Exhibit 10.2

 

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made as of August 3, 2003, among
Tommy Hilfiger Corporation, a British Virgin Islands corporation (together with
its successors and assigns, “THC”), Tommy Hilfiger U.S.A., Inc. (together with
its successors and assigns, “THUSA”), a wholly owned subsidiary of THC, and
David F. Dyer (“Executive”).

 

1. Employment. THUSA agrees to employ Executive hereunder, and Executive accepts
such employment, for the period beginning as of August 3, 2003 (the “Effective
Date”) and ending as set forth in Section 1(d) hereof (the “Employment Period”).

 

(a) Position and Duties.

 

(i) During the Employment Period, Executive shall serve as the Chief Executive
Officer of THUSA, with the customary duties, responsibilities and authority of
the Chief Executive Officer, including, without limitation, control of all
aspects of the daily operations of THUSA. In addition, Executive shall be
appointed to the Board of Directors of THUSA and shall continue to serve thereon
throughout the Employment Period. Furthermore, Executive shall serve as the
President of THUSA, with the customary duties, responsibilities and authority of
the President. Notwithstanding the foregoing, THUSA may reassign the titles,
position, duties, responsibilities and authority of President during the
Employment Period, in connection with its succession planning; provided that
Executive as the Chief Executive Officer of THUSA continues to be in charge of
the overall management of such entity, including the day-to-day affairs of such
entity, and the President reports to Executive as Chief Executive Officer; and
provided, further, that Executive consents to the individual selected as
President.

 

(ii) Executive shall be appointed to the Board of Directors of THC (the “THC
Board”) effective as of the Effective Date. It is the intention of the parties
that thereafter, subject to the vote of the shareholders of THC, Executive shall
be elected to and serve as a member of the THC Board during the Employment
Period. Executive shall also serve as the Chief Executive Officer of THC, with
the duties, responsibilities, and authority set forth in the Articles of
Association of THC. In addition, Executive shall serve as the President of THC;
provided that the THC Board may appoint a different individual as President of
THC during the Employment Period, in connection with THC’s succession planning;
provided, further, that Executive as the Chief Executive Officer of THC
continues to be the most senior executive officer of THC, and the President
reports to Executive as Chief Executive Officer; and provided, further, that
Executive consents to the individual selected as President.

 

(iii) Executive shall report to the THC Board and Executive shall devote
substantially all his business time and attention to the business and affairs of
THC and its subsidiaries. Anything herein to the contrary notwithstanding,
nothing shall preclude Executive from (A) serving on the boards of directors of
a reasonable number of other corporations (as disclosed to and approved by the
THC Board) or the boards of a reasonable number of trade associations and/or
charitable organizations, (B) continuing to serve on the boards on which he
serves as of the Effective Date as set forth in Exhibit A hereto, (C) engaging
in charitable activities and community affairs, and (D) managing his personal
investments and affairs,

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provided that such activities do not materially interfere with the proper
performance of his duties and responsibilities under this Agreement.

 

(b) Salary, Bonus and Benefits.

 

(i) On the Effective Date, THUSA shall pay Executive a cash signing bonus of
$1,000,000 (the “Signing Bonus”). If there is a Separation (as defined below) as
a result of a termination of Executive’s employment by the Company for Cause (as
defined below) or Executive’s resignation without Good Reason (as defined below)
before the first anniversary of the Effective Date, then Executive shall be
obligated to repay to THUSA promptly, but in any event within 30 days, after the
Date of Termination (as defined below), an amount (the “Repayment Amount”) equal
to (A) $1,000,000 times a fraction, the numerator of which is the number of days
from the Date of Termination through the first anniversary of the Effective
Date, and the denominator of which is 365 (the “Pro-Rata Amount”), less (B)
Executive’s net tax cost of having received the portion of the Signing Bonus
equal to the Pro-Rata Amount, after taking into account a reasonable estimate of
any tax benefit to Executive as a result of repaying the Pro-Rata Amount. In
addition, Executive shall pay THUSA, promptly after completing his tax filings
for the applicable taxable year, the amount of any additional tax benefit that
he realizes as a result of repaying the Pro-Rata Amount that was not taken into
account in the estimate made for purposes of the preceding sentence, so that
after taking into account all such payments by Executive to THUSA, Executive is
in the same net after-tax position he would have been in, had he not received
the Pro-Rata Amount from the Company.

 

(ii) During the Employment Period, THUSA shall pay Executive base salary at an
annualized rate of at least $1,250,000, subject to any increase as determined by
the THC Board from time to time. Each payment of such base salary is referred to
as “Base Salary,” and the annualized rate thereof, as in effect from time to
time hereunder, is referred to as the “Annual Base Salary Rate.” In connection
with the annual salary review/adjustment process for corporate employees of
THUSA generally, the Annual Base Salary Rate shall be increased as of October 1,
2004, and each October 1 thereafter during the Employment Period, by a
percentage at least equal to the average percentage salary increase for all
corporate employees of THUSA made as a result of that annual salary
review/adjustment process. The Annual Base Salary Rate (including any increase
thereof) shall not be decreased during the Employment Period. The Base Salary
shall be payable in accordance with THUSA’s regular payroll practices but, in
any event, no less frequently than monthly.

 

(iii) For each fiscal year of THUSA ending during the Employment Period,
Executive shall be eligible to earn an annual cash bonus (the “Annual Bonus”)
payable by THUSA, on the terms and conditions set forth below. Any Annual Bonus
that becomes due hereunder shall be paid when other bonuses are paid to Senior
Executives (as defined below), but in any event not later than 90 days after the
end of the applicable fiscal year.

 

(A) The Annual Bonus shall be payable only (1) if the minimum net revenue goal
set forth in clause (B) below (the “Minimum Net Revenue Goal”) is met, and (2)
actual Income Before Taxes for a fiscal year is at least 85% of the Budgeted
Amount. If these conditions are met, the amount of the Annual Bonus shall be
based upon actual Net Revenue and actual Income Before Taxes for that fiscal
year, as compared to the

 

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Budgeted Amount of Net Revenue and the Budgeted Amount of Income Before Taxes
(as those terms are defined below) for that fiscal year, and computed as set
forth in clauses (B) through (F) below, based upon the amount of the Base Salary
actually earned by Executive for that fiscal year or the portion thereof during
which he is employed hereunder (the “Earned Base Salary” for the fiscal year).
For these purposes: (i) “Income Before Taxes” for a fiscal year shall mean the
income before taxes of THC and its consolidated subsidiaries for that fiscal
year, as reported in THC’s audited financial statements, provided that there
shall be excluded from the calculation of Income Before Taxes (x) except to the
extent reflected in the Budgeted Amount of Income Before Taxes for that fiscal
year, the cumulative effect of changes in accounting principles, and charges for
impairment of goodwill and other intangible assets that were reflected in such
audited financial statements as of the Effective Date, (y) the effect of
acquisitions and divestitures that were not contemplated in the Budgeted Amount
of Net Income Before Taxes for that fiscal year, and (z) the effect of items
specifically identified on the face of THC’s audited income statement as
“special items” that were not contemplated in the Budgeted Amount of Net Income
Before Taxes for that fiscal year (including any benefits resulting from such
special items); (ii) the “Net Revenue” means the net revenue of THC and its
consolidated subsidiaries for that fiscal year, as reported in THC’s audited
financial statements; and (iii) the “Budgeted Amount” of Income Before Taxes or
of Net Revenue for a fiscal year shall mean the budgeted amount of Income Before
Taxes or of Net Revenue, as applicable, for that fiscal year (calculated on a
basis consistent with the calculations used for THC’s audited financial
statements), as approved by the THC Board (after consultation with Executive)
before the beginning of the fiscal year, subject to amendment by the THC Board
(after consultation with Executive) within the period of 90 days after the
beginning of the fiscal year.

 

(B) For the fiscal years ended March 31, 2004, and March 31, 2005: (i) the
“Minimum Net Revenue Goal” for a fiscal year shall be met only if the Net
Revenue for that fiscal year is at least equal to 90% of the Budgeted Amount of
Net Revenue for that fiscal year; (ii) if the Net Revenue for a fiscal year is
equal to 90% or more, but less than 95%, of the Budgeted Amount of Net Revenue
for that fiscal year, the “Net Revenue Achievement Factor” for that fiscal year
shall equal 50%; and (iii) if the Net Revenue for a fiscal year is equal to 95%
or more of the Budgeted Amount of Net Revenue for that fiscal year, the “Net
Revenue Achievement Factor” shall equal 100%. For the fiscal years ended March
31, 2006, and thereafter: (i) the Minimum Net Revenue Goal for a fiscal year
shall be met only if the Net Revenue for that fiscal year is at least equal to
95% of the Budgeted Amount of Net Revenue for that fiscal year; and (ii) the
“Net Revenue Achievement Factor” shall equal 100%.

