Document:

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                                                                  Exhibit 10.31

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                         DONNA KARAN INTERNATIONAL INC.

                               DEFERRED BONUS PLAN

                        Effective as of February 1, 1999

                 (Amended and restated through December 8, 2000)

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                         DONNA KARAN INTERNATIONAL INC.
                               DEFERRED BONUS PLAN

      The Plan is established in order to provide a select group of management
and highly compensated employees of Donna Karan International Inc., its
Subsidiaries and any Parent with the opportunity to defer the receipt of all or
a portion of their annual performance awards under the Executive Incentive Plan
and certain other designated bonus payments in accordance with the terms and
conditions set forth herein.

1. Definitions. For purposes of the Plan, the following definitions apply:

      (a) "Award" means the annual performance award payable to an Eligible
Employee under the Executive Incentive Plan or, subject to the approval of the
Committee, the bonus payable under a plan, agreement or arrangement between an
Eligible Employee and the Employer.

      (b) "Beneficiary" means, unless otherwise specified by the Participant in
a written election filed with the Committee, the person or persons (if any)
designated by the Participant under the Qualified Plan (or otherwise determined
under the terms of the Qualified Plan if no such designation is made) to receive
his or her benefits under the Qualified Plan in the event of the Participant's
death.

      (c) "Board" means the Board of Directors of the Company.

      (d) "Cause" means, with respect to a Participant's Termination of
Employment, a Participant's fraud, embezzlement or commission of a crime with
regard to the Company , its Subsidiaries, any Parent or their respective assets.
The Committee shall have sole discretion in determining whether cause exists,
and its determination shall be final, binding and conclusive.

      (e) "Change in Control" means any of the following:

            (i) the acquisition by any "person" (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) other than a person who is a stockholder of the Company on the
effective date of the registration statement filed under the Securities Act of
1933, as amended, relating to the first public offering (the "Initial Public
Offering") of securities of the Company (an "Initial Stockholder") of 30% or
more of the voting power of securities of Company or the acquisition by an
Initial Stockholder, other than an affiliate of the Company that would be a
Parent or a Subsidiary, of an additional 5% of the voting power of securities of
the Company over and above that owned immediately after the closing date of the
Initial Public Offering of the Company's Common Stock; excluding however, the
following: (x) any acquisition by the Company or a Subsidiary of any of the
foregoing, or (y) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or a Subsidiary; or

            (ii) (A) the acquisition by any "person" (as such term is used in
Section 13(d) and 14(d) of the Exchange Act) other than a person who, on the
effective date of the Initial Public Offering is a holder of any ownership
interest in Donna Karan Studio (an "Initial Licensee Interest Holder") of 30% or
more of the voting power of Donna Karan Studio or (B) the acquisition by an
Initial
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Licensee Interest Holder, other than an affiliate of Gabrielle Studio, Inc. (and
excluding any such acquisition resulting from a purchase, sale or transfer of
Takihyo Inc. stock by and between any of the current stockholders of Takihyo
Inc.) that would be a Parent or a Subsidiary (but substituting Gabrielle Studio,
Inc. for the Company in such definition) of Gabrielle Studio, Inc., of an
additional 5% of the voting power of securities of the Company over and above
that owned immediately after the closing date of the Initial Public Offering of
the Company's Common Stock; excluding however, the following: (x) any
acquisition by the Company or a Subsidiary of any of the foregoing, or (y) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or a Subsidiary; or

            (iii) any merger or sale of substantially all of the assets of the
Company under circumstances where the holders of the Common Stock of the Company
immediately prior to the transaction becoming public knowledge were not holders
of 80% of the equity securities of the surviving entity resulting from such
transaction; or

            (iv) any change in the composition of the Board not approved by (a)
a majority of the Board prior to such change and (b) by not less than two (2)
directors of the Company who were directors prior to the time any person who was
not an Initial Stockholder acquired thirty percent (30%) or more of the voting
power of securities of the Company.

      (f) "Code" means the Internal Revenue Code of 1986, as amended.

      (g) "Committee" means the committee which administers the Plan on behalf
of the Company which: (i) solely with respect to Non-Covered Employees, consists
of the chief executive officer of the Company, the most senior executive from
the human resources department, the most senior executive from the finance
department and any other individual designated by the by the Board; and (ii)
solely with respect to Covered Employees who receive Awards that are intended to
qualify as performance-based compensation within the meaning of Section 162(m),
consists of the Incentive Compensation Subcommittee of the Compensation
Committee or such other committee or subcommittee of the Board appointed by the
Board, provided that such committee shall consist of two (2) or more members of
the Board. To the extent that no committee exists, the Board shall be deemed to
be the Committee.

      (h) "Common Stock" means the common stock of the Company, par value $0.01
per share, any Common Stock into which the Common Stock may be converted and any
Common Stock resulting from any reclassification of the Common Stock.

      (i) "Company" means Donna Karan International Inc., a Delaware
corporation, and any successor thereto.

      (j) "Covered Employee" means an Employee who is, or may become, a "covered
employee" as defined under Section 162(m)(3) of the Code of the Company and is
designated as such by the Committee for purposes of the Plan from time to time.

      (k) "Deferral Period" means, with regard to each Deferred Bonus, the
earlier of: (i) the period of deferral selected by the Participant for the
period described in Section 4(a); or (ii) the

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period beginning on the effective date of a deferral election and ending on a
Participant's Termination of Employment.

      (l) "Deferred Bonus" means the Awards deferred under Section 4(a) hereof
by a Participant.

