Document:

Exhibit
10.9

 

EXECUTIVE
EMPLOYMENT AGREEMENT

This EXECUTIVE
EMPLOYMENT AGREEMENT (the “Agreement”),
made as of January 1, 2007 (the “Effective
Date”), between Guess?, Inc., a Delaware corporation (the “Company”), and Paul Marciano (the “Executive”).

W  I  T  N  E  S  S  E  T  H:

WHEREAS, the
Executive is a co-founder of the Company and is acting as its Co-Chairman and
Co-Chief Executive Officer.

WHEREAS,  the Executive
has heretofore been employed by the Company pursuant to an employment agreement
made effective as of August 13, 1996 (the “Prior Agreement”).

WHEREAS, the Company recognizes that the Executive’s
talents and abilities are unique and have been integral to the success of the
Company.

WHEREAS, the Executive has agreed to focus his time
and energy primarily as the Company’s sole Chief Executive Officer, and is
willing to commit himself to serve the Company, on the terms and conditions
herein provided.

WHEREAS, the Company wishes to retain the services of
the Executive and anticipates that the Executive’s contribution to the growth
and success of the Company will continue to be substantial.

WHEREAS, the Company and the
Executive wish to amend and restate the Prior Agreement as evidenced by this
Agreement effective as of the date hereof in order to provide for the
modification of certain provisions of the Prior Agreement.

NOW THEREFORE, in
consideration of the foregoing, of the mutual promises contained herein and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

1.            POSITION/DUTIES.

(a)           During the Employment Term (as
defined in Section 2 below), the Executive shall serve as the Company’s Chief
Executive Officer and as Vice Chairman of the Board of Directors.  In this capacity the
Executive shall have such duties, authorities and responsibilities commensurate
with the duties, authorities and responsibilities of persons in similar
capacities in similarly sized companies and such other duties and
responsibilities as the Board of Directors of the Company (the “Board”) shall
designate that are consistent with the Executive’s position as Chief Executive
Officer.  The Executive shall report
exclusively to the Board.  The Executive
shall have authority as is appropriate to carry out his duties and
responsibilities as set forth in this Agreement.

(b)           During the Employment Term (as
defined below), the Executive shall use the Executive’s best reasonable efforts
to perform faithfully and efficiently the duties and responsibilities assigned
to the Executive hereunder and shall devote substantially all of the 

Executive’s business time (excluding periods of
vacation and other approved leaves of absence) as is reasonably necessary to
such performance of the Executive’s duties with the Company.  Subject to Board approval, Executive may serve
on the board of directors or advisory boards of other for profit companies provided
that such service does not create a potential business conflict or the
appearance thereof.  Nothing in this
Agreement shall prevent Executive from managing his family’s personal
investments so long as such activities do not materially interfere with the
performance of the Executive’s duties hereunder or create a potential business
conflict or the appearance thereof.

(c)           During the Employment Term, the Board
shall nominate the Executive for re-election as a member of the Board at the
expiration of the Executive’s then-current term.

(d)           The Company shall not relocate the
Executive’s principal place of business outside of the Los Angeles metropolitan
area without the Executive’s written consent.

(e)           The Executive shall be provided with
appropriate office and secretarial facilities in each of the Company’s
principal executive offices and any other location that the Executive
reasonably deems necessary to have an office and support services in order for
the Executive to perform his duties to the Company.

2.            EMPLOYMENT TERM.  The Executive’s term of employment under this
Agreement (such term of employment, as it may be extended or terminated, is
herein referred to as the “Employment
Term”) shall be for a term commencing on the Effective Date and, unless
terminated earlier as provided in Section 7 hereof, ending on the last day of
the fifth whole Fiscal Year of the Company commencing on or after the Effective
Date (the “Original Employment Term”),
provided that the Employment Term shall be automatically extended, subject to
earlier termination as provided in Section 7 hereof, for successive additional
one (1) Fiscal Year periods (the “Additional
Terms”), unless, on or before 90 days prior to the expiration of the
Original Employment Term or of any Additional Term, the Company or the
Executive has notified the other in writing that the Employment Term shall
terminate at the end of the then-current term.

3.            BASE SALARY.  The Company agrees to pay the Executive a
base salary (the “Base Salary”)
at an annual rate of not less than One Million Dollars ($1,000,000), payable in
accordance with the regular payroll practices of the Company, but not less
frequently than monthly.  The Executive’s
Base Salary shall be subject to annual review by the Board (or a committee
thereof) after 2007 and may be increased, but not decreased, from time to time
by the Board.  No increase to Base Salary
shall be used to offset or otherwise reduce any obligations of the Company to
the Executive hereunder or otherwise. 
The base salary as determined herein from time to time shall constitute “Base
Salary” for purposes of this Agreement.

4.            ANNUAL INCENTIVE BONUS AND
OTHER BONUSES.  During the
Employment Term, the Executive shall be eligible to participate in the Company’s
annual bonus and other incentive compensation plans and programs for the
Company’s senior executives at a level commensurate with the Executive’s
position.  For each whole fiscal year (“Fiscal
Year”) that begins on or after January 1, 2007 and ends not later than the
expiration of the Employment Term, the Executive shall be eligible to earn an
annual cash bonus (the “Bonus”) under the Company’s Annual Incentive Bonus
Plan, as amended from time to time (the “Bonus Plan”), 

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and, if appropriate, the Company’s 2004 Equity
Incentive Plan, as amended from time to time (the “Equity Plan”), based upon
the achievement by the Company and its subsidiaries of performance goals under
the Bonus Plan and under the Equity Plan for each such Fiscal Year established
by the Compensation Committee of the Board of Directors (the “Compensation
Committee”).  The Compensation Committee
shall establish objective criteria to be used to determine the extent to which
such performance goals have been satisfied.  The range of the Bonus opportunity for each
Fiscal Year will be as determined by the Compensation Committee based upon the
extent to which such performance goals are achieved, provided that the annual
target Bonus opportunity shall be at least 200% of the Executive’s Base Salary
(for each such year, the “Target Bonus”), the threshold Bonus for a Fiscal Year
shall be one-half the Target Bonus for such year and the maximum Bonus payable
pursuant to this Section 4 for any Fiscal Year shall not exceed the amount that
is 300% of the Executive’s Base Salary for such year.  The Bonus, if any, payable to the Executive
in respect of any Fiscal Year will be paid at the same time that bonuses are
paid to other executives of the Company, but in any event within seventy-five
days after the conclusion of such Fiscal Year. 
After the expiration of the Bonus Plan and the Equity Plan, Executive’s
right to receive future Bonus opportunities under such plan is subject to
approval by the stockholders of the Company of a similar successor plan under
which such opportunity may be granted.  In
addition to the Bonus, the Executive shall retain the special bonus opportunity
(the “Licensing Bonus”) awarded by the Compensation Committee to the Executive
on September 27, 2005, as modified by an action by written consent of the
Compensation Committee dated as of November 1, 2005, with respect to the
performance of the Company’s licensing segment. 
The Compensation Committee may, in its sole discretion, award additional
bonuses to Executive.

5.            EQUITY BASED INCENTIVE
AWARDS.

(a)           EMPLOYMENT INDUCEMENT AWARD.  The Company shall grant the Executive under
the Equity Plan as of January 1, 2007 a Restricted Stock Award (“Restricted
Stock”) equal to 500,000 shares of the Company’s common stock subject to the
following terms and conditions:

(i)            If in any whole Fiscal Year
commencing on or after January 1, 2007 and during the Employment Term, the
Company shall record earnings per share (“Earnings per Share”) growth of
greater than the Applicable Annual Target as compared to the immediately
preceding Fiscal Year, then 20% of the Restricted Stock shall become vested as
of the first business day following the issuance of the Company’s financial
statement for such year, provided the Executive is then employed by the
Company.  If the Earnings per Share
growth requirement is not met for any such year, all of the shares of the
Restricted Stock eligible for vesting for that year shall vest on the first
business day following the issuance of the Company’s financial statement for
any subsequent Fiscal Year during the Original Employment Term if the
cumulative compound average Earnings per Share growth after the 2006 Fiscal
Year through such subsequent Fiscal Year is more than the Applicable Cumulative
Target for such subsequent Fiscal Year. 
The “Applicable Annual Target” for each of the first, second and third
whole Fiscal Years that commences on or after January 1, 2007 is a growth in
Earnings per Share of 15% or more as compared to the immediately preceding
Fiscal Year.  The “Applicable Cumulative
Target” for each of the first, second and third whole Fiscal Years that 

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commences on or after
January 1, 2007 is a 15% rate of cumulative compound average Earnings per Share
growth.  The “Applicable Annual Target”
and the “Applicable Cumulative Target” for each of the fourth and fifth whole
Fiscal Years that commences on or after January 1, 2007 will be a rate of
Earnings per Share growth and cumulative compound average Earnings per Share
growth, respectively, determined by the Compensation Committee of the Board in
its sole discretion not later than the end of the first quarter of such Fiscal
Year.

