensation Committee attempts to set base salaries at
levels which will attract and retain highly qualified individuals. In selected
cases, the Compensation Committee may conclude
23
<Page>
that excellent executive talent may only be attracted and retained by
compensation packages in excess of prevailing market levels.
In making such judgments regarding the appropriate compensation level for a
particular executive officer, the Compensation Committee from time to time
consults with independent executive compensation consultants. The Compensation
Committee engaged such consultants during Fiscal 2002.
Annual Bonus
The Compensation Committee generally believes that, at higher executive
levels, a greater percentage of an individual's total annual cash compensation
opportunity should consist of variable compensation tied to the Company's
performance.
In Fiscal 2002, the Company paid retention bonuses to certain key employees
in connection with the Plan. Retention bonuses were paid at certain intervals
during Fiscal 2002 and were designed to retain valuable employees during the
Company's bankruptcy proceedings.
In addition, pursuant to the Plan, the Company established a Confirmation
Bonus Plan whereby certain bonus payments will be made to selected employees in
recognition of their contributions to the Company's emergence from bankruptcy
proceedings. Such bonuses are payable in two equal installments in April 2003
and August 2003, subject to the employee being actively employed at the pay
date.
Upon the recommendation of the Compensation Committee, on March 12, 2003,
the Board of Directors adopted the Incentive Compensation Plan for the purpose
of awarding annual cash bonuses to key employees and consultants, which plan
will be administered by the Compensation Committee. Under the Incentive
Compensation Plan, the Compensation Committee has the discretion to determine
awards to be granted to plan participants and the performance factors against
which performance must be achieved in order to receive payment of awards. For a
discussion of the Incentive Compensation Plan, see 'COMPENSATION
PLANS -- Incentive Compensation Plan.'
Long-Term Incentive Compensation
Stock-based incentives, consisting of stock options granted at 100% of the
stock's fair market value on the grant date and restricted stock awards,
constitute the long-term portion of the Company's executive compensation
package. Stock options provide an incentive for executives to increase the
return to the Company's stockholders. Although it had the authority to do so
under the Company's then existing stock option plans, the Compensation Committee
has not heretofore awarded SARs or other stock-based awards, except for certain
restricted stock awards which were granted in fiscal year 1995 through fiscal
year 1999. The Compensation Committee has the authority to consider any factors
it deems appropriate under the circumstances in reaching its determination
regarding the size and timing of grants and equity incentives. No stock option
grants or restricted stock awards were made in Fiscal 2002.
Upon the recommendation of the Compensation Committee, on March 12, 2003,
the Board of Directors adopted the 2003 Stock Incentive Plan, which provides for
a variety of equity-based awards, including stock options, restricted stock
awards and other stock-based awards. The 2003 Stock Incentive Plan, including
awards granted thereunder, will be administered by the Compensation Committee.
Under the 2003 Stock Incentive Plan, the Compensation Committee has the
discretion to determine the awards to be granted to plan participants and all
terms and conditions of such awards. For a discussion of the 2003 Stock
Incentive Plan, see 'COMPENSATION PLANS -- 2003 Stock Incentive Plan.'
Limitations on Deductibility of Executive Compensation
Section 162(m) of the Code limits the deductibility of compensation paid to
certain executive officers of the Company. To qualify for an exemption to such
limitation, compensation in excess of $1.0 million per year paid to the Chief
Executive Officer and to the other most highly compensated executive officers at
the end of such fiscal year generally must be either (1) paid pursuant to a
written binding contract in effect on February 17, 1993 or (2) constitute
performance-based compensation. In
24
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order to be considered 'performance-based' compensation under Section 162(m) of
the Code, compensation must be paid solely on account of the attainment of one
or more preestablished performance goals established by a committee of two or
more 'outside directors,' pursuant to an arrangement that has been disclosed to
stockholders of a company and approved by a majority vote of its stockholders.
Also, in order for an arrangement to give rise to fully deductible
'performance-based' compensation, the terms of the arrangement must preclude the
exercise of any discretion in the administration of the plan that would have the
effect of increasing compensation paid thereunder to the employees covered by
Section 162(m) of the Code.
The Compensation Committee generally intends to comply with the requirements
for full deductibility of executive compensation under Section 162(m) of the
Code. However, the Compensation Committee will balance the costs and burdens
involved in such compliance against the value of the tax benefits to be obtained
by the Company thereby and may, in certain instances, pay compensation that is
not fully deductible, if the Compensation Committee determines that such costs
and burdens outweigh such benefits.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In Fiscal 2002, the compensation, including salary and bonus, of Mr.
Alvarez, the Chief Executive Officer, was governed by the Alvarez Agreement. In
determining compensation under the Alvarez Agreement, consideration was given to
his substantial experience and expertise as a turnaround and crisis management
manager and his proven ability to lead troubled companies and improve
operational and financial performance. For a discussion of the Alvarez
Agreement, see 'COMPENSATION OF EXECUTIVE OFFICERS -- Employment Agreements.'
MEMBERS OF THE COMPENSATION COMMITTEE (AS OF APRIL 24, 2003)
Stuart D. Buchalter
Richard Karl Goeltz
Harvey Golub
STOCK PRICE PERFORMANCE GRAPH
-----------------------------
Pursuant to the Plan, the Company cancelled all outstanding shares of the
Old Common Stock on the Effective Date. The holders of the Old Common Stock did
not receive any distribution on account of the Old Common Stock under the Plan.
The Common Stock did not begin trading on The Nasdaq Stock Market during Fiscal
2002. Since there is no stock price information for the Common Stock for periods
prior to the end of Fiscal 2002, the Company is unable to provide a line graph
comparing the percentage change in total stockholder return on the Common Stock
for any period prior to January 4, 2003.
ANNUAL REPORT
-------------
The Company's Annual Report on Form 10-K for the year ended January 4, 2003,
dated April 4, 2003 (the 'Annual Report on Form 10-K'), is being mailed with
this Proxy Statement. THE COMPANY WILL FURNISH ANY EXHIBIT TO THE ANNUAL REPORT
ON FORM 10-K UPON THE REQUEST OF A STOCKHOLDER OF RECORD AS OF THE CLOSE OF
BUSINESS ON APRIL 21, 2003 FOR A FEE LIMITED TO THE COMPANY'S REASONABLE
EXPENSES IN FURNISHING SUCH EXHIBIT. REQUESTS FOR EXHIBITS TO THE ANNUAL REPORT
ON FORM 10-K SHOULD BE DIRECTED TO THE SECRETARY, THE WARNACO GROUP, INC.,
90 PARK AVE., NEW YORK, NY 10016.
The Annual Report is not a part of the proxy solicitation materials.
STOCKHOLDER PROPOSALS
---------------------
Under Rule 14a-8 of the Exchange Act as currently in effect, any holder of
at least $2,000 in market value of Common Stock who has held such securities for
at least one year and who desires to have a proposal presented in the Company's
proxy material for use in connection with the Annual Meeting of stockholders to
be held in 2004 must transmit that proposal (along with the stockholder's
25
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name, address, the number of shares of Common Stock that the stockholder holds
of record or beneficially, the dates upon which the securities were acquired,
documentary support for a claim of beneficial ownership and a statement of
willingness to hold such shares through the date of the 2004 meeting) in writing
as set forth below. Proposals of stockholders intended to be presented at the
next annual meeting under Rule 14a-8 of the Exchange Act must be received by the
Secretary, The Warnaco Group, Inc., 90 Park Ave., New York, NY 10016, not later
than December 30, 2003. In order for proposals of stockholders made outside of
Rule 14a-8 to be considered 'timely' within the meaning of Rule 14a-4(c) of the
Exchange Act, such proposals must be received by the Secretary at the above
address by March 12, 2004.
INDEPENDENT AUDITORS
--------------------
The Board of Directors is recommending ratification of its appointment of
Deloitte & Touche as independent auditors for the Company for the fiscal year
ending January 3, 2004. The Board of Director's appointment of Deloitte & Touche
as the Company's independent auditors for the current fiscal year was based on
the recommendation of the Audit Committee. In accordance with the policies and
procedures of the Audit Committee, all services to be rendered by and fees paid
to Deloitte & Touche are subject to the prior approval of the Audit Committee.
If the stockholders do not ratify this appointment, the Audit Committee will
reconsider its decision to appoint Deloitte & Touche.
Deloitte & Touche provided audit and other services during Fiscal 2002 as
set forth below:
<Table>
<Caption>
FEES
BILLED(a)
----------
SERVICES PROVIDED 2002
- ----------------- ----
Audit Fees(b)............................................... $3,765,000
----------
Financial information systems design and implementation
fees...................................................... $ --
All Other Fees:
Audit related fees(c)................................... $ 125,000
Other fees(d)........................................... $1,604,263
----------
Total All Other Fees(e)............................. $1,729,263
----------
Grand Total................................................. $5,494,263
----------
----------
</Table>
- ---------
(a) Fees paid to Deloitte & Touche for the periods during which the Company was
operating under Chapter 11 of the United States Bankruptcy Code were
approved by the Bankruptcy Court.
(b) Fees for annual audit of the Company's annual financial statements and
quarterly reviews of interim financial statements.
(c) Includes fees for the audits of the Company's employee benefit plans and
royalty audits.
(d) Includes fees for domestic and international tax planning and compliance
services.
(e) The Audit Committee has considered whether the provision of these services
is compatible with maintaining Deloitte & Touche's independence.
The Company has been advised by Deloitte & Touche that it will have a
representative present at the Annual Meeting who will be available to respond to
appropriate questions. The representative will also have the opportunity to make
a statement if such representative desires to do so.
The accompanying proxy will be voted 'FOR' the approval of the appointment
of Deloitte & Touche by the Board of Directors as the Company's independent
auditors for the fiscal year ending January 3, 2004 unless contrary instructions
are given.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE AS INDEPENDENT AUDITORS OF THE COMPANY, WHICH
IS DESIGNATED AS ITEM NO. 4 ON THE ENCLOSED PROXY CARD.
26
<Page>
AUDIT COMMITTEE REPORT
----------------------
The Audit Committee operates under the Audit Committee Charter, and all
members of the Audit Committee are independent directors.