      (m) "Deferred Benefit" means the benefits payable under the Plan which
shall be payable in accordance with Sections 6, 7 and 8 hereof.

      (n) "Deferred Compensation Account" means the individual account
established pursuant to Section 5 hereof, to which a Participant's Deferred
Awards are credited.

      (o) "Earnings" means, for any Plan Year, earnings and losses on amounts in
the Deferred Compensation Account computed in accordance with Section 6 hereof.

      (p) "Eligible Employee" means an Employee who has been designated by an
Employer as a Vice President or above and any other Employee who is a member of
a select group of management or highly compensated employees and who is
designated by the Committee, in its sole discretion, as an Eligible Employee.

      (q) "Employee" means any person employed by an Employer excluding any
"leased employee," as defined in Section 414(n) of the Code, any independent
contractor or agent.

      (r) "Employer" means the Company, any Parent and any Subsidiary.

      (s) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

      (t) "Executive Incentive Plan" means the Donna Karan International Inc.
Executive Incentive Plan, as amended from time to time.

      (u) "Non-Covered Employee" means a Participant who is not a Covered
Employee.

      (v) "Parent" means, other than the Company, (i) any corporation in an
unbroken chain of corporations ending with the Company which owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain; or (ii) any
corporation or trade or business (including, without limitation, a partnership
or limited liability company) which controls fifty percent (50%) or more
(whether by ownership of stock, assets or an equivalent ownership interest) of
the Company.

      (w) "Participant" means any Eligible Employee who: (i) elects to defer his
or her Award in accordance with the terms hereunder or, subject to the approval
of the Committee, elects to defer a bonus payable under a plan, agreement or
arrangement between the Employer and the Eligible Employee; and (ii) has a
balance in his or her Deferred Compensation Account under the Plan.

      (x) "Plan" means the Donna Karan International Inc. Deferred Bonus Plan.

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      (y) "Plan Year" means the fiscal year of the Company.

      (z) "Qualified Plan" means the Donna Karan New York 401(k) Retirement
Plan, as restated effective as of January 1, 1997 and as amended from time to
time thereafter.

      (aa) "Subsidiary" means, other than the Company, (i) any corporation in an
unbroken chain of corporations beginning with the Company which owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain; (ii) any
corporation or trade or business (including, without limitation, a partnership
or limited liability company) which is controlled fifty percent (50%) or more
(whether by ownership of stock, assets or an equivalent ownership interest) by
the Company or one of its Subsidiaries; or (iii) any other entity, approved by
the Board as a Subsidiary under the Plan, in which the Company or any of its
Subsidiaries has an equity or other ownership interest.

      (bb) "Termination of Employment" or "Terminates Employment" means
termination of employment as an Employee of the Company, all Subsidiaries and
all Parents (if any), for any reason whatsoever, including but not limited to
death, retirement, resignation or firing (with or without Cause).

2. Effective Date. The Plan shall become effective as of February 1, 1999.

3. Administration and Interpretation of the Plan. The Plan shall be administered
by the Committee. The Committee shall have the exclusive authority and
responsibility to: (i) interpret the Plan; (ii) approve the designation of
Eligible Employees; (iii) determine when an individual shall cease to be
eligible to make deferrals hereunder; (iv) authorize the payment of all benefits
and expenses of the Plan as they become payable under the Plan; (v) adopt, amend
and rescind rules and regulations relating to the Plan; and (viii) make all
other determinations and take all other actions necessary or desirable for the
Plan's administration including, without limitation, correcting any defect,
supplying any omission or reconciling any inconsistency in the Plan in the
manner and to the extent it shall deem necessary to carry the Plan into effect.
Decisions made by the Committee shall be made by a majority of its members. The
Committee shall have exclusive and final authority in all determinations and
decisions affecting Employees. All decisions of the Committee on any question
concerning the interpretation and administration of the Plan shall be final,
conclusive and binding on all persons. The Committee may rely on information,
and consider recommendations, provided by the Board or the executive officers of
the Company.

4. Election to Defer.

      (a) An Eligible Employee may elect in writing, on a form prescribed by the
Company, to defer receipt of all or a specified portion (in increments of ten
(10%) percent, unless specified otherwise by the Company) of his or her Award
payable with respect to a Plan Year. At the time of the deferral election, a
Participant shall also elect a Deferral Period of either three (3) or five (5)
years, which Deferral Period shall begin on day on which the Award to which the
deferral relates

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would otherwise have been paid. The election to defer an Award must be made at
such time as the Company shall prescribe but in no event later than the first
day of March of the Plan Year in which the Award to which the deferral relates
is earned. Notwithstanding the foregoing, in the case of the Plan Year in which
an individual first becomes an Eligible Employee (other than as a result of the
adoption of the Plan), such individual may make an election to defer an Award
earned during such Plan Year within thirty (30) days of the date of initial
eligibility (but only with respect to compensation for services after such
date). A Participant must make a separate election with respect to each Award he
or she chooses to defer. Each election to defer an Award shall be irrevocable.

      (b) Notwithstanding subparagraph (a) above, a Participant may on one (1)
occasion elect to extend any Deferral Period on a form prescribed by the Company
for either three (3) or five (5) additional years, provided that any such
election is made at least one (1) year prior to the expiration of the applicable
Deferred Period. Each election to extend a Deferral Period shall be irrevocable.

