Exhibit 10.20


 


EXECUTION COPY


 


EMPLOYMENT AGREEMENT


 


EMPLOYMENT AGREEMENT (“Agreement”)
dated as of January 8, 2008, between Rafaella Apparel Group, Inc.
(the “Company”) and Husein Jafferjee (the “Executive”).


 


WHEREAS, the Company desires
to employ the Executive as Chief Operating Officer of the Company and wishes to
acquire and be assured of his services on the terms and conditions hereinafter
set forth; and


 


WHEREAS, the Executive
desires to be employed by the Company as Chief Operating Officer of the Company
and to perform and to serve the Company on the terms and conditions hereinafter
set forth;


 


NOW, THEREFORE, in
consideration of the mutual terms, covenants, agreements and conditions
hereinafter set forth, the Company and the Executive hereby agree as follows:


 


1.                                       Term.  Subject to earlier termination pursuant to Section 4,
this Agreement and the employment relationship hereunder shall commence on January 31,
2008 (the “Effective Date”) and continue until January 31, 2010; provided
that this Agreement and the employment relationship created hereunder shall
continue thereafter for consecutive twelve (12) month periods commencing on
each subsequent January 31 (the “Renewal Date”) unless either party
gives the other party prior written notice of the party’s election to terminate
this Agreement at least ninety (90) days prior to the Renewal Date, in which
case the Term shall terminate on the day prior to the Renewal Date.  As used in this Agreement, the “Term”
shall refer to the period beginning on the Effective Date and ending on the
date the Executive’s employment terminates in accordance with this Section 1
or Section 4.


 


2.                                       Duties and
Title.


 


2.1                                 Title.  The Company shall employ the Executive to
render exclusive and full-time services to the Company and its
subsidiaries.  The Executive shall serve
in the capacity of Chief Operating Officer (the “COO”) and report to the
chief executive officer (“CEO”) and to the Board of Directors of the
Company (the “Board”).


 


2.2                                 Duties.  The Executive will have such authority and
responsibilities and will perform such executive duties customarily performed
by a chief operating officer of a company in similar lines of business as the
Company and its subsidiaries or as may be assigned to the Executive by the CEO
and/or the Board consistent with the position and authority of the Executive as
COO.  The executive offices of the
Company shall be located in New York County, New York, and the Executive’s
principal place of employment shall be at such offices.  The Executive will devote all his full
working time and attention to the performance of such duties and to the
promotion of the business and interests of the Company and its subsidiaries; provided
that the Executive may engage in philanthropic and passive investment activities
which are not in conflict with or do not interfere with the performance of his
duties; and provided, further, that the Executive will be
permitted to devote such time as is reasonable and as does not interfere with
the performance of his duties hereunder with respect to: (a) his board
membership, share 


 


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ownership and related
responsibilities with Proprietary Technologies, Inc. and/or Nugrip, Inc.,
and (b) the Executive’s fifty percent (50%) ownership interest in
Jafajems, LLC.


 


3.                                       Compensation
and Benefits by the Company.  As compensation for all services performed by
the Executive for the Company and its subsidiaries, the Company shall provide
the Executive the following during the Term:


 


3.1                                 Base Salary.  The Company will pay to the Executive an
annual base salary of six hundred thousand dollars ($600,000), payable in
accordance with the customary payroll practices of the Company (the “Base
Salary”).


 


3.2                                 Bonuses.


 


(a)                                  The Executive
shall be eligible to receive an annual discretionary bonus (the “Annual
Bonus”) based on achievement of corporate performance objectives as
established by the Compensation Committee, which objectives shall be
commensurate with his position as COO. 
The Executive’s target bonus shall be seventy-five percent (75%) of the
Base Salary, and for the 2008 calendar year, the Executive shall receive an
Annual Bonus that is no less than fifty percent (50%) of the Base Salary as of
the Effective Date, one-half (1⁄2) of which shall be payable promptly after the
Company’s books are closed for the fiscal year ending June 30, 2008, and
one-half (1⁄2) of which shall be paid on or about December 31, 2008,
provided the Executive is employed on each such date.


 


(b)                                 The Executive
shall receive a signing bonus of three hundred thousand dollars ($300,000) (the
“Signing Bonus”), which shall be paid in two (2) equal installments
of one hundred fifty thousand dollars ($150,000) on February 28, 2008 and March 30,
2008, provided that the Executive is employed with the Company on January 31,
2008.


 


3.3                                 Participation
in Employee Benefit Plans.  The
Executive shall be entitled, if and to the extent eligible, to participate in
all of the applicable benefit plans of the Company, which may be available to
other senior executives of the Company, on the same terms as such other
executives.  The Company may at any time
or from time to time amend, modify, suspend or terminate any employee benefit
plan, program or arrangement for any reason without the Executive’s consent if
such amendment, modification, suspension or termination is consistent with the
amendment, modification, suspension or termination for other executives of the
Company.


 


3.4                                 Vacation.  The Executive shall be entitled to four (4) weeks
of paid vacation annually.


 


3.5                                 Expense
Reimbursement.  The
Executive shall be entitled to receive reimbursement for all appropriate
business expenses incurred by him in connection with his duties under this
Agreement in accordance with the policies of the Company as in effect from time
to time.


 


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3.6                                 Transaction
Bonus.  The Executive shall receive an
amount equal to two and five-tenths percent (2.5%) of the Appreciated Value and
the Net Dividends available to the Company’s Common Stockholders in connection
with certain transactions involving the Company pursuant to the terms and
conditions attached hereto as Exhibit A (the “Transaction Bonus”).


 


3.7                                 Withholdings
and Deductions.


 


(a)                                  The payment of
the Base Salary, any Annual Bonus and any other compensation hereunder shall be
subject to income tax, social security and other applicable withholdings, as
well as such other deductions as may be required under applicable laws.