Management is responsible for the Company's internal controls and preparing
the Company's consolidated financial statements. The Company's independent
accountants are responsible for performing an independent audit of the
consolidated financial statements in accordance with generally accepted auditing
standards and issuing a report thereon. The Audit Committee is responsible for
overseeing the conduct of these activities and, subject to stockholder
ratification, appointing the Company's independent accountants. As stated above
and in the Audit Committee's charter, the Audit Committee's responsibility is
one of oversight. The Audit Committee does not provide any expert or special
assurance as to the Company's financial statements concerning compliance with
laws, regulations or generally accepted accounting principles. In performing its
oversight function, the Audit Committee relies, without independent
verification, on the information provided to it and on representations made by
management and the independent auditors.
The Audit Committee reviewed and discussed the Company's audited financial
statements for the year ended January 4, 2003 (the 'Fiscal 2002 Financials')
with management and the independent accountants. Management represented to the
Audit Committee that the Fiscal 2002 Financials were prepared in accordance with
generally accepted accounting principles. The Audit Committee discussed with the
Company's independent accountants the matters required to be discussed by
Statement on Auditing Standard No. 61, Communication with Audit Committees.
The Company's independent accountants provided to the Audit Committee the
written disclosures required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and the Audit Committee
discussed with the independent accountants their independence.
Based on the Audit Committee's discussion with management and the
independent accountants and the Audit Committee's review of the representations
of management and the report of the independent accountants, the Audit Committee
recommended that the Board of Directors include the Fiscal 2002 Financials in
the Annual Report on Form 10-K prior to its filing with the SEC on April 4,
2003.
MEMBERS OF THE AUDIT COMMITTEE
Stuart D. Buchalter
Richard Karl Goeltz (Chairman)
Charles R. Perrin (member since April 25, 2003)
RECENT DEVELOPMENTS
-------------------
ELECTION OF MR. GROMEK AS DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
On April 15, 2003, the Company announced that it had named Joseph R. Gromek
as its President and Chief Executive Officer and that it had elected him to the
Board of Directors, effective as of the date of such announcement. Mr. Gromek
succeeded Mr. Alvarez, who had served as the Company's President and Chief
Executive Officer since November 16, 2001. Mr. Alvarez continues to serve on the
Board of Directors and, pursuant to his obligations under the A&M Agreement,
will provide transitional assistance to Mr. Gromek. For a discussion of the A&M
Agreement, see 'CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS.'
In connection with Mr. Gromek's employment, the Company entered into an
employment agreement, dated April 14, 2003 (the 'Gromek Agreement'), with Mr.
Gromek. The Gromek Agreement has an initial two-year term which commenced on
April 15, 2003, with automatic one-year renewals thereafter unless notice of
termination is given at least 180 days prior to the date on which the term would
otherwise expire. Under the Gromek Agreement, Mr. Gromek will receive a base
salary of $900,000 per year for the initial two-year term and employee benefits
and perquisites consistent with those provided to other senior executives of the
Company. In addition, Mr. Gromek's agreement provides for a target bonus
opportunity equal to 100% of his base salary (pro-rated for partial years)
27
<Page>
and a guaranteed bonus for the 2003 fiscal year of no less than 50% of his base
salary. Pursuant to the terms of the Gromek Agreement, the Company granted to
Mr. Gromek 150,000 restricted shares of Common Stock and a 10-year option to
purchase 600,000 shares of Common Stock, each award to be made under the 2003
Stock Incentive Plan and subject to the terms and conditions set forth in the
agreements evidencing the awards. Each of these equity awards will vest with
respect to 25% of the shares on each September 12, provided Mr. Gromek is
employed by the Company on each date, and will become fully vested if a Change
in Control (as defined in the Gromek Agreement) occurs during the term of the
Gromek Agreement. If Mr. Gromek's employment with the Company is terminated
either by the Company without Cause (as defined in the Gromek Agreement) or by
Mr. Gromek for Good Reason (as defined in the Gromek Agreement), Mr. Gromek will
be entitled to (1) salary continuation and participation in welfare benefit
plans for 12 months, (2) a pro rata bonus for the fiscal year in which the
termination occurs and (3) immediate vesting of 50% of the remaining unvested
shares of the restricted stock award that are outstanding as of the date of such
termination. If Mr. Gromek is terminated because the Company chooses not to
renew a term, Mr. Gromek will be entitled to salary continuation and
participation in welfare benefit plans for six months. If Mr. Gromek's
employment with the Company is terminated by the Company without Cause or by Mr.
Gromek for Good Reason within one year following a Change in Control, Mr. Gromek
is entitled to (1) salary continuation and participation in welfare benefit
plans for 18 months and (2) a pro rata bonus for the fiscal year in which such
termination occurs. In order for Mr. Gromek to receive severance benefits, he
will be required to execute a release of claims against the Company and its
affiliates, and the Company will execute a release (with certain exceptions) of
claims against Mr. Gromek. Under the terms of the Gromek Agreement, Mr. Gromek
is bound by a perpetual confidentiality covenant, a post-termination
non-competition covenant and a post-termination non-solicitation covenant.
ELECTION OF MESSRS. BELL, GROMEK AND PERRIN TO THE BOARD OF DIRECTORS
In addition to Mr. Gromek's election to the Board of Directors on April 15,
2003, the Board of Directors elected David A. Bell and Charles R. Perrin as
directors of the Company on April 25, 2003. Each of Messrs. Bell and Perrin is
an 'independent director' within the meaning of Rule 4200(a)(14) of the National
Association of Securities Dealers' listing standards, and each is a nominee for
the election of directors which is to take place at the Annual Meeting.
ELECTION OF MR. GALLUZZO AS VICE PRESIDENT AND GENERAL COUNSEL
On March 3, 2003, the Company hired Jay A. Galluzzo to succeed Mr.
Silverstein as the Company's General Counsel. Subsequently, the Board of
Directors appointed Mr. Galluzzo to serve as Vice President of the Company.
PROMOTION OF MR. SILVERSTEIN TO SENIOR VICE PRESIDENT -- CORPORATE DEVELOPMENT
In connection with the appointment of Mr. Galluzzo to the position of Vice
President and General Counsel, Stanley P. Silverstein was promoted by the Board
of Directors to serve as Senior Vice President -- Corporate Development of the
Company. He continues to serve as the Company's Chief Administrative Officer and
Secretary.
OTHER MATTERS
-------------
The Company knows of no other matters which may come before the Annual
Meeting other than the matters referred to in the accompanying Notice of Annual
Meeting. However, if other matters properly come before the Annual Meeting, it
is intended that the persons named as proxies in the accompanying proxy vote the
shares represented thereon in accordance with their best judgment.
28
<Page>
APPENDIX A
----------
THE WARNACO GROUP, INC.
AUDIT COMMITTEE CHARTER
-----------------------
PURPOSE
The Committee is established by the Board of Directors primarily for the
purpose of overseeing the accounting and financial reporting processes of the
Company and audits of the financial statements of the Company.
The Committee is primarily responsible for: (1) monitoring the quality and
integrity of the Company's financial statements and related disclosure and
systems of internal controls regarding risk management, finance and accounting;
(2) monitoring the Company's compliance with legal and regulatory requirements;
(3) monitoring the independent auditor's qualifications and independence; (4)
monitoring the performance of the Company's internal audit function and
independent auditors; (5) providing an avenue of communication among the
independent auditors, management, the internal auditing department, and the
Board; and (6) issuing the report required by the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
COMPOSITION
1. Members. The Committee shall consist of as many members as
the Board shall determine, but in any event not fewer than
three members. The members of the Committee shall be
appointed annually by a majority vote of the Board at the
first meeting to be held following the annual meeting of
stockholders of the Company, upon the recommendation of the
Nominating and Corporate Governance Committee.
2. Qualifications. Each member of the Committee shall meet all
applicable independence, financial literacy and other
requirements of law and NASDAQ. At least one member of the
Committee must meet the applicable Securities and Exchange
Commission definition of 'financial expert' or if no members
satisfy such definition, the Committee shall promptly so
inform the Board.
3. Membership on Other Audit Committees. If a member of the
Committee serves on the audit committee of more than three
public companies, the Board shall determine and disclose
that such concurrent service would not impair the member's
ability to serve effectively as a member of the Committee.
Any such determination must be disclosed in the Company's
annual proxy statement.
4. Chair. The Chair of the Committee shall be appointed by the
Board upon the recommendation of the Nominating and
Corporate Governance Committee.
5. Removal and Replacement. Any vacancies on the Committee
shall be filled by a majority vote of the Board at the next
meeting of the Board following the occurrence of the
vacancy, upon the recommendation of the Nominating and
Corporate Governance Committee. No member of the Committee
may be removed except by majority vote of the independent
directors then in office.
6. Compensation. Director's fees (including any additional
amounts paid to chairs of committees and to members of
committees of the Board) are the only compensation a member
of the Committee may receive from the Company.
OPERATIONS
1. Rules of Procedure. The Committee shall fix its own rules of
procedure, which shall be consistent with the By-Laws of the
Company and this Charter.
2. Meetings. The Chair of the Committee, in consultation with
the Committee members, shall determine the schedule and
frequency of the Committee meetings, provided that the
Committee shall meet at least six times per year. The Chair
of the Committee or a majority of the members of the
Committee may also call a special meeting of the Committee.
The
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Committee shall meet separately, periodically, with
management, the general counsel, the internal auditors and
the independent auditor. The Committee shall also endeavor
to meet separately with the independent auditor at every
meeting of the Committee at which the independent auditor is
present.
3. Agenda. The Chair of the Committee shall develop and set the
Committee's agenda, in consultation with other members of
the Committee, the Board and management. The agenda and
information concerning the business to be conducted at each
Committee meeting shall, to the extent practical, be
communicated to the members of the Committee sufficiently in
advance of each meeting to permit meaningful review. The
Committee, in its discretion, may ask members of management
or others to attend its meetings (or portions thereof) and
to provide pertinent information as necessary.
4. Report to Board. At each Board meeting, the Committee shall
deliver to the Board a report on any Committee meetings that
have been held since the preceding Board meeting, including
a description of all actions taken by the Committee during
such period. The Committee shall submit to the Board the
minutes of its meetings. The Committee shall further report
regularly to the Board and will review with the Board any
issues that arise with respect to the quality or integrity
of the Company's financial statements, the Company's
compliance with legal or regulatory requirements, the
performance and independence of the Company's independent
auditors, the performance of the internal audit function and
other matters of importance to the Board.