      (c) An election made pursuant to this Section 4 by a Participant who
ceases to be an Eligible Employee but who does not incur a Termination of
Employment shall remain in effect and such Participant shall not be entitled to
receive a distribution from the Plan solely as a result of such change in
status.

5. Establishment of Deferred Compensation Account.

      At the time the Participant's initial Award becomes payable, the Company
shall establish a Deferred Compensation Account for such Participant. The
Deferred Bonus shall be credited to the Participant's Deferred Compensation
Account as of the day on which the Award to which the deferral relates would
otherwise have been paid to the Participant.

6. Additions to Deferred Compensation Account.

      (a) The measuring alternatives used for the measurement of Earnings on the
amounts in a Participant's Deferred Compensation Account shall be selected by
each Participant in writing, on a form prescribed by the Committee, from among
the various measuring alternatives offered by the Committee. Each Participant
may change the selection of his or her measuring alternative as of the beginning
of any calendar quarter (or at such other times and in such manner as prescribed
by the Committee, in its sole discretion), subject to such notice and other
administrative procedures as established by the Committee. The Committee shall
credit the Earnings computed under this Section to the balance in each
Participant's Deferred Compensation Account as of the last business day of each
calendar quarter, or such other dates as are selected by the Committee, in its
sole discretion, at a rate equal to the performance of the measuring alternative
selected by the Participant for the calendar quarter (or such other applicable
period) to which such selection relates.

      (b) Notwithstanding subsection (a) above, the measuring alternatives used
for the measurement of Earnings on the amounts in a Covered Employee's Deferred
Compensation Account shall be selected in advance by the Committee, in its sole
discretion, from among the various measuring alternatives, provided, however,
that any such measuring alternatives shall be based on

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actual predetermined investments (whether or not assets are actually invested
therein) in accordance with Section 162(m) of the Code and the applicable
regulations thereunder. The Company shall provide written notice to each Covered
Employee of the predetermined measuring alternatives actually selected by the
Committee for the measurement of Earnings on amounts in his or her Deferred
Compensation Account.

7. Commencement of Benefits.

      (a) Except as otherwise provided in subparagraphs (b), (c) and (d) below,
a Participant's Deferred Bonus and the Earnings attributable thereto shall be
paid from such Participant's Deferred Compensation Account to the Participant
(or, in the case of the Participant's death, his or her Beneficiary) as soon as
administratively practicable after the end of the applicable Deferral Period in
the form set forth in Section 8.

      (b) Notwithstanding subparagraph (a), to the extent that the Committee
determines that the Company would not be entitled to a tax deduction pursuant to
Section 162(m) of the Code with respect to the payment of any portion of a
Participant's Deferred Compensation Account, the Committee shall have the
authority to defer payment of all or a portion of such Participant's Deferred
Compensation Account until such time as the Committee determines, in its sole
discretion, that such deduction may be taken.

      (c) Notwithstanding subparagraph (a), the Committee may, in its sole
discretion, accelerate payment of all or a portion of the Participant's Deferred
Compensation Account to a Participant in any manner (including, without
limitation, upon his or her Termination of Employment).

      (d) Notwithstanding anything herein to the contrary, including, without
limitation, the Deferral Period, in the event of a Change in Control, each
Participant hereunder shall receive his or her entire Deferred Benefit, from the
Plan, equal to the Participant's entire Deferred Compensation Account, payable
in the form of one (1) lump sum, as soon as administratively practicable
following such Change in Control, but in no event later than five (5) days after
the date of such Change in Control.

8. Form of Payment of Benefits.

      (a) Unless the Participant elects in writing, on a form prescribed by the
Company, to receive payment of his or her Deferred Bonus and the Earnings
attributable thereto in annual installment payments (not to exceed five (5)
years), a Participant's Deferred Bonus and the Earnings attributable thereto
shall be paid to him or her (or, in the event of death, his or her Beneficiary)
in a lump sum. A Participant's election to receive annual installment payments
must be made at such time as the Company shall prescribe but in any event no
later than one (1) year prior to the expiration of the applicable Deferral
Period. An election by a Participant pursuant to this subparagraph (a) will
apply to all then current and future amounts in such Participant's Deferred
Compensation Account. Notwithstanding the foregoing, a Participant may change
the foregoing election in the same manner as provided above, provided that no
such change shall be applicable to any Deferred Benefit which

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becomes payable within the one (1) year period prior to the expiration of the
Deferral Period. The Deferred Compensation Account of a Participant who elects
to receive annual installment payments shall continue to be credited with
Earnings until the final installment is paid.

      (b) If a Participant dies prior to receiving his or her total Deferred
Compensation Account, the unpaid portion of such Deferred Compensation Account
shall be paid to the Participant's Beneficiary in a single lump sum, as soon as
administratively practicable following the Participant's death.

9. Forfeiture. Notwithstanding any provision to the contrary hereunder, in the
event that a Participant is terminated by an Employer for Cause, such
Participant forfeits his or her entire Deferred Compensation Account, effective
immediately upon such termination.

10. Claims Procedure.

      (a) The Committee shall be responsible for determining all claims for
benefits under the Plan by the Participants or their Beneficiaries. Within
ninety (90) days after receiving a claim (or within up to one hundred eighty
(180) days, if the claimant is notified of the need for additional time,
including notification of the reason for the delay), the Committee shall notify
the Participant or Beneficiary of its decision in writing, giving the reasons
for its decision if adverse to the claimant. If the decision is adverse to the
claimant, the Committee shall advise him or her of the Plan provisions involved,
of any additional information which he or she must provide to perfect his or her
claim and why, and of his or her right to request a review of the decision.

