Exhibit 10.1

 

Execution Copy

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”), dated as of June 3, 2004, is by and
between St. John Knits, Inc., a California corporation (“Company”), and Richard
Cohen, an individual (“Executive”). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.

 

ARTICLE I

EMPLOYMENT

 

The Company hereby employs Executive and Executive accepts employment with the
Company upon the terms and conditions herein set forth.

 

1.1 Employment.

 

(a) Subject to the provisions of Article IV of this Agreement, the Company
hereby employs Executive, and Executive agrees to serve as the Chief Executive
Officer of the Company and St. John Knits International, Incorporated (“SJKII”)
from the period beginning on the date on which Executive commences employment
with the Company (which shall be no later than September 1, 2004) (the
“Effective Date”) and ending on the fifth anniversary of the Effective Date (the
“Term”); provided, however, that commencing with the fifth anniversary of the
Effective Date and on each anniversary thereof (each, an “Extension Date”), the
Term shall be automatically extended for an additional one-year period, unless
the Company or Executive provides the other party hereto 90 days prior written
notice before the applicable Extension Date that the Term shall not be so
extended. In such positions, Executive shall assume, subject to the powers of
the Board of Directors of the Company (the “Company Board”) and the Board of
Directors of SJKII (the “Board of Directors”), as applicable, general and active
supervision and management over the business of the Company and SJKII and over
their respective officers, assistants, agents and employees. In addition,
Executive shall have such duties and authority commensurate with the position of
a chief executive officer of a company of similar size and nature and as the
Company Board and the Board of Directors, as applicable, shall otherwise
determine from time to time. Executive agrees to devote substantially his full
business time and attention and best efforts to the affairs of SJKII and the
Company during the Term, unless this Agreement is terminated sooner in
accordance with the provisions hereto. Executive shall report to the Company
Board and the Board of Directors, as applicable, and shall be appointed and
serve as a member of the Board of Directors without additional compensation.

 

(b) Notwithstanding the foregoing, Executive shall not be precluded from (i)
serving on the boards of directors of a reasonable number of trade associations
and/or charitable organizations (subject to the reasonable approval of the Board
of Directors), (ii) engaging in charitable activities and community affairs,
(iii) serving as a director of Cortiva Group, LLC and (iv) managing his personal
investments and affairs; provided that the activities in clauses (i) through
(iv) do not, individually or in the aggregate, materially interfere with the
proper performance of his duties and responsibilities to the Company or
adversely affect in any material respect the Company or any of its affiliates.

 

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(c) Executive’s obligations under this Agreement shall be contingent upon his
obtaining, or waiving his right to obtain, a release of claims (the “Zegna
Release”) from Ermenegildo Zegna Corporation (“Zegna”) and entering into, or
waiving his right to enter into, a severance agreement with Zegna (the “Zegna
Severance Agreement”), which agreements are acceptable to Executive in his sole
discretion. Notwithstanding anything to the contrary in this Agreement, in the
event that Executive fails to either (i) obtain the Zegna Release and/or enter
into the Zegna Severance Agreement or (ii) waive Executive’s right to obtain the
Zegna Release or enter into the Zegna Severance Agreement on or before June 30,
2004, then this Agreement shall be deemed null and void and of no further force
and effect.

 

ARTICLE II

COMPENSATION

 

2.1 Annual Salary. During the Term, the Company shall pay Executive at the
annual rate of $1,200,000. Beginning with the Company’s fiscal year 2006,
Executive’s annual base salary shall be subject to review for increase by the
Board of Directors on an annual basis on or around the first day of each fiscal
year. Executive’s annual base salary, as in effect from time to time, is
hereinafter referred to as the “Base Rate”. The Base Rate shall be payable in
substantially equal monthly installments.

 

2.2 Purchased Equity and Stock Options.

 

(a) Purchased Equity. On the Effective Date or as soon as practicable
thereafter, Executive shall purchase 1,667 shares of common stock of SJKII (the
“Shares”). The purchase price per Share shall be $30.00.

 

(b) Stock Options.

 

(i) On the Effective Date or as soon as practicable thereafter, Executive shall
be granted an option under an option agreement, in the form attached hereto as
Exhibit A (the “Option Agreement”), to purchase (A) 50,000 Shares, at the price
of $30.00 per Share, (B) 50,000 Shares, at a price of $40.00 per Share, (C)
50,000 Shares, at a price of $50.00 per Share, and (D) 50,000 Shares, at a price
of $60.00 per Share (the “Option”), which shall be subject to the terms and
conditions set forth in the Amended and Restated St. John Knits International,
Incorporated 1999 Stock Option Plan (the “Stock Option Plan”) and the Option
Agreement.

 

(ii) In the event of any conflict or inconsistency between the terms and
conditions of the Stock Option Plan and the Option Agreement, the terms and
conditions of the Option Agreement shall control.

 

(c) Subscription Agreement. All Shares purchased by Executive as described in
Article 2.2(a) and acquired by Executive upon the exercise of an Option shall be
subject to the terms and conditions of a subscription agreement, substantially
in the form attached hereto as Exhibit B.

 

2.3 Reimbursement of Expenses. During the Term, Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing

 

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services hereunder, including all expenses of travel, entertainment and living
expenses while away from home on business at the request of, or in the service
of, the Company; provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.

 

2.4 Bonuses.

 

(a) Signing Bonus. Upon signing, Executive shall receive a signing bonus in the
amount of $300,000 (the “Signing Bonus”); provided, however, if at any time
prior to December 31, 2005, Executive’s employment with the Company is
terminated by Executive without Good Reason (as defined in Article 4.1 below) or
by the Company for Cause, Executive shall, within 20 business days after any
such termination, repay to the Company the Signing Bonus. Nothing in this
paragraph is to be read as guaranteeing Executive’s employment longer than the
Term or in any other way.

 

(b) Annual Bonus. Executive shall be eligible to receive an annual bonus (the
“Annual Bonus”) with respect to each fiscal year during the Term of up to (i)
50% of the Base Rate in fiscal years 2004 and 2005 and (ii) 100% of the Base
Rate during the remainder of the Term, which shall be determined by, and paid
based upon, performance goals to be set by the Board of Directors in
consultation with Executive within the first 90 days of each applicable fiscal
year; provided, however, that Executive shall be entitled to an Annual Bonus,
(x) with respect to fiscal year 2004, of no less than the product of $300,000
multiplied by a fraction, the numerator of which is the number of days that this
Agreement was in effect in fiscal year 2004 and the denominator of which is 365
and (y) with respect to fiscal year 2005, of no less than $350,000 (the amounts
in clauses (x) and (y), the “Minimum Annual Bonus Amounts”).

 

2.5 Benefits and Perquisites.

 

(a) General Benefits. Except as provided pursuant to Article 2.5(b) below,
during the Term, Executive shall be entitled to participate in and be covered by
all health, insurance, pension and other employee plans and benefits currently
established for the employees of the Company on at least the same terms as other
senior executives of the Company, subject to meeting applicable eligibility
requirements.

 

(b) Minimum Benefits. During the Term, the Company shall provide Executive with
the following minimum benefits:

 

(i) The Company shall obtain, and pay the premiums on, a whole life policy in
the amount of $1,000,000 and a term life policy in the amount of $2,000,000 on
the life of Executive, naming Executive’s designated beneficiary as the
beneficiary thereof.

 

(ii) The Company shall obtain, and pay the premiums on, (A) an individual
disability insurance policy which provides a monthly disability benefit of
$9,500 and (B) a group disability policy which provides for a monthly disability
benefit of at least $15,000. Such policies shall contain terms, conditions and
exclusions substantially the same as the policies maintained by Zegna for
Executive’s benefit as of April 1, 2004.

 

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(iii) The Company shall either contribute an amount to the Company’s 401(k) plan
equal to 100% of Executive’s 401(k) contribution, not to exceed 5% of the annual
compensation limit for the year such contribution is made, or make such other
arrangement to provide a comparable benefit as is reasonably acceptable to
Executive.

 

(c) Dependent Medical Care. During the Term, the Company shall (i) pay insurance
premiums when due, in an aggregate amount of up to $470,000 per year, for an
insurance policy which provides for payment or reimbursement to Executive for
any medical, custodial or in-home nursing care or special education expenses
incurred by Executive for Executive’s dependents or (ii) if no insurance policy
is available, reimburse Executive, in an aggregate amount of up to $470,000 per
year, for any medical, custodial or in-home nursing care or special education
expenses incurred by Executive for Executive’s dependents (the “Dependent Care
Coverage”); provided that the Company shall use commercially reasonable efforts
to provide such Dependent Care Coverage though an insurance policy which shall
provide, to the maximum extent possible, that such reimbursements shall not
constitute taxable income to Executive.

 

(d) Perquisites. During the Term, Executive shall be entitled to the perquisites
set forth on Exhibit C attached hereto.

 

2.6 Vacations and Holidays. During Executive’s employment with the Company,
Executive shall be entitled to an annual vacation leave of four weeks at full
pay, or such greater vacation benefits as may be provided for by the Company’s
vacation policies applicable to senior executives. Executive shall be entitled
to such holidays as are established by the Company for all employees.