5. Self-Evaluation; Assessment of Charter. The Committee shall
conduct an annual performance self-evaluation and shall
report to the entire Board the results of the
self-evaluation. The Committee shall assess the adequacy of
this Charter on an annual basis and recommend any changes to
the Board. The Committee shall deliver to the Board a report
setting forth the results of its evaluation, including any
recommended amendments to this Charter and any recommended
changes to the Company's or the Board's policies or
procedures.
AUTHORITY AND DUTIES
Independent Auditor's Qualifications and Independence
1. The Committee shall be directly responsible for the
appointment, retention, termination and oversight of the
work of the independent auditor employed by the Company to
audit the books of the Company and its subsidiaries (with
the input, if the Committee so desires, of Company
management and, as appropriate, management and boards of
directors of the Company's subsidiaries). The independent
auditors are ultimately accountable to the Committee.
2. The Committee shall have the sole authority to approve the
independent auditor's fee arrangements and other terms of
service, and to preapprove any permitted non-audit services
to be provided by the independent auditor. The Committee
shall review with the lead audit partner whether any of the
audit team members receive any discretionary compensation
from the audit firm with respect to non-audit services
performed by the independent auditor. The Committee may
delegate the preapproval of audit and permitted non-audit
services to one or more of its members, provided that such
members shall report any such approvals to the full
Committee.
3. The Committee shall obtain and review with the lead audit
partner and a more senior representative of the independent
auditor, annually or more frequently as the Committee
considers appropriate, a report by the independent auditor
describing: the independent auditor's internal
quality-control procedures; any material issues raised by
the most recent internal quality-control review, or peer
review, of the independent auditor, or by any inquiry,
review or investigation by governmental, professional or
other regulatory authorities, within the preceding five
years, respecting independent audits carried out by the
independent auditor, and any steps taken to deal with these
issues; and (to assess the independent auditor's
independence) all relationships between the independent
auditor and the Company. The
A-2
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Committee shall, in addition to assuring the regular
rotation of the lead audit partner and reviewing audit
partner (such that neither such partner shall have performed
services for the Company for more than any five consecutive
fiscal years), consider whether there should be regular
rotation of the audit firm.
4. The Committee shall evaluate the qualifications,
independence and performance of the Company's independent
auditor, including the lead partner of the independent
auditor, and, in its sole discretion make decisions
regarding the replacement or termination of the independent
auditor when circumstances warrant. In making its
evaluations, the Committee should take into account the
opinions of management and the Company's internal auditors.
The Committee will present its conclusions with respect to
the independent auditor to the Board.
5. The Committee shall preapprove the hiring of any employee or
former employee of the independent auditor who was a member
of the Company's audit team during the preceding two fiscal
years. In addition, the Committee shall preapprove the
hiring of any employee or former employee of the independent
auditor (within the preceding two fiscal years) for senior
positions within the Company, regardless of whether that
person was a member of the Company's audit team. In no event
may the Company hire a Chief Executive Officer, Chief
Financial Officer, Chief Accounting Officer, Controller or
person in any equivalent capacity who, within one year prior
to the initiation of the audit, was an employee of the
independent auditor who participated in any capacity in the
Company's audit.
Financial Statements and Related Disclosure
6. The Committee shall review the annual audited financial
statements and quarterly financial statements with
management and the independent auditor, including the
Company's disclosures under 'Management's Discussion and
Analysis of Financial Condition and Results of Operations',
before the filing of the Company's Form 10-K and Form 10-Q.
Any material changes in accounting principles or accounting
for new significant items will be reviewed.
7. The Committee shall review with management earnings press
releases (especially the use of 'pro forma' or 'adjusted'
information not prepared in compliance with generally
accepted accounting principles), as well as financial
information and earnings guidance provided to analysts and
rating agencies, which review may be done generally (i.e.,
discussion of the types of information to be disclosed and
type of presentations to be made), and the Committee need
not discuss in advance each earnings release or each
instance in which the Company may provide earnings
guidance.(1)
8. The Committee shall review with management, the independent
auditor, and, if appropriate, the Company's internal
auditors, the following: (a) all critical accounting
policies and practices (and changes therein) of the Company,
to be used by the Company in preparing its financial
statements, (b) major issues regarding the accounting
principles and financial statement presentations, including
any significant changes in the Company's selection or
application of accounting principles, and major issues as to
the adequacy of the Company's internal controls and any
special audit steps adopted in light of material control
deficiencies, (c) all alternative treatments of financial
information within GAAP that have been discussed with
management, ramifications of the use of these alternative
disclosures and treatments, and the treatment preferred by
the independent auditor, (d) the effect of regulatory and
accounting initiatives, as well as off-balance sheet
structures, on the financial statements of the Company and
(e) other material communications between the independent
auditor and management, such as any management letter or
schedule of unadjusted differences. In addition, the
Committee shall regularly review with the independent
auditors any difficulties the auditor encountered in the
course of the audit work, including any restrictions on the
scope of the independent auditors' activities or on access
to requested information, and any significant disagreements
with management, which could include such matters as: (i)
any
- ---------
(1) This task can be delegated to the Chair of the Committee or the Chair's
designee.
A-3
<Page>
accounting adjustments that were noted or proposed by the
independent auditor but were 'passed' (as immaterial or
otherwise); (ii) communications between the independent
auditor's audit team and national office respecting auditing
or accounting issues presented by the engagement; and (iii)
any 'management' or 'internal control' letter issued, or
proposed to be issued, by the independent auditor to the
Company.
9. The Committee shall review with management, and any outside
professionals as the Committee considers appropriate, the
effectiveness of the Company's disclosure controls and
procedures, and elicit any recommendations that they may
have for the improvement of such disclosure control
procedures or particular areas where new or more detailed
controls or procedures are desirable. Particular emphasis
should be given to the adequacy of disclosure controls to
identify on a timely basis material information that should
be disclosed to current and prospective investors.
10. The Committee shall review with management, and any outside
professionals as the Committee considers appropriate,
important trends and developments in financial reporting
practices and requirements and their effect on the Company's
financial statements.
11. The Committee shall attempt to resolve all disagreements
between the Company's independent auditor and management
regarding financial reporting.
12. The Committee shall prepare the report required by the
Securities and Exchange Commission to be included in the
Company's annual proxy statement.
Performance of the Internal Audit Function and Independent Auditors
13. The Committee shall review with management, the internal
auditor and the independent auditor the scope, planning and
staffing of the proposed audit for the current year. The
Committee shall also review the internal audit function's
organization, responsibilities, plans, results, budget and
staffing. In addition, management shall consult with the
Committee on the appointment, replacement, reassignment or
dismissal of the principal internal auditor.
14. The Committee shall review with management, the internal
auditor and the independent auditor the quality, adequacy
and effectiveness of the Company's internal controls and any
significant deficiencies or material weaknesses in internal
controls, and shall elicit from management, the internal
auditor or the independent auditor any recommendations that
they may have for the improvement of such internal control
procedures or particular areas where new or more detailed
controls or procedures are desirable. Particular emphasis
should be given to the adequacy of such internal controls to
expose any payments, transactions or procedures which might
be deemed illegal or otherwise improper.
15. The Committee should review with the Chief Executive Officer
and Chief Financial Officer and independent auditor, the
following: (a) the Company's administrative, operational and
auditing internal controls and evaluate whether the Company
is operating in accordance with its prescribed policies,
procedures and code of conduct, (b) all significant
deficiencies in the design or operation of internal controls
which could adversely affect the Company's ability to
record, process, summarize, and report financial data,
including any material weaknesses in internal controls
identified by the Company's independent auditors and
internal auditors, (c) any fraud, whether or not material,
that involves management or other employees who have a
significant role in the Company's internal controls and (d)
any significant changes in internal controls or in other
factors that could significantly affect internal controls,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
16. The Committee shall review the Company's code of conduct.
17. The Committee shall review the reports required by Sections
302, 404 and 906 of the Sarbanes-Oxley Act of 2002.
18. The Committee shall review the Company's policies with
respect to risk assessment and risk management.
A-4
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Compliance with Legal and Regulatory Requirements
19. The Committee shall review with management, and any internal
or external counsel as the Committee considers appropriate,
any legal matters (including the status of pending
litigation) that may have a material impact on the Company
and any material reports or inquiries from regulatory or
governmental agencies.
20. The Committee shall review with the general counsel the
adequacy and effectiveness of the Company's procedures to
ensure compliance with its legal and regulatory
responsibilities. The Committee shall also review the legal
and compliance function's organization, responsibilities,
plans, results, budget and staffing.
21. The Committee shall obtain from the Company's independent
auditors any information pursuant to Section 10A of the
Securities and Exchange Act of 1934.
22. The Committee shall establish procedures, as set forth in
Annex A hereto, for (a) the receipt, retention and treatment
of complaints received by the Company regarding accounting,
internal accounting controls, misuse or inappropriate use of
corporate assets or auditing matters or potential violations
of law and (b) the confidential, anonymous submission by
employees of the Company of concerns regarding questionable
accounting or auditing matters or potential violations of
law.
23. The Committee shall obtain reports from management, the
internal auditor and the independent auditor regarding
compliance with all applicable legal and regulatory
requirements, including the Foreign Corrupt Practices Act.
24. The Committee shall cause to be made an investigation into
any appropriate matter brought to its attention within the
scope of its duties.
25. The Committee shall review the Company's policies relating
to conflicts of interest and review past or proposed related
party transactions as well as policies and procedures
designed to ensure compliance by officers with the Company's
policies regarding travel and entertainment reimbursement,
as well as the use of corporate assets. The Committee shall
consider the results of any review of these policies and
procedures by the Company's independent auditors or internal
auditors.
The foregoing list of duties is not exhaustive, and the Committee may, in
addition, perform such other functions as may be necessary or appropriate for
the performance of its oversight function. The Committee shall have the power to
delegate its authority and duties to subcommittees or individual members of the
Committee as it deems appropriate. In discharging its oversight role, the
Committee shall have full access to all Company books, records, facilities and
personnel. The Committee may retain counsel, auditors or other advisors, in its
sole discretion.