 


(b)                                 Section 409A.  It is intended that all payments hereunder
shall comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and the regulations and other guidance issued
thereunder (in aggregate, “Section 409A”) so as not to subject the
Executive to payment of interest or any additional tax under Section 409A.  In furtherance thereof, the parties agree to
the following:


 


(i)                                     If payment or
provision of any amount or benefit hereunder that is subject to Section 409A
at the time specified herein would subject such amount or benefit to any
additional tax under Section 409A, the payment or provision of such amount
or benefit shall be postponed to the earliest commencement date on which the
payment or provision of such amount or benefit could be made without incurring
such additional tax.


 


(ii)                                  In addition, to
the extent that any regulations or other guidance issued under Section 409A
(after application of the previous provisions of this Section 3.7(b))
would result in the Executive’s being subject to the payment of interest or any
additional tax under Section 409A, the parties agree, to the extent
reasonably possible, to amend this Agreement in order to avoid the imposition
of any such interest or additional tax under Section 409A, which amendment
shall have the minimum economic effect necessary and be reasonably determined
in good faith by the Company and the Executive.


 


(iii)                               Notwithstanding
any provision in this Agreement to the contrary, if any payment hereunder is
subject to Section 409A, and if such payment is to be paid on account of
the Executive’s separation from service (within the meaning of Section 409A),
and if the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B) of
the Code, then such payment shall be delayed until the first day after the
six-month anniversary of the Executive’s date of termination.


 


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4.                                       Termination of
Employment.


 


4.1                                 The Executive’s
employment hereunder is subject to termination earlier than as contemplated by Section 1,
as follows:


 


(a)                                  immediately
upon the death of the Executive;


 


(b)                                 upon the
Executive’s Disability (as defined below);


 


(c)                                  by the
Executive at any time for any reason whatsoever, including, without limitation,
resignation, retirement or for Good Reason (as defined below); and


 


(d)                                 by the Company
at any time for Cause (as defined below) or without Cause.


 


4.2                                 The following
terms shall have the following meanings:


 


(a)                                  “Cause”
shall mean the Executive’s: (i) indictment or arrest for or formal charge
with any felony, (ii) commission of any act of dishonesty or moral
turpitude which is, or is reasonably likely to be, materially detrimental to
the Company and/or its affiliates, (iii) failure to obey the reasonable
and lawful orders of the Board or (iv) gross negligence in the performance
of, or willful disregard of, his obligations hereunder; provided, however,
that no termination pursuant to clause (iii) shall be effective unless
such failure continues after the Executive has been given written notice
thereof and thirty (30) days thereafter in which to cure the same.


 


(b)                                 “Disability”
shall mean a physical or mental incapacity that (i) prevents the Executive
from performing the essential functions of his position with the Company for a
period of one hundred eighty (180) or more days, whether or not consecutive,
occurring within any period of twelve (12) consecutive months, as determined in
accordance with any long-term disability plan provided by the Company in which
the Executive is a participant, or (ii) can be expected, in the opinion of
a licensed physician selected by the Board and reasonably acceptable to the
Executive, to result in the Executive’s death or to last for a continuous
period of one hundred eighty (180) or more days occurring within any period of
twelve (12) consecutive months.


 


(c)                                  “Good Reason”
shall mean the Executive’s resignation within ninety (90) days after the
occurrence of one or more of the following actions taken by the Company without
the Executive’s consent: (i) a material diminution of the Executive’s
responsibilities or authority hereunder, or (ii) a material decrease in
the Executive’s compensation and benefits, in the aggregate; provided, however,
that the following shall not constitute Good Reason: (x) any variations in
the amount of any Annual Bonus from one year to another, including the failure
to award any such compensation in any given year (provided such
variation or failure to award an Annual Bonus is consistent with the
performance 


 


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of the Company and its subsidiaries and is
based on objectives commensurate with the Executive’s position as COO as
established by the Compensation Committee for that year), or (y) an
agreement between Cerberus Capital Management, L.P. (“Cerberus”) and the
Executive pursuant to which the Executive is transferred to another equivalent
position within Cerberus operations or another portfolio company and the new
employing entity offers the Executive employment pursuant to substantially
similar terms and conditions as this Agreement. 
Notwithstanding the foregoing, no resignation for Good Reason shall be
effective unless and until the Executive gives the Company notice of the
reasons for a Good Reason resignation, and the Company fails to remedy the same
within thirty (30) days thereafter.


 


5.                                       Consequences of
Termination.


 


5.1                                 Termination Due
to Death or Disability.  In
the event of a termination due to the Executive’s death or Disability, the
Executive or his estate, as the case may be, shall be entitled to, in lieu of
any other compensation and benefits hereunder:


 


(a)                                  payment of his
Base Salary at the rate in effect at the time of termination until the
effective date of termination;


 


(b)                                 payment for any
accrued but unused vacation days in accordance with Company policy;


 


(c)                                  reimbursement
of expenses incurred but not paid prior to such termination; and


 


(d)                                 such rights to
other benefits as may be provided in applicable pension and welfare plans of
the Company or by law, according to the terms and provisions of such plans or
by law, provided that any such plans do not contradict any provision of this
Agreement;


 


the foregoing (a) through
(d) referred to herein as the “Accrued Benefits”.


 


5.2                                 Termination for
Cause or Without Good Reason.  In the event that the Company terminates the
Executive’s employment for Cause or the Executive terminates his employment
without Good Reason, the Executive shall be entitled to the Accrued Benefits,
in lieu of any other compensation and benefits hereunder.  In addition, in the event of any such
termination in the first nine (9) months after the Effective Date, the
Executive shall be required to repay the Signing Bonus within thirty (30) days
following the effective date of termination.