 

(C) If the Minimum Net Revenue Goal for a fiscal year is met, and actual Income
Before Taxes for that fiscal year equals the Budgeted Amount of Income Before
Taxes for that fiscal year, the amount of the Annual Bonus shall be (I) 100% of
the Earned Base Salary for the applicable fiscal year, times (II) the Net
Revenue Achievement Factor.

 

(D) If the Minimum Net Revenue Goal for a fiscal year is met, and actual Income
Before Taxes for that fiscal year exceeds the Budgeted Amount of Income Before

 

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Taxes for that fiscal year, the amount of the Annual Bonus shall equal (I) a
percentage of the Earned Base Salary for that fiscal year, equal to (x) 100%
plus (y) 5% for each 1% of Income Before Taxes in excess of the Budgeted Amount
of Income Before Taxes, up to a maximum of 200% of Earned Base Salary, times
(II) the Net Revenue Achievement Factor.

 

(E) If the Minimum Net Revenue Goal for a fiscal year is met, and actual Income
Before Taxes for that fiscal year is less than the Budgeted Amount of Income
Before Taxes for that fiscal year, but not less than 85% of the Budgeted Amount
of Income Before Taxes, the amount of the Annual Bonus for that fiscal year
shall equal (I) the percentage of the Earned Base Salary for that fiscal year
based on the table below, times (II) the Net Revenue Achievement Factor:

 

Actual Income Before Taxes as a

percentage of Budgeted Amount

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   Percentage
of Earned
Base Salary

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At least 95% but less than 100%

   75%

At least 90% but less than 95%

   50%

At least 85% but less than 90%

   25%

 

(F) Notwithstanding the foregoing: (x) for purposes of the Annual Bonus for the
fiscal year ended March 31, 2004, the Annual Bonus shall be based on the Income
Before Taxes and Net Revenue for the fiscal period from July 1, 2003, through
March 31, 2004, the Budgeted Amount of Income Before Taxes and the Budgeted
Amount of Net Revenue shall be the amount of Income Before Taxes and Net
Revenue, respectively, for the fiscal period from July 1, 2003, through March
31, 2004 as shown on THC’s “Re-estimate #5”; provided that the amount of the
Annual Bonus for the fiscal year ended March 31, 2004, shall not be less than
$250,000; and (y) Executive’s entitlement to receive an Annual Bonus as set
forth in this Section 1(b)(iii) for the fiscal years ended March 31, 2005, or
thereafter shall be subject to THC’s obtaining shareholder approval, in a manner
satisfying the requirements of Section 162(m)(4)(C) of the Internal Revenue Code
of 1986, as amended (the “Code”), of a plan providing for payment of the Annual
Bonus. THC agrees to seek such approval at its next annual meeting of
shareholders, and to negotiate promptly in good faith with Executive to agree
upon an alternative arrangement reasonably satisfactory to Executive, if such
approval is not obtained.

 

(iv) Effective as of the Effective Date, THC shall grant Executive an option
(the “Initial Option”) to purchase 500,000 of its ordinary shares under the
Tommy Hilfiger Corporation 2001 Stock Incentive Plan (the “2001 Plan”).
Effective as of each of April 1, 2004, and April 1, 2005, THC shall grant
Executive additional options (the “Additional Options” and, together with the
Initial Option, the “Options”) to purchase 500,000 of its ordinary shares under
the 2001 Plan or a successor equity plan of THC, subject to the following
conditions: (1) that Executive remains employed hereunder on the applicable
grant date; (2) that THC has sufficient shares available for such grant under a
shareholder-approved plan; and (3) that if, before the grant of one or both of
the Additional Options, there occurs an event that results in an adjustment

 

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to options generally pursuant to the third paragraph of Section 3 of the 2001
Plan or the corresponding provision of any successor equity plan of THC, the
foregoing requirements for the Additional Options that have not yet been granted
(including without limitation the number of shares subject thereto) shall be
adjusted accordingly. THC agrees to seek any necessary shareholder approval to
ensure that sufficient shares are so available to satisfy the condition set
forth in clause (2) of the preceding sentence, and if such approval is not
obtained, to negotiate in good faith with Executive to agree upon an alternative
arrangement reasonably satisfactory to Executive. The exercise price for each of
the Options shall be equal to the fair market value of the underlying shares on
the applicable date of grant, determined in accordance with the applicable plan.
Each Option shall have a term of ten years from its date of grant, and shall
vest as to one-third of the covered shares on each of the first three
anniversaries of its date of grant, subject to Executive’s employment on that
anniversary except as otherwise provided herein. In no event shall the Options
be subject to forfeiture pursuant to Section 11 of the 2001 Plan (or any similar
provision in any successor plan), and in the event of any inconsistency between
this sentence and Section 11 of the 2001 Plan (or any such similar provision in
any successor plan) regarding forfeiture, this sentence shall prevail.

 

(v) During the Employment Period, Executive shall be entitled to participate in
all employee pension and welfare benefit plans and programs made available to
the Senior Executives (as defined below) or to employees of THUSA generally, on
a basis no less favorable than the basis provided to the Senior Executives, as
such plans or programs may be in effect from time to time, including, without
limitation, pension, profit sharing, savings and other retirement plans or
programs, medical, dental, hospitalization, short-term and long-term disability
and life insurance plans, accidental death and dismemberment protection, travel
accident insurance, and any other pension or retirement plans or programs and
any other employee welfare benefit plans or programs that may be sponsored by
THC or any of its affiliates from time to time, including plans that supplement
the above-listed types of plans or programs, whether funded or unfunded. THUSA
shall take all steps necessary so that, notwithstanding the current provisions
of the Tommy Hilfiger U.S.A., Inc. Supplemental Executive Retirement Plan (the
“SERP”), Executive shall be fully vested in his Accrued Benefit (as defined in
the SERP) upon his completion of three years of service (with service beginning
to accrue as of the Effective Date). For purposes of this Agreement, the “Senior
Executives” means the other senior executives of THC and THUSA, other than Tommy
Hilfiger and Joel Horowitz.

 

(vi) During the Employment Period, Executive shall participate in all other
benefits and perquisites available to the Senior Executives at levels, and on
terms and conditions, that are commensurate with his positions and
responsibilities hereunder, and shall receive such additional benefits and
perquisites as the THC Board may, at its sole discretion, from time to time
provide; provided that in lieu of a car provided by THUSA, THUSA shall provide
Executive with car service for business and personal use in New York, and for
business use elsewhere. Executive shall be entitled to four weeks’ vacation
annually during the Employment Period.

 

(vii) During the Employment Period, THUSA shall provide Executive with the use
of private aircraft in commuting between Florida and New York.

 

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(viii) During the Employment Period, Executive shall be eligible to participate
in option grants and any other long-term incentive plans of THC and its
affiliates, as in effect from time to time, in which the Senior Executives are
eligible to participate, on a basis no less favorable than the Senior
Executives; provided that Executive shall not be entitled to receive any option
grants until after the fiscal year ended March 31, 2006.

 

(c) Relocation. THUSA shall reimburse Executive, upon presentation of
appropriate documentation, for all reasonable expenses that he incurs in
connection with his relocation from Wisconsin to New York to commence employment
under this Agreement, including without limitation (i) reasonable temporary
living expenses in the New York City area for up to six months after the
Commencement Date (including, without limitation, lodging, meals and travel
expenses); (ii) reasonable expenses incurred in connection with moving household
goods and automobiles; and (iii) reasonable storage costs for household goods
for up to 12 months; provided that Executive shall discuss the nature and extent
of such expenses with the Chairman of THC before he incurs them. In addition, if
there is a Separation as a result of the termination of Executive’s employment
by THUSA without Cause or by Executive with Good Reason, THUSA shall reimburse
Executive, upon presentation of appropriate documentation, for all reasonable
expenses that he may incur in connection with moving his household goods and
automobiles from New York to Florida. With respect to each reimbursement made to
Executive pursuant to this Section 1(c) that is taxable to Executive for which
Executive is not entitled to claim a corresponding tax deduction (a “Taxable
Payment”), THUSA shall also pay Executive an additional amount such that, after
payment of all Federal, state, local and, if applicable, foreign taxes on the
additional amount and on the Taxable Payment, Executive retains an amount equal
to such Taxable Payment.