(ii)           For purposes of this Agreement,
Earnings per Share shall be equal to the basic earnings per share calculated in
accordance with accounting principles generally accepted in the United States
and as reported in the Company’s financial statements as filed with the
Securities and Exchange Commission, except that certain adjustments may be made
for certain non-recurring or unusual non-cash items recognized in accordance
with accounting principles generally accepted in the United States including,
but not limited to, any write-offs of unamortized deferred financing costs and
any asset impairment write-downs, which the Committee determines in its sole
discretion to exclude for purposes of this Agreement.

(iii)          The Executive shall have the right to
vote the shares of the Restricted Stock, and shall have dividend rights as to
such shares, before any forfeiture of the shares of the Restricted Stock and
while such shares are restricted.  The
number of shares credited to the Executive shall be subject to adjustment in accordance
with the provisions of the Equity Plan (for example, in connection with the
payment of a stock dividend by the Company).

(iv)          The shares of the Restricted Stock not
yet vested or forfeited shall become 100% vested in the event that the
Executive dies or becomes Disabled (within the meaning of Section 7(a)) or
there is a Change in Control, in each case while employed by the Company or an
affiliate during the Employment Term.  For
this purpose, the term “Change in Control” is used as defined in the Equity
Plan except that in no event shall a “Change in Control” be triggered pursuant
to clause (A) of such term as so defined unless the Acquiring Person becomes the
Beneficial Owner of twenty percent (20%) or more of the then outstanding shares
of Common Stock or the Combined Voting Power of the Company (except pursuant to
an offer for all outstanding shares of Common Stock at a price and upon such
terms and conditions as a majority of the Continuing Directors determine to be
in the best interests of the Company and its shareholders (other than an
Acquiring Person on whose behalf the offer is being made)) in one or more bona
fide transactions and such level of ownership of such Common Stock or Combined
Voting Power, as applicable, exceeds the aggregate level of ownership of the
Marcianos of such Common Stock or Combined Voting Power, respectively.  For purposes of the preceding sentence, “Marcianos”
means Maurice Marciano, Paul Marciano, and any trust established in whole or in
part for the benefit of one or more of them or their family members, or any
other entity controlled by one or more of them, and any other capitalized term
used in such sentence is used as defined in the Equity Plan if not otherwise
defined in this Agreement.  If the
Executive terminates his employment with the Company for “Good Reason” (as defined
in Section 7(e) of this Agreement), or is terminated by the Company without “Cause”
(as defined in Section 7(c) of this 

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Agreement) or for Disability,
the shares of the Restricted Stock not yet vested or forfeited shall become
100% vested.

(v)           In all events other than those previously
addressed in Section 5(a)(iv), if the Executive ceases to be an employee of the
Company or an affiliate, the Executive shall be vested only as to that
percentage of shares of the Restricted Stock which are vested at the time of
the termination of his employment and the Executive shall forfeit the right to
the shares of the Restricted Stock which are not yet vested on the termination
date.  Further, any Restricted Stock
which is unvested at the conclusion of the Original Employment Term shall be
forfeited and terminate.  Unvested shares
of the Restricted Stock that are forfeited shall be immediately transferred to
the Company without any payment by the Company, and the Company shall have the
full right to cancel any evidence of the Executive’s ownership of such forfeited
shares.

(vi)          The Restricted Stock Award shall be
granted pursuant to and, to the extent not contrary to the terms of this
Agreement, shall be subject to all of the terms and conditions imposed upon
such awards granted under the Equity Plan.

(b)           PERFORMANCE SHARE AWARDS.  The Company shall grant the Executive under
the Equity Plan at the completion of each whole Fiscal Year commencing on and
after January 1, 2007 and during the Employment Term shares of the Company’s
common stock (“Performance Shares”) based upon the achievement by the Company
and its subsidiaries of performance goals under the Equity Plan for each such
Fiscal Year established by the Compensation Committee.  The Compensation Committee shall establish
objective criteria to be used to determine the extent to which such performance
goals have been satisfied.  Performance
Shares will be granted for each whole Fiscal Year during the Employment Term at
“target” and “stretch” levels of 55% (i.e., $550,000 for 2007) and 82.5% (i.e.,
$825,000 for 2007) of the Executive’s Base Salary for such Fiscal Year.  Performance Shares granted in any particular
Fiscal Year will be subject to the standard vesting schedule established by the
Compensation Committee for Performance Share grants in that year (the current
vesting schedule is a 4-year vesting schedule). 
After the expiration of the Equity Plan, Executive’s right to receive
future grants of Performance Shares is subject to approval by the stockholders
of the Company of a similar successor plan under which such awards may be
granted.

(c)           STOCK OPTION AWARDS.  The Company shall grant the Executive under
the Equity Plan at the completion of each whole Fiscal Year commencing on or
after January 1, 2007 and during the Employment Term stock options to purchase
the Company’s common stock at an exercise price of not less than the fair
market value of such stock on the grant date (“Stock Options”) based upon the
achievement by the Company and its subsidiaries of performance goals under the
Equity Plan for each such Fiscal Year established by the Compensation
Committee.  The Compensation Committee
shall establish objective criteria to be used to determine the extent to which
such performance goals have been satisfied. 
Stock Options for each whole Fiscal Year during the Employment Term will
be granted at a grant-date Black-Scholes value of 55% of the Executive’s Base
Salary for such Fiscal Year (i.e., $550,000 for 2007).  Stock Options granted in any particular
Fiscal Year will be subject to the standard vesting schedule established by the
Compensation Committee for Stock Option grants in that year (the current
vesting schedule is a 4-year vesting schedule). 
After the expiration of the 

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Equity Plan, Executive’s right to receive future
grants of Stock Options is subject to approval by the stockholders of the
Company of a similar successor plan under which such awards may be granted.

(d)           DISCRETIONARY
GRANTS.  In addition to the
Employment Inducement, Performance Share and Stock Option Awards under Section
5(a), (b) and (c) above, at the sole discretion of the Board or the Committee,
the Executive shall be eligible to participate throughout the Employment Term
in such long-term incentive plans and programs as may be in effect from time to
time in accordance with the Company’s compensation practices and the terms and
provisions of any such plans or programs.

6.            EMPLOYEE BENEFITS.

(a)           BENEFIT
PLANS.  The Executive shall be
entitled to participate in all employee benefit plans of the Company including,
but not limited to, equity, pension, thrift, Section 401(k), profit sharing,
medical coverage, education, or other retirement (including without limitation
supplemental executive retirement plans) or welfare benefits that the Company
has adopted or may adopt, maintain or contribute to for the benefit of its
senior executives at a level commensurate with the Executive’s positions
subject to satisfying the applicable eligibility requirements.  The Executive shall at all times during the
Employment Term be entitled to participate in the Guess?, Inc. Supplemental
Executive Retirement Plan, as in effect on January 1, 2006, and any
deferred compensation plan which may be maintained by the Company from time to
time.

(b)           VACATION.  The Executive shall be entitled to accrue annual
paid vacation in accordance with the Company’s policy applicable to senior
executives, but in no event less than twenty business days per calendar year
(as prorated for partial years), which vacation may be taken at such times as
the Executive elects with due regard to the needs of the Company.  Executive shall not be permitted to accrue
more than a total of twenty five (25) vacation days at any time.  Once Executive reaches the maximum accrual,
Executive shall not accrue any additional vacation days until a portion of
Executive’s accrued vacation time is used.

(c)           AUTOMOBILE.  The Company shall continue to provide the
Executive with an automobile during the Employment Term in a manner consistent
with its past practice.

(d)           PERQUISITES.  The Company shall provide to the Executive,
at the Company’s cost, all perquisites which other senior executives of the
Company are generally entitled to receive in accordance with Company policy as
set by the Board from time to time.