 


5.3                                 Termination
Without Cause or for Good Reason.  In the event the Company terminates the
Executive’s employment hereunder without Cause or the Executive terminates his
employment for Good Reason, the Executive shall be entitled to, in lieu of any
other compensation hereunder:


 


(a)                                  the Accrued Benefits;


 


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(b)                                 four (4) payments
in the following amount(s) and in accordance with the following payment
schedule:


 


(i)                                     the first
payment (payable within sixty (60) days of the effective date of termination) shall
be equal to (x) the Base Salary in effect at the time of termination that
would be payable over the remainder of the Term or for twelve (12) months,
whichever is greater, less (y) the total payments under
subparagraph (b)(ii) below; and


 


(ii)                                  the second,
third and fourth payments shall be equal to (x) twice the maximum amount
that may be taken into account under a qualified plan pursuant to Code Section 401(a)(17)
in effect at the time of termination, divided by (y) three (3), which such
payments shall be payable on the sixth, ninth and twelfth month anniversaries
of the effective date of termination; and


 


(c)                                  payment of a
pro-rated Annual Bonus, payable at such time as the Company pays annual bonuses
to similarly situated executives, but in no event later than sixty (60) days
following the end of the calendar year in which the termination occurs;


 


(d)                                 continuation of
participation in the Company’s group medical plan pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”) at the Company’s
expense until the earlier of twelve (12) months from the date of termination or
the date on which the Executive first becomes eligible for substantially
equivalent insurance coverage provided by any other entity following
termination; and


 


(e)                                  in the event
the Executive’s employment is terminated pursuant to this Section 5.3
on or prior to December 31, 2008 (or any payment date, if later), any
payment(s) of the Annual Bonus for the 2008 calendar year pursuant to the
final clause of Section 3.2 that remain unpaid as of the effective
date of termination (payable within sixty (60) days of the effective date of
termination).


 


5.4                                 Expiration of
Term.  In the event that the Company
terminates the Executive’s employment by giving him notice of its intent not to
renew in accordance with Section 1, which shall have the same
effect as an involuntary termination without Cause, the Executive shall be
entitled to, in lieu of any other compensation hereunder:


 


(a)                                  the Accrued
Benefits;


 


(b)                                 four (4) payments
in the following amount(s) and in accordance with the following payment
schedule:


 


(i)                                     the first
payment (payable within sixty (60) days of the effective date of termination)
shall be equal to (x) the Base Salary in effect at the time of termination
that would be payable over the remainder of the 


 


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Term or for twelve (12) months, whichever is
greater, less (y) the total payments under subparagraph (b)(ii) below;
and


 


(ii)                                  the second,
third and fourth payments shall be equal to (x) twice the maximum amount
that may be taken into account under a qualified plan pursuant to Code Section 401(a)(17)
in effect at the time of termination, divided by (y) three (3), which such
payments shall be payable on the sixth, ninth and twelfth month anniversaries
of the effective date of termination; and


 


(c)                                  payment of a
pro-rated Annual Bonus, payable in the year following the year of termination
at such time as the Company pays annual bonuses to similarly situated
executives, but in no event later than sixty (60) days following the end of the
calendar year in which the termination occurs.


 


In the event that the
Executive terminates his employment by giving the Company notice of his intent
not to renew in accordance with Section 1, the Executive shall be
entitled to the Accrued Benefits, in lieu of any other compensation and
benefits hereunder.


 


5.5                                 Change in
Control.  In the event the Company
terminates the Executive’s employment hereunder without Cause or the Executive
terminates his employment for Good Reason within two (2) years following a
Change in Control (as defined below), the Executive shall be entitled to, in
lieu of any other compensation hereunder:


 


(a)                                  the Accrued
Benefits;


 


(b)                                 payment of an
amount equal to his annual Base Salary in effect at the time of termination in
a lump sum payable within sixty (60) days of the effective date of termination;


 


(c)                                  payment of a
pro-rated Annual Bonus, payable in the year following the year of termination
at such time as the Company pays annual bonuses to similarly situated
executives, but in no event later than sixty (60) days following the end of the
calendar year in which the termination occurs;


 


(d)                                 continuation of
participation in the Company’s group medical plan pursuant to COBRA at the
Company’s expense until the earlier of twelve (12) months from the date of
termination or the date on which the Executive first becomes eligible for
substantially equivalent insurance coverage provided by any other entity
following termination; and


 


(e)                                  in the event
the Executive’s employment is terminated pursuant to this Section 5.5
on or prior to December 31, 2008 (or any payment date, if later), any
payment(s) of the Annual Bonus for the 2008 calendar year pursuant to the
final clause of Section 3.2 that remain unpaid as of the effective
date of termination (payable within sixty (60) days of the effective date of
termination).


 


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For purposes of this Section 5.5,
“Change in Control” shall mean, in one or a series of related
transactions: (i) a transaction(s) resulting in the sale of all or
substantially all of the assets of the Company (other than in connection with
financing transactions, sale and leaseback transactions or other similar
transactions) to a person or entity who is not a stockholder of the Company on
the Effective Date hereof or an affiliate of such a stockholder (such person or
entity being a “Third Party”); or (ii) a transaction(s) resulting
in the sale by any persons or entities who are stockholders of the Company
immediately prior to the date of such sale, or any of their affiliates, or a
merger or other extraordinary corporate transaction or business combination
involving the Company, resulting in more than fifty percent (50%) of the voting
stock of the Company being held by a Third Party.


 


5.6                                 Non-Duplication
of Benefits. 
Notwithstanding the foregoing, nothing in this Agreement shall result in
a duplication of payments or benefits provided under this Section 5,
nor shall anything in this Agreement require the Company to make any payment or
to provide any benefit to the Executive that the Company is otherwise required
to provide under any other contract, agreement or arrangement.  For the avoidance of doubt, the payments and
benefits provided under this Section 5 shall be in lieu of any
severance or other termination payments that otherwise might be payable under
any plan, program or policy maintained by the Company.


 


5.7                                 Conditions.


 


(a)                                  No payments or
benefits payable to the Executive upon the termination of his employment
pursuant to this Section 5 (other than the Termination Payments)
shall be made to the Executive unless and until the Executive executes a
general release in favor of the Company, its affiliates and Cerberus and such
general release becomes effective pursuant to its terms; provided, that
the general release shall not release any rights the Executive has under this Section 5,
the Transaction Bonus as set forth in Section 3.6 and Exhibit A
or to indemnification under Section 8 below.


 


(b)                                 No interest
shall accrue on or be paid with respect to any portion of any payments
hereunder, except as required by law.