 

(d) Separations and Other Terminations.

 

(i) Except as hereinafter provided in this Section 1(d)(i), the Employment
Period shall continue until, and shall end upon, March 31, 2007; provided that
the Employment Period shall be automatically extended for successive additional
one-year periods unless written notice of intent not to renew (a “Notice of
Non-Renewal”) is delivered by THUSA to Executive or by Executive to THUSA at
least six months prior to the end of the Employment Period as in effect at the
time the Notice of Non-Renewal is given; and provided, further, that upon a
Change of Control (as defined below) at a time when the remaining Employment
Period is less than two years, the Employment Period shall automatically be
extended through the second anniversary of the date of the Change of Control.
Notwithstanding the foregoing, the Employment Period shall end early upon
Executive’s death, Disability (as defined below) or resignation in writing or at
such time as the THC Board determines to cause THUSA to terminate Executive’s
employment (a “Separation”). A Separation as a result of a resignation by
Executive without Good Reason or a termination of Executive’s employment by
THUSA without Cause shall be effective upon written notice by Executive to
THUSA, or by THUSA to Executive, as applicable; provided that any such
termination by THUSA must be approved by the THC Board. Executive agrees that he
will resign from the THC Board, and from the boards of directors of any
affiliates of THC of which he may be a member, upon the Date of Termination (as
defined below). Neither a voluntary resignation by Executive nor the giving of a
Notice of Non-Renewal by Executive shall be deemed to be a breach of this
Agreement by Executive, and neither a termination of Executive’s employment by
THUSA nor the giving of a Notice of Non-Renewal by THUSA

 

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shall be deemed to be a breach of this Agreement by THC or THUSA. The
termination of Executive’s employment upon or following the end of the
Employment Period as a result of a Notice of Non-Renewal shall not be deemed to
be a “Separation.” The date on which any termination of Executive’s employment
is effective is referred to as the “Date of Termination.” A termination of
Executive’s employment without Good Reason during the 30-day period immediately
following the first anniversary of a Change of Control, which Change of Control
occurs during the Employment Period, is referred to as a “Window Period
Termination” (but shall also be considered a termination by Executive without
Good Reason).

 

(ii) If there is a Separation as a result of the termination of Executive’s
employment by THUSA for Cause or by Executive without Good Reason, or if
Executive’s employment terminates upon the expiration of the Employment Period
as a result of a Notice of Non-Renewal, Executive shall be entitled to (A) Base
Salary through the Date of Termination, (B) any Annual Bonus to which Executive
is entitled for a fiscal year ended on or before the Date of Termination that
has not yet been paid, (C) the balance of any amounts or benefits under Sections
1(b)(v), l(b)(vi), 1(c), 11(a) and 11(m) hereof which he would otherwise be
entitled to receive as of the Date of Termination, but which have not
theretofore been paid or provided, (D) payment with respect to unused vacation
time in accordance with THUSA’s policy and (E) all other rights and benefits in
which Executive is vested or entitled to under the plans, agreements or policies
of THC or any of its affiliates, including without limitation the 2001 Plan as
applicable, or by law as of the Date of Termination. In addition, if there is a
Separation as a result of the termination of Executive’s employment by THUSA for
Cause, the Options shall immediately terminate, notwithstanding any other
provision of this Agreement. Further, if there is a Separation as a result of
the termination of Executive’s employment by Executive without Good Reason, the
Options, to the extent vested as of the Date of Termination, shall remain
exercisable for three months (or such longer period as may apply as a result of
the occurrence of a Change of Control on or before the Date of Termination) and
then terminate, notwithstanding any other provision of this Agreement. Finally,
if Executive’s employment terminates upon the expiration of the Employment
Period as a result of a Notice of Non-Renewal, (A) the Options shall be treated
in accordance with the applicable plan(s) and/or grant agreements and (B) if
Executive is less than age 65 as of the Date of Termination, Executive and his
spouse may continue to participate in THUSA’s or any of its affiliates’ Senior
Executive Medical Plan, as such may be in effect at the time, at Executive’s
sole cost and expense, until the earlier of Executive’s becoming eligible to
receive such benefits from a new employer or under Medicare, or his death.

 

(iii) If there is a Separation as a result of Executive’s death, then: (A) the
Options shall vest in full as of the date of death, and shall remain exercisable
for one year after the date of death or, if shorter, the balance of their
respective ten-year terms; (B) his estate or beneficiaries (as the case may be)
shall be entitled to (1) the payments and benefits described in the first
sentence of Section 1(d)(ii) hereof and (2) a lump-sum payment equal to the
Annual Bonus (if any) payable for the fiscal year in which the Date of
Termination occurs, calculated based on the Earned Base Salary through the Date
of Termination and the Net Revenue and Income Before Taxes for the entire fiscal
year, and payable following the end of that fiscal year, all in accordance with
Section (1)(b)(iii) (a “Pro-Rata Bonus”); and (C) Executive’s eligible
dependents shall be entitled to participate for one year in the medical plans of
THUSA to the extent, and on the same terms and conditions as, such dependents
were participating in such

 

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plans as of Executive’s death, with continuation coverage thereafter to be
provided to the extent required by the continuation coverage requirements of
Section 601 et seq. of the Employee Retirement Income Security Act of 1974, as
amended, and Section 4980B of the Code (“COBRA”).

 

(iv) “Disability” shall mean Executive’s disability within the meaning of the
long-term disability benefit plan of THC and its affiliates in which he
participates, which shall provide him with benefits not less favorable than
those that would be available to the Senior Executives upon their disability. If
there is a Separation as a result of Executive’s Disability, then in addition to
any benefits provided to Executive under such long-term disability plan: (A) the
Options shall vest in full as of the Date of Termination, and shall remain
exercisable for one year after the Date of Termination (or longer to the extent
provided in the applicable plan, if Executive dies during this one-year period)
or, if shorter, the balance of their respective ten-year terms; (B) Executive
shall be entitled to the payments and benefits described in the first sentence
of Section 1(d)(ii) hereof and to a Pro-Rata Bonus; and (C) Executive and his
eligible dependents shall be entitled to participate for one year in the medical
plans of THUSA to the extent, and on the same terms and conditions as, Executive
and such dependents were participating in such plans as of the Date of
Termination, with benefits thereafter to the extent required by COBRA; provided
that if Executive is less than age 65 at the end of the one-year continuation
period provided for in this clause (C), Executive and his spouse may continue to
participate in THUSA’s or any of its affiliates’ Senior Executive Medical Plan,
as such may be in effect at the time, at Executive’s sole cost and expense,
until the earlier of Executive’s becoming eligible to receive such benefits from
a new employer or under Medicare, or his death.

 

(v) If there is a Separation as a result of the termination of Executive’s
employment by THUSA without Cause or by Executive with Good Reason or in a
Window Period Termination:

 

(A) Executive shall be entitled to the payments and benefits described in the
first sentence of Section 1(d)(ii) above;

 

(B) Executive shall be entitled to the payments and benefits described in
Section 1(d)(vi) below, and THUSA shall pay Executive an amount (the “Severance
Payment”) equal to (I) the Multiple (as defined below) times (II) the sum of the
then-applicable Annual Base Salary Rate (before any reduction that resulted in a
resignation with Good Reason) and an amount in respect of the Annual Bonus equal
to 100% of the then-applicable Annual Base Salary Rate. In the case of such a
Separation that occurs either (1) during the period of 24 months immediately
following a Change of Control or (2) before a Change of Control that
subsequently occurs, if it is reasonably demonstrated by Executive that such
termination of employment (x) was at the request of a third party that had taken
steps reasonably calculated to effect such Change of Control or (y) otherwise
arose in connection with or in anticipation of such Change of Control (each, a
“Change of Control Separation”), the “Multiple” shall be three, and the
Severance Payment shall be made in a single lump sum payment within five days
after the Date of Termination. In the case of a Window Period Termination, the
“Multiple” shall be one, and the Severance Payment shall be made in a single
lump sum payment within five days after the Date of Termination. In all other
cases, the Multiple shall be two, and the

 

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Severance Payment shall be paid as salary continuation over 24 months after the
Date of Termination, in accordance with the normal payroll cycle of THUSA, but
in no case less frequently than monthly. In any event, the term “Salary
Continuation Period” as used in Section 1(d)(vi) below shall mean the period of
a number of years (with one year meaning for this purpose a period of 12 months)
equal to the applicable Multiple, beginning immediately following the
Separation. Notwithstanding the foregoing, THUSA shall have no obligation
following the date of such breach to make or continue to make, as applicable,
the Severance Payment if Executive commits, following the Date of Termination,
any willful, material breach of any of the covenants set forth in Section 2 and
Sections 4 through 7.