CLARIFICATION OF AUDIT COMMITTEE'S ROLE
The Committee's responsibility is one of oversight. It is the responsibility
of the Company's management to prepare consolidated financial statements in
accordance with applicable law and regulations and of the Company's independent
auditor to audit those financial statements. Therefore, each member of the
Committee shall be entitled to rely, to the fullest extent permitted by law, on
the integrity of those persons and organizations within and outside the Company
from whom he or she receives information, and the accuracy of the financial and
other information provided to the Committee by such persons or organizations.
A-5
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ANNEX A TO THE AUDIT COMMITTEE CHARTER
PROCEDURES FOR THE SUBMISSION OF COMPLAINTS OR CONCERNS
REGARDING FINANCIAL STATEMENT DISCLOSURES, ACCOUNTING,
INTERNAL ACCOUNTING CONTROLS, MISUSE OR INAPPROPRIATE
USE OF CORPORATE ASSETS OR AUDITING MATTERS
1. The Company shall forward to the Audit Committee of the
Board of Directors any complaints that it has received
regarding financial statement disclosures, accounting,
internal accounting controls, misuse or inappropriate use of
corporate assets or auditing matters.
2. Any employee of the Company may submit, on an anonymous
basis if the employee so desires, any concerns regarding
financial statement disclosures, accounting, internal
accounting controls, misuse or inappropriate use of
corporate assets or auditing matters by setting forth such
concerns in writing and forwarding them in a sealed envelope
to the Chair of the Audit Committee, P.O. Box 114, 244
Madison Avenue, New York, New York 10016, such envelope to
be labeled with a legend such as: 'To be opened by the Audit
Committee only.' If an employee would like to discuss any
matter with the Audit Committee, the employee should
indicate this on the submission and include a telephone
number at which he or she might be contacted if the Audit
Committee deems it appropriate. Absent an express waiver of
confidentiality in the written submission, the identity of
any employee who makes such a submission or otherwise
communicates with the Audit Committee shall remain strictly
confidential.
3. At each of its meetings, including any special meeting
called by the Chair of the Audit Committee following the
receipt of any information pursuant to this Annex, the Audit
Committee shall review and consider any such complaints or
concerns that it has received and take any action that it
deems appropriate in order to respond thereto.
4. The Audit Committee shall retain any such complaints or
concerns for a period of no less than seven years.
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APPENDIX B
----------
THE WARNACO GROUP, INC.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER
-----------------------------------------------------
PURPOSE
The Committee is established by the Board of Directors for the following
purposes: (i) assisting the Board by actively identifying individuals qualified
to become Board members, (ii) recommending to the Board the director nominees
for election at the next annual meeting of stockholders, (iii) recommending to
the Board nominees to serve on committees of the Board, (iv) monitoring
significant developments in the law and practice of corporate governance and of
the duties and responsibilities of directors of public companies, (v) leading
the Board, each committee of the Board and management in its annual performance
self-evaluation, including establishing criteria to be used in connection with
such evaluation, (vi) overseeing compliance with the Company's code of conduct,
and (vii) developing and recommending to the Board and administering the
Corporate Governance Guidelines of the Company.
COMPOSITION
1. Members. The Committee shall consist of as many members as
the Board shall determine, but in any event not fewer than
three members. The members of the Committee shall be
appointed annually by a majority vote of the Board at the
first meeting to be held following the annual meeting of
stockholders of the Company, upon the recommendation of the
Committee.
2. Qualifications. Each member of the Committee shall meet all
applicable independence and other requirements of law and
NASDAQ.
3. Chair. The Chair of the Committee shall be appointed by the
Board upon the recommendation of the Committee.
4. Removal and Replacement. Any vacancies on the Committee
shall be filled by a majority vote of the Board at the next
meeting of the Board following the occurrence of the
vacancy, upon the recommendation of the Nominating and
Corporate Governance Committee. No member of the Committee
may be removed except by majority vote of the independent
directors then in office.
OPERATIONS
1. Rules of Procedure. The Committee shall fix its own rules of
procedure, which shall be consistent with the By-laws of the
Company and this Charter.
2. Meetings. The Chair of the Committee, in consultation with
the Committee members, shall determine the schedule and
frequency of the Committee meetings, provided that the
Committee shall meet at least quarterly. The Chair or a
majority of the members of the Committee may also call
special meetings of the Committee.
3. Quorum. A majority of the members of the Committee present
in person or by means of a conference telephone or other
communications equipment by means of which all persons
participating in the meeting can hear each other shall
constitute a quorum.
4. Agenda. The Chair of the Committee shall develop and set the
Committee's agenda, in consultation with other members of
the Committee, the Board and management. The agenda and
information concerning the business to be conducted at each
Committee meeting shall, to the extent practical, be
communicated to the members of the Committee sufficiently in
advance of each meeting to permit meaningful review.
Furthermore, the Chair of the Committee may request that any
directors, officers or employees of the Company, or other
persons whose advice and counsel are sought by the
Committee, attend any meeting of the Committee to provide
such pertinent information as the Committee requests.
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5. Report to Board. At each Board meeting, the Committee shall
deliver to the Board a report on any Committee meetings that
have been held since the preceding Board meeting, including
a description of all actions taken by the Committee during
such period. The Committee shall submit to the Board the
minutes of its meetings.
6. Self-Evaluation; Assessment of Charter. The Committee shall
conduct an annual performance self-evaluation and shall
report to the Board the results of the self-evaluation. The
Committee shall assess the adequacy of this Charter
periodically and shall deliver to the Board a written report
setting forth the results of its evaluation, including any
recommended amendments to this Charter and any recommended
changes to the Company's or the Board's policies or
procedures.
AUTHORITY AND DUTIES
1. The Committee shall establish procedures for evaluating the
suitability of potential director nominees proposed by
management or stockholders.
2. The Committee shall identify and recommend to the Board
nominees for election or re-election to the Board, or for
appointment to fill any vacancy that is anticipated or has
arisen on the Board, in accordance with the criteria,
policies and principles set forth in the Company's Corporate
Governance Guidelines and this Charter. The Committee shall
review candidates for the Board recommended by management or
stockholders. The invitation to join the Board shall be
extended by the Chair of the Board.
3. The Committee shall review with the Board, on an annual
basis, the current composition of the Board in light of the
characteristics of independence, age, skills, experience and
availability of service to the Company of its members and of
anticipated needs. The Committee shall establish and review
with the Board the appropriate skills and characteristics
required of Board members.
4. The Committee shall review periodically the size of the
Board and recommend any appropriate changes.
5. The Committee shall make recommendations on the frequency
and structure of Board meetings.
6. The Committee shall, upon the expiration of his or her term
as a director or upon a significant change in a director's
status, review, as appropriate and in light of the then
current Board policies as reflected in the Corporate
Governance Guidelines, the continued Board membership of
such director.
7. The Committee shall identify and recommend to the Board the
names of directors to serve as members of the Audit
Committee, the Compensation Committee, as well as the
Committee itself. In addition, the Committee shall recommend
to the Board a member of each of the aforementioned
committees to serve as Chair. The Committee shall also make
recommendations to the Board regarding the size and
composition of each of the Audit Committee, the Compensation
Committee, as well as the Committee itself.
8. The Committee shall monitor the functioning of the
committees of the Board and make recommendations for any
changes, including the creation and elimination of
committees.
9. The Committee shall review annually committee assignments
and the policy with respect to the rotation of committee
memberships and/or chairpersonships, and report any
recommendations to the Board.
10. The Committee shall recommend that the Board establish such
special committees as may be desirable or necessary from
time to time in order to address ethical, legal or other
matters that may arise. The Committee's power to make such a
recommendation under this Charter shall be without prejudice
to the right of any other committee of the Board, or any
individual director, to make such a recommendation at any
time.
11. The Committee shall develop and review periodically the
Company's Corporate Governance Guidelines and advise the
Board periodically with respect to significant developments
in the law and practice of corporate governance as well as
the Company's compliance with the
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Company's Corporate Governance Guidelines and applicable
laws and regulations, and make recommendations to the Board
on all matters of corporate governance and on any corrective
action to be taken, as the Committee may deem appropriate.
12. The Committee shall establish criteria and processes for,
and lead the Board and each committee of the Board and
management in, its annual performance self-evaluation. Each
performance self-evaluation shall be discussed with the
Board following the end of each fiscal year. Each
performance self-evaluation shall focus on the contribution
to the Company by the Board, each individual director, each
committee and management, and shall specifically focus on
areas in which a better contribution could be made.
13. The Committee shall monitor compliance with the Company's
code of conduct, including reviewing with the general
counsel the adequacy and effectiveness of the Company's
procedures to ensure proper compliance. The Committee shall
also recommend amendments to the Company's code of conduct
to the Board as the Committee may deem appropriate.
The foregoing list of duties is not exhaustive, and the Committee may, in
addition, perform such other functions as may be necessary or appropriate for
the performance of its duties. The Committee shall have the power to delegate
its authority and duties to subcommittees as it deems appropriate in accordance
with applicable laws, regulations and listing standards; provided, however, that
no subcommittee shall consist of fewer than two members.
The Committee may conduct or authorize investigations into or studies of
matters within the Committee's scope or responsibilities, and shall have the
power to retain search firms or advisors, at the Company's expense, to identify
director candidates. The Committee may also retain counsel or other advisors, at
the Company's expense, as it deems appropriate. The Committee shall have sole
authority to retain and terminate such search firms or advisors and to review
and approve such search firm or advisor's fees and other retention terms.
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APPENDIX C
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THE WARNACO GROUP, INC.
COMPENSATION COMMITTEE CHARTER
------------------------------
PURPOSE
The primary purpose of the Committee is to discharge the responsibilities of
the Board of Directors relating to all compensation, including equity
compensation, of the Company's executive officers. The Committee has overall
responsibility for evaluating and making recommendations to the Board regarding
(i) compensation of the Company's directors and (ii) equity-based and incentive
compensation plans, policies and programs of the Company. In addition, the
Committee is responsible for producing an annual report on executive
compensation for inclusion in the Company's annual proxy statement, in
accordance with applicable rules and regulations.