 


6.                                       Ownership of
Ideas; Duty of Loyalty.


 


6.1                                 Confidentiality.


 


(a)                                  During the
Term, the Executive will have access to certain trade secrets and confidential
information relating to the Company and its subsidiaries and affiliates (the “Protected
Parties”) which is not readily available from sources outside the
Company.  The confidential and
proprietary information and, in any material respect, trade secrets of the
Protected Parties are among their most valuable assets, including but not
limited to, their customer, supplier and vendor lists, databases, competitive
strategies, computer programs, frameworks, or models, their marketing programs,
their sales, financial, marketing, training and technical information, their
product development (and proprietary product data) 


 


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and any other information, whether
communicated orally, electronically, in writing or in other tangible forms
concerning how the Protected Parties create, develop, acquire or maintain their
products and marketing plans, target their potential customers and operate
their retail and other businesses.  The
Protected Parties invested, and continue to invest, considerable amounts of
time and money in their process, technology, know-how, obtaining and developing
the goodwill of their customers, their other external relationships, their data
systems and data bases, and all the information described above (hereinafter
collectively referred to as “Confidential Information”), and any
misappropriation or unauthorized disclosure of Confidential Information, in any
form, would irreparably harm the Protected Parties.


 


(b)                                 The Executive
acknowledges that such Confidential Information constitutes valuable, highly
confidential, special and unique property of the Protected Parties.  The Executive shall hold in a fiduciary
capacity for the benefit of the Protected Parties all Confidential Information
obtained by the Executive during the Term of this Agreement.  Except as required by law, an order of a
court or governmental agency with jurisdiction, or a subpoena or other lawful
process, the Executive shall not, during the Term or at any time thereafter,
disclose any Confidential Information, directly or indirectly, to any person or
entity for any reason or purpose whatsoever, nor shall the Executive use it in
any way, except in the course of his employment or to enforce any rights or
defend any claims hereunder or under any other agreement to which the Executive
is a party, provided that such disclosure is relevant to the enforcement of
such rights or defense of such claims and is only disclosed in the formal
proceedings related thereto.  The
Executive shall take all reasonable steps to safeguard the Confidential
Information and to protect it against disclosure, misuse, corporate espionage,
loss and theft.  The Executive
understands and agrees that he shall acquire no rights to any such Confidential
Information.


 


(c)                                  All files,
records, documents, drawings, specifications, data, computer programs,
evaluation mechanisms and analytics and similar items relating thereto or to
the business of the Protected Parties, as well as all customer lists, specific
customer information, compilations of product research and marketing techniques
of Protected Parties, whether prepared by the Executive or otherwise coming
into the Executive’s possession, shall remain the exclusive property of the Protected
Parties, and the Executive shall not remove any such items from the premises of
any of the Protected Parties, except in furtherance of the Executive’s duties
under this Agreement.


 


(d)                                 As requested by
the Company and at the Company’s expense, from time to time and upon the
termination of this Agreement, the Executive will promptly deliver to the
Company all copies and embodiments, in whatever form, of all Confidential
Information in the Executive’s possession or within his control (including, but
not limited to, memoranda, records, notes, plans, photographs, manuals,
notebooks, documentation, program listings, flow charts, magnetic media, disks,
diskettes, tapes and all other materials containing any Confidential 


 


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Information) irrespective of the location or
form of such material.  If requested by
the Company, the Executive will provide the Company with written confirmation
that all such materials have been delivered to the Company as provided herein.


 


6.2                                 Executive Work
Product: Inventions.


 


(a)                                  Ideas,
processes, developments and discoveries conceived by the Executive in any way
related to the Confidential Information or the development, production,
financing or marketing activities carried on by the Company, whether conceived
alone or with others during the performance of his duties, and whether or not
conceived during the regular working hours of the Company (collectively, the “Executive
Work Product”), shall be the sole and exclusive property of the Company,
and the Executive hereby assigns to the Company, his entire right, title and
interest in and to the Executive Work Product. 
The Company shall also have the right to keep any and all of the
Executive Work Product as its Confidential Information.


 


(b)                                 Unless and
except to the extent that the Company specifically agrees in writing to the
contrary, the Executive hereby agrees, acknowledges and confirms that any and
all work and other products to which he shall have directly or indirectly
contributed during the Term or which other employees shall have produced or to
which they shall have contributed under his supervision or otherwise during the
Term shall be deemed to be “works for hire” in and to which the Company shall
have full and exclusive right, title and interest.  The Executive shall execute any and all
documents reasonably necessary and appropriate to evidence the foregoing, and
Executive hereby irrevocably appoints the Company as Executive’s attorney in
fact (which appointment will be deemed for consideration and coupled with an
interest) to execute and file any such documents on the Executive’s behalf.


 


(c)                                  The Executive
will hold for the Company’s sole benefit any Invention, which is to be the
exclusive property of the Company regardless of whether any patent, copyright,
trademark or other right or protection is issued.  Any and all Inventions will be promptly and
fully disclosed by the Executive to the Board or the CEO, and are hereby
assigned to the Company, without any additional compensation therefor.  For purposes of this Agreement, “Inventions”
shall mean all inventions, products, discoveries, improvements, processes,
marketing and services methods or techniques, formulae, designs, styles,
specifications, data bases, computer programs (whether in source code or object
code), know-how, strategies and data, whether or not patentable or registrable
under copyright or similar statutes, made, developed or created by the
Executive, whether at the request or suggestion of the Company or otherwise,
whether alone or in conjunction with others, and whether during regular hours
of work or otherwise, during the period of his employment by the Company which
may pertain to the business, products or processes of the Company, and all
papers, drawings, models, data, documents and other material pertaining to or
in any way relating to any of the Inventions.