 

ARTICLE III

CONFIDENTIALITY AND NONDISCLOSURE

 

3.1 Confidentiality. Executive will not during Executive’s employment by the
Company or thereafter at any time disclose, directly or indirectly, to any
person or entity or use for Executive’s own benefit any trade secrets or
confidential information relating to the Company’s business operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other subject matter pertaining to the
business of the Company or any of its affiliates, clients, customers,
consultants, or licensees, known, learned, or acquired by Executive during the
period of Executive’s employment by the Company (unless generally known to the
public or to trade sources other than as a result of Executive’s breach of this
Article 3.1 or any breach of other confidentiality obligations by third parties)
(collectively “Confidential Information”), except as may be necessary in the
ordinary course of performing Executive’s particular duties as an employee of
the Company. Except as required by law, prior to the Effective Date, (a)
Executive will not disclose to anyone, other than Executive’s immediate family
and legal or financial advisors, the contents of this Agreement and (b) the
Company will not disclose to anyone, other than its affiliates and legal or
financial advisors, the contents of this Agreement.

 

3.2 Return of Confidential Material. Executive shall promptly deliver to the
Company on termination of this Agreement, whether or not for Cause and whatever
the reason,

 

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or at any time the Company may so request, all memoranda, notes, records,
reports, manuals, drawings, blueprints, Confidential Information and any other
documents of a confidential nature belonging to the Company or any of its
affiliates, including all copies of such materials which Executive may then
possess or have under Executive’s control. Upon termination of this Agreement,
Executive shall not take any document, data, or other material of any nature
containing or pertaining to the proprietary information of the Company.

 

3.3 Prohibition on Solicitation of Customers. During the term of Executive’s
employment with the Company and for a period of one year thereafter (the
“Restricted Period”), Executive shall not, directly or indirectly, either for
Executive or for any other person or entity, solicit any person or entity to
terminate such person’s or entity’s contractual and/or business relationship
with the Company or any of its affiliates, nor shall Executive interfere with or
disrupt or attempt to interfere with or disrupt any such relationship. None of
the foregoing shall be deemed a waiver of any and all rights and remedies the
Company may have under applicable law.

 

3.4 Prohibition on Solicitation of Employees, Agents or Independent Contractors.
During the Restricted Period, Executive will not solicit any of the employees,
agents, or independent contractors of the Company or any of its affiliates to
leave the employ of the Company or any of its affiliates for a competitive
company or business. However, Executive may solicit any employee, agent or
independent contractor who voluntarily terminates his or her employment with the
Company or any of its affiliates after a period of 120 days have elapsed since
the termination date of such employee, agent or independent contractor. None of
the foregoing shall be deemed a waiver of any and all rights and remedies the
Company may have under applicable law.

 

3.5 Right to Injunctive and Equitable Relief. Executive’s obligations not to
disclose or use Confidential Information and to refrain from the solicitations
described in this Article III are of a special and unique character which gives
them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event Executive breaches such
obligations. Therefore, Executive expressly agrees that the Company shall be
entitled to injunctive and other equitable relief without bond or other security
in the event of such breach in addition to any other rights or remedies which
the Company may possess or be entitled to pursue. Furthermore, the obligations
of Executive and the rights and remedies of the Company under this Article III
are cumulative and in addition to, and not in lieu of, any obligations, rights,
or remedies created by applicable law relating to misappropriation or theft of
trade secrets or Confidential Information.

 

3.6 Survival of Obligations. Executive agrees that the terms of this Article III
shall survive the Term and the termination of Executive’s employment with the
Company.

 

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ARTICLE IV

TERMINATION

 

4.1 Definitions. For purposes of this Article IV, the following definitions
shall apply to the terms set forth below:

 

(a) Cause. “Cause” shall include the following:

 

(i) Executive’s conviction of, or plea of guilty or nolo contendere to, (A) a
felony under the laws of the United States or any state thereof or (B) any other
crime (excluding a petty misdemeanor) involving theft, fraud, dishonesty or
moral turpitude;

 

(ii) Executive engages in willful misconduct that results in any material harm
to the Company;

 

(iii) Executive’s willful failure to substantially carry out Executive’s duties
(except where such failure is a result of Executive’s death or Disability)
within 10 days after a written demand for substantial performance approved by a
resolution of the Board of Directors is delivered to Executive by the Board of
Directors that specifically identifies the manner in which the Board of
Directors believes Executive has not substantially performed Executive’s duties;

 

(iv) a material breach of this Agreement by Executive and Executive fails to
cure such breach within 30 days following written notice delivered by the
Company; or

 

(v) Executive’s material violation of any written Company policy and Executive
fails to cure such violation within 10 days following written notice delivered
by the Company; provided, however, that a repeat violation of the same or
similar policy shall not be subject to a cure period.

 

For purposes of this Article 4.1(a), no act, or failure to act, on the part of
Executive shall be considered “willful” to the extent such act, or failure to
act, is based upon a directive given pursuant to a resolution duly adopted by
the Board of Directors.

 

(b) Good Reason. “Good Reason” shall mean, without Executive’s prior written
consent:

 

(i) the assignment to Executive of duties inconsistent with the position and
status of Executive as set forth in this Agreement;

 

(ii) a substantial alteration or diminution in the nature, status or prestige of
Executive’s responsibilities or a diminution in Executive’s title or reporting
level from that set forth in this Agreement; provided, however, that, on or
after an Equity Acceleration Event, a change in Executive’s title from that set
forth in this Agreement shall not constitute “Good Reason” so long as Executive
remains the most senior executive officer of SJKII and the Company or, in the
event of the sale of the assets of

 

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SJKII and its subsidiaries (determined on a consolidated basis), the businesses
of SJKII and the Company;

 

(iii) the relocation of the Company’s executive offices or principal business
location to a point more than 50 miles from the location of such offices or
business as of the date of this Agreement;

 

(iv) a reduction by the Company of (A) Executive’s Base Rate, (B) Executive’s
Annual Bonus opportunity as described in Article 2.4(b), (C) the maximum amount
of the Dependent Care Coverage or (D) the minimum benefits described in Article
2.5(b) of this Agreement;

 

(v) a failure by the Company to obtain from any successor, before the succession
takes place, an agreement to assume and perform this Agreement;

 

(vi) a material breach of this Agreement by the Company (including, without
limitation, the Company’s failure to grant the Option or pay the Minimum Annual
Bonus Amounts); or

 

(vii) if there is no public market for the Shares, Executive is not elected to
be a member of the Board of Directors or, if there is a public market for the
Shares, Executive is not nominated to be a member of the Board of Directors so
long as such nomination is not prohibited by applicable law.

 

provided that any event described in clauses (i) through (vi) above shall
constitute Good Reason only if the Company fails to cure such event within 20
days after receipt from Executive of written notice of the event which
constitutes Good Reason; provided, further, that Good Reason shall cease to
exist for an event on the 180th day following the later of its occurrence or
Executive’s actual knowledge thereof, unless Executive has given the Company
written notice thereof prior to such date.

 

(c) Disability. “Disability” shall mean a physical or mental incapacity as a
result of which Executive becomes unable to substantially perform his duties
hereunder (reasonable absences because of sickness for up to four consecutive
months excepted; provided, however, that any new period of incapacity or
absences shall be deemed to be part of a prior period of incapacity or absences
if the prior period terminated within 90 days of the beginning of the new period
of incapacity or absence and the incapacity or absence is determined by the
Board of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the certification of
a qualified medical doctor agreed to by the Company and Executive or in the
event of Executive’s incapacity to designate a doctor, Executive’s legal
representative. In the absence of agreement between the Company and Executive,
each party shall nominate a qualified medical doctor and the two doctors so
nominated shall select a third doctor, who shall make the determination as to
Disability.

 

4.2 Termination by Company. The Company may terminate Executive’s employment
hereunder immediately for Cause. Subject to the other provisions contained in
this Agreement, the Company may terminate this Agreement for any reason other
than Cause upon 30 days’ written notice to Executive. The effective date of
termination (the “Termination Date”)

 

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shall be considered to be 30 days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.

 

4.3 Termination by Executive. Executive may terminate his employment hereunder
upon 30 days’ written notice to the Company. The Termination Date shall be
considered to be 30 days subsequent to written notice of termination; however,
the Company may elect to have Executive leave the Company immediately.

 

4.4 Death or Disability of Executive. Executive’s employment hereunder shall
terminate immediately upon the death or Disability of Executive. In such event,
the Termination Date shall be the date of death or the date of the determination
of Executive’s Disability in accordance with the provisions of Article 4.1(c),
as applicable.