COMPOSITION
1. Members. The Committee shall consist of as many members as
the Board shall determine, but in any event not fewer than
three members. The members of the Committee shall be
appointed annually by a majority vote of the Board at the
first meeting to be held following each annual meeting of
stockholders of the Company, upon the recommendation of the
Nominating and Corporate Governance Committee.
2. Qualifications. Each member of the Committee shall meet all
applicable independence and other requirements of law and
requirements of NASDAQ. Each member of the Committee shall
also be a 'non-employee director' within the meaning of the
rules promulgated under Section 16(b) of the Securities
Exchange Act of 1934, as amended ('Section 16') and an
'outside director' for purposes of the regulations
promulgated under Section 162(m) of the Internal Revenue
Code of 1986, as amended ('Section 162(m)'), and shall
satisfy any other necessary standards of independence under
the federal securities and tax laws.
3. Chair. The Chair of the Committee shall be appointed by the
Board upon recommendation of the Nominating & Corporate
Governance Committee.
4. Removal and Replacement. Any vacancies on the Committee
shall be filled by a majority vote of the Board at the next
meeting of the Board following the occurrence of the
vacancy, upon the recommendation of the Nominating and
Corporate Governance Committee. No member of the Committee
may be removed except by majority vote of the independent
directors then in office. In addition, membership on the
Committee shall automatically end at such time as the Board
determines that a member (i) ceases to meet the independence
requirements of NASDAQ, (ii) ceases to be a 'non-employee
director' for purposes of Section 16, or (iii) ceases to be
an outside director for purposes of Section 162(m).
OPERATIONS
1. Rules of Procedure. The Committee shall fix its own rules of
procedure, which shall be consistent with the By-laws of the
Company and this Charter.
2. Meetings. The Chair of the Committee, in consultation with
the Committee members, shall determine the schedule and
frequency of the Committee meetings, provided that the
Committee shall meet at least quarterly. The Chair or a
majority of the members of the Committee may also call
special meetings of the Committee.
3. Quorum. A majority of the members of the Committee present
in person or by means of a conference telephone or other
communications equipment by means of which all persons
participating in the meeting can hear each other shall
constitute a quorum.
4. Agenda. The Chair of the Committee shall develop and set the
Committee's agenda, in consultation with other members of
the Committee, the Board and management. The agenda and
information concerning the business to be conducted at each
Committee meeting shall, to the extent practical, be
communicated to the members of the Committee sufficiently in
advance of each meeting to permit meaningful review.
Furthermore, the Chair of the
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Committee may request that any directors, officers or
employees of the Company, or other persons whose advice and
counsel are sought by the Committee, attend any meeting of
the Committee to provide such pertinent information as the
Committee requests.
5. Report to Board. At each Board meeting, the Committee shall
deliver to the Board a report on any Committee meetings that
have been held since the preceding Board meeting, including
a description of all actions taken by the Committee during
such period. The Committee shall submit to the Board the
minutes of its meetings.
6. Self-Evaluation; Assessment of Charter. The Committee shall
conduct an annual performance self-evaluation and shall
report to the Board the results of the self-evaluation. The
Committee shall assess the adequacy of this Charter
periodically and shall deliver to the Board a written report
setting forth the results of its evaluation, including any
recommended amendments to this Charter and any recommended
changes to the Company's or the Board's policies or
procedures.
AUTHORITY AND DUTIES
1. The Committee shall approve and oversee the total
compensation package for the Company's executive officers
including, without limitation, their base salaries, annual
incentives, deferred compensation, stock options and other
equity-based compensation, incentive compensation, special
benefits, perquisites and incidental benefits. The Committee
shall make all determinations and take any actions that are
reasonably appropriate or necessary in the course of
establishing the compensation of the Company's executive
officers. The Committee shall perform such duties and
responsibilities as may be assigned to the Committee under
the terms of any executive compensation plan.
2. The Committee shall review and make recommendations to the
Board with respect to the compensation of the Company's
non-employee directors for Board and Committee service,
including, without limitation, equity and equity-based
compensation.
3. The Committee shall review and approve corporate goals and
objectives relevant to the compensation of the Company's
Chief Executive Officer, evaluate the performance of the
Company's Chief Executive Officer in light of those goals
and objectives, and set the compensation level of the
Company's Chief Executive Officer's based on this
evaluation. In determining the long-term incentive component
of the Company's Chief Executive Officer's compensation, the
Committee shall consider, without limitation, the Company's
performance and relative shareholder return, the value of
similar incentive awards to Chief Executive Officers at
comparable companies, and the awards given to the Company's
Chief Executive Officer in past years.
4. The Committee shall review the results of and procedures for
the evaluation of the performance of other executive
officers by the Company's Chief Executive Officer.
5. The Committee shall review periodically and make
recommendations to the Board regarding any long-term
incentive compensation or equity plans, programs or similar
arrangements that the Company establishes for, or makes
available to, its directors, employees and consultants
(collectively, the 'Plans'), the appropriateness of the
allocation of benefits under the Plans and the extent to
which the Plans are meeting their intended objectives and,
where appropriate, recommend that the Board modify any Plan
that yields payments and benefits that are not reasonably
related to employee performance.
6. The Committee shall administer the Plans in accordance with
their terms, construe all terms, provisions, conditions and
limitations of the Plans and make factual determinations
required for the administration of the Plans.
7. The Committee shall review and approve, in its sole
discretion, all Plans, including those that are not subject
to stockholder approval under the listing standards of
NASDAQ.
8. The Committee shall review and make recommendations to the
Board regarding all new employment, consulting, retirement
and severance agreements and arrangements proposed for the
Company's executive officers. The Committee shall
periodically evaluate existing agreements with the Company's
executive officers for continuing appropriateness.
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9. The Committee shall determine and certify the attainment of
performance goals pursuant to Section 162(m).
10. The Committee shall adopt and periodically review a
comprehensive statement of executive compensation
philosophy, strategy and principles that has the support of
management and the Board, and administer the Company's
compensation program fairly and consistently in accordance
with these principles.
11. The Committee shall publish an annual Compensation Committee
Report to Stockholders on the Company's executive
compensation policies and programs and the relationship of
corporate performance to executive compensation, including
the factors and criteria on which the Chief Executive
Officer's compensation for the previous fiscal year was
based and the relationship of the Company's performance to
the Chief Executive Officer's compensation, for inclusion in
the Company's proxy statement.
12. The Committee shall select peer groups of companies that
shall be used for purposes of determining competitive
compensation packages.
13. The Committee shall make recommendations to the Board as to
the appropriate level of ownership of Company securities by
each director and executive officer.
The foregoing list of duties is not exhaustive, and the Committee may, in
addition, perform such other functions as may be necessary or appropriate for
the performance of its duties. The Committee shall have the power to delegate
its authority and duties to subcommittees as it deems appropriate in accordance
with applicable laws, regulations and listing standards; provided, however, that
no subcommittee shall consist of fewer than two members.
The Committee may conduct or authorize investigations into or studies of
matters within the Committee's scope or responsibilities, and shall have the
power to retain, at the Company's expense, compensation consultants having
special competence to assist the Committee in evaluating director and executive
compensation. The Committee may also, at the Company's expense, retain counsel,
accountants or other advisors as it deems appropriate. The Committee shall have
the sole authority to retain and terminate the consultants or advisors and to
review and approve the consultant or advisor's fees and other retention terms.
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APPENDIX D
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THE WARNACO GROUP, INC.
2003 STOCK INCENTIVE PLAN
-------------------------
SECTION 1. PURPOSE. The purposes of The Warnaco Group, Inc. 2003 Stock
Incentive Plan are to promote the interests of The Warnaco Group, Inc. and its
stockholders by (i) attracting and retaining qualified directors, executive
personnel, other key employees and consultants of the Company and its
Affiliates, as defined below; (ii) motivating such directors, employees and
consultants by means of performance-related incentives to achieve longer-range
performance goals; and (iii) enabling such directors, employees and consultants
to participate in the long-term growth and financial success of the Company.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have
the meanings set forth below:
'Affiliate' shall mean (i) any entity that, directly or indirectly, is
controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in either case as determined by the Committee.
'Award' shall mean any Option, Restricted Stock Award, Stock Bonus or
Other Stock-Based Award granted under the Plan.
'Award Agreement' shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
'Board' shall mean the Board of Directors of the Company.
'Cause' shall mean (i) inadequate performance of the Participant's
duties and responsibilities with respect to the Company or any subsidiary;
(ii) insubordination; (iii) conduct involving dishonesty with respect to the
Company or any subsidiary; (iv) incompetence in the performance of the
Participant's duties and responsibilities with respect to the Company or any
subsidiary; or (v) such other conduct that the Committee shall determine
constitutes Cause.
'Code' shall mean the Internal Revenue Code of 1986, as amended from
time to time.
'Committee' shall mean the compensation committee of the Board, which
shall be composed at all times of persons who are (i) 'non-employee
directors' as defined in Rule 16b-3 and (ii) 'outside directors' as defined
in Section 162(m) of the Code.
'Company' shall mean The Warnaco Group, Inc., together with any
successor thereto.
'Exchange Act' shall mean the Securities Exchange Act of 1934, as
amended.
'Fair Market Value' shall mean the fair market value of the property or
other item being valued, as determined by the Committee in its sole
discretion.
'Incentive Stock Option' shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan, that is intended to
meet the requirements of Section 422 of the Code or any successor provision
thereto, and that is identified in an Award Agreement as an Incentive Stock
Option.
'Non-Qualified Stock Option' shall mean a right to purchase Shares from
the Company that is granted under Section 6 of the Plan and that is not
intended to be an Incentive Stock Option.
'Option' shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
'Other Stock-Based Award' shall mean an Award granted under Section 9 of
the Plan.
'Participant' shall mean any director, officer or other employee of the
Company or any Affiliate, or any consultant to the Company or any Affiliate
(provided that such consultant is an individual) selected by the Committee
to receive an Award under the Plan.
