Exhibit 10.3


REDEMPTION AGREEMENT


This Redemption Agreement,
dated as of June 20, 2005 (this “Agreement”), is by and among Rafaella
Sportswear, Inc., a Delaware corporation (the “Seller”), Rafaella
Apparel Group, Inc., a Delaware corporation (formerly known as Rafaella
Corporation) (the “Company”) and RA Cerberus Acquisition, LLC, a
Delaware limited liability company (the “Purchaser”).  Capitalized terms not defined herein shall
have the meaning as set forth in the Purchase Agreement (as defined below).


WHEREAS, the Company is a
corporation formed pursuant to a certificate of incorporation filed with the
Secretary of State of Delaware on April 4, 2005;


WHEREAS, the Seller and the Company are parties to a
Contribution Agreement, (the “Contribution Agreement”), pursuant to
which the Seller will contribute, immediately prior to the consummation of the
transactions contemplated by this Agreement, to the capital of the Company all
of the Assets subject to the Assumed Liabilities (each as defined in the
Contribution Agreement) in exchange for 100% of the common stock in the Company
(the “Common Stock”);


WHEREAS, the Company, the Seller and certain
affiliates of the Seller and Purchaser are party to a Securities Purchase
Agreement, dated as of April 15, 2005, as amended by Amendment No. 1 to the
Securities Purchase Agreement dated May 27, 2005 (the “Purchase Agreement”), pursuant
to which Purchaser is contributing $40 million to the capital of the Company in
exchange for the issuance of 100% of the preferred stock of the Company;


WHEREAS, Purchaser and
Seller have entered into that certain Stockholders’ Agreement, dated June     ,
2005;


WHEREAS, the Company has
filed the Amended and Restated Certificate of Incorporation of the Company (the
“Charter”) with the Secretary of State of the State of Delaware and has
adopted the Amended and Restated By-Laws of the Company (the “By-Laws”),
each in the form attached to the Purchase Agreement as Exhibit I, and such
Charter and By-Laws are in full force and effect;


WHEREAS, Jefferies & Company Inc. and the
Company are party to a senior note purchase agreement (the “Senior Note
Purchase Agreement”), dated as of June     , 2005 pursuant to which
the Company is issuing $172,000,000 aggregate principal amount at maturity of second lien senior secured notes (the “Financing”);


WHEREAS, the Company desires
to redeem a portion of the Common Stock from the Seller in connection with the
consummation of the transactions contemplated by the Purchase Agreement and the
other Transaction Documents (the “Redemption”);


WHEREAS,
Seller has agreed to deposit $20,000,000 in a segregated escrow account (the “First
Escrow Account”) and the Company has agreed to deposit $10,000,000 into a
segregated escrow account (the “Second Escrow Account,” and, together
with the First Escrow Account, the “Escrow Accounts,” and such
$30,000,000 amount in the Escrow Accounts in the


 

















 


aggregate, the “Escrow Amount”)) to be held
by JPMorgan Chase Bank, as escrow agent (the “Escrow Agent”) pursuant to
the terms of an escrow agreement (the “Escrow Agreement”); and


WHEREAS,
the Company’s contribution to the Second Escrow Account will secure the Company’s
obligation to make payments under Section 1.1(b)(2) hereof and the entire
Escrow Amount will also support the indemnification obligations of Rafaella and
Frankel under the Purchase Agreement.


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


1.             Repurchase of Common Stock; Closing.


1.1.          Sale and Transfer of Common Stock.


(a)           Upon the terms and subject to the conditions set forth in
this Agreement, on the Closing Date (as defined below) the Seller hereby agrees
to sell to the Company, and the Company hereby agrees to repurchase from the
Seller (and Purchaser shall cause the Company to purchase from Seller), such
portion of Seller’s Common Stock such that immediately after giving effect to
the redemption the Common Stock in the Company held by Seller will represent
25% of the fully diluted equity of the Company (the “Redemption Stock”)
for a purchase price of One Hundred Seventy Five Million Dollars ($175,000,000)
plus the Accrued Interest Amount (the “Purchase Price”).