      (b) A claimant may request a review of an adverse decision by written
request to the Committee made within sixty (60) days after receipt of the
decision. The claimant, or his or her duly authorized representative, may review
pertinent documents and submit written issues and comments.

      (c) Within sixty (60) days after receiving a request for review (or up to
one hundred twenty (120) days after such receipt if the Participant is notified
of the delay and the reasons therefor), the Committee shall notify the claimant
in writing of (i) its decision, (ii) the reasons therefore, and (iii) the Plan
provisions upon which it is based.

      (d) The Committee may at any time alter the claims procedure set forth
above, so long as the revised claims procedure complies with the ERISA, and the
regulations issued thereunder.

      (e) The Committee shall have the full power and authority to interpret,
construe and administer the Plan in its sole discretion based on the provisions
of the Plan and to decide any questions and settle all controversies that may
arise in connection with the Plan. The Committee's interpretations and
construction thereof, and actions thereunder, made in the sole discretion of the
Committee, including any valuation of the Deferred Benefit, any determination
under this Section 10, or the amount of the payment to be made hereunder, shall
be final, binding and conclusive on all persons. No member of the Committee
shall be liable to any person for any action taken or omitted in connection with
the interpretation and administration of the Plan.

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      (f) The Committee shall determine, subject to the provisions of the Plan
(i) the additional Employees who shall participate in the Plan from time to time
and (ii) when an Employee shall cease to be a Participant.

11. Construction of Plan.

      (a) The Plan is "unfunded" and any Deferred Benefit payable hereunder
shall be paid by the Company out of its general assets. Participants and their
designated Beneficiaries shall not have any interest in any specific asset of
the Company as a result of the Plan. Nothing contained in the Plan and no action
taken pursuant to the provisions of the Plan shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Company and
the Participants, their designated Beneficiaries or any other person. Any funds
which may be invested under the provisions of the Plan shall continue for all
purposes to be part of the general funds of the Company and no person other than
the Company shall by virtue of the provisions of the Plan have any interest in
such funds. To the extent that any person acquires a right to receive payments
from the Company under the Plan, such right shall be no greater than the right
of any unsecured general creditor of the Company. The Company, in its sole
discretion, may establish a "rabbi trust" or invest in group annuities or other
investment products to pay Deferred Benefits hereunder.

      (b) All expenses incurred in administering the Plan shall be paid by the
Company.

12. Minors and Incompetents. If the Committee shall find that any person to whom
payment is payable under the Plan is unable to care for his or her affairs
because of illness or accident, or is a minor, any payment due (unless a prior
claim therefore shall have been made by a duly appointed guardian, committee or
other legal representative) may be paid to the spouse, a child, parent, or
brother or sister, or to any person deemed by the Committee to have incurred
expense for such person otherwise entitled to payment, in such manner and
proportions as the Committee may determine it its sole discretion. Any such
payment shall be a complete discharge of the liabilities of the Company, the
Committee and the Board under the Plan.

13. Limitation of Rights. This Plan is not an agreement of employment. Nothing
contained herein shall be construed as conferring upon an Employee the right to
continue in the employ of any Employer as an Employee on or above a Vice
President level or in any other capacity or to interfere with the Employer's
right to discharge him or her at any time for any reason whatsoever.

14. Payment Not Salary. Any Deferred Benefit payable under the Plan shall not be
deemed salary or other compensation to the Employee for the purposes of
computing benefits to which he or she may be entitled under any pension plan or
other arrangement of any Employer maintained for the benefit of its Employees.

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15. Severability. In case any provision of the Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the remaining
parts hereof, but the Plan shall be construed and enforced as if such illegal
and invalid provision never existed.

16. Withholding. The Company shall have the right to make such provisions as it
deems necessary or appropriate to satisfy any obligations it may have to
withhold federal, state or local income or other taxes incurred by reason of
payments or accruals pursuant to the Plan.

17. Assignment. The Plan shall be binding upon and inure to the benefit of the
Company, its successors and assigns and the Participants and their heirs,
executors, administrators and legal representatives. In the event that the
Company sells all or substantially all of the assets of its business and the
acquiror of such assets assumes the obligations hereunder, the Company shall be
released from any liability imposed herein and shall have no obligation to
provide any benefits payable hereunder.

18. Non-Alienation of Benefits. The benefits payable under the Plan shall not be
subject to alienation, transfer, assignment, garnishment, execution or levy of
any kind, and any attempt to cause any benefits to be so subjected shall not be
recognized.

19. Governing Law. To the extent legally required, the Code and ERISA shall
govern the Plan and, if any provision hereof is in violation of any applicable
requirement thereof, the Company reserves the right to retroactively amend the
Plan to comply therewith. To the extent not governed by the Code and ERISA, the
Plan shall be governed by the laws of the State of New York.

20. Amendment or Termination of Plan. The Board (or a duly authorized committee
thereof) may, in its sole and absolute discretion, amend the Plan from time to
time and at any time in such manner as it deems appropriate or desirable, and
the Board (or a duly authorized committee thereof) may, in its sole and absolute
discretion, terminate the Plan for any reason from time to time and at any time
in such manner as it deems appropriate or desirable. No amendment or termination
shall reduce or terminate the then vested benefit of any Participant or
Beneficiary. Upon an amendment or termination, the Company shall not be required
to distribute a Participant's Deferred Benefit prior to the Participant's
Termination of Employment, but, in the event of a termination of the Plan, may
do so in a lump sum at the discretion of the Company.