'Performance Goals' shall mean one or more of the following
pre-established criteria, determined in accordance with generally accepted
accounting principles, where applicable:
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(i) return on total stockholder equity; (ii) earnings per Share (which may
include the manner in which such earnings goal was met); (iii) net income
(before or after taxes); (iv) earnings before interest, taxes, depreciation
and amortization; (v) revenues; (vi) return on assets; (vii) market share;
(viii) cost reduction goals; or (ix) any combination of, or a specified
increase in, any of the foregoing. The Committee shall have the authority to
make equitable adjustments in the Performance Goals in recognition of
unusual or non-recurring events affecting the Corporation, in response to
changes in applicable laws or regulations, or to account for items of gain,
loss or expense determined to be extraordinary or unusual in nature or
infrequent occurrence or related to the disposal of a segment of a business
or related to a change in accounting principles.
'Permitted Transferee' means (i) a trust for the benefit of a
Participant, (ii) a partnership in which a Participant is the general
partner and immediate family members (any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law,
including adoptive relationships of the Participant) are the only additional
partners or (iii) immediate family members of the Participant.
'Person' shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
'Plan' shall mean The Warnaco Group, Inc. 2003 Stock Incentive Plan.
'Restricted Stock' shall mean any Share granted under Section 7 of the
Plan.
'Rule 16b-3' shall mean Rule 16b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereto as
in effect from time to time.
'SEC' shall mean the Securities and Exchange Commission or any successor
thereto and shall include the staff thereof.
'Shares' shall mean shares of the Common Stock, par value $.01 per
share, of the Company, or such other securities of the Company as may be
designated by the Committee from time to time.
'Stock Award' shall mean an Award of one or more unrestricted Shares
granted to a Participant under Section 8 of the Plan.
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. Subject to the terms of
the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants; (ii) determine the type
or types of Awards to be granted to a Participant; (iii) determine the number of
Shares to be covered by Awards; (iv) determine the terms and conditions of any
Award, including but not limited to whether the vesting or payment of all or any
portion of any Award may be made subject to one or more Performance Goals;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, Shares, other securities, other Awards or other
property, or cancelled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, cancelled, forfeited, or suspended;
(vi) determine whether, to what extent, and under what circumstances cash,
Shares, other securities, other Awards, other property, and other amounts
payable with respect to an Award shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret and
administer the Plan and any instrument or agreement relating to, or Award made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, and any shareholder of the Company.
(c) Subject to the terms of the Plan and applicable law, the Committee may
delegate to one or more officers or managers of the Company or any Affiliate, or
to a committee of such officers or
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managers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Awards to, or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend, or terminate Awards held by,
Participants who are not officers or directors of the Company for purposes of
Section 16 of the Exchange Act, or any successor section thereto, or who are
otherwise not subject to such Section.
(d) Notwithstanding any provision of the Plan to the contrary, the Committee
shall not have the authority to take any action which has the effect of reducing
the exercise price of an Option previously granted.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) Shares Available. Subject to adjustment as provided in Section 4(b), the
aggregate number of Shares with respect to which Awards may be granted under the
Plan shall be 5,000,000. If, after the effective date of the Plan, any Award is
forfeited or otherwise terminates or is cancelled without the delivery of
Shares, then the Shares covered by such Award, or to which such Award relates,
or the number of Shares otherwise counted against the aggregate number of Shares
with respect to which Awards may be granted, to the extent of any such
forfeiture, termination or cancellation, shall again be, or shall become, Shares
with respect to which Awards may be granted. Notwithstanding the foregoing and
subject to adjustment as provided in Section 4(b), no executive officer of the
Company may receive Awards under the Plan in any fiscal year of the Company that
relate to more than 1,500,000 shares.
(b) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Awards may be granted, in aggregate or to any individual,
(ii) the number of Shares or other securities of the Company (or number and kind
of other securities or property) subject to outstanding Awards, and (iii) the
grant or exercise price with respect to any Award or, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Award.
(c) Sources of Shares Deliverable Under Awards. Shares delivered pursuant to
an Award may consist, in whole or in part, of authorized and unissued Shares or
of treasury Shares.
SECTION 5. ELIGIBILITY. Any employee, including any officer or
employee-director of the Company or any Affiliate, any director of the Company
and any consultant to the Company who is an individual Person shall be eligible
to be designated a Participant, except that only employees of the Company or an
Affiliate that qualifies as a 'parent corporation' of the Company (within the
meaning of Section 424(e) of the Code) or 'subsidiary corporation' of the
Company (within the meaning of Section 424(f) of the Code) shall be eligible for
the grant of Incentive Stock Options.
SECTION 6. STOCK OPTIONS.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Options shall
be granted, the number of Shares to be covered by each Option, the exercise
price therefor and the conditions and limitations applicable to the exercise of
the Option. The Committee shall have the authority to grant Incentive Stock
Options, or to grant Non-Qualified Stock Options, or to grant both types of
Options. In the case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with such rules as may be prescribed
by Section 422 of the Code, as from time to time amended, and any regulations
implementing such statute.
(b) Exercise Price. The Committee shall establish the exercise price at the
time each Option is granted, which price shall not be less than 100% of the per
Share Fair Market Value of the Common Stock on the date of grant.
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(c) Exercise. Each Option shall be exercisable at such times and subject to
such terms and conditions as the Committee may, in its sole discretion, specify
in the applicable Award Agreement or thereafter. The Committee may impose such
conditions with respect to the exercise of Options, including without
limitation, any conditions relating to the application of federal or state
securities laws, as it may deem necessary or advisable.
(d) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the exercise price therefor is received by the
Company. Such payment may be made as follows: (i) in cash or its equivalent;
(ii) if and to the extent permitted by the Committee, by tendering to the
Company unrestricted Shares owned by the Participant which, in the case of
Shares that were purchased pursuant to the exercise of an Option, have been held
by such Participant for no less than six months following the date of such
purchase; (iii) to the extent permitted under applicable law, pursuant to a
broker's cashless exercise procedure approved by the Committee; or (iv) by a
combination of the foregoing, provided that the combined value of all cash and
cash equivalents and the Fair Market Value of any such Shares tendered to the
Company as of the date of such tender is at least equal to such exercise price.
SECTION 7. RESTRICTED STOCK.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Shares of
Restricted Stock shall be granted, the number of Shares of Restricted Stock to
be granted to each Participant, the duration of the period during which, and the
conditions under which, the Restricted Stock may be forfeited to the Company,
and the other terms and conditions of such Awards, including, but not limited
to, determining whether the vesting of any such Award may be, in whole or in
part, subject to the attainment of one or more Performance Goals.
(b) Transfer Restrictions. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as provided in
the Plan or the applicable Award Agreement. Certificates issued in respect of
Shares of Restricted Stock shall be registered in the name of the Participant
and deposited by such Participant, together with a stock power endorsed in
blank, with the Company. Upon the lapse of the restrictions applicable to such
Shares of Restricted Stock, the Company shall deliver such certificates to the
Participant or the Participant's legal representative.
(c) Dividends. Dividends paid on any Shares of Restricted Stock may be paid
directly to the Participant, or may be reinvested in additional Shares, as
determined by the Committee in its sole discretion.
SECTION 8. STOCK AWARD. In the event that the Committee grants a Stock
Award, a certificate for the shares of Company Stock comprising such Stock Award
shall be issued in the name of the Participant to whom such grant was made and
delivered to such Participant as soon as practicable after the date on which
such Stock Award is payable.
SECTION 9. OTHER STOCK-BASED AWARDS. Other Stock-Based Awards, the form of
which is to be determined by the Committee, shall be valued in whole or in part
by reference to or otherwise based on Shares. Other Stock-Based Awards may be
granted either alone or in addition to other Awards under the Plan. Subject to
the provisions of the Plan, the Committee shall have sole and complete authority
to determine the Participants to whom and the time or times at which such Other
Stock-Based Awards shall be granted, the number of Shares to be made subject to
such Other Stock-Based Awards and all other conditions of such Other Stock-Based
Awards, including, but not limited to, determining whether the vesting or
payment of any portion of any such Other Stock-Based Award will be subject to
the attainment of one or more Performance Goals.
SECTION 10. AMENDMENT AND TERMINATION.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement with which the Board deems it necessary or desirable to
qualify or comply. Notwithstanding anything to the contrary herein, the
Committee may amend the Plan in such manner as
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may be necessary so as to have the Plan conform with local rules and regulations
in any jurisdiction outside the United States.
(b) Amendments to Awards. The Committee may waive any conditions or rights
under, amend any terms of, or alter, suspend, discontinue, cancel or terminate,
any Award theretofore granted, prospectively or retroactively; provided that any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or
termination that would impair the rights of any Participant or any holder or
beneficiary of any Award theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(b) hereof) affecting the capitalization of the Company,
any Affiliate, or the financial statements of the Company or any Affiliate, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
(d) Cancellation. Any provision of this Plan or any Award Agreement to the
contrary notwithstanding, the Committee may cause any Award granted hereunder to
be cancelled in consideration of a cash payment or alternative Award made to the
holder of such cancelled Award equal in value to the Fair Market Value of such
cancelled Award.
SECTION 11. GENERAL PROVISIONS.
(a) Nontransferability.
(i) Each Award, and each right under any Award, shall be exercisable only by
the Participant during the Participant's lifetime.
(ii) No Award may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by will or
by the laws of descent and distribution, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Affiliate; provided that the
designation by a Participant of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
Notwithstanding the foregoing, during the Participant's lifetime, the Committee
may, in its sole discretion, permit the transfer of certain Awards by a
Participant to a Permitted Transferee, subject to any conditions that the
Committee may prescribe, provided that no such transfer by any Participant may
be made in exchange for consideration.
(b) Compliance with Guidelines. Awards granted to directors and officers of
the Company may, in the Committee's discretion, be subject to such additional
terms and conditions as the Committee deems desirable for purposes of compliance
with any equity ownership guidelines that the Company may establish for its
directors and certain of its officers from time to time.
(c) No Rights to Awards. No employee or director of the Company, or any
Participant or other Person shall have any claim to be granted any Award, and
there is no obligation for uniformity of treatment of Participants, or holders
or beneficiaries of Awards. The terms and conditions of Awards need not be the
same with respect to each recipient.
(d) Share Certificates. All certificates for Shares or other securities of
the Company or any Affiliate delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which such Shares or other securities are then listed,
and any applicable Federal or state laws, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.