 

(vi) In addition to the other benefits set forth in this Section 1(d), if there
is a Separation as a result of the termination of Executive’s employment by
THUSA without Cause or by Executive with Good Reason or in a Window Period
Termination, then Executive shall be entitled to the following:

 

(A) Until the end of the Salary Continuation Period, or until such sooner time
as Executive becomes eligible to receive such benefits from a new employer or
under Medicare, Executive and his spouse may participate, at the same cost and
expense as other similarly situated Senior Executives, in THUSA’s or any of its
affiliates’ Senior Executive Medical Plan and life insurance benefit plan, as
such may be in effect from time to time, with benefits comparable to benefits
provided to the Senior Executives; provided that if Executive is less than age
65 at the end of the Salary Continuation Period, Executive and his spouse may
continue to participate in such Senior Executive Medical Plan, as such may be in
effect at the time, at Executive’s sole cost and expense, until the earlier of
Executive’s becoming eligible to receive such benefits from a new employer or
under Medicare, or his death; and

 

(B) The Options shall immediately vest as of the Date of Termination, and shall
remain exercisable during that one-year period (or longer to the extent provided
in the applicable plan, if Executive dies during this one-year period) or, if
shorter, the balance of their respective ten-year terms; provided that if there
has been a Change of Control before the Date of Termination, the more favorable
provisions required by Section 1(e) below shall control; and

 

(C) a Pro-Rata Bonus.

 

(vii) For purposes hereof, “Cause” means:

 

(1) Executive is convicted of or enters a plea of nolo contendere to a felony,
or a majority of the independent members of the THC Board determines in good
faith, based on reliable and substantial evidence, that Executive has committed
a felony;

 

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(2) Executive commits any willful breach of any of the covenants set forth in
Section 2 and Sections 4 through 6 below, provided that such breach has
resulted, or the THC Board determines in good faith in writing that such breach
is likely to result, in material harm to THC or any of its affiliates;

 

(3) Any of the representations by Executive set forth in Section 8 below shall
not have been true as of the Effective Date (determined as if the phrase “to the
best of his knowledge” did not appear in Section 8), provided that such failure
to have been true results in material harm to THC or any of its affiliates;

 

(4) Executive’s willful failure or refusal to perform any of his material duties
or responsibilities under this Agreement, or to carry out reasonable lawful
directions from the THC Board or from the THUSA Board with the concurrence of
the THC Board in writing; provided that THUSA has given Executive notice of such
failure or refusal and the steps to be taken to cure such failure or refusal,
and Executive has failed to take reasonable steps to cure such failure or
refusal within ten days after receiving such notice;

 

(5) Executive engages in conduct that constitutes, theft, misappropriation of
funds, embezzlement, material dishonesty or deliberate fraud (other than any
violation of law committed in good faith by Executive and in a manner he
reasonably believed to be in or not opposed to the best interests of THC and its
affiliates and with respect to which he had no reasonable cause to believe his
conduct was unlawful at the time the action was taken); provided that in any
such case, the THC Board determines in good faith in writing that such conduct
or violation has resulted, or is likely to result, in material harm to THC or
any of its affiliates; or

 

(6) Executive commits willful gross neglect of, or willful gross misconduct in
carrying out, his duties under this Agreement.

 

An action or failure to act by Executive shall not be considered “willful” for
these purposes if Executive believed in good faith that his action or failure to
act was in, or not opposed to, the best interests of THC and its affiliates. A
termination for Cause shall be effective on the date specified in a written
notice to Executive by THUSA (as approved by a majority of the THC Board other
than Executive), but not before Executive has been given written notice
describing in detail the grounds on which the proposed termination is based and
a reasonable opportunity to be heard, with his counsel, at a meeting of the THC
Board. If THUSA terminates Executive’s employment in a purported termination for
Cause, but it is subsequently determined by an arbitrator that the termination
was not for Cause, the termination shall be considered to have been without
Cause. A requirement that the THC Board do anything hereunder “in writing” shall
be satisfied by a resolution or minutes of the THC Board (without limitation).

 

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(viii) For purposes hereof, “Good Reason” means the occurrence of any of the
following events without the written consent of Executive:

 

(1) A material diminution of or other adverse change in Executive’s position,
title, authority, office, duties or responsibilities (including reporting
relationships), except as specifically contemplated by Sections 1(a)(i) and (ii)
above, or the assignment to him of duties or responsibilities that are
inconsistent in any substantial respect with, or that substantially and
continuously interfere with his exercise of, the authority, duties and
responsibilities associated with the positions that he holds pursuant to
Sections 1(a)(i) and (ii) above;

 

(2) The appointment of another individual as President of THUSA or of THC
without the consent of Executive to such individual as required by Section
1(a)(i) or Section 1(a)(ii) above, as applicable;

 

(3) A reduction of the Annual Base Salary Rate or the target bonus opportunity
as set forth in Section 1(b)(iii) above;

 

(4) A failure of the shareholders of THC to elect or re-elect Executive to the
THC Board during the Employment Period, unless he is re-appointed to the THC
Board within 60 days after the relevant election takes place;

 

(5) Following a failure of the shareholders of THC or the THC Board to approve
the plan required by either Section 1(b)(iii)(F) or Section 1(b)(iv) above,
either (x) THC fails to negotiate promptly and in good faith with Executive as
required by such applicable Section, or (y) THC does so negotiate but fails to
offer Executive an economically equivalent alternative, reasonably acceptable to
Executive, to the bonus or Options, as applicable, that cannot be provided as a
result of the failure of the shareholders of THC to approve such plan;

 

(6) The failure of THC or THUSA to obtain the assumption of this Agreement by
any successor as contemplated by Section 11(e) below;

 

(7) Any of the representations by THC or THUSA set forth in Section 11(k) below
shall not have been true as of the Effective Date, provided that such breach has
resulted, or is reasonably likely to result, in material harm to Executive; or

 

(8) Any other material breach by THC or THUSA of this Agreement.

 

A termination of employment by Executive with Good Reason shall be effective on
the date specified in a written notice to THUSA by Executive, but not before (x)
Executive

 

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has given written notice to THUSA of his intention to terminate his employment
with Good Reason, such notice to describe in detail the grounds on which the
proposed termination is based, and (y) THUSA and THC have failed to cure such
grounds within thirty days after the date that such written notice has been
given to THUSA. For purposes of this Agreement, either party’s giving a Notice
of Non-Renewal shall not constitute “Good Reason.”

 

(e) Change of Control. Notwithstanding any other provision of this Agreement, if
a Change of Control (as defined below) occurs after the grant of any Option or
any other stock option to Executive but before the Date of Termination, such
option shall vest in full (to the extent not previously vested), and shall
remain exercisable for the balance of its original term, notwithstanding any
subsequent termination of Executive’s employment, except that in the case of a
subsequent termination by THUSA for Cause or by Executive without Good Reason
(other than a Window Period Termination), the Options shall be governed in
accordance with such termination hereunder and the other stock options shall be
governed in accordance with such termination under the applicable plan and award
agreement. For purposes hereof, a “Change of Control” shall mean:

 

(i) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (x)
the then-outstanding ordinary shares of THC (the “Outstanding Company Ordinary
Shares”) or (y) the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors (the
“Outstanding Voting Securities”) of THC (the “Outstanding Company Voting
Securities”); provided that, for purposes of this Section 1(e), the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from THC; (B) any acquisition by THC; and (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by THC or any
of its affiliates;

 

(ii) Individuals who, as of the day after the Effective Date, constitute the THC
Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the THC Board; provided that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
THC’s shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the THC Board;

 

(iii) Consummation of a merger or consolidation involving THC or a sale or other
disposition of all or substantially all of the assets of THC (each, a “Business
Combination”), in each case unless, following such Business Combination, all or
substantially all of the individuals and entities that were the beneficial
owners of the Outstanding Company Ordinary Shares immediately prior to such
Business Combination beneficially own, directly or indirectly, either (A) more
than 50% of the Outstanding

 

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Company Voting Securities immediately following the consummation of the Business
Combination or (B) in the event the Business Combination results in another
corporation (“New Parent Corporation”) owning THC or all or substantially all of
THC’s assets either directly or through one or more subsidiaries, more than 50%
of the Outstanding Voting Securities of the New Parent Corporation;

 

(iv) Approval by the shareholders of THC of a complete liquidation or
dissolution of THC; or

 

(v) The sale or other disposition by THC of a majority of the outstanding common
stock and Outstanding Voting Securities of THUSA, or by THUSA of all or
substantially all of its assets, in either case to an unrelated party.

