-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PoPK8kWHxIiErm6E1nohl4VPX5BX8D8InLXQCBjDCs11yrp//QFTo939N/Icl/ma cpSQ9lvA948fj22EtWLoEA== 0000898822-97-000557.txt : 19970630 0000898822-97-000557.hdr.sgml : 19970630 ACCESSION NUMBER: 0000898822-97-000557 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970627 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILFIGER TOMMY CORP CENTRAL INDEX KEY: 0000888747 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11226 FILM NUMBER: 97631648 BUSINESS ADDRESS: STREET 1: 6/F PRECIOUS INDUSTRIAL CENTRE STREET 2: 18 CHEUNG YUE ST CITY: CHEUNG SHA WAN KOWLO STATE: K3 BUSINESS PHONE: 2128408888 MAIL ADDRESS: STREET 1: 25 WEST 39TH STREET CITY: NEW YORK STATE: NY ZIP: 10018 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended March 31, 1997. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____ to _____. Commission file number 1-11226. TOMMY HILFIGER CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) BRITISH VIRGIN ISLANDS NOT APPLICABLE (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 6/F, PRECIOUS INDUSTRIAL CENTRE 18 CHEUNG YUE STREET CHEUNG SHA WAN KOWLOON, HONG KONG NOT APPLICABLE (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 852-2745-7798 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON ORDINARY SHARES, $.01 PAR WHICH REGISTERED VALUE PER SHARE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowl- edge, in definitive proxy or information statements incorpo- rated by reference in Part III of this Form 10-K or any amend- ment to this form 10-K. [X] The aggregate market value of the voting stock held by non- affiliates of the registrant based upon the closing price on June 2, 1997: Ordinary Shares, $.01 Par Value - $1,657,604,041 The number of shares outstanding of the registrant's stock as of June 2, 1997: Ordinary Shares, $.01 Par Value - 37,249,529 shares. TABLE OF CONTENTS ----------------- ITEM PAGE --------------------------------------------------------------- PART I Item 1. Business.................................. 3 Item 2. Properties................................ 12 Item 3. Legal Proceedings......................... 12 Item 4. Submission of Matters to a Vote of Security Holders........................ 13 PART II Item 5. Market for Registrant's Common Equity and Related Matters..................... 13 Item 6. Selected Financial Data................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 15 Item 8. Financial Statements and Supplementary Data.................................... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 21 PART III Item 10. Directors and Executive Officers of the Company............................. 21 Item 11. Executive Compensation.................... 24 Item 12. Security Ownership of Certain Beneficial Owners and Management................... 30 Item 13. Certain Relationships and Related Transactions............................ 31 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................... 33 2 PART I ITEM 1. BUSINESS GENERAL Tommy Hilfiger Corporation (the "Company"), through its subsidiaries, designs, sources and markets designer men's sportswear and boyswear, including woven shirts, knit shirts, pants, swimwear, sweaters, outerwear and athletic wear. These offerings are complemented by collections of men's tailored clothing, dress shirts, denim products, neckwear, socks, underwear, belts, small leather goods, sleepwear, robes, golfwear, footwear, sunglasses, prescription eyewear, women's casualwear and men's and women's fragrances, among others, bearing the TOMMY HILFIGER [R] trademark, which are produced and sold pursuant to certain licensing arrangements. Tommy Hilfiger is the Company's principal designer and provides leadership and direction for all aspects of the design process. The Company's sportswear is designed to combine classic American styling with unique details and fit to give time- honored basics a fresh and updated look for customers who desire high quality, designer clothes at competitive prices. The Company was organized under the laws of the British Virgin Islands in June 1992. The Company's principal growth strategy has been to expand its in-store shop program, whereby participating retailers set aside floor space highlighted by distinctive fixtures dedicated for the exclusive sale of the Company's products by the retailer. The Company expects to continue to pursue this strategy by increasing the number and size of its in-store shops in the United States and internationally. In the United States, the men's in-store shop program totaled 1,046 shops at March 31, 1997 compared with 866 shops at the end of fiscal 1996. In addition, as of March 31, 1997 the Company had established 1,069 fixtured areas in department stores where its boyswear is sold compared with 872 at the end of fiscal 1996. In addition, the Company continues its program to expand certain existing shops. In addition to continuing to expand the in-store shop program, the Company plans to grow by broadening its range of product offerings, both in-house and through licensing arrangements, and by expanding its channels of distribution. Through the expansion of its product lines, the Company believes it will serve a wider variety of customer needs. Since 1992, the Company has introduced several in-house products, including boyswear, swimwear, athletic wear, caps and bags. Additionally, the Company has introduced new products through licensing agreements including, in fiscal 1997, a women's fragrance pursuant to its license with Aramis, Inc., a division of Estee Lauder Companies, prescription eyewear with Liberty Optical, footwear with the Stride Rite Corporation and women's casual wear marketed under a license with Pepe Jeans London Corporation. See "Merchandising Strategies - Licensing and Distributorships." The Company is also pursuing several strategies to expand its channels of distribution in the retail arena. As of March 31, 1997, the Company operated 47 outlet stores and eight specialty retail stores and currently plans to open approximately eight additional outlet stores, as well as one additional specialty retail store in London, England, by March 31, 1998. The Company also plans to open flagship stores in Beverly Hills, California and London, England, by March 31, 1998 and March 31, 1999, respectively. See "Merchandising Strategies - Retailing." The Company is engaged in principally one industry segment, the design, importation and distribution of men's sportswear and childrenswear. Accordingly, no information is being furnished herein or in the accompanying financial statements relating to industry segments of the Company. 3 MERCHANDISING STRATEGIES WHOLESALE The Company's products, the majority of which are manufactured of cotton and other natural fibers, are generally pre-washed and generously sized to emphasize comfort and are designed to allow consumers to blend items across its product lines. The Company organizes its menswear and boyswear collections into three primary product lines: Core, Core Plus and Fashion. The boyswear line is available in boys' and young men's sizes 4 through 20 and is being sold by the Company to many of the same department and specialty store customers as its menswear lines. In fiscal 1998, the Company plans to introduce an infant and toddler line. This line is expected to be available at retail for Holiday 1997. Core The Core line is comprised of the Company's seasonless products or "basics", such as the pleated chino pant and short, the solid knit polo shirt, the button-down oxford, T-shirts and jackets, all in classic solid colors. Core items are made available for sale by the Company throughout the year and, therefore, generally are kept in stock by the Company. Since Core items are seasonless, they do not have fixed selling periods and, therefore, retailers' inventories of Core products tend to be maintained throughout the year and reordered as necessary. The Company receives orders from most of its larger customers for Core products on an electronic data interchange ("EDI") system, which expedites reorders. See "Management Information Systems." Core Plus The Core Plus line is comprised of a broad selection of seasonal "basics" which are derived from Core but offer a greater variety of fabrics, colors and patterns, such as stripes and plaids. The Core Plus line also incorporates certain Fashion products that had previously been successful at retail. The Company sells four different seasonal groups of Core Plus products each year. As compared to Fashion items, Core Plus items provide the retailer with longer selling periods at regular prices. Because Core Plus is a broader product category than Fashion, with a longer regular-price selling period, the Company's shipping deadlines are more flexible and the Company may be able to place reorders when demand is high. Fashion The Fashion line represents the most updated component of the Company's product line. Fashion items consist of a group of product classifications coordinated around a seasonal theme selected by Tommy Hilfiger. The Company offers Fashion products under at least three themes per season, thereby creating a continual flow of new merchandise in the marketplace. LICENSING AND DISTRIBUTORSHIPS In connection with the Company's business strategy of expanding its market penetration through product line and geographic expansion, the Company considers entering into licensing and distribution agreements with respect to certain products if the Company believes such arrangements provide more effective manufacturing, distribution and marketing of such products than could be achieved in-house. The Company continually pursues new opportunities in product categories which are believed to be complementary to its existing product lines. 4 Product Licenses Since Fall 1992, the Company has introduced several product lines through license arrangements with companies which are among industry leaders in their respective categories. In addition to the women's fragrance, prescription eyewear, footwear and women's casual wear, during 1997 the Company signed a licensing agreement with Lantis Eyewear Corporation to produce a complete line of men's sunglasses, which will be introduced at retail during fiscal 1998. The following table summarizes the Company's significant product licensing and distributorship arrangements in the United States as of March 31, 1997: PRODUCTS PRODUCED UNDER THE LICENSEE TOMMY HILFIGER [R] NAME -------- --------------------------- Mountain High Hosiery, Inc. Socks Superba, Inc. Neckwear Trafalgar, Inc. Belts and small leather goods Hart, Schaffner & Marx Men's suits, sport coats, (a division of Hartmarx dress slacks, top coats, Corporation) formal wear Oxford Industries, Inc. Men's dress shirts Jockey International, Inc. Men's underwear Aramis, Inc. (a division of Fragrances the Estee Lauder Companies.) Russel-Newman, Inc. Robes, Sleepwear Oxford Industries, Inc. Golfwear Pepe Jeans London Corporation Men's, women's and girls' jeanswear and jeans related apparel (including women's and girls' casual wear) Liberty Optical Prescription eyewear The Stride Rite Corporation Footwear Lantis Eyewear Corporation Sunglasses Subsequent to year-end, the Company signed a licensing agreement with Revman Industries, Inc. to produce and market a line of linens, bedding, bath products and related accessories. Each of the license arrangements described above is an exclusive license, except for two such licenses which permit the Company and/or certain of the Company's licensees and certain distributors of the Company's products to continue distributing certain products that overlap with products covered by the licenses. The Company does not believe that termination of any individual license arrangement would be material to the Company. 5 Geographic Licenses and Distributorships In July 1991, the Company granted an exclusive license to an affiliate of a director of the Company and the Chief Executive Officer of Tommy Hilfiger (HK) Limited ("THHK"), a subsidiary of the Company, to sell the Company's products in Canada. The term of the agreement is 10 years and is renewable at the option of the licensee subject to specified volume limitations and other conditions. In addition, the Company has granted an exclusive distributorship to an unaffiliated Panamanian company to distribute the Company's products in Central America, Venezuela, Columbia, Chile, Ecuador and most of the nations of the Caribbean basin. The Company also granted to an unaffiliated third party the right to designate a licensee to sell the Company's products in India. In May 1995, the Company granted an exclusive distributorship to an unaffiliated Mexican company to distribute the Company's products in Mexico. The term of the agreement is three years and is renewable at the option of the licensee subject to certain limitations. Effective July 1, 1996, the Company entered into an exclusive license agreement for Japan with Novel-ITC Licensing Limited, a related party. The term of this agreement is 4.5 years and is renewable at the option of the licensee subject to certain conditions. Effective February 1, 1997, the Company entered into a licensing agreement with Pepe Jeans London Corporation to distribute the Company's men's and boys' sportswear (excluding jeanswear and jeans related apparel) throughout the European market. The term of this agreement is five years and is renewable at the option of the licensee subject to certain conditions. All of the Company's licensees and distributors are required to contribute to the advertisement and promotion of TOMMY HILFIGER [R] products a percentage of their net sales of TOMMY HILFIGER [R] products or a percentage of their net purchases of TOMMY HILFIGER [R] products (depending on the terms of the license or distributorship agreement), subject to minimum amounts. RETAILING The Company is pursuing several strategies to expand its channels of distribution in the retail arena. The Company believes its outlet strategy has positioned it to take advantage of an expanding segment of the retail apparel industry that appeals to customers' increasing value orientation and provides the Company with an additional channel of distribution and better control over the sale of its inventory. The Company stocks its outlet stores with a mixture of out-of-season products as well as first-quality products manufactured specifically for its outlet stores' customers. As of March 31, 1997 the Company operated 47 outlet stores and currently plans to open approximately eight additional outlet stores by March 31, 1998. The Company's outlet stores are located primarily in major outlet centers in the United States. The TOMMY HILFIGER [R] specialty retail stores enable the Company to reach consumers who prefer the environment of a specialty store. The Company believes that these stores, which serve as a showcase for both the sportswear and certain licensed product lines, will complement its wholesale business by increasing brand awareness. As of March 31, 1997, the Company operated eight specialty retail stores. In fiscal 1997, the Company signed a lease agreement for a specialty store in London, England. This store is expected to open in fiscal 1998. As a result of the shop expansion program, the Company has refined its specialty retail strategy. These shops are the Company's vision for specialty retailing in malls, therefore, the Company does not plan to expand its existing base of specialty retail stores. See "Properties". 6 During fiscal 1996, the Company signed a lease for the first TOMMY HILFIGER [R] Flagship store, located on Rodeo Drive in Beverly Hills, California. During fiscal 1997, the Company signed an agreement for the lease of a TOMMY HILFIGER [R] Flagship store in London, England. These stores, which are expected to open in fiscal 1998 and fiscal 1999, respectively, will serve as showcases for all of the Company's products as it seeks to propel the brand into the elite circle of designers with international recognition. This investment underlines the Company's strong belief in the role of flagships as image builders. These stores are planned to be followed by flagships in key markets such as New York City. DESIGN Tommy Hilfiger is the Company's principal designer and provides leadership and direction for all aspects of the design process. Tommy Hilfiger selects designers on the basis of their understanding of the retail industry and their ability to understand what consumers desire and which designs are most likely to be commercially viable. Design teams, which are typically comprised of a designer and assistant designer, are responsible for separate product classifications. In addition, the Company has a senior designer, whose responsibility is to coordinate the design teams. Design teams utilize computer aided designs, which provide timely translation of designs into sample depictions varying in color, cut and style, the speed of production and breadth of the resulting output assist the Company in selecting desirable designs for the sourcing and research and development staffs to assess. RESEARCH AND DEVELOPMENT The Company employs a senior production executive who oversees a staff whose primary functions are to identify ways to develop new designs and products more efficiently, and to identify new and more cost-effective sourcing methods. This group receives new product direction from Tommy Hilfiger and then researches and develops the potential product. This process is designed to avoid costly attempts to develop products that require designs or production methods that are not efficient. In addition, the staff researches and identifies new sources for both fabrics and manufacturing worldwide in order to control or reduce manufacturing costs while maintaining the Company's quality standards. SALES AND MARKETING TOMMY HILFIGER [R] products are sold in over 2,000 department and specialty retail store locations. The Company's department store customers include major United States retailers such as Dillard Department Stores, Federated Department Stores (including Macy's, Bloomingdale's, and Burdines), The May Department Stores Company (including Lord & Taylor and Foley's), Belk Stores and Dayton Hudson. The Company believes that its relationships with major retailers, including the active sales involvement of the Company's senior management, are important elements of its marketing strategy. The Company's strategy is to continue to grow by broadening its United States in-store shop program, expanding its product lines and marketing to new customers both in the United States and internationally. A significant aspect of the Company's ability to increase the commitment of its existing customers and to attract new customers is its in-store shop program, whereby participating retailers set aside floor space highlighted by distinctive fixtures dedicated for exclusive sale of the Company's products by the retailer. This program enables the retailer to create an environment consistent with the Company's image and to display and stock a greater volume of the Company's products per square foot of retail space. Such shops encourage longer term commitment by the retailer to the Company's products, including the retailer's provision of upgraded staffing. These shops also increase consumer product recognition and loyalty because of the retail customer's familiarity with the location of the Company's products in the store. A program of installing distinctive fixtures in certain department stores which carry the boyswear line was implemented in fiscal 1994. The continued expansion of the Company's in- store shop 7 and fixturing programs is dependent on market conditions, including continued demand for the Company's products. The Company's sales and marketing departments have individuals located in the Company's New York headquarters, Atlanta and Dallas showrooms and Los Angeles, Chicago, Philadelphia, San Francisco and Cincinnati regional sales territories. The sales force sells only the TOMMY HILFIGER [R] collection. The Company employs a staff of approximately 120 merchandise coordinators located throughout the United States. These merchandisers educate the retailers' salespeople about the Company's current products, provide the Company with first- hand consumer feedback concerning consumer reaction to the Company's products and coordinate the in-store displays with the department stores. In addition to the coordinator program, the Company also conducts a training program for the department stores' TOMMY HILFIGER [R] selling specialists. The program is designed to educate specialists on the Company's image and merchandising standards and to promote the development and servicing of clientele. The program educates specialists in customer assistance and advice, including merchandise selection and the coordination of complete outfits of TOMMY HILFIGER [R] products. Over 1,000 specialists have completed the program. The Company sells substantially all its out-of-season products, which are principally from the Fashion and Core Plus product lines, to certain discount retailers and through its Company owned outlet stores. The net revenues from such sales represented less than 15% of the Company's net revenue for each of the last three fiscal years. ADVERTISING, PUBLIC RELATIONS AND PROMOTION The Company believes that advertising to promote and enhance the TOMMY HILFIGER [R] brand and the image of TOMMY HILFIGER [R] products is important to its long- term growth strategy. All of the Company's licensees and distributors are required to contribute to the advertisement and promotion of TOMMY HILFIGER [R] products a percentage of their net sales of TOMMY HILFIGER [R] products or a percentage of their net purchases of TOMMY HILFIGER [R] products (depending on the terms of the license or distributorship agreement), subject to minimum amounts. Advertising by the Company, its licensees and most of its distributors is coordinated by the Company and principally appears in magazines, newspapers, and outdoor advertising media. In addition, selected personal appearances by Tommy Hilfiger, corporate sponsorships and charitable programs are utilized to further enhance awareness of the Company's image and promote the Company's products. The Company employs an advertising and public relations staff to implement these efforts. SOURCING The Company's sourcing strategy is to contract for the manufacture of its products. Outsourcing allows the Company to maximize production flexibility while avoiding significant capital expenditures, work-in-process inventory buildups and the costs of managing a large production work force. The Company inspects products manufactured by contractors to determine whether they meet the Company's standards. See "Quality Control." The Company imports most of its finished goods because it believes it can import higher quality products at lower costs. Management maintains extensive and long-term relationships with leading manufacturers in the Far East, including manufacturers located in Indonesia, Thailand and Taiwan, among other countries. The Company monitors duty, tariff and quota-related developments and continually seeks to minimize its potential exposure to duty, tariff and quota- related risks through, among other measures, geographical diversification of its manufacturing sources, the maintenance of its buying offices in Hong Kong, Macau, Singapore and India, allocation of production to 8 merchandise categories where more quota is available and shifts of production among countries and manufacturers. The Company's production and sourcing staff oversees all aspects of apparel manufacturing and production, the negotiation for raw materials and research and development of new products and sources. The Company operates buying offices based in Hong Kong, Macau, Singapore and India, as well as the United States which perform product development, sourcing, production scheduling and quality control. In addition, the Company contracts with various buying subagents and perform similar services for the Company's licensees and distributors in Canada, Mexico, Japan and Panama, which services Central and South America, for specified commissions. The Company has its products manufactured according to plans prepared each year which reflect prior years' experience, current fashion trends, economic conditions and management estimates of a line's performance. The Company separately negotiates with suppliers for the sale of required raw materials which are then purchased by its contractors in accordance with the Company's specifications. The Company limits its exposure to holding excess inventory by committing to purchase a portion of total projected demand and the Company, in its experience, has been able to satisfy its excess demand through reorders. The Company believes that its policy of limiting its commitments for purchases early in the season reduces its exposure to excess inventory and obsolescence. The Company does not have long-term formal arrangements with any of its suppliers; however, the Company has experienced only limited difficulty in satisfying its raw material and finished goods requirements. Although the loss of such suppliers could have a significant effect on the Company's immediate operating results, the Company believes it could replace such suppliers without a material adverse effect on the Company. The Company has its executive offices in Hong Kong and its principal buying offices in Hong Kong and Macau. Hong Kong is presently a British Crown Colony, but sovereignty over Hong Kong will be transferred effective July 1, 1997 from the United Kingdom to the People's Republic of China ("China"). Macau is presently a Portuguese colony, but sovereignty over Macau will be transferred effective January 1, 1999 from the Republic of Portugal to China. If Hong Kong or Macau were to impose income or withholding taxes on the Company or in the event of an adverse change in their business climate, the Company believes it could relocate its executive and principal buying offices without a material adverse effect on the Company. QUALITY CONTROL The Company's quality control program is designed to ensure that purchased goods meet the Company's standards. The Company inspects prototypes of each product prior to cutting by the contractors and performs two in-line inspections and a final inspection prior to shipment. All finished goods are shipped to the Company's New Jersey facilities for re- inspection and distribution. While the Company's return policy permits customers to return defective products for credit, less than 1% of the Company's shipments in fiscal 1997 were returned as defective under this policy. MANAGEMENT INFORMATION SYSTEMS The Company believes that high levels of automation and technology are essential to maintain its competitive position and the Company continues to invest in computer hardware, systems applications and networks to enhance and to speed the apparel design process, to support the sale and distribution of products to its customers and to improve the integration and efficiency of its United States and Far East operations. The Company utilizes computer-aided design stations for use by Tommy Hilfiger and his design teams, which provide timely translations of designs into sample depiction's varying in color, cut and style. The Company also uses an EDI system to receive on-line orders from its customers and to accumulate sales information on its 9 products. The EDI technology enables the Company to provide valuable sales information and inventory maintenance information services to its customers who have adopted such technology. Nine of the Company's 10 largest customers communicate with the Company through EDI technology. DISTRIBUTION Wholesale distribution is centralized in a 360,000 square foot New Jersey facility to which all products are shipped. The facility is operated and principally staffed by an independent contractor who charges the Company on the basis of the number of items processed, subject to a minimum annual fee. The Company has the right, at any time during the contract period, to terminate the distribution agreement by making a specified payment. In addition, the Company leases a 200,000 square foot facility in New Jersey for retail distribution. The Company maintains its distribution management group and certain administrative functions at its New Jersey facilities. The Company believes that these distribution facilities are adequate for the Company's current level of sales, and provide the Company with enough space and flexibility to support the continued growth of the Company's business. CREDIT AND COLLECTION The Company collects substantially all of its receivables through a credit company pursuant to an agreement whereby the credit company pays the Company after the credit company receives payment from the Company's customer. If the customer becomes bankrupt or insolvent or the receivable becomes 120 days past due, the credit company pays the Company 50% of the outstanding receivable. The credit company establishes maximum credit limits for each customer account. Substantially all accounts receivable are pledged as collateral under a bank financing agreement. Despite the bankruptcy of several large retailers in recent years, the Company has not experienced any increase in its bad debts. Bad debts as a percentage of net sales were less than 0.1% in fiscal 1997. On April 8, 1997, the Company amended and extended the terms of the agreement with the credit company. Under the new terms, in exchange for a reduction of the fees charged by the credit company, the term of the agreement was extended to March 2001. TRADEMARKS The Company utilizes four principal registered trademarks which it owns: the name TOMMY HILFIGER [R], the Company's distinctive flag logo, the crest and the green eyelet the Company uses on certain of its products. Tommy Hilfiger Licensing, Inc. ("THLI"), a subsidiary of Tommy Hilfiger U.S.A. Inc. ("TH USA") which is a subsidiary of the Company, has registered these trademarks for use in the United States and has registered or applied for registration of these trademarks in numerous countries in North America, Europe, Asia, South America and elsewhere. The Company regards its trademarks and other proprietary rights as valuable assets in the marketing of its products. THLI is a party to an agreement with Mr. Hilfiger that restricts the sale, lease, license or other conveyance of THLI's trademarks, the amendment of the license agreement between THLI and TH USA or the creation of any lien on THLI trademarks without Mr. Hilfiger's consent until Mr. Hilfiger's death or his termination of employment with TH USA without the consent of TH USA. BACKLOG The Company generally receives orders approximately three to five months prior to the time the products are delivered to stores. Thus, the Company's backlog of orders, which the Company believes, based on industry practice and past experience, will result 10 in sales, at March 31, 1997 represents a significant portion of the Company's expected sales through September 30, 1997. At March 31, 1997, the Company's backlog of orders was approximately $283 million, compared to approximately $216 million at March 31, 1996. The Company's backlog depends upon a number of factors, including the timing of "market weeks" during which a significant percentage of the Company's orders are received and the timing of shipments. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments. SEASONALITY; UNCERTAINTIES IN APPAREL RETAILING The Company's business is impacted by the general seasonal trends that are characteristic of many companies in the apparel industry in which sales and profits are highest in the fourth calendar quarter. However, due primarily to the significant growth that the Company has experienced, quarterly sales and profit trends and working capital requirements did not reflect the normal apparel industry seasonality. In future years, the Company expects its seasonal sales and profits will more closely reflect typical apparel and retail industry trends than they have in the past. The apparel industry historically has been subject to substantial cyclical variations. Although the Company's recent results have not been substantially impacted by such variations, a recession in the general economy or uncertainties regarding future economic prospects that effect consumer spending habits could have a material effect on the Company's results of operations. COMPETITION The men's sportswear segment of the apparel industry is highly competitive. Specifically, the Company encounters substantial competition in the designer men's sportswear business, including competition from Polo/Ralph Lauren, Nautica, Perry Ellis, Calvin Klein and Claiborne, as well as from certain non-designer lines. Some of the Company's competitors are significantly larger and more diversified, and have substantially greater resources, than the Company. The Company competes primarily on the basis of fashion, price, quality and service. The Company believes its competitive position depends upon its ability to anticipate and respond effectively to changing consumer demands and to offer fashion conscious customers a wide variety of high quality apparel at competitive prices. The boyswear segment of the apparel industry is also highly competitive. The Company's competition in this market is primarily Polo/Ralph Lauren and certain non-designer lines. Consistent with its menswear product lines, the Company competes in the boyswear segment primarily on the basis of fashion, price, quality and service and believes that its competitive position depends upon its ability to anticipate and respond effectively to changing consumer demands. DEPENDENCE ON CUSTOMERS UNDER COMMON CONTROL The Company's department store customers include major United States retailers, certain of which are under common ownership. When considered together as a group under common ownership, sales to the department store customers which were owned by Federated Department Stores, Dillard Department Stores, and The May Department Stores Company accounted for approximately 23%, 21%, and 16%, respectively, of fiscal 1997 net wholesale product sales. A decision by the controlling owner of a group of department stores to decrease the amount purchased from the Company or to cease carrying the Company's products could adversely affect the Company. 11 EMPLOYEES At March 31, 1997, the Company had approximately 1,130 full-time employees and 440 part-time employees. Virtually all of the Company's part-time employees were employed in the Company's specialty retail and outlet stores. None of the Company's employees is a member of a union. The Company considers its relations with its employees to be excellent. ITEM 2. PROPERTIES The principal executive offices of the Company are located at 6/F, Precious Industrial Centre, 18 Cheung Yue Street, Cheung Sha Wan, Kowloon, Hong Kong. TH USA's principal executive offices are located at 25 West 39th Street, New York, New York 10018. The general location, use and approximate size of the principal properties which the Company currently occupies, all of which were leased as of March 31, 1997, except for the Hong Kong office space and a New York property which houses the Company's executive offices and its primary sales, marketing and licensing offices and its main sales and licensees' showrooms, are set forth below:
Approximate Area in Square Location Use Feet -------- --- ---------------- Hong Kong Executive offices and principal buying office 20,000 New York, New York TH USA headquarters and sales offices 186,000 Edison, New Jersey(1) Administrative offices 19,000 South Brunswick, Warehouse distribution and New Jersey administrative offices 360,000 (1)The Company's warehouse space in Edison, New Jersey, which is maintained, operated and principally staffed by an independent contractor, is not included in the square footage description.
The Company operates 47 outlet stores, each averaging approximately 3,300 square feet, generally located in major outlet centers in the U.S., and the Company operates eight retail stores in metropolitan areas, each averaging approximately 3,800 square feet. The Company has entered into lease agreements for future stores of 20,000 square feet in Beverly Hills, California and 18,000 and 2,600 square feet, respectively, for two stores in London, England. In addition, the Company has two regional showrooms outside of New York City. All of such stores and showrooms are leased. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are from time to time involved in routine legal matters incidental to their businesses. In the opinion of the Company's management, the resolution of these matters will not have a material effect on its financial position or its results of operations. 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS The Company's Ordinary Shares, par value U.S. $0.01, are listed and traded on the New York Stock Exchange under the symbol "TOM." As of June 2, 1997, there were approximately 642 record holders of the outstanding Ordinary Shares. The following table sets forth, for each of the periods indicated, the high and low sales prices per Ordinary Share as reported on the New York Stock Exchange Composite Tape. High Low ---- --- Fiscal Year ended March 31, 1997 First Quarter.............................. 55 7/8 41 1/2 Second Quarter............................. 59 3/8 41 3/4 Third Quarter.............................. 61 1/8 44 1/8 Fourth Quarter............................. 59 1/8 42 1/2 Fiscal Year ended March 31, 1996 First Quarter.............................. 29 1/8 20 5/8 Second Quarter............................. 37 7/8 27 1/8 Third Quarter.............................. 45 3/4 29 5/8 Fourth Quarter............................. 48 32 5/8 In the past two fiscal years, the Company has not paid any dividends. The Company anticipates that all of its earnings in the foreseeable future will be retained for the development and expansion of its business and, therefore, has no current plans to pay cash dividends. Future dividend policy will depend on the Company's earnings, capital requirements, financial condition, restrictions imposed by the Company's credit agreement, availability of dividends, receipt of funds in connection with repayment of loans to subsidiaries or advances from operating subsidiaries and other factors considered relevant by the Board of Directors of the Company. For certain restrictions on the Company's ability to pay dividends, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" in Item 7. 13 ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data have been derived from the Company's Consolidated Financial Statements. The information should be read in conjunction with the Consolidated Financial Statements and related Notes thereto that appear elsewhere in this Annual Report and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7.