21. Non-Exclusivity. The adoption of the Plan by the Company shall not be
construed as creating any limitations on the power of the Company to adopt such
other supplemental retirement income arrangements as it deems desirable, and
such arrangements may be either generally applicable or limited in application.

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22. Headings and Captions. The headings and captions herein are provided for
reference and convenience only. They shall not be considered part of the Plan
and shall not be employed in the construction of the Plan.

23. Gender and Number. Whenever used in the Plan, the masculine shall be deemed
to include the feminine and the singular shall be deemed to include the plural,
unless the context clearly indicates otherwise.

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                                                                  Exhibit 10.32

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                         DONNA KARAN INTERNATIONAL INC.

                            EXECUTIVE SEVERANCE PLAN

                        Effective as of November 30, 2000

                      (As amended through December 8, 2000)

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                         DONNA KARAN INTERNATIONAL INC.
                            EXECUTIVE SEVERANCE PLAN

                                  INTRODUCTION

      The purpose of this Plan is to enable the Company to offer certain
protections to executive officers and key executives if their employment with
the Employer terminates due to a Change in Control. Accordingly, to accomplish
this purpose, the Company's Board has adopted this Plan, effective as of
November 30, 2000.

      Capitalized terms and phrases used herein shall have the meanings ascribed
thereto in Article I.

                                    ARTICLE I

                                   Definitions

      1.1 "Base Salary" shall mean a Participant's annual base compensation rate
for services paid by the Employer to the Participant at the time immediately
prior to his or her termination of employment, as reflected in the Employer's
payroll records. Base Salary shall not include commissions, bonuses, overtime
pay, incentive compensation, benefits paid under any qualified plan, any group
medical, dental or other welfare benefit plan, noncash compensation or any other
additional compensation but shall include amounts reduced pursuant to a
Participant's salary reduction agreement under Section 125 or 401(k) of the
Code, if any, or a nonqualified elective deferred compensation arrangement, if
any, to the extent that in each such case the reduction is to base salary.

      1.2 "Board" shall mean the Board of Directors of the Company.

      1.3 "Cause" shall mean (with regard to a Participant's termination of
employment) (a) in the case where there is no employment or consulting agreement
between an Employer and the Participant, or where there is an employment or
consulting agreement, but such agreement does not define cause (or words of like
import), termination due to a Participant's: (i) continuous or substantial
dereliction of duties which continues after written notice by the Employer; (ii)
failure to promptly follow the written direction of the Chief Executive Officer
of the Employer or the Board; (iii) dishonesty, fraud or breach of fiduciary
duty with respect to the Employer or Participant's duties; (iv) gross negligence
in the performance of the Participant's duties; (v) willful misconduct with
regard to the Employer, its business, assets or employees which in the good
faith, sole discretion of the Chief Executive Officer of the Employer is
material; (vi) conviction of, or pleading nolo contendre to, a felony or any
other crime involving fraud, dishonesty or moral turpitude; or (vii) any other
material breach of the Employer's policy manuals as in effect from time to time,
which breach continues more than 30 days after written notice from the Employer
to the Participant setting forth the conduct constituting the breach and the
policies alleged to have been breached; or (b) in the case where there is an
employment or consulting agreement between an Employer and the Participant,
termination that is or would be deemed to be for cause (or words
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of like import) as defined under such agreement. The Committee shall have sole
discretion in determining whether cause exists, and its determination shall be
final, binding and conclusive.

      1.4 "Change in Control" shall have the meaning set forth in Appendix A
hereto.

      1.5 "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.

      1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended.

      1.7 "Committee" shall mean the Compensation Committee of the Board (or a
sub-committee thereof) or such other committee or sub-committee appointed by
the Board. If no Compensation Committee exists, the Committee shall be the
Board.

      1.8 "Common Stock" shall mean the common stock of the Company, par value
$0.01 per share, any common stock into which the Common Stock may be converted
and any common stock resulting from any reclassification of the Common Stock.

      1.9 "Company" shall mean Donna Karan International Inc., a Delaware
corporation, and any successor as provided in Article VI hereof.

      1.10 "Disability" shall mean (a) in the case where there is no employment
agreement between an Employer and the Participant, or where there is an
employment agreement, but such agreement does not define disability, total and
permanent disability, as defined in Section 22(e)(3) of the Code; or (b) in the
case where there is an employment agreement between an Employer and the
Participant, disability as defined under such employment agreement.

      1.11 "Effective Date" shall mean November 30, 2000.

      1.12 "Employer" shall mean the Company and any Subsidiary.

      1.13 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.

      1.14 "Parent" shall mean (i) any corporation in an unbroken chain of
corporations ending with the Company which owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain; or (ii) any corporation or trade or
business (including, without limitation, a partnership or limited liability
company) which controls fifty percent (50%) or more (whether by ownership of
stock, assets or an equivalent ownership interest) of the Company.

      1.15 "Participant" shall mean any employee of the Employer who has been
designated by the Committee as a Participant by written resolution.

      1.16 "Plan" shall mean the Donna Karan International Inc. Executive
Severance Plan.

                                      -2-
<PAGE>

      1.17 "Severance Benefit" shall mean a severance benefit calculated in
accordance with Section 2.1 below.