(b)           The Purchase Price shall be paid as follows:


(1)           On the Closing Date, the Company shall pay the Seller One
Hundred Sixty Five Million Dollars ($165,000,000) (the “Closing Payment”)
by wire transfer of immediately available funds to an account designated by
Seller at least two Business Days prior to the Closing Date with respect to
$145,000,000 of such Closing Payment, and to the First Escrow Account with
respect to $20,000,000 of such Closing Payment;


(2)           Until such time as the Purchase Price has been paid in
full, beginning on the nine-month anniversary of the Closing Date or such
earlier date as may be necessary to satisfy the obligations to release funds
from the Second Escrow Account in accordance with the terms of the Escrow
Agreement, on each one month anniversary of the Closing Date, the Company shall
pay Seller an amount equal to the lesser of (x) Two Million Five Hundred
Thousand Dollars ($2,500,000) and (y) the remaining unpaid Purchase Price, such
amounts to be paid from the funds in the Second Escrow Account in accordance
with and subject to the terms and conditions in the Escrow Agreement.


(c)           In addition to the Closing Payment, on the Closing Date,
the Company shall deposit its portion of the Escrow Amount by wire transfer of
immediately available funds into the Second Escrow Account to secure its
obligation to make payments under Section 1.1(b)(2) hereof and, together with
the funds in the First Escrow Account, to support the indemnification
obligations of Rafaella and Frankel under the Purchase Agreement.


 


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(d)           As used herein “Accrued Interest Amount” means an amount
equal to the actual earnings of the accountholder with respect to the amounts
on deposit in the Escrow Accounts that are distributed to Seller pursuant to
the terms and conditions of the Escrow Agreement.


1.2.          Closing Date. 
Upon the terms and subject to the conditions set forth in this
Agreement, the closing of the sale and purchase of the Redemption Stock (the “Closing”)
shall take place at the offices of Schulte Roth & Zabel LLP, 919 Third
Avenue, New York, New York immediately following the satisfaction or waiver of
all conditions set forth in Sections 3 and 4 hereof (the “Closing Date”).


1.3.          Allocations. 
As soon as practicable after the Closing, Purchaser shall deliver to
Seller and the Company a proposed schedule allocating the Purchase Price among
the Acquired Assets (the “Allocation Statement”) which allocation shall be made
in a manner consistent with Sections 755 and 1060 of the Code, as applicable,
and the Treasury Regulations thereunder. 
The parties will use their best efforts to agree on the Allocation
Statement.  If the parties do agree on an
allocation, the parties shall file all required Tax Returns in accordance with
the Allocation Statement and Sections 755 and 1060 of the Code, as
applicable.  Purchaser, Seller and the
Company shall provide promptly the other with any information required to
complete the Allocation Statement.  For
all tax purposes, Purchaser, Seller and the Company agree to report the
transactions contemplated hereby (including the filing of any Tax Returns and
refund claims) in a manner consistent with any agreed to Allocation Statement.


2.             Representations
and Warranties of the Company.  The
Company hereby represents and warrants to the Seller as follows:


(a)           The Company has the requisite power and authority to
execute and deliver this Agreement and the Escrow Agreement, to perform its
obligations hereunder and thereunder and to consummate the Redemption.  The execution and delivery of this Agreement
and the Escrow Agreement by the Company and the consummation by the Company of
the Redemption has been duly authorized by all requisite corporate action on
the part of the Company and no other proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the Redemption.


(b)           This Agreement and the Escrow Agreement have been duly
executed and delivered by the Company and constitute the legal, valid and
binding obligations of the Company, except that the enforcement hereof and
thereof may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar Laws now or hereafter in effect relating to
creditors’ rights generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).


3.             Conditions to
Obligations of the Company.  The
obligation of the Company hereto to effect the Redemption and to consummate the
transactions contemplated hereby shall be subject to the fulfillment or waiver
at or prior to the Closing Date of the following conditions:


 


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(a)           Transactions Closed.  The closing of the transactions contemplated
by the Contribution Agreement and the issuance of the preferred stock pursuant
to the Purchase Agreement shall have occurred and all of the conditions to the
consummation of the Financing or of a replacement debt financing transaction or
transactions, shall have been satisfied or waived and such Financing or
replacement financing shall be on terms, when viewed in the aggregate, no less
favorable to the Company than those set forth on Exhibit VIII to the Purchase
Agreement.