 

4.5 Severance Benefits Received Upon Termination.

 

(a) Termination by the Company for Cause or by Executive Without Good Reason. If
Executive’s employment is terminated by the Company for Cause or by Executive
other than for Good Reason, then Executive shall be entitled to (i) the Base
Rate through the Termination Date, (ii) any Annual Bonus earned but unpaid as of
the Termination Date for any previously completed fiscal year, (iii)
reimbursement for any unreimbursed business expenses properly incurred by
Executive in accordance with Company policy prior to the Termination Date, (iv)
credit for any vacation earned during the fiscal year in which the Termination
Date occurs but not taken, plus any vacation days rolled over from the prior
fiscal year to the extent allowed by the Company’s policies, and (v) such
employee benefits, if any, to which Executive may be entitled under the employee
benefit plans of the Company (the amounts described in clauses (i) through (v)
hereof being referred to as the “Accrued Rights”). In addition, subject to
Executive’s continued compliance with the provisions of Article III, if
Executive’s employment is terminated by Executive other than for Good Reason,
then Executive shall be entitled to continuation of the Dependent Care Coverage
until the earlier of (A) the second anniversary of the Termination Date and (B)
the date on which Executive becomes employed by a subsequent employer. The
Company shall thereafter have no further obligations to Executive under this
Agreement.

 

(b) Termination Due to Death or Disability. If Executive’s employment is
terminated due to Executive’s death or Disability, then Executive shall be
entitled to the Accrued Rights. In addition, subject to Executive’s continued
compliance with the provisions of Article III, if Executive’s employment is
terminated due to Executive’s death or Disability, then Executive shall be
entitled to (i) continuation of the Dependent Care Coverage until the later of
(x) twelve months following the Termination Date and (y) the expiration of the
Term determined as if such termination had not occurred and (ii) a lump sum
payment, within 60 days following the beginning of the fiscal year subsequent to
the fiscal year in which the Termination Date occurs, equal to the product of
(A) the Annual Bonus that Executive would have actually earned in the fiscal
year in which the Termination Date occurs (if Executive had remained employed by
the Company and based upon achievement of the performance goals established for
such fiscal year), multiplied by (B) a fraction, the numerator of which is the
number of days that Executive was employed during the fiscal year in which the
Termination Date occurs and the denominator

 

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of which is 365. The Company shall thereafter have no further obligations to
Executive under this Agreement.

 

(c) Termination by the Company Without Cause or by Executive for Good Reason. If
Executive’s employment is terminated by the Company without Cause or by
Executive for Good Reason, then, subject to Executive’s continued compliance
with the provisions of Article III, Executive shall be entitled to:

 

(i) a lump sum payment, within 60 days following the beginning of the fiscal
year subsequent to the fiscal year in which the Termination Date occurs, equal
to the product of (A) the Annual Bonus that Executive would have actually earned
in the fiscal year in which the Termination Date occurs (if Executive had
remained employed by the Company and based upon achievement of the performance
goals established for such fiscal year), multiplied by (B) a fraction, the
numerator of which is the number of days that Executive was employed during the
fiscal year in which the Termination Date occurs and the denominator of which is
365;

 

(ii) (A) continued payment of the Base Rate for a period of two years following
the Termination Date (the “Severance Period”), payable in equal monthly
installments, and (B) an amount equal to the product of (I) two times (II) the
Average Bonus (as defined below), payable in equal monthly installments over the
Severance Period; provided that the aggregate amount described in this clause
(ii) shall be reduced by the present value of any other cash severance or
similar termination benefits payable to Executive under any other plans,
programs or arrangements of the Company or its affiliates (other than those
expressly provided in this Article 4.5(c)). For purposes of this Agreement,
Average Bonus shall mean the average of the Annual Bonuses paid to Executive for
the two fiscal years immediately preceding the fiscal year in which the
Termination Date occurs; provided, however, that if the number of completed
fiscal years beginning on and after the Effective Date is (x) at least one but
less than two, the Average Bonus shall be the Annual Bonus, if any, earned with
respect to the first fiscal year of Executive’s employment and (y) less than
one, the Average Bonus shall be the Annual Bonus that Executive would have
actually earned in the fiscal year in which the Termination Date occurs (if
Executive had remained employed by the Company and based upon achievement of the
performance goals established for such fiscal year); provided, further, that
with respect to clauses (x) and (y), if the Annual Bonus in the applicable
fiscal year was prorated, such Annual Bonus shall be multiplied by a fraction,
the numerator of which is 365 and the denominator of which is the number of days
that Executive was employed during the applicable fiscal year;

 

(iii) during the Severance Period, continuation of health insurance coverage as
then in effect for Executive;

 

(iv) continuation of the Dependent Care Coverage until the later of (A) the
expiration of the Severance Period or (B) the expiration of the Term determined
as if such termination had not occurred; and

 

(v) the Accrued Rights.

 

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(d) Expiration of the Term. If the Company elects not to extend the Term
pursuant to Article 1.1, then, subject to Executive’s continued compliance with
the provisions of Article III, Executive shall be entitled to:

 

(i) (A) continued payment of the Base Rate for a period of 12 months following
the Termination Date (the “Non-Renewal Period”), payable in equal monthly
installments, and (B) an amount equal to the product of (I) one times (II) the
Average Bonus, payable in equal monthly installments over the Non-Renewal
Period; provided that the aggregate amount described in this clause (i) shall be
reduced by the present value of any other cash severance or similar termination
benefits payable to Executive under any other plans, programs or arrangements of
the Company or its affiliates (other than those expressly provided in this
Article 4.5(d));

 

(ii) during the Non-Renewal Period, continuation of (A) health insurance
coverage as then in effect for Executive and (B) the Dependent Care Coverage;
and

 

(iii) the Accrued Rights.

 

4.6 Board/Committee Resignation. Upon termination of Executive’s employment for
any reason, Executive agrees to resign, as of the Termination Date and to the
extent applicable, from the Board of Directors (and any committees thereof) and
the board of directors (and any committees thereof) of any of the Company’s
affiliates.

 

ARTICLE V

GENERAL PROVISIONS

 

5.1 Notice. For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand with written acknowledgment of receipt,
or when received by the addressee, if mailed by United States registered mail,
return receipt requested, postage prepaid, or when received by the addressee, if
sent by a national recognized overnight delivery service as follows:

 

If to the Company:

   St. John Knits, Inc.      17622 Armstrong Avenue      Irvine, California
92614      Attn: Chief Financial Officer

With copies to:

   Alvin Brown, Esq.      Simpson Thacher & Bartlett LLP      425 Lexington Ave.
     New York, New York 10017, and      James P. Kelley      Vestar Capital
Partners      Seventeenth Street Plaza      1225 17th Street, Suite 1660     
Denver, Colorado 80202

 

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If to Executive:

   Richard Cohen      c/o St. John Knits, Inc.      17622 Armstrong Avenue     
Irvine, California 92614

With a copy to:

   Christopher Boies, Esq.      Boies, Schiller & Flexner LLP      333 Main
Street      Armonk, New York 10504

 

or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

 

5.2 No Waivers. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Executive and the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.

 

5.3 Beneficial Interests. This Agreement shall inure to the benefit of and be
enforceable by Executive’s personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive’s devisee, legatee, or other designee
or, if there be no such designee, to Executive’s estate.

 

5.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of laws principles thereof.

 

5.5 Severability or Partial Invalidity. The invalidity or unenforceability of
any provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.

 

5.6 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

 

5.7 Legal Fees and Expenses. Should any party institute any action or proceeding
to enforce this Agreement or any provision hereof, or for damages by reason of
any alleged breach of this Agreement or of any provision hereof, or for a
declaration of rights hereunder, the prevailing party in any such action or
proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys’ fees, incurred by the prevailing party
in connection with such action or proceeding. Within 45 days following the

 

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Effective Date, the Company shall pay Executive’s reasonable legal fees and
expenses incurred in connection with the negotiation of this Agreement and the
negotiation and documentation of the Zegna Release and Zegna Severance
Agreement, up to a maximum of $50,000, after presentation of an itemized
statement by Executive’s counsel with reasonable detail supporting such fees and
expenses.

 

5.8 Entire Agreement. This Agreement constitutes the entire agreement of the
parties and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings, and negotiations between the parties with respect to
the subject matter hereof. This Agreement is intended by the parties as the
final expression of their agreement with respect to such terms as are included
in this Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.

 

5.9 Assignment. This Agreement and the rights, duties, and obligations hereunder
may not be assigned or delegated by any party without the prior written consent
of the other party and any attempted assignment or delegation without such prior
written consent shall be void and be of no effect. Notwithstanding the foregoing
provisions of this Section 5.9, the Company may assign or delegate its rights,
duties, and obligations hereunder to any of its affiliates or to any person or
entity which succeeds to all or substantially all of the business of the Company
through merger, consolidation, reorganization, or other business combination or
by acquisition of all or substantially all of the assets of the Company.

 

5.10 Set-Off. The Company’s obligation to pay Executive the amounts provided
hereunder shall be subject to set-off, counterclaim or recoupment of any amounts
loaned or advanced by the Company or any of its affiliates to Executive.

 

5.11 Indemnity. The Company and Executive shall enter into an indemnification
agreement, substantially in the form attached hereto as Exhibit D.

 

5.12 Representations.

 

(a) Executive hereby represents to the Company that the execution and delivery
of this Agreement by Executive and the Company and the performance by Executive
of his duties hereunder shall not constitute a breach of, or otherwise
contravene, the terms of any employment agreement or other agreement or policy
to which Executive is a party or otherwise bound.