 

(f) No Mitigation; No Offset. In the event of any termination of Executive’s
employment, Executive shall be under no obligation to seek other employment and
there shall be no offset against amounts due Executive under this Agreement on
account of any remuneration attributable to any subsequent employment that he
may obtain. Any rights that Executive has with respect to the Options shall not
be subject to offset on account of any claims that THC or any of its affiliates
may have against Executive.

 

(g) Nature of Payments. Any amounts due under Section 1(d) hereof are in the
nature of severance payments considered to be reasonable by THC and THUSA and
are not in the nature of a penalty, and are intended as liquidated damages for
THUSA’s termination of Executive’s employment without Cause or the action
constituting Good Reason, and shall be the sole remedy therefor.

 

2. Inventions and Other Intellectual Property. Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, trademarks, slogans, product or other designs, business
plans, logos, advertising or marketing programs, and all similar or related
information which relate to THUSA’s or any of its affiliates’ business, research
and development being conducted or products or services being sold or under
development, at the time Executive’s employment terminates, and which are
conceived, developed or made by Executive, whether alone or jointly with others,
while employed hereunder (“Work Product”) belong to THC and THUSA. Executive
shall promptly disclose such Work Product to THUSA and perform, at THUSA’s sole
expense, all actions reasonably requested by THUSA (whether during or after the
Employment Period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments). In
addition, THUSA shall reimburse Executive for any reasonable fees and expenses
of his counsel to review any documentation required pursuant to this Section 2.

 

3. Limitation. Section 2 of this Agreement regarding the ownership of inventions
and other intellectual property does not apply to the extent application thereof
is prohibited by any law the benefits of which cannot be waived by Executive.
Executive hereby waives the benefits of any such law to the maximum extent
permitted by law.

 

4. Confidential Information. Executive acknowledges that the information,
observations and data obtained by him during the course of his employment
hereunder

 

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concerning the business and affairs of THC and its affiliates, including without
limitation information concerning acquisition opportunities in or reasonably
related to the business or industry of THC and its affiliates, of which
Executive becomes aware during his employment hereunder are the property of THC
and its affiliates. Therefore, during and following the Employment Period, other
than in the course of performing his duties for THC or any of its affiliates
(including pursuant to Section 6 hereof), Executive agrees that he will not
intentionally disclose to any unauthorized person or use for his own account any
of such information, observations or data without the THC Board’s written
consent, unless and to the extent that (x) he is required to do so by law or by
a court, governmental agency, legislative body, or other person (including any
committee of any such agency, body or other entity) with apparent jurisdiction
to order him to divulge, disclose or make accessible such information, (y) it is
necessary to enforce his rights under this Agreement or any other agreement with
THC or any of its affiliates or (z) the aforementioned matters become generally
known to and available for use by the public or within the relevant trade or
industry other than as a result of Executive’s violation of this Section 4;
provided that before disclosing any such information, observations and data in
reliance on clause (x), Executive shall give notice to THUSA as far in advance
of the required disclosure as is lawful and practicable, shall use his best
efforts to cooperate with THC and THUSA, at their sole expense, in their efforts
to prevent such disclosure from being compelled, and shall use his best efforts
to limit his disclosure to the minimum compelled by law or court order, except
to the extent THC or THUSA agrees otherwise in writing. Executive agrees to
deliver to THC at a Separation or any other termination of his employment, or at
any other time as THC may reasonably request in writing, all memoranda, notes,
plans, records, reports and other documents (and copies thereof) relating to the
business of THC and its affiliates (including, without limitation, all
acquisition prospects, lists and contact information) which he may then possess
or have under his control; provided that Executive may retain for his personal
use (and not for any use in violation of this Section 4 or Section 5 hereof) his
personal papers and other materials of a personal nature, including diaries,
calendars and Rolodexes, any information he reasonably believes may be necessary
for tax purposes, any information showing his compensation or relating to
reimbursement of expenses and copies of plans, programs and agreements relating
to his employment or the termination thereof.

 

5. Non-Compete, Non-Solicitation.

 

(a) Executive acknowledges that in the course of his employment hereunder, he
will become familiar with trade secrets and customer lists of and other
confidential information concerning THC and its affiliates and may become
familiar with trade secrets of predecessors of THC and its affiliates, and that
his services will be of special, unique and extraordinary value to THC and
THUSA.

 

(b) Executive agrees that during the Employment Period, and for a period of two
years following any Separation or other termination of his employment hereunder
other than a Change of Control Separation, he shall not directly or indirectly,
through any person, firm or corporation, alone or as a member of a partnership
or as an officer, director, stockholder, investor, employee or consultant of or
in any other corporation or enterprise or otherwise, engage or be engaged in, or
assist any other person, firm, corporation or enterprise in engaging or being
engaged in, the wholesale distribution, licensing or outlet retailing of better
designer apparel (consisting of men’s and women’s sportswear, jeanswear and/or
children’s wear), accessories,

 

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footwear, fragrance and/or home furnishings in any geographic area in which THC
or any of its affiliates is actively conducting such business both during the
Employment Period and at the time Executive engages in such conduct (a
“Competitive Business”). In addition, Executive, THC and THUSA agree that if
during the Employment Period THC or any of its affiliates acquires or
establishes a business that is not a Competitive Business (as defined above),
the parties shall agree prior to such acquisition or establishment on a
reasonable and appropriate description of that business as a “Competitive
Business” (provided that the time period otherwise applicable for this
non-compete shall be a one-year period following Executive’s Separation or other
termination of his employment hereunder). Anything herein to the contrary
notwithstanding, Executive shall not be deemed to be in violation of this
Section 5(b) if he provides services to (i) a subsidiary, division or affiliate
of a Competitive Business if such subsidiary, division or affiliate is not
itself engaged in a Competitive Business and Executive does not provide, and
continues not to provide, services or assistance to, and does not have, and
continues not to have, any responsibilities regarding, the Competitive Business
or (ii) a private equity investment or consulting business that has investments
in, or clients which are involved in, a Competitive Business, so long as
Executive does not provide, and continues not to provide, services or assistance
to, and does not have, and continues not to have, any responsibilities
regarding, such Competitive Business.

 

(c) Executive further agrees that during the Employment Period, and for a period
of two years following any Separation or other termination of his employment
hereunder, he shall not directly or indirectly solicit any Covered Employee (as
defined below) to quit or abandon his or her employ with THC or such affiliate,
for any purpose whatsoever. Anything herein to the contrary notwithstanding,
upon the request of any employee of THC or its affiliates, Executive may provide
personal references for such employee, including for employment with another
entity with which Executive is not affiliated. For these purposes, a “Covered
Employee” means (1) until the expiration of 180 days following a Separation or
other termination of Executive’s employment, any employee of THC or of any of
its affiliates, and (2) thereafter, any such employee with the title of vice
president or above. THC and THUSA each acknowledges that its employees may join
entities with which Executive is affiliated and that such event shall not
constitute a violation of this Section 5(c) if Executive was not involved in
soliciting such employee or directly or indirectly in hiring such employee or
identifying such employee as a potential recruit.

 

(d) Nothing in this Section 5 shall prohibit Executive from being: (i) a
stockholder in a mutual fund or a diversified investment company or (ii) a
passive owner of not more than two percent of the outstanding stock of any class
of a corporation, so long as Executive has no active participation in the
business of such corporation.

 

(e) To the extent permitted by law, if, at the time of enforcement of this
Section 5, a court or arbitrator holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court or arbitrator shall be allowed to revised the restrictions contained
herein to cover the maximum period, scope and area permitted by law; provided
that in no event shall such period, scope or area be broader than as set forth
in this Section 5.