Fiscal Year Ended March 31, -------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (in thousands, except per share amounts) Statement of Operations Data: ---------------------------- Net revenue......................... $661,688 $478,131 $320,985 $227,201 $138,638 Cost of goods sold.................. 344,884 258,419 174,584 127,053 81,502 -------- -------- -------- -------- -------- Gross profit........................ 316,804 219,712 146,401 100,148 57,136 Selling, general and administrative expenses........... 190,976 132,270 85,954 58,702 33,156 -------- -------- -------- -------- -------- Income from operations.............. 125,828 87,442 60,447 41,446 23,980 Interest expense.................... 761 754 207 317 1,348 Investment income................... (6,181) (5,712) (3,217) (637) (219) -------- -------- -------- -------- -------- Income before income taxes and minority interest................. 131,248 92,400 63,457 41,766 22,851 Provision for income taxes.......... 44,866 30,900 22,742 16,422 8,220 Minority interest in subsidiary (1).................... -- -- -- -- 25 -------- -------- -------- -------- -------- Net income.......................... $86,382 $61,500 $40,715 $25,344 $14,606 ======== ======== ======== ======== ======== Net income per share and share equivalents............. $2.28 $1.65 $1.12 $.77 $.55 ===== ===== ===== ===== ===== Weighted average shares and share equivalents outstanding........... 37,885 37,241 36,346 32,836 26,394 ======== ======= ======== ======== ======== As of March 31, --------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (in thousands) Balance Sheet Data: ------------------ Cash, cash equivalents and short-term investments........... $109,908 $127,743 $86,031 $50,867 $18,671 Working capital.................... 270,667 238,439 165,261 110,589 53,748 Total assets....................... 463,085 358,622 239,493 190,378 84,704 Short-term borrowings.............. 5,980 13,755 13,487 10,319 8,068 Long-term debt..................... 1,510 1,789 2,064 2,341 -- Shareholders' equity............... 397,464 301,338 209,024 161,715 68,700 (1)Amounts represent dividends declared on Tommy Hilfiger, Inc.'s 10% cumulative preferred stock held by an affiliate of the Company. No dividends have been declared on the Ordinary Shares.
14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All references to years relate to the fiscal year ended March 31 of such year. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to net revenue of certain items in the Company's consolidated statements of operations: Fiscal Year Ended March 31, --------------------------- 1997 1996 1995 ---- ---- ---- Net revenue..................... 100.0% 100.0% 100.0% Cost of goods sold.............. 52.1 54.0 54.4 ----- ----- ----- Gross profit.................... 47.9 46.0 45.6 Selling, general and administrative expenses....... 28.9 27.7 26.8 ---- ---- ---- Income from operations.......... 19.0 18.3 18.8 Interest expense................ 0.1 0.2 -- Investment income............... 0.9 1.2 1.0 ---- ---- ---- Income before income taxes...... 19.8 19.3 19.8 Provision for income taxes...... 6.7 6.4 7.1 ---- ---- ---- Net income...................... 13.1% 12.9% 12.7% ==== ==== ==== Year Ended March 31, 1997 Compared to Year Ended March 31, 1996 The Company's net income increased to $86,382,000, or $2.28 per share, in 1997 from $61,500,000, or $1.65 per share, in 1996. This represents an improvement of $24,882,000 or 40.5%. As a percentage of net revenue, net income increased to 13.1% in 1997 from 12.9% in 1996. Net revenue increased 38.4% to $661,688,000 in 1997 from $478,131,000 in 1996. This increase is a result of improvements in each of the Company's wholesale, retail, and licensing and buying agency divisions, as outlined below. Wholesale net revenue increased to $479,307,000 in 1997 from $381,239,000 in 1996, an improvement of 25.7%. This improvement includes a 23.9% increase in menswear wholesale sales, to $405,319,000 in 1997 from $327,189,000 in 1996, and a 36.9% increase in boyswear wholesale sales, to $73,988,000 in 1997 from $54,050,000 in 1996. These increases were primarily due to volume increases as a result of increased sales to existing customers, opening new in-store shops and fixtured areas, and the expansion of certain existing shops. The number of men's in-store shops increased to 1,046 at March 31, 1997 from 866 at March 31, 1996 while the number of boyswear fixtured areas increased to 1,069 at March 31, 1997 from 872 at March 31, 1996. In addition to the volume increase, the change in product mix of the Company's wholesale sales resulted in a higher average unit selling price. Of the total wholesale sales increase, approximately 67% was due to volume and approximately 33% was due to the increased average unit selling price. Net revenue in the Company's retail division increased 81.6% to $149,312,000 in 1997 from $82,212,000 in 1996. This improvement was due to an increase in the number of stores open as well as increased sales at existing stores. Of the total increase of $67,100,000, $31,503,000 was attributable to new retail stores opened during 1997. The total number of retail stores open as of March 31, 1997 and 1996 was 55 and 44, respectively. 15 Net revenue from licensing royalties and buying agency commissions increased 125.3% to $33,069,000 in 1997 from $14,680,000 in 1996. This increase reflects the incremental revenue associated with newly licensed products and a general increase in sales from existing licensees and buying agency services. Of this increase, approximately 35% was due to products introduced under new licenses in 1997 while the balance was due to licenses existing as of March 31, 1996. Gross profit improved to 47.9% of net revenue in 1997 from 46.0% of net revenue in 1996. This increase was attributable to the increases in retail operations and royalties and buying agency commissions, each of which had higher percentage revenue increases, and which produce higher margins, than wholesale operations. In addition, wholesale margins have increased due primarily to the change in mix of products sold. Selling, general and administrative expenses increased as a percentage of net revenue to 28.9% in 1997 from 27.7% in 1996. The increased percentage was due to an increase in marketing and advertising expense to promote and enhance the brand name and the image of the Company's products. Selling, general and administrative expenses increased to $190,976,000 in 1997 from $132,270,000 in 1996. This increase was principally due to increased volume-related expenses to support the higher revenue and the increased marketing and advertising expenses mentioned above. The provision for taxes increased to 34.2% of income before taxes in 1997 from 33.4% in 1996. This increase was primarily attributable to the relative level of earnings in the various taxing jurisdictions to which the Company's earnings are subject. Year Ended March 31, 1996 Compared to Year Ended March 31, 1995 Net income for 1996 improved to $61,500,000, or $1.65 per share, from $40,715,000, or $1.12 per share, in 1995. This represented an increase of $20,785,000 or 51.0%. In addition, net income as a percentage of net revenue increased to 12.9% in 1996 from 12.7% in 1995. The Company's net revenue for 1996 increased to $478,131,000, compared to $320,985,000 in 1995. This improvement of 49.0% reflects the increased demand for the Company's products. Substantially all of the wholesale sales increase was due to volume increases, which in turn were primarily the result of the continuing expansion of the in- store shop program. The number of men's in-store shops increased to 866 at March 31, 1996 from 658 at March 31, 1995 and the number of boyswear fixtured areas increased to 872 at March 31, 1996 from 486 at March 31, 1995. Increased sales to existing and new customers and new store locations also contributed to the wholesale sales increase. Menswear wholesale sales improved $72,312,000 or 28.4% from $254,877,000 in 1995 to $327,189,000 in 1996 while boyswear wholesale sales improved $21,815,000 or 67.7% from $32,235,000 in 1995 to $54,050,000 in 1996. The Company's retail division also contributed to the increased revenue level. Retail revenue increased $54,666,000 or 198.5% from $27,546,000 in 1995 to $82,212,000 in 1996. This increase was due to the addition of 18 new stores during 1996 as well as increased revenue in existing stores. Of the total increase, $22,645,000 was attributable to new retail stores opened in 1996. At March 31, 1996, a total of 44 stores were open. Net revenue from licensing royalties and buying agency commissions increased 132.0% from $6,327,000 in 1995 to $14,680,000 in 1996. This improvement principally resulted from an increase in sales of existing licensed products as well as the introduction of several new licensed products, including a men's fragrance, robes and sleepwear, and golfwear. Of this increase, approximately 37% was due to products introduced under new licenses in 1996 while the balance was due to licenses existing as of March 31, 1995. Gross profit as a percentage of net revenue increased from 45.6% in 1995 to 46.0% in 1996. This increase was primarily attributable to the relative increase in retail operations and royalties and buying agency commissions, all of which produce higher margins than wholesale operations. Offsetting this increase was a decrease in wholesale margins which was principally the 16 result of an increase in the relative level of boyswear products which generally produce lower margins than menswear, the mix of products and an overall increase in product costs. Selling, general and administrative expenses increased to $132,270,000 in 1996 from $85,954,000 in 1995. This increase was primarily attributable to increased volume related expenses necessary to support the increase in revenue of the Company's wholesale and retail operations. In addition, depreciation and amortization increased due to the greater number of in-store shops. As a percentage of net revenue, selling, general and administrative expenses increased to 27.7% from 26.8% due to the continued expansion of the Company's retail division, which operates at a higher cost structure than its wholesale operations, and a one time charge of $2,350,000 taken by the Company to reflect the current cost of a consulting agreement with a former executive. The provision for income taxes decreased to 33.4% of income before taxes in 1996 from 35.8% in 1995. The decrease was primarily attributable to the relative level of earnings in various taxing jurisdictions to which the Company's earnings are subject. LIQUIDITY AND CAPITAL RESOURCES The Company's primary funding requirements are to finance working capital and the continued growth of the business. This includes primarily the purchase of inventory in anticipation of increased sales of the wholesale and retail divisions as well as capital expenditures related to the expansion of the menswear in-store shop and boyswear fixtured area programs and additional retail stores. The Company's sources of liquidity are cash on hand, cash from operations and the Company's available credit. The Company's cash and cash equivalents balance has decreased from $127,743,000 at March 31, 1996 to $109,908,000 at March 31, 1997. The principal reason for this decrease is capital expenditures, including the Company's purchase of the property which houses its executive offices along with its primary sales, marketing and licensing offices and its main sales and licensees' showrooms for approximately $25,875,000, offset in part, by cash provided by operations. Net cash provided by operating activities in 1997 was $64,435,000, an increase of $24,776,000 over the 1996 amount of $39,659,000. The primary factor that contributed to this increase was the increase in net income before depreciation and amortization offset, in part, by an increase in working capital. The increase in working capital was principally due to a higher inventory level which is the result of a planned build-up in anticipation of the summer and fall seasons of fiscal 1998 and the increased retail division inventory due to the greater number of stores, as well as an increase in Core inventory to meet the demands of the Company's replenishment business. Inventory increased from $81,428,000 at March 31, 1996 to $123,847,000 at March 31, 1997, an increase of $42,419,000 or 52.1%. Capital expenditures were $83,960,000 in 1997, compared with $28,694,000 in 1996. The increase in capital expenditures was primarily related to the purchase of the property mentioned above as well as the expansion of the Company's in-store shop and fixtured area programs. The Company has continued to install new in-store shops and fixtured areas, as well as expand several shops which were previously open. The Company installed 377 menswear in-store shops and boyswear fixtured areas during 1997 and 594 menswear in-store shops and boyswear fixtured areas during 1996. Additionally, the Company opened 11 outlet stores in 1997. In July 1996, the Company entered into an amended and restated revolving credit agreement (the "Credit Agreement") effective April 1, 1996. The Credit Agreement, which expires in June 1999, provides for direct borrowings, bankers acceptances and letters of credit of amounts ranging from $100,000,000 in fiscal 1997 to $150,000,000 in fiscal 1999. Available borrowings are subject to the timed increase of availability under the Credit Agreement and are based upon eligible accounts receivable, inventory and open letters of credit. As of March 31, 1997, $100,000,000 was available for utilization under the Credit Agreement, of which 17 $66,822,000 had been used to open letters of credit. Obligations under the Credit Agreement are collateralized by substantially all the assets of the Company's U.S. operations. Direct borrowings under the Credit Agreement, which are limited to $60,000,000, accrue interest at varying interest rates. At March 31, 1997, total short-term borrowings of $5,980,000 consisted of open letters of credit for inventory purchased of $5,705,000 and the current portion of mortgage debt payable of $275,000. Additionally, at March 31, 1997, TH USA was contingently liable for unexpired bank letters of credit of $61,117,000 related to commitments of TH USA to suppliers for the purchase of inventories and leases. The Credit Agreement contains various covenants. Among other matters, the Credit Agreement includes certain restrictions upon capital expenditures, investments, indebtedness, loans and advances and transactions with related parties. In addition, the Credit Agreement prohibits certain of the Company's operating subsidiaries, which are borrowers or guarantors under the Credit Agreement, from paying dividends. Because THC is a holding company, dividends or other advances from its subsidiaries will be required to fund any cash dividends to holders of Ordinary Shares. The Credit Agreement also requires the maintenance of minimum tangible net worth and interest coverage ratios. The Company was in compliance with all covenants under the Credit Agreement as of, and for the year ended, March 31, 1997. Cash requirements in 1998 will primarily include capital expenditures relating to the in-store shop and fixtured area programs and the opening of approximately eight additional outlet stores and one additional specialty retail store, as well as the flagship stores in Beverly Hills, California and London, England. The amount of total committed capital expenditures at March 31, 1997, including expenditures relating to these projects, was approximately $14,000,000. The Company believes the amount of capital expenditures for 1998 will be consistent with 1997 and intends to fund cash requirements in 1998 and future years from available cash balances, internally generated funds and available credit. The Company believes that these resources will be sufficient to fund its cash requirements for such periods. INFLATION The Company does not believe that the relatively moderate rates of inflation experienced over the last few years in the United States, where it primarily competes, have had a significant effect on its net revenue or profitability. Higher rates of inflation have been experienced in a number of foreign countries in which the Company's products are manufactured but have not had a material effect on the Company's net revenue or profitability. The Company has been able to partially offset its cost increases by increasing prices or changing suppliers. EXCHANGE RATES The Company receives United States dollars for substantially all of its product sales and its licensing revenues. Inventory purchases from contract manufacturers throughout the world are denominated in United States dollars; however, purchase prices for the Company's products may be impacted by fluctuations in the exchange rate between the United States dollar and the local currencies of the contract manufacturers, which may have the effect of increasing the Company's cost of goods in the future. During the last three fiscal years, exchange rate fluctuations have not had a material impact on the Company's inventory costs; however, due to the number of currencies involved and the fact that not all foreign currencies react in the same manner against the United States dollar, the Company cannot quantify in any meaningful way the potential effect of such fluctuations on future income. The Company does not engage in hedging activities with respect to such exchange rate risk. 18 RECENTLY ISSUED ACCOUNTING STANDARDS Earnings Per Share. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 128, Earnings per Share, which specifies the computation, presentation and disclosure requirements for earnings per share. Management of the Company believes that adoption of Statement No. 128, which is required for fiscal year 1998, will not have a material impact on the Company's earnings per share calculation. Disclosure of Information about Capital Structure. In February 1997, the FASB issued Statement No. 129, Disclosure of Information about Capital Structure, which requires an entity to explain the pertinent rights and privileges of its various securities outstanding. Management of the Company believes that adoption of Statement No. 129 will not have a significant impact on the Company's present disclosure. SAFE HARBOR STATEMENT Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. In addition to the historical information contained herein, there are matters discussed which are hereby identified as "forward-looking statements" for purposes of the Safe Harbor Statement. These forward-looking statements involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Report of Independent Accountants Consolidated Statements of Operations for the years ended March 31, 1997, 1996, 1995 Consolidated Balance Sheets as of March 31, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements 20 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Accountants...................... F-2 Consolidated Statements of Operations for the years ended March, 31, 1997, 1996 and 1995..... F-3 Consolidated Balance Sheets as of March 31, 1997 and 1996................................ F-4 Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996, and 1995......................................... F-5 Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 1997, 1996, and 1995................... F-6 Notes to Consolidated Financial Statements............. F-7 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Tommy Hilfiger Corporation In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) of this Annual Report on Form 10-K present fairly, in all material respects, the financial position of Tommy Hilfiger Corporation and its subsidiaries at March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP New York, New York May 21, 1997 F-2 TOMMY HILFIGER CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) For The Fiscal Year Ended March 31, ----------------------------------- 1997 1996 1995 ---- ---- ---- Net revenue.................... $661,688 $478,131 $320,985 Cost of goods sold............. 344,884 258,419 174,584 -------- -------- -------- Gross profit................... 316,804 219,712 146,401 Selling, general and administrative expenses...... 190,976 132,270 85,954 -------- -------- -------- Income from operations......... 125,828 87,442 60,447 Interest expense............... 761 754 207 Investment income.............. 6,181 5,712 3,217 ----- ----- ----- Income before income taxes..... 131,248 92,400 63,457 Provision for income taxes..... 44,866 30,900 22,742 -------- -------- -------- Net income..................... $86,382 $61,500 $40,715 ======== ======== ======== Earnings per share and share equivalents............ $ 2.28 $ 1.65 $ 1.12 ======== ======== ======== Weighted average shares and share equivalents outstanding.................. 37,885 37,241 36,346 ======== ======== ======== See accompanying Notes to Consolidated Financial Statements. F-3 TOMMY HILFIGER CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) As of March 31, --------------- 1997 1996 ---- ---- ASSETS Current assets Cash and cash equivalents............ $109,908 $127,743 Accounts receivable.................. 79,984 68,402 Inventories.......................... 123,847 81,428 Other current assets................. 18,614 13,484 -------- ------- Total current assets............. 332,353 291,057 Property and equipment, at cost, less accumulated depreciation and amortization..................... 121,540 57,845 Other assets............................. 9,192 9,720 ----- ----- Total Assets..................... $463,085 $358,622 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings................ $5,980 $13,755 Accounts payable..................... 5,996 9,454 Accrued expenses and other current liabilities.............. 49,710 29,409 -------- -------- Total current liabilities........ 61,686 52,618 Other liabilities........................ 2,425 2,877 Long-term debt........................... 1,510 1,789 Shareholders' equity Preference Shares, $0.01 par value-shares authorized 5,000,000; none issued........... -- -- Ordinary Shares, $0.01 par value-shares authorized 50,000,000; issued and outstanding 37,249,529 and 36,879,924 respectively.......... 372 369 Capital in excess of par value....... 165,032 155,294 Retained earnings.................... 232,015 145,633 Cumulative translation adjustment.... 45 42 -------- -------- Total shareholders' equity....... 397,464 301,338 Commitments and contingencies -------- -------- Total Liabilities and Shareholders' Equity........................... $463,085 $358,622 ======== ======== See accompanying Notes to Consolidated Financial Statements. F-4 TOMMY HILFIGER CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For The Fiscal Year Ended March 31, ----------------------------------- 1997 1996 1995 ---- ---- ---- Cash flows from operating activities Net income.............................. $86,382 $61,500 $40,715 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization....... 20,842 13,439 9,308 Deferred income taxes............... (4,428) (6,287) (845) Stock compensation expense.......... -- 60 140 Realized and unrealized losses on investments............... -- -- 473 Equity in loss (gain) of equity investee..................... -- 143 (61) Changes in operating assets and liabilities (Increase) decrease in assets Accounts receivable............... (11,582) (17,917) (4,413) Inventories....................... (42,419) (29,419) (17,195) Other assets...................... (751) (5,805) 814 Increase (decrease) in liabilities Accounts payable.................. (3,458) 7,356 2,870 Accrued expenses and other liabilities...................... 19,849 16,589 (4,009) ------ ------ ----- Net cash provided by operating activities................ 64,435 39,659 27,797 ------ ------ ------ Cash flows from investing activities Purchases of property and equipment............................. (83,960) (28,694) (20,042) Purchases of investments................ -- (101,138) (134,360) Maturities and sales of investments........................... -- 151,352 114,876 Other .................................. -- -- 277 ------- ------- ------- Net cash (used in) provided by investing activities............. (83,960) 21,520 (39,249) ------- ------ ------- Cash flows from financing activities Proceeds from the exercise of employee stock options............. 3,929 13,027 5,115 Tax benefit from exercise of stock options...................... 5,812 17,715 3,577 Acquisition of treasury stock........... -- -- (2,441) Short-term bank (repayments) borrowings............................ (7,775) 268 3,168 Payments on long-term debt.............. (279) (275) (277) Other .................................. 3 12 (18) ------- ------- ------ Net cash provided by financing activities................ 1,690 30,747 9,124 Net (decrease) increase in cash............................. (17,835) 91,926 (2,328) Cash and cash equivalents, beginning of year....................... 127,743 35,817 38,145 ------- ------ ------ Cash and cash equivalents, end of year................................. $109,908 $127,743 $35,817 ======== ======== =======
See accompanying Notes to Consolidated Financial Statements. F-5 TOMMY HILFIGER CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
Unearned Cumulative Total Capital in stock trans- share- Ordinary excess of Retained compen- adjust- Treasury holders' Shares par value earnings sation ment stock equity -------- ---------- -------- -------- ---------- -------- -------- BALANCE, MARCH 31, 1994.......... $346 $116,944 $44,900 ($490) $15 -- $161,715 Net income..................... 40,715 40,715 Ordinary shares obtained for treasury, 118,576 shares............. ($2,441) (2,441) Exercise of employee stock options.................. 6 4,148 (1,482) 2,441 5,113 Tax benefit from exercise of stock options............... 3,577 3,577 Increase in value of proportionate interest in subsidiary................ 190 190 Amortization of unearned stock compensation................. 140 140 Translation adjustment......... 15 15 --- ------- ------ ---- ---- ---- ------- BALANCE, MARCH 31, 1995.......... 352 124,859 84,133 (350) 30 -- 209,024 Net income..................... 61,500 61,500 Exercise of employee stock options................ 17 13,010 13,027 Tax benefit from exercise of stock options...................... 17,715 17,715 Amortization of unearned stock compensation................. (290) 350 60 Translation adjustment......... 12 12 --- ------- ------- ---- ---- ----- ------- BALANCE, MARCH 31, 1996.......... 369 155,294 145,633 -- 42 -- 301,338 Net income..................... 86,382 86,382 Exercise of employee stock options................ 3 3,926 3,929 Tax benefit from exercise of stock options............. 5,812 5,812 Translation adjustment......... 3 3 --- ------- ------- ---- ---- ---- -------- BALANCE, MARCH 31, 1997.......... $372 $165,032 $232,015 -- $ 45 -- $397,464 ==== ======== ======== ==== ==== ==== ========
See accompanying Notes to Consolidated Financial Statements F-6 TOMMY HILFIGER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The consolidated financial statements include the accounts of Tommy Hilfiger Corporation ("THC") and all majority-owned subsidiaries, including Tommy Hilfiger U.S.A., Inc. ("TH USA"), Tommy Hilfiger Licensing, Inc. ("THLI"), Tommy Hilfiger Retail, Inc. ("THR"), Tommy Hilfiger Flagship Stores, Inc., Tommy Hilfiger (Eastern Hemisphere) Limited ("THEH"), Tommy Hilfiger (HK) Limited ("THHK") and, through June 30, 1996, Tommy Hilfiger Nippon Co., Ltd. ("THN"), as well as THN's 49% interest in Tommy Hilfiger Japan Co., Ltd. ("TH Japan") (collectively "the Company"). (b) Organization and Business THC was incorporated as a British Virgin Islands company in June 1992 and acts as a holding company for each of the following operating subsidiaries. TH USA designs and imports men's sportswear and boyswear for wholesale distribution under the trademark license agreement with THLI described below. THLI licenses the use of the TOMMY HILFIGER [R] trademarks to TH USA, THR and other affiliates and non affiliates. These agreements grant the licensee exclusive rights for use of the trademarks for specified products in specified geographical areas. THR commenced operations in April 1993 and as of March 31, 1997 operated 55 retail stores. THEH and THHK act as commissioned buying agents for TH USA, THR and certain other of THLI's licensees. THN was a 90% owned subsidiary and acted as a holding company for the Company's interest in TH Japan, a joint venture with Itochu, Ltd. TH Japan had licensed the rights to manufacture and distribute the majority of the Company's products in Japan from THLI and, in turn, sublicensed these rights to various Japanese companies. The joint venture terminated on June 30, 1996 and THN was dissolved in November 1996. (c) Basis of Consolidation All significant intercompany balances and transactions have been eliminated. The Company accounted for its interest in TH Japan on the equity basis. (d) Cash, and Cash Equivalents and Investments The Company considers all financial instruments purchased with original maturities of three months or less to be cash equivalents. Short-term investments include investments with an original maturity of greater than three months and a remaining maturity of less than one year. These investments are carried at market value and are classified as trading securities. In determining realized gains and losses, the cost of securities sold is based upon specific identification. F-7 (e) Inventories Inventories are valued at the lower of cost (weighted average method) or market. (f) Property and Equipment Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, ranging from three to twenty-five years. Leasehold improvements are amortized using the straight-line method over the lesser of the terms of the leases or the estimated useful lives of the assets. The Company's share of the cost of constructing in- store shop displays is capitalized and amortized using the straight-line method over their estimated useful lives. These costs are included in "Furniture and fixtures". Major additions and betterments are capitalized and repairs and maintenance are charged to operations in the period incurred. (g) Income Taxes The Company has recorded its provision for income taxes under the liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between the financial statement and tax bases of assets and liabilities using presently enacted tax rates. (h) Earnings Per Share and Share Equivalents During fiscal 1995, the Company announced that its Board of Directors approved a two-for-one stock split, effected in the form of a 100% stock dividend, payable to shareholders of record at the close of business on December 27, 1994. Earnings per share and share equivalents for all periods presented reflect the stock split. (i) Revenues Net revenues from wholesale product sales are recognized upon shipment of products to customers. Allowances for estimated returns and discounts are provided when sales are recorded. Retail store revenues are recognized at the time of sale. Licensing royalties and buying agency fees are recognized as earned. Net wholesale sales to major customers, based upon their ownership at March 31, 1997, as a percentage of total net wholesale sales for the three-year period ended March 31, 1997 were as follows: Fiscal Year Ended March 31, --------------------------- 1997 1996 1995 ---- ---- ---- Customer A 23% 22% 22% Customer B 21% 21% 23% Customer C 16% 14% 14% F-8 (j) Foreign Currency Translation The consolidated financial statements of the Company are prepared in United States dollars as this is the currency of the primary economic environment in which the Company operates, and substantially all of its revenues are received and expenses are disbursed in United States dollars. The financial statements of non-United States entities are translated into United States dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52. Under this translation method, adjustments resulting from translating the financial statements of the non-United States entities are recorded in shareholders' equity. (k) Segment Information The Company is engaged in principally one industry segment, the design, importation and distribution of men's sportswear and childrenswear. Substantially all of the Company's net revenue and income from operations are derived from, and identifiable assets (other than the collateralized time deposits mentioned in Note 4 which are located in Hong Kong) are located in, the United States and, therefore, constitute foreign operations in that the Company is incorporated in the British Virgin Islands. (l) Fair Value of Financial Instruments The fair values of short-term borrowings and long- term debt approximate their carrying values as these financial instruments bear interest at variable market rates. The fair value of the Company's other monetary assets and liabilities approximate carrying value due to the relatively short-term nature of these items. (m) Advertising Costs Advertising costs are charged to operations when incurred and totaled $19,651,000, $7,929,000 and $7,358,000 during the years ended March 31, 1997, 1996 and 1995, respectively. (n) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - ACCOUNTS RECEIVABLE TH USA collects substantially all of its receivables through a credit company pursuant to an agreement whereby the credit company pays TH USA after the credit company receives payment from the Company's customer. If the customer becomes bankrupt or insolvent or the receivable becomes 120 days past due, the credit company pays TH USA 50% of the outstanding receivable. The credit company establishes maximum credit limits for each customer account. Substantially all accounts receivable are pledged as collateral under a bank financing agreement. F-9 NOTE 3 - INVENTORIES Inventories are summarized as follows: March 31, --------- 1997 1996 ---- ---- Finished goods................. $122,237,000 $80,210,000 Raw materials.................. 