 

(b) The Company hereby represents to Executive that (i) the Company is fully
authorized and empowered by action of the Board of Directors to enter into this
Agreement and (ii) the performance of the Company’s obligations under this
Agreement will not violate any agreement between the Company and any other
person, firm or organization.

 

5.13 Withholding. The Company may withhold from any amounts payable under this
Agreement such Federal, state and local taxes as may be required to be withheld
pursuant to any applicable law or regulation.

 

12

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5.14 Arbitration. Except as provided in Article 3.5 of this Agreement, any
controversy arising out of or relating to Executive’s employment, this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
resolved by arbitration before the American Arbitration Association in New York
City, New York. Final resolution of any dispute through arbitration may include
any remedy or relief which the arbitrator deems just and equitable. Any award or
relief granted by the arbitrator hereunder shall be final and binding on the
parties hereto and may be enforced by any court of competent jurisdiction. The
parties agree that they are hereby waiving any rights to trial by jury in any
action, proceeding or counterclaim brought by either of the parties against the
other in connection with any matter whatsoever arising out of or in any way
connected with this Agreement or Executive’s employment.

 

5.15 Survival. The respective rights and obligations of the parties to this
Agreement shall survive any termination of Executive’s employment to the extent
necessary to the intended preservation of such rights and obligations.

 

5.16 No Mitigation. Except as expressly provided in this Agreement, the Company
agrees that any income and other employment benefits received by Executive from
any and all sources other than the Company or any of its affiliates before,
during or after the Term shall in no way reduce or otherwise affect the
Company’s obligation to make payments and afford benefits to Executive as
provided in this Agreement.

 

5.17 Parachute Gross-Up. The Company will provide a gross-up for any excise tax
imposed upon the Executive under Section 4999 of the Internal Revenue Code of
1986, as amended, sufficient to put Executive in the same after-tax position as
if such excise tax were not due. The amount of such gross-up shall be determined
by the Company’s external auditors assuming the highest marginal federal and
applicable state tax rates, and Executive shall be entitled to continuing
indemnification for any additional tax imposed by taxing authorities relating to
such excise tax or gross up.

 

13

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

St. John Knits, Inc.,

a California corporation

By:

       

Name:

     

Richard Cohen

 

14

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EXHIBIT A

 

TIME OPTION AGREEMENT

 

THIS AGREEMENT (the “Agreement”), is made effective as of the          day of
                        , 2004 (hereinafter called the “Grant Date”), between
ST. JOHN KNITS INTERNATIONAL, INCORPORATED, a Delaware corporation (hereinafter
called the “Company”), and Richard Cohen (hereinafter called the “Participant”):

 

R E C I T A L S:

 

WHEREAS, the Company has adopted the Amended and Restated St. John Knits
International, Incorporated 1999 Stock Option Plan (the “Plan”), which Plan is
incorporated herein by reference and made a part of this Agreement. Capitalized
terms not otherwise defined herein shall have the same meanings as in the Plan;

 

WHEREAS, the Committee has determined that it would be in the best interests of
the Company and its stockholders to grant the option provided for herein (the
“Option”) to the Participant pursuant to the Plan and the terms set forth
herein; and

 

WHEREAS, simultaneous with the Company’s grant of this Option to the
Participant, the Participant acknowledges that Participant shall, if the
Participant has not already, become a party to the Management Stockholders’
Agreement between and among St. John Knits, Inc., the Company, Vestar/Gray
Investors LLC, Vestar/SJK Investors LLC (“Vestar”) and all other members of
management of the Company who have received or will receive options to acquire
shares of Common Stock (the “Management Stockholders’ Agreement”).

 

NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth,
the parties agree as follows:

 

1. Grant of the Option. The Company hereby grants to the Participant the right
and option (the “Option”) to purchase, on the terms and conditions hereinafter
set forth, all or any part of an aggregate of 200,000 shares of Common Stock,
subject to adjustment as set forth in the Plan. The per share purchase price of
the shares of Common Stock subject to the Option (the “Exercise Price”) shall be
(a) $30.00 with respect to 50,000 shares, (b) $40.00 with respect to 50,000
shares, (c) $50.00 with respect to 50,000 shares and (d) $60.00 with respect to
50,000 shares (each tranche of shares described in clauses (a) through (d), a
“Tranche”). The Option is intended to be a non-qualified stock option, and is
not intended to be treated as an option that complies with Section 422 of the
Internal Revenue Code of 1986, as amended.

 

2. Vesting. At any time, the percentage of the Option which has become vested
and exercisable as described in this Section 2 is hereinafter referred to as the
“Vested Portion.”

 

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(a) Time Vesting. Subject to paragraphs (b) and (c) of this Section 2, each
Tranche shall vest and become exercisable with respect to twenty percent (20%)
of the shares of Common Stock initially covered by the Tranche on the first
anniversary of the Grant Date and shall vest and become exercisable with respect
to an additional twenty percent (20%) of the shares of Common Stock initially
covered by the Tranche on each subsequent anniversary of the Grant Date, until
the shares subject to the Option are 100% vested.

 

(b) Termination of Employment. If the Participant’s employment with the Company
or any Subsidiary is terminated for any reason, the Option shall, to the extent
not then vested, be canceled by the Company without consideration and the Vested
Portion of the Option shall remain exercisable for the period set forth in
Section 3(a); provided, however, that, in the event of the Participant’s
termination of employment by the Company or any Subsidiary without Cause (other
than as a result of death or Disability) or by the Participant for Good Reason,
the Participant shall be deemed vested in the portion of the Option that
otherwise would have become exercisable on or before the second anniversary of
the Participant’s date of termination. For purposes of this agreement, the date
of the Participant’s termination of employment shall be determined under the
Employment Agreement, dated as of June 3, 2004, by and between the Participant
and St. John Knits, Inc. (or any amendment thereto).

 

(c) Change of Control/Acceleration Events.

 

(i) Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a Partial Acceleration Event (as defined below), Executive shall be
deemed vested in a portion of the Option equal to the excess, if any, of the
Vestar Percentage (as defined below) over the Vested Portion of the Option. For
purposes of this Agreement, (A) a “Partial Acceleration Event” shall mean and
shall be deemed to have taken place in the event (I) Vestar and its Affiliates
(as defined in the Management Stockholders’ Agreement) (collectively, the
“Vestar Entities”), pursuant to one or more than one transaction, other than a
Public Offering (as defined in the Management Stockholders’ Agreement), sell,
exchange or dispose of shares of Common Stock where the percentage of shares
sold, exchanged or disposed of is less than 50% of the shares of Common Stock
held by the Vestar Entities as of June 3, 2004 (the “Vestar Shares”), (II)
Executive receives a Tag Notice (as defined in the Management Stockholders’
Agreement) with respect to any transaction that would otherwise result in a
Partial Acceleration Event described in clause (I) of this Section 2(c)(i), but
only for purposes of participating in such transaction, or (III) any of the
Vestar Entities request that Executive make a drag-along transfer as permitted
by Section 3.6 of the Management Stockholders’ Agreement with respect to any
transaction that would otherwise result in a Partial Acceleration Event
described in clause (I) of this Section 2(c)(i), but only for purposes of
participating in such transaction, and (B) the “Vestar Percentage” shall mean
the percentage of the Vestar Shares sold by the Vestar Entities in connection
with a Partial Acceleration Event.

 

(ii) Notwithstanding any other provisions of this Agreement to the contrary, in
the event of a change of control or an Equity Acceleration Event (as defined
below), the Option shall, to the extent not then vested and not previously
canceled, immediately become fully vested and exercisable. For purposes of this
Agreement, (A) a change of control shall be deemed to occur as determined in the
sole discretion of the Committee and (B) an “Equity Acceleration

 

2

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Event” shall mean and shall be deemed to have taken place in the event (I) the
Vestar Entities, pursuant to one or more than one transaction, other than a
Public Offering, sell, exchange or dispose of 50% or more of the Vestar Shares,
(II) the Company or any of its Subsidiaries sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of the assets of the
Company and its Subsidiaries (determined on a consolidated basis) to any
“person” (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) (other than to the Company and/or any wholly-owned
Subsidiary of the Company), (III) any other transaction involving the Company or
St. John Knits, Inc. occurs and in respect of which the Vestar Entities receive
proceeds in such transaction, directly or indirectly, in respect of the
disposition of 50% or more of the Vestar Shares, (IV) Executive receives a Tag
Notice (as defined in the Management Stockholders’ Agreement) with respect to
any transaction that would otherwise result in a Equity Acceleration Event
described in clauses (I), (II) or (III) of this Section 2(c)(ii), but only for
purposes of participating in such transaction, or (V) any of the Vestar Entities
request that Executive make a drag-along transfer as permitted by Section 3.6 of
the Management Stockholders’ Agreement with respect to any transaction that
would otherwise result in a Equity Acceleration Event described in clauses (I),
(II) or (III) of this Section 2(c)(ii), but only for purposes of participating
in such transaction.