(e) Withholding. Whenever cash is to be paid pursuant to an Award, the
Company shall have the right to deduct therefrom an amount sufficient to satisfy
any federal, state and local withholding tax requirements related thereto.
Whenever Shares are to be delivered pursuant to an Award, the Company
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shall have the right to require the Participant to remit to the Company an
amount sufficient to satisfy any federal, state and local withholding tax
requirements related thereto. Subject to the approval of the Committee, a
participant may satisfy the foregoing requirement by electing to have the
Company withhold from delivery Shares or by delivering already owned
unrestricted Shares that have been held for at least six months, in each case,
having a value equal to the minimum amount of tax required to be withheld. Such
Shares shall be valued at their Fair Market Value on the date as of which the
amount of tax to be withheld is determined. To the extent permitted under
applicable law, the Committee may provide for additional cash payments to
holders of Awards to defray or offset any tax arising from the grant, vesting or
exercise of any Award.
(f) Award Agreements. Each Award hereunder shall be evidenced by an Award
Agreement which shall be delivered to the Participant and shall specify the
terms and conditions of the Award and any rules applicable thereto, including,
but not limited to, the effect on such Award of the death, retirement or other
termination of employment of a Participant and the effect, if any, of a change
in control of the Company. Notwithstanding the generality of the foregoing, each
Award Agreement shall provide that if a Participant's employment is terminated
for Cause, any outstanding Awards then held by such Participant (or such
Participant's Permitted Transferee(s)) shall be immediately forfeited and
cancelled.
(g) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other compensation arrangements, which may, but need not, provide for the
grant of options, restricted stock, Shares and other types of Awards provided
for hereunder (subject to shareholder approval if such approval is required),
and such arrangements may be either generally applicable or applicable only in
specific cases.
(h) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ or service of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment or service, free from any liability or any
claim under the Plan, unless otherwise expressly provided in the Plan or in any
Award Agreement.
(i) No Rights as Stockholder. Subject to the provisions of the applicable
Award, no Participant or holder or beneficiary of any Award shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares. Notwithstanding the
foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall not
be entitled to the rights of a stockholder in respect of such Restricted Stock.
(j) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware.
(k) Severability. If any provision of the Plan or any Award is or becomes or
is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to
any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(l) Other Laws. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation, and any payment
tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws.
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(m) No Trust or Fund Created. Neither the Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(n) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be cancelled, terminated, or otherwise eliminated.
(o) Headings. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 12. TERM OF THE PLAN.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the shareholders of the Company, May 28, 2003.
(b) Expiration Date. No Award shall be granted under the Plan after the
tenth anniversary of the Effective Date. Unless otherwise expressly provided in
the Plan or in an applicable Award Agreement, any Award granted hereunder may,
and the authority of the Board or the Committee to amend, alter, adjust,
suspend, discontinue, or terminate any such Award or to waive any conditions or
rights under any such Award shall, continue after the tenth anniversary of the
Effective Date.
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APPENDIX E
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THE WARNACO GROUP, INC.
INCENTIVE COMPENSATION PLAN
---------------------------
1. Purpose. The purpose of the The Warnaco Group, Inc. Incentive
Compensation Plan is to align the interests of key Company employees and
consultants with those of the stockholders of the Company by encouraging
Participants to achieve goals intended to increase stockholder value.
2. Definitions. The following terms, as used herein, shall have the
following meanings:
(a) 'Award' shall mean an incentive compensation award, granted pursuant
to the Plan, which is contingent upon the attainment of Performance Factors
with respect to a Performance Period.
(b) 'Board' shall mean the Board of Directors of the Company.
(c) 'Change of Control' shall mean the occurrence of any of the
following events: (A) any 'person' (as such term is used in Sections 3(a)(9)
and 13(d) of the Exchange Act or group of persons acting jointly or in
concert, but excluding a person who owns more than 5% of the outstanding
shares of the Company as of the Effective Date, becomes a 'beneficial owner'
(as such term is used in Rule 13d-3 promulgated under the Exchange Act) of
more than 50% of the Voting Stock of the Company; (B) all or substantially
all of the assets of the Company are disposed of pursuant to a merger,
consolidation or other transaction (unless the stockholders of the Company
immediately prior to such merger, consolidation or other transaction
beneficially own, directly or indirectly, in substantially the same
proportion as they owned the Voting Stock of the Company, all of the Voting
Stock or other ownership interests of the entity or entities, if any, that
succeed to the business of the Company); or (C) approval by the stockholders
of the Company of a complete liquidation or dissolution of all or
substantially all of the assets of the Company.
(d) 'Code' shall mean the Internal Revenue Code of 1986, as amended.
(e) 'Committee' shall mean the Compensation Committee of the Board or
such other committee as may be appointed by the Board to administer the Plan
in accordance with Section 3 of the Plan.
(f) 'Common Stock' shall mean the common stock of the Company, par value
$0.01 per share.
(g) 'Company' shall mean The Warnaco Group, Inc., a Delaware
corporation, or any successor corporation.
(h) 'Covered Employee' shall have the meaning set forth in
Section 162(m)(3) of the Code.
(i) 'Disability' shall mean permanent disability as determined pursuant
to the long-term disability plan or policy of the Company or its
Subsidiaries in effect at the time of such disability and applicable to a
Participant.
(j) 'Division' shall mean any of the following operating units of the
Company: ABS; Authentic Fitness; Calvin Klein Underwear; Chaps; CK Jeans;
Intimate Apparel; Lejaby; or Mass Sportswear Licensing; or such other
operating units as may be added from time to time.
(k) 'Effective Date' shall mean, subject to shareholder approval of the
Plan, January 5, 2003.
(l) 'Net Controllable Cash Flow' shall mean, with respect to a Division
for any fiscal year: the sum of (1) such Division's EBITDA (as defined in
Section 2(n)), plus (2) any (increase) or decrease in accounts receivable,
plus (3) any (increase) or decrease in inventory, plus (4) any (increase) or
decrease in prepaid expense, plus (5) any increase or (decrease) in accounts
payable or accrued expenses, minus (6) capital expenditures.
(m) 'Participant' shall mean a key employee of or consultant to the
Company or any Subsidiary, or the company who is the employer of a
consultant to the Company, who is, in any case, selected to participate
herein pursuant to Section 4 of the Plan.
(n) 'Performance Factors' shall mean the criteria and objectives,
determined by the Committee, which must be met during the applicable
Performance Period as a condition of a
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Participant's receipt of payment with respect to an Award. Performance
Factors may include any or all of the following or any combination thereof:
SVA (which is the primary Performance Factor selected for the Company's
fiscal year 2003); gross margin; operating margin; revenue growth; Net
Controllable Cash Flow; free cash flow; operating cash flow; earnings per
share (which may include the manner in which such earnings goal was met);
earnings before all or any of interest, taxes, depreciation and/or
amortization ('EBIT', 'EBITA' or 'EBITDA'); economic value added; cash-flow
return on investment; net income; total shareholder return; return on
investment; return on equity; return on assets; or any increase or decrease
of one or more of the foregoing over a specified period. Such Performance
Factors may relate to the performance of the Company, a Subsidiary, a
Division or any portion of the business, product line, or any combination
thereof and may be expressed on an aggregate, per share (outstanding or
fully diluted) or per unit basis. Where applicable, the Performance Factors
may be expressed in terms of attaining a specified level of the particular
criteria, the attainment of a percentage increase or decrease in the
particular criteria, or may be applied to the performance of the Company, a
Subsidiary, a Division, a business unit, a product line, or any combination
thereof, relative to a market index, a group of other companies (or their
subsidiaries, business units or product lines), or a combination thereof,
all as determined by the Committee.
Performance factors may include a threshold level of performance below
which no payment will be made, levels of performance below the target level
but above the threshold level at which specified percentages of the award
shall be paid, a target level of performance at which the full award will be
paid, levels of performance above the target level but below the maximum
level at which specified multiples of the Award shall be paid, and a maximum
level of performance above which no additional payment shall be made.
Performance Factors may also specify that payments for levels of
performances between specified levels will be interpolated.
(o) 'Performance Period' shall mean the twelve-month periods commencing
on the first day of each fiscal year of the Company during the term of the
Plan, or such other periods as the Committee shall determine; provided that
a Performance Period for a Participant who becomes employed by the Company
or its Subsidiaries following the commencement of a Performance Period may
be a shorter period that commences with the date of the commencement of such
employment.
(p) 'Plan' shall mean The Warnaco Group, Inc. Incentive Compensation
Plan.
(q) 'Subsidiary' shall mean any company, partnership, limited liability
company, business or entity (other than the Company) of which at least 50%
of the combined voting power of its voting securities is, or the operations
and management are, directly or indirectly controlled by the Company.
(r) 'SVA' shall mean, with respect to a Division for any fiscal year,
(1) the product of (x) such Division's increase or (decrease) in EBITDA,
multiplied by (y) the number four, plus (2) Net Controllable Cash Flow.
(s) 'Voting Stock' shall mean the capital stock of any class or classes
having general voting power, in the absence of specified contingencies, to
elect the directors of the Company.
3. Administration. The Plan shall be administered by the Committee. The
Committee shall have the authority in its sole discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan and
to exercise all the powers and authorities either specifically granted to it
under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Awards; to determine the
persons to whom and the time or times at which Awards shall be granted; to
determine the terms, conditions, restrictions and Performance Factors relating
to any Award; to determine whether, to what extent, and under what circumstances
an Award may be settled, cancelled, forfeited, or surrendered; to make
adjustments in the Performance Factors in recognition of unusual or
non-recurring events affecting the Company or its Subsidiaries or the financial
statements of the Company or its Subsidiaries, or in response to changes in
applicable laws, regulations or accounting principles; to construe and interpret
the Plan and any Award; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of
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Awards (including provisions relating to a Change of Control); and to make all
other determinations deemed necessary or advisable for the administration of the
Plan. Without limiting the generality of the foregoing, the Committee shall have
the sole discretion to determine whether, or to what extent, Performance Factors
are achieved; provided, however, that the Committee shall have the authority to
make appropriate adjustments (if any) in Performance Factors under an Award to
reflect the impact of extraordinary items not reflected in such goals. For
purposes of the Plan, extraordinary items shall be defined as (1) any profit or
loss attributable to acquisitions or dispositions of stock or assets, (2) any
changes in accounting standards or treatments that may be required or permitted
by the Financial Accounting Standards Board or adopted by the Company or its
Subsidiaries after the goal is established, (3) all items of gain, loss or
expense for the year related to restructuring charges for the Company or its
Subsidiaries, (4) all items of gain, loss or expense for the year determined to
be extraordinary or unusual in nature or infrequent in occurrence or related to
the disposal of a segment of a business, (5) all items of gain, loss or expense
for the year related to discontinued operations that do not qualify as a segment
of a business as defined in APB Opinion No. 30 (or successor literature),
(6) the impact of unplanned extraordinary capital expenditures, (7) the impact
of share repurchases and other changes in the number of outstanding shares, and
(8) such other items as may be prescribed by Section 162(m) of the Code and the
Treasury Regulations thereunder as may be in effect from time to time, and any
amendments, revisions or successor provisions and any changes thereto.