(e)           LIFETIME RETIREE MEDICAL
BENEFIT.  The Company shall provide the Executive and
his eligible family members with Post-Retirement Health Benefits at its expense
commencing upon expiration of the Employment Term for any reason other than a
termination for Cause, in which case the Company shall have no obligation to
provide Post-Retirement Health Benefits. 
The term “Post-Retirement Health
Benefits” means the following:

(i)            health benefits (including medical,
prescription, dental and vision coverage, if and to the extent applicable) for
the remainder of the Executive’s life under the plans provided to the Company’s
executive officers and their eligible family 

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members, as in effect
from time to time; provided that the Post-Retirement Health Benefits may
be made secondary to any other benefits to which the Executive may be entitled
under another employer-provided plan or a governmental plan such as Medicare;
or

(ii)           if the Company is unable, at any
point, to provide such coverage under any such plans, the Company will pay the
Executive a lump-sum cash payment that will equal the present value of the cost
of such coverage based on the actuarial equivalent assumptions set forth in the
Guess?, Inc. Supplemental Executive Retirement Plan and a reasonable forecast
of increases in the cost of such coverage for that portion of the period following
the expiration of the Employment Term for which such coverage could not be
provided (in either case, such benefits are referred to as the “Post-Retirement
Health Benefits”).

(f)            LIFE INSURANCE BENEFIT.  The Company will purchase, and will pay the
premiums for, life insurance coverage on the Executive’s life with the
Executive (or his assignee) as the owner of the policy and with the right to
designate the beneficiary of the death benefit. 
The premiums paid on the policy shall be imputed as income to the
Executive.  Such insurance coverage shall
be structured to comply with the requirements of the Sarbanes-Oxley Act and
similar legal requirements.  The
Executive’s rights pursuant to this Section 6(f) shall be fully vested and
non-forfeitable at all times.  The
Company shall be obligated in all events to pay all scheduled premium payments
unless the Executive dies prior to the end of the last scheduled premium
payment.  The Executive’s rights to the
policy and any premium payments by the Company shall not be subject to
attachment, garnishment, alienation or other similar action by any person to
the maximum extent permitted by law.  The
Compensation Committee and the Executive will negotiate the other terms and
conditions of such insurance coverage in good faith.

(g)           BUSINESS
AND ENTERTAINMENT EXPENSES. 
Upon presentation of appropriate documentation, the Executive shall be
reimbursed in accordance with the Company’s expense reimbursement policy for
all reasonable and necessary business and entertainment expenses incurred in
connection with the performance of the Executive’s duties hereunder.

(h)           CHANGE IN CONTROL.  In the event there is a “Change in Control”
(as such term is defined for purposes of Section 5(a)(iv)), the Company shall
establish a “rabbi trust” for the benefit of the Executive and fund it with
cash or cash equivalents sufficient to fully pay when due and payable all
payments that potentially would be required to be made under Section 8(d)
hereof if the Executive were to be terminated without cause.

7.            TERMINATION.  The Executive’s employment and the Employment
Term shall terminate on the first of the following to occur:

(a)           DISABILITY.  Upon written notice by the Company to the
Executive of termination due to Disability, while the Executive remains
Disabled.  For purposes of this
Agreement, “Disabled” and “Disability”
shall (i) have the meaning defined under the Company’s then-current long-term
disability insurance plan, policy, program or contract as entitles the
Executive to payment of disability benefits thereunder, or (ii) if there shall
be no such plan, 

 7
 

policy, program or contract, mean permanent and total
disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the “Code”).

(b)           DEATH.  Automatically on the date of death of the
Executive.

(c)           CAUSE.  Immediately upon written notice by the
Company to the Executive of a termination for Cause.  “Cause”
shall mean (i) Executive’s conviction or plea of nolo contendere to a felony or
any crime involving moral turpitude; (ii) a willful act of theft, embezzlement
or misappropriation from the Company; or (iii) a determination by the Board
that Executive has willfully and continuously failed to perform substantially
the Executive’s duties (other than any such failure resulting from the
Executive’s Disability or incapacity due to bodily injury or physical or mental
illness), after (A) a written demand for substantial performance is delivered
to the Executive by the Board which specifically identifies the manner in which
the Board believes that the Executive has not substantially performed the
Executive’s duties and provides the Executive with the opportunity to correct
such failure if, and only if, such failure is capable of cure; and (B) the Executive’s
failure to correct such failure which is capable of cure within 30 days of
receipt of the demand for performance.  For
the avoidance of doubt, the parties expressly agree that only Cause pursuant to
Section 7(c)(iii) shall be deemed capable of cure.  Notwithstanding the foregoing, “Cause” shall
not include any act or omission that the Executive believes in good faith to
have been in or not opposed to the interest of the Company (without intent of
Executive to gain therefrom, directly or indirectly, a profit to which he was
not legally entitled). The Company may only terminate the Executive’s employment
for Cause if (A) a determination that Cause exists is made and approved by three
fourths of the independent directors of the Company’s Board, (B) for a
termination for Cause under Section 7(c)(iii), the Executive is given at least five
(5) days’ written notice of the Board meeting called to make such
determination, and (C) for a termination for Cause under Section 7(c)(iii), the
Executive and his legal counsel are given the opportunity to address such
meeting.  In the event that the Board has
so determined in good faith that Cause exists, the Board shall have no
obligation to terminate the Executive’s employment if the Board determines in
its sole discretion that such a decision not to terminate the Executive’s
employment is in the best interest of the Company.

(d)           WITHOUT
CAUSE.  Upon written notice by
the Company to the Executive of an involuntary termination without Cause and
other than due to death or Disability prior to age sixty-five.

(e)           GOOD
REASON.  Upon written notice
by the Executive to the Company of termination for Good Reason unless the
reasons for any proposed termination for Good Reason are remedied in all
material respects by the Company within thirty (30) days following written
notification by the Executive to the Company. 
“Good Reason” means the
occurrence of any one or more of the following events prior to age sixty-five unless
Executive specifically agrees in writing that such event shall not be Good
Reason:

(i)            Any material breach of this
Agreement by the Company, including:

(A)          the failure of the Company to pay the
compensation and benefits set forth in Sections 3 through 6 of this Agreement;

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(B)           any material adverse change in the
Executive’s status, position or responsibilities as Chief Executive Officer of
the Company;

(C)           any failure to nominate or elect
Executive as Chief Executive Officer of the Company or as member of the Board;

(D)          causing or requiring the Executive to
report to anyone other than the Board or

(E)           assignment of duties materially
inconsistent with his position and duties described in this Agreement,

(ii)           the failure of the Company to assign
this Agreement to a successor to all or substantially all of the business or
assets of the Company or failure of such a successor to the Company to
explicitly assume and agree to be bound by this Agreement,

(iii)          requiring the Executive to be principally
based at any office or location outside of the Los Angeles metropolitan area;

(iv)          purported termination of the Executive’s
employment for “Cause” in a bad faith violation of the substantive and
procedural requirements of Section 7(c), or

(v)           a termination of employment by the
Executive for any reason or no reason during the 30-day period commencing 6
months after a Change of Control.

(f)            RETIREMENT. 
Upon thirty (30) days’ prior written notice by the Executive to the
Company of the Executive’s termination of employment without Good Reason (which
the Company may, in its sole discretion, make effective earlier than any notice
date).

8.            CONSEQUENCES OF
TERMINATION.  Any termination
payments made and benefits provided under this Agreement to the Executive shall
be in lieu of any termination or severance payments or benefits for which the
Executive may be eligible under any of the plans, policies or programs of the
Company or its affiliates.  Except to the
extent otherwise provided in this Agreement, all benefits and awards under the
Company’s compensation and benefit programs shall be subject to the terms and
conditions of the plan or arrangement under which such benefits accrue, are
granted or are awarded.  The following
amounts and benefits shall be due to the Executive:

(a)           DISABILITY.  Upon such termination, the Company shall pay
or provide the Executive (i) any unpaid Base Salary through the date of
termination and any accrued vacation in accordance with Company policy; (ii)
any unpaid Bonus earned with respect to any Fiscal Year ending on or preceding
the date of termination; (iii) reimbursement for any unreimbursed business expenses
incurred through the date of termination; and (iv) all other payments, benefits
or perquisites to which the Executive may be entitled under the terms of any
applicable compensation arrangement or benefit, equity or perquisite plan or
program or grant or this Agreement (including any related gross-up)
(collectively, “Accrued Amounts”).  The Executive will also be paid a pro-rata portion
of the Executive’s Bonus and Licensing Bonus for the performance year in which
the Executive’s termination occurs, payable at the time that 

 9
 

annual Bonuses are paid to other senior executives
(determined by multiplying the amount the Executive would have received based
upon target performance had employment continued through the end of the
performance year by a fraction, the numerator of which is the number of days
during the performance year of termination that the Executive is employed by the
Company and the denominator of which is 365).

