Implementing Sourcing Policies and Procedures

Each Division and Subsidiary Must Adopt, Implement and Adhere to These Policies
The sourcing procedures of each affected business unit of the Company will reflect the policies set forth in this policy statement and also contain such procedures, protocols and standardized forms as are necessary to implement these policies fully and effectively in the context of each business unit's business and operations. Independent Production Services and the Company's attorneys, auditors and accountants are available to the business units as resources to assist in the production of such procedures, protocols and forms.

The sourcing procedures will also specify, among other things:

The specific individual or individuals within the senior executive ranks of the business unit who will have overall responsibility for compliance.
Written disciplinary policies which provide for, among other things, discipline in a case-specific manner of individuals responsible for events of noncompliance.
Procedures for responding to offenses that are detected and for preventing further similar offenses.

Associate Training
This policy statement and the respective business unit's sourcing procedures will be made available to all associates whose responsibilities include sourcing. They will be expected to read and become fully acquainted with the Company's policies and procedures regarding sourcing.

Within 30 days of beginning employment, each such associate must confirm in writing that he or she has read this policy statement, has been afforded access to the respective business unit's entire sourcing procedures, and has been advised of the continuing opportunity to have any questions relating to them answered by a supervisor or by counsel for the Company. Such written confirmation must also establish that the associate has either personally attended in-house Compliance training or viewed the videotaped training materials that are available in the Company's library. Failure to comply with these specific requirements may be cause for reprimand, probation or suspension without pay, and failure to comply within a reasonable period thereafter may be cause for termination.

With the support of the Human Resources department of the Company, each affected business unit will develop and provide mandatory training, continuing education and certification programs designed to assure that associates who are responsible for sourcing become and remain proficient with respect to the Company's applicable policies and procedures.

Internal Compliance Audits
The Company's auditors, accountants and attorneys will provide such assistance, and undertake such auditing and monitoring activities, as are appropriate to assure that associates fully understand and comply with the Company's sourcing policies and procedures.

Vendor Education
As the Company continues to develop strategic relationships with vendors and otherwise reduces the size of its vendor base, it will continue to intensify its commitment to vendor education. The sourcing procedures of each affected business unit will provide for such education that may include:

Distribution of written summaries of our policies to all vendors, translated where appropriate into local languages, and requiring vendors to further distribute such materials to their subcontractors and suppliers. Acknowledgment of receipt of, and a commitment to compliance with, our policies will also be required.
Development of purchase agreements, letters of credit and other appropriate transaction documentation that:
1. fixes responsibility within vendor organizations for adherence to the Company's policies and procedures.
2. requires clear and conspicuous display of a summary of our policies in all facilities where work is done.
3. commits vendors to refrain from interfering with, discouraging or punishing efforts by employees to communicate with us or to otherwise assert their concerns or grievances.
4. requires maintenance of records of the names, ages, hours worked and wages and benefits paid for each employee, the making of such records immediately available to us and our agents upon request, and allowing us or our agents to conduct confidential interviews with employees.

While we recognize that local customs and values profoundly influence individual judgments in many areas covered by these standards, we support the work of international agencies and organizations that seek to develop internationally recognized standards for labor practices and business conduct.

Vendor Qualification and Compliance
Each affected business unit will maintain a list of qualified vendors and factories and will confine its sourcing relationships to parties on such list. This list will be established and maintained in reliance on specific qualification standards and protocols developed from time to time by Independent Productions Services (IPS) on behalf of the Company. In applying the Company's qualification criteria and procedures to vendors and factories, these qualification standards and protocols may permit each business unit to rely on (1) its own capabilities, (2) the capabilities of IPS or other IPS-approved third party resources, or (3) any combination of the foregoing resources.

Each business unit's sourcing procedures will address the following issues:

Qualification Generally. Vendor qualification procedures will explicitly include, but not necessarily be limited to, those contained in this policy statement.
Qualification of Strategic Vendors. Vendors who are designated Strategic Vendors will be required to appoint their own Compliance Officers to be responsible for overseeing compliance with United States import laws and the Company's policies relating to labor standards. Strategic Vendors will work with the Company to establish and implement their own compliance programs, subject to the Company's approval. Strategic Vendors will also be required to maintain production and compliance records as required by the Company.
Master Sourcing Agreement. Vendors will be required to execute master sourcing agreements which, among other things, will obligate them to adhere to the policies contained in this policy statement and the business unit's sourcing procedures. The payment obligations of the Company and its business units with respect to any transaction with a vendor will be conditioned on the vendor's compliance with such provisions.
Compliance Certification. Each of the Company's vendors will be required, on a regular and periodic basis, to certify compliance with the Company's sourcing policies on a form to be provided by Independent Production Services.
Record Maintenance. With respect to each qualified vendor, subcontractor or supplier, a file will be maintained containing current evidence of its qualification to engage in business with the Company.

Vendor Monitoring
Each affected business unit's sourcing procedures will provide that vendor, subcontractor and supplier factories will be inspected (1) periodically, (2) promptly in response to any reported or suspected instance of material noncompliance with our policies, and (3) as otherwise deemed necessary or appropriate. For this purpose, we may employ internal or external resources, as circumstances warrant. Our inspection and monitoring program will reflect developing best practices of companies engaged in such efforts, including the use of standardized reporting formats so that progress can be measured and evaluated over time.

Vendor Noncompliance
A violation of the letter or spirit of our policies by any party in our supply chain constitutes a breach of our relationship. If a vendor, subcontractor or supplier is in breach, we may take any or all of the following actions:

Afford a reasonable opportunity to rectify the breach.
Suspend acceptance of current orders.
Cancel orders without payment.
Terminate current production.
Terminate our business relationship.
Notify responsible regulatory authorities.

The action taken will be influenced in substantial part by a vendor's general efforts to develop and implement a compliance program that meets the letter and spirit of our policies.

Independent Production Services (IPS)

1. What is IPS?
The Company has established a separate division named Independent Production Services (IPS) to assist it and its individual business units in fulfilling their responsibilities to comply with the policies contained in this policy statement.

2. Vendor and Factory Qualification
IPS will establish and distribute to each affected business unit factory qualification criteria reflecting the policies set forth in this policy statement.

3. Periodic Inspections
IPS has established and will maintain the capability to perform both general factory qualification inspections and in-line inspections during the manufacturing process.

4. General Assistance to Business Units
IPS, working together with the Company's audit staff, accountants and attorneys, will provide assistance to the Company's business units in developing their sourcing procedures and all other processes, protocols and documents necessary to achieve the purposes of this policy statement.