 

3. Exercise of Option.

 

(a) Period of Exercise. Subject to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested Portion of
the Option at any time prior to the earliest to occur of:

 

(i) the tenth anniversary of the Grant Date;

 

(ii) eighteen months following the date of the Participant’s termination of
employment as a result of death or Disability;

 

(iii) three years following the date of the Participant’s termination of
employment by the Company or any Subsidiary without Cause (other than as a
result of death or Disability) or by the Participant for Good Reason; and

 

(iv) the date of the Participant’s termination of employment by the Company or
any Subsidiary for Cause or by the Participant without Good Reason.

 

For purposes of this Agreement:

 

“Cause” shall mean “cause” as defined in any employment agreement entered into
by and between the Participant and the Company or any of its Subsidiaries which
is in effect as of or after the Grant Date (as the same may be amended in
accordance with the terms thereof) or if not defined therein or if there shall
be no such agreement, “Cause” shall mean (i) willful malfeasance or willful
misconduct in connection with the performance of his duties as such, or (ii) the
commission of (a) any felony or (b) a misdemeanor involving moral turpitude;

 

3

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“Disability” shall mean “disability” as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in effect as of or after the Grant Date (as the same may
be amended in accordance with the terms thereof) or if not defined therein or if
there shall be no such agreement, as defined in the Company long-term disability
plan as in effect from time to time, or if there shall be no plan or if not
defined therein, the Participant’s becoming physically or mentally incapacitated
and consequent inability for a period of six (6) months in any twelve (12)
consecutive month period to perform the Participant’s duties to the Company or
any Subsidiary; and

 

“Good Reason” shall mean “good reason” as defined in any employment agreement
entered into by and between the Participant and the Company or any of its
Subsidiaries which is in effect as of or after the Grant Date (as the same may
be amended in accordance with the terms thereof) or if not defined therein or if
there shall be no such agreement, “Good Reason” shall mean: (i) the Company or
any Subsidiary has failed to pay the Participant his salary; (ii) the office
where the Participant performs his duties is moved more than 30 miles from where
the Participant performed the Participant’s duties on the Grant Date; (iii) a
substantial reduction of the Participant’s base salary (other than an across the
board reduction similarly affecting other comparable employees of the Company or
its Subsidiaries) or (iv) a substantial diminution of the Participant’s duties,
which, in each case, has not been remedied within a reasonable time specified by
the Participant that is not less than thirty (30) days after delivery to the
Company of written notice describing the event constituting Good Reason.

 

(b) Method of Exercise.

 

(i) Subject to Section 3(a), the Vested Portion of the Option may be exercised
by delivering to the Company at its principal office written notice of intent to
so exercise; provided that the Option may be exercised with respect to whole
shares of Common Stock only. Such notice shall specify the number of shares of
Common Stock for which the Option is being exercised and the Tranche from which
such shares are to come and shall be accompanied by payment in full of the
Exercise Price with respect to each Tranche. The payment of the Exercise Price
shall be made in cash or, subject to the consent of the Committee, in shares of
Common Stock which have been owned by the Participant for at least six months,
such shares to be valued at their Fair Market Value (as such term is defined in
the Management Stockholders’ Agreement) as of the date of exercise.

 

(ii) Notwithstanding any other provision of the Plan or this Agreement to the
contrary, the Option may not be exercised prior to the completion of any
registration or qualification of the Option or the shares of Common Stock that
is required to comply with applicable state and federal securities or any ruling
or regulation of any governmental body or national securities exchange that the
Committee shall in its sole discretion determine in good faith to be necessary
or advisable.

 

(iii) Upon the Company’s determination that the Option has been validly
exercised as to any of the shares of Common Stock, the Company shall issue
certificates in the

 

4

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Participant’s name for such shares. However, the Company shall not be liable to
the Participant for damages relating to any delays in issuing the certificates
to him, any loss of the certificates, or any mistakes or errors in the issuance
of the certificates or in the certificates themselves.

 

(iv) In the event of the Participant’s death, the Vested Portion of the Option
shall remain exercisable by the Participant’s executor or administrator, or the
person or persons to whom the Participant’s rights under this Agreement shall
pass by will or by the laws of descent and distribution as the case may be, to
the extent set forth in Section 3(a) (any of the foregoing, a “Permitted
Transferee”). Any heir or legatee of the Participant shall take rights herein
granted subject to the terms and conditions hereof. During the Participant’s
lifetime, the Option is exercisable only by the Participant.

 

(v) As a condition to exercising the Option, the Participant shall become a
party to the Management Stockholders’ Agreement.

 

4. No Right to Continued Employment. Neither the Plan nor this Agreement shall
be construed as giving the Participant the right to be retained in the employ
of, or in any consulting relationship to, the Company or any Affiliate. Further,
the Company or an Affiliate may at any time dismiss the Participant or
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.

 

5. Legend on Certificates. To the extent provided by the Management
Stockholders’ Agreement, the certificates representing the shares of Common
Stock purchased by exercise of the Option shall contain a legend stating that
they are subject to the Management Stockholders’ Agreement and may 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 are listed, and any applicable Federal or state laws, and the Committee
may cause an additional legend or legends to be put on any such certificates to
make appropriate reference to such other restrictions.

 

6. Transferability. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than to a Permitted Transferee, 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 of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance. No such permitted transfer of
the Option to a Permitted Transferee shall be effective to bind the Company
unless the Committee shall have been furnished with written notice thereof and a
copy of such evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the Permitted Transferee or
Transferees of the terms and conditions hereof.

 

7. Withholding. A Participant shall be required to pay to the Company or any
Affiliate, and the Company shall have the right and is hereby authorized to
withhold, any applicable minimum withholding taxes in respect of an Option, its
exercise or any payment or

 

5

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transfer under an Option or under the Plan and to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for the
payment of such minimum withholding taxes.

 

8. Securities Laws; Representations.

 

(a) Upon the acquisition of any shares of Common Stock pursuant to the exercise
of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.

 

(b) Participant represents and warrants that Participant, either alone or with a
representative advisor, has sufficient knowledge and experience in financial and
business matters that Participant is capable of evaluating the merits and risks
of this Option grant and, in the event such Option is exercised, the ownership
of such shares of Common Stock.

 

9. Notices. Any notice necessary under this Agreement shall be addressed to the
Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.

 

10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.

 

11. Option Subject to Plan and Management Stockholders’ Agreement. By entering
into this Agreement the Participant agrees and acknowledges that the Participant
has received and read a copy of the Plan and the Management Stockholders’
Agreement. The Option is subject to the Plan and the Management Stockholders’
Agreement. The terms and provisions of the Plan and the Management Stockholders’
Agreement as they may be amended from time to time in accordance with their
respective terms are hereby incorporated herein by reference. In the event of a
conflict between any term or provision contained herein and a term or provision
of the Plan or the Management Stockholders’ Agreement, the applicable terms and
provisions of this Agreement will govern and prevail. In the event of a conflict
between any term or provision of the Plan and any term or provision of the
Management Stockholders’ Agreement, the applicable terms and provisions of the
Management Stockholders’ Agreement will govern and prevail.

 

12. Signature in Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.

 

6

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement.

 

ST. JOHN KNITS INTERNATIONAL,

INCORPORATED

By:

   

Title:

   

 

Agreed and acknowledged as of the date

first above written:

  

Richard Cohen

 

7

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EXHIBIT B

 

FORM OF SUBSCRIPTION AGREEMENT

 

SUBSCRIPTION AGREEMENT, dated as of                         , 2004 (this
“Agreement”), between St. John Knits International, Incorporated, a Delaware
corporation (the “Parent”), and Richard Cohen (the “Stockholder”).

 

WHEREAS, the Stockholder desires to acquire from the Parent, and the Parent
desires to issue and sell to the Stockholder, 1,667 shares of common stock, par
value $.01 per share, of the Parent (“Common Stock”);

 

WHEREAS, entering into this Agreement is a condition to the sale to the
Stockholder of the Common Stock in order that the Stockholder become a party to
a Management Stockholders’ Agreement setting forth certain rights and
restrictions with respect to the shares of Common Stock acquired pursuant
hereto;

 

NOW, THEREFORE, in order to implement the foregoing and in consideration of the
mutual representations, warranties, covenants and agreements contained herein,
the parties hereto agree as follows:

 

1. Purchase of Common Stock.

 

1.1. Purchase of Common Stock; Agreement to be Bound.

 

(a) Pursuant to the terms and subject to the conditions set forth herein, the
Stockholder hereby purchases and the Parent hereby issues and delivers to the
Stockholder 1,667 shares of Common Stock, at a price per share of $30.00 (the
“Purchase Price”).

 

(b) By signing this Agreement, (i) the Stockholder hereby agrees to be bound in
all respects by the terms of the Management Stockholders’ Agreement, as amended,
attached hereto as Exhibit A (the “Stockholders’ Agreement”) to the same extent
as if the Stockholder were exercising an option to purchase Common Stock on the
date hereof pursuant to an Option Agreement (as defined in the Stockholders’
Agreement) and (ii) the Parent hereby agrees that the Stockholder will have all
rights and be subject to the obligations of a “Management Investor” to the same
extent as if the Stockholder were exercising an option to purchase Common Stock
on the date hereof pursuant to an Option Agreement, except in each case as
modified by this Agreement. The Parent and the Stockholder hereby agree that,
for purposes of the Stockholders’ Agreement, (i) “Lapse Date” shall mean the
later of (x) the fifth anniversary of the Closing Date and (y) the consummation
of a Public Offering and (ii) “Closing Date” shall mean
                        , 2004.