1,610,000 1,218,000 ---------- ---------- $123,847,000 $81,428,000 ============ =========== NOTE 4 - CASH EQUIVALENTS AND INVESTMENTS Cash equivalents consist of collateralized time deposits and have original maturities of less than three months. As of March 31, 1997, cash equivalents in the Consolidated Balance Sheet include $94,520,000 of time deposits. At March 31, 1997, such investments are earning interest at rates ranging from 5.16% to 5.31%. Investment income is comprised of the following: Fiscal Year Ended March 31, --------------------------- 1997 1996 1995 ---- ---- ---- Interest income.......... $6,181,000 $5,712,000 $3,690,000 Net realized losses...... -- -- (473,000) ---------- ---------- ---------- Investment income........ $6,181,000 $5,712,000 $3,217,000 ========== ========== ========== NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consists of the following: March 31, --------- 1997 1996 ---- ---- Furniture and fixtures......... $88,507,000 $55,880,000 Leasehold improvements......... 27,924,000 19,239,000 Buildings and land............. 37,885,000 3,128,000 Machinery and equipment........ 16,263,000 8,372,000 ------------ ----------- 170,579,000 86,619,000 Less: accumulated depreciation and amortization............. 49,039,000 28,774,000 ------------ ------------ $121,540,000 $57,845,000 ============ ============ NOTE 6 - SHORT-TERM BORROWINGS In July 1996, the Company entered into an amended and restated credit agreement (the "Credit Agreement") effective April 1, 1996. The Credit Agreement, which expires in June 1999, provides for direct borrowings, bankers acceptances and letters of credit of amounts ranging from $100,000,000 in fiscal 1997 to $150,000,000 in fiscal 1999. Available borrowings under the Credit Agreement are subject to the timed increase of availability under the Credit Agreement and are based upon eligible accounts receivable, inventory and open letters of credit. As of March 31, 1997, $100,000,000 was available for utilization under the Credit Agreement, of which $66,822,000 had been used to open letters of credit. Obligations under the Credit Agreement are F-10 collateralized by substantially all the assets of the Company's U.S. operations. Direct borrowings under the Credit Agreement, which are limited to $60,000,000, accrue interest at varying interest rates. At March 31, 1997, total short-term borrowings of $5,980,000 consisted of open letters of credit for inventory purchased of $5,705,000 and the current portion of mortgage debt payable of $275,000. The Credit Agreement contains various covenants. Among other matters, the Credit Agreement includes certain restrictions upon capital expenditures, investments, indebtedness, loans and advances and transactions with related parties. In addition, the Credit Agreement prohibits certain of the Company's operating subsidiaries, which are borrowers or guarantors under the Credit Agreement, from paying dividends. Because THC is a holding company, dividends or other advances from its subsidiaries will be required to fund any cash dividends to holders of Ordinary Shares. The Credit Agreement also requires the maintenance of minimum tangible net worth and interest coverage ratios. The Company was in compliance with all covenants under the Credit Agreement as of, and for the year ended, March 31, 1997. NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities are comprised of the following: March 31, --------- 1997 1996 ---- ---- Accrued compensation........... $15,734,000 $12,393,000 Accrued marketing.............. 6,369,000 1,576,000 Other.......................... 27,607,000 15,440,000 ---------- ---------- $49,710,000 $29,409,000 =========== =========== NOTE 8 - LONG-TERM DEBT In connection with the purchase of real estate, THEH obtained a ten-year, $2,746,000 mortgage. The debt, payable in equal quarterly installments through August 2003, is secured by the property and accrues interest at the Hong Kong prime lending rate, which was 8.5% at March 31, 1997. NOTE 9 - COMMITMENTS AND CONTINGENCIES (a) Leases The Company leases office, warehouse and showroom space, retail stores and office equipment under operating leases which expire not later than 2023. The Company normalizes fixed escalations in rental expense under its operating leases. Minimum annual rentals under non-cancelable operating leases, excluding operating cost escalations and contingent rental amounts based upon retail sales, are payable as follows: Fiscal Year Ending March 31, ---------------------------- 1998...................... $8,753,000 1999...................... 10,635,000 2000...................... 10,440,000 2001...................... 8,402,000 2002...................... 7,169,000 Thereafter................ 50,687,000 F-11 Rent expense was $8,911,000, $5,768,000 and $2,282,000 for the years ended March 31, 1997, 1996 and 1995, respectively. (b) Letters of credit TH USA is contingently liable for unexpired bank letters of credit at March 31, 1997 of $57,061,000 related to commitments for the purchase of inventories and $4,056,000 related to leases. (c) Commitments At March 31, 1997, the Company had entered into capital commitments primarily related to construction projects of approximately $14,000,000. (d) Legal matters The Company is from time to time involved in routine legal matters incidental to its business. In the opinion of the Company, based on advice of counsel, the resolution of such matters will not have a material effect on the financial position or the results of operations of the Company. NOTE 10 - INCOME TAXES The components of the provision for income taxes are as follows: Fiscal Year Ended March 31, --------------------------- 1997 1996 1995 ---- ---- ---- Current: U.S. Federal.............. $39,276,000 $29,100,000 $18,516,000 State and Local........... 6,688,000 6,238,000 3,693,000 Non-U.S................... 3,330,000 1,849,000 1,378,000 ----------- ----------- ----------- 49,294,000 37,187,000 23,587,000 ----------- ----------- ----------- Deferred: U.S. Federal.............. (3,724,000) (4,940,000) (664,000) State and Local........... (737,000) (1,347,000) (183,000) Non-U.S................... 33,000 -- 2,000 ----------- ----------- ----------- (44,428,000) (6,287,000) (845,000) ----------- ----------- ----------- Provision for income taxes... $44,866,000 $30,900,000 $22,742,000 =========== =========== =========== Significant components of the Company's deferred tax assets are summarized as follows: March 31, --------- 1997 1996 ---- ---- Deferred tax assets - current: Inventory costs..................... $5,054,000 $3,457,000 Allowances for doubtful accounts and sales discounts.............. 2,415,000 3,191,000 Accrued compensation............. 1,580,000 -- Other items, net.................... 3,070,000 1,464,000 ----------- ----------- 12,119,000 8,112,000 Deferred tax assets - non-current: Depreciation and amortization....... 2,335,000 1,914,000 ----------- ----------- 2,335,000 1,914,000 ----------- ----------- Total deferred tax assets.............. $14,454,000 $10,026,000 =========== =========== F-12 The U.S. and non-U.S. components of income before income taxes are as follows: Fiscal Year Ended March 31, --------------------------- 1997 1996 1995 ---- ---- ---- U.S....................... $104,671,000 $71,606,000 $51,789,000 Non-U.S................... 26,577,000 20,794,000 11,668,000 ------------ ----------- ----------- $131,248,000 $92,400,000 $63,457,000 ============ =========== =========== The provision for income taxes differs from the amounts computed by applying the applicable U.S. federal statutory rates to income before taxes as follows:
Fiscal Year Ended March 31, --------------------------- 1997 1996 1995 ---- ---- ---- Provision for income taxes at the U.S. federal statutory rate....... $45,937,000 $32,340,000 $22,210,000 State and local income taxes, net of federal benefits............... 3,868,000 3,179,000 2,281,000 Non-U.S. income taxed at different rates............................. (6,350,000) (5,612,000) (2,821,000) Other................................ 1,411,000 993,000 1,072,000 .................................. ----------- ----------- ----------- Provision for income taxes.......... $44,866,000 $30,900,000 $22,742,000 =========== =========== ===========
THC is not taxed on income in the British Virgin Islands ("BVI") where it is incorporated. THC's subsidiaries are subject to taxation in the jurisdictions in which they operate. Provision has not been made for taxes on undistributed non-BVI, non-U.S. earnings of $121,642,000 at March 31, 1997, as those earnings will continue to be reinvested. As a result of various tax planning strategies available to the Company, it is not practical to estimate the amount of tax, if any, that might be payable on the eventual remittance of such earnings. NOTE 11 - RELATED PARTIES Effective February 1, 1997, the Company entered into a licensing agreement with Pepe Jeans London Corporation ("Pepe") to distribute the Company's men's and boys sportswear (excluding jeanswear and jeans related apparel) throughout the European market. Under this agreement, the licensee pays THLI a royalty based on a percentage of the value of licensed products sold by Pepe. Except with the approval of THLI, all products sold by or through Pepe must be purchased through THEH or TH USA pursuant to buying agency agreements. Under these agreements, THEH and TH USA are paid a buying agency commission based on a percentage of the cost of products sourced through them. The distribution of products under this arrangement is expected to begin in Fall 1997. Effective June 30, 1996, the Company's joint venture arrangement with TH Japan covering the Company's Japanese operations expired. Effective July 1, 1996, the Company entered into an exclusive license agreement for Japan with Novel-ITC Licensing Limited ("NIL"), a related party. Under the license agreement, NIL pays THLI a royalty based on a percentage of the value of licensed products sold by NIL's sublicensee. Except with the approval of THLI, all products sold by or through NIL or its sublicensee must be purchased through THEH or TH USA pursuant to buying agency agreements. Under these agreements, THEH and TH USA are paid a buying agency commission based on a percentage of the cost of products sourced through them. F-13 Pursuant to this new arrangement, royalties and commissions totaled $2,745,000 during fiscal 1997. Pursuant to the prior arrangement, royalties and commissions totaled $488,000 in fiscal 1997, $1,939,000 in fiscal 1996 and $1,222,000 in fiscal 1995. Effective October 1, 1995, the Company entered into a license agreement with a related party, AIHL Investment Group Limited (formerly SEL International Investments Corp.) ("AIHL"), the parent of Pepe, for the manufacture, sale and distribution of men's, women's and girls' jeanswear and jeans related apparel (which includes women's and girls' casualwear) bearing the TOMMY HILFIGER [R] registered trademarks. Other assets in the Consolidated Balance Sheet include a non-interest bearing note receivable from AIHL in connection with this transaction. The note, which has a face value of $5,000,000, and is due on September 30, 2000, is recorded at its present value of $3,735,000 at March 31, 1997 and $2,874,000 at March 31, 1996. Under this license agreement, the Company receives royalties from subsidiaries of Pepe based upon a percentage of net sales of licensed products. The fiscal 1997 and 1996 results of operations include $9,963,000 and $1,915,000 of such royalties. Net sales included in the Consolidated Statements of Operations for these licensed products prior to this agreement were $12,370,000 in fiscal 1996 and $9,104,000 in fiscal 1995. In addition, in connection with this license, a subsidiary of Pepe leases certain space at the Company's U.S. headquarters, for which rent of $214,000 was received by the Company in fiscal 1997. In June 1994, the Company granted a director of the Company an option to purchase a 10% equity interest in THR in connection with entering into an employment agreement with THR. In July 1994, this option was exercised at $193,000, an exercise price equal to 10% of the fair market value of THR as determined by an independent appraisal. As a result of this transaction, the value of the Company's proportionate interest in THR increased by $190,000. During March 1996, in connection with the termination of the director's employment, the Company repurchased this equity interest for its fair value of $1,800,000. TH USA purchases finished goods in the ordinary course of business from affiliated companies. Such purchases amounted to $9,852,000, $10,970,000 and $12,092,000 during the fiscal years ended March 31, 1997, 1996 and 1995, respectively. In addition, contractors of the Company purchased raw materials in the ordinary course of business from affiliates of the Company. Such purchases amounted to $5,811,000, $7,910,000 and $2,977,000 during the fiscal years ended March 31, 1997, 1996 and 1995, respectively. THEH has entered into a buying agency agreement with a Canadian licensee, in which one of the Company's directors has an indirect beneficial ownership interest. Under this agreement, THEH receives commissions based on a percentage of the cost of goods sourced on behalf of the licensee. THLI receives a royalty from the licensee based upon a percentage of net sales of licensed products. Results of operations include $2,378,000, $1,667,000 and $861,000 for the years ended March 31, 1997, 1996 and 1995, respectively, for commissions and royalties received from this licensee. TH USA sells merchandise in the ordinary course of business to a retail store that is owned by a relative of a director of the Company. Sales to this customer amounted to approximately $435,000, $397,000 and $405,000 during the years ended March 31, 1997, 1996 and 1995, respectively. THEH has two consulting agreements with affiliates. THEH paid fees of $875,000 in fiscal 1997 and $375,000 in each of fiscal 1996 and 1995 to such affiliates. F-14 TH USA had a consulting agreement with an affiliate. The fees and related expenses under this consulting agreement totaled $619,000 and $637,000 during the years ended March 31, 1996 and 1995, respectively. During the year ended March 31, 1995, TH USA incurred expenses of $1,000,000 for the sponsorship of an auto racing team, in which an affiliate of a director owned an indirect minority interest. The Company did not renew this sponsorship subsequent to fiscal 1995. Under the terms of an agreement with an affiliate, THHK reimburses the affiliate for certain general and administrative expenses incurred by the affiliate on behalf of THHK. Payments made to the affiliate for the years ended March 31, 1997, 1996 and 1995 were $58,000, $114,000 and $87,000, respectively. NOTE 12 - PROFIT SHARING PLAN TH USA maintains employee savings plans for eligible U.S. employees. TH USA's contributions to the plans are discretionary with matching contributions of up to 50% of employee contributions of up to 5% of employee compensation. For the years ended March 31, 1997, 1996 and 1995, the Company made plan contributions of $345,000, $271,000 and $181,000, respectively. NOTE 13 - UNEARNED STOCK COMPENSATION Unearned stock compensation associated with a former key employee of TH USA was eliminated in 1996 in connection with the termination of such employment. The balance of the unearned stock compensation was recorded as a reduction of Capital In Excess of Par Value. NOTE 14 - STOCK OPTION PLANS In September 1992, the Company and its subsidiaries adopted stock option plans (the "Plans") authorizing the issuance of an aggregate of up to 1,450,000 Ordinary Shares to directors, officers and employees of the Company, as well as 1,520,000 Ordinary Shares reserved for issuance in connection with an option granted to a former officer of the Company pursuant to his employment agreement. The remaining unexercised options granted under the terms of the officer's employment agreement were exercised during fiscal 1996. In December 1993, July 1995 and November 1996, a total of 2,500,000 Ordinary Shares of THC were authorized and reserved for issuance to directors, officers and employees of the Company, under the Plans. In August 1994, the Board of Directors and shareholders of the Company approved the Non- Employee Directors Stock Option Plan (the "Directors Option Plan"). Under the Directors Option Plan, directors who are not officers or employees of the Company are eligible to receive stock option grants. The total number of Ordinary Shares for which options may be granted under the Directors Option Plan may not exceed 200,000 Ordinary Shares in the aggregate, subject to certain adjustments. F-15 Transactions involving the Plans and the Directors Option Plan are summarized as follows: Weighted Average Exercise Option Shares Price Per Share -------------- ------------------ Outstanding as of April 1, 1994 3,110,500 $8.31 Granted........................... 256,000 $18.79 Exercised......................... (663,776) $7.67 Canceled.......................... (154,700) $15.92 ----------- Outstanding as of March 31, 1995 2,548,024 $9.37 Granted........................... 793,400 $29.50 Exercised......................... (1,654,724) $7.86 Canceled.......................... (85,100) $18.09 ----------- Outstanding as of March 31, 1996 1,601,600 $20.10 Granted........................... 708,300 $48.20 Exercised......................... (369,605) $10.64 Canceled.......................... (51,725) $39.56 ----------- Outstanding as of March 31, 1997 1,888,570 $31.26 =========== The following table summarizes information concerning currently outstanding and exercisable options:
Options Outstanding Options Exercisable ----------------------------- -------------------- Weighted Average Weighted Weighted Remaining Average Average Range Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price --------------------------------------------------------------------------- $7.50-$15.00 328,320 5.70 $8.97 115,820 $7.95 $17.63-$22.00 300,450 7.60 $20.03 22,900 $19.76 $26.75-$30.25 590,800 8.48 $30.22 151,800 $30.25 $44.25-$58.50 669,000 9.22 $48.23 -- -- --------- ---- ------ ------- ------ $7.50-$58.50 1,888,570 8.11 $31.26 290,520 $20.53 ========= ==== ====== ======= ======
Options vest over periods ranging from 1-6 years. The exercise price of all options granted under the Plans and the Directors Option Plan is the market price on the dates of grant. F-16 The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its stock awards. Accordingly, no compensation expense has been recognized for stock options. Had compensation cost been recorded based upon the fair value at the grant dates as an alternative provided by SFAS No. 123, "Accounting for Stock Based Compensation", the Company's net income and earnings per share would have been reduced by approximately $2,998,000 and $.08, respectively, in 1997 and $2,131,000 and $.06, respectively, in 1996. These amounts are for disclosure purposes only and may not be representative of future calculations since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. The fair values of options granted was estimated at $22.33 in 1997 and $13.72 in 1996 on the dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1997 and 1996, respectively: volatility of 40% and 42%; risk free interest rate of 6.1% and 6.3%; expected life of 5.7 years and 5.6 years; and no future dividends. NOTE 15 - STATEMENTS OF CASH FLOWS Fiscal Year Ended March 31, --------------------------- 1997 1996 1995 ---- ---- ---- Supplemental disclosure of cash flow information: Cash paid during the year: Interest $ 930,000 $ 1,382,000 $ 515,000 =========== =========== =========== Income taxes $34,559,000 $24,428,000 $21,665,000 =========== =========== =========== NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1997 ---- Net revenue.............. $124,129,000 $178,907,000 $188,199,000 $170,453,000 Gross profit............. 58,119,000 86,931,000 90,231,000 81,523,000 Net income............... 12,578,000 24,090,000 27,397,000 22,317,000 Earnings per share and share equivalents........ .34 .63 .72 .59
F-17
1996 ---- Net revenue.............. $89,522,000 $131,965,000 $130,501,000 $126,143,000 Gross profit............. 40,076,000 60,172,000 58,663,000 60,801,000 Net income............... 7,789,000 18,204,000 17,585,000 17,922,000 Earnings per share and share equivalents....... .21 .49 .47 .48
The quarterly financial data for the years ended March 31, 1997 and 1996 are unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments necessary to present such data fairly. F-18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY DIRECTORS AND EXECUTIVE OFFICERS NAME AGE PRESENT POSITION ---- --- ---------------- Silas K.F. Chou 50 Chairman of the Board Thomas J. Hilfiger 46 Honorary Chairman of the Board and Principal Designer Joel J. Horowitz 47 Chief Executive Officer, President and Director Benjamin M.T. Ng 34 Executive Vice President- Corporate Finance, Assistant Secretary and Director Lawrence S. Stroll 37 Chief Executive Officer of THHK and Director Ronald K.Y. Chao 58 Director Lester M.Y. Ma 50 Treasurer and Director Joseph M. Adamko 64 Director Clinton V. Silver 67 Director Simon Murray 57 Director Joel H. Newman 56 Executive Vice President- Operations and Treasury Lawrence T.S. Lok 40 Secretary Silas K.F. Chou has been Chairman of the Board of Directors of the Company since 1992. Mr. Chou also has served for more than the past five years as an Executive Director of Novel Enterprises Limited ("Novel Enterprises"). Mr. Chou was appointed as Managing Director of Novel Enterprises in 1996. Since 1992, Mr. Chou has been the Chairman of the board of directors of Pepe Jeans London Corporation and its predecessor (collectively, "Pepe") and Chief Executive Officer of AIHL Investment Group Limited and its predecessor (collectively, "AIHL"). Thomas J. Hilfiger has been a Director since 1992 and Honorary Chairman of the Board of Directors of the Company since 1994. Prior thereto, Mr. Hilfiger was Vice Chairman of the Board of the Company and its predecessors since 1989, and President of Tommy Hilfiger, Inc. ("THI") from 1982 to 1989. Mr. Hilfiger has been designing clothes under the TOMMY HILFIGER [R] trademark since 1984. Joel J. Horowitz is Chief Executive Officer and President of the Company. Mr. Horowitz has served as Chief Executive Officer since 1994 and as President since 1995. From 1989 to 1994, Mr. Horowitz served as President and Chief Operating Officer of the Company and its predecessors. Mr. Horowitz has been a Director of the Company since 1992. 21 Benjamin M.T. Ng has been a Director and Executive Vice President-Corporate Finance and Assistant Secretary of the Company since 1992. From 1988 to 1991, Mr. Ng was employed in the mergers and acquisitions department at Goldman, Sachs & Co. Mr. Ng devotes a significant portion of his time to matters related to AIHL and its affiliates other than the Company. Lawrence S. Stroll has been a Director of the Company since 1992 and has served as Chief Executive Officer of THHK since 1993. Prior to 1993, he was active in the senior management of THI from 1989 to 1990 and has served as an advisor to the Company and its predecessors since 1989 through a consulting arrangement. Mr. Stroll has also been Group Chief Executive Officer of Pepe since 1993 and Chairman of the Board of AIHL since 1992. Mr. Stroll's legal name is Lawrence S. Strulovitch. Ronald K.Y. Chao has been a Director of the Company since 1992. In 1996, Mr. Chao was appointed as Vice Chairman of Novel Enterprises. For more than five years prior thereto, Mr. Chao served as the Managing Director of Novel Enterprises. Lester M.Y. Ma has been a Director of the Company since 1992 and its Treasurer since 1996. Mr. Ma has been an Executive Director and Group Chief Accountant of Novel Enterprises for more than the past five years. Mr. Ma's legal name is Mang Yin Ma. Joseph M. Adamko has been a Director of the Company since 1993. Since 1992, Mr. Adamko has been a director of Sterling Bancorp and Vice Chairman and a director of Sterling National Bank. Prior thereto, Mr. Adamko was employed by Manufacturers Hanover Trust Company of New York in a variety of positions for over 30 years, including most recently as a Managing Director. Clinton V. Silver has been a Director of the Company since 1994. Mr. Silver currently serves as a consultant to, and from 1991 until his retirement in 1994, as Deputy Chairman of, Marks & Spencer plc ("Marks & Spencer"), an international retailer based in London. Mr. Silver served as a director of Marks & Spencer from 1974 to 1994 and as Joint Managing Director since 1990. Mr. Silver has also served as a director of VeriFone, Inc. since January 1997. Simon Murray has been a Director of the Company since April 1997. Since 1994, Mr. Murray has been the Executive Chairman of Deutsche Bank AG for the Asia/Pacific region. From 1984 to 1993, Mr. Murray was the Group Managing Director of the Hutchison Whampoa Group, a major Hong Kong-based conglomerate, where he continues to be a member of the board of directors. In addition, Mr. Murray is currently the Deputy Chairman of China North Industries Investment Limited and a director of a number of public companies in the Far East, including Cheung Kong Holdings. Joel H. Newman has been Executive Vice President-Operations and Treasury of the Company since April 1997. Since 1993, Mr. Newman has also held various senior operations and financial positions with TH USA and currently serves as its Chief Operating Officer. Prior to joining the Company, Mr. Newman held various senior operations and financial positions with major companies in the apparel wholesale and retail industries. Lawrence T.S. Lok has been Secretary of the Company and Novel Enterprises since December 1994. Mr. Lok has also been Deputy Group Chief Accountant of Novel Enterprises since October 1991. Ronald K.Y. Chao and Silas K.F. Chou are brothers. 22 TERMS OF DIRECTORS At the first annual meeting of the shareholders held on December 10, 1993, the directors were classified into three classes, with one class elected initially for a one-year term, one class elected initially for a two-year term and one class elected initially for a three-year term. At each succeeding annual meeting, the successors of the class of directors whose terms expire at such meeting are elected for three-year terms. The terms of Messrs. Ng, Stroll, Ma and Silver expire in 1997; the terms of Messrs. Horowitz, Chao and Murray expire in 1998; and the terms of Messrs. Chou, Hilfiger and Adamko expire in 1999. SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities ("Reporting Persons") to file reports of ownership and changes in ownership ("Section 16 Reports") with the Securities and Exchange Commission (the "SEC") and the New York Stock Exchange. Reporting Persons are required by the SEC to furnish the Company with copies of all Section 16 Reports they file. Based solely on its review of the copies of such Section 16 Reports received by it, or written representations received from Reporting Persons, all Section 16(a) filing requirements applicable to the Company's Reporting Persons during and with respect to the fiscal year ended March 31, 1997 have been complied with on a timely basis. 23 ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following table sets forth the compensation paid and accrued by the Company and its subsidiaries for the fiscal years ended March 31, 1997, 1996 and 1995 to the Company's chief executive officer and the four other most highly compensated executive officers (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ----------------------- ------------- AWARDS ------------- SECURITIES FISCAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) STOCK OPTIONS (#) COMPENSATION ($) --------------------------- ------ ---------- --------- ----------------- ---------------- Joel J. Horowitz....................... 1997 473,000 7,174,000 -- 353(1) Chief Executive Officer and 1996 430,000 5,016,000 -- 270 President 1995 400,000 3,312,000 -- 465 Thomas J. Hilfiger..................... 1997 8,498,223 4,500,000(2) -- 353(1) Honorary Chairman and 1996 6,510,179 800,000 -- 270 Principal Designer 1995 4,699,414 -- -- 465 Silas K.F. Chou........................ 1997 750,000(3) 325,000 -- -- Chairman of the Board 1996 750,000(3) 325,000 -- -- 1995 750,000(3) -- -- -- Lawrence S. Stroll..................... 1997 625,000(4) 325,000 -- -- Director; Chief Executive Officer 1996 625,000(4) 325,000 -- -- of THHK 1995 625,000(4) -- -- -- Benjamin M.T. Ng....................... 1997 250,000 211,375 5,000 4,044(5) Director; Executive Vice 1996 150,000 288,625 150,000 4,093 President-Corporate Finance 1995 150,000 150,000 -- 2,789 ________ (1) Amount represents premiums paid by the Company for group term life insurance on behalf of the Named Executive Officer. (2) Of this amount, $3,500,000 will be payable on a deferred basis. See "Certain Employment Agreements." (3) 1997 amount includes 50% of the fees paid pursuant to a consulting agreement between Tommy Hilfiger (Eastern Hemisphere) Limited ("THEH") and Fasco International, Inc. ("Fasco International"), a subsidiary of Sportswear Holdings Limited ("Sportswear Holdings"). 1996 and 1995 amounts include 50% of the fees paid pursuant to a consulting agreement between TH USA and Falcon International, Inc. ("Falcon International"), a subsidiary of Sportswear Holdings. See "Certain Relationships and Related Transactions." (4) Includes (i) for 1997, 50% of the fees paid pursuant to a consulting agreement between THEH and Fasco International, and for 1996 and 1995, 50% of the fees paid pursuant to a consulting agreement between TH USA and Falcon International; and (ii) all of the fees paid pursuant to a consulting agreement between THEH and an affiliate of Mr. Stroll. See "Certain Relationships and Related Transactions." (5) Amount represents employer matching contribution under the Tommy Hilfiger U.S.A. 401(k) Profit Sharing Plan of $3,750 and premiums paid by the Company for group term life insurance on behalf of Mr. Ng of $294.
24 STOCK OPTION GRANTS The following table sets forth information regarding grants of stock options during fiscal year 1997 made to the only Named Executive Officer who has received Company option grants.
STOCK OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS GRANT DATE VALUE (1) ----------------------------------------------------------------------------------------------- --------------------- NUMBER OF PERCENT OF SECURITIES TOTAL STOCK UNDERLYING OPTIONS STOCK GRANTED TO EXERCISE OF OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE NAME GRANTED (#) FISCAL YEAR(2) ($/SH) DATE PRESENT VALUE($) ---- ----------- -------------- ----------- ---------- ---------------- Benjamin M.T. Ng................ 5,000 0.71% 45.125 04/01/06 100,775 ________ (1) The fair value of these options on the date of grant was estimated using the Black-Scholes option-pricing model with the following assumptions: volatility of 40%; risk-free interest rate of 6%; expected life of 5 years; and no future dividends. The dollar amount in this column is not intended to forecast potential future appreciation, if any, of the Company's Ordinary Shares. (2) This percentage is calculated with respect to stock options granted under the Plans (as defined below) during the last fiscal year. The stock options granted to Mr. Ng during the last fiscal year were non-qualified options granted pursuant to the Plans. Such options become exercisable in 20% increments each April 30, commencing April 30, 1997. See "Stock Option Plans".
