Federated Department Stores, Inc. and its subsidiaries are firm in their resolve to do business only with those manufacturers and suppliers that share the company's com mitment to fair labor practices, including adherence to laws that protect workers and their salaries, both in the United States and abroad.

As a condition of doing business with Federated, it is required that manufacturers comply with all laws applicable to the country in which the merchandise is manufac tured, including but not limited to laws against child or forced labor and unsafe working conditions. This condition is reiterated on every purchase order issued by the company; the purchase order contractually commits product manufacturers to adhere to applicable laws in the fulfillment of the order, providing Federated with an avenue of legal recourse should the contract be violated.

To further the objective of ensuring the protection of workers, Federated requires its core vendors annually to acknowledge in writing their understanding of the company's policies requiring full compliance with all applicable laws in the manufacture of products to be carried to Federated stores. Relationships with manufacturers and suppliers who do not sign this agreement are immediately terminated by Federated. In the manufacture of private label products being made exclusively for Federated, the company routinely inspects factories for contractual compliance, as well as com pliance with laws and regulations dealing with child or forced labor and unsafe working conditions.

Upon learning of a potential or actual violation of law by either a supplier of mer chandise to Federated or a subcontractor hired by such a supplier, Federated will take the following actions:

1. When notified by the U.S. Department of Labor or any state or foreign gov ernment, or after determining upon its own inspection that a supplier or its subcontractor has committed a serious violation of law relating to child or forced labor or unsafe working conditions, Federated will immediately sus pend all shipments of merchandise from that factory and will discontinue further business with the supplier. Federated will demand the supplier insti tute monitoring programs necessary to ensure compliance with applicable laws prior to the resumption of any business dealings with that supplier. This action will be in addition to any contractual or legal remedies available to Federated pursuant to the purchase contract.
2. Upon notification of a violation of law by a supplier or its subcontractor, other than as set forth above, Federated shall immediately suspend further shipments from that factory, pending receipt of a detailed explanation from the supplier that describes the circumstances surrounding the violation, the supplier's position with respect to the violation, and a commitment by the supplier to take remedial action to Federated's satisfaction. This action will be in addition to any contractual or legal remedies available to Federated pursuant to the purchase contract.
3. Federated reserves the right to investigate any potential violation of law and, at its discretion, to suspend, discontinue or terminate its relationship with any supplier for its failure to comply with any laws applicable to merchandise produced in the United States or any other country.

Through the establishment of these policies, Federated believes it is most effectively exercising its economic leverage with manufacturers to encourage their full compli ance with laws designed to protect their workers; manufacturers who violate these laws know the consequences of their actions. In addition to its commitment to fully enforce its policies with manufacturers, Federated is committed to cooperating with state and federal agencies who ultimately are responsible for enforcing these laws.

FPD Business Principles & Vendor Compliance

Overview

The following summarizes Federated Product Development's business principles as they relate to our international sourcing strategy and vendor compliance program.

Statement of Principles

1. We are committed to legal compliance and ethical business practices in all of our operations.
2. We choose suppliers which we believe share the commitment.
3. In our purchase contracts, we require our suppliers to comply with all appli cable laws and regulations.
4. If it is found that a factory used by a supplier for the production of our merchandise has committed legal violations, we will take appropriate action, which may include taking rehabilitating steps to bring factory back into com pliance, cancelling the affected contract(s), terminating our relationship with the supplier, commencing legal actions against the supplier or other actions as warranted.
5. We support law enforcement and cooperate with law enforcement authori ties in the proper execution of their responsibilities.
6. We support educational efforts designed to enhance legal compliance on the part of the U.S. apparel manufacturing industry.

Foreign Laws

We are committed to the above principles wherever we have our private brands & labels manufactured worldwide. While foreign labor laws may differ from country to country, we first and foremost follow the local law of the country in regard to sup porting the minimum age and minimum wage requirements. We follow our policy in regard to strictly forbidding the use of forced labor and/or ozone depleting sub stances in the manufacturing of our product. When in our vendor's facilities, we will check for common-sense employee safety issues such as fire hazards, clearly marked and unblocked exits, cleanliness, and poor lighting.

Vendor Approval Process

The most important part of our compliance program is the identification of those vendors that share in our commitment before any business is transacted. Therefore, it is our policy that all suppliers and their manufacturing facilities must go through a formal evaluation and approval process prior to the placement of any orders. Fur thermore, these vendors must agree to authorize, in advance, unrestricted access to their facilities - including the ability to conduct unannounced inspections.

New vendors can only be approved by senior executive for that Region booking the order. If the merchandise is to be inspected by another region, then senior executive for that inspecting Region must also approve the manufacturing facility.

The standard procedures is as follows. Specific examples of the FPD forms and documentation are included in the Appendices attached.

1. New Vendor/New Facility Approval Request submitted
2. Terms of Engagement Letter notification
3. New Vendor/New Facility Questionnaire completed
4. Factory evaluation conducted and report submitted.
5. Credit & litigation background check performed by an independent, accred ited organization
6. Vendor approved (ID number issued) & entered in the MPS system and pur chase order creation enabled
7. Rejected vendor/facility summary data maintained on file as part of a Red Flagged list
8. Purchase order issued with contract terms including compliance requirements on reverse side

Supplier Monitoring

Assuring vendor compliance includes the following key components and formal documentation of these activities:

1. Regular in-line and final inspection of all orders with a reporting section specifically covering observation of legal and policy compliance
2. All purchase orders issued with clearly stated compliance requirements
3. Unannounced factory visits for the express purpose of identifying legal, safety and policy non-compliance
4. Regular re-certification of all facilities by authorized Quality Control staff
5. Annual notification to all active suppliers of our Terms of Engagement

Violations

FPD personnel look for violations of our policies which would include compliance with Federal, state and local law. Safety, wage and under-age worker violations are essential elements of our monitoring process. All documented violations must be reported to the Corporate Legal Counsel and the President/COO of FM/FPD for action.

Authority

Clearly defined levels of authorization have been established and audited for compli ance.

1. Inter-regionally: Only Executive Vice President-Asia, Senior Vice President -Europe and Vice President Production can approve new vendors and facto ries.
2. All factory evaluations must be counter-signed by a General Manager or Di visional Vice President
3. All facility approvals must be authorized at the Senior Executive level for that region
4. New Vendor Approval Requests must be counter-signed by Merchandise, Production and Control Vice Presidents

Education & Training

Internal training by FPD Corporate Counsel, Corporate Quality Control & Overseas Offices managerial staff.

State and local government educational seminars and training materials available.

National Retail Federation sponsored seminars & conferences.

Independent Labor & Wage Experts (as available).

1 North/South America Region requires letter to be signed by an Officer of the Company and returned.

2 Only managerial level or pre-designated Quality Assurance staff are authorized to evaluate factories.

3 US vendors are in an on-line database.

4 Worldwide roll-out and training completed by October, 1996

5 Example: New York State Apparel Industry Task Force