(b)           Escrow Agreement. 
The Escrow Agreement shall be duly executed and delivered to the Company
by all the parties thereto (other than the Company).


(c)           Solvency Letter. 
The Company shall have received a solvency letter, in form and substance
reasonably satisfactory to the Company and the Purchaser, from Houlihan Lokey
Howard & Zukin, with respect to the solvency of the Seller after giving
effect to the transactions contemplated by Section 3(a) above, the Financing
and the Redemption.


4.             Conditions to
Obligations of the Seller.  The
obligation of the Seller hereto to effect the Redemption and to consummate the
transactions contemplated hereby shall be subject to the fulfillment or waiver
at or prior to the Closing Date of the following conditions:


(a)           Purchase Price. 
The Seller shall have received the Closing Payment and the Escrow Amount
shall have been deposited in the Escrow Account.


(b)           Escrow Agreement. The Escrow Agreement shall be
duly executed and delivered to the Seller by all parties thereto (other than
the Seller).


(c)           Transactions Closed.  The closing of the transactions contemplated
by the Contribution Agreement and the issuance of the preferred interests
pursuant to the Purchase Agreement shall have occurred and all of the
conditions to the consummation of the Financing or of a replacement debt
financing transaction or transactions, shall have been satisfied or waived and
such Financing or replacement financing shall be on terms, when viewed in the
aggregate, no less favorable to the Company than those set forth on Exhibit
VIII to the Purchase Agreement.


5.             General.


5.1.          Amendments and Waivers.  The provisions of this Agreement may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, without the written
consent of Seller and the Company.


5.2.          Notices.  All
notices and other communications provided for or permitted hereunder to any
party shall be deemed to be sufficient if contained in a written instrument and
shall be deemed to have been duly given when delivered in person, by facsimile,
by nationally-recognized overnight courier, or by first class registered or certified
mail, postage prepaid, addressed to such party at the address set forth below
or such other address as may hereafter be designated in writing by the
addressee as follows:


 


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If to the Seller, to:



Rafaella Sportswear, Inc.


1411 Broadway


New York, New York  10018


Attention:  Ronald Frankel


Telephone:            (212) 403-0300


Telecopier:            (212) 764-9275


 


with a copy to:


 


Kronish Lieb Weiner & Hellman LLP


1114 Avenue of the Americas


New York, New York  10036


Attention:
Steven K. Weinberg, Esq.


Telephone:
(212) 479-6240


Telecopier:
(212) 479-6275


If to the Company, to:



Rafaella Apparel Group, Inc.


1411
Broadway


New
York, New York  10018


Attention:
Chief Executive Officer


Telephone:
212-403-0300


Telecopier: 212-764-9275


 


With a copy to:



Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York  10022

Attn:  David E. Rosewater, Esq. 

Telephone:  (212) 756-2208


Telecopier: 
(212) 593-5955


If to RA Cerberus Acquisition, LLC, to:



c/o Cerberus Capital Management, L.P.


299
Park Avenue


New
York, New York  10171


Attention:    Mark Neporent, Kurt Larsen and George
Kollitides


Telephone:  (212) 891-2100


Telecopier: 
(212) 891-1540


 


With a copy to:


 


 


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Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York  10022

Attn:  David E. Rosewater, Esq. 

Telephone:  (212) 756-2208


Telecopier: 
(212) 593-5955


All such notices, requests,
consents and other communications shall be deemed to have been delivered (i) in
the case of personal delivery or delivery by confirmed facsimile, on the date
of such delivery, (ii) in the case of nationally-recognized overnight courier,
on the next business day and (iii) in the case of mailing, on the third
business day following such mailing if sent by certified mail, return receipt
requested.


5.3.          Successors and Assigns.  This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors
and assigns.


5.4.          No Assignment. 
This Agreement is not assignable by the Company (by operation of law or
otherwise) without the prior written consent of the other parties, provided,
however that Purchaser may assign this Agreement to its financing sources as
collateral in connection with the Financing or to any of its Affiliates so long
as Purchaser remains an obligor under this Agreement, without the prior written
consent of the other parties.


5.5.          Counterparts. 
This Agreement may be executed in two or more counterparts, each of
which, when so executed and delivered, shall be deemed to be an original, but
all of which counterparts, taken together, shall constitute one and the same
instrument.