 

1.2. Representations and Warranties of the Parent. The Parent represents and
warrants to the Stockholder as follows:

 

(a) The Parent is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to execute and deliver this Agreement and the Stockholders’
Agreement and to perform its obligations hereunder and thereunder. The
execution, delivery and performance by the Parent of

 

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this Agreement and the Stockholders’ Agreement has been duly authorized by all
necessary corporate and legal action by the Parent, and no other corporate
proceeding by the Parent is necessary for the execution, delivery and
performance by the Parent of this Agreement or the Stockholders’ Agreement. This
Agreement and the Stockholders’ Agreement have been duly executed and delivered
by the Parent and, assuming they are duly executed and delivered by the
Stockholder, constitute valid and binding obligations of the Parent, enforceable
against the Parent in accordance with their terms.

 

(b) The Common Stock to be issued to the Stockholder pursuant to this Agreement,
when issued and delivered in accordance with the terms hereof, will be duly and
validly issued and, upon receipt by the Parent of the Purchase Price therefor,
will be fully paid and nonassessable with no personal liability attached to the
ownership thereof and will not be subject to any preemptive rights under the
Delaware General Corporation Law.

 

(c) The execution, delivery and performance by the Parent of this Agreement and
the Stockholders’ Agreement will not (i) conflict with the certificate of
incorporation or by-laws of the Parent or any of its subsidiaries or (ii) result
in any breach of any terms or conditions of, or constitute a default under, any
contract, agreement or instrument to which the Parent or any of its subsidiaries
is a party or by which the Parent or any of its subsidiaries is bound or (iii)
conflict with or violate any law, rule, regulation, ordinance, writ, injunction,
judgment or decree applicable to the Parent or any of its subsidiaries or by
which any of their assets may be bound or affected.

 

(d) Exhibit B hereto sets forth the number of issued and outstanding shares of
each class of Parent’s capital stock as of June 3, 2004, including all shares
issuable upon conversion or exercise of any outstanding or issuable option or
other convertible security.

 

(e) Between February 1, 2004 and June 3, 2004, there had not occurred any
material adverse change to the business, properties or assets, results of
operations or consolidated financial position of Parent.

 

2. Representations, Warranties and Covenants of the Stockholder.

 

2.1. Residence and Competency; Power; Enforceability; Noncontravention. The
Stockholder is competent to and has sufficient capacity to execute and deliver
this Agreement and the Stockholders’ Agreement and to perform his obligations
hereunder and thereunder. This Agreement and the Stockholders’ Agreement have
been duly executed and delivered by the Stockholder.

 

Assuming the due execution and delivery of this Agreement and the Stockholders’
Agreement by the Parent, this Agreement and the Stockholders’ Agreement
constitute valid and binding obligations of the Stockholder, enforceable against
the Stockholder in accordance with their terms.

 

The execution, delivery and performance of this Agreement and the Stockholders’
Agreement by the Stockholder will not (i) conflict with or violate any law,
rule, regulation, ordinance, writ, injunction, judgment or decree applicable to
the Stockholder or by which any of his assets may be bound or affected or (ii)
result in any breach of any terms or conditions of, or

 

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constitute a default under, any contract, agreement or instrument to which the
Stockholder is a party or by which the Stockholder is bound.

 

2.2. Investment Intention; No Resales. The Stockholder hereby represents and
warrants that he is acquiring the Common Stock for investment solely for his own
account and not with a view to, or for resale in connection with, the
distribution or other disposition thereof. The Stockholder agrees and
acknowledges that he will not, directly or indirectly, offer, transfer, sell,
assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock,
or solicit any offers to purchase or otherwise acquire or pledge any shares of
Common Stock, unless such offer, transfer, sale, assignment, pledge,
hypothecation or other disposition complies with the provisions hereof and of
the Stockholders’ Agreement.

 

2.3. Common Stock Unregistered. The Stockholder acknowledges and represents that
he has been advised by the Parent that:

 

(a) the offer and sale of the Common Stock have not been and will not be
registered under the Securities Act;

 

(b) the Common Stock must be held indefinitely and the Stockholder must continue
to bear the economic risk of the investment in the Common Stock unless the offer
and sale of such Common Stock is subsequently registered under the Securities
Act and all applicable state securities laws or an exemption from such
registration is available;

 

(c) there is no established market for the Common Stock and it is not
anticipated that there will be any public market for the Common Stock in the
foreseeable future;

 

(d) Rule 144 promulgated under the Securities Act is not presently available
with respect to the sale of any securities of the Parent, and, except as may be
set forth in the Stockholders’ Agreement, the Parent has made no covenant to
make such Rule available;

 

(e) when and if shares of Common Stock may be disposed of without registration
under the Securities Act in reliance on Rule 144, such disposition can be made
only in limited amounts in accordance with the terms and conditions of such
Rule;

 

(f) if the Rule 144 exemption is not available, public offer or sale of Common
Stock without registration will require compliance with some other exemption
under the Securities Act;

 

(g) if any shares of Common Stock are at any time disposed of in accordance with
Rule 144, the Stockholder will deliver to the Parent at or prior to the time of
such disposition an executed Form 144 (if required by Rule 144) and such other
documentation as the Parent may reasonably require in connection with such sale;

 

(h) a restrictive legend in the form set forth in the Stockholders’ Agreement
shall be placed on the certificates representing Common Stock; and

 

(i) a notation shall be made in the appropriate records of the Parent indicating
that the Common Stock is subject to restrictions on transfer and, if the Parent
should at some

 

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time in the future engage the services of a securities transfer agent,
appropriate stop-transfer instructions will be issued to such transfer agent
with respect to the Common Stock.

 

2.4. Additional Investment Representations. The Stockholder represents and
warrants that:

 

(a) the Stockholder’s financial situation is such that he can afford to bear the
economic risk of holding the Common Stock for an indefinite period of time, has
adequate means for providing for his current needs and personal contingencies,
and can afford to suffer a complete loss of his investment in the Common Stock;

 

(b) the Stockholder’s knowledge and experience in financial and business matters
are such that he is capable of evaluating the merits and risks of the investment
in the Common Stock, as contemplated by this Agreement;

 

(c) the Stockholder understands that the Common Stock is a speculative
investment which involves a high degree of risk of loss of his investment
therein, there are substantial restrictions on the transferability of the Common
Stock and, on the date hereof and for an indefinite period following the date
hereof, there will be no public market for the Common Stock and, accordingly, it
may not be possible for the Stockholder to liquidate his investment in case of
emergency, if at all;

 

(d) the Stockholder understands that the terms of the Stockholders’ Agreement
provide that in the event that the Stockholder ceases to be an employee of St.
John’s Knits, Inc., a California corporation (the “Company”), the Parent, the
Company, Vestar (as defined in the Stockholders’ Agreement) and their designated
affiliates have the right to repurchase the Common Stock at a price which may,
in certain circumstances, be less than the fair market value of such stock;

 

(e) the Stockholder understands and has taken cognizance of all the risk factors
related to the purchase of Common Stock; and, other than as set forth in this
Agreement and the Employment Agreement dated as of June 3, 2004 between St. John
Knits, Inc. and the Stockholder, no representations or warranties have been made
to the Stockholder or his representatives concerning the Common Stock or the
Parent, its subsidiaries or their prospects or other matters;

 

(f) in making his decision to purchase the Common Stock hereby subscribed for,
the Stockholder has relied upon independent investigations made by him and, to
the extent believed by the Stockholder to be appropriate, his representatives,
including his own professional, financial, tax and other advisors;

 

(g) the Stockholder has been given the opportunity to examine all documents and
to ask questions of, and to receive answers from, the Parent and its
representatives concerning the Parent and its subsidiaries and the terms and
conditions of the purchase of the Common Stock and to obtain any additional
information, in each case as the Stockholder or his representatives deems
necessary; and

 

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(h) all information which the Stockholder has provided to the Parent and its
representatives concerning the Stockholder and his financial position is
complete and correct as of the date of this Agreement.

 

3. Miscellaneous.

 

3.1. Binding Effect. The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.

 

3.2. Amendment; Waiver. This Agreement may be amended only by a written
instrument signed by the parties hereto. No waiver by either party hereto of any
of the provisions hereof shall be effective unless set forth in a writing
executed by the party so waiving.

 

3.3. Governing Law. This Agreement shall be governed by and construed in all
respects under the laws of the State of Delaware. Any action to enforce which
arises out of or in any way relates to any of the provisions of this Agreement
may be brought and prosecuted in such court or courts located within the State
of Delaware as provided by law; and the parties consent to the jurisdiction of
such court or courts located within the State of Delaware and to service of
process by registered mail, return receipt requested, or by any other manner
provided by Delaware law.