(b)           DEATH.  In the event the Employment Term ends on
account of the Executive’s death, the Executive’s estate (or to the extent a
beneficiary has been designated in accordance with a program, the beneficiary under
such program) shall be entitled to any Accrued Amounts.  The Executive’s estate (or beneficiary) will
also be paid a pro-rata portion of the Executive’s Bonus and Licensing Bonus
for the performance year in which the Executive’s termination occurs, payable
at the time that annual Bonuses are paid to other senior executives (determined
by multiplying the amount the Executive would have received based upon target
performance had employment continued through the end of the performance year by
a fraction, the numerator of which is the number of days during the performance
year of termination that the Executive is employed by the Company and the
denominator of which is 365).

(c)           TERMINATION
FOR CAUSE.  If the Executive’s
employment should be terminated by the Company for Cause or by the Executive
without Good Reason, the Company shall pay to the Executive any Accrued
Amounts.

(d)           TERMINATION
WITHOUT CAUSE OR FOR GOOD REASON. 
If the Executive’s employment by the Company is terminated by the
Company other than for Cause (other than a termination due to Disability or
death) or by the Executive for Good Reason, the Company shall pay or provide
the Executive with

(i)            the Accrued Amounts;

(ii)           a pro-rata portion of the Executive’s
Bonus for the performance year in which the Executive’s termination occurs,
payable at the time that annual Bonuses are paid to other senior executives, determined
by multiplying the amount the Executive would have received based upon actual
performance had employment continued through the end of the performance year
(but in no event less than the amount for target performance), by a fraction,
the numerator of which is the number of days during the performance year of
termination that the Executive is employed by the Company and the denominator
of which is 365;

(iii)          $5 million if the last day of the
Executive’s employment by the Company occurs in 2007 or $3.5 million if the
last day of the Executive’s employment by the Company occurs on or after
January 1, 2008 but before December 31, 2012 (for purposes of clarity, the
Company shall have no obligation to the Executive pursuant to this clause (iii)
if the last day of the Executive’s employment by the Company occurs on or after
December 31, 2012);

(iv)          an amount equal to the product of (A)
the sum of (1) the Executive’s Base Salary and (2) the then Target Bonus multiplied
by (B) three, payable in a single lump-sum, with such payment being made on the
earliest payroll date that 

 10
 

does not result in
adverse tax consequences to the Executive under Section 409A of the Code; and

(v)           two years of additional service
credit and age for benefit accrual, early retirement reduction and vesting
purposes under the Guess?, Inc. Supplemental Executive Retirement Plan.

In addition, the Company, at its election, shall have the option in its
full and absolute discretion to enter into a two-year consulting agreement with
the Executive providing for continuation of 50% of Base Pay annually in
substantially the same form as set forth in Appendix A below.  Notwithstanding anything to the contrary
contained herein, the Company shall have no obligation to provide any of the
monetary payments and/or benefits provided for in this Section 8(d) (other than
Accrued Amounts) unless and until Executive executes an effective general
release of all claims in favor of the Company in a form acceptable to the
Company (the “Release”).  For the
avoidance of doubt, Executive’s execution of the Release is a condition
precedent to any obligation of the Company to provide the monetary payments
and/or benefits provided for in this Section 8(d) (other than Accrued Amounts).

(e)           NON-RENEWAL.  A notice of non-renewal of this Agreement by
the Company that would result in expiration of the Employment Term prior to the
Executive’s sixty-fifth birthday shall be treated as a termination of the
Executive’s employment by the Company without “Cause” for the purposes of this
Agreement.

(f)            RETIREMENT.  If the Executive retires under Section 7(f)
of this Agreement, the Company shall pay to the Executive:

(i)            any Accrued Amounts;

(ii)           a pro-rata portion of the Executive’s
Bonus for the performance year in which the Executive’s termination occurs,
payable at the time that annual Bonuses are paid to other senior executives
(determined by multiplying the amount the Executive would have received based
upon target performance had employment continued through the end of the
performance year by a fraction, the numerator of which is the number of days
during the performance year of termination that the Executive is employed by
the Company and the denominator of which is 365); and

(iii)          the Executive shall be considered to
have “retired” for purposes of any plans, programs, agreements or arrangements
with the Company or its affiliates.

In addition, the Company shall enter into a two-year consulting
agreement with the Executive providing for continuation of 50% of Base Pay
annually in substantially the same form as set forth in Appendix A below.

9.            SECTION 4999 EXCISE
TAX.  If any payments, rights or benefits
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement of Executive with the Company or any person affiliated with the
Company) (the “Payments”) received or to be received by Executive will be
subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed), then the Company 

 11
 

shall pay to
Executive an amount in addition to the Payments (the “Gross-Up Payment”) as
calculated below.  The Gross Up Payment
shall be in an amount such that, after deduction of any Excise Tax on the
Payments and any federal, state and local income and employment tax and Excise
Tax on the Gross Up Payment, but before deduction for any federal, state or
local income and employment tax on the Payments, the net amount retained by the
Executive shall be equal to the Payments. 
The process for calculating the Excise Tax, determining the amount of
any Gross-Up Payment and other procedures relating to this Section are set
forth in Appendix B attached hereto.  For
purposes of making the determinations and calculations required herein, the
Accounting Firm (as defined in Appendix B) may rely on reasonable, good faith
interpretations concerning the application of Section 280G and 4999 of the
Code, provided that the Accounting Firm shall make such determinations and
calculations on the basis of “substantial authority” (within the meaning of
Section 6662 of the Code) and shall provide opinions to that effect to both the
Company and Executive.

10.          CONFIDENTIALITY.  The Executive agrees that the Executive shall
not, directly or indirectly, use, make available, sell, disclose or otherwise
communicate to any person, other than in the course of the Executive’s
employment and for the benefit of the Company, either during the period of the
Executive’s employment or at any time thereafter, any nonpublic, proprietary or
confidential information, knowledge or data relating to the Company, any of its
subsidiaries, affiliated companies or businesses, which shall have been obtained
by the Executive during the Executive’s employment by the Company.  The foregoing shall not apply to information
that (i) was known to the public prior to its disclosure to the Executive; (ii)
becomes known to the public subsequent to disclosure to the Executive through
no wrongful act of the Executive or any representative of the Executive; or
(iii) the Executive is required to disclose by applicable law, regulation or
legal process (provided that the Executive provides the Company with prior notice
of the contemplated disclosure and reasonably cooperates with the Company at
its expense in seeking a protective order or other appropriate protection of
such information).  Notwithstanding
clauses (i) and (ii) of the preceding sentence, the Executive’s obligation to
maintain such disclosed information in confidence shall not terminate where
only portions of the information are in the public domain.

11.          ATTORNEY’S
FEES.  To the extent permitted by law, all
reasonable costs and expenses incurred by the Executive in evaluating and negotiating
the terms and conditions of this Agreement shall be promptly paid on behalf of,
or reimbursed, to the Executive by the Company. 
If the Executive incurs legal or other fees and expense in a good faith non-frivolous
effort to secure or preserve or establish entitlement to compensation and
benefits under this Agreement, the Company shall, to the extent permitted by
law and regardless of the outcome of such effort, reimburse Executive monthly for
such fees and expenses.

12.          NO ASSIGNMENT.

(a)           This Agreement is personal to each of
the parties hereto.  Except as provided
in Section 12(b) below, no party may assign or delegate any rights or
obligations hereunder without first obtaining the written consent of the other
party hereto.

(b)           The Company may assign this Agreement
to any successor to all or substantially all of the business and/or assets of
the Company provided the Company shall 

 12
 

require such successor to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place
and shall deliver a copy of such assignment to the Executive.