5.6.          Descriptive Headings, Etc.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. 
Unless the context of this Agreement otherwise requires: (i) words of
any gender shall be deemed to include each other gender; (ii) words using the
singular or plural number shall also include the plural or singular number,
respectively; (iii) the words “hereof”, “herein” and “hereunder” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section and
paragraph references are to the Sections and paragraphs of this Agreement
unless otherwise specified; (iv) the word “including” and words of similar
import when used in this Agreement shall mean “including, without limitation,”
unless otherwise specified; (v) “or” is not exclusive; and (vi) provisions
apply to successive events and transactions.


5.7.          Severability. 
In the event that any one or more of the provisions, paragraphs, words,
clauses, phrases or sentences contained herein, or the application thereof in
any circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision,
paragraph, word, clause, phrase or sentence in every other respect and of the
other remaining provisions, paragraphs, words, clauses, phrases or sentences
hereof shall not be in any way impaired, it being intended that all rights,
powers and privileges of the parties hereto shall be enforceable to the fullest
extent permitted by law.


 


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5.8.          Governing Law.  This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York (without reference to its choice of law rules).


5.9.          Consent to Jurisdiction.  Each of the parties hereto hereby irrevocably
and unconditionally agrees that any action, suit or proceeding, at law or
equity, arising out of or relating to this Agreement or any agreements or
transactions contemplated hereby shall only be brought in any federal court of
the Southern District of New York or any state court located in New York
County, State of New York, and hereby irrevocably and unconditionally expressly
submits to the personal jurisdiction and venue of such courts for the purposes
thereof and hereby irrevocably and unconditionally waives (by way of motion, as
a defense or otherwise) any and all jurisdictional, venue and convenience
objections or defenses that such party may have in such action, suit or
proceeding.  Each party hereby irrevocably
and unconditionally consents to the service of process of any of the
aforementioned courts.  Nothing herein
contained shall be deemed to affect the right of any party to serve process in
any manner permitted by law or commence legal proceedings or otherwise proceed
against any other party in any other jurisdiction to enforce judgments obtained
in any action, suit or proceeding brought pursuant to this Section 5.9.


5.10.        Survival.  The
representations and warranties given or made in this Agreement shall survive
until sixty (60) days after the expiration of the applicable statute of
limitations and shall thereafter terminate and be of no further force or
effect, except any representation or warranty as to which a claim for
indemnification shall have been asserted during the survival period shall
continue in effect with respect to such claim until such claim shall have been
finally resolved or settled.


5.11.        Waiver of Jury Trial. 
EACH PARTY HERETO HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE VALIDITY,
INTERPRETATION OR ENFORCEMENT HEREOF. 
EACH PARTY HERETO AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL
ASPECT OF THIS AGREEMENT AND THAT IT WOULD NOT ENTER INTO THIS AGREEMENT IF
THIS SECTION WERE NOT PART OF THIS AGREEMENT.


5.12.        Entire Agreement. 
This Agreement together with the Purchase Agreement and the other
Transaction Documents are intended by the parties as a final expression of
their agreement and are intended to be a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein.  There are no
restrictions, promises, representations, warranties, covenants or undertakings
relating to such subject matter, other than those set forth or referred to
herein and therein.  This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.


5.13.        Further Assurances. 
Each party hereto shall do and perform or cause to be done and performed
all such further acts and things and shall execute and deliver all such other
agreements, certificates, instruments and documents as any other party hereto
reasonably may


 


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request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.


5.14.        Construction. 
Each party hereto acknowledges that it has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to review this
Agreement with its legal counsel and that this Agreement shall be construed as
if jointly drafted by all of the parties.


[Remainder
of page intentionally left blank. 
Signature page follows.]


 


 


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


 


	
   

  	
  SELLER

  
	
   

  	
   

  
	
   

  	
  RAFAELLA SPORTSWEAR, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald Frankel

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  COMPANY 

  
	
   

  	
   

  
	
   

  	
  RAFAELLA APPAREL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Glenn S. Palmer

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  RA CERBERUS ACQUISITION, LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ George Kollitides

  
	
   

  	
   

  	
  Name: George Kollitides

  
	
   

  	
   

  	
  Title: Authorized Person