 

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6. Cooperation. During and following the Employment Period, Executive shall
cooperate with THC and its affiliates in connection with any litigation or
governmental or regulatory investigation or proceeding, against or involving THC
or any of its affiliates, whether administrative, civil or criminal in nature,
in which and to the extent THC or such affiliate reasonably deems Executive’s
cooperation necessary; provided that following the Employment Period, such
cooperation shall only be required with respect to matters relating to his
responsibilities for THC or THUSA (or any of their affiliates) or of which
Executive has knowledge, and shall be subject to his other personal and business
commitments. Executive shall be reimbursed by THUSA for his reasonable expenses,
including without limitation travel and attorneys’ fees if Executive reasonably
determines that separate representation is necessary, incurred in providing such
cooperation. In addition, Executive shall be compensated for any such
cooperation that occurs after the Relevant Date (as defined below) at the rate
of $5,000 per day. For these purposes, the “Relevant Date” means (a) if there is
a Separation as a result of the termination of Executive’s employment by THUSA
without Cause or by Executive with Good Reason or in a Window Period
Termination, the last day of the Salary Continuation Period, and (b) in all
other cases, the Date of Termination. Executive agrees that, in the event he or
anyone acting on his behalf is served with any subpoena, order, directive or
other legal process involving THC or any of its affiliates, he or his attorney
shall use their best efforts promptly to notify THUSA’s Executive Vice President
of Human Resources of such service and of the content of any testimony or
information to be provided pursuant to such subpoena, order, directive or other
legal process and as soon as reasonably practicable, send to THUSA’s Executive
Vice President of Human Resources via overnight delivery (at the THUSA’s
expense) a copy of said documents served upon him or someone acting on his
behalf.

 

7. Nondisparagement. Following the Employment Period, Executive shall not make
any public statements, written or oral, that disparage THC or any of its
affiliates, or any of their respective then-current directors or senior
executives. THC and THUSA agree that during and following the Employment Period,
they shall not, and each of them shall direct its then-current directors and
senior executives not to, make any public statements, written or oral, that
disparage Executive. Notwithstanding the foregoing, nothing in this Section 7
shall prohibit Executive, THC or THUSA or their respective directors and senior
executives, from (a) responding publicly to incorrect, disparaging or derogatory
public statements by a party hereto, to the extent reasonably necessary to
correct or refute such public statement or (b) making any truthful statement to
the extent (i) required by law or by any court, arbitrator, mediator or
administrative or legislative body (including any committee thereof) with actual
or apparent jurisdiction to order such party to make such truthful statements or
(ii) necessary in any litigation, arbitration or mediation involving this
Agreement. In addition, nothing in this Section 7 shall prohibit THC or THUSA
from making any truthful and factual press release or public filing that is
approved by a majority of the independent directors of THC.

 

8. Executive Representations. Executive represents and warrants to THC and THUSA
that to the best of his knowledge, (a) the execution, delivery and performance
of this Agreement by Executive does not and will not conflict with, breach,
violate or cause a default under any contract, agreement, instrument, order,
judgment or decree to which Executive is a party or by which he is bound as of
the Effective Date, (b) Executive is not a party to or bound by any legally
binding contract or agreement as of the Effective Date that would prevent or
hinder his performance of his obligations hereunder, and (c) upon the execution
and delivery

 

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of this Agreement by the parties, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms.

 

9. Notices. Any notice provided for in this Agreement must be in writing and
must be personally delivered, mailed by first class mail (postage prepaid and
return receipt requested), or sent by reputable overnight courier service
(charges prepaid) to the address below indicated, or sent by facsimile to the
number below indicated:

 

If to THC or THUSA:

 

Tommy Hilfiger USA, Inc.

25 West 39th Street

New York, New York 10018

Facsimile: 212-548-1818

Attention: Chairman

 

With a copy to:

 

Tommy Hilfiger USA, Inc.

25 West 39th Street

New York, New York 10018

Facsimile: 212-548-1660

Attention: Executive Vice President of Human Resources

 

If to Executive:

 

c/o Tommy Hilfiger USA, Inc.

25 West 39th Street

New York, New York 10018

Facsimile: 212-548-1660

 

or such other address or number or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement shall be deemed to have been given (a)
when personally delivered to the recipient with written acknowledgment of
receipt, (b) three days after mailing by first class mail, (c) two days after
being sent by a nationally recognized overnight courier with written
acknowledgment of receipt or (d) when sent by facsimile with a printed record of
completed transmission being obtained by the sender.

 

10. Tax Matters.

 

(a) Anything in this Agreement to the contrary notwithstanding and except as set
forth below, in the event it shall be determined that any Payment would be
subject to the Excise Tax, then Executive shall be entitled to receive an
additional payment (the “Gross-Up Payment”) in an amount such that, after
payment by Executive of all taxes (and any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal
to the Excise

 

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Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 10(a), if it shall be determined that Executive is entitled to the
Gross-Up Payment, but that the Parachute Value of all Payments does not exceed
110% of the Safe Harbor Amount, then no Gross-Up Payment shall be made to
Executive and the amounts payable under this Agreement shall be reduced so that
the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor
Amount. The reduction of the amounts payable hereunder, if applicable, shall be
made by first reducing the payments under Section 1(d)(v)(B), unless an
alternative method of reduction is elected by Executive, and in any event shall
be made in such a manner as to maximize the Value of all Payments actually made
to Executive. For purposes of reducing the Payments to the Safe Harbor Amount,
only amounts payable under this Agreement (and no other Payments) shall be
reduced. If the reduction of the amount payable under this Agreement would not
result in a reduction of the Parachute Value of all Payments to the Safe Harbor
Amount, no amounts payable under the Agreement shall be reduced pursuant to this
Section 10(a). THUSA’s obligation to make Gross-Up Payments under this Section
10 shall not be conditioned upon Executive’s termination of employment.

 

(b) Subject to the provisions of Section 10(c), all determinations required to
be made under this Section 10, including whether and when a Gross-Up Payment is
required, the amount of such Gross-Up Payment and the assumptions to be utilized
in arriving at such determination, shall be made by a nationally recognized
certified public accounting firm designated by Executive (the “Accounting
Firm”). The Accounting Firm shall provide detailed supporting calculations both
to THUSA and Executive within 15 business days of the receipt of notice from
Executive that there has been a Payment or such earlier time as is requested by
THUSA. In the event that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of Control, Executive
may appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by THUSA. Any Gross-Up Payment, as determined
pursuant to this Section 10, shall be paid by THUSA to Executive within five
days of the receipt of the Accounting Firm’s determination. Any determination by
the Accounting Firm shall be binding upon THUSA and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by THUSA should have been made
(the “Underpayment”), consistent with the calculations required to be made
hereunder. In the event THUSA exhausts its remedies pursuant to Section 10(c)
and Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by THUSA to or for the benefit
of Executive.

 

(c) Executive shall notify THUSA in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by THUSA of the Gross-Up
Payment. Such notification shall be given as soon as practicable, but no later
than 10 business days after Executive is informed in writing of such claim.
Executive shall apprise THUSA of the nature of such claim and the date on which
such claim is requested to be paid. Executive shall not pay such claim prior to
the expiration of the 30-day period following the date on which Executive gives
such notice to THUSA (or such shorter period ending on the date that any

 

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payment of taxes with respect to such claim is due). If THUSA notifies Executive
in writing prior to the expiration of such period that THUSA desires to contest
such claim, Executive shall:

 

(i) give THUSA any information reasonably requested by THUSA relating to such
claim,

 

(ii) take such action in connection with contesting such claim as THUSA shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by THUSA,

 

(iii) cooperate with THUSA in good faith in order effectively to contest such
claim, and

 

(iv) permit THUSA to participate in any proceedings relating to such claim;

 

provided that THUSA shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest, and shall indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income or other tax (including interest and penalties)
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 10(c), THUSA
shall control all proceedings taken in connection with such contest, and, at its
sole discretion, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the applicable taxing authority in
respect of such claim and may, at its sole discretion, either pay the tax
claimed to the appropriate taxing authority on behalf of Executive and direct
Executive to sue for a refund or contest the claim in any permissible manner,
and Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as THUSA shall determine; provided that, if THUSA pays such
claim and directs Executive to sue for a refund, THUSA shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income or
other tax (including interest or penalties) imposed with respect to such payment
or with respect to any imputed income in connection with such payment; and
provided, further, that any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, THUSA’s control of the contest shall be limited to issues
with respect to which the Gross-Up Payment would be payable hereunder, and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.