13.          NOTICE.  For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given (a) on the date of delivery if
delivered by hand, (b) on the date of transmission, if delivered by confirmed
facsimile, (c) on the first business day following the date of deposit if
delivered by guaranteed overnight delivery service, or (d) on the fourth
business day following the date delivered or mailed by United States registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

If to the Executive:

At the address (or to the
facsimile number) shown

on the records of the Company

If to the Company:

Guess?, Inc.

1444 South Alameda Street

Los Angeles, California 90021

Attention:  General Counsel

Facsimile No.:   (213) 765-0911

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

14.          SECTION HEADINGS;
INCONSISTENCY.  The section
headings used in this Agreement are included solely for convenience and shall
not affect, or be used in connection with, the interpretation of this
Agreement.  In the event of any
inconsistency between this Agreement and any other agreement (including but not
limited to any option, stock, long-term incentive or other equity award
agreement), plan, program, policy or practice (collectively, “Other Provision”) of the Company the
terms of this Agreement shall control over such Other Provision to the extent
that the terms of this Agreement are more beneficial to the Executive.

15.          SEVERABILITY.  The provisions of this Agreement shall be
deemed severable and the invalidity of unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.

16.          COUNTERPARTS.  This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instruments.  One or more counterparts of this Agreement
may be delivered by facsimile, with the intention that delivery by such means
shall have the same effect as delivery of an original counterpart thereof.

17.          DISPUTE RESOLUTION.  In the event of any controversy, dispute or
claim between the parties under, arising out of or related to this Agreement
(including but not limited 

 13
 

to, claims relating to breach, termination of this
Agreement, or the performance of a party under this Agreement) whether based on
contract, tort, statute or other legal theory (collectively referred to
hereinafter as “Disputes”), the parties shall follow the dispute resolution
procedures set forth below. Any Dispute shall be settled exclusively by
arbitration, conducted before a single arbitrator in Los Angeles, California,
administered by the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules then in
effect.  The parties agree to (i) appoint
an arbitrator who is knowledgeable in employment and human resource matters
and, to the extent possible, the industry in which the Company operates, and
instruct the arbitrator to follow substantive rules of law; (ii) require the
testimony to be transcribed; and (iii) require the award to be accompanied by
findings of act and a statement of reasons for the decision.  The arbitrator shall have the authority to
permit discovery, to the extent deemed appropriate by the arbitrator, upon
request of a party.  The arbitrator shall
have no power or authority to add to or detract from the written agreement of
the parties.  If the parties cannot agree
upon an arbitrator within ten (10) days after demand by either of them, either
or both parties may request the American Arbitration Association name a panel
of five (5) arbitrators.  The Company
shall strike the names of two (2) off this list, the Executive shall also
strike two (2) names, and the remaining name shall be the arbitrator.  The parties shall stipulate that arbitration
shall be completed within ninety (90) days. 
The decision of the arbitrator will be final and binding upon the
parties hereto.  Judgment may be entered
on the arbitrator’s award in any court having jurisdiction.  The Company shall bear the costs of the
arbitrator and any related forum fee.

18.          INDEMNIFICATION.  The Company hereby agrees to indemnify the
Executive and hold the Executive harmless to the fullest extent permitted by
applicable law and under the by-laws of the Company against and in respect to
any and all actions, suits, proceedings, claims, demands, judgments, costs,
expenses (including reasonable attorneys’ fees), losses, and damages resulting
from the Executive’s performance of his duties and obligations with the Company.  This provision is in addition to any other
rights of indemnification the Executive may have.

19.          LIABILITY INSURANCE.  The Company shall cover the Executive under
directors and officers liability insurance both during and, while potential
liability exists, after the term of this Agreement in the same amount and to
the same extent as the Company covers its other officers and directors.

20.          MISCELLANEOUS.  No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer or director
as may be designated by the Board.  No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.  This Agreement together with all
exhibits hereto sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein. 
No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. 
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California without
regard to its conflicts of law principles. 
Notwithstanding 

 14
 

the foregoing, the Company’s rights pursuant to any
confidentiality, proprietary information, assignment of inventions or similar
agreement shall survive and continue in effect.

21.           PAYMENT
OF COMPENSATION.  Notwithstanding
anything in this Agreement or elsewhere to the contrary:

(a)           If payment or provision of any amount
or other benefit that is “deferred compensation” subject to Section 409A of the
Code at the time otherwise specified in this Agreement or elsewhere would
subject such amount or benefit to additional tax pursuant to Section
409A(a)(1)(B) of the Code, and if payment or provision thereof at a later date
would avoid any such additional tax, then the payment or provision thereof
shall be postponed to the earliest date on which such amount or benefit can be
paid or provided without incurring any such additional tax.  In the event that deferred payment is
required in order to comply with Section 409A, such payment shall be
accumulated and paid in a single lump sum on such earliest date together with
interest for the period of delay, compounded annually, equal to the prime rate
(as published in The Wall Street Journal), and in effect as of the date the
payment should otherwise have been provided.

(b)           If any payment or benefit permitted
or required under this Agreement, or otherwise, is reasonably determined by
either party to be subject for any reason to a material risk of additional tax
pursuant to Section 409A(a)(1)(B) of the Code, including when final regulations
and issued thereunder, then the parties shall promptly agree in good faith on
appropriate provisions to avoid such risk without materially changing the
economic value of this Agreement to either party.

22.          FULL SETTLEMENT.  Except as set forth in this Agreement, the
Company’s obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including without limitation, set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others, except to the extent any amounts are due the Company or
its subsidiaries or affiliates pursuant to a judgment against the
Executive.  In no event shall the
Executive be obliged to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the provisions
of this Agreement, nor shall the amount of any payment hereunder be reduced by
any compensation earned by the Executive as a result of employment by another
employer, except as set forth in this Agreement.

23.          REPRESENTATIONS.  Except as otherwise disclosed to the Company
in writing, the Executive represents and warrants to the Company that the
Executive has the legal right to enter into this Agreement and to perform all
of the obligations on the Executive’s part to be performed hereunder in
accordance with its terms and that the Executive is not a party to any
agreement or understanding, written or oral, which could prevent the Executive
from entering into this Agreement or performing all of the Executive’s
obligations hereunder.

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

 15
 

25.          NON-EXCLUSIVITY
OF RIGHTS.  Nothing in this
Agreement shall prevent or limit the Executive’s continuing or future
participation in any benefit, bonus, incentive or other plan or program
provided by the Company and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the Executive may have
under any restricted stock unit or other agreement with the Company or any of
its affiliated companies.  Except as
otherwise provided herein, amounts and benefits which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, program,
agreement or arrangement of the Company at or subsequent to the date of
termination shall be payable in accordance with such plan or program.

26.          SURVIVAL.  The respective obligations of, and benefits
afforded to, the Company and Executive that by their express terms or clear
intent survive termination of Executive’s employment with the Company,
including, without limitation, the provisions of Sections 8, 9, 10, 11, 12, 17,
18, 19, 21, 22 and 24 of this Agreement, will survive termination of Executive’s
employment with the Company, and will remain in full force and effect according
to their terms.

27.          AGREEMENT
OF THE PARTIES.  The language
used in this Agreement will be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party hereto. 
Neither Executive nor the Company shall be entitled to any presumption
in connection with any determination made hereunder in connection with any
arbitration, judicial or administrative proceeding relating to or arising under
this Agreement.

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

	
  

  	
  GUESS?, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carlos
  Alberini

  
	
   

  	
  Name:

  	
  Carlos Alberini

  
	
   

  	
  Its:

  	
  President and
  COO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PAUL MARCIANO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Paul Marciano

  
					

 

 16
 

APPENDIX A

CONSULTING AGREEMENT

CONSULTING AGREEMENT dated this   th day of             
20    by and between Guess?,
Inc. (the “Company”) and Paul Marciano (“Marciano”).

WITNESSETH:

WHEREAS, Marciano serves as the Company’s Chief
Executive Officer and as a member of the Company’s Board of Directors (the “Board”);

WHEREAS, Marciano desires to retire from his position
as Chief Executive Officer (the effective date of such retirement is referred
to as the “Retirement Date”) and to provide consulting services to the Company
as the Board may reasonably consider appropriate; and

WHEREAS, the parties desire to set forth their
respective rights and obligations regarding Marciano’s consulting arrangement.

NOW, THEREFORE, in consideration of the covenants set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound, agree as follows:

1.             Consulting Period.  The Company agrees to retain Marciano as a
consultant to provide the services described in Section 3 below from the
Retirement Date until the second anniversary of the Retirement Date (the “Consulting
Period”), as provided in this Consulting Agreement.