 


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6.3                                 Nondisparagement.  The Executive agrees that he will not at any
time (whether during or after the Term) publish or communicate to any person or
entity any Disparaging Remarks (as defined below) concerning the Company,
Cerberus, their parents, subsidiaries and affiliates, and their respective
present and former members, partners, directors, officers, shareholders,
employees, agents, attorneys, successors and assigns, and the Company and its
subsidiaries will not at any time (whether during or after the Term) publish or
communicate to any person or entity any Disparaging Remarks concerning the
Executive.  “Disparaging Remarks”
are remarks, comments or statements that impugn the character, honesty,
integrity or morality or business acumen or abilities in connection with any
aspect of the operation of business of the individual or entity being
disparaged.


 


6.4                                 Non-Solicitation
or Hire.  During the period commencing
on the Effective Date and continuing for a period of twelve (12) months after
the Executive’s employment ceases regardless of the reason (the “Restricted
Period”), the Executive shall not, whether individually, or as a director,
manager, member, stockholder, partner, owner, employee, consultant or agent,
directly or indirectly, solicit or attempt to solicit or induce,


 


(a)                                  any person or
entity that is a customer of any of the Protected Parties, or who was a
customer of any of the Protected Parties at any time during the twelve (12)
month period immediately prior to the date the Executive’s employment
terminates, in any manner that interferes, or is reasonably likely to
interfere, with any agreement or contract between any of the Protected Parties
and such customer or that otherwise causes harm, or is reasonably likely to
cause harm, to any of the Protected Parties,


 


(b)                                 any supplier to
any of the Protected Parties to terminate, reduce or alter negatively its
relationship with any of the Protected Parties or in any manner that interferes
with any agreement or contract between any of the Protected Parties and such
supplier or that otherwise causes harm, or is reasonably likely to cause harm,
to any of the Protected Parties, or


 


(c)                                  any employee of
any of the Protected Parties or any person who was an employee of any of the
Protected Parties during the six (6) month period immediately prior to the
date the Executive’s employment terminates to terminate such employee’s
employment relationship with any of the Protected Parties in order, in either
case, to enter into a similar relationship with the Executive, or any other
person or any entity in competition with the Business of any of the Protected
Parties.  Nor will the Executive,
directly or indirectly, on behalf of himself or any other entity, employ or
solicit for employment, or advise or recommend to any other person or entity
that they employ or solicit for employment, any employee of any of the Protected
Parties or retain or attempt to retain the services of any individual who is an
independent contractor for any of the Protected Parties if doing so would
diminish the services any such independent contractor was providing to any of
the Protected Parties.


 


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Notwithstanding the foregoing, the Company acknowledges and agrees
that, given the Executive’s longstanding service of thirty (30) years or more
in the consumer retail business and his pre-existing relationships with
customers, suppliers and employees, the Executive shall be permitted to
maintain such relationships following his termination of employment with the
Company or any of the other Protected Parties. 
Such activities shall not constitute a breach of this Section 6.4
or any other provision in this Agreement, unless they interfere with, or are
reasonably likely to interfere with, or cause harm to, the Business of any of
the Protected Parties.


 


6.5                                 Non-Competition.


 


(a)                                  During the
Restricted Period, the Executive shall not, whether individually, as a
director, manager, member, stockholder, partner, owner, employee, consultant or
agent of any business, or in any other capacity, other than on behalf of the
Protected Parties, organize, establish, own, operate, manage, control, engage
in, participate in, invest in, permit his name to be used by, act as a
consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or business organization), or otherwise assist any
person or entity that engages in or owns, invests in, operates, manages or
controls any venture or enterprise which engages in the women’s career and
sports apparel for the moderate and better categories business in the
geographic locations where the Company and its subsidiaries engage in such
business (the “Business”).


 


(b)                                 Notwithstanding
the foregoing, nothing in this Agreement shall prevent the Executive from
owning for passive investment purposes not intended to circumvent this
Agreement, less than five percent (5%) of the publicly traded common equity
securities of any company engaged in the Business (so long as the Executive has
no power to manage, operate, advise, consult with or control the competing
enterprise and no power, alone or in conjunction with other affiliated parties,
to select a director, manager, general partner, or similar governing official
of the competing enterprise other than in connection with the normal and
customary voting powers afforded the Executive in connection with any
permissible equity ownership), nor shall the Executive be prevented from
participating in the activities as set forth in Section 2.2.


 


6.6                                 Property.  The Executive acknowledges that all originals
and copies of materials, records and documents generated by him or coming into
his possession during his employment by the Company or its subsidiaries are the
sole property of the Company and its subsidiaries (“Company Property”).  During the Term, and at all times thereafter,
the Executive shall not remove, or cause to be removed, from the premises of
the Company or its subsidiaries, copies of any record, file, memorandum,
document, computer related information or equipment, or any other item relating
to the Business of the Company or its subsidiaries, except in furtherance of
his duties under the Agreement.  When the
Executive’s employment with the Company terminates, or upon request of the
Company at any time, the Executive shall promptly deliver to the Company all
copies of Company Property in his possession or control.


 


12

















 


6.7                                 Reasonableness
of the Restrictions.  The
Executive represents that his experience, capabilities and circumstances are
such that the provisions of this Section 6 will not prevent him
from earning a livelihood.  The Employee
further agrees that the limitations set forth in this Section 6 are
reasonable in duration, geographic area and scope and are properly required for
the adequate protection of the Businesses of the Company.  It is understood and agreed that the
covenants made by the Executive in this Section 6 shall survive the
expiration or termination of this Agreement and the Term.  Notwithstanding anything to the contrary in
this Section 6, at any time during the Restricted Period the Executive
may submit a written request to the Company for a limited waiver of any
covenant contained herein for any specific situation or circumstance.


 


6.8                                 Other
Agreements.  In the
event the Executive has entered or may enter after the Effective Date into any
agreement providing the same or similar obligations as set forth in this Section 6,
all such agreements shall be read together to give the greatest protection to
the Company.