STOCK OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following table sets forth information regarding stock option exercises during fiscal year 1997 by the only Named Executive Officer who has received Company option grants, and the values of such officer's unexercised options as of March 31, 1997. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBERS OF UNEXERCISED VALUE OF UNEXERCISED IN-THE- SHARES STOCK OPTIONS AT MONEY STOCK OPTIONS AT ACQUIRED ON VALUE FISCAL YEAR-END (#) FISCAL YEAR-END ($) NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- ------------ ------------ ------------------------- ------------------------- Benjamin M.T. Ng...... 30,000 1,455,825 150,070/5,000 3,303,133/35,625
CERTAIN EMPLOYMENT AGREEMENTS Subsidiaries of the Company had employment and consulting agreements with Messrs. Hilfiger and Horowitz during fiscal 1997. The employment agreement with Tommy Hilfiger, the Company's Honorary Chairman of the Board and Principal Designer, provides for his employment as the designer of all products carrying the TOMMY HILFIGER [R] trademark until his death, disability or incompetence. Mr. 25 Hilfiger receives an annual base salary of $900,000, subject to adjustments. If net sales of TH USA and its subsidiaries are less than $48,333,333 in any year, Mr. Hilfiger's base salary for such year is reduced by 1.5% of such shortfall, to not less than $500,000. If net sales are greater than $48,333,333 in any fiscal year, Mr. Hilfiger receives an additional payment equal to 1.5% of such excess. If Mr. Hilfiger terminates his employment without the consent of TH USA other than by reason of his death, disability or incompetence, TH USA will have no further obligations under the agreement. The employment agreement provides that TH USA and its subsidiaries cannot enter into any line of business without the consent of Mr. Hilfiger if he shall reasonably determine that such line of business would be detrimental to the TOMMY HILFIGER [R] trademark. The amended employment agreement with Mr. Horowitz provides for his employment as Chief Executive Officer of the Company and TH USA until March 14, 1999. The agreement provided for an annual base salary in fiscal year 1997 of $473,000. The base salary is subject to increase each year thereafter by the average percentage increase for all employees of TH USA. In addition, Mr. Horowitz is entitled to receive an amount equal to 5 percent of the Company's earnings before depreciation, interest on financing of fixed assets, non- operating expenses and taxes ("operating earnings"), subject to a minimum of $200,000 per year and a maximum of $777,000 per year, which maximum has been reduced each year (from an original level of $900,000) by the increase in his base salary; provided, that if the Company's operating earnings are below $2 million in any year, TH USA is entitled to offset 10% of any shortfall (up to $75,000) against such payments in future years to the extent they would otherwise exceed $200,000. Beginning in fiscal 1995, the Company became subject to Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), under which public companies are not permitted to deduct annual compensation paid to certain executive officers in excess of $1,000,000 per executive, unless such excess is paid pursuant to an arrangement based upon performance and approved by shareholders and provided that the other requirements set forth in Section 162(m) and related regulations are met. Payments required to be made pursuant to the Company's aforementioned employment agreements with Messrs. Hilfiger and Horowitz, which were entered into prior to the effective date of Section 162(m), are not subject to such restrictions. On May 22, 1995, the Compensation Committee approved and the Board of Directors adopted, and on July 28, 1995, the shareholders approved, the Tommy Hilfiger U.S.A., Inc. Supplemental Executive Incentive Compensation Plan (the "SEIC Plan"), effective as of April 1, 1995 for each of the four fiscal years ending March 31, 1999. The purpose of the SEIC Plan is to provide a significant and flexible economic opportunity to Mr. Horowitz, Chief Executive Officer and President of the Company and Chief Executive Officer of TH USA, in an effort to reward his contribution to the Company and its subsidiaries. The SEIC Plan replaced the performance-based compensation arrangement for Mr. Horowitz that was in effect for fiscal year 1995. The SEIC Plan is administered by the Compensation Committee and provides for a cash award to Mr. Horowitz equal to 5 percent of the operating earnings (as defined above) of the Company. Awards under the plan are calculated and paid quarterly based on 3.75 percent of operating earnings for the first three fiscal quarters, with the remaining amount of the bonus (based on the 5 percent rate) payable at the end of the fiscal year. The amount of the award is reduced by the amount of any other bonuses based on the operating earnings of the Company or any of its subsidiaries granted to Mr. Horowitz. The 5 percent operating earnings bonus payable under Mr. Horowitz's employment agreement is credited against bonuses payable under the SEIC Plan. The SEIC Plan does not contain any cap on the maximum amount of the bonus payable thereunder. The SEIC Plan bonus payable to Mr. Horowitz in respect of fiscal year 1997, net of the $777,000 26 bonus payable under his employment agreement, was $6,397,000. While the Company believes that compensation payable pursuant to the SEIC Plan will be deductible for federal income tax purposes pursuant to Section 162(m), there can be no assurance in this regard. The employment agreements with Messrs. Hilfiger and Horowitz also provide that such executives are eligible to receive additional annual bonuses at the discretion of TH USA's Compensation Committee if the TH USA Compensation Committee determines that certain performance levels established by the Company's Compensation Committee have been satisfied. If, however, compensation is awarded based on an arrangement that has not been approved by the shareholders, the Company would not be allowed to deduct for tax purposes any payments in excess of the $1,000,000 limitation. The Compensation Committee approved discretionary bonuses of $4,500,000, of which $3,500,000 was granted by the Company on a deferred basis as described below (the "Deferred Bonus"), and $800,000 for Mr. Hilfiger in fiscal years 1997 and 1996, respectively. The Deferred Bonus (and any interest accrued thereon) will be paid in annual installments on the last day of each fiscal year of the Company (commencing with the fiscal year ending March 31, 1998) in the largest possible amounts that can be paid, after taking into account any base salary and other compensation in that fiscal year which would be counted for purposes of Section 162(m), and still be fully deductible under such regulations. The unpaid portion of the Deferred Bonus will accrue interest at a rate equal to TH USA's bank borrowing rate. While the Company believes that such Deferred Bonus payments will be deductible for federal income tax purposes pursuant to Section 162(m), there can be no assurance in this regard. STOCK OPTION PLANS Tommy Hilfiger U.S.A., Inc. and Tommy Hilfiger (Eastern Hemisphere) Limited 1992 Stock Incentive Plans In September 1992, the Company and its subsidiaries adopted stock option plans (collectively, the "Plans") authorizing the issuance of an aggregate of up to 1,450,000 Ordinary Shares to directors, officers and employees of the Company and its subsidiaries, as well as 1,520,000 Ordinary Shares that were reserved for issuance in connection with an option granted to a former director and executive officer of the Company pursuant to his employment agreement. Messrs. Hilfiger, Horowitz, Chou, Chao and Stroll are not eligible for grants under the Plans. In December 1993, July 1995 and November 1996, the Company's shareholders approved amendments to the Plans to increase by 1,000,000, 1,000,000 and 500,000, respectively, the number of Ordinary Shares reserved for issuance under the Plans. The Plan for employees of TH USA has been administered by the Compensation Committee of the Board of Directors of TH USA and the Plan for employees of the Company's non-United States subsidiaries have been administered by the Company's Compensation Committee (collectively, the "Compensation Committees"). The Compensation Committees determine the employees to whom awards are granted, the number of awards granted and the specific terms and conditions of each grant, subject to the provisions of the Plans. Under the Plans, awards may include stock options, stock appreciation rights and restricted stock. An option or right granted under the Plans must have an exercise price of not less than market value at the date of grant, provided that options granted prior to the offering must 27 have an exercise price of not less than the initial public offering price. Options may be exercisable at such times, in such amounts, in accordance with such terms and conditions, and subject to such restrictions as are set forth in the option agreement evidencing the grant of such options. Adjustments in the number and kind of shares subject to options granted under the Plans are made by the Compensation Committees in the event of a merger, consolidation, recapitalization, reclassification, stock split, warrants or rights issuance, stock dividend or combination of shares. In addition, the grants may provide for acceleration or immediate vesting in the event of a change of control of the Company or its subsidiaries. Non-Employee Directors Stock Option Plan In August 1994, the Board of Directors and shareholders of the Company approved the Non-Employee Directors Stock Option Plan (the "Directors Option Plan"). Under the Directors Option Plan, directors who are not officers or employees of the Company or any subsidiary of the Company ("Non-Employee Directors") are eligible to receive stock options. The Directors Option Plan is administered by the Company's Compensation Committee consisting of not less than two members of the Board, each of whom is a "disinterested person" as that term is used in Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"). Subject to certain specific limitations and restrictions set forth in the Directors Option Plan, the Company Compensation Committee has full and final authority to interpret the Directors Option Plan, to prescribe, amend and rescind rules and regulations, if any, relating to the Directors Option Plan and to make all determinations necessary or advisable for the administration of the Directors Option Plan. However, grants of stock options to participants under the Plan and the amount, nature and timing of the grants are not subject to the determination of the Committee. The total number of Ordinary Shares for which options may be granted under the Directors Option Plan may not exceed 200,000 shares while the Directors Option Plan is in effect, subject to certain adjustments described in the Directors Option Plan. Each Non-Employee Director receives an initial stock option to purchase 10,000 Ordinary Shares at a price equal to the fair market value at the time of the grant of the Ordinary Shares subject to such stock option. Prior to termination of the Directors Option Plan, on the first to occur of either the April 1 or October 1 following the first anniversary of each Non-Employee Director's date of initial grant (the "First Annual Grant Date"), and on each anniversary of such Non-Employee Director's First Annual Grant Date, such Non-Employee Director will receive an additional stock option to purchase 1,000 Ordinary Shares at a price equal to the fair market value of the Ordinary Shares at the time of the grant, provided such individual continues to be a Non- Employee Director. The term of each stock option will be 10 years unless earlier terminated by termination of the director status of a Non-Employee Director. The stock options will be exercisable in equal installments over five years from the date of grant. The stock options granted under the Directors Option Plan may not be assigned or transferred except by will, applicable laws of descent and distribution or pursuant to a qualified domestic relations order. The Board may amend, alter or discontinue the Directors Option Plan, but no amendment, alteration or discontinuation will be made which would (i) impair the rights of an optionee under a stock option without the optionee's consent, except such an amendment as would cause the Directors Option Plan to qualify for the exemption provided by Rule 16b-3 or (ii) disqualify the 28 Directors Option Plan from the exemption provided by Rule 16b-3. In addition, (i) no amendment will be made without the approval of the Company's shareholders to the extent such approval is required by law or agreement, and (ii) the Directors Option Plan will not be amended more often than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. All stock options granted by the Company are non- qualified stock options for purposes of the Code. The grant of non-qualified stock options does not result in any taxable income to the participant. Upon the exercise of a non- qualified stock option, the excess of the market value of the shares acquired over their cost to the participant is taxable to the participant as ordinary income. TH USA will generally be entitled to a corresponding deduction at the time such amounts are included in income by a TH USA Plan participant. The participant's tax basis for the shares is their fair market value at the time of exercise. Income realized on the exercise of a non-qualified stock option is subject to federal and (where applicable) state and local withholding taxes. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION From August 1994 through the end of the Company's last fiscal year, the Compensation Committee consisted of Mr. Adamko, who is the Chairman, and Mr. Silver. In April 1997, Mr. Murray was appointed as an additional member of the Compensation Committee. During the Company's last fiscal year, Sportswear Holdings was 50% owned by Novel Enterprises, a Hong Kong corporation privately owned by members of the Chao family (including Messrs. Silas K.F. Chou and Ronald K.Y. Chao), and 50% owned by Gadwal Limited, a Hong Kong corporation in which Mr. Stroll has a indirect beneficial ownership interest ("Gadwal"). In January 1997, Novel Enterprises transferred its ownership interest in Sportswear Holdings to a Hong Kong corporation under common control with Novel Enterprises . AIHL is owned by Sportswear Holdings, Mr. Hilfiger and Mr. Horowitz. AIHL owns, indirectly through a subsidiary, substantially all of the outstanding shares of Pepe. Novel Enterprises and its affiliates also hold other interests in the apparel industry. Mr. Chou, the Chairman of the Board of Directors of the Company, is Chairman of the Board of Directors of Pepe. Mr. Stroll, a Director of the Company and Chief Executive Officer of THHK, is Group Chief Executive Officer and a director of Pepe. Mr. Ng, an executive officer and Director of the Company, is also a director of Pepe. Mr. Ma, an executive officer and Director of the Company, and Mr. Chao, a Director of the Company, are directors of certain subsidiaries of Pepe. Messrs. Chou, Hilfiger, Stroll and Horowitz, executive officers and Directors of the Company, are executive officers and directors of AIHL. Mr. Ng, an executive officer and Director of the Company, is an executive officer, and until May 1997 was a Director, of AIHL. Messrs. Chou and Stroll, executive officers and Directors of the Company, are executive officers and directors of Sportswear Holdings. Mr. Chao, a Director of the Company, is a director of Sportswear Holdings. Messrs. Chou and Ma, executive officers and Directors of the Company, and Mr. Chao, a Director of the Company, are executive officers and directors of both Novel Enterprises and the transferee of Novel Enterprises' ownership interest in Sportswear Holdings. 29 DIRECTOR COMPENSATION Directors who are employees of the Company or its subsidiaries receive no additional compensation for their service on the Board and its Committees. All other Directors of the Company receive a retainer of $25,000 per annum. Each member of a Committee of the Board of Directors receives a retainer of $5,000 per annum, and each Chairman of a Committee of the Board of Directors receives an additional retainer of $3,000 per annum. These Directors also receive $2,000 for attendance at each meeting of the Board or a Committee. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth data as of June 2, 1997 concerning the beneficial ownership of Ordinary Shares by (i) the persons known to the Company to beneficially own more than five percent of the outstanding Ordinary Shares of the Company, (ii) all directors and nominees and each Named Executive Officer and (iii) all directors and executive officers as a group as reported by each person. AMOUNT BENEFICIALLY PERCENT OWNED OF CLASS(1) ------------ ----------- Provident Investment Counsel Inc.(2) 300 North Lake Avenue Pasadena, CA 91101-4022.................. 3,948,582 10.5% Pilgrim Baxter & Associates, Ltd.(3) 1255 Drummers Lane, Suite 300 Wayne, PA 19087-1590..................... 2,510,200 6.7% DIRECTORS AND NAMED EXECUTIVE OFFICERS: Silas K.F. Chou.......................... --- --- Thomas J. Hilfiger....................... 5,000 * Joel J. Horowitz......................... 5,000 * Benjamin M.T. Ng......................... 151,070(4) * Lawrence S. Stroll....................... --- --- Ronald K.Y. Chao......................... 2,200(5) * Lester M.Y. Ma........................... 2,200(5) * Joseph M. Adamko......................... 3,600(6) * Clinton V. Silver........................ 4,200(5) * Simon Murray............................. --- --- All directors and executive officers as a group (12 persons)..................... 174,270 * ________ * Less than 1%. (1) Shares outstanding includes the right to acquire beneficial ownership of 450,930 Ordinary Shares pursuant to currently exercisable stock options under Company stock option plans. For purposes of this table, "currently exercisable" stock options include options becoming vested and exercisable within 60 days from June 2, 1997. (2) Information based on Amendment to Schedule 13G dated February 10, 1997 filed with the Securities and Exchange Commission (the "SEC") by Provident Investment Counsel Inc. ("Provident"). According to the Schedule 13G, 30 Provident, an investment adviser, has sole dispositive power with respect to all of the shares and sole voting power over 3,166,730 of the shares. Provident has no power to vote or direct the voting of 781,852 of the shares. (3) Information based on Amendment to Schedule 13G dated February 14, 1997 filed with the SEC by Pilgrim Baxter & Associates, Ltd. ("Pilgrim"). According to the Schedule 13G, Pilgrim, an investment adviser, has sole dispositive power and shared voting power over all of the shares. (4) Issuable upon the exercise of currently exercisable stock options under the Plans. (5) Issuable upon the exercise of currently exercisable stock options under the Directors Option Plan. (6) Includes 2,200 Ordinary Shares issuable upon the exercise of currently exercisable stock options under the Directors Option Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain relationships and transactions between the Company and certain directors and officers of the Company and certain of their affiliates are described below. Effective February 1, 1997, the Company entered into a licensing agreement with Pepe to distribute the Company's men's and boys' sportswear (excluding jeanswear and jeans related apparel) throughout the European market. Under this agreement, the licensee pays THLI a royalty based on a percentage of the value of licensed products sold by Pepe. Except with the approval of THLI, all products sold by or through Pepe must be purchased through THEH or TH USA pursuant to buying agency agreements. Under these agreements, THEH and TH USA are paid a buying agency commission based on a percentage of the cost of products sourced through them. The distribution of products under this arrangement is expected to begin in Fall 1997. Effective June 30, 1996, the Company's joint venture arrangement with Tommy Hilfiger Japan Co., Ltd. ("TH Japan") covering the Company's Japanese operations expired. Effective July 1, 1996, the Company entered into an exclusive license agreement for Japan with Novel-ITC Licensing Limited ("NIL"), a company jointly controlled by Itochu Corporation, which was the 51% owner of TH Japan, and Novel Enterprises. Mr. Stroll indirectly owns a 3.5% equity interest in NIL. Under the license agreement, NIL pays THLI a royalty based on a percentage of the value of licensed products sold by NIL's sublicensee. Novel Enterprises and Messrs. Stroll, Hilfiger and Horowitz indirectly own equity interests of 12.4%, 12.4%, 8.0% and 2.7%, respectively, in such sublicensee. Except with the approval of THLI, all products sold by or through NIL or its sublicensee must be purchased through THEH or TH USA pursuant to buying agency agreements. Under these agreements, THEH and TH USA are paid a buying agency commission based on a percentage of the cost of products sourced through them. Pursuant to this new arrangement, royalties and commissions totaled $2,745,000 during fiscal year 1997. Pursuant to the prior arrangement, royalties and commissions totaled $488,000 during fiscal year 1997, $1,939,000 during fiscal year 1996 and $1,222,000 during fiscal year 1995. Effective October 1, 1995, the Company entered into a license agreement with a related party, AIHL (formerly SEL International Investments Corp.), the parent of Pepe, for the manufacture, sale and distribution of men's, women's and girl's jeanswear and jeans related apparel (which includes women's and girls' casual wear) bearing the TOMMY HILFIGER [R] registered trademarks. The Company received a non-interest bearing note receivable from AIHL in connection with this transaction. The note which has a face value of $5,000,000, and is due on September 30, 2000, is recorded at its present value of $3,735,000. Under this license agreement, the Company receives royalties from subsidiaries of Pepe based upon a percentage of net sales of licensed products. The fiscal 1997 results of operations include $9,963,000 of such royalties. Net sales included in the Consolidated Statements of Operations for these licensed products prior to this agreement were $12,370,000 in fiscal 1996 and $9,104,000 in fiscal 1995. In addition, in 31 connection with this license, a subsidiary of Pepe leases certain space at the Company's U.S. headquarters, for which rent of $214,000 was received by the Company in fiscal 1997. TH USA purchases finished goods in the ordinary course of business from affiliates of Novel Enterprises. Such purchases amounted to $9,852,000 during the fiscal year ended March 31, 1997. In addition, contractors of the Company purchase raw materials in the ordinary course of business from affiliates of Novel Enterprises pursuant to the Company's designation of such sources as acceptable suppliers. Such purchases amounted to $5,811,000 during the fiscal year ended March 31, 1997. THEH has entered into a buying agency agreement with Tommy Hilfiger Canada, Inc., a Canadian licensee, in which Mr. Stroll, a Director of the Company and Chief Executive Officer of THHK, has an indirect beneficial ownership interest. Under this agreement, THEH receives commissions based on a percentage of the cost of goods sourced on behalf of the licensee. THLI receives a royalty from the licensee based upon a percentage of net sales of licensed products. Results of operations include $2,378,000 for the year ended March 31, 1997 for commissions and royalties received from this licensee. The Company sells merchandise in the ordinary course of business to a retail store that is owned by Mr. Hilfiger's sister. Sales to this customer amounted to approximately $435,000 during the year ended March 31, 1997. THEH has a consulting agreement with an affiliate, Fasco International, pursuant to which THEH pays Fasco International $500,000 per year, plus reimbursement of expenses. The agreement has renewable one year terms. The fees and related expenses under this consulting agreement totaled $500,000 during the year ended March 31, 1997. THEH has a consulting agreement with an affiliate of Mr. Stroll. THEH paid fees of $375,000 in fiscal 1997 to such affiliate. Under the terms of an agreement with Novel Enterprises, THHK reimburses Novel Enterprises for certain general and administrative expenses incurred by it on behalf of THHK. Payments made to Novel Enterprises for the year ended March 31, 1997 were $58,000. The law firm of Gursky & Associates, P.C., of which Steven Gursky, Secretary of TH USA and Assistant Secretary of the Company, is a member, provides legal services to the Company and its subsidiaries. Payments to Gursky & Associates, P.C., excluding reimbursement of expenses, were approximately $1,301,000 in fiscal year 1997. Mr. Gursky is a cousin of Mr. Horowitz, an executive officer and Director of the Company. The Audit Committee of the Board of Directors monitors and approves transactions between the Company and its affiliates to seek to provide that such transactions are on terms which are no less favorable as a whole to the Company than could be obtained from unaffiliated parties. The Audit Committee is composed of non-employee directors who are not affiliated with Novel Enterprises, Gadwal, Sportswear Holdings, AIHL or Pepe. 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Index to Financial Statements and Financial Statement Schedules (a) 1. Financial Statements The following consolidated financial statements of the Company are included in Item 8: Consolidated Statements of Operations for the years ended March 31, 1997, 1996 and 1995 Consolidated Balance Sheets as of March 31, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Shareholders' Equity for the years ended March 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules Form 10-K Page ---- Schedule I - Condensed Financial Information of Registrant 39 All other schedules have been omitted because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements or Notes thereto. (a) 3. Exhibits Exhibit Number Description ------- ----------- 3.1 -- Memorandum of Association and Articles of Association of the Company (previously filed as Exhibit 3 with Registration No. 33-48587 and incorporated herein by reference) 3.2 -- Amendment to Articles of Association (previously filed as Exhibit 3 with Registration No. 33-48587 and incorporated herein by reference) 33 3.3 -- Amendment to Memorandum and Articles of Association (previously filed as Exhibit 3.3 with Registration No. 33-88906 and incorporated herein by reference) 4. -- Specimen certificate of the Company's Ordinary Shares, par value $0.01 per share (previously filed as Exhibit 4 with Registration No. 33-48587 and incorporated herein by reference) 10.1 -- Amended and Restated Credit Agreement, dated as of July 11, 1996 (the "Credit Agreement"), among Tommy Hilfiger U.S.A., Inc. and Tommy Hilfiger Retail, Inc., as Borrowers, Tommy Hilfiger Corporation, Tommy Hilfiger (Eastern Hemisphere) Limited, Tommy Hilfiger (HK) Limited, Tommy Hilfiger Licensing, Inc. and Tommy Hilfiger Flagship Stores, Inc., as Guarantors, The Chase Manhattan Bank, as Administrative Agent, and the Lenders named therein (previously filed as Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference) 10.2 -- First Amendment, dated as of October 18, 1996, to the Credit Agreement 10.3 -- Second Amendment, dated as of December 31, 1996, to the Credit Agreement *10.4 -- Stock Option Plans of the Company and its subsidiaries, as amended and restated (previously filed as Exhibits 4.1 and 4.2 with Registration No. 333-20993) *10.5 -- Tommy Hilfiger Corporation Non-Employee Directors Stock Option Plan (previously filed as Exhibit 10.3 with Registration No. 33-88906 and incorporated herein by reference) *10.6 -- Tommy Hilfiger U.S.A., Inc. Supplemental Executive Incentive Compensation Plan (previously filed as Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 and incorporated herein by reference) *10.7 -- Amended and Restated Employment Agreement, dated as of June 30, 1992, between Tommy Hilfiger U.S.A., Inc. and Tommy Hilfiger (previously filed as Exhibit 10.3 with Registration No. 33-48587 and incorporated herein by reference) *10.8 -- Amended and Restated Employment Agreement, dated as of June 30, 1992, between Tommy Hilfiger U.S.A., Inc. and Joel Horowitz (previously filed as Exhibit 10.4 with Registration No. 33-48587 and incorporated herein by reference) *10.9 -- Amendment, dated as of March 8, 1994, to Amended and Restated Employment Agreement, dated as of June 30, 1992, by and between Tommy Hilfiger U.S.A., Inc. and Joel Horowitz (previously filed as Exhibit 7 to the Registrant's Annual Report on Form 20-F for the fiscal year ended March 31, 1994 and incorporated herein by reference) 34 *10.10 -- Consulting Agreement, dated as of June 1, 1995, by and between Tommy Hilfiger U.S.A., Inc. and Jay M. Margolis (previously filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference) *10.11 -- Termination Agreement, dated as of February 6, 1996, by and between Tommy Hilfiger U.S.A., Inc. and Edwin H. Lewis (previously filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) *10.12 -- Termination Agreement, dated as of March 31, 1996, by and among Tommy Hilfiger Retail, Inc., Tommy Hilfiger Corporation and Robert C. Grayson (previously filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) *10.13 -- Stock Repurchase Agreement, dated as of March 31, 1996, by and among Tommy Hilfiger Retail, Inc., Tommy Hilfiger U.S.A., Inc. and Robert C. Grayson (previously filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.14 -- Amended and Restated Factoring Agreement, dated September 16, 1994 (the "Factoring Agreement"), between Tommy Hilfiger U.S.A., Inc. and Century Business Credit Corporation (previously filed as Exhibit 10.11 with Registration No. 33-88906 and incorporated herein by reference) 10.15 -- Letter of amendment, dated April 3, 1995, to the Factoring Agreement (previously filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference) 10.16 -- Letter of amendment, dated April 9, 1996, to the Factoring Agreement (previously filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.17 -- Letter of Amendment, dated April 8, 1997, to the Factoring Agreement 10.18 -- Warehouse Agreement, dated as of April 1, 1997, between Ridge Services, Inc. and Tommy Hilfiger U.S.A., Inc. 10.19 -- Warehouse Agreement, dated as of April 1, 1997, between Ridge Services, Inc. and Tommy Hilfiger Retail, Inc. 10.20 -- Contract of Sale, dated March 6, 1996, between 2539 Realty Associates, as seller, and Tommy Hilfiger U.S.A., Inc., as purchaser, for 25 West 39th Street (previously filed as Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.21 -- Lease, dated April 24, 1995, between Forsgate Industrial Complex L.P. and Tommy Hilfiger U.S.A., Inc. (previously filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference) *10.22 -- Consulting Agreement, dated April 1, 1991, between Polostro Limited and Tommy Hilfiger (Eastern Hemisphere) Limited (previously filed as Exhibit 10.13 with Registration No. 33-48587 and incorporated herein by reference) *10.23 -- Amendment, dated as of April 1, 1993, to Consulting Agreement, dated April 1, 1991, between Polostro Limited and Tommy Hilfiger (Eastern 35 Hemisphere) Limited (previously filed as Exhibit 18 to the Registrant's Annual Report on Form 20-F for the fiscal year ended March 31, 1994 and incorporated herein by reference) *10.24 -- Consulting Agreement, dated April 1, 1996, between Fasco International, Inc. and Tommy Hilfiger (Eastern Hemisphere) Limited (previously filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.25 -- Trademark Agreement, dated June 30, 1992, between Tommy J. Hilfiger and Tommy Hilfiger, Inc. (previously filed as Exhibit 10.15 with Registration No. 33-48587 and incorporated herein by reference) 10.26 -- United States License Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc. and AIHL Investment Group Limited (formerly SEL International Investments Corp.) (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10(d) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 and incorporated herein by reference) 10.27 -- International License Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc. and AIHL Investment Group Limited (formerly SEL International Investments Corp.) (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10(e) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 and incorporated herein by reference) 10.28 -- First Amendment, dated June 3, 1996, to United States License Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc. and AIHL Investment Group Limited (formerly SEL International Investments Corp.) (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10.29 to Registrant's Annual Report on Form 10-K/A No. 1 for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.29 -- First Amendment, dated June 3, 1996, to International License Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc. and AIHL Investment Group Limited (formerly SEL International Investments Corp.) (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10.30 to Registrant's Annual Report on Form 10-K/A No. 1 for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.30 -- License Agreement, dated June 24, 1996, between Tommy Hilfiger Licensing, Inc. and Novel-ITC Licensing Limited (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference) 36 10.31 -- License Agreement, dated as of February 1, 1997, between Tommy Hilfiger Licensing, Inc. and Pepe Jeans London Corporation (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted and are the subject of a request made to the Commission for confidential treatment) 11. -- Statement re: Computation of Per Share Earnings 21. -- Subsidiaries of the Company 23. -- Consent of Price Waterhouse LLP 24. -- Powers of Attorney 27. -- Financial Data Schedule ________ * Management contract or compensatory plan or arrangement. (b) 1. Reports on Form 8-K The Company did not file any Current Reports on Form 8-K during the three months ended March 31, 1997. 37 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOMMY HILFIGER CORPORATION /s/ Benjamin M.T. Ng Benjamin M.T. Ng Executive Vice President-Corporate Finance June 27, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. * Chairman of the Board June 27, 1997 (Silas K.F. Chou) * Director and Honorary Chairman June 27, 1997 (Thomas J. Hilfiger) * (Joel J. Horowitz) Director, Chief Executive Officer June 27, 1997 and President (principal executive officer) * Director, Executive Vice President- June 27, 1997 (Benjamin M.T. Ng) Corporate Finance and Assistant Secretary (principal financial officer) * Director June 27, 1997 (Lawrence S. Stroll) * Director June 27, 1997 (Ronald K.Y. Chou) * Director June 27, 1997 (Lester M.Y. Ma) * Director June 27, 1997 (Joseph Adamko) * Director June 27, 1997 (Clinton V. Silver) Director June 27, 1997 (Simon Murray) * Assistant Treasurer (principal June 27, 1997 (Steven A. Sorrillo) accounting officer) */s/ Benjamin M.T. Ng Benjamin M.T. Ng (Attorney-in-Fact) 38 SCHEDULE I TOMMY HILFIGER CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS 1997 1996 1995 ---- ---- ---- Equity in income of subsidiaries...... $131,248 $92,400 $63,457 Income before income taxes............ 131,248 92,400 63,457 Provision for income taxes............ 44,866 30,900 22,742 -------- ------- ------- Net income............................ $86,382 $61,500 $40,715 ======== ======= ======= NOTE 1 Registrant is a British Virgin Islands holding company formed in June 1992 in connection with the Company's reorganization. See Notes 1(a) and 1(b) to the Consolidated Financial Statements. NOTE 2 Certain provisions of Tommy Hilfiger U.S.A., Inc.'s credit facility with its commercial banks restrict the distribution of income and assets of the Company. See Note 6 to the Consolidated Financial Statements. 39 SCHEDULE I (CONTINUED) TOMMY HILFIGER CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS (IN THOUSANDS)