 

(d) If, after the receipt by Executive of a Gross-Up Payment or payment by THUSA
of an amount on Executive’s behalf pursuant to Section 10(c), Executive becomes
entitled to receive any refund with respect to the Excise Tax to which such
Gross-Up Payment relates or with respect to such claim, Executive shall (subject
to THUSA’s complying with the requirements of Section 10(c), if applicable)
promptly pay to THUSA the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after payment by THUSA
of an amount on Executive’s behalf pursuant to Section 10(c), a determination is
made that Executive shall not be entitled to any refund with respect to such

 

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claim and THUSA does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then the amount of such payment shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.

 

(e) Notwithstanding any other provision of this Section 10, THUSA may, in its
sole discretion, withhold and pay over to the Internal Revenue Service or any
other applicable taxing authority, for the benefit of Executive, all or any
portion of any Gross-Up Payment, and Executive hereby consents to such
withholding.

 

(f) Definitions. The following terms shall have the following meanings for
purposes of this Section 10.

 

(i) “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code
or any similar tax that may hereafter be imposed, together with any interest or
penalties imposed with respect to such excise or other similar tax.

 

(ii) “Parachute Value” of a Payment shall mean the present value as of the date
of the change of control for purposes of Section 280G of the Code of the portion
of such Payment that constitutes a “parachute payment” under Section 280G(b)(2),
as determined by the Accounting Firm for purposes of determining whether and to
what extent the Excise Tax will apply to such Payment.

 

(iii) A “Payment” shall mean any payment, benefit, entitlement or distribution
in the nature of compensation (within the meaning of Section 280G(b)(2) of the
Code) to or for the benefit of Executive, whether paid or payable pursuant to
this Agreement or otherwise.

 

(iv) The “Safe Harbor Amount” means 2.99 times Executive’s “base amount,” within
the meaning of Section 280G(b)(3) of the Code.

 

(v) “Value” of a Payment shall mean the economic present value of a Payment as
of the date of the change of control for purposes of Section 280G of the Code,
as determined by the Accounting Firm using the discount rate required by Section
280G(d)(4) of the Code.

 

11. General Provisions.

 

(a) Expenses. Executive is authorized to incur reasonable expenses in carrying
out his duties and responsibilities under this Agreement and THUSA shall
promptly reimburse him for all legitimate business expenses incurred in
connection with carrying out the business of THC and its affiliates, subject to
documentation and in accordance with THUSA’s reimbursement polices. In addition,
THUSA agrees to pay, and hold Executive harmless against the liability for
payment of, one-half of the reasonable legal and other expenses of Executive
incurred in connection with the negotiation and execution of this Agreement and
the Exhibits hereto, up to $50,000, and 100% of such expenses in excess of
$50,000.

 

(b) Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any

 

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provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or any other jurisdiction, but this Agreement shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein; provided that any reformation shall
be effective only if the economic or legal substance of the transactions
contemplated hereby would not thereby be affected in any manner materially
adverse to any party hereunder; and provided, further, that Section 5(e) shall
supersede this Section 11(b) with respect to the matters set forth herein, to
the extent the two sections are inconsistent.

 

(c) Complete Agreement. This Agreement embodies the complete agreement and
understanding among the parties with respect to the subject matter hereof and
supersedes and preempts any prior understandings, agreements or representations
among the parties, written or oral, which may have related to the subject matter
hereof in any way. In the event of any inconsistency between any provision of
this Agreement and any provision of any plan, employee handbook, personnel
manual, program, policy, arrangement or agreement of THC or any of its
affiliates applicable to Executive, the provisions of this Agreement shall
control to the extent more favorable to Executive.

 

(d) Counterparts. This Agreement may be executed in separate counterparts, each
of which is deemed to be an original and all of which taken together constitute
one and the same agreement.

 

(e) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors, heirs (in the case
of Executive) and assigns. No rights or obligations of THC or THUSA under this
Agreement may be assigned or transferred by them except that such rights or
obligations may be assigned or transferred pursuant to a merger or
consolidation, or the sale or liquidation of all or substantially all of the
assets of THC or THUSA, as the case may be, provided in either case that the
successor, assignee or transferee is the successor to all or substantially all
of the assets of THC or THUSA and such successor, assignee or transferee assumes
the liabilities, obligations and duties of THC or THUSA, as contained in this
Agreement, either internally or as a matter of law. THC and THUSA each further
agrees that, in the event of a sale of assets or liquidation as described in the
preceding sentence, it shall take whatever action it legally can in order to
cause such assignee or transferee to assume its liabilities, obligations and
duties hereunder. No rights or obligations of Executive under this Agreement may
be assigned or transferred by Executive other than his rights to compensation
and benefits which may be transferred only by will, operation of law or as
provided below in this Section 11(e) or in any applicable plan, program, grant
or agreement of THC or any of its affiliates. Executive shall be entitled, to
the extent permitted under any applicable law, to select and change a
beneficiary or beneficiaries to receive any compensation or benefit payable
hereunder following Executive’s death by giving THUSA written notice thereof. In
the event of Executive’s death or a judicial determination of his incompetence,
references in this Agreement or any other agreement to Executive shall be
deemed, where appropriate, to refer to his beneficiary or beneficiaries, estate
or other legal representative.

 

(f) Tax Withholding. THC and THUSA may withhold from any and all payments and
benefits under this Agreement all federal, state, city, or other taxes to the
extent

 

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required pursuant to any law or governmental regulation or ruling; provided that
the payment of any such taxes with respect to equity awards shall be governed by
the applicable plan or award agreement.

 

(g) Choice of Law. All questions concerning the construction, validity and
interpretation of this Agreement and the exhibits hereto shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.

 

(h) Remedies. Executive acknowledges that the provisions of Section 2 and
Sections 4 through 7 above are reasonable and necessary for the protection of
THC and its affiliates, and that they may be materially and irrevocably damaged
if these provisions are not specifically enforced. Accordingly, Executive agrees
that, in addition to any other relief or remedies available to THC and THUSA,
and notwithstanding Section 11(m) below, THC and THUSA shall be entitled to seek
an appropriate injunctive or other equitable remedy (including without
limitation temporary, preliminary or permanent injunctive relief), which rights
shall be in addition to any damages and any other rights or remedies to which it
may be entitled, for the purposes of restraining Executive from any actual or
threatened breach of, or otherwise enforcing such provisions, and no bond or
security shall be required in connection therewith. THC and THUSA acknowledge
that their covenants under Section 7 above are reasonable and necessary for the
protection of Executive, and that he may be materially and irrevocably damaged
if such covenants are not specifically enforced. Accordingly, THC and THUSA each
agrees that, in addition to any other relief or remedies available to Executive,
and notwithstanding Section 11(m) below, Executive shall be entitled to seek an
appropriate injunctive or other equitable remedy (including without limitation
temporary, preliminary or permanent injunctive relief), which rights shall be in
addition to any damages and any other rights or remedies to which he may be
entitled, for the purposes of restraining THC or THUSA from any actual or
threatened breach of, or otherwise enforcing, such covenants, and no bond or
security shall be required in connection therewith.

 

(i) Amendment and Waiver. No provision in this Agreement may be amended unless
such amendment is agreed to in writing and signed by Executive and an authorized
officer of THC or THUSA. No waiver by either party of any breach by the other
party of any condition or provision contained in this Agreement to be performed
by such other party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing, must specifically refer to the provision being waived, and
must be signed by Executive or an authorized officer of either THC or THUSA, as
applicable.

 

(j) Business Days. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or holiday in the state
in which THUSA’s main executive offices are located, the time period shall be
automatically extended to the business day immediately following such Saturday,
Sunday or holiday.

 

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(k) Representation. THC and THUSA each represents and warrants to Executive that
(i) execution, delivery and performance of this Agreement by it does not and
will not conflict with, breach, violate or cause a default under any contract,
agreement, instrument, order, judgment or decree to which it is a party or by
which it is bound in any manner that would adversely affect Executive’s rights
hereunder, (ii) it is fully authorized and empowered (including, without
limitation, by any action, if any, required to be taken by the THC Board or any
committee thereof) to enter into this Agreement (and any related agreement
relating to the Initial Option), and (iii) upon the execution and delivery of
this Agreement by the parties, this Agreement shall be its valid and binding
obligation enforceable in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting the enforcement of creditors’ rights generally. In addition, THC
represents and warrants to Executive that as of the date of execution of this
Agreement, its articles of association have been amended as set forth in Exhibit
B hereto. Finally, THUSA represents and warrants to Executive that as of the
date of execution of this Agreement, its by-laws have been amended as set forth
in Exhibit C hereto.