      1.18 "Subsidiary" shall mean, other than the Company, (a) any corporation
in an unbroken chain of corporations beginning with the Company which owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain; (b) any
corporation or trade or business (including, without limitation, a partnership
or limited liability company) which is controlled fifty percent (50%) or more
(whether by ownership of stock, assets or an equivalent ownership interest) by
the Company or one of its Subsidiaries; or (c) any other entity, approved by the
Board as a Subsidiary under the Plan, in which the Company or any of its
Subsidiaries has an equity or other ownership interest.

                                   ARTICLE II

                                    Benefits

      2.1 Eligibility for Benefits. (a) Upon (i) the Participant's termination
of employment (x) by the Employer without Cause during the period commencing on
the date of the Change in Control and ending one year thereafter or (y) by the
Employer without Cause within ninety (90) days prior to the effective date of a
Change in Control or (ii) the failure of the Company to receive written notice
at least five (5) business days prior to the anticipated closing date of the
transaction giving rise to the Change in Control from the successor to all or a
substantial portion of the Company's business and/or assets that such successor
is willing as of the closing to assume and agree to perform the Company's
obligations under this Plan in the same manner and to the same extent that the
Company is hereby required to perform, then, subject to Section 2.5 below, the
Participant shall be entitled to a Severance Benefit equal to one (1) times the
Participant's Base Salary.

            (b) A Participant shall not be entitled to a Severance Benefit if
the Participant's employment is terminated (i) by the Employer for Cause, (ii)
by the Participant for any reason, or (iii) on account of the Participant's
retirement, death or Disability.

      2.2 Form of Benefit. Any Participant described in Section 2.1 above shall
receive his or her Severance Benefit in the form of a lump sum cash payment
within ten (10) business days (or at such earlier time as required by law)
following the later of: (a) his or her termination of employment; or (b) the
effective date of the Change in Control.

      2.3 Excise Tax. In the event that the Participant becomes entitled to
payments and/or benefits which would constitute "parachute payments" within the
meaning of Section 280G(b)(2) of the Code (a) in the case where there is no
employment or consulting agreement between an Employer and the Participant, or
where there is an employment or consulting agreement, but such agreement does
not contain any provision addressing the excise tax under Section 4999 of the
Code, the provisions of Appendix B shall apply or (b) in the case where there is
an employment or consulting agreement between an Employer and the Participant
which addresses the excise tax under Section 4999 of the Code, as provided
therein.

                                      -3-
<PAGE>

      2.4 No Duty to Mitigate/Set-off. No Participant entitled to receive a
Severance Benefit hereunder shall be required to seek other employment and there
shall be no offset against any amounts due the Participant under this Plan on
account of any remuneration attributable to any subsequent employment that the
Participant may obtain. The amounts payable hereunder shall not be subject to
setoff, counterclaim, recoupment, defense or other right which the Employer may
have against the Participant or others. Notwithstanding the foregoing, if any
termination payments made to a Participant by the Employer are related to an
actual or potential liability under the Worker Adjustment and Retraining
Notification Act (WARN) or similar law, such amounts shall reduce (offset) the
Participant's Severance Benefit under this Plan. In the event of the
Participant's breach of any provision hereunder, including without limitation,
Section 2.5, the Company shall be entitled to recover any payments or benefits
previously made to the Participant hereunder.

      2.5 Release Required. Any amounts payable pursuant to this Plan shall only
be payable if the Participant delivers to the Company a release of all claims of
any kind whatsoever that the Participant has or may have against the Employer
and its affiliates and their officers, directors and employees known or unknown
as of the date of his or her termination of employment (other than claims to
payments specifically payable hereunder, claims under COBRA or claims to vested
accrued benefits under the Employer's employee benefit plans) occurring up to
the release date in such form as reasonably requested by the Company.

                                   ARTICLE III

                                     Funding

      3.1 Funding. The Plan shall be funded out of the general assets of the
Company as and when benefits are payable under the Plan. All Participants shall
be solely general creditors of the Company. If the Company decides in its sole
discretion to establish any advance accrued reserve on its books against the
future expense of benefits payable hereunder, or if the Company decides in its
sole discretion to fund a trust under this Plan, such reserve or trust shall not
under any circumstances be deemed to be an asset of the Plan.

                                   ARTICLE IV

                           Administration of the Plan

      4.1 Plan Administrator. The general administration of the Plan on behalf
of the Company (as plan administrator under Section 3(16)(A) of ERISA) shall be
placed with the Committee.

      4.2 Reimbursement of Expenses of Plan Committee. The Company may, in its
sole discretion, pay or reimburse the members of the Committee for all
reasonable expenses incurred in connection with their duties hereunder.

      4.3 Action by the Plan Committee. Decisions of the Committee shall be made
by a majority of its members attending a meeting at which a quorum is present
(which meeting may be

                                      -4-
<PAGE>

held telephonically), or by written action in accordance with applicable law.
Subject to the terms of this Plan and provided that the Committee acts in good
faith, the Committee shall have complete authority to determine a Participant's
participation and benefits under the Plan, to interpret and construe, in its
sole discretion, the provisions of the Plan, and to make decisions in all
disputes involving the rights of any person interested in the Plan.

      4.4 Delegation of Authority. The Committee may delegate any and all of its
powers and responsibilities hereunder to other persons by formal resolution
filed with and accepted by the Board. Any such delegation shall not be effective
until it is accepted by the Board and the persons designated and may be
rescinded at any time by written notice from the Committee to the person to whom
the delegation is made.