 


7.                                       Remedies;
Specific Performance.  The parties
acknowledge and agree that the Executive’s breach or threatened breach of any
of the restrictions set forth in Section 6 will result in
irreparable and continuing damage to the Protected Parties for which there may
be no adequate remedy at law and that the Protected Parties shall be entitled
to equitable relief, including specific performance and injunctive relief as
remedies for any such breach or threatened or attempted breach.  The Executive also agrees that such remedies
shall be in addition to any and all remedies, including damages, available to
the Protected Parties against him for such breaches or threatened or attempted
breaches.  In addition, without limiting
the Protected Parties’ remedies for any breach of any restriction on the
Executive set forth in Section 6, the Executive shall not be
entitled to any payments set forth in Section 5 hereof, except for
the Accrued Benefits or as otherwise required by law, if the Executive has
materially breached the covenants applicable to the Executive contained in Section 6,
and the Executive will immediately return to the Protected Parties any such
payments previously received under Section 5 upon such a material
breach, and, in the event of such material breach, the Protected Parties will
have no obligation to pay any of the amounts that remain payable by the Company
under Section 5.


 


8.                                       Indemnification.


 


8.1                                 The Company
agrees, to the extent permitted by applicable law and its organizational
documents, to indemnify, defend and hold harmless the Executive from and
against any and all losses, suits, actions, causes of action, judgments,
damages, liabilities, penalties, fines, costs or claims of any kind or nature (“Indemnified
Claim”), including reasonable legal fees and related costs incurred by the
Executive in connection with the preparation for or defense of any Indemnified
Claim, whether or not resulting in any liability, to which the Executive may
become subject (including without limitation as a witness) or liable or which
may be incurred by or assessed against the Executive, relating to or arising
out of his employment by the Company, provided that the Company shall only
defend, but not indemnify or hold the Executive harmless, from and against an
Indemnified Claim in the event there is a final, non-appealable, determination
that the Executive’s liability with respect to such Indemnified Claim resulted
from the Executive’s willful misconduct or gross negligence.


 


13

















 


8.2                                 At the
Executive’s request, the Company shall advance to the Executive the cost of all
reasonable legal fees and related costs incurred by the Executive arising out
of or relating to any Indemnified Claim, provided as a condition to any such
advance the Company may require that the Executive agree to repay the funds
advanced to the extent it is determined by a final, non-appealable judgment of
a court of competent jurisdiction that the Executive is not entitled to
indemnification for such reasonable legal fees and related costs.


 


8.3                                 The Company’s
obligations under this section shall be in addition to any other right, remedy
or indemnification which the Executive may have or be entitled to at common law
or otherwise.  The provisions of this Section 8
shall survive the termination of this Agreement for any reason.


 


9.                                       Arbitration.


 


9.1                                 Any dispute or
controversy arising under or in connection with this Agreement, other than as
provided in Section 7, shall be resolved by binding
arbitration.  The arbitration shall be
held within the State of New York, and, except to the extent inconsistent with
this Agreement, shall be conducted in accordance with the Employment
Arbitration Rules of the American Arbitration Association then in effect
at the time of the arbitration and otherwise in accordance with principles
which would be applied by a court of law or equity.


 


9.2                                 The arbitrator
shall be acceptable to both the Company and the Executive.  If the parties cannot agree on an acceptable
arbitrator, the dispute shall be heard by a panel of three arbitrators, one
appointed by each of the parties and the third appointed by the other two
arbitrators.  All expenses of arbitration
shall be borne by the party who incurs the expense or, in the case of joint
expenses, by both parties in equal portions, except that in the event the
Executive substantially prevails on the principal issues of such dispute or
controversy, the arbitrator shall have the authority to direct the Company to
pay all or a portion of the Executive’s share of such expenses.


 


9.3                                 Notwithstanding
the above, however, because time is of the essence, whenever a violation or
threatened violation of the covenants and obligations contained in Section 6
is alleged, the parties agree that the enforcement of such covenants and
obligations and any request for injunctive relief pursuant to Section 7
shall be excepted from the provisions of this Section 9.


 


10.                                 Other
Provisions.


 


10.1                           Notices.  Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid or overnight mail and shall be deemed given when
so delivered personally, or sent by facsimile transmission or, if mailed, four (4) days
after the date of mailing or one (1) day after overnight mail, as follows:


 


(a)                                  If the Company,
to:


 


Rafaella Apparel Group, Inc.

1411 Broadway




14

















 


	
  New York, New York 10018

  
	
  Attention:

  	
   

  	
  Secretary

  
	
  Telephone:

  	
   

  	
  (212) 403-0300

  
	
  Fax:

  	
   

  	
  (212) 764-9275

  
	
   

  	
   

  	
   

  
	
  With copies to:

  

  Milbank, Tweed, Hadley & McCloy LLP

  One Chase Manhattan Plaza

  New York, NY 10005 

  
	
  Attention:

  	
   

  	
  Roland Hlawaty

  
	
  Telephone:

  	
   

  	
  (212) 530-5735

  
	
  Fax:

  	
   

  	
  (212) 822-5735

  
	
   

  	
   

  	
   

  
	
  and

  
	
   

  
	
  Cerberus Capital Management, L.P.

  299 Park Avenue

  New York, NY 10171

  
	
  Attention:

  	
   

  	
  George Kollitides

  
	
  Fax:

  	
   

  	
  (212) 284-7916

  



 


(b)                                 If to the
Executive, to the Executive’s home address reflected in the Company’s records,


 


	
  With a copy to:

  

  Epstein Becker & Green, P.C

  250 Park Avenue

  New York, NY 10177-1211

  
	
  Attention:

  	
   

  	
  Howard Pianko, Esq.

  
	
  Fax:

  	
   

  	
  (212) 878-8691

  



 


10.2                           Entire
Agreement.  This
Agreement, including Exhibit A hereto, contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.  To the extent that any provision of this
Agreement conflicts with any current or future policy or procedure of the
Company, the provisions of this Agreement shall prevail.


 


10.3                           Representations
and Warranties by Executive.  The Executive represents and warrants that he
is not a party to or subject to any restrictive covenants, legal restrictions
or other agreements in favor of any entity or person which would in any way
preclude, inhibit, impair or limit the Executive’s ability to perform his
obligations under this Agreement, including, but not limited to,
non-competition agreements, non-solicitation agreements or confidentiality
agreements.