2.             Consulting Services.  Marciano shall provide such consulting
services to the Company as reasonably requested by the Board from time to
time.  These services may include but are
not limited to actively participating in major marketing or sales initiatives,
performing any transition and integration services related to the Company’s
business and cooperating with the Company regarding any litigation initiated
involving matters of which Marciano has particular knowledge.  Marciano agrees to be available up to seven
days per month during the Consulting Period to perform the Consulting
Services.  The Consulting Services will
be performed at such times as are reasonably requested by the Company after reasonable
consultation with Marciano.  Marciano
shall provide these services in Los Angeles, California, provided that Marciano
shall be required to travel for business and client meetings as reasonably
requested by the Company.

3.             Fees.  As compensation for the Consulting Services,
the Company shall pay Marciano fifty percent of Marciano’s Base Salary as of
the Retirement Date per annum during the Consulting Period.  Fees shall be paid monthly in arrears by the
15th day of the following month.  Should
Marciano die or become
disabled during the Consulting Period, the Company shall make a lump sum cash
payment to Marciano (or, in the event of his death, to his estate) of an amount
equal to the remaining payments owed through the end of the Consulting Period. 

 17
 

Marciano
shall not be entitled to participate, and shall not participate in any employee
benefit plan providing benefits to Company employees, whether presently in
force or adopted subsequent to this Consulting Agreement, with respect to his
Consulting Services.  Notwithstanding the
foregoing, Marciano shall retain all compensation and benefits that continue
past his Retirement Date pursuant to the terms of his Employment Agreement with
the Company dated January 1, 2007 or otherwise. 
All reasonable and necessary business expenses incurred by Marciano in
the performance of the Consulting Services shall be promptly reimbursed by the
Company in accordance with the Company’s standard expense reimbursement
policies applicable to independent contractors.

4.             Status.  Marciano acknowledges and agrees that his
status at all times during the Consulting Period shall be that of an
independent contractor.  Marciano hereby
waives any rights to be treated as an employee or deemed employee of the
Company or any of its affiliates for any purpose following his termination of
employment at the Retirement Date except as provided under his Employment
Agreement.  The parties hereby
acknowledge and agree that the compensation provided for in Section 4 shall
represent fees for Consulting Services provided by Marciano as an independent
contractor, and shall be paid without any deductions or withholdings for taxes.

5.             Retained Property.  During the Consulting Period, Marciano shall
retain all property of the Company in his possession, including, but not
limited to, credit cards, security key cards, telephone cards, car service
cards, computer software or hardware, Company identification cards, Company
records and copies of records, correspondence and copies of correspondence and
other books or manuals issued by the Company.

6.             Assignability.  Marciano may not assign or transfer this
Consulting Agreement or any of Marciano’s rights, duties or obligations
hereunder.  The Company may assign this
Consulting Agreement to any person or entity acquiring all or substantially all
of the assets (by merger or otherwise) of the Company so long as such person,
entity or affiliate assumes the Company’s obligations hereunder.

7.             Entire Agreement.  This Consulting Agreement constitutes the
full and complete understanding and agreement of the parties hereto with
respect to engaging Marciano as a consultant to the Company.  This Consulting Agreement may not be changed
or amended orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.

8.             Divisibility.  If any one or more of the provisions of this
Consulting Agreement or any application thereof shall be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions and other application thereof shall not in any way be
affected or impaired.

9.             Applicable Law.  This Consulting Agreement shall be governed by, and the rights and
obligations of the parties determined in accordance with, the laws of the State
of California as in effect for contracts made and to be performed in the State
of California.

 18
 

10.           Survival.  All of the Company’s obligations hereunder
shall survive the termination of this Consulting Agreement.

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

IN
WITNESS WHEREOF, the undersigned have duly executed this Consulting Agreement
as of the day and year first above written.

	
   

  	
   

  
	
   

  	
  PAUL MARCIANO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  
				

 

 19
 

APPENDIX
B

TAX GROSS-UP PAYMENT RULES AND
PROCEDURES

1.             Subject
to Paragraph 3 below, all determinations required to be made under Section 9 of
this Agreement, including whether a Gross-Up Payment is required and the amount
of such Gross-Up Payment, shall be made by an accounting firm (the “Accounting
Firm”) selected in accordance with Paragraph 2 below.  The Accounting Firm shall provide detailed
supporting calculations both to the Company and Executive within 15 business
days of the event that results in the potential for an excise tax liability for
the Executive, which could include but is not limited to a Change in Control
and the subsequent vesting of any cash payments or awards, or the Executive’s
termination of employment, or such earlier time as is required by the
Company.  The initial Gross-Up Payment,
if any, as determined pursuant to this Paragraph 1, shall be paid on the
Executive’s behalf to the applicable taxing authorities within five (5) days of
the receipt of the Accounting Firm’s determination.  If the Accounting Firm determines that no
Excise Tax is payable to the Executive, it shall furnish the Executive with a
written report indicating that he has substantial authority not to report any
Excise Tax on his federal income tax return. 
Any determination by the Accounting Firm shall be binding upon the
Company and Executive.  As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made (“Underpayment”), consistent with the calculations required to be made
hereunder.  In the event that the Company
exhausts its remedies pursuant to Paragraph 3 below and Executive thereafter is
required to make a payment or additional payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment, increased by all applicable interest and
penalties associated with the Underpayment, shall be promptly paid by the
Company to or for the benefit of Executive. 
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes on earned income at the
highest marginal rate of taxation in the state and locality of Executive’s
residence on the Effective Date of Termination, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.

2.             The
Accounting Firm shall be a public accounting firm proposed by the Company and
agreed upon by the Executive.  If
Executive and the Company cannot agree on the firm to serve as the Accounting
Firm within ten (10) days after the date on which the Company proposed to
Executive a public accounting firm to serve as Auditor, then Executive and the
Company shall each select one accounting firm and those two firms shall jointly
select the accounting firm to serve as the Accounting Firm within ten (10) days
after being requested by the Company and Executive to make such selection.  The Company shall pay the Auditor’s fee.

3.             Executive
shall notify the Company in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Company of the Gross-Up
Payment.  Such notification shall be
given as soon as practicable but no later than fifteen (15) business days after
Executive knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid.  Executive shall not pay 

 20
 

such
claim prior to the expiration of the period ending on the date that any payment
of taxes with respect to such claim is due or the thirty day period following
the date on which Executive gives such notice to the Company, whichever period
is shorter.  If the Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall (i) give the Company any information
reasonably requested by the Company relating to such claim, (ii) take such
action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by the Company, (iii) cooperate with the Company in good faith in
order effectively to contest such claim, and (iv)  permit the Company to participate in any
proceedings relating to such claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including attorneys fees and any
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, on an after-tax basis, for any
Excise Tax or income tax, including interest and penalties with respect
thereto, imposed as a result of such representation and payment of costs and
expenses.  Without limitation of the
foregoing provisions of this Paragraph 3, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect to such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to Executive, on an interest-free basis and shall
indemnify and hold Executive harmless, on an after-tax basis, from any Excise
Tax and income tax, including interest or penalties with respect thereto,
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. 
Furthermore, the Company’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other authority.

4.             If,
after the receipt by Executive of an amount advanced by the Company pursuant to
Paragraph 3 above, Executive becomes entitled to receive any refund with respect
to such claim, Executive shall (subject to the Company’s complying with the
requirements of Paragraph 3), promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto).

 21Exhibit 10.18

 

RESTRICTED
STOCK AGREEMENT

This
RESTRICTED STOCK AGREEMENT (the “Agreement”),
dated as of January 1, 2007 (the “Date of
Grant”), is entered into by and between GUESS?, INC., a Delaware
corporation (the “Company”), and  Paul Marciano (the “Grantee”).

RECITALS

WHEREAS, the Company maintains
the Guess?, Inc. 2004 Equity Incentive Plan (the “Plan”).