March 31, --------- 1997 1996 ---- ---- Investment in subsidiaries..................... $397,464 $301,338 -------- -------- Total Assets............................... $397,464 $301,338 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Preference shares, $0.01 par value-shares authorized 5,000,000; none issued................................ Common shares, $0.01 par value-shares authorized 50,000,000; issued and outstanding 37,249,529 and 36,879,924, respectively............... $372 $369 Capital in excess of par value........................ 165,032 155,294 Retained earnings..................................... 232,015 145,633 Cumulative translation adjustment..................... 45 42 -------- -------- Total shareholders' equity........................ 397,464 301,338 -------- -------- Total Liabilities and Shareholders' Equity.... $397,464 $301,338 ======== ========
40 SCHEDULE I (continued) TOMMY HILFIGER CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For the Years Ended March 31, ----------------------------- 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income.......................................... $131,248 $92,400 $63,457 Adjustments to reconcile net income cash from operating activities: Net equity in income of subsidiaries.......... (131,248) ($92,400) (63,457) -------- -------- -------- Net cash provided by operating activities..... -- -- -- Cash flows from investing activities: Investment in Tommy Hilfiger (Eastern Hemisphere) Limited Other .............................................. -- -- -- -------- -------- -------- Net cash used in investing activities............ -- -- -- -------- -------- -------- Cash flows from financing activities: Net proceeds from public offering of ordinary shares... -- -- -- -------- -------- -------- Net cash provided by financing activities........ -- -- -- -------- -------- -------- Net increase in cash................................... -- -- -- Cash at beginning of year.............................. -- -- -- -------- -------- -------- Cash at end of year.................................... $ -- $ -- $ -- ======== ======== ========
41 EXHIBIT INDEX Exhibit Number Description ------- ----------- 3.1 -- Memorandum of Association and Articles of Association of the Company (previously filed as Exhibit 3 with Registration No. 33-48587 and incorporated herein by reference) 3.2 -- Amendment to Articles of Association (previously filed as Exhibit 3 with Registration No. 33-48587 and incorporated herein by reference) 3.3 -- Amendment to Memorandum and Articles of Association (previously filed as Exhibit 3.3 with Registration No. 33-88906 and incorporated herein by reference) 4. -- Specimen certificate of the Company's Ordinary Shares, par value $0.01 per share (previously filed as Exhibit 4 with Registration No. 33-48587 and incorporated herein by reference) 10.1 -- Amended and Restated Credit Agreement, dated as of July 11, 1996 (the "Credit Agreement"), among Tommy Hilfiger U.S.A., Inc. and Tommy Hilfiger Retail, Inc., as Borrowers, Tommy Hilfiger Corporation, Tommy Hilfiger (Eastern Hemisphere) Limited, Tommy Hilfiger (HK) Limited, Tommy Hilfiger Licensing, Inc. and Tommy Hilfiger Flagship Stores, Inc., as Guarantors, The Chase Manhattan Bank, as Administrative Agent, and the Lenders named therein (previously filed as Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference) 10.2 -- First Amendment, dated as of October 18, 1996, to the Credit Agreement 10.3 -- Second Amendment, dated as of December 31, 1996, to the Credit Agreement *10.4 -- Stock Option Plans of the Company and its subsidiaries, as amended and restated (previously filed as Exhibits 4.1 and 4.2 with Registration No. 333-20993) *10.5 -- Tommy Hilfiger Corporation Non-Employee Directors Stock Option Plan (previously filed as Exhibit 10.3 with Registration No. 33-88906 and incorporated herein by reference) *10.6 -- Tommy Hilfiger U.S.A., Inc. Supplemental Executive Incentive Compensation Plan (previously filed as Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 and incorporated herein by reference) *10.7 -- Amended and Restated Employment Agreement, dated as of June 30, 1992, between Tommy Hilfiger U.S.A., Inc. and Tommy Hilfiger (previously filed as Exhibit 10.3 with Registration No. 33-48587 and incorporated herein by reference) *10.8 -- Amended and Restated Employment Agreement, dated as of June 30, 1992, between Tommy Hilfiger U.S.A., Inc. and Joel Horowitz (previously filed as Exhibit 10.4 with Registration No. 33-48587 and incorporated herein by reference) *10.9 -- Amendment, dated as of March 8, 1994, to Amended and Restated Employment Agreement, dated as of June 30, 1992, by and between Tommy Hilfiger U.S.A., Inc. and Joel Horowitz (previously filed as 42 Exhibit 7 to the Registrant's Annual Report on Form 20-F for the fiscal year ended March 31, 1994 and incorporated herein by reference) *10.10 -- Consulting Agreement, dated as of June 1, 1995, by and between Tommy Hilfiger U.S.A., Inc. and Jay M. Margolis (previously filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference) *10.11 -- Termination Agreement, dated as of February 6, 1996, by and between Tommy Hilfiger U.S.A., Inc. and Edwin H. Lewis (previously filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) *10.12 -- Termination Agreement, dated as of March 31, 1996, by and among Tommy Hilfiger Retail, Inc., Tommy Hilfiger Corporation and Robert C. Grayson (previously filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) *10.13 -- Stock Repurchase Agreement, dated as of March 31, 1996, by and among Tommy Hilfiger Retail, Inc., Tommy Hilfiger U.S.A., Inc. and Robert C. Grayson (previously filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.14 -- Amended and Restated Factoring Agreement, dated September 16, 1994 (the "Factoring Agreement"), between Tommy Hilfiger U.S.A., Inc. and Century Business Credit Corporation (previously filed as Exhibit 10.11 with Registration No. 33-88906 and incorporated herein by reference) 10.15 -- Letter of amendment, dated April 3, 1995, to the Factoring Agreement (previously filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference) 10.16 -- Letter of amendment, dated April 9, 1996, to the Factoring Agreement (previously filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.17 -- Letter of Amendment, dated April 8, 1997, to the Factoring Agreement 10.18 -- Warehouse Agreement, dated as of April 1, 1997, between Ridge Services, Inc. and Tommy Hilfiger U.S.A., Inc. 10.19 -- Warehouse Agreement, dated as of April 1, 1997, between Ridge Services, Inc. and Tommy Hilfiger Retail, Inc. 10.20 -- Contract of Sale, dated March 6, 1996, between 2539 Realty Associates, as seller, and Tommy Hilfiger U.S.A., Inc., as purchaser, for 25 West 39th Street (previously filed as Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.21 -- Lease, dated April 24, 1995, between Forsgate Industrial Complex L.P. and Tommy Hilfiger U.S.A., Inc. (previously filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference) *10.22 -- Consulting Agreement, dated April 1, 1991, between Polostro Limited and Tommy Hilfiger (Eastern Hemisphere) Limited (previously filed as Exhibit 10.13 with Registration No. 33-48587 and incorporated herein by reference) *10.23 -- Amendment, dated as of April 1, 1993, to Consulting Agreement, dated 43 April 1, 1991, between Polostro Limited and Tommy Hilfiger (Eastern Hemisphere) Limited (previously filed as Exhibit 18 to the Registrant's Annual Report on Form 20-F for the fiscal year ended March 31, 1994 and incorporated herein by reference) *10.24 -- Consulting Agreement, dated April 1, 1996, between Fasco International, Inc. and Tommy Hilfiger (Eastern Hemisphere) Limited (previously filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.25 -- Trademark Agreement, dated June 30, 1992, between Tommy J. Hilfiger and Tommy Hilfiger, Inc. (previously filed as Exhibit 10.15 with Registration No. 33-48587 and incorporated herein by reference) 10.26 -- United States License Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc. and AIHL Investment Group Limited (formerly SEL International Investments Corp.) (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10(d) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 and incorporated herein by reference) 10.27 -- International License Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc. and AIHL Investment Group Limited (formerly SEL International Investments Corp.) (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10(e) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995 and incorporated herein by reference) 10.28 -- First Amendment, dated June 3, 1996, to United States License Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc. and AIHL Investment Group Limited (formerly SEL International Investments Corp.) (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10.29 to Registrant's Annual Report on Form 10-K/A No. 1 for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.29 -- First Amendment, dated June 3, 1996, to International License Agreement, dated August 28, 1995, between Tommy Hilfiger Licensing, Inc. and AIHL Investment Group Limited (formerly SEL International Investments Corp.) (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10.30 to Registrant's Annual Report on Form 10-K/A No. 1 for the fiscal year ended March 31, 1996 and incorporated herein by reference) 10.30 -- License Agreement, dated June 24, 1996, between Tommy Hilfiger Licensing, Inc. and Novel-ITC Licensing Limited (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted pursuant to an order of the Commission granting confidential treatment) (previously filed as Exhibit 10(a) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period 44 ended June 30, 1996 and incorporated herein by reference) 10.31 -- License Agreement, dated as of February 1, 1997, between Tommy Hilfiger Licensing, Inc. and Pepe Jeans London Corporation (portions of this exhibit, which have been filed separately with the Securities and Exchange Commission, have been omitted and are the subject of a request made to the Commission for confidential treatment) 11. -- Statement re: Computation of Per Share Earnings 21. -- Subsidiaries of the Company 23. -- Consent of Price Waterhouse LLP 24. -- Powers of Attorney 27. -- Financial Data Schedule ________ * Management contract or compensatory plan or arrangement. 45 EX-10 2 EXHIBIT 10.2 EXHIBIT 10.2 FIRST AMENDMENT, dated as of October 18, 1996, to the AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 11, 1996 (the "Credit Agreement"), among TOMMY HILFIGER U.S.A., INC., a Delaware corporation ("THUSA"), TOMMY HILFIGER RETAIL, INC., a Delaware corporation ("Retail"; THUSA and Retail individually, a "Borrower" and collectively, the "Borrowers"), TOMMY HILFIGER CORPORATION, a British Virgin Islands corporation ("THC"), TOMMY HILFIGER (EASTERN HEMISPHERE) LIMITED, a British Virgin Islands corporation ("THEH"), TOMMY HILFIGER (HK) LIMITED, a Hong Kong corporation ("THHK"), TOMMY HILFIGER LICENSING, INC. a Delaware corporation ("THL") and TOMMY HILFIGER FLAGSHIP STORES, INC., a Delaware corporation (formerly known as Tommy Hilfiger Womenswear, Inc.)("THFS"); (THC, THEH, THHK, THL and THFS individually, a "Guarantor" and collectively, the "Guarantors"), the several Lenders parties to the Credit Agreement (the "Lenders") and THE CHASE MANHATTAN BANK (formerly Chemical Bank) as administrative agent (in such capacity, the "Agent") for the Lenders. W I T N E S S E T H WHEREAS, THUSA, Retail and each Guarantor have requested that Subsection 6.3 of the Credit Agreement be amended and the Agent and the Lenders are willing to amend Subsection 6.3 of the Credit Agreement; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, THUSA, Retail, each Guarantor, the Agent and each Lender hereby agree that the Credit Agreement is hereby amended as follows: 1. Definitions. Except as otherwise stated herein, capitalized terms defined in the Credit Agreement and used herein without definition shall have the respective meanings assigned to them in the Credit Agreement. 2. Amendment to Subsection 6.3 of the Credit Agreement. Subsection 6.3 of the Credit Agreement is hereby amended by deleting the portion of such Subsection beginning with the word "except" through the end of such Subsection and substituting the following for such portion, to read in its entirety as follows: "except (a) guarantees by indorsement of instruments for deposit or collection in the ordinary course of business, (b) guarantees by THUSA of the obligations of Retail under leases of real property entered into by Retail in connection with the operation of retail stores and outlet stores, (c) guarantees by THC of obligations of THUSA or Retail, (d) guarantees by a Guarantor (other than a Subsidiary of a Borrower) of the obligations of another Guarantor or a subsidiary of the Unrestricted Subsidiary; provided, further, that such guarantees by THC shall not exceed in the aggregate at any one time outstanding the principal amount of $20,000,000 provided that, with respect to any lease obligation, the principal amount of such obligation shall be deemed to be the then current annual rent payment and (e) guarantees of the Obligations." 3. Conditions of Effectiveness. This First Amendment shall become effective, as of the date hereof, when the Agent shall have received counterparts of this First Amendment executed each Borrower, each Guarantor and the Majority Lenders. 4. Representations and Warranties. To induce the Lenders to enter into this First Amendment, each Borrower and each Guarantor hereby represents and warrants that: (a) It has the power, authority and legal right to make and deliver this First Amendment and to perform its obligations under the Credit Agreement, as amended by this First Amendment, without any notice, consent, approval or authorization not already obtained, and it has taken all necessary action to authorize the same. (b) The making and delivery of this First Amendment, and the performance of the Credit Agreement, as amended by this First Amendment, do not violate any provision of law or any regulation applicable to it, or its charter or by-laws, or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which it is a party or by which it or any of its property may be bound or affected. The Credit Agreement, as amended by this First Amendment, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally. (c) The representations and warranties made by it in the Credit Agreement are true and correct on and as of the date on which this First Amendment becomes effective after giving effect hereto. (d) No Default or Event of Default has occurred and is continuing under the Credit Agreement on and as of the date on which this First Amendment becomes effective. 5. Reference to and Effect on the Credit Agreement and other Loan Documents. (a) On and after the effective date of this First Amendment each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import, and each reference in any Note or any other Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended hereby, the Credit Agreement and each other Loan Document are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this First Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement. 6. Execution in Counterparts. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. 2 7. Governing Law. This First Amendment shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. TOMMY HILFIGER U.S.A., INC. By: /s/ Joel Horowitz Name: Joel Horowitz Title: Chief Executive Officer TOMMY HILFIGER RETAIL, INC. By: /s/ Joel Horowitz Name: Joel Horowitz Title: President TOMMY HILFIGER CORPORATION By: /s/ Joel Horowitz Name: Joel Horowitz Title: President 3 TOMMY HILFIGER (EASTERN HEMISPHERE) LIMITED By: /s/ Steven R. Gursky Name: Steven R. Gursky Title: Assistant Secretary TOMMY HILFIGER (HK) LIMITED By: /s/ Steven R. Gursky Name: Steven R. Gursky Title: Assistant Secretary TOMMY HILFIGER LICENSING, INC. By: /s/ Steven R. Gursky Name: Steven R. Gursky Title: Secretary TOMMY HILFIGER FLAGSHIP STORES, INC. (f/k/a Tommy Hilfiger Womenswear, Inc.) By: /s/ Steven R. Gursky Name: Steven R. Gursky Title: Secretary 4 THE CHASE MANHATTAN BANK (formerly Chemical Bank), individually and as Agent By: /s/ Paul Phelan Paul Phelan Vice President BANK OF NEW YORK By: /s/ George Glasser Name: George Glasser Title: VP FLEET BANK, N.A. (formerly NatWest Bank N.A.) By: /s/ Catherine B. Lawrence Name: Catherine B. Lawrence Title: Vice President ISRAEL DISCOUNT BANK OF NEW YORK By: /s/ Lissa Baum Name: Lissa Baum Title: S.V.P. By: /s/ Antonia Brocato Name: Antonia Brocato Title: A.V.P. CENTURY BUSINESS CREDIT CORPORATION By: /s/ Andrew H. Tananbaum Name: Andrew H. Tananbaum Title: President 5 EX-10 3 EXHIBIT 10.3 EXHIBIT 10.3 SECOND AMENDMENT, dated as of December 31, 1996, to the AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 11, 1996 (as heretofore amended, the "Credit Agreement"), among TOMMY HILFIGER U.S.A., INC., a Delaware corporation ("THUSA"), TOMMY HILFIGER RETAIL, INC., a Delaware corporation ("Retail"; THUSA and Retail individually, a "Borrower" and collectively, the "Borrowers"), TOMMY HILFIGER CORPORATION, a British Virgin Islands corporation ("THC"), TOMMY HILFIGER (EASTERN HEMISPHERE) LIMITED, a British Virgin Islands corporation ("THEH"), TOMMY HILFIGER (HK) LIMITED, a Hong Kong corporation ("THHK"), TOMMY HILFIGER LICENSING, INC. a Delaware corporation ("THL") and TOMMY HILFIGER FLAGSHIP STORES, INC., a Delaware corporation (formerly known as Tommy Hilfiger Womenswear, Inc.) ("THFS"); (THC, THEH, THHK, THL and THFS individually, a "Guarantor" and collectively, the "Guarantors"), the several Lenders parties to the Credit Agreement (the "Lenders") and THE CHASE MANHATTAN BANK (formerly Chemical Bank) as administrative agent (in such capacity, the "Agent") for the Lenders. W I T N E S S E T H WHEREAS, THUSA, Retail and each Guarantor have requested that Subsection 6.4 of the Credit Agreement be amended and the Agent and the Lenders are willing to amend Subsection 6.4 of the Credit Agreement; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, THUSA, Retail, each Guarantor, the Agent and each Lender hereby agree that the Credit Agreement is hereby amended as follows: 1. Definitions. Except as otherwise stated herein, capitalized terms defined in the Credit Agreement and used herein without definition shall have the respective meanings assigned to them in the Credit Agreement. 2. Amendment to Subsection 6.4 of the Credit Agreement. Subsection 6.4 of the Credit Agreement is hereby amended by replacing the numbers $27,500,000 and $75,000,000 therein with the numbers $35,000,000 and $100,000,000, respectively. 3. Conditions of Effectiveness. This Second Amendment shall become effective, as of the date hereof, when the Agent shall have received counterparts of this Second Amendment executed each Borrower, each Guarantor and the Majority Lenders. 4. Representations and Warranties. To induce the Lenders to enter into this Second Amendment, each Borrower and each Guarantor hereby represents and warrants that: (a) It has the power, authority and legal right to make and deliver this Second Amendment and to perform its obligations under the Credit Agreement, as amended by this Second Amendment, without any notice, consent, approval or authorization not already obtained, and it has taken all necessary action to authorize the same. (b) The making and delivery of this Second Amendment, and the performance of the Credit Agreement, as amended by this Second Amendment, do not violate any provision of law or any regulation applicable to it, or its charter or by- laws, or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which it is a party or by which it or any of its property may be bound or affected. The Credit Agreement, as amended by this Second Amendment, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally. (c) The representations and warranties made by it in the Credit Agreement are true and correct on and as of the date on which this Second Amendment becomes effective after giving effect hereto. (d) No Default or Event of Default has occurred and is continuing under the Credit Agreement on and as of the date on which this Second Amendment becomes effective. 5. Reference to and Effect on the Credit Agreement and other Loan Documents. (a) On and after the effective date of this Second Amendment each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import, and each reference in any Note or any other Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended hereby, the Credit Agreement and each other Loan Document are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Second Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement. 6. Execution in Counterparts. This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. 7. Governing Law. This Second Amendment shall be governed by and construed in accordance with the laws of the State of New York. 2 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. TOMMY HILFIGER U.S.A., INC. By: /s/ Joel Horowitz Name: Joel Horowitz Title: Chief Executive Officer TOMMY HILFIGER RETAIL, INC. By: /s/ Joel Horowitz Name: Joel Horowitz Title: President TOMMY HILFIGER CORPORATION By: /s/ Joel Horowitz Name: Joel Horowitz Title: President TOMMY HILFIGER (EASTERN HEMISPHERE) LIMITED By: /s/ Joel Horowitz Name: Joel Horowitz Title: President TOMMY HILFIGER (HK) LIMITED By: /s/ Joel Horowitz Name: Joel Horowitz Title: President TOMMY HILFIGER LICENSING, INC. By: /s/ Joel Horowitz Name: Joel Horowitz Title: President 3 TOMMY HILFIGER FLAGSHIP STORES, INC. (f/k/a Tommy Hilfiger Womenswear, Inc.) By: /s/ Joel Horowitz Name: Joel Horowitz Title: President THE CHASE MANHATTAN BANK (formerly Chemical Bank), individually and as Agent By: /s/ Paul Phelan Paul Phelan Vice President BANK OF NEW YORK By: /s/ Allison J. White Name: Allison J. White Title: Vice President FLEET BANK, N.A. (formerly NatWest Bank N.A.) By: /s/ Bruce Wicks Name: Bruce Wicks Title: Vice President ISRAEL DISCOUNT BANK OF NEW YORK By: /s/ Howard Weinberg Name: Howard Weinberg Title: First Vice President By: /s/ Antonia Brocato Name: Antonia Brocato Title: Assistant Vice President 4 CENTURY BUSINESS CREDIT CORPORATION By: /s/ Andrew H. Tananbaum Name: Andrew H. Tananbaum Title: President PNC BANK, NATIONAL ASSOCIATION By: /s/ Michael Nardo Name: Michael Nardo Title: Vice President SUMMIT BANK By: /s/ Lawrence F. Zema Name: Lawrence F. Zema Title: Vice President & Regional Manager Large Corporate Group Summit Bank 5 EX-10 4 EXHIBIT 10.17 EXHIBIT 10.17 CENTURY BUSINESS CREDIT CORPORATION 119 West 40th Street, New York, N.Y. 10018-2566 (212) 703-3500 - Fax (212) 703-3520/3590/3639 April 8, 1997 Mr. Joel Newman Tommy Hilfiger U.S.A., Inc. 25 West 39th Street New York, NY 10018 RE: FACTORING AGREEMENT Gentlemen: Reference is hereby made to the Factoring Agreement between us dated September 16, 1994, as amended. This letter will confirm the terms of a further amendment of such Factoring Agreement as follows: A. Paragraph 7 is amended to read in its entirety as follows: "For your services hereunder with respect to our sales for each year beginning, April 1, 1997, you shall receive a commission equal to thirty-five one hundredths of one percent (.35%) of the net face value amount of each credit approved Receivable less selling discounts which shall be chargeable to our account with you on the last day of each month. B. Paragraph 13 is amended to substitute "2001" for "2000". C. Except as expressly specified provided herein, all of the representations, warranties, terms, covenants and conditions of the Factoring Agreement as previously and hereby amended shall remain in full force and ef- fect. The amendments set forth herein shall be lim- ited precisely as set forth herein and shall not be deemed as amendment of, consent to or modification of any other term of provision of the Factoring Agree- ment. Please confirm you agreement to the foregoing, where indicated below. Very truly yours, CENTURY BUSINESS CREDIT CORPORATION /s/ David L. Finkelstein David L. Finkelstein Senior Executive Vice President Accepted and Agreed to: New York, NY April 8, 1997 TOMMY HILFIGER U.S.A., INC. By: /s/ Joel H. Newman Title: Exec. VP Fin. & Oper. EX-10 5 EXHIBIT 10.18 EXHIBIT 10.18 AGREEMENT AGREEMENT made as of the 1st day of April, 1997, by and between RIDGE SERVICES INC. (hereinafter "Ridge"), whose address is 112 Truman Drive, Edison, New Jersey 08818 and TOMMY HILFIGER U.S.A., INC. (hereinafter "THUSA"), whose address is 18 Thatcher Road, Dayton, New Jersey 08810. WHEREAS, Ridge is in the business of providing all attendant "Pick & Pack" services incidental to the movement of goods within and without its storage facilities, and WHEREAS, THUSA desires to have Ridge provide "Pick & Pack" services at THUSA's warehouse facility at 18 Thatcher Road, Dayton, New Jersey 08810 (the "Warehouse"). NOW, THEREFORE, in consideration of the mutual covenants herein contained, THUSA and Ridge agree as follows: 1. Term. This Agreement shall commence as of April 1, 1997 and shall continue for a period of six (6) months to September 30, 1997 (the "Term"). The Term shall be automatically renewed from month to month thereafter unless terminated by either party on sixty (60) days written notice to the other. 2. Charges. For an annual throughput of up to 32,000,000 units, the charges (the "Charges") for the Services described in Paragraph 3 below shall be as follows: (a) $0.125 per unit - Inbound (b) $0.14 per unit - Outbound (c) $12.75 labor rate per hour for Excluded Services (d) $0.06 per unit for transfers Overtime may only be charged to THUSA if the same has been specifically authorized by THUSA in writing in each instance. THUSA will not pay for any overtime occasioned as a result of Ridge's inefficiencies. THUSA will pay for the excess cost only of overtime above Ridge's regular rate (currently $6.38/hour). 3. Scope of Services. In consideration for the Charges paid by THUSA to Ridge, Ridge agrees to promptly provide the following services (the "Services"): (a) All inbound and outbound handling (including scanning) (b) Receiving, sorting, and shelving merchandise into stock area (c) Selection by order format (d) 100% verification process (e) UPS processing (f) Expediting of daily transactions by clerical personnel. (g) Providing cartons and tape (h) Outbound trucking to consolidators (i) Adhering to cleanliness standards maintained by THUSA, including proper and timely disposal of waste and restacking and resorting of merchandise. 4. Excluded Services. The following shall specifically not be included in the Services: (a) Cycle Counting (b) Affixing Bar Codes (c) Physical Inventories (d) All space costs (e) Outside storage (if required) (f) Providing pallets 5. Ridge Personnel. Ridge shall employ sufficient personnel in order to provide a monthly average of the man-hours described below in the performance of the Services: JOB DESCRIPTION NO. OF HOURS PER DAY Managers 8 Laborers 1400 Machine Operator/Cycle Counter 8 Supervisors 136 Clericals 24 The hours described above shall be organized by Ridge to provide the Services to THUSA in light of the varied ebb and flow of merchandise receipts and shipping. Ridge shall employ adequate staffing from 8:00 A.M. - 8:00 P.M. on weekdays and on Saturdays as needed. Staffing in satisfaction of the requirements of this paragraph shall not require the payment of any overtime charges by THUSA. Ridge shall provide THUSA with a monthly report of man-hours to be provided hereunder. Such report shall be delivered to THUSA within ten (10) days of the end of each month. THUSA shall have the right to audit Ridge's records of such man-hours. 6. Quality Assurance. THUSA shall have the right to issue and periodically update quality assurance, performance standards and rules and regulations for Ridge's performance of this Agreement so as to ensure customer satisfaction and efficient and appropriate operation of the Warehouse. 7. Independent Contractor. Nothing in this Agreement is intended nor shall be construed to create any relationship between THUSA and Ridge other than that of independent contractors and this Agreement shall not be deemed to constitute THUSA and Ridge as partners, joint venturers or joint employers. 8. Employees. Neither Ridge nor the individuals it engages to perform the services required -2- of Ridge hereunder are employees of THUSA; all such individuals shall for all purposes be Ridge's employees, and Ridge shall have the sole authority to hire, fire, direct, control, discipline, reward, evaluate, schedule, supervise, promote, suspend and/or terminate Ridge's employees. In addition, Ridge shall be solely responsible for the acts of its employees, whether of commission or omission, and for payment of all salaries, withholding tax deductions, benefits, unemployment compensation, workers compensation and all other charges and liabilities arising out of the employer-employee relationship, including, without limitation, liabilities under any civil rights laws, wage and hour laws, equal employment opportunity acts, any union, welfare and pension contributions and the expense of prosecuting, defending or complying with the award in any labor arbitration proceeding. 9. Labor Disturbance. If during the term of this Agreement there shall occur any labor disturbance involving Ridge's employees, whether or not such disturbance is within Ridge's control, which involves picketing of or handbilling at any THUSA facility or a strike or boycott against THUSA or any of its facilities, THUSA may give Ridge written notice of objection to the labor disturbance, and if such disturbance is not wholly discontinued within forty-eight (48) hours after Ridge's receipt of such notice, then, at THUSA's sole option, this Agreement and Ridge's rights hereunder shall terminate immediately upon the giving of such notice of termination, but THUSA shall remain liable for any amounts due to Ridge with respect to work performed prior to such termination. 10. Notice of Loss. Ridge shall give THUSA immediate notice of any loss or shortage of THUSA merchandise. Ridge agrees to cooperate with all respects with any investigation conducted by THUSA, its agents or insurance company arising from any losses. 11. Insurance. Ridge shall, at its cost, keep in force the following insurance: (a) public liability insurance for the mutual benefit of Ridge and THUSA against claims for bodily injury, death or property damage occurring in connection with the performance of Ridge's obligations hereunder with limits of not less than $10,000,000/$10,000,000/$1,000,000. (b) such employment and other insurance in such reasonable amounts against other insurable hazards which at the time are reasonably available and commonly insured against in connection with the performance of Ridge's obligations hereunder. (c) all insurance shall name THUSA or its affiliate as the case may be, as an additional insured. 12. Indemnification. (a) Ridge will indemnify THUSA and/or its affiliate for any losses incurred in connection with the performance of Ridge's obligations. (b) Ridge shall be liable to THUSA for merchandise shortages and damage to the Warehouse resulting from the acts or negligence of Ridge and its employees. -3- 13. Termination. (a) Should Ridge be adjudicated bankrupt, insolvent or placed in receivership, or should proceedings be instituted by or against Ridge for bankruptcy, insolvency, or receivership, agreement of composition or assignment for the benefit of creditors, or if this Agreement should pass to another by virtue of any court proceedings, writ of execution, levy, sale or by operation of law, THUSA may, if it so elects, at any time thereafter, terminate this Agreement upon giving Ridge thirty (30) days notice in writing of its intention to terminate. (b) In the event of a default hereunder by Ridge, THUSA may terminate this Agreement on fifteen (15) days written notice to Ridge. During said fifteen (15) days, Ridge shall be permitted to cure the default. 14. Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and their successors and assigns. 15. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and this Agreement may not be amended or modified, except in a writing signed by both parties hereto. 16. Non-Waiver. The failure of either party to enforce at any time any term, provision or condition of this Agreement, or to exercise any right or option herein, shall in no way operate as a waiver thereof, nor shall any single or partial exercise preclude any other right or option herein; and no waiver whatsoever shall be valid unless in writing, signed by the waiving party, and only to the extent herein set forth. 17. Assignment. (a) This Agreement is personal in nature, and Ridge may not and shall not sell, transfer, lease, sublicense or assign this Agreement or its rights and interest hereunder, or any part hereof, by operation of law or otherwise, without the prior written consent of THUSA, which consent may be withheld by THUSA in its sole and absolute discretion, except that Ridge shall have the right, upon written notice to THUSA, to assign this Agreement to a corporation, subsidiary or affiliate under the same direction and control as Ridge; provided, however, that in such event Ridge agrees to guarantee the performance and obligations of such corporation, subsidiary or affiliate under this Agreement. (b) A sale or other transfer of all or substantially all of the assets of Ridge or a change in the control of Ridge shall be deemed an assignment of Ridge's rights and interests under this Agreement to which the terms and conditions of Paragraph 16(a) above shall apply. (c) Any transfer, by operation of law or otherwise, of Ridge's interest in this Agreement (in whole or in part) or an interest in Ridge (whether stock, partnership, interest or otherwise) shall be deemed an assignment of Ridge's rights and interest under this Agreement to which the terms and -4- conditions of Paragraph 17(a) above shall apply. The issuance of shares of stock to other than the existing shareholders is deemed to be a transfer of that stock for the purposes of this paragraph. 18. Severability. If any provision or any portion of any provision of this Agreement shall be construed to be illegal, invalid, or unenforceable, such shall be deemed stricken and deleted from this Agreement to the same extent and effect as if never incorporated herein, but all other provisions of this Agreement and any remaining portion of any provision which is illegal, invalid or unenforceable in part shall continue in full force and effect. 