 

(l) Survival. The respective rights and obligations of the parties hereunder
shall survive any termination of Executive’s employment, and/or the expiration
of the Employment Period in accordance with Section 1(d) hereof, in each case to
the extent necessary to the intended preservation of such rights and
obligations.

 

(m) Resolution of Disputes. Any dispute or claim between THC or THUSA and
Executive arising out of, or, in connection with this Agreement, any other
agreement between Executive and THC and/or THUSA or in connection with
Executive’s employment or termination thereof shall be resolved by binding
arbitration, except as provided in Section 11(h) above. The arbitration shall
take place in New York City and shall be before a neutral arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, subject to modification by the National Rules for the Resolution of
Employment Disputes to the extent the dispute or claim relates to employment
discrimination. To the extent that Executive is the prevailing party in any such
arbitration, as determined by the arbitrator, THUSA shall reimburse him for his
reasonable attorneys’ fees, costs and disbursements in such proceeding; provided
that the foregoing shall not apply in the case of any such dispute or claim
arising in connection with a Change of Control Separation or during the period
of 24 months immediately following a Change of Control, and instead, THC or
THUSA shall reimburse Executive, to the full extent permitted by law, for his
reasonable attorneys’ fees, costs and disbursements incurred in connection
therewith, unless the arbitrator determines that Executive’s position was
frivolous or maintained in bad faith. All other costs of the arbitration shall
be borne equally by THC and/or THUSA, on the one hand, and Executive on the
other hand. The decision or award of the arbitrator shall be final and binding
upon the parties hereto. The parties shall abide by all awards recorded in such
arbitration proceedings, and all such awards may be entered and executed upon in
any court having jurisdiction over the party against whom or which enforcement
of such award is sought. In no event shall any party hereto be liable for
punitive or exemplary damages in any such dispute.

 

(n) Contractual Rights and Obligations. This Agreement establishes contractual
rights and obligations of Executive, THC and THUSA. Nothing herein shall be

 

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deemed to require THC or THUSA to segregate, earmark or otherwise set aside any
funds or other assets, in trust or otherwise, for any payments that may be
required hereunder.

 

12. Indemnification and Directors’ and Officers’ Liability Insurance.

 

(a) THUSA agrees that if, at any time before March 31, 2005, Executive is made a
party, or is threatened to be made a party, to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a “Proceeding”), by
reason of the fact that he is or was a director, officer or employee of THC,
Executive shall be indemnified and held harmless by THUSA to the fullest extent
permitted by law or THUSA’s corporate governance documents, against all cost,
expense, liability and loss (including, without limitation, attorneys’ fees,
judgments, fines, or other liabilities or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by Executive in connection
therewith, and not otherwise received by him from another source, such as
insurance, and such indemnification shall inure to the benefit of Executive’s
heirs and legal representatives. THUSA shall advance to Executive all costs and
expenses incurred by him in connection with a Proceeding covered by this Section
12(a) within 20 calendar days after receipt by THUSA of a written request for
such advance, subject to an undertaking by Executive to repay the amount of such
advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses.

 

(b) Executive shall be covered by directors’ and officers’ liability insurance
on the same terms and conditions as the other officers and directors of THC and
THUSA.

 

(c) Nothing in this Section 12 shall be construed as reducing or waiving any
right to indemnification or advancement of expenses that Executive would
otherwise have under THC’s or THUSA’s corporate governance documents or under
applicable law.

 

13. Guarantee. THC hereby guarantees payment by THUSA of all amounts due
Executive by THUSA pursuant to the terms of this Agreement, except to the extent
prohibited by law with respect to Section 12(a).

 

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

 

TOMMY HILFIGER CORPORATION

/S/    JOEL J. HOROWITZ

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    By:   Joel J. Horowitz     Its:   Chairman

TOMMY HILFIGER U.S.A., INC.

/S/    JOEL J. HOROWITZ

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    By:   Joel J. Horowitz     Its:   Chairman

/S/    DAVID F. DYER

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    David F. Dyer

 

 

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EXHIBIT A

Current Board Memberships

 

ADVO, Inc.

 

The Advisory Board of the Eller School of Business of the University of Arizona

 

The Advisory Board of Gryphon Investors, Inc.

 

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EXHIBIT B

Amendments to THC Articles of Association

 

RESOLVED, that Sections 104 and 105 of the THC’s Articles of Association are
hereby amended and restated to read as follows:

 

  104.   The Company may by resolution of directors appoint officers of the
Company at such times as shall be considered necessary or expedient. Such
officers may consist of a Chairman of the Board of Directors, an Honorary
Chairman of the Board, a Vice-Chairman of the Board of Directors, a Chief
Executive Officer, a President, and one or more Vice-Presidents, Secretaries and
Treasurers and such other officers as may from time to time be deemed desirable.
Any number of offices may be held by the same person.

 

  105.   The officers shall perform such duties as shall be prescribed at the
time of their appointment subject to any modification in such duties as may be
prescribed thereafter by resolution of directors or resolution of members, but
in the absence of any specific allocation of duties, it shall be the
responsibility of the Chairman of the Board of Directors to preside at meetings
of directors and members, the Vice-Chairman to act in the absence of the
Chairman, the Chief Executive Officer, as required by the needs of the business,
to have general supervision and control with respect to the affairs of the
Company, the President to have such duties as may be assigned by the Board or
the Chief Executive Officer, the Vice-Presidents to perform such duties as may
be assigned by the Board, the Chief Executive Officer or the President, the
Secretaries to maintain the share register, minute books and records (other than
financial records) of the Company, and the Treasurer to be responsible for the
financial affairs of the Company.

 

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EXHIBIT C

Amendments to THUSA By-Laws

 

1. Article IV, Section 4 of the By-Laws is hereby amended to read as follows:

 

Section 4. Chairman of the Board of Directors. The Chairman of the Board of
Directors shall preside at all meetings of stockholders and of the Board of
Directors. The Chairman of the Board of Directors shall also perform such other
duties and may exercise such other powers as from time to time may be assigned
to him by these By-Laws or by the Board of Directors.

 

2. Article IV of the By-Laws is hereby amended by adding the following new
Section 5A:

 

Section 5A. Chief Executive Officer. The Chief Executive Officer shall, subject
to the control of the Board of Directors, manage the day to day affairs of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In the absence or disability of the Chairman
of the Board of Directors, or if there be none, the Chief Executive Officer
shall preside at all meetings of stockholders and the Board of Directors. The
Chief Executive Officer may execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the Chief Executive Officer. The Chief Executive Officer shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by these By-Laws or by the Board of Directors.

 

3. Article IV, Section 6 of the By-Laws is hereby amended to read as follows:

 

Section 6. President. The President shall have such duties and may exercise such
powers as may be assigned by the Board of Directors or the Chief Executive
Officer.

 

4. Article IV, Section 7 of the By-Laws is hereby amended to read as follows:

 

Section 7. Vice Presidents. Each Vice President shall perform such duties and
may exercise such powers as may be assigned by the Board of Directors, the Chief
Executive Officer or the President.

 

5. Article IV, Section 8 of the By-Laws is hereby amended and restated in its
entirety to read as follows:

 

Section 8. Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings

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thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committee when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meeting of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or the Chief Executive Officer,
under whose supervision he shall be. If the Secretary shall be unable or shall
refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the Chief Executive Officer may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.

 

6. Article IV, Section 9 of the By-Laws is hereby amended and restated in its
entirety to read as follows:

 

Section 9. Treasurer. The Treasurer shall have the custody of the Corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors or the Chief
Executive Officer. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors or the Chief Executive Officer, taking
proper vouchers for such disbursements, and shall render to the Chief Executive
Officer, the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required by the
Board of Directors, the Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the financial performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.

 

7. Article IV, Section 10 of the By-Laws is hereby amended and restated in its
entirety to read as follows:

 

Section 10. Assistant Secretaries. Except as may be otherwise provided in these
By-Laws, Assistant Secretaries, if there be any, shall perform such duties and
have such powers as from time to time may be assigned to them by the Board of
Directors, the Chief Executive Officer, the President, and Vice President, if
there

 

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be one, or the Secretary, and in the absence of the Secretary or in the event of
his disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.

 

8. Article IV, Section 11 of the By-Laws is hereby amended and restated in its
entirety to read as follows:

 

Section 11. Assistant Treasurers. Assistant Treasurers, if there be any, shall
perform such duties and have such powers as from time to time may be assigned to
them by the Board of Directors, the Chief Executive Officer, the President, any
Vice President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.

 

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