WHEREAS, the Compensation Committee of the
Company’s Board of Directors (the “Committee”) has determined to grant a
restricted stock award (the “Award”) to the Grantee under the Plan in
order to increase Grantee’s participation in the success of the Company and as
an inducement to enter into the Executive Employment Agreement dated as of
January 1, 2007 by and between the Company and the Grantee (the “Employment
Agreement”);

NOW, THEREFORE, the parties hereto agree as
follows:

1.                                       Definitions;
Incorporation of Plan Terms. 
Capitalized terms used herein without definition shall have the meanings
assigned to them in the Plan.  The Award
and all rights of the Grantee under this Agreement are subject to, and the
Grantee agrees to be bound by, all of the terms and conditions of the Plan,
incorporated herein by this reference. 
In the event of any conflict or inconsistency between the Plan and this
Award Agreement, the Plan shall govern.

2.                                       Grant
of Restricted Stock.  The Grantee
shall be entitled to purchase 500,000
restricted shares of the Company’s common stock, par value $0.01 per share (the
“Common Stock”), pursuant to the terms and conditions of this Agreement
(the “Restricted Stock”).

3.                                       Purchase
Price.  The Grantee shall pay to the
Company, in cash, an aggregate purchase price of $5,000
(the “Purchase Price”), which amount is equal to the aggregate amount of
the par value of the Restricted Stock. 
Such payment of the Purchase Price shall be made to the Company within
15 days after the date hereof.

4.                                       Restricted
Period.  Subject to Section 7 below,
the Award shall vest and restrictions shall lapse as follows (the period from
the date hereof through each applicable vesting date, the “Restricted Period”):

A.                                   If
in any whole fiscal year of the Company (“Fiscal Year”) commencing on or
after January 1, 2007 and during the Employment Term (as defined in the
Employment Agreement), the Company shall record earnings per share (“Earnings
per Share”) growth of greater than the Applicable Annual Target (as defined
below) as compared to the immediately preceding Fiscal Year, then 20% of the
Restricted Stock shall become vested as of the first business day following the
issuance of the Company’s financial statement for such year, provided the Grantee
is then employed by the Company.  If the
Earnings per Share growth requirement is not met for any such year, all of the
shares of the Restricted Stock 

eligible for vesting for that year shall vest on the
first business day following the issuance of the Company’s financial statement
for any subsequent Fiscal Year during the Original Employment Term (as defined
in Employment Agreement) if the cumulative compound average Earnings per Share
growth after the 2006 Fiscal Year through such subsequent Fiscal Year is more
than the Applicable Cumulative Target (as defined below) for such subsequent
Fiscal Year.  The “Applicable Annual
Target” for each of the first, second and third whole Fiscal Years that
commences on or after January 1, 2007 is a growth in Earnings per Share of 15%
or more as compared to the immediately preceding Fiscal Year.  The “Applicable Cumulative Target” for
each of the first, second and third whole Fiscal Years that commences on or
after January 1, 2007 is a 15% rate of cumulative compound average Earnings per
Share growth.  The “Applicable Annual
Target” and the “Applicable Cumulative Target” for each of the fourth and fifth
whole Fiscal Years that commences on or after January 1, 2007 will be a rate of
Earnings per Share growth and cumulative compound average Earnings per Share
growth, respectively, determined by the Compensation Committee of the Board in
its sole discretion not later than the end of the first quarter of such Fiscal
Year.

B.                                     For
purposes of this Agreement, Earnings per Share shall be equal to the basic
earnings per share calculated in accordance with accounting principles
generally accepted in the United States and as reported in the Company’s financial
statements as filed with the Securities and Exchange Commission, except that
certain adjustments may be made for certain non-recurring or unusual non-cash
items recognized in accordance with accounting principles generally accepted in
the United States including, but not limited to, any write-offs of unamortized
deferred financing costs and any asset impairment write-downs, which the
Committee determines in its sole discretion to exclude for purposes of this
Agreement.

5.                                       Rights
of a Stockholder.  From and after the
Date of Grant and for so long as the Restricted Stock is held by or for the
benefit of the Grantee, the Grantee shall have all the rights of a stockholder
of the Company with respect to the Restricted Stock, including but not limited
to the right to receive dividends, if applicable, and the right to vote such
shares.

6.                                       Adjustments Upon Specified Events.  Upon the occurrence of certain events
relating to the Company’s Common Stock contemplated by Section 16(b) of the
Plan, the Committee will make adjustments, if appropriate, in the number and
kind of securities subject to the Award. 
If any adjustment is made under Section 16(b) of the Plan, the
restrictions applicable to the shares of Restricted Stock shall continue in
effect with respect to any consideration or other securities (the “Restricted
Property” and, for the purposes of this Award Agreement, “Restricted Stock”
shall include “Restricted Property,” unless the context otherwise requires)
received in respect of such Restricted Stock. 
Such Restricted Property shall vest at such times in such proportion as
the shares of Restricted Stock to which the Restricted Property is
attributable.  To the extent that the
Restricted Property includes any cash (other than regular cash dividends provided
for in Section 5 hereof), such cash shall be invested, pursuant to policies
established by the 

 2
 

Committee, in interest
bearing, FDIC-insured (subject to applicable insurance limits) deposits
of a depository institution selected by the Committee, the earnings on which
shall be added to and become a part of the Restricted Property.

7.                                       Effect
of Cessation of Employment.

A.                                   The
shares of the Restricted Stock not yet vested or forfeited shall become 100%
vested in the event that the Grantee dies or becomes Disabled (as defined in Section
7(a) of the Employment Agreement) or there is a Change in Control (as defined
below), in each case while employed by the Company or an affiliate during the
Employment Term.  For this purpose, the
term “Change in Control” is used as defined in the Plan except that in
no event shall a “Change in Control” be triggered pursuant to clause (A) of
such term as so defined unless the Acquiring Person becomes the Beneficial
Owner of twenty percent (20%) or more of the then outstanding shares of Common
Stock or the Combined Voting Power of the Company (except pursuant to an offer
for all outstanding shares of Common Stock at a price and upon such terms and
conditions as a majority of the Continuing Directors determine to be in the
best interests of the Company and its shareholders (other than an Acquiring
Person on whose behalf the offer is being made)) in one or more bona fide
transactions and such level of ownership of such Common Stock or Combined
Voting Power, as applicable, exceeds the aggregate level of ownership of the
Marcianos (as defined below) of such Common Stock or Combined Voting Power,
respectively.  For purposes of the
preceding sentence, “Marcianos” means Maurice Marciano, Paul Marciano,
and any trust established in whole or in part for the benefit of one or more of
them or their family members, or any other entity controlled by one or more of
them, and any other capitalized term used in such sentence is used as defined
in the Equity Plan if not otherwise defined in this Agreement.  If the Grantee terminates his employment with
the Company for “Good Reason” (as defined in Section 7(e) of the Employment Agreement),
or is terminated by the Company without “Cause” (as defined in Section 7(c) of
the Employment Agreement) or for Disability, the shares of the Restricted Stock
not yet vested or forfeited shall become 100% vested.

B.                                     In
all events other than those previously addressed in Section 7(A) herein, if the
Grantee ceases to be an employee of the Company or an affiliate, the Grantee
shall be vested only as to that percentage of shares of the Restricted Stock
which are vested at the time of the termination of his employment and the Grantee
shall forfeit the right to the shares of the Restricted Stock which are not yet
vested on the termination date.  Further,
any Restricted Stock which is unvested at the conclusion of the Original
Employment Term shall be forfeited and terminate.

C.                                     Upon
the occurrence of any forfeiture of shares of Restricted Stock hereunder, such
unvested, forfeited shares and related Restricted Property shall be
automatically transferred to the Company, without any other action by the
Grantee, or the Grantee’s beneficiary or personal representative, as the case
may be, and the Company shall refund the Purchase Price to the Grantee (or the
Grantee’s beneficiary or personal representative); no additional consideration
shall be paid by the Company with respect to such transfer.  No interest shall be credited with respect to
nor shall any other adjustments be made to the Purchase 

 3
 

Price for fluctuations in the fair market value of the
Common Stock either before or after the transfer date.  The Company may exercise its powers under
Section 10(D) hereof and take any other action necessary or advisable to
evidence such transfer.  The Grantee, or
the Grantee’s beneficiary or personal representative, as the case may be, shall
deliver any additional documents of transfer that the Company may request to
confirm the transfer of such unvested, forfeited shares and related Restricted
Property to the Company.