19. Notices. All reports, approvals and notices required or permitted to be given under this Agreement shall, unless specifically provided otherwise in this Agreement, be deemed to have been given if personally delivered or if mailed by certified or registered mail, at the above indicated addresses, with a copy, if to THUSA to: Steven R. Gursky, Esq., Gursky & Associates, P.C., 21 East 40th Street, 15th Floor, New York, New York 10016. The parties may change their address for receipt of notices at any time upon notice to the other party. 20. Headings. The headings of the Paragraphs of this Agreement are for convenience only and in no way limit or affect the terms or conditions of this Agreement. 21. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 22. Construction. This Agreement shall be interpreted and construed in accordance with the laws of the State of New Jersey with the same force and effect as if fully executed and to be performed therein. IN WITNESS WHEREOF, the parties have executed this Agreement. TOMMY HILFIGER U.S.A., INC. By: /s/ Joel Newman Title: Exec VP Operations & Finance RIDGE SERVICES, INC. By: /s/ Dom A. Telesco Title: Chairman/CEO GUARANTY GUARANTY given by TANDEM DISTRIBUTION SERVICES, INC. ("Tandem") to TOMMY HILFIGER U.S.A., INC. ("THUSA") to induce THUSA to enter into a warehouse agreement (the "Warehouse Agreement") with Tandem's subsidiary RIDGE SERVICES, INC. ("Ridge"). In consideration of the foregoing, Tandem hereby guarantees to THUSA the prompt performance of all of Ridge's duties and obligations under the Warehouse Agreement as if Tandem executed said agreement in Ridge's stead. All of Tandem's liability hereunder shall mature immediately without notice or demand. Tandem shall be bound by any amendments or modifications which are agreed to by Ridge. Dated: As of April 1, 1997 TANDEM DISTRIBUTION SERVICES, INC. By: /s/ Dom A. Telesco Dom A. Telesco Chairman/CEO EX-10 6 EXHIBIT 10.19 EXHIBIT 10.19 AGREEMENT AGREEMENT made as of the 1st day of April, 1997, by and between RIDGE SERVICES INC. (hereinafter "Ridge"), whose address is 112 Truman Drive, Edison, New Jersey 08818 and TOMMY HILFIGER RETAIL, INC. (hereinafter "THR"), whose address is 112 Truman Drive, Edison, New Jersey 08818. WHEREAS, Ridge is in the business of providing all attendant "Pick & Pack" services incidental to the movement of goods within and without its storage facilities, and WHEREAS, THR desires to have Ridge provide "Pick & Pack" services at THR's warehouse facility at 112 Truman Drive, Edison, New Jersey 08818 (the "Warehouse"). NOW, THEREFORE, in consideration of the mutual covenants herein contained, THR and Ridge agree as follows: 1. Term. This Agreement shall commence as of April 1, 1997 and shall continue for a period of six (6) months to September 30, 1997 (the "Term"). The Term shall be automatically renewed from month to month thereafter unless terminated by either party on sixty (60) days written notice to the other. 2. Charges. For an annual throughput of up to 9,000,000 units, the charges (the "Charges") for the Services described in Paragraph 3 below shall be as follows: (a) $0.13 per unit - Inbound (b) $0.13 per unit - Outbound (c) $12.75 labor rate per hour for Excluded Services (d) $0.06 per unit for transfers Overtime may only be charged to THR if the same has been specifically authorized by THR in writing in each instance. THR will not pay for any overtime occasioned as a result of Ridge's inefficiencies. THR will pay for the excess cost only of overtime above Ridge's regular rate (currently $6.38/hour). 3. Scope of Services. In consideration for the Charges paid by THR to Ridge, Ridge agrees to promptly provide the following services (the "Services"): (a) All inbound and outbound handling (including scanning) (b) Receiving, sorting, and shelving merchandise into stock area (c) Selection by order format (d) 100% verification process (e) UPS processing (f) Expediting of daily transactions by clerical personnel. (g) Providing cartons and tape (h) Outbound trucking to consolidators (I) Adhering to cleanliness standards maintained by THR, including proper and timely disposal of waste and restacking and resorting of merchandise. 4. Excluded Services. The following shall specifically not be included in the Services: (a) Cycle Counting (b) Affixing Bar Codes (c) Physical Inventories (d) All space costs (e) Outside storage (if required) (f) Providing pallets 5. Ridge Personnel. Ridge shall employ sufficient personnel in order to provide a monthly average of the man-hours described below in the performance of the Services: JOB DESCRIPTION NO. OF HOURS PER DAY Laborers 592 Supervisors 16 Clericals 8 The hours described above shall be organized by Ridge to provide the Services to THR in light of the varied ebb and flow of merchandise receipts and shipping. Ridge shall employ adequate staffing from 8:00 A.M. - 8:00 P.M. on weekdays and on Saturdays as needed. Staffing in satisfaction of the requirements of this paragraph shall not require the payment of any overtime charges by THR. Ridge shall provide THR with a monthly report of man-hours to be provided hereunder. Such report shall be delivered to THR within ten (10) days of the end of each month. THR shall have the right to audit Ridge's records of such man-hours. 6. Quality Assurance. THR shall have the right to issue and periodically update quality assurance, performance standards and rules and regulations for Ridge's performance of this Agreement so as to ensure customer satisfaction and efficient and appropriate operation of the Warehouse. 7. Independent Contractor. Nothing in this Agreement is intended nor shall be construed to create any relationship between THR and Ridge other than that of independent contractors and this Agreement shall not be deemed to constitute THR and Ridge as partners, joint venturers or joint employers. 8. Employees. Neither Ridge nor the individuals it engages to perform the services required of Ridge hereunder are employees of THR; all such individuals shall for all purposes be Ridge's employees, and Ridge shall have the sole authority to hire, fire, direct, control, discipline, reward, -2- evaluate, schedule, supervise, promote, suspend and/or terminate Ridge's employees. In addition, Ridge shall be solely responsible for the acts of its employees, whether of commission or omission, and for payment of all salaries, withholding tax deductions, benefits, unemployment compensation, workers compensation and all other charges and liabilities arising out of the employer-employee relationship, including, without limitation, liabilities under any civil rights laws, wage and hour laws, equal employment opportunity acts, any union, welfare and pension contributions and the expense of prosecuting, defending or complying with the award in any labor arbitration proceeding. 9. Labor Disturbance. If during the term of this Agreement there shall occur any labor disturbance involving Ridge's employees, whether or not such disturbance is within Ridge's control, which involves picketing of or handbilling at any THR facility or a strike or boycott against THR or any of its facilities, THR may give Ridge written notice of objection to the labor disturbance, and if such disturbance is not wholly discontinued within forty-eight (48) hours after Ridge's receipt of such notice, then, at THR's sole option, this Agreement and Ridge's rights hereunder shall terminate immediately upon the giving of such notice of termination, but THR shall remain liable for any amounts due to Ridge with respect to work performed prior to such termination. 10. Notice of Loss. Ridge shall give THR immediate notice of any loss or shortage of THR merchandise. Ridge agrees to cooperate with all respects with any investigation conducted by THR, its agents or insurance company arising from any losses. 11. Insurance. Ridge shall, at its cost, keep in force the following insurance: (a) public liability insurance for the mutual benefit of Ridge and THR against claims for bodily injury, death or property damage occurring in connection with the performance of Ridge's obligations hereunder with limits of not less than $10,000,000/$10,000,000/$1,000,000. (b) such employment and other insurance in such reasonable amounts against other insurable hazards which at the time are reasonably available and commonly insured against in connection with the performance of Ridge's obligations hereunder. (c) all insurance shall name THR or its affiliate as the case may be, as an additional insured. 12. Indemnification. (a) Ridge will indemnify THR and/or its affiliate for any losses incurred in connection with the performance of Ridge's obligations. (b) Ridge shall be liable to THR for merchandise shortages and damage to the Warehouse resulting from the acts or negligence of Ridge and its employees. -3- 13. Termination. (a) Should Ridge be adjudicated bankrupt, insolvent or placed in receivership, or should proceedings be instituted by or against Ridge for bankruptcy, insolvency, or receivership, agreement of composition or assignment for the benefit of creditors, or if this Agreement should pass to another by virtue of any court proceedings, writ of execution, levy, sale or by operation of law, THR may, if it so elects, at any time thereafter, terminate this Agreement upon giving Ridge thirty (30) days notice in writing of its intention to terminate. (b) In the event of a default hereunder by Ridge, THR may terminate this Agreement on fifteen (15) days written notice to Ridge. During said fifteen (15) days, Ridge shall be permitted to cure the default. 14. Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and their successors and assigns. 15. Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and this Agreement may not be amended or modified, except in a writing signed by both parties hereto. 16. Non-Waiver. The failure of either party to enforce at any time any term, provision or condition of this Agreement, or to exercise any right or option herein, shall in no way operate as a waiver thereof, nor shall any single or partial exercise preclude any other right or option herein; and no waiver whatsoever shall be valid unless in writing, signed by the waiving party, and only to the extent herein set forth. 17. Assignment. (a) This Agreement is personal in nature, and Ridge may not and shall not sell, transfer, lease, sublicense or assign this Agreement or its rights and interest hereunder, or any part hereof, by operation of law or otherwise, without the prior written consent of THR, which consent may be withheld by THR in its sole and absolute discretion, except that Ridge shall have the right, upon written notice to THR, to assign this Agreement to a corporation, subsidiary or affiliate under the same direction and control as Ridge; provided, however, that in such event Ridge agrees to guarantee the performance and obligations of such corporation, subsidiary or affiliate under this Agreement. (b) A sale or other transfer of all or substantially all of the assets of Ridge or a change in the control of Ridge shall be deemed an assignment of Ridge's rights and interests under this Agreement to which the terms and conditions of Paragraph 16(a) above shall apply. (c) Any transfer, by operation of law or otherwise, of Ridge's interest in this Agreement (in whole or in part) or an interest in Ridge (whether stock, partnership, interest or otherwise) shall be deemed an assignment of Ridge's rights and interest under this Agreement to which the terms and -4- conditions of Paragraph 17(a) above shall apply. The issuance of shares of stock to other than the existing shareholders is deemed to be a transfer of that stock for the purposes of this paragraph. 18. Severability. If any provision or any portion of any provision of this Agreement shall be construed to be illegal, invalid, or unenforceable, such shall be deemed stricken and deleted from this Agreement to the same extent and effect as if never incorporated herein, but all other provisions of this Agreement and any remaining portion of any provision which is illegal, invalid or unenforceable in part shall continue in full force and effect. 19. Notices. All reports, approvals and notices required or permitted to be given under this Agreement shall, unless specifically provided otherwise in this Agreement, be deemed to have been given if personally delivered or if mailed by certified or registered mail, at the above indicated addresses, with a copy, if to THR to: Steven R. Gursky, Esq., Gursky & Associates, P.C., 21 East 40th Street, 15th Floor, New York, New York 10016. The parties may change their address for receipt of notices at any time upon notice to the other party. 20. Headings. The headings of the Paragraphs of this Agreement are for convenience only and in no way limit or affect the terms or conditions of this Agreement. 21. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 22. Construction. This Agreement shall be interpreted and construed in accordance with the laws of the State of New Jersey with the same force and effect as if fully executed and to be performed therein. IN WITNESS WHEREOF, the parties have executed this Agreement. TOMMY HILFIGER RETAIL, INC. By: /s/ Joel Newman Title: Vice President RIDGE SERVICES, INC. By: /s/ Dom A. Telesco Title: Chairman/CEO -5- GUARANTY GUARANTY given by TANDEM DISTRIBUTION SERVICES, INC. ("Tandem") to TOMMY HILFIGER RETAIL, INC. ("THR") to induce THR to enter into a warehouse agreement (the "Warehouse Agreement") with Tandem's subsidiary RIDGE SERVICES, INC. ("Ridge"). In consideration of the foregoing, Tandem hereby guarantees to THR the prompt performance of all of Ridge's duties and obligations under the Warehouse Agreement as if Tandem executed said agreement in Ridge's stead. All of Tandem's liability hereunder shall mature immediately without notice or demand. Tandem shall be bound by any amendments or modifications which are agreed to by Ridge. Dated: As of April 1, 1997 TANDEM DISTRIBUTION SERVICES, INC. By: /s/ Dom A. Telesco Dom A. Telesco Chairman/CEO EX-10 7 EXHIBIT 10.31 EXHIBIT 10.31 LICENSE AGREEMENT BETWEEN TOMMY HILFIGER LICENSING, INC. AND PEPE JEANS LONDON CORPORATION ARTICLE 1. DEFINITIONS...............................................2 1.1 AFFILIATES OF LICENSEE....................................2 1.2 AGREEMENT.................................................3 1.3 ANNUAL PERIOD.............................................3 1.4 CLOSE-OUTS................................................3 1.5 FULL PRICE SALES..........................................3 1.6 GROSS SALES...............................................3 1.7 GUARANTEED MINIMUM ROYALTY................................3 1.8 INDEX.....................................................3 1.9 INVENTORY.................................................3 1.10 INVENTORY SCHEDULE........................................3 1.11 LABELS....................................................3 1.12 LICENSED PRODUCTS.........................................3 1.13 MANUFACTURED PRODUCTS ....................................3 1.14 MINIMUM SALES LEVEL.......................................3 1.15 NET SALES.................................................4 1.16 OFF-PRICE SALES...........................................4 1.17 PERCENTAGE ROYALTY........................................4 1.18 PURCHASED PRODUCTS .......................................4 1.19 SEASONAL COLLECTIONS......................................4 1.20 SECONDS...................................................4 1.21 TERM......................................................4 1.22 TERRITORY.................................................4 1.23 TRADE SECRETS.............................................4 1.24 TRADEMARK.................................................4 ARTICLE 2. GRANT.....................................................4 2.1 LICENSE...................................................4 2.2 RESERVATIONS..............................................5 2.3 TERRITORY.................................................5 2.4 FIRST REFUSAL.............................................5 2.5 EXCLUSIVITY...............................................5 2.6 DEFINITIONAL DISPUTES.....................................6 2.7 BEST EFFORTS..............................................6 2.8 SHOWROOMS AND IN-STORE SHOPS..............................6 2.9 SALES AND DELIVERIES......................................7 2.10 ORGANIZATION..............................................7 2.11 USE OF LICENSED LEGEND....................................7 2.12 PURCHASE OF LICENSED PRODUCTS.............................7 ARTICLE 3. TERM OF THE AGREEMENT.....................................8 3.1 INITIAL TERM..............................................8 3.2 EXTENSION.................................................8 ARTICLE 4. SALES.....................................................8 4.1 SALES/MARKETING AND PRODUCTION PLANS......................8 4.2 MINIMUM SALES LEVELS......................................9 4.3 CERTIFICATION.............................................9 ARTICLE 5. LICENSE FEES..............................................9 5.1 REQUIREMENT OF ROYALTIES..................................9 5.2 GUARANTEED MINIMUM ROYALTY................................9 5.3 ACTUAL ROYALTIES.........................................10 5.4 ROYALTY STATEMENTS.......................................10 5.5 BOOKS AND RECORDS........................................11 5.6 TAXES....................................................11 5.7 UNDERPAYMENTS............................................11 5.8 MANNER OF PAYMENT........................................11 5.9 INTEREST ON LATE PAYMENTS................................11 5.10 NO SET-OFF...............................................12 5.11 PURCHASES BY LICENSOR'S FLAGSHIP STORES..................12 5.12 FINANCIAL STATEMENTS.....................................12 ARTICLE 6. REPRESENTATIONS AND WARRANTIES...........................12 6.1 WARRANTIES AND REPRESENTATIONS OF LICENSOR...............12 6.2 WARRANTIES AND REPRESENTATIONS OF LICENSEE...............14 ARTICLE 7. ADVERTISING..............................................14 7.1 ADVERTISING..............................................14 7.2 ADVERTISING EXPENDITURE..................................15 7.3 APPROVAL OF PACKAGING, LABELING AND ADVERTISING..........15 7.4 USE OF TRADEMARK ON INVOICES, ETC........................15 7.5 LAUNCH...................................................16 ARTICLE 8. QUALITY AND STANDARDS....................................16 8.1 DISTINCTIVENESS AND QUALITY OF THE TRADEMARK.............16 8.2 SHOPS, STORES, RETAIL OUTLETS............................16 8.3 SAMPLES OF MANUFACTURED PRODUCTS.........................17 8.4 NON-CONFORMING PRODUCTS..................................17 8.5 APPROVALS................................................18 8.6 APPROVAL WITHDRAWAL......................................18 8.7 SAMPLES, ARTWORK AND KNOW-HOW............................18 8.8 CONFIDENTIALITY..........................................19 8.9 MANUFACTURE OF LICENSED PRODUCTS BY THIRD PARTIES........19 8.10 MARKING, LABELING AND PACKAGING IN ACCORDANCE WITH APPLICABLE LAWS.....................................20 8.11 DISPOSAL OF SECONDS AND CLOSE-OUTS.......................20 8.12 ASSISTANCE BY LICENSOR...................................21 8.13 MEETINGS.................................................21 8.14 DESIGN RIGHTS............................................21 8.15 PRICING..................................................22 ARTICLE 9. THE TRADEMARK............................................22 9.1 RIGHTS TO THE TRADEMARK..................................22 9.2 PROTECTING THE TRADEMARK.................................22 9.3 COMPLIANCE WITH LEGAL REQUIREMENTS.......................22 9.4 OWNERSHIP OF COPYRIGHT...................................23 9.5 NOTICE OF INFRINGEMENT...................................23 9.6 COUNTERFEIT PROTECTION...................................23 9.7 USE OF OTHER TRADEMARKS..................................23 9.8 USE OF TRADEMARK ON INVOICES, ETC........................24 9.9 MONITORING...............................................24 ARTICLE 10. INSOLVENCY...............................................24 10.1 EFFECT OF PROCEEDING IN BANKRUPTCY, ETC..................24 10.2 RIGHTS, PERSONAL.........................................24 10.3 TRUSTEE IN BANKRUPTCY....................................24 ARTICLE 11. TERMINATION..............................................25 11.1 OTHER RIGHTS UNAFFECTED..................................25 11.2 TERMINATION WITHOUT NOTICE...............................25 11.3 TERMINATION WITH NOTICE..................................26 11.4 EFFECT OF TERMINATION....................................26 11.5 INVENTORY UPON TERMINATION...............................26 11.6 CONTRIBUTION FROM SEL....................................27 11.7 FREEDOM TO LICENSE.......................................27 11.8 EQUITABLE RELIEF.........................................27 11.9 TERMINATION WITHOUT PREJUDICE............................27 11.10 WAIVER...................................................27 ARTICLE 12. RELATIONSHIP BETWEEN THE PARTIES.........................28 12.1 NO AGENCY................................................28 ARTICLE 14. BENEFIT..................................................28 14.1 BENEFIT..................................................28 ARTICLE 15. ENTIRE AGREEMENT; AMENDMENT..............................28 15.1 ENTIRE AGREEMENT; AMENDMENT..............................28 ARTICLE 16. NON-WAIVER...............................................28 16.1 NON-WAIVER...............................................28 ARTICLE 17. ASSIGNMENT...............................................28 17.1 NO ASSIGNMENT WITHOUT CONSENT............................28 17.2 SALE OF ASSETS...........................................29 17.3 SALE OF STOCK/INTEREST...................................29 17.4 ASSIGNMENT BY LICENSOR...................................29 ARTICLE 18. INDEMNIFICATION AND INSURANCE............................29 18.1 INDEMNIFICATION BY LICENSEE..............................29 18.2 NOTICE OF SUIT OR CLAIM..................................30 18.3 INDEMNIFICATION BY LICENSOR..............................30 18.4 INSURANCE................................................30 ARTICLE 19. SEVERABILITY.............................................31 19.1 SEVERABILITY.............................................31 ARTICLE 20. NOTICES..................................................31 20.1 NOTICES..................................................32 ARTICLE 21. SUSPENSION OF OBLIGATIONS................................32 21.1 SUSPENSION OF OBLIGATIONS................................32 ARTICLE 22. EXHIBITS.................................................33 22.1 EXHIBITS.................................................33 ARTICLE 23. OTHER PROVISIONS.........................................33 23.1 HEADINGS.................................................33 23.2 COUNTERPARTS.............................................33 23.3 CONSTRUCTION.............................................33 23.4 JURISDICTION.............................................33 23.5 COMPLIANCE WITH LAWS.....................................33 EXHIBITS EXHIBIT A..................................................TRADEMARKS EXHIBIT B......................................STATEMENT OF ROYALTIES EXHIBIT C........................................SAMPLE APPROVAL FORM EXHIBIT D......................................MANUFACTURER AGREEMENT EXHIBIT E............................................ADVERTISING FORM EXHIBIT F.................................................TERRITORIES EXHIBIT G...............................................CERTIFICATION EXHIBIT 10 (b) LICENSE AGREEMENT AGREEMENT made effective as of the 1st day of February, 1997, by and between TOMMY HILFIGER LICENSING, INC., having an address at 913 N. Market Street, Wilmington, Delaware 19801 (hereinafter referred to as "Licensor") and Pepe Jeans London Corporation, a British Virgin Islands corporation, having its registered address at Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands (hereinafter referred to as "Licensee"). W I T N E S S E T H : WHEREAS, the TOMMY HILFIGER trademarks, as hereinafter defined (collectively the "Trademark"), are unique, extraordinary and have an established, outstanding reputation in connection with certain items of clothing and other products; and WHEREAS, Licensor has the right to enter into this Agreement; and WHEREAS, Licensee recognizes the great value and goodwill associated with the Trademark and that all rights to the Trademark and the associated goodwill belong exclusively to the Licensor and that the Trademark has acquired a secondary meaning to the public; and WHEREAS, Licensee desires to obtain an exclusive right to use the Trademark, on and in connection with the manufacture, sale and distribution of Licensed Products (as hereinafter defined) bearing, incorporating or otherwise utilizing the Trademark in the Territory; and WHEREAS, Licensor has agreed to grant to Licensee such license under and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, the parties hereto, in consideration of the mutual agreements herein contained and promises herein expressed, and for other good consideration acknowledged by each of them to be satisfactory and adequate, do hereby agree as follows: ARTICLE 1. DEFINITIONS Definitions. The following terms shall have the following meanings when used in this Agreement attached hereto: 1.1 AFFILIATES OF LICENSEE shall mean all persons and business entities, whether corporations, partnerships, joint ventures or otherwise, which now or hereafter control, or are owned or controlled, directly or indirectly by Licensee, or are under common control with Licensee. -2- 1.2 AGREEMENT shall mean this agreement. 1.3 ANNUAL PERIOD shall mean each twelve month period commencing on April 1 and ending on March 31, except that the first Annual Period shall be the period commencing on the date hereof and ending on March 31, 1998. 1.4 CLOSE-OUTS shall mean first quality Licensed Products which cannot reasonably be sold to regular customers. 1.5 FULL PRICE SALES shall mean sales of Licensed Products at less than * off of the standard selling price in the then current line sheet, as amended from time to time. 1.6 GROSS SALES shall mean the invoiced amount of Licensed Products shipped by Licensee before any deductions for discounts and returns, insurance and freight. 1.7 GUARANTEED MINIMUM ROYALTY shall mean the minimum royalties payable in each Annual Period as set forth in Article 5.2. 1.8 INDEX shall mean the Consumer Price Index for the United States. If publication of the Index is discontinued, the parties hereto shall accept comparable statistics for the United States as computed and published by an agency or a responsible financial periodical or recognized authority then to be selected by the parties. 1.9 INVENTORY shall mean Licensee's inventory of Licensed Products and of related work in progress. 1.10 INVENTORY SCHEDULE shall mean a complete and accurate schedule of Inventory. 1.11 LABELS shall mean all labels, tags, packaging material, business supplies and advertising and promotional materials and all other forms of identification bearing the Trademark. 1.12 LICENSED PRODUCTS shall mean mens and boys sportswear (excluding jeanswear and jeans related apparel). In addition, Licensed Products shall, to the extent permitted by Licensor from time to time, include accessories and other products which are produced by other licensees of Licensor. 1.13 MANUFACTURED PRODUCTS shall mean Licensed Products which are manufactured by or for Licensee through sources approved by Licensor other than Tommy Hilfiger (Eastern Hemisphere) Limited ("THEH") and Tommy Hilfiger U.S.A., Inc. ("THUSA"). 1.14 MINIMUM SALES LEVEL shall mean the minimum Net Sales of Licensed Products during each Annual Period as set forth in Article 4.2. * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -3- 1.15 NET SALES shall mean the gross sales price of Licensed Products to retailers who are not Affiliates of Licensee, less returns actually allowed and actually received by Licensee, price allowances and customary and usual trade discounts granted. Taxes on Net Sales such as value added taxes or its equivalent shall be deducted and separately listed. No other deductions shall be taken. It is the intention of the parties that royalties will be based on the bona fide wholesale prices at which Licensee sells Licensed Products to independent retailers in arms' length transactions. In the event Licensee shall sell Licensed Products to its Affiliates, royalties shall be calculated on the basis of such a bona fide wholesale price irrespective of Licensee's internal accounting treatment of such sale. Licensee shall identify separately in the statements of operations provided to Licensor pursuant to Article 5.4 hereof, all sales to Affiliates. 1.16 OFF-PRICE SALES shall mean sales at * or more off of the standard selling price in the then current linesheet, as amended from time to time. 1.17 PERCENTAGE ROYALTY shall have the definition given that term in Article 5.3. 1.18 PURCHASED PRODUCTS shall means Licensed Products which are sourced through THEH or THUSA in accordance with Article 2.12(a). 1.19 SEASONAL COLLECTIONS shall mean at least four (4) collections per annum. 1.20 SECONDS shall mean damaged, imperfect, non- first quality or defective goods. 1.21 TERM shall mean the Initial Term as defined Article 3.1 and shall, if not otherwise specifically excluded, include all Extensions hereinafter defined in Article 3.2. 1.22 TERRITORY shall mean those countries set forth on Exhibit F, attached hereto. 1.23 TRADE SECRETS shall mean information including a formula, pattern, compilation, program, device, method, technique, or process, that derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 1.24 TRADEMARK shall mean the trademark registrations which are set forth in the annexed Exhibit A and such trademarks in classes covering the Licensed Products whether or not registered with the relevant authority in the Territory, and all combinations, forms and derivatives thereof which may be hereafter approved by Licensor for use by Licensee in connection with the Licensed Products subject to any conditions set forth in any written approval. * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -4- ARTICLE 2. GRANT 2.1 LICENSE. Licensor hereby grants to Licensee an exclusive license during the Term of the Agreement, subject to all of the terms and conditions contained in this Agreement to use the Trademark in connection with the manufacture, distribu- tion and sale of the Licensed Products in the Territory. Li- censor further grants to Licensee the right to use the Trade- mark, subject to Article 11.4 hereof, in connection with estab- lishing a subsidiary or division to be named "Tommy Hilfiger Europe BV" or such other name as may be approved by Licensor. Licensor and any subsidiaries or affiliated companies specifi- cally reserve the right to establish and offer for sale Licensed Products through up to * flagship retail locations throughout the Territory, with a maximum of * flagship loca- tions per city. 2.2 RESERVATIONS. The license granted in this Article 2 does not grant any right to Licensee to use the name "TOMMY" or "HILFIGER" individually or derivatives of the Trademark. Nothing contained in this Agreement shall be construed as an assignment or grant to Licensee of any right, title or interest in or to the Trademark, it being understood and acknowledged by Licensee that all rights relating thereto are reserved by Licensor except for the rights specifically granted to Licensee in this Agreement. Licensee understands and agrees that Licensor, and its other licensees and sublicensees, may manufacture or authorize third parties to manufacture Licensed Products in the Territory for ultimate sale outside of the Territory, or to manufacture and sell or authorize third parties to manufacture and sell products of any and all types and descriptions other than the Licensed Products in or outside the Territory. In addition, to the extent it is legally permissible to do so, no license is granted hereunder for the manufacture, sale or distribution of the Licensed Products to be used for publicity purposes, other than publicity of the Licensed Products, in combination sales, premiums or giveaways, or to be disposed of under or in connection with similar methods of merchandising, such license being specifically reserved for Licensor. 2.3 TERRITORY. Licensee agrees that it will neither export Licensed Products from the Territory nor sell same to any entity which it knows or has any reason to believe intend to export Licensed Products from the Territory. Licensee will use its best efforts to prohibit its customers from shipping Licensed Products outside of the Territory. 2.4 FIRST REFUSAL. Licensor agrees that before granting a license to any third party to use any of the Trademarks or any other Trademark similar therein for any products other than Licensed Products in the Territory, Licensor shall give written notice to Licensee of its intent to grant such license, and Licensee shall have the right of first refusal, to be asserted within thirty (30) days in writing, to obtain such license upon terms no less favorable than those to be offered to the third party. In the event that Licensor and Licensee fail to reach an agreement with respect to the proposed license, then Licensor may enter into a license with the third party; provided, however, that the terms and conditions of such license with the third party shall not be more favorable that those offered to Licensee. * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -5- 2.5 EXCLUSIVITY. Licensor shall not authorize third parties to use the Trademark in connection with the sale and/or importation of the Licensed Products in the Territory during the Term hereof without Licensee's prior written approval, but Licensee acknowledges and consents to Licensor's use of the Trademarks in connection with the sale and/or importation of Licensed Products in the Territory. Licensor hereby agrees that Licensee shall have the exclusive right to import into and resell the Licensed Products in the Territory. 2.6 DEFINITIONAL DISPUTES. Licensee acknowledges that due to the nature of the marketplace, the definition of Licensed Products may change or may not be amenable to precise delineation. Licensee agrees that if there is a dispute over the definition of Licensed Products, Licensor shall render a reasonable written determination which shall be conclusive and binding on Licensee without legal recourse. 2.7 BEST EFFORTS. At all times while this Agreement is in effect, Licensee shall use its best efforts to exploit the License granted hereunder throughout the Territory, including but not limited to, selling a sufficiently representative quantity of the Licensed Products of all styles, fabrications and colors; offering for sale the Licensed Products so that they may be sold to the consumer on a timely basis; maintaining a sales force sufficient to provide effective distribution throughout all areas of the Territory; and cooperating with Licensor's and any of its licensees' marketing, merchandising, sales and anti-counterfeiting programs. 