 

3.4. Integration. This Agreement and the documents referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises, representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.

 

3.5. Counterparts. This Agreement may be executed in two or more counterparts,
and by different parties on separate counterparts, each of which shall be deemed
an original, but all of which shall constitute one and the same instrument.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

ST. JOHN KNITS INTERNATIONAL,

INCORPORATED

By:    

Name:

   

Title:

   

 

RICHARD COHEN    

 

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Exhibit A

Management Stockholders’ Agreement

 

See attached.

 

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EXHIBIT C

 

PERQUISITES

 

(1) Car Allowance. The Company shall pay to Executive a car allowance in a gross
amount of $2,269 per month for car payments and $2,000 per year for car
insurance.

 

(2) Clothing Allowance. The Company shall pay to Executive a clothing allowance
of $10,000 per year.

 

(3) Relocation Expenses.

 

(a) The Company shall reimburse Executive for all reasonable and customary costs
and expenses incurred by Executive that are associated with (i) the physical
move of Executive’s family and belongings to Southern California (e.g.,
transportation, packing, storing and unpacking of household goods), (ii) the
sale of Executive’s home in Pound Ridge, New York (the “Pound Ridge Home”) and
Executive’s purchase of a primary residence in Southern California (e.g.,
brokers’ commissions, taxes, legal fees, inspection, appraisal and survey
charges, title search and insurance charges, and closing costs), and (iii) up to
three trips to Southern California for house hunting and the review of schooling
options (e.g., air fare, hotel, car rental, meals). The Company shall reimburse
such costs and expenses promptly following Executive’s submission of written
documentation satisfactory to the Company evidencing that Executive has incurred
such costs and expenses.

 

(b) Following the Effective Date, the Company shall pay to Executive on a
monthly basis a housing allowance of up to $15,000 in order to allow Executive
to (I) rent appropriate housing in Southern California or (II) if Executive has
purchased a primary residence in Southern California but has not sold the Pound
Ridge Home, pay any duplicative costs or expenses related to owning both homes
(the “Housing Allowance”); provided, however, that such Housing Allowance shall
terminate upon the earlier to occur of (i) the first anniversary of the
Effective Date and (ii) Executive’s purchase of a primary residence in Southern
California and sale of the Pound Ridge Home. The Company shall pay such Housing
Allowance to Executive promptly following the end of any relevant month, subject
to Executive’s submission of written documentation satisfactory to the Company
evidencing that Executive has incurred such expenses. In addition, the Company
shall pay to Executive a gross up for all applicable federal, state and local
income taxes payable by the Executive in connection with the payment by the
Company to Executive of any portion of the Housing Allowance that is not
deductible by Executive.

 

(c) Unless prohibited by law, following the Effective Date and prior to
Executive’s sale of the Pound Ridge Home, if requested by Executive, the Company
shall loan Executive up to $500,000 to apply towards Executive’s purchase of a
primary residence in Southern California; provided that such loan shall be made
at the lowest interest rate at which the Company could make the loan without
Executive recognizing interest income. The amount of such loan shall become due
and payable by Executive to the Company within 10 days following the sale of the
Pound Ridge Home.

 

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EXHIBIT D

 

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (this “Agreement”) is made as the      day of
                    , 2004, among St. John Knits, Inc., a California corporation
(“St. John”), St. John Knits International, Incorporated, a Delaware corporation
(“SJKI”) and Richard Cohen (“Indemnitee”).

 

BACKGROUND FACTS

 

The Indemnitee currently is serving as a director and/or officer of St. John
and/or of SJKI, and the Company (which term as used herein shall refer to,
jointly and severally, St. John and SJKI) wishes the Indemnitee to continue in
such capacity. In order to induce the Indemnitee to continue to serve as a
director and/or officer for St. John and SJKI and in consideration of
Indemnitee’s continued service, St. John and SJKI and the Indemnitee hereby
agree as follows:

 

SECTION 1: DEFINITIONS

 

As used in this Agreement:

 

1.1 Proceeding. The term “Proceeding” includes any threatened, pending or
completed action, suit or proceeding, any appeal therefrom and any inquiry or
investigation, whether conducted by the Company or otherwise, that the
Indemnitee in good faith believes might lead to the institution of any such
action, suit or proceeding, whether brought by or in the right of the Company to
procure a judgment in its favor or brought by any third party or otherwise and
whether civil, criminal, administrative or investigative, in which the
Indemnitee is or may be or may have been involved as a party or otherwise by
reason of any action taken by Indemnitee or of any inaction on Indemnitee’s part
while acting as a director or officer of the Company, or while acting at the
request of the Company as a director, officer, employee, partner, trustee or
agent of any other corporation, partnership, joint venture, trust or other
enterprise (as defined in Section 1.3, below), regardless of whether Indemnitee
is acting or serving in any such capacity at the time any Expenses (as defined
in Section 1.2, below) are incurred for which indemnification may be provided
under this Agreement.

 

1.2 Expenses. The term “Expenses” includes expenses actually and reasonably
incurred by or on behalf of the Indemnitee in connection with any Proceeding,
including amounts paid in settlement by or on behalf of the Indemnitee,
attorneys’ fees and disbursements, and any expenses actually and reasonably
incurred by or on behalf of the Indemnitee in connection with establishing a
right to indemnification under this Agreement, but shall not include (i) any
judgments and fines and similar penalties against the Indemnitee or (ii) any
expenses, amounts paid in settlement, attorneys’ fees or disbursements,
judgments, fines and similar penalties or any other costs whatsoever incurred in
connection with any Proceeding insofar as such Proceeding is based on a
violation by the Indemnitee of Section 16 of the Securities Exchange Act of
1934, as amended.

 

1.3 Other Terms. The term “other enterprise” includes employee benefit plans;
the term “fines” includes any excise tax assessed with respect to any employee
benefit plan; the term “serving at the request of the Company” includes any
service as a director, officer, employee or agent of the Company or any of its
subsidiaries that imposes duties on, or involves

 

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services by such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner such person reasonably believed to be in the
interests of the participants and beneficiaries of any employee benefit plan
shall be deemed to have acted in a manner “reasonably believed to be in the best
interests” of the Company or any of its subsidiaries as such term is used in
this Agreement.

 

SECTION 2: GENERAL RIGHT TO INDEMNIFICATION

 

The Company shall indemnify the Indemnitee against Expenses, judgments and fines
and other amounts actually and reasonably incurred in connection with any
Proceedings to the full extent permitted by the laws of the State of Delaware or
California, as the case may be, as from time to time in effect. Without limiting
the generality of the foregoing, the Company shall also indemnify the Indemnitee
in accordance with the provisions set forth below.

 

SECTION 3: PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE COMPANY

 

If the Indemnitee was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company to procure a
judgment in its favor), the Company shall indemnify Indemnitee against all
Expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such Proceeding if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the best
interests of the Company and, in the case of a criminal proceeding, had no
reasonable cause to believe Indemnitee’s conduct was unlawful. The termination
of any Proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a presumption
that the Indemnitee did not act in good faith and in a manner the Indemnitee
reasonably believed to be in the best interests of the Company or that the
Indemnitee had reasonable cause to believe that Indemnitee’s conduct was
unlawful.

 

SECTION 4: PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY

 

If the Indemnitee was or is a party or is threatened to be made a party to any
Proceeding by or in the right of the Company to procure a judgment in its favor,
the Company shall indemnify Indemnitee against all Expenses relating to the
Proceeding if Indemnitee acted in good faith in a manner Indemnitee reasonably
believed to be in the best interests of the Company and its shareholders;
however, no indemnification shall be made with respect to any claim, issue or
matter as to which Indemnitee shall have been adjudged to be liable to the
Company in the performance of Indemnitee’s duty to the Company and its
shareholders unless the court in which such Proceeding is or was pending shall
determine upon application that in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for Expenses, and then
only to the extent that the court shall determine. In addition, with respect to
the directors and officers of St. John, no indemnification shall be made (i)
with respect to amounts paid in settling or otherwise disposing of a pending
action without court approval and (ii) with respect to Expenses incurred in
defending a pending action which is settled or otherwise disposed of without
court approval, in each case, as required by California law.

 

2

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SECTION 5: INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY

 

Notwithstanding the other provisions of this Agreement, to the extent that
Indemnitee has been successful on the merits in defense of any Proceeding or of
any claim, issue or matter forming part of any Proceeding, Indemnitee shall be
indemnified against Expenses actually and reasonably incurred by Indemnitee in
connection therewith.