 


 


15

















 


10.4                           Waiver and
Amendments.  This
Agreement may be amended, modified, superseded, canceled, renewed or extended,
and the terms and conditions hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance.  No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver of any right, power or privilege
hereunder, nor any single or partial exercise of any right, power or privilege
hereunder, preclude any other or further exercise thereof or the exercise of
any other right, power or privilege hereunder.


 


10.5                           Governing Law
and Venue.


 


(a)                                  This Agreement
shall be governed and construed in accordance with the laws of the State of New
York applicable to agreements made and not to be performed entirely within such
state, without regard to conflict of law principles.


 


(b)                                 The parties
agree irrevocably to submit to the exclusive jurisdiction of the federal courts
or, if no federal jurisdiction exists, the state courts, located in the City of
New York, Borough of Manhattan, for the purposes of any suit, action or other
proceeding brought by any party arising out of this Agreement and hereby waive,
and agree not to assert by way of motion, as a defense or otherwise, in any
such suit, action, or proceeding, any claim that he or it is not personally
subject to the jurisdiction of the above-named courts, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper, or that the provisions of this Agreement may
not be enforced in or by such courts.  In
addition, the parties agree to the waiver of a jury trial.


 


10.6                           Assignability
by the Company and the Executive.  This Agreement, and the rights and obligations
hereunder, may not be assigned by the Company or the Executive without written
consent signed by the other party; provided that the Company may assign the
Agreement to any successor that continues the business of the Company.


 


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


 


10.8                           Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.


 


10.9                           Severability.  If any term, provision, covenant or
restriction of this Agreement, or any part thereof, is held by a court of
competent jurisdiction of any foreign, federal, state, county or local
government or any other governmental, regulatory or administrative agency or
authority to be invalid, void, unenforceable or against public policy for any
reason, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected or impaired or invalidated.


 


16

















 


The Executive acknowledges
that the restrictive covenants contained in Section 6 are a
condition of this Agreement and are reasonable and valid in temporal scope and
in all other respects.


 


10.10                     Judicial
Modification.  If any
court determines that any of the covenants in Section 6, or any
part of any of them, is invalid or unenforceable, the remainder of such
covenants and parts thereof shall not thereby be affected and shall be given
full effect, without regard to the invalid portion.  If any court determines that any of such
covenants, or any part thereof, is invalid or unenforceable because of the geographic
or temporal scope of such provision, such court shall reduce such scope to the
minimum extent necessary to make such covenants valid and enforceable.


 


10.11                     Legal Fees.  The Company will pay for or reimburse the
Executive for his costs reasonably incurred in retaining legal counsel to
review this Agreement and advise him in connection therewith prior to execution
to a maximum amount of fifteen thousand dollars ($15,000), subject to the
Executive’s submission of appropriate documentation of such expenses.


 


10.12                     Acknowledgement.  The Executive represents and acknowledges the
following:


 


(a)                                  He has
carefully read this Agreement in its entirety;


 


(b)                                 He understands
the terms and conditions contained herein;


 


(c)                                  He has reviewed
this Agreement with legal counsel of his own choosing and has not relied on any
statements made by the Company or its legal counsel as to the meaning of any
term or condition contained herein or in deciding whether to enter into this
Agreement; and


 


(d)                                 He is entering
into this Agreement knowingly and voluntarily.


 


[Remainder
of page intentionally left blank.]


 


17

















 


IN WITNESS WHEREOF, the
parties hereto, intending to be legally bound hereby, have executed this
Agreement as of the day and year first above mentioned.


 


	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
  /s/ Husein Jafferjee

  	
   

  
	
   

  	
  Husein Jafferjee

  
	
   

  	
   

  
	
   

  	
  RAFAELLA APPAREL GROUP,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ George Kollitides

  	
   

  
	
   

  	
  Name: George Kollitides

  
	
   

  	
  Title: Authorized Person

  
				



 


18

















 


EXHIBIT
A


 


TRANSACTION BONUS


 


The Executive shall receive
a cash payment equal to two and five-tenths percent (2.5%) of the Appreciated
Value in connection with Sale Transactions and two and five-tenths percent
(2.5%) of the Net Dividends paid other than in connection with a Sale
Transaction (in either case, a “Sale/Dividend Payment”), subject to
vesting as described below.  Any term not
defined herein shall have the meaning set forth in the employment agreement to
which this Exhibit A is attached (the “Employment Agreement”).


 


DEFINITIONS


 


1.                                       SALE
TRANSACTION


 


For purposes of this
Agreement, “Sale Transaction” shall mean:


 


(i)                                     a “Change in
Control”, as defined in the Employment Agreement; and


 


(ii)                                  other than in
connection with a “Change in Control”, (A) all transactions
(determined cumulatively from the Effective Date) by the common stockholders of
the Company on the Effective Date (the “Common Stockholders”) or any
affiliates of such Common Stockholders resulting in the sale of common
securities of the Company to one or more Third Parties (as defined in the
definition of “Change in Control”) and (B) the sale by the Company
of its common securities pursuant to an initial public offering.


 


2.                                       APPRECIATED
VALUE


 


For purposes of this
Agreement, “Appreciated Value” shall mean:


 


(i)                                     the “net
value” of all cash, securities and other consideration in any form paid by
a Third Party to the Company and/or the Common Stockholders in connection with
Sale Transactions (including the aggregate amount of any Dividends in
connection with or in contemplation of a Sale Transaction) and taking into
account the Net Dividends calculated in connection with any Dividends paid
after the Effective Date to the Common Stockholders or any affiliates of such
Common Stockholders; minus


 


(ii)                                  in the case of
a Sale Transaction in which the Company receives consideration from the Third
Party, the sum of (x) the amount of any debt or preferred stock (based
upon its aggregate liquidation preference plus any accrued and unpaid dividends
or other preferred return) assumed, acquired, redeemed or repaid (directly or
indirectly) in connection with the Sale Transaction, or which remains on the
Company’s financial statements at the time of the Sale Transaction and (y) $53,333,333
(the “Floor Amount”); or


 


19

















 


(iii)                               in the case of
a Sale Transaction in which the Common Stockholders receive consideration from
the Third Party, the sum of (x) the amount of any preferred stock of the
class or series issued and outstanding on the Effective Date (based upon its
aggregate liquidation preference plus any accrued and unpaid dividends or other
preferred return) that is issued and outstanding as of the time of such Sale
Transaction and (y) the Floor Amount minus (A) the number of
shares of such preferred stock issued and outstanding as of the time of such
Sale Transaction multiplied by (B) the original issue price thereof.