2.8 SHOWROOMS AND IN-STORE SHOPS. (a) Licensee shall display the Licensed Products for sale in a separate showroom, designed and displayed in accordance with Licensor's specifications, apart from any showroom(s) in which Licensee or another business may offer other than Licensed Products for sale. Subject to prior approval by Licensor, Licensee may display the Trademark on showroom doors and office directories; (b) Licensor reserves the right to approve the location of Licensee's primary showroom required by Article 2.8(a) above; and (c) Not later than by the end of the third Annual Period, Licensee shall establish and display the Licensed Products in showrooms designed and displayed in accordance with Licensor's specifications, apart from any showroom(s) in which Licensee or another business may offer other than Licensed Products for sale, to be located in Dusseldorf, Germany; Paris, France; Madrid, Spain; London, England; and Amsterdam, Holland. (d) Licensee will, at Licensor's option, participate in any in-store shop or main floor fixturing program with any of Licensee's customers. To that end, to the extent that the same is not paid for by Licensee's customers, Licensee shall pay for the necessary fixturing for the display of the Licensed Products which shall be in keeping with the specifications and design of the respective shop or main floor fixtures. -6- (e) Not later than the end of the Initial Term, Licensee shall be offering for sale the Licensed Products in at least * retail locations (in-store shops or specialty stores) throughout the Territory. 2.9 SALES AND DELIVERIES. Licensee acknowledges that the availability and selection of styles, fabrications, colors and sizes are an integral part of the high reputation and value which the trade and consumers have come to associate with the Trademark. Therefore, to protect that reputation and value, Licensee agrees that its policy of sale, distribution, and exploitation shall be of a high standard and to the best advantage, and that the same shall in no way adversely reflect upon the good name, trademarks and trade names of Licensor or any of its programs. Licensee further agrees that it will use due diligence to make certain that at all times no less than * of the Licensed Products ordered and approved by Licensee for shipment are shipped timely in compliance with the shipping schedule recited in each order. Licensee shall at all times maintain a sales force for the sale of the Licensed Products which shall be sufficient to provide effective distribution of the Licensed Products throughout the entire Territory. 2.10 ORGANIZATION. Licensee shall, within thirty (30) days of the date hereof, establish a separate division of its company dedicated exclusively to the sale of Licensed Products throughout the Territory. In lieu of such separate division, Licensee may form a subsidiary company provided that such company shall agree in writing to be bound by all of the terms hereof. Licensee shall, at its sole cost and expense, employ a head of sales, a production manager and a production assistant who shall work exclusively with Licensor's representatives on the Licensee's business arising under this Agreement and shall report directly to the President of Licensee or his designee. Licensee shall also employ a "stylist" to work with Licensor's representatives in the design of the Licensed Products and to assist in product development. These individuals will be hired with the prior approval of Licensor and will be relieved of their duties under this Agreement at the request of Licensor. In addition, Licensee shall maintain a separate sales force for the sale of the Licensed Products. The members of such sales force may not sell or represent any products other than the Licensed Products. 2.11 USE OF LICENSED LEGEND. Licensee shall, with the prior written approval of Licensor, have the right to place the legend "Licensed by Tommy Hilfiger Licensing, Inc.", or such other legend which indicates that the Licensed Products were manufactured, sold and distributed under the license from the Licensor, on the Licensed Products and on all wrapping or packaging used in connection therewith, within the Territory. 2.12 PURCHASE OF LICENSED PRODUCTS. (a) Licensee hereby agrees that all Purchased Products shall be exclusively purchased by Licensee through Licensor or its designees, or any other sources approved by Licensor, and shall be purchased from no other source. Licensee shall enter into an exclusive buying office agreement with THEH and THUSA, for the purchases of Purchased Products. Pursuant to such buying office agreements, Licensee shall pay to THEH or THUSA a buying office commission of * * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -7- of the F.O.B. price of all Purchased Products. (b) In the event Licensee purchases Purchased Products (other than mens and boys sportswear) from a source other than Licensor or its designee, which shall in all events be a source approved by Licensor, Licensee shall pay to Licensor an administrative fee in the amount equal to * of the invoice price of all such Purchased Products. (c) Licensee may only source Licensed Products directly, without THEH or THUSA, if the type of approved Licensed Product is not then being sourced by THEH or THUSA. For example, if THEH and THUSA are, at the applicable time, not in the business of sourcing tailored clothing through their sources approved by Licensor, then Licensee may source the tailored clothing through its sources approved by Licensor. In such event, such Licensed Products shall be defined as the Manufactured Products and purchases of such products shall be excluded from any administrative fee. In no event shall Licensee be permitted to source Licensed Products through sources, or even through its own factories, which have not been approved by Licensor. ARTICLE 3. TERM OF THE AGREEMENT 3.1 INITIAL TERM. The initial term of this Agreement shall commence on the date hereof and shall end on March 31, 2002 (the "Initial Term"). 3.2 EXTENSION. Providing that Licensee is not then in default and is not in default for the balance of the initial Term, Licensee shall have the right to extend this Agreement for successive five (5) year terms on six (6) months prior written notice to Licensor. Licensee acknowledges that the six (6) month period for notice is necessary in order to maintain the continuity of Licensor's Licensing and Marketing programs and the goodwill associated with the Trademark. Licensee agrees that "time is of the essence" and that Licensee's failure to exercise its option to renew timely shall be construed as a decision by Licensee that it has elected not to renew and shall permit Licensor to immediately replace Licensee by executing a new License Agreement with third parties, to commence after this Agreement has concluded, without any liability to Licensee. Expiration or termination of this Agreement shall not effect any obligation of Licensee to make payments hereunder accruing prior to such expiration or termination. ARTICLE 4. SALES 4.1 SALES/MARKETING AND PRODUCTION PLANS. On each January 1 and July 1 of each Annual Period during the Term, Licensee will submit to Licensor, for Licensor's approval, a schedule showing in detail the projected sales and marketing plans for the Licensed Products for each of the next two quarterly periods. In addition, Licensee will submit to Licensor upon execution of the Agreement a proposed production calendar for the Licensed Products. Licensee will work with Licensor to create a production calendar for Licensed Products that is agreeable to both parties. * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -8- Licensee shall provide to Licensor, on a monthly basis, monthly wholesale bookings reports and retail selling reports. Licensor shall be deemed to have approved the sales and marketing plans unless Licensor gives Licensee written notice to the contrary within ten (10) days of receipt of such plans. 4.2 MINIMUM SALES LEVELS. The first bona fide shipment of Licensed Products to a customer of Licensee shall occur no later than *. In addition, during each Annual Period, Licensee shall be required to meet the following minimum levels of Net Sales of the Licensed Products ("Minimum Sales Levels"): Minimum Sales Annual Period Level First * Second * Third * Fourth * Fifth * each Annual Period thereafter * For purposes of calculating the Minimum Sales Level for each Annual Period, the Minimum Sales Level shall be calculated using the rate of foreign exchange in effect at the Midland Bank PLC at the close of business on the date of each Royalty or Guaranteed Minimum Royalties payment hereunder. * 4.3 CERTIFICATION. Within sixty (60) days of the end of each Annual Period, Licensee shall send to Licensor a certification by a duly authorized officer of Licensee of the Net Sales of Licensed Products during such Annual Period (the "Certification"). Within one hundred twenty (120) days of the end of each Annual Period, Licensee shall send to Licensor the Certification further certified by Licensee's external auditors. ARTICLE 5. LICENSE FEES 5.1 REQUIREMENT OF ROYALTIES. Except as specifically provided herein, all Licensed Products sold by Licensee, or its Affiliates or subsidiaries, require the payment of royalties by Licensee to Licensor as set forth in this Article 5. * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -9- 5.2 GUARANTEED MINIMUM ROYALTY. (a) In consideration of the rights granted to Licensee pursuant to this Agreement, Licensee shall, during each Annual Period or portion thereof calculated on a pro rata basis, during the Term, pay to Licensor the Guaranteed Minimum Royalties listed below, payable in quarterly installments in advance on the first day of each quarter during each year during the Term hereof, except that for the First Annual Period, the Guaranteed Minimum Royalties shall be paid in four (4) equal quarterly installments beginning on *. In the event that during any Annual Period, the actual payments under Article 5.3 hereof exceed the entire Guaranteed Minimum Royalty with respect to that Annual Period, no further Guaranteed Minimum Royalty payments need be made for such Annual Period. Guaranteed Minimum Annual Period Royalty First * Second * Third * Fourth * Fifth * each Annual Period thereafter * (b) The Guaranteed Minimum Royalty for each Annual Period from the Second through Fifth Annual Periods only shall be the greater of the amounts set forth above for such Annual Periods or * of the Percentage Royalty due for the immediately preceding Annual Period. 5.3 ACTUAL ROYALTIES. In consideration of the rights granted to Licensee pursuant to this Agreement, Licensee shall, during each Annual Period or portion thereof during the Term and any extension thereof, pay Licensor a royalty (the "Percentage Royalty") equal to * of Net Sales sold at Full Price by Licensee and * of Net Sales sold by Licensee at Off Price. Percentage Royalties shall be payable in quarterly installments on January 30, April 30, July 30 and October 30 for the immediately preceding quarter of sale, less Guaranteed Minimum Royalty payments for such period. All royalties shall accrue upon the sale of the Licensed Products regardless of the time of collection by Licensee. For purposes of this Article 5.3, a Licensed Product shall be considered "sold" upon the date of billing, invoicing, shipping, or payment, whichever occurs first. * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -10- 5.4 ROYALTY STATEMENTS. Licensee will deliver to Licensor at the time each Percentage Royalty payment is due, complete and accurate statements, in the form annexed hereto as Exhibit B, or similar form approved for use by Licensor signed by a duly authorized officer of Licensee and certified by him/ her as accurate indicating all of the following information by month: (i) the total invoice price of all Licensed Products sold during the period covered by such percentage royalty payment; (ii) the amount of discounts and credits from Gross Sales which properly may be deducted therefrom, during said period; and (iii) computation of the amount of percentage royalty payable hereunder for said period. At least once annually, or more often at Licensor's request, Licensee will also deliver to Licensor a certification from its external auditors that the statement which it accompanies is in accordance with the requirements of this Article 5.4. Receipt or acceptance by Licensor of any statement furnished, or of any sums paid by Licensee, shall not preclude Licensor from questioning their correctness at any time; provided, however, that reports submitted by Licensee shall be binding and conclusive on Licensee in the event of any termination based on a breach by Licensee arising out of any payment or report. 5.5 BOOKS AND RECORDS. Licensee shall, at its sole cost and expense, maintain complete and accurate books and records (specifically including, without limitation, the originals or copies of documents supporting entries in the books of account) covering all transactions arising out of or relating to this Agreement. In addition, Licensor and its duly authorized representative have the right, during normal business hours, for the duration of this Agreement and for three (3) years thereafter, to examine and copy said books and records and all other documents and materials in the possession of and under the control of Licensee with respect to the subject matter and terms of this Agreement. In the event a sublicense is approved by Licensor as provided hereunder, Licensee shall also obtain for Licensor the right in any and all of such sublicenses for Licensor to similarly inspect the books and records of the sublicensees. The exercise by Licensor of any right to audit at any time or times or the acceptance by Licensor of any statement, or payment shall be without prejudice to any of Licensor's rights or remedies and shall not bar Licensor from thereafter disputing the accuracy of any payment or statement and Licensee shall remain fully liable for any balance due under this Agreement. 5.6 TAXES. Licensee will bear all taxes, duties and other governmental charges in the Territory relating to or arising under this Agreement, including without limitation, any income taxes (except withholding taxes on royalties), any stamp or documentary taxes or duties, turnover, sales or use taxes, value added taxes, excise taxes, customs or exchange control duties or any other charges relating to or on, any royalty payable by Licensee to Licensor. Licensor shall pay any income tax whether imposed by the laws of the United States or a United States state. Licensee shall obtain, at its own cost and expense, all licenses, Reserve Bank, Commercial Bank or other bank approvals, and any other documentation necessary for the transmission of royalties and all other payments relevant to Licensee's performance under this Agreement. If any tax or withholding is imposed on royalties, Licensee shall obtain certified proof of the tax payment or withholding and immediately transmit it to Licensor. -11- 5.7 UNDERPAYMENTS. If, upon any examination of Licensee's books and records pursuant to Article 5.5 hereof, Licensor shall discover any royalty underpayment by Licensee, Licensee will make all payments required to be made to correct and eliminate such underpayment within ten (10) days of Licensor's demand. In addition, if said examination reveals a royalty underpayment of * or more for any royalty period, Licensee will within ten (10) days of demand reimburse Licensor for the cost of said examination. 5.8 MANNER OF PAYMENT. All payments required by Licensee hereunder shall be made to Licensor in Delaware in U.S. Dollars, and all references to dollars throughout this Agreement shall mean U.S. Dollars. The amount of payment shall be calculated using the rate of foreign exchange in effect at the Midland Bank PLC at the close of business on the date of payment. In the event that Licensee is required to withhold certain amounts for payment to the appropriate governmental authorities, Licensee will supply to Licensor the official receipts evidencing payment therefor. 5.9 INTEREST ON LATE PAYMENTS. In addition to any other remedy available to Licensor, if any payment due under this Agreement is delayed for any reason, interest shall accrue and be payable, to the extent legally enforceable, on such unpaid principal amounts from and after the date on which the same became due, at a per annum equal to the lower of * percentage points above the prime rate of interest in effect, at the time the late payment was due, at Chase Manhattan Bank in New York, New York, U.S.A. and the highest rate permitted by law in New York. 5.10 NO SET-OFF. The obligation of Licensee to pay royalties hereunder shall be absolute notwithstanding any claim which Licensee may assert against Licensor. Licensee shall not have the right to set-off, compensate or make any deduction from such royalty payments for any reason whatsoever. 5.11 PURCHASES BY LICENSOR'S FLAGSHIP STORES. Beginning on the first day of each of Licensee's market periods (opening of each selling season), retail flagship stores in the Territory owned by Licensor or one of its subsidiaries or affiliates (the "Flagship Stores") may purchase Licensed Product at no more than the *. Licensee agrees to fill the orders of the Flagship Stores in at least the same manner which Licensee fills orders from its other customers. In addition, Flagship Stores may contract for special programs of Licensed Product at a price equal to no more than the *. No royalty or advertising payment shall be due on purchases of Licensed Product (including Closeouts, Seconds or special programs) by Flagship Stores and such purchases shall not be counted for purposes of meeting any Minimum Sales Level. 5.12 FINANCIAL STATEMENTS. Licensee shall provide Licensor (a) a certified, audited financial statement to be delivered to Licensor within five (5) months after the end of each fiscal year of Licensee and (b) a six (6) month interim unaudited financial statement to be delivered to Licensor within sixty (60) days after the end of the six (6) month period. The year end financial information must be prepared by a chartered accountant having no interest in Licensee's business and approved * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -12- by Licensor. ARTICLE 6. REPRESENTATIONS AND WARRANTIES 6.1 WARRANTIES AND REPRESENTATIONS OF LICENSOR. Licensor hereby represents, warrants and covenants that: (a) it has the full right, power and authority to enter into this Agreement and to license Licensee with respect to all the rights granted hereunder; (b) it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (c) necessary corporate acts have been effected by it to render this Agreement valid and binding upon it; and (d) in its negotiations relative to this Agreement, it has not utilized the services of any finder, broker or agent and it owes no commissions or fees to any such person in relation hereto. Licensor agrees to indemnify Licensee against, and hold it harmless from, any and all liabilities (including, without limitation, reasonable attorneys' fees) to any person, firm or corporation claiming commissions or fees in connection with this Agreement or the transactions contemplated hereby as a result of an agreement with or services rendered to Licensor. 6.2 WARRANTIES AND REPRESENTATIONS OF LICENSEE. Licensee hereby represents, warrants and covenants that: (a) it has the full right, power and authority to enter into this Agreement and to perform all of its obligations hereunder; (b) it is financially capable of undertaking the business operations which it conducts and of performing its obligations hereunder; (c) it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (d) all necessary corporate acts have been effected by it to render this Agreement valid and binding upon it; and (e) in its negotiations relative to this Agreement, it has not utilized the services of any finder, broker or agent and it owes no commission or fees to any such person in relation hereto. Licensee agrees to indemnify Licensor against, and hold it harmless from, any and all liabilities (including, without limitation, reasonable legal fees) to any person, firm or corporation -13- claiming commissions or fees in connection with this Agreement or the transactions contemplated hereby as a result of an agreement with or services rendered to Licensee. ARTICLE 7. ADVERTISING 7.1 ADVERTISING. All advertising and promotion in connection with Licensed Products, including cooperative advertising whereby Licensee provide their customers with a contribution be it in the form of actual monetary contribution, credit or otherwise, shall be placed with an agency approved by Licensor. Licensee will pay, advertising invoices directly as they become due. Licensee agrees to use its best efforts to advertise and promote the Licensed Products during each Annual Period in order to make the Trademark a well known name within the Territory and to maintain the high standards of the Trademark. 7.2 ADVERTISING EXPENDITURE. Licensee agrees that, during each of the First and Second Annual Periods, it shall spend the greater of * dollars or * of the actual Net Sales, and for each such Annual Period thereafter, shall spend the greater of * of the Minimum Sales Level or * of the actual Net Sales for each such Annual Period, for direct media advertising of the Licensed Products not including any cooperative advertising, trade shows, sampling, or any other promotional or sales material normally produced for the sale of the Licensed Products (the "Advertising Expenditure"). If in any Annual Period the Advertising Expenditure has not been made, then Licensee shall spend such amount for advertising within the first ninety (90) days of the subsequent Annual Period. If the Advertising Expenditure has not been expended by the end of said ninety (90) day period, then the amount which should have been expended and which was not expended shall be paid over to Licensor to be used by Licensor for advertising the Trademark provided, however, that if Advertising Expenditure has not been made prior to the termination of this Agreement, the unexpended Advertising Expenditure shall, within twenty (20) days, be paid over to Licensor absolutely. Proof of expenditure shall be submitted each quarter using the Advertising Expenditure Form (Exhibit E). 7.3 APPROVAL OF PACKAGING, LABELING AND ADVERTISING. No packaging, labeling or advertising, including cooperative advertising may be used without the prior written approval of Licensor. Before publication of any advertisement or promotion, Licensee shall submit every element of the advertisement or promotion to Licensor for approval using an "Advertising Approval Form", as provided by Licensor. Any approval granted hereunder shall be limited to use during the Seasonal Collection of the Licensed Products to which such advertising relates and shall be further limited to use (e.g. television or print) for which approval by Licensor was granted. Samples of initial packaging, labeling and advertising, and samples of any revisions, changes, modifications or substitutions thereof, shall be submitted to Licensor sufficiently far in advance to permit Licensee time to make such changes as Licensor shall deem necessary. All requests for the approval of packaging, labeling or advertising pursuant to this Article 7.3 shall be accompanied by at least two (2) samples of the object for which approval is sought. Licensee shall use its best efforts to ensure that all advertising and promotional plans used by Licensee in connection with the Trademark, in any * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -14- form and in any medium, shall be consistent with the prestige of the Trademark and the quality of the Licensed Products. All packaging, labeling and advertising of Licensed Products shall use the Trademark, but no other trademark or trade name shall be used except as may be required by applicable law or permitted by Licensor. Licensee shall not be permitted to use their names on the Licensed Products, packaging and other materials displaying the Trademark other than as specifically approved by Licensor. Any advertising materials provided by Licensor to Licensee shall be so provided at Licensee's cost and the price therefor shall be Licensor's cost of producing and providing the same. 7.4 USE OF TRADEMARK ON INVOICES, ETC. The use of the Trademark by Licensee on invoices, order forms, stationery and related matter and in advertising in telephone or other directory listings is permitted only upon Licensor's prior written approval of the format in which the Trademark is to be so used, the juxtaposition of the Trademark with other words and phrases, and the content of the copy prior to the initial such use of the Trademark and prior to any material change therein; provided, however, that each such use of the Trademark is only in conjunction with the manufacture, sale, distribution or advertisement of Licensed Products pursuant to this Agreement. 7.5 LAUNCH. In addition to the Advertising Payments required under Articles 7.1 and 7.2, Licensee agrees to host, at Licensee's expense, a launch event or distribute a gift package to the fashion and financial press and to major retail accounts during the initial selling season for the first Seasonal Collection to be sold under this Agreement. Such event shall be comparable to similar launch events hosted by Licensor's other licensees of the Trademark and shall reasonably reflect the prestige of the Trademark and the relative significance of Licensed Products to Licensor. In no event shall Licensee be required to spend more than * dollars on such launch event or gift package. ARTICLE 8. QUALITY AND STANDARDS 8.1 DISTINCTIVENESS AND QUALITY OF THE TRADEMARK. Licensee shall maintain the distinctiveness of the Trademark and the image and high quality of the goods and merchandise bearing the mark presently manufactured and sold by Licensor and its other licensees, and the prestigious marketing of same as hitherto and presently maintained by Licensor and its other licensees. Licensee agrees that, with respect to all Licensed Products manufactured or sold by it, the same will be of high quality as to workmanship, fit, design and materials used therein, and shall be at least equal in quality, workmanship, fit, design and material to the samples of Licensed Products submitted by Licensee and approved by Licensor pursuant to Article 8.3 hereof. All manufacturing and production shall be of a quality in keeping with the prestige of the Trademark. In addition, Licensee acknowledges that in order to preserve the goodwill attached to the Trademark, the Licensed Products should be sold at prices and terms reflecting the prestigious nature of the Trademark, and the reputation of the Trademark as appearing on goods of high quality and reasonable price, it being understood, however, that Licensor is not empowered to fix or regulate the prices for which the Licensed Products are to be sold, either at the wholesale or retail level. * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -15- 8.2 SHOPS, STORES, RETAIL OUTLETS. The Licensed Products sold by Licensee may be sold only to those specialty shops, department stores and retail outlets which carry high quality and prestige merchandise and whose operations are consistent with Licensor's reputation and its sales policies and with the prestige of the Trademark and only to those customers expressly approved by Licensor. Prior to the opening of each selling season (and whenever Licensee shall wish to sell Licensed Products to customers not previously approved by Licensor), Licensee shall submit a written list of the proposed customers to Licensor for Licensor's prior written approval, which approval may be given or withheld at Licensor's sole discretion, based upon whether it deems that the proposed customer shall enhance the quality and prestige of the Trademark. Licensor shall have the right to withdraw any such approval on written notice to Licensee. Licensee shall not (a) market or promote or seek customers for the Licensed Products outside of the Territory; (b) establish a branch, wholly owned by subsidiary, distribution or warehouse with inventories of Licensed Products outside of the Territory; (c) sell or distribute any Licensed Products to wholesalers, jobbers, diverters, catalog vendors or any other entity which does not operate retail stores exclusively; (d) sell the Licensed Products directly to the public in retail stores; (e) use the Licensed Products as giveaways, prizes or premiums, except for promotional programs which have received the prior written approval of Licensor; or (f) sell the Licensed Products to any third party or Affiliate of Licensee or any of its directors, officers, employees or any person having an equity participation in or any other affiliation to Licensee, without the prior written approval of Licensor. Licensee shall include and shall enforce the following as a term and condition of sale to all of its customers: "Resale Restrictions. Buyer shall not directly or indirectly distribute, market or sell the Products to any party other than consumers or end users without obtaining the prior written consent of Seller." 8.3 SAMPLES OF MANUFACTURED PRODUCTS. Before Licensee shall sell or distribute any Manufactured Products in any Seasonal Collection, Licensee shall submit samples of each of such Manufactured Products to Licensor for its prior written approval, which approval may be withheld by Licensor in its sole and absolute discretion. Any such request for approval shall be submitted to Licensor on the form annexed hereto as Exhibit C. Such samples shall be submitted sufficiently far in advance to permit Licensee time to make such changes as Licensor deems necessary. Any approval given hereunder shall apply only to that Seasonal Collection for which it is submitted to Licensor. Once samples have been approved, Licensee will manufacture only in accordance with such approved samples and will not make any changes for manufacture without Licensor's prior written approval. All samples of Manufactured Products submitted to Licensor pursuant to this Article 8.3 shall be provided at Licensee's sole cost and expense. Licensee shall submit to Licensor a reasonable number of additional samples of Manufactured Products upon Licensor's reasonable request. No Manufactured Products (including samples) shall be distributed and/or sold by Licensee pursuant to this Agreement unless such Manufactured Products are in substantial conformity with and at least equal in quality to the samples previously approved by Licensor in accordance with this Article 8.3. 8.4 NON-CONFORMING PRODUCTS. In the event that any Licensed Product is, in the judgment of Licensor, not being manufactured, distributed or sold with first quality workmanship or -16- in strict adherence to all details and characteristics furnished by Licensor, Licensor shall notify Licensee of the specific nature of the problem in writing and Licensee shall promptly repair or change such Licensed Product to conform thereto. If a Licensed Product as repaired or changed does not strictly conform after Licensor's request and such strict conformity cannot be obtained after Licensee is given a reasonable opportunity to do so, Licensor may direct that the Trademark shall be promptly removed from the item. In such event, the item may be sold by Licensee, provided such miscut or damaged item does not contain any labels or other identification bearing the Trademark without Licensor's prior approval. Notwithstanding anything in this Article 8.4 to the contrary, sales of all products of Licensor's design whether or not bearing the Trademark, shall nonetheless be subject to royalty payments pursuant to Article 5 hereof. Licensor may purchase at Licensee's expense any Licensed Products found in the marketplace which, in Licensor's judgment, are inconsistent with approved quality standards and bill such costs to Licensee. Licensee must pay all royalties due on sales of nonconforming goods. Licensor may require Licensee to recall any Licensed Products not consistent with approved quality standards. Licensee shall use its best efforts to comply. 8.5 APPROVALS. All approvals required or permitted by this Agreement must be in writing from Licensor to Licensee. All matters requiring approval of Licensor or the exercise of its discretion shall be at the sole subjective discretion of Licensor. A submission for approval shall be deemed disapproved unless Licensor delivers a notice of approval within twenty (20) days. Licensor shall provide an explanation for disapprovals. Licensor has no obligation to approve, review or consider any item which does not strictly comply with the required submission procedures provided that Licensor designates the procedure which was not followed. Approval by Licensor shall not be construed as a determination that the approved matter complies with all applicable regulations and laws. No disapproved item shall be manufactured, sold, used, distributed or advertised. Licensee may revise any disapproved item and resubmit it. Licensee must strictly comply with all of Licensor's decisions. The parties will adjust the approval forms as appropriate. Upon reasonable notice, Licensor may withdraw approval of any previously approved item. In the event that it is reasonably necessary for Licensor to do on- site approvals, Licensee will pay any and all expenses and air- fare incurred by Licensor with respect to such on-site approvals. 8.6 APPROVAL WITHDRAWAL. If the style, appearance or quality of any Licensed Product ceases to be acceptable to Licensor, Licensor shall have the right in the exercise of its sole discretion to withdraw its approval of such Licensed Product. Upon receipt of written notice from Licensor of its election to withdraw such approval, Licensee shall immediately cease the use of the Trademark in connection with the promotion, advertising, sale, manufacture, distribution or use of such Licensed Product(s). Notice of such election by Licensor to withdraw approval shall not relieve Licensee from its obligation to pay royalties on sales of such Licensed Product(s) made by Licensee to the date of disapproval or thereafter as permitted. Licensee may, however, complete work in process and utilize materials on hand provided that it submits proof of such work in progress and fabric inventory to Licensor. 8.7 SAMPLES, ARTWORK AND KNOW-HOW. Licensor shall, at least four (4) times during each Annual Period, make available to Licensee certain samples, designs, colors, fabric -17- samples, tags, labels, packaging and artwork available to Licensor, and the cost of providing such materials shall be borne by Licensee. All right, title and interest in and to samples, sketches, designs, and other materials furnished to Licensee by Licensor, whether created by Licensor or Licensee, including any modifications or improvements thereof which may be created by Licensor, Licensee are hereby assigned to and shall be the sole property of Licensor as between Licensee and Licensor and are licensed hereunder solely and exclusively for use in connection with the manufacture and sale of Licensed Products in the Territory. Licensor may use and permit others to use said designs and other materials in any manner it desires, provided that such use does not conflict with any rights granted Licensee hereunder. Licensee specifically acknowledges that such designs and other materials may be used by Licensor and other licensees on Licensed Products in jurisdictions outside the Territory and on products other than Licensed Products anywhere in the world. In addition to the foregoing, for marketing purposes, Licensor shall, upon reasonable request, make available to Licensee, such of the following which are available to Licensor: (a) reports on marketing policy of Licensor; (b) reports on color, style and fabric trends; (c) samples of advertising materials; (d) display ideas; and (e) labels, hangtags and packaging. 