      4.5 Retention of Professional Assistance. The Committee may employ such
legal counsel, accountants and other persons as may be required in carrying out
its work in connection with the Plan.

      4.6 Accounts and Records. The Committee shall maintain such accounts and
records regarding the fiscal and other transactions of the Plan and such other
data as may be required to carry out its functions under the Plan and to comply
with all applicable laws.

      4.7 Claims Procedure.

            (a) The Committee shall be responsible for determining all claims
for benefits under the Plan by the Participants. Within ninety (90) days after
receiving a claim (or within up to one hundred eighty (180) days, if the
claimant is notified of the need for additional time, including notification of
the reason for the delay), the Committee shall notify the Participant of its
decision in writing, giving the reasons for its decision if adverse to the
claimant. If the decision is adverse to the claimant, the Committee shall advise
him or her of the Plan provisions involved, of any additional information which
he or she must provide to perfect his or her claim and why, and of his or her
right to request a review of the decision.

            (b) A claimant may request a review of an adverse decision by
written request to the Committee made within sixty (60) days after receipt of
the decision. The claimant, or his or her duly authorized representative, may
review pertinent documents and submit written issues and comments.

            (c) Within sixty (60) days after receiving a request for review (or
up to one hundred twenty (120) days after such receipt if the Participant is
notified of the delay and the reasons therefor), the Committee shall notify the
claimant in writing of (i) its decision, (ii) the reasons therefore, and (iii)
the Plan provisions upon which it is based.

            (d) The Committee may at any time alter the claims procedure set
forth above, so long as the revised claims procedure complies with the ERISA,
and the regulations issued thereunder.

                                      -5-
<PAGE>

      4.8 Indemnification. The Committee, its members and any person designated
pursuant to Section 4.4 above shall not be liable for any action or
determination made in good faith with respect to the Plan. The Company shall, to
the extent permitted by law, by the purchase of insurance or otherwise,
indemnify and hold harmless each member of the Committee and each director,
officer and employee of the Company for liabilities or expenses they and each of
them incur in carrying out their respective duties under this Plan, other than
for any liabilities or expenses arising out of such individual's willful
misconduct or fraud.

                                    ARTICLE V

                            Amendment and Termination

      5.1 Amendment and Termination. The Company reserves the right to amend or
terminate, in whole or in part, any or all of the provisions of this Plan by
action of the Board (or a duly authorized committee thereof) at any time,
provided that in no event shall any amendment reducing the benefits provided
hereunder or any Plan termination be effective prior to the earlier of (a) the
second anniversary of the Effective Date or (b) the second anniversary of the
effective date of a Change in Control; provided, however, that if a Change in
Control occurs at any time on or prior to the second anniversary of the
Effective Date, no such amendment or termination may be effective prior to the
first anniversary of the Change in Control, if later than the second anniversary
of the Effective Date.

                                   ARTICLE VI

                                   Successors

      6.1 Successors. For purposes of this Plan, the Company shall include any
and all successors or assignees, whether direct or indirect, by purchase,
merger, consolidation or otherwise, to all or substantially all the business or
assets of the Company and such successors and assignees shall perform the
Company's obligations under this Plan, in the same manner and to the same extent
that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company", as used in this
Plan, shall mean the Company, as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes bound by the
terms and provisions of this Plan.

                                      -6-
<PAGE>

                                   ARTICLE VII

                                  Miscellaneous

      7.1 Legal Fees. To the fullest extent permitted by law, the Company shall
promptly pay upon submission of statements all legal and other professional
fees, costs of litigation, prejudgment interest, and other expenses incurred by
a Participant in connection with any dispute concerning payments, benefits or
any other entitlements under this Plan; provided, however, the Company shall be
reimbursed by the Participant for the fees and expenses advanced in the event
the Participant's claim is, in a material manner, in bad faith or frivolous and
the arbitrator or court, as applicable, determines that the reimbursement of
such fees and expenses is appropriate.

      7.2 Minors and Incompetents. If the Committee shall find that any person
to whom payment is payable under the Plan is unable to care for his or her
affairs because of illness or accident, or is a minor, any payment due (unless a
prior claim therefore shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to the spouse, a child,
parent, or brother or sister, or to any person deemed by the Committee to have
incurred expense for such person otherwise entitled to payment, in such manner
and proportions as the Committee may determine it its sole discretion. Any such
payment shall be a complete discharge of the liabilities of the Company, the
Committee and the Board under the Plan.

      7.3 Limitation of Rights. Nothing contained herein shall be construed as
conferring upon a Participant the right to continue in the employ of the
Employer as an employee in any other capacity or to interfere with the
Employer's right to discharge him or her at any time for any reason whatsoever.

      7.4 Payment Not Salary. Any Severance Benefit payable under the Plan shall
not be deemed salary or other compensation to the Participant for the purposes
of computing benefits to which he or she may be entitled under any pension plan
or other arrangement of the Employer maintained for the benefit of its
employees, unless such plan or arrangement provides otherwise.

      7.5 Severability. In case any provision of the Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but the Plan shall be construed and enforced as if such
illegal and invalid provision never existed.

      7.6 Withholding. The Employer shall have the right to make such provisions
as it deems necessary or appropriate to satisfy any obligations it may have to
withhold federal, state or local income or other taxes incurred by reason of
payments pursuant to this Plan.

      7.7 Non-Alienation of Benefits. The benefits payable under the Plan shall
not be subject to alienation, transfer, assignment, garnishment, execution or
levy of any kind, and any attempt to cause any benefits to be so subjected shall
not be recognized.