The Committee shall consist of two or more persons, each of whom shall be an
'outside director' within the meaning of Section 162(m) of the Code. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all persons, including the Company and the Participant (or any
person claiming any rights under the Plan from or through any Participant).
Subject to Section 162(m) of the Code, or as otherwise required for
compliance with other applicable law, the Committee may delegate all or any part
of its authority under the Plan.
4. Eligibility. Awards may be granted to Participants in the sole discretion
of the Committee, after consultation with the Company's Chief Executive Officer.
In determining the Participants, the Committee shall take into account such
factors as the Committee shall deem relevant in connection with accomplishing
the purposes of the Plan. Participants who become employed by or begin to
provide services to the Company or its Subsidiaries after the beginning of a
Performance Period will participate in the Plan on a pro rata basis with respect
to that Performance Period. Participants who become employed by or begin to
provide services to the Company or its Subsidiaries after the expiration of 75%
of a Performance Period will not be eligible to participate in the Plan with
respect to that Performance Period.
5. Terms of Awards. Awards granted pursuant to the Plan shall be
communicated to Participants in such form as the Committee shall from time to
time approve and the terms and conditions of such Awards shall be set forth
therein.
(a) In General. On or prior to the date on which 25% of a Performance
Period has elapsed, the Committee shall specify in writing, by resolution of
the Committee or other appropriate action, the Participants for such
Performance Period and the Performance Factors applicable to each Award for
each Participant with respect to such Performance Period. Unless otherwise
provided by the Committee in connection with specified terminations of
employment, payment in respect of Awards shall be made only if and to the
extent the minimum Performance Factors with respect to such Performance
Period are attained.
(b) Special Provisions Regarding Awards. Notwithstanding anything to the
contrary contained in this Section 5, in no event shall payment in respect
of Awards granted for a Performance Period be made to a Participant who is a
Covered Employee in an amount that exceeds $2.5 million. The Committee may
at its discretion increase, other than with respect to a Participant who is
a Covered Employee, or decrease the amount of an Award payable upon
attainment of the specified Performance Factors which would otherwise be
payable with respect to such Award, based on, among other things, the
Committee's assessment of the Participant's contribution to the long-term
health of the Company.
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(c) Time and Form of Payment. Unless otherwise determined by the
Committee, all payments in respect of Awards granted under this Plan shall
be made in cash within 120 days after the end of the Performance Period. In
the case of Participants who are Covered Employees, unless otherwise
determined by the Committee, such payments shall be made only after
achievement of the relevant Performance Factor(s) has been certified by the
Committee. Unless otherwise provided by the Committee, and except as set
forth in Section 7(g), a Participant must be actively employed by or
providing services to the Company or its Subsidiaries at the time Awards are
generally paid with respect to a Performance Period in order to be eligible
to receive payment in respect of such Award.
6. Term. Subject to the approval of the Plan by the holders of a majority of
the Common Stock represented and voting on the proposal at the annual meeting of
Company stockholders to be held in 2003 (or any adjournment thereof), the Plan
shall be effective as of January 5, 2003 and shall continue in effect until the
fifth anniversary of the date of such stockholder approval, unless earlier
terminated as provided below.
7. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the granting and
payment of Awards, and the other obligations of the Company under the Plan shall
be subject to all applicable federal and state laws, rules and regulations, and
to such approvals by any regulatory or governmental agency as may be required.
(b) Nontransferability. Awards shall not be transferable by a Participant
except upon the Participant's death following the end of the Performance Period
but prior to the date payment is made, in which case the Award shall be
transferable in accordance with any beneficiary designation made by the
Participant in accordance with Section 7(k) below or, in the absence thereof, by
will or the laws of descent and distribution.
(c) No Right To Continued Employment or Service. Nothing in the Plan or in
any Award granted pursuant hereto shall confer upon any Participant the right to
continue in the employ of the Company or any of its Subsidiaries or to be
entitled to any remuneration or benefits not set forth in the Plan or to
interfere with or limit in any way whatever rights otherwise exist of the
Company or its Subsidiaries to terminate such Participant's employment or
service or change such Participant's remuneration.
(d) Withholding Taxes. Where a Participant or other person is entitled to
receive a payment pursuant to an Award hereunder, the Company shall have the
right either to deduct from the payment, or to require the Participant or such
other person to pay to the Company prior to delivery of such payment, an amount
sufficient to satisfy any federal, state, local or other withholding tax
requirements related thereto.
(e) Amendment, Termination and Duration of the Plan. The Board or the
Committee may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided that, no amendment that
requires stockholder approval in order for the Plan to continue to comply with
Code Section 162(m) shall be effective unless the same shall be approved by the
requisite vote of the stockholders of the Company. Notwithstanding the foregoing
(but subject to Section 7(j)), no amendment shall affect adversely any of the
rights of any Participant under any Award following the grant of such Award,
provided that neither an adjustment of an Award (as contemplated by Section 3)
nor the exercise of the Committee's discretion pursuant to Section 5(b) to
reduce the amount of an Award shall not be deemed an impermissible amendment of
the Plan or an Award.
(f) Participant Rights. No Participant shall have any claim to be granted
any Award under the Plan, and there is no obligation for uniformity of treatment
for Participants.
(g) Death, Disability and Retirement. Unless otherwise provided by the
Committee, if a Participant's employment or service is terminated as result of
death, Disability or retirement prior to the end of the Performance Period, such
Participant shall receive a pro rata portion of the Award that such Participant
would have received with respect to the applicable Performance Period, which
shall be payable at the time payment is made to other Participants in respect of
such Performance Period.
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(h) Unfunded Status of Awards. The Plan is intended to constitute an
'unfunded' plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
(i) Governing Law. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware without
giving effect to the conflict of laws principles thereof.
(j) Effective Date. The Plan shall take effect upon its adoption by the
Board; provided, however, that the Plan shall be subject to the requisite
approval of the stockholders of the Company in order to comply with
Section 162(m) of the Code. In the absence of such approval, the Plan (and any
Awards made pursuant to the Plan prior to the date of such approval) shall be
null and void.
(k) Beneficiary. A Participant may file with the Committee a written
designation of a beneficiary on such form as may be prescribed by the Committee
and may, from time to time, amend or revoke such designation. If no designated
beneficiary survives the Participant and an Award is payable to the
Participant's beneficiary pursuant to Section 7(b), the executor or
administrator of the Participant's estate shall be deemed to be the grantee's
beneficiary.
(l) Interpretation. The Plan is designed and intended to comply, to the
extent applicable, with Section 162(m) of the Code, and all provisions hereof
shall be construed in a manner to so comply.
(m) Change of Control. Except as otherwise provided under the terms of this
Plan, upon the occurrence of a Change of Control, the Company shall pay to each
Participant, within 30 days following such Change of Control, a pro rata portion
of the Award that each Participant would have received with respect to the
applicable Performance Period, had the Performance Factors been achieved at 100%
of target level.
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Appendix 1
THE WARNACO GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, May 28, 2003
10:00 a.m.
Doral Park Avenue Hotel
70 Park Avenue
New York, New York 10016
The Warnaco Group, Inc.
90 Park Avenue
New York, New York 10016 proxy
- --------------------------------------------------------------------------------
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on May 28, 2003.
The shares of stock you hold in your account will be voted as you specify on the
reverse side.
If no choice is specified, the proxy will be voted "FOR" Items 1, 2, 3 and 4.
By signing the proxy, you revoke all prior proxies and appoint Joseph R. Gromek,
Stanley P. Silverstein and Jay A. Galluzzo, and each of them, with full power of
substitution, to vote your shares on the matters shown on the reverse side and
any other matters which may come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to The Warnaco Group, Inc., c/o Shareowner
Services'sm', P.O. Box 64873, St. Paul, MN 55164-0873.
Please detach here
The Board of Directors Recommends a Vote FOR Items 1, 2, 3 and 4.
1. Election of directors: 01 Antonio C. Alvarez II 04 Richard Karl Goeltz [ ] Vote FOR all nominees [ ] Vote WITHHELD
02 David A. Bell 05 Joseph R. Gromek (except as marked) from all nominees
03 Stuart D. Buchalter 06 Charles R. Perrin
(Instructions: To withhold authority to vote for any indicated --------------------------------------------
nominee, write the number(s) of the nominee(s) in the box
provided to the right.) --------------------------------------------
2. Approval of The Warnaco Group, Inc. 2003 Stock Incentive Plan; [ ] For [ ] Against [ ] Abstain
3. Approval of The Warnaco Group, Inc. Incentive Compensation Plan; [ ] For [ ] Against [ ] Abstain
4. Ratification of the appointment by the Company's Board of [ ] For [ ] Against [ ] Abstain
Directors of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending January 3, 2004;
5. To transact such other business as may properly come before [ ] For [ ] Against [ ] Abstain
the Annual Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box [ ] Indicate changes below: Date_____________________________________
_________________________________________
_________________________________________
Signature(s) in Box
Please sign exactly as your name(s)
appears on Proxy. If held in joint
tenancy, all persons must sign. Trustees,
administrators, etc., should include
title and authority. Corporations should
provide full name of corporation and
title of authorized officer signing the
proxy.
STATEMENT OF DIFFERENCES
The service mark symbol shall be expressed as................... 'sm'