 


Amounts paid into escrow and
contingent payments in connection with any Sale Transaction, if paid within
five (5) years of the consummation of any Sale Transaction, will be
included as part of the Appreciated Value if and when paid to the Common
Stockholders.  If the Appreciated Value
is a negative number, no Sale/Dividend Payment shall be due.


 


For the avoidance of doubt,
the deduction with respect to the Floor Amount shall be applied only once with
respect to the determination of the Appreciated Value and Net Dividends and
there shall be no duplication with respect to any preferred stock or debt.


 


3.                                       NET DIVIDENDS


 


For purposes of this
Agreement, “Net Dividends” shall mean:


 


(iv)                              the aggregate
value of all cash, securities and other consideration paid after the Effective
Date by the Company to the Common Stockholders or any affiliates of such Common
Stockholders (other than in connection with a Sale Transaction) in the form of
dividends, other distributions or as a repurchase of any common securities of
the Company (collectively, “Dividends”) and taking into account the “Appreciated
Value” calculated in connection with prior Sale Transactions; minus


 


(v)                                 the sum of (x) the
amount of any preferred stock of the class or series issued and outstanding on
the Effective Date (based upon its aggregate liquidation preference plus any
accrued and unpaid dividends or other preferred return) that is issued and
outstanding as of the time of such Dividend and (y) the Floor Amount minus
(A) the number of shares of such preferred stock issued and outstanding as
of the time of such Dividend multiplied by (B) the original issue price
thereof.


 


If Net Dividends is a
negative number, no Sale/Dividend Payment shall be due.


 


Calculations of Appreciated
Value or Net Dividends shall be made in connection with any Sale Transaction or
Dividend payment and shall be calculated, without duplication, on a cumulative
basis taking into account all Dividends and Sale Transactions from the
Effective Date.


 


For the avoidance of doubt,
the deduction with respect to the Floor Amount shall be applied only once with
respect to the determination of the Appreciated Value and Net Dividends and
there shall be no duplication with respect to any preferred stock or debt.


 


20

















 


VESTING
AND PAYMENT OF TRANSACTION BONUS


 


1.                                       FULL VESTING


 


Notwithstanding any
provision contained herein to the contrary, in the event a Change in Control is
consummated prior to full vesting of the Sale/Dividend Payment and provided the
Executive’s employment under the Employment Agreement has not terminated as of
the date of such Change in Control, the Executive shall be one hundred percent
(100%) vested in the entire Sale/Dividend Payment, which shall be payable in a
lump sum within thirty (30) days of such Change in Control.


 


2.                                       VESTING
SCHEDULE


 


Provided that the Executive
remains an employee of the Company or its subsidiaries on each Vesting Date as
described below, the Executive shall vest in a percentage of the Sale/Dividend
Payment as indicated below:


 


	
  Vesting
  Date: On the following

  anniversaries of the Effective Date:

  	
   

  	
  The following percent of the Sale/Dividend

  Payment shall vest:

  	
   

  
	
  3
  month

  	
   

  	
  4

  	
  %

  
	
  6
  month

  	
   

  	
  4

  	
  %

  
	
  9
  month

  	
   

  	
  4

  	
  %

  
	
  12
  month

  	
   

  	
  5

  	
  %

  
	
  15
  month

  	
   

  	
  6

  	
  %

  
	
  18
  month

  	
   

  	
  6

  	
  %

  
	
  21
  month

  	
   

  	
  7

  	
  %

  
	
  24
  month

  	
   

  	
  7

  	
  %

  
	
  27
  month

  	
   

  	
  8

  	
  %

  
	
  30
  month

  	
   

  	
  9

  	
  %

  
	
  33
  month

  	
   

  	
  10

  	
  %

  
	
  36
  month

  	
   

  	
  10

  	
  %

  
	
  39
  month

  	
   

  	
  10

  	
  %

  
	
  42
  month

  	
   

  	
  10

  	
  %

  



 


3.                                       TERMINATIONS
AND FORFEITURES


 


If the Executive’s
employment with the Company and its subsidiaries terminates for any reason
prior to the consummation of a Change in Control, any then-unvested portion of
the Sale/Dividend Payment shall immediately be cancelled, and the Executive
(and the Executive’s 


 


21

















 


estate, designated
beneficiary or other legal representative, as applicable) shall forfeit any
rights or interests in and with respect to any such unvested portion of the
Sale/Dividend Payment.


 


In the event any Sale
Transaction is consummated, or any Net Dividend is paid, on or prior to the
eighteen (18) month anniversary of the termination of the Executive’s
employment with the Company and its subsidiaries, the Executive shall be
entitled to the portion of the Sale/Dividend Payment that had vested on or
prior to the effective date of termination; provided, however,
that if the Executive is seventy percent (70%) or more vested, the period shall
be extended to twenty-four (24) months. 
Such amount shall be payable to the Executive in a lump sum within sixty
(60) days of the date of such Sale Transaction or Net Dividend payment.


 


In the event any Sale
Transaction is consummated, or any Net Dividend is paid, after such eighteen
(18) month or twenty-four (24) month anniversary, as applicable, any rights or
interests in the entire Sale/Dividend Payment (whether vested or unvested)
shall be cancelled and the Executive (and the Executive’s estate, designated
beneficiary or other legal representative, as applicable) shall forfeit any
rights or interests in and with respect to the entire Sale/Dividend Payment.


 


Notwithstanding anything
herein to the contrary, the Board may, in its sole discretion, accelerate the
vesting of any portion of the unvested portion of a Sale/Dividend Payment at
any time.


 


22