      7.8 Governing Law. To the extent legally required, the Code and ERISA
shall govern the Plan and, if any provision hereof is in violation of any
applicable requirement thereof, the

                                      -7-
<PAGE>

Company reserves the right to retroactively amend the Plan to comply therewith.
To the extent not governed by the Code and ERISA, the Plan shall be governed by
the laws of the State of New York.

      7.9 Non-Exclusivity. The adoption of the Plan by the Company shall not be
construed as creating any limitations on the power of the Company to adopt such
other supplemental retirement income arrangements as it deems desirable, and
such arrangements may be either generally applicable or limited in application.

      7.10 Non-Employment. The Plan is not an agreement of employment and it
shall not grant the Participant any rights of employment.

      7.11 Headings and Captions. The headings and captions herein are provided
for reference and convenience only. They shall not be considered part of the
Plan and shall not be employed in the construction of the Plan.

      7.12 Gender and Number. Whenever used in the Plan, the masculine shall be
deemed to include the feminine and the singular shall be deemed to include the
plural, unless the context clearly indicates otherwise.

      7.13 ERISA Plan. This Plan is intended to be a "top hat" welfare benefit
plan within the meaning of U.S. Department of Labor Section 2520.104-24.

      7.14 Communications. All announcements, notices and other communications
regarding this Plan will be made by the Company in writing.

                                      -8-
<PAGE>

                                   Appendix A

                                Change in Control

      A Change in Control shall be deemed to have occurred if any of the
following shall have occurred:

      (a) the acquisition by any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) other than a person who is a stockholder of the Company on the effective
date of the registration statement filed under the Securities Act of 1933, as
amended, relating to the first public offering (the "Initial Public Offering")
of securities of the Company (an "Initial Stockholder") of 30% or more of the
voting power of securities of Company or the acquisition by an Initial
Stockholder, other than an affiliate of the Company that would be a Parent or a
Subsidiary, of an additional 5% of the voting power of securities of the Company
over and above that owned immediately after the closing date of the Initial
Public Offering of the Company's Common Stock; excluding however, the following:
(x) any acquisition by the Company or a Subsidiary of any of the foregoing, or
(y) any acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or a Subsidiary; or

      (b) (i) the acquisition by any "person" (as such term is used in Section
13(d) and 14(d) of the Exchange Act) other than a person who, on the effective
date of the Initial Public Offering is a holder of any ownership interest in
Donna Karan Studio (an "Initial Licensee Interest Holder") of 30% or more of the
voting power of Donna Karan Studio or (ii) the acquisition by an Initial
Licensee Interest Holder, other than an affiliate of Gabrielle Studio, Inc. (and
excluding any such acquisition resulting from a purchase, sale or transfer of
Takihyo Inc. stock by and between any of the current stockholders of Takihyo
Inc.) that would be a Parent or a Subsidiary (but substituting Gabrielle Studio,
Inc. for the Company in such definitions) of Gabrielle Studio, Inc., of an
additional 5% of the voting power of securities of the Company over and above
that owned immediately after the closing date of the Initial Public Offering of
the Company's Common Stock; excluding however, the following: (x) any
acquisition by the Company or a Subsidiary of any of the foregoing, or (y) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or a Subsidiary; or

      (c) any merger or sale of substantially all of the assets of the Company
under circumstances where the holders of the Common Stock of the Company
immediately prior to the transaction becoming public knowledge were not holders
of 80% of the equity securities of the surviving entity resulting from such
transaction; or

      (d) any change in the composition of the Board not approved by (i) a
majority of the Board prior to such change and (ii) by not less than two
directors of the Company who were directors prior to the time any person who was
not an Initial Stockholder acquired 30% or more of the voting power of
securities of the Company.

      Only one Change in Control may occur under this Plan.
<PAGE>

                                   Appendix B

                                Golden Parachutes

      (a) In the event any payment that is either received by the Participant or
paid by the Employer on his or her behalf or any property or any other benefit
provided to him or her under this Plan or under any other plan, arrangement or
agreement with the Employer or any other person whose payments or benefits are
treated as contingent on a change of ownership or control of the Company (or in
the ownership of a substantial portion of the assets of the Company) or any
person affiliated with the Company or such person (but only if such payment or
other benefit is in connection with the Participant's employment by the Company)
(collectively the "Company Payments"), will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code (and any similar tax that may
hereafter be imposed by any taxing authority), the amounts of any Company
Payments shall be automatically reduced to an amount one dollar less than an
amount that would subject the Participant to the Excise Tax.

      (b) For purposes of determining whether any of the Company Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) the Company
Payments shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless and except to the extent that, in the
opinion of the Company's independent certified public accountants appointed
prior to any Change in Control or tax counsel selected by such accountants or
the Company (the "Accountants") such Company Payments (in whole or in part)
either do not constitute "parachute payments," represent reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the "base amount" or are otherwise not subject to the Excise
Tax, and (ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code. In the event that the Accountants are serving as
accountant or auditor for the individual, entity or group effecting the Change
in Control, the Participant may appoint another nationally recognized accounting
firm to make the determinations hereunder (which accounting firm shall then be
referred to as the "Accountants" hereunder). All determinations hereunder shall
be made by the Accountants which shall provide detailed supporting calculations
both to the Company and the Participant at such time as it is requested by the
Company or the Participant. The determination of the Accountants shall be
binding upon the Company and the Participant.

      (c) The Company shall be responsible for all charges of the Accountant.

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