8.                                       Reserved.

9.                                       Restrictions
on Transfer.  Prior to the lapse of
the Restricted Period, neither the Restricted Stock, nor any interest therein,
amount payable in respect thereof or Restricted Property shall be sold, transferred,
pledged, hypothecated or otherwise disposed of by the Grantee; provided,
however, that such transfer restrictions shall not apply to (i) transfers to
the Company or (ii) transfers by will or descent and distribution.  Grantee agrees that the Restricted Stock will
not be sold or otherwise disposed of in any manner that would constitute a
violation of any applicable federal or state securities laws.

10.                                 Stock
Certificates.

A.                                   Book Entry Form.  The Company shall, in its
discretion, issue the shares of Restricted Stock subject to the Award either:
(i) in certificate form as provided in Section 10(B) below; or (ii) in book
entry form, registered in the name of the Grantee with notations regarding the
applicable restrictions on transfer imposed under this Agreement.

B.                                     Certificates
to be Held by Company; Legend.  Any certificates representing shares of
Restricted Stock that may be delivered to the Grantee by the Company prior to
the lapse of restrictions shall be immediately redelivered by the Grantee to
the Company to be held by the Company until the restrictions on such shares
shall have lapsed and the shares shall thereby have become vested or the shares
represented thereby have been forfeited hereunder.  Such certificates shall bear the following
legend:

“The ownership of this certificate
and the shares of stock evidenced hereby and any interest therein are subject
to substantial restrictions on transfer under an Agreement entered into between
the registered owner and Guess?, Inc.  A
copy of such Agreement is on file in the office of the Secretary of Guess?,
Inc.”

C.                                     Delivery of Certificates Upon Lapse of Restricted Period.  Promptly after the lapse of the Restricted
Period as to any shares of Restricted Stock pursuant to Section 4 and the
satisfaction of any and all related tax withholding obligations pursuant to
Section 11, the Company shall, as applicable, either remove the notations on
any shares of Restricted Stock issued in book entry form which have vested or
deliver to the Grantee a certificate or certificates evidencing the number of
shares of Restricted Stock which have vested (or, in either case, such lesser
number of shares as may be permitted pursuant to Section 11).  The Grantee (or the Beneficiary or Personal
Representative of the Grantee in the event of the Grantee’s death or
incapacity, as the case may be) shall deliver to the Company any
representations or other documents or assurances as the Company may deem 

 4
 

necessary or reasonably
desirable to ensure compliance with all applicable legal and regulatory
requirements.  The shares so delivered
shall no longer be restricted shares hereunder.

D.                                    Stock Power; Power of Attorney.  Concurrent with the execution and delivery of
this Agreement, the Grantee shall deliver to the Company an executed stock
power in the form attached hereto as Exhibit A, in blank, with respect to the
Restricted Stock.  The Grantee, by
acceptance of the Award, shall be deemed to appoint, and does so appoint by
execution of this Agreement, the Company and each of its authorized
representatives as the Grantee’s attorney(s) in fact to effect any transfer of
unvested, forfeited shares (or shares otherwise reacquired by the Company
hereunder) to the Company as may be required pursuant to the Plan or this
Agreement and to execute such documents as the Company or such representatives
deem necessary or advisable in connection with any such transfer.

E.                                      Postponement of Issuance.  Notwithstanding any other provisions of this
Agreement, the issuance or delivery of any shares of Common Stock (whether
subject to restrictions or unrestricted) may be postponed for such period as
may be required to comply with applicable requirements of any national
securities exchange or any requirements under any law or regulation applicable
to the issuance or delivery of such shares. 
The Company shall not be obligated to issue or deliver any shares of
Stock if the issuance or delivery thereof shall constitute a violation of any
provision of any law or of any regulation of any governmental authority or any
national securities exchange.

11.                                 Withholding
of Tax.  The Company shall reasonably
determine the amount of any federal, state, local or other income, employment,
or other taxes which the Company or any of its affiliates may reasonably be
obligated to withhold with respect to the grant, vesting, making of an election
under Section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”),
or other event with respect to the Restricted Stock.  The Company may, in its sole discretion,
withhold and/or reacquire a sufficient number of shares of Restricted Stock in
connection with the vesting of such shares at their then Fair Market Value
(determined either as of the date of such withholding or as of the immediately
preceding trading day, as determined by the Company in its discretion) to
satisfy the amount of any such withholding obligations that arise with respect
to the vesting of such shares.  The
Company may take such action(s) without notice to the Grantee and shall remit
to the Grantee the balance of any proceeds from withholding and/or reacquiring
such shares in excess of the amount reasonably determined to be necessary to
satisfy such withholding obligations. 
The Grantee shall have no discretion as to the satisfaction of tax
withholding obligations in such manner. 
If, however, the Grantee makes an election under Section 83(b) of the
Code with respect to the Restricted Stock, if any other withholding event
occurs with respect to the Restricted Stock other than the vesting of such
stock, or if the Company for any reason does not satisfy the withholding
obligations with respect to the vesting of the Restricted Stock as provided
above in this Section 11, the Company shall be entitled to require a cash
payment by or on behalf of the Grantee and/or to deduct from other compensation
payable to the Grantee the amount of any such withholding obligations.

 5
 

12.                                 Compliance.  Grantee hereby agrees to cooperate with the
Company, regardless of Grantee’s employment status with the Company, to the
extent necessary for the Company to comply with applicable state and federal
laws and regulations relating to the Restricted Stock.

13.                                 Notices.  Any notice required or permitted under this
Agreement shall be deemed given when personally delivered, or when deposited in
a United States Post Office, postage prepaid, addressed, as appropriate, to the
Grantee either at the address on record with the Company or such other address
as may be designated by Grantee in writing to the Company; or to the Company,
Attention: Angelina Orona, Stock Plan Administrator, 1444 South Alameda Street,
Los Angeles, California  90021, or such
other address as the Company may designate in writing to the Grantee.

14.                                 Failure
to Enforce Not a Waiver.  The failure
of the Company or the Grantee to enforce at any time any provision of this
Agreement shall in no way be construed to be a waiver of such provision or of
any other provision hereof.

15.                                 Governing
Law.  This Agreement shall be
governed by and construed according to the laws of the State of Delaware.

16.                                 Amendments.  This Agreement may be amended or modified at
any time by an instrument in writing signed by both parties.

17.                                 Agreement
Not a Contract of Employment. 
Neither the grant of the Restricted Stock, this Agreement nor any other
action taken in connection herewith shall constitute or be evidence of any
agreement or understanding, express or implied, that the Grantee is an employee
of the Company or any subsidiary of the Company.

18.                                 Committee’s
Powers.  No provision contained in
this Agreement shall in any way terminate, modify or alter, or be construed or
interpreted as terminating, modifying or altering any of the powers, rights or
authority vested in the Committee or, to the extent delegated, in its delegate
pursuant to the terms of the Plan or resolutions adopted in furtherance of the
Plan, including, without limitation, the right to make certain determinations
and elections with respect to the Restricted Stock.

19.                                 Section
83(b) Election.  The Grantee hereby
acknowledged that, with respect to the grant of the Restricted Stock, an
election may be filed by the Grantee with the Internal Revenue Service, within
30 days, of the Date of Grant, electing pursuant to Section 83(b) of the
Code, to be taxed currently on the fair market value of the Restricted Stock on
the Date of Grant.

THE GRANTEE HEREBY
ACKNOWLEDGES THAT IT IS THE GRANTEE’S SOLE RESPONSIBILITY AND NOT THE
RESPONSIBILITY OF THE COMPANY TO TIMELY FILE AN ELECTION UNDER SECTION 83(b) OF
THE CODE, EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO
MAKE THIS FILING ON THE GRANTEE’S BEHALF.

20.                                 Termination
of this Agreement.  Upon termination
of this Agreement, all rights of the Grantee hereunder shall cease.

 6

IN WITNESS WHEREOF, the Company has caused
this Agreement to be executed on its behalf by a duly authorized officer and
the Grantee has hereunto set his or her hand as of the date and year first
above written.

	
   

  	
  GUESS?, INC.,

  
	
   

  	
  a Delaware
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Deborah Siegel

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:
  Deborah Siegel

  
	
   

  	
   

  
	
   

  	
  Its: Secretary

  
	
   

  	
   

  
	
   

  	
  GRANTEE

  
	
   

  	
   

  
	
   

  	
  /s/ Paul
  Marciano

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
  Paul Marciano

  	
   

  
	
   

  	
  Print Name

  
	
   

  	
   

  
	
   

  	
  05457

  	
   

  
	
   

  	
  Employee
  ID

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