 

SECTION 6: ADVERSE DETERMINATION

 

Any indemnification under Sections 3 and 4 hereof shall be paid by the Company
in accordance with Section 8 unless (i) a determination is made that
indemnification is not proper because the Indemnitee has not met the applicable
standard of conduct set forth in Sections 3 and 4, such determination being made
no later than the end of the sixty-day period set forth in Section 8.2 or (ii)
with respect to indemnification under Section 4, the Indemnitee shall have been
adjudged to be liable to the Company, and the court in which such Proceeding is
or was pending has determined upon application that, in view of all the
circumstances of the case, the Indemnitee is not entitled to indemnity. For
purposes of a determination described in subsection (i) of this Section 6, (x)
with respect to the directors and officers of St. John, such determination may
be made by any of the following: (a) a majority vote of a quorum consisting of
directors who are not parties to such Proceeding, (b) if such a quorum of
directors is not obtainable, by independent legal counsel in a written opinion,
(c) approval of the shareholders with the shares owned by the Indemnitee not
being entitled to vote thereon or (d) the court in which such Proceeding is or
was pending, if such is the case, upon application made by the Company or the
Indemnitee or the attorney or other person rendering services in connection with
the defense, whether or not such application by the Indemnitee, attorney or
other person is opposed by the company and (y) with respect to the directors and
officers of SJKI, such a determination shall be made (a) by a majority vote of
the directors who are not parties to such Proceeding, even though less than a
quorum, (b) by a committee of such directors designated by majority vote of such
directors, even though less than a quorum, (c) if there are no such directors,
or if such directors so direct, by independent legal counsel in a written
opinion or (d) by the stockholders.

 

SECTION 7: RELIANCE ON BOOKS, RECORDS AND OTHER INFORMATION

 

The Indemnitee shall be deemed to have acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe Indemnitee’s conduct was unlawful, if
Indemnitee’s action is or was based on the records or books of account of the
Company or of any other enterprise with respect to which the Indemnitee may be
affected by a Proceeding, including financial statements, or on information
supplied to Indemnitee by officers of the Company or of any such other
enterprise in the course of their duties, or on the advice of legal counsel for
the Company or for any such other enterprise or on information or records given
or reports made to the Company or to any such other enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Company or by such other enterprise. The provisions of
this Section shall not be deemed exclusive or to limit in any way the other
circumstances in which the Indemnitee may be deemed to have met any applicable
standard of conduct.

 

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SECTION 8: PROCEDURE FOR INDEMNIFICATION

 

8.1 Advances. Expenses to which an Indemnitee is entitled to indemnity under
Sections 2, 3 and 4 shall be paid by the Company in advance of any final
disposition of the Proceeding upon receipt by the Company of written
documentation of the Indemnitee’s obligation to pay such Expenses. Indemnitee
hereby undertakes to repay all amounts so advanced if it shall be determined
ultimately that the Indemnitee is not entitled to be indemnified pursuant to
this Agreement.

 

8.2 Payment Within 60 Days. After the final disposition of any Proceeding, the
Indemnitee may send to the Company a written request for indemnification,
accompanied by written documentation of the Indemnitee’s obligation to pay the
Expenses, judgments and fines and similar penalties for which indemnification is
requested. No later than 60 days following receipt by the Company of such
request, the Company shall pay the Expenses, judgments and fines and similar
penalties or reimburse the Indemnitee therefor (as the case may be) unless,
during such 60-day period (i) the Company determines that the indemnification
request is not permitted by the laws of the State of Delaware or California in
effect as the case may be, or (ii) with respect to indemnification under
Sections 3 and 4, the adverse determination described in Section 6 is made.

 

8.3 Actions to Enforce This Agreement. In any action by the Indemnitee to
enforce this Agreement, the Company shall bear the burden of proving that any
applicable standard of conduct has not been met by the Indemnitee. Neither the
failure of the Company to have made the determination required pursuant to
Section 6, nor any determination made pursuant to Section 6 create a presumption
that the Indemnitee has or has not met any applicable standard of conduct.

 

SECTION 9: OTHER RIGHTS

 

The rights of the Indemnitee under this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may be entitled under any law (common or
statutory), provision of the Company’s Articles of Incorporation or Bylaws (or
comparable organizational documents), vote of shareholders or Board of Directors
of the Company or otherwise, both as to action in Indemnitee’s official capacity
and as to act in another capacity while holding such office or while employed by
or acting as agent for the Company in any capacity.

 

SECTION 10: NOTICE TO THE COMPANY; DEFENSE OF PROCEEDING

 

10.1 Notice. The Indemnitee shall, as a condition precedent to Indemnitee’s
right to indemnification hereunder, provide prompt written notice to the Company
of any Proceeding in connection with which Indemnitee may assert a right to be
indemnified under this Agreement. Such notice shall be deemed to have been
provided if mailed by domestic certified mail, postage prepaid, to St. John
Knits, Inc., 17422 Derian Avenue, Irvine, California 92713 (or to such other
address as the Company may specify in writing to the Indemnitee). Indemnitee
shall give the Company such information and cooperation as it may reasonably
require.

 

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10.2 Defense of Proceeding. With respect to any Proceeding:

 

(i) the Company shall be entitled to participate in the Proceeding at its own
expense; and

 

(ii) except as otherwise provided below, the Company shall be entitled to assume
the defense of such Proceeding to the extent that it may wish. After notice from
the Company to the Indemnitee of such assumption, the Company shall not be
liable to the Indemnitee under this Agreement for any Expenses subsequently
incurred by Indemnitee in connection with such defense. The Indemnitee shall
have the right to employ separate counsel in the Proceeding, but the fees and
expenses of such counsel incurred after such assumption shall be at the expense
of the Indemnitee, unless (a) such employment has been authorized in writing by
the Company, or (b) the Indemnitee shall have reasonably concluded that there
may be a conflict of interest between the Company and the Indemnitee in the
conduct of the defense of the Proceeding.

 

The Company shall not be required to indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding effected without
its prior written consent. If the Indemnitee does not promptly offer to settle a
Proceeding on a basis that the Board of Directors has approved, the Company
shall not be liable to pay any Expenses incurred thereafter in connection with
that Proceeding.

 

SECTION 11: EXCEPTIONS

 

Any other provision herein to the contrary notwithstanding:

 

11.1 Claims Initiated by Indemnitee. The Company shall not be obligated to
indemnify or advance Expenses to Indemnitee with respect to Proceedings
initiated or brought voluntarily by Indemnitee and not by way of defense, except
with respect to Proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 317 of the California Corporation Law or Section 145 of
the Delaware General Corporation Law, but such indemnification or advancement of
Expenses may be provided by the Company in specific cases if the Board of
Directors has approved the initiation or bringing of such Proceeding.

 

11.2 Lack of Good Faith. The Company shall not be obligated to indemnify
Indemnitee for any Expenses incurred by the Indemnitee with respect to any
Proceeding instituted by Indemnitee to enforce or interpret this Agreement if a
court of competent jurisdiction determines that each of the material assertions
made by the Indemnitee in such Proceeding was not made in good faith or was
frivolous.

 

SECTION 12: MISCELLANEOUS

 

12.1 Amendments. This Agreement may be amended only by means of a writing signed
by both the Company and the Indemnitee.

 

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12.2 Retroactive Effect. This Agreement covers all Proceedings that either now
have been or later may be commenced, including any Proceeding relating to any
past act or omission of the Indemnitee that has not yet resulted in commencement
or threat of a Proceeding.

 

12.3 Savings Clause. Each provision of this Agreement is a separate and distinct
agreement, independent of all other provisions. If this Agreement or any such
provision shall be deemed invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired in any way, and the Company shall nevertheless indemnify
the Indemnitee as to Expenses, judgments and fines and similar penalties with
respect to any Proceeding to the full extent permitted by any applicable portion
of this Agreement that shall not have been invalidated and to the full extent
permitted by applicable law. In the event of any whole or partial invalidation,
illegality or unenforceability of this Agreement, there shall be added
automatically to this Agreement a provision or provisions as similar to such
invalid, illegal or unenforceable provision, both in terms and effect, as may be
possible and be valid, legal and enforceable.

 

12.4 Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in
certain instances, federal law or applicable public policy may prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake to the Securities and Exchange Commission
to submit the question of indemnification to a court in certain circumstances
for a determination of the Company’s right under public policy to indemnify
Indemnitee.

 

12.5 Successors and Assigns. This Agreement shall be binding on, and inure to
the benefit of, the successors and assigns of the Company, whether by operation
of law or otherwise, and the estate, heirs and personal representatives of the
Indemnitee.

 

12.6 Governing Law. This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of this State of California,
except as to matters involving the obligation of SJKI or any other corporation
incorporated in Delaware, where it shall be governed in all respects by the laws
of the State of Delaware.

 

12.7 Merger Clause. Except for St. John’s Articles of Incorporation and Bylaws
and SJKI’s Certificate of Incorporation and Bylaws, this Agreement constitutes
the entire understanding of the parties and supersedes all prior understandings
and agreements, written or oral, between the parties with respect to the subject
matter of this Agreement.

 

12.8 No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent that the Indemnitee has otherwise received payment
(under any insurance policy, Bylaw, or otherwise) of the amounts otherwise
indemnifiable hereunder.

 

12.9 Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all papers required and shall do
everything that may be necessary or appropriate to enable the Company
effectively to bring suit to enforce such rights.

 

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12.10 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

ST. JOHN KNITS, INC., a California corporation By:    

 

ST. JOHN KNITS INTERNATIONAL,

INCORPORATED, a Delaware corporation

By:    

 

INDEMNITEE By:    

 

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