8.8 CONFIDENTIALITY. Licensee acknowledges that it will receive from Licensor prints, designs, ideas, sketches, and other materials or Trade Secrets which Licensor intends to use on or in connection with lines of merchandise other than the Licensed Products and which have not as yet found their way into the channels of distribution. The parties recognize that these materials are valuable property of Licensor. Licensee acknowledges the need to preserve the confidentiality and secrecy of these materials and agrees to take all necessary steps to ensure that use by it, or by its contractors will in all respects preserve such confidentiality and secrecy. Licensee shall take all reasonable precautions to protect the secrecy of the materials, samples, and designs described in this Article 8.8 prior to their commercial distribution or the showing of samples for sale, and shall not sell any merchandise employing or adapted from any of said designs except under the Trademark. Licensor shall take all reasonable precautions to protect the secrecy of the original designs created by Licensee for Licensed Products prior to their advertisement, commercial distribution or the showing of samples for sale. Neither Licensor nor Licensee shall, at any time during the term of this Agreement, disclose or use for any purpose, other than as contemplated by this Agreement, any revealed or otherwise acquired confidential information and data relating to the business of the other. 8.9 MANUFACTURE OF LICENSED PRODUCTS BY THIRD PARTIES. (a) Licensee shall execute the attached Exhibit G, within thirty (30) days from execution of this Agreement evidencing that all Licensed Products manufactured hereunder (whether by Licensee, Licensee's suppliers, or any contract sewing shops or other designated contract facilities) will be manufactured in compliance with the wage and hour laws of the country of manufacture and without the use of child (under the age of 14), prison or slave labor; (b) Licensee shall not utilize any factory (whether operated by a third party manufacturer or a third party manufacturer's contract sewing shop or other designated contract -18- facility) in the manufacture of Licensed Products (including all components thereof) unless (a) it has been inspected and approved, in writing, by an authorized employee or agent of Licensee; (b) Exhibit G is executed by each such third party manufacturer or a third party manufacturer's contract sewing shop or other designated contract facility; and (c) Licensee shall obtain the signature of an authorized representative from each third party manufacturer used by Licensee on a brief agreement designated to protect Licensor's rights in the Trademark (see Exhibit D). Licensee acknowledges that it shall remain primarily liable and completely obligated under all of the provisions of this Agreement in respect of such subcontracting arrangements. (c) Licensee shall provide access to Licensor's representative, upon reasonable notice, to (i) Licensee's manufacturing facility and any manufacturing facility operated by any third party manufacturer or such third party manufacturer's contract sewing shops or other designated contract facilities which are utilized for all or part of the manufacture of Licensed Products, and (ii) all books and records relating to employee wages, employee timecards, evidence of employee age, shipping documents, cutting reports and other documentation relating to the manufacture and shipment of Licensed Products; (d) Licensee acknowledges that it has in effect (or will promptly develop) a program of monitoring manufacturing facilities either operated by third party manufacturers or any such third party manufacturers' contract sewing shops or other designated contract facilities for compliance with the requirements of Article 8.9(a) above; and (e) Licensee shall exercise best efforts to ensure that all shipping documents which accompany all Licensed Products include the following language (either pre-printed or "stamped"): "We hereby certify that the merchandise covered by this shipment was manufactured in compliance with all applicable requirements of the wage and hour laws of the country of manufacture and without the use of child (under the age of 14), prison or slave labor. We further certify that we have in effect a program of monitoring any suppliers, contract sewing shops and other designated contract facilities which manufactured Tommy Hilfiger (Registered) brand merchandise for compliance with the requirements set forth above. We also certify that this shipment is in compliance with all laws applicable to the designation of country of origin on products, accurately states the country of origin on all products; the marking of shipments with proper country of origin and shall be shipped under legally issued and valid export licenses or visas." 8.10 MARKING, LABELING AND PACKAGING IN ACCORDANCE WITH APPLICABLE LAWS. All Licensed Products manufactured, distributed or sold by Licensee shall be marked, labeled, packaged, advertised, distributed and sold in accordance with this Agreement, in accordance with all applicable laws, rules and regulations in the Territory, and in such a manner as will not tend to mislead or deceive the public. At the request of Licensor, Licensee shall cause to be placed on all Licensed Products appropriate notice designating Licensor as the copyright or design patent owner thereof, -19- as the case may be. 8.11 DISPOSAL OF SECONDS AND CLOSE-OUTS. (a) Seconds. Licensee shall only sell Licensed Products which are Seconds in a way which shall not reduce the value of the Trademark or detract from its reputation and shall obtain the express prior written consent of Licensor with respect to the terms and method of such disposal. All Seconds approved for sale by Licensor shall be clearly marked "Seconds" or "Irregular". The percentage of Seconds of any of the Licensed Products which may be disposed of pursuant to this Article 8.11(a) shall not, in any event, exceed * of the total number of units of Licensed Products distributed or sold by Licensee. (b) Close-Outs. All Close-Outs shall be sold only with Licensor's prior written approval, which Licensor may withhold in its sole discretion, through retail outlets and traditional and accepted dealers in such merchandise and upon such terms and conditions as Licensee, in its reasonable discretion, determines appropriate and shall not be sold to any person which Licensee know, or have reason to know, will export such Close-Outs from the Territory. The percentage of Close- Outs of any of the Licensed Products which may be disposed of pursuant to this Article 8.11(b) shall not, in any event, exceed * of the total number of units of such Licensed Products distributed or sold by Licensee in each Annual Period. 8.12 ASSISTANCE BY LICENSOR. Licensee shall have the right to cause its personnel to reasonably visit Licensor's offices, factories, showroom, and other places of business, and also to attend Licensor's sales meetings in order to obtain additional know-how and assistance. The scheduling of such visits shall be at times mutually convenient to the parties hereto. In connection with such visits, Licensee shall bear all air-fare to and from, and subsistence expenses of Licensee's representatives. In the event Licensee requests Mr. Tommy Hilfiger or any other member(s) of Licensor's staff to make a personal appearance, to attend any function, to visit Licensee's manufacturing plants or facilities or to attend any design meetings, Licensee shall pay all of the reasonable expenses in connection therewith, including air travel and hotel accommodations, and other reasonable services of Licensor's choosing. Licensee shall reimburse Licensor for all reasonable expenses so incurred by Licensor at Licensee's request. 8.13 MEETINGS. Licensor may from time to time but no more than twice a year hold a meeting of Licensor's licensees/distributors. Licensee agrees upon receipt of reasonable notice to attend any such meeting(s) at its own expense. 8.14 DESIGN RIGHTS. Licensee acknowledges and agrees that Licensor owns or shall own all design rights relating to the Licensed Products, regardless of whether such designs were created by Licensor or by or on behalf of Licensee. Licensee agrees to make, procure and execute all assignments necessary to vest ownership of design rights in Licensor. Licensee shall place appropriate notices, reflecting ownership of design rights by Licensor, on all the Licensed Products, packaging, tags, labels and advertising and promotional materials. Licensee shall not do or allow to * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -20- be done anything which may adversely affect any of Licensor's design rights. All designs used by Licensee for the Licensed Products shall be used exclusively for the Licensed Products and may not be used under any other trademark or private label without the prior written consent of Licensor. Licensee shall disclose and freely make available to Licensor any and all developments or improvements it may make relating to the Licensed Products and to their manufacture, promotion and sales, including, without limitation, developments and improvements in any machine, process or product design, that may be disclosed or suggested by Licensor or regarding any patent or trademark which Licensee is entitled to utilize. 8.15 PRICING. Licensee acknowledges that in order to preserve the goodwill attached to the Trademark, the Licensed Products should be sold at prices and terms reflecting the prestigious nature of the Trademark, it being understood, however, that Licensor is not empowered to fix or regulate the prices for which the Licensed Products are to be sold, either at the wholesale or retail level. ARTICLE 9. THE TRADEMARK 9.1 RIGHTS TO THE TRADEMARK. Licensee acknowledges the great value of the goodwill associated with the Trademark. Licensee will not, at any time, do, or otherwise suffer to be done any act or thing which may, in any way, adversely affect any rights of Licensor in and to the Trademark or any registrations thereof or which, directly or indirectly, may reduce the value of the Trademark or detract from its reputation. Nothing contained in this Agreement shall be construed as an assignment or grant to Licensee of any right, title or interest in or to the Trademark, or any of Licensor's other trademarks, it being understood that all rights relating thereto are reserved by Licensor, except for the License hereunder to Licensee of the right to use and utilize the Trademark only as specifically and expressly provided herein. Licensee shall not file or prosecute a trademark or service mark application or applications to register the Trademark in respect of the Licensed Products or any other goods or services. Licensee shall not, during the term of this Agreement or thereafter, (a) attack Licensor's title or right in and to the Trademark in any jurisdiction or attack the validity of this License or the Trademark or (b) contest the fact that Licensee's rights under this Agreement (i) are solely those of a manufacturer and distributor and, (ii) subject to the provisions of Article 11 hereof, cease upon termination of this Agreement. The provisions of this Article 9.1 shall survive the termination of this Agreement. 9.2 PROTECTING THE TRADEMARK. Licensee shall cooperate fully and in good faith with Licensor for the purpose of securing, preserving and protecting Licensor's rights in and to the Trademark. At the request of Licensor, Licensee shall execute and deliver to Licensor any and all documents and do all other acts and things which Licensor deems necessary or appropriate to make fully effective or to implement the provisions of this Agreement relating to the ownership or registration of the Trademark. 9.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Licensee will use the Trademark in the Territory strictly in compliance with the legal requirements therein. Whenever any Trademark is used -21- on any item of packaging or labeling or in any advertisement, it must be followed, in the case of a registered trademark by the registration symbol, i.e., (Registered), and in the case of all other trademarks by the symbol TM, or other appropriate symbols of similar import acceptable to Licensor. Licensee shall duly display all other notices with respect to the Trademark, on the Licensed Products and otherwise, as are or may be required by the trademark laws and regulations applicable within the Territory. Upon expiration or termination of this Agreement for any reason whatsoever, Licensee will execute and deliver to Licensor any and all documents required by Licensor terminating any and all trademark registrations, Registered User agreements and other documents regarding this Trademark. 9.4 OWNERSHIP OF COPYRIGHT. Any copyright which may be created under this Agreement in any sketch, design, print, package, label, tag or the like designed or approved or used with the Trademark by Licensor will be the property of Licensor. Licensee will not, at any time, do, or otherwise suffer to be done, any act or thing which may adversely affect any rights of Licensor in such sketches, designs, prints, packages, labels, tags and the like and will, at Licensor's request, do all things reasonably required by Licensor to preserve and protect said rights. 9.5 NOTICE OF INFRINGEMENT. Licensee shall notify Licensor in writing of any infringement or imitation of the Trademark or the use by any person of any trademarks or tradenames confusingly similar to the Trademark promptly as same may come to the attention of Licensee. Licensor will thereupon take such action as it deems advisable for the protection of the Trademark and its rights therein, and Licensee shall assist Licensor in the prosecution of any such suit, as Licensor may reasonably request, at Licensor's expense. In no event, however, will Licensor be required to take any action if it deems it inadvisable to do so and Licensee will have no right to take any action with respect to the Trademark without the prior written consent of Licensor. In the event a third party infringes the use of the Trademark in the Territory on items similar to the Licensed Products, Licensor shall take all advisable and necessary measures to protect the Trademark and Licensee agrees that, at Licensor's request, it will pay * of the costs incurred therefor, including judicial expenses and legal fees. 9.6 COUNTERFEIT PROTECTION. Licensee shall use its best efforts to prevent counterfeiting of the Licensed Products. All Licensed Products shall bear and use any reasonable counterfeit preventive system, devices or labels designated by Licensor. At its option, Licensor may supply the system, devices or labels (provided that they are supplied on a timely basis), which Licensee must use and for which Licensee shall pay all reasonable costs in advance. 9.7 USE OF OTHER TRADEMARKS. At all times while this Agreement is in effect, neither Licensee, nor any company affiliated with Licensee, owned or controlled by Licensee, under common ownership with or having common stockholders as Licensee, in which the owner of Licensee is a partner, or in which Licensee is a partner, shall act as a licensee or distributor in the Territory of any products included in Article 1.12 under any name directly competitive with Licensor, other than "Pepe Jeans" and its derivatives and related trademarks, without the prior written approval of Licensor. Nothing herein is to be construed so as to prohibit Licensee from acting as a manufacturer only of such products under a name competitive with Licensor, providing that Licensee shall not be * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -22- the licensee or distributor thereof. The design and style of any such products or any of Licensee's private label products must be clearly distinguished from the Licensed Products (the foregoing shall be exclusive of any products previously designed by Licensee or any of its Affiliates pursuant to other license agreements in effect between Licensor and Licensee or any of its Affiliates). If such consent is given, unless prohibited by other agreements, Licensee shall provide Licensor with samples of any clothing products, lines or collections Licensee manufactures or has manufactured for it or distributed for it which do not bear the Trademarks. A breach of this clause shall constitute a violation of Licensee's obligation to use its best efforts to exploit this license. The design, merchandising, packaging, sales and display of all of Licensee's non-licensed products shall be separate and distinct from the Licensed Products. Licensee shall maintain a separate area for exhibition of the Licensed Products wherever the Licensed Products are sold. 9.8 USE OF TRADEMARK ON INVOICES, ETC. The use of the Trademark by Licensee on invoices, order forms, stationery and related materials in advertising in telephone or other directory listings is permitted only upon Licensor's prior written approval of the format in which the Trademark is to be so used, the juxtaposition of the Trademark with other words and phrases, and the content of the copy prior to the initial such use of the Trademark and prior to any material change therein; provided, however, that each such use of the Trademark is only in conjunction with the manufacture, sale, distribution or advertisement of Licensed Products pursuant to this Agreement. 9.9 MONITORING. Licensee shall actively monitor use of the Trademark by Licensee and its customers and shall use its best efforts to see that such use does not impair the image or reputation heretofore or hereafter established by Licensor for products bearing the Trademark; provided, however, that the Licensee shall have no obligation to place any unlawful restriction on its customers. ARTICLE 10. INSOLVENCY 10.1 EFFECT OF PROCEEDING IN BANKRUPTCY, ETC. If either party institutes for its protection or is made a defendant in any proceeding under bankruptcy, insolvency, reorganization or receivership law, or if either party is placed in receivership or makes an assignment for benefit of creditors or is unable to meet its debts in the regular course of business, the other party may elect to terminate this Agreement immediately by written notice to the other party without prejudice to any right or remedy the terminating party may have, including, but not limited to, damages for breach to the extent that the same may be recoverable. 10.2 RIGHTS, PERSONAL. The license and rights granted hereunder are personal to Licensee. No assignee for the benefit of creditors, receiver, trustee in bankruptcy, sheriff or any other officer or court charged with taking over custody of Licensee's assets or business, shall have any right to continue performance of this Agreement or to exploit or in any way use the Trademark if this Agreement is terminated pursuant to Articles 11.1 and 11.2, except as may be required by law. 10.3 TRUSTEE IN BANKRUPTCY. Notwithstanding the provisions of Article 10.2 above, -23- in the event that, pursuant to the applicable bankruptcy law (the "Code"), a trustee in bankruptcy, receiver or other comparable person, of Licensee, or Licensee, as debtor, is permitted to assume this Agreement and does so and, thereafter, desires to assign this Agreement to a third party, which assignment satisfies the requirements of the Code, the trustee or Licensee, as the case may be, shall notify Licensor of same in writing. Said notice shall set forth the name and address of the proposed assignee, the proposed consideration for the assignment and all other relevant details thereof. The giving of such notice shall be deemed to constitute an offer to Licensor to have this Agreement assigned to Licensor or its designee for such consideration, or its equivalent in money, and upon such terms as are specified in the notice. The aforesaid offer may be accepted by Licensor only by written notice given to the trustee or Licensee, as the case may be, within fifteen (15) days after Licensor's receipt of the notice to such party. If Licensor fails to deliver such notice within the said fifteen (15) days, such party may complete the assignment referred to in its notice, but only if such assignment is to the entity named in said notice and for the consideration and upon the terms specified therein. Nothing contained herein shall be deemed to preclude or impair any rights which Licensor may have as a creditor in any bankruptcy proceeding. ARTICLE 11. TERMINATION 11.1 OTHER RIGHTS UNAFFECTED. It is understood and agreed that termination by either party on any ground shall be without prejudice to any other remedies which the terminating party may have. 11.2 TERMINATION WITHOUT NOTICE. If any of the following grounds for termination shall occur, this Agreement shall thereupon forthwith terminate and come to an end without any need for notice from Licensor: (a) If Licensee shall make an unauthorized disclosure of confidential information, Trade Secrets, or materials given or loaned to Licensee by Licensor; (b) If Licensee institutes proceedings seeking relief under a bankruptcy act or any similar law, or otherwise violates the provisions of Article 10.1 thereof; (c) If Licensee transfers or agrees to transfer substantially all of its property, its shares of stock or, this Agreement in violation of Article 17 thereof; (d) If Licensee shall sell unapproved merchandise in violation of Article 8.3 hereof; (e) If Licensee shall, without the prior written consent of Licensor, use the Trademark in an unauthorized or improper manner; -24- (f) If Licensee shall use the Trademark in connection with another trademark or name; and/or (g) If Licensee shall place or participate in any advertising prohibited by Article 7. 11.3 TERMINATION WITH NOTICE. If Licensee breaches any of its obligations under this Agreement, other than those specified in Article 11.2 above, Licensor may terminate this Agreement by giving Notice of Termination to Licensee. Termination will become effective automatically unless Licensee completely cures the breach within fifteen (15) days of the giving of such Notice. Termination based upon Licensee's failure to comply with the Minimum Sales Levels set forth in Article 4.2 shall become effective thirty (30) days after the giving of the Notice. If the notice relates to royalties or to product quality, pending cure Licensee shall ship no Licensed Products; if Licensee does ship, it shall automatically forfeit its right to cure and the License shall be terminated. Upon the giving of a Notice of Termination for the second time, for any reason, Licensee shall no longer have the right to cure any violation, and termination shall be effective upon the giving of the Notice. 11.4 EFFECT OF TERMINATION. On the termination of this Agreement for any reason whatsoever: all of the rights of Licensee under this Agreement shall forthwith terminate and immediately revert to Licensor; all royalties on sales theretofore made shall become immediately due and payable; Licensee shall forthwith discontinue all use of the Trademark, except that Licensee may have a period of ninety (90) days after such termination to consummate all sales of Licensed Products which were firm upon the delivery of the Inventory Schedule in accordance with Article 11.5 hereof and to sell the balance of the Inventory not purchased by Licensor, and royalties with respect thereto shall be due on such ninetieth day. Licensor shall have the right to conduct a physical inventory of the Licensed Products in Licensee's possession or control. Licensee will completely remove the Trademark from Licensed Products and destroy all hangtags and labeling attached to such Licensed Products. Licensee shall, at Licensee's expense, either return to Licensor all remaining Inventory after such ninetieth (90th) day or destroy all remaining Inventory under the supervision of Licensor. Licensee shall no longer use the Trademark, any variation, imitation or simulation thereof, or any Trademark similar thereto; Licensee shall immediately take all necessary steps to change its or any Affiliate's corporate name to omit any reference to or use of the Trademarks; Licensee will promptly transfer to Licensor, free of charge, all registrations, filings and rights with regard to the Trademark which it may have possessed at any time; and Licensee shall thereupon deliver to Licensor, free of charge, all sketches, designs, colors and the like in its possession or control, designed or approved by Licensor, and all Labels supplied by Licensor in Licensee's possession or control. Licensor shall have the option, exercisable upon notice to Licensee within thirty (30) days of termination, to negotiate the purchase of the Labels which have not been supplied by Licensor. If such negotiations do not result in the purchase of the Labels not supplied by Licensor, Licensee shall destroy the Labels under the supervision of Licensor, and Licensee, shall supply to Licensor a certificate of destruction thereof signed by a duly authorized officer of Licensee. 11.5 INVENTORY UPON TERMINATION. Upon the termination of this Agreement for any -25- reason whatsoever, Licensee shall immediately deliver to Licensor an Inventory Schedule. The Inventory Schedule shall be prepared as of the close of business on the date of such termination and shall reflect direct cost of each such item (not including overhead or any general or administrative expenses). Licensor thereupon shall have the option, exercisable by notice in writing delivered to Licensee within thirty (30) days after its receipt of the complete Inventory Schedule, to purchase any or all of the Inventory for an amount equal to the price as determined as follows: (i) as to Manufactured Products, the price shall be Licensee's standard cost (the actual manufacturing cost); and (ii) as to Purchased Products, the price shall be Licensee's landed costs, which shall, for the purposes hereof, mean the F.O.B. price together with customs, duties, brokerage, freight and insurance. In the event such notice is sent by Licensor, Licensor may collect the Inventory referred to therein within ninety (90) days after Licensor's said notice. Licensor will pay such Licensee for such Inventory upon such collection. In the event such notice is not sent, Licensee may dispose of the Licensed Products within ninety (90) days of the date of termination; provided, however, that any advertising used during such period shall be subject to Licensor's prior written approval and such disposition of the Licensed Products shall be subject to Licensee's obligations hereunder, including, but not limited to payments to be made to Licensor. At the end of such ninety (90) day period, any Licensed Products remaining in Licensee's possession shall, at the request of Licensor, be destroyed. 11.6 CONTRIBUTION FROM SEL. SEL International Investments Corp. ("SEL"), hereby agrees to make (or cause a subsidiary to make) capital contributions to Licensee in an amount equal to at least * in the aggregate, over the first three (3) Annual Periods. Licensee shall dedicate and, promptly after the receipt of any portion of such contributions, notify Licensor of the amount received and utilize the total amount of such funds received for the support and development of the business contemplated hereunder. 11.7 FREEDOM TO LICENSE. In the event of termination of this Agreement or the receipt by Licensor of a notice of termination from Licensee, Licensor shall be free to license to others the use of the Trademark in connection with the manufacture and sale of Licensed Products in the Territory, but only if the sale of such Licensed Products in the Territory produced pursuant to such third party agreement is prohibited until after the termination of this Agreement. 11.8 EQUITABLE RELIEF. Licensor and Licensee shall be entitled to equitable relief by way of temporary and permanent injunction and such other and further relief as any court with jurisdiction may deem just and proper. 11.9 TERMINATION WITHOUT PREJUDICE. Termination of this Agreement pursuant to and conditions hereof shall be without prejudice to the terminating party's other rights and remedies at law or in equity 11.10 WAIVER. It is expressly understood that under no circumstances shall Licensee be entitled, directly or indirectly, to any form of compensation or indemnity from Licensor as a consequence to the termination of this Agreement, whether as a result of the passage of time, or as the result of any other cause of termination referred to in this Agreement. Without limiting the * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -26- generality of the foregoing, by its execution of the present Agreement, Licensee hereby waives any claim which it has or which it may have in the future against Licensor arising from any alleged goodwill created by the Licensee for the benefit of the said parties or from the alleged creation or increase of a market for Licensed Products. ARTICLE 12. RELATIONSHIP BETWEEN THE PARTIES 12.1 NO AGENCY. Licensee shall not represent itself as the agent or legal representative of Licensor, Licensor's affiliates or Tommy Hilfiger for any purpose whatsoever and shall have no right to create or assume any obligation of any kind, express or implied, for or on behalf of them in any way whatsoever. Licensor shall similarly not represent itself as the agent or legal representative of Licensee. ARTICLE 13. INTENTIONALLY OMITTED ARTICLE 14. BENEFIT 14.1 BENEFIT. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and, subject to Article 17 hereof, their successors and assigns. ARTICLE 15. ENTIRE AGREEMENT; AMENDMENT 15.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and this Agreement may not be amended or modified, except in a writing signed by both parties hereto. ARTICLE 16. NON-WAIVER 16.1 NON-WAIVER. The failure of either party to enforce at any time any term, provision or condition of this Agreement, or to exercise any right or option herein, shall in no way operate as a waiver thereof, nor shall any single or partial exercise preclude any other right or option herein; and no waiver whatsoever shall be valid unless in writing, signed by the waiving party, and only to the extent herein set forth. ARTICLE 17. ASSIGNMENT 17.1 NO ASSIGNMENT WITHOUT CONSENT. The license and rights granted to Licensee hereunder are personal in nature, and Licensee may not and shall not sell, transfer, lease, sublicense -27- or assign this Agreement or its rights and interest hereunder, or any part hereof, by operation of law or otherwise, without the prior written consent of Licensor, which consent may be withheld by Licensor in its sole and absolute discretion, except that Licensee shall have the right, upon written notice to Licensor, to assign or sublicense this Agreement to Affiliates of Licensee; provided, however, that in such event Licensee agrees to guarantee the performance and obligations of such corporation, subsidiary or Affiliate under this Agreement. 17.2 SALE OF ASSETS. A sale or other transfer of all or substantially all of the assets of Licensee or a change in the control of Licensee other than as permitted under Article 17.1 shall be deemed an assignment of Licensee's rights and interests under this Agreement to which the terms and conditions of Article 17.1 of this Agreement shall apply. 17.3 SALE OF STOCK/INTEREST. Any transfer, by operation of law or otherwise, of Licensee's interest in this Agreement (in whole or in part), a fifty (50%) percent or greater interest in one or in a series of transactions in Licensee (whether stock, partnership, interest or otherwise) or any interest directly or indirectly to a competitor of Licensor shall be deemed an assignment of Licensee's rights and interest under this Agreement to which the terms and conditions of Article 17.1 of this Agreement shall apply. The issuance of shares of stock to other than the existing shareholders or their affiliates is deemed to be a transfer of that stock for purposes of this Article. If after the date hereof, there is a transfer of less than a fifty (50%) percent interest in Licensee to a non Affiliate of Licensee, then any other transfer of an interest in Licensee to a non Affiliate of Licensee which when added to the total percentage previously transferred totals a transfer of greater than fifty (50%) percent interest of Licensee, shall be deemed an assignment of Licensee's interest in this Agreement within the meaning of this Article to which the terms and conditions of Article 20.1 shall apply. 17.4 ASSIGNMENT BY LICENSOR. Licensor shall have a complete and unrestricted right to sell, transfer, lease or assign its rights and interests in this Agreement to any domestic or foreign corporation or other business entity, providing that such transferee agrees to be bound by all of the terms hereof and is the holder of the Trademark in the Territory. When Licensor wishes to sell, transfer, lease or assign its rights and interests in this Agreement, Licensor shall do so on notice to Licensee. ARTICLE 18. INDEMNIFICATION AND INSURANCE 18.1 INDEMNIFICATION BY LICENSEE. Licensee does hereby indemnify and hold harmless Licensor, Tommy Hilfiger, and their directors, officers, employees, agents, officials and related companies from and against any and all losses, liability, damages and expenses (including reasonable attorneys' fees and expenses) which they or any of them may incur or be obligated to pay in any action, claim or proceeding against them or any of them, for or by reason of any acts, whether of omission or commission, that may be committed or suffered by Licensee or any of their servants, agents or employees in connection with Licensee's performance of this Agreement, including but not limited to: -28- 18.1.1. any alleged defect in any Licensed Product, regardless of whether the action is based upon negligence or strict liability, and regardless of whether the alleged negligence of Licensor is characterized as "passive" or "active"; 18.1.2. the manufacture, labeling, sale, distribution or advertisement of any Licensed Product by Licensee; 18.1.3. any violation of any warranty, representation or agreement made by Licensee pertaining to a Licensed Product; 18.1.4. the claim of any broker, finder or agent in connection with the making of this Agreement or any transactions contemplated by this Agreement. The provisions of this Article and Licensee's obligations hereunder shall survive any termination or rescission of this Agreement. 18.2 NOTICE OF SUIT OR CLAIM. Licensee shall promptly inform Licensor by written notice of any suit or claim against Licensee relating to Licensee's performance under this Agreement, whether such suit or claim is for personal injury, involves alleged defects in the Licensed Products manufactured, sold or distributed hereunder, or otherwise. 18.3 INDEMNIFICATION BY LICENSOR. Licensor does indemnify and hold harmless Licensee, against any and all liabilities, damages and expense (including reasonable attorneys' fees, costs and expenses) which Licensee may incur or be obligated to pay in any action or claim against Licensee for infringement of any other person's claimed right to use a trademark in the Territory, but only where such action or claim results from Licensee's use of the Trademark in the Territory in accordance with the terms of this Agreement and where Licensee is not at fault. Licensee shall give Licensor prompt written notice of any such claim or action, and thereupon Licensor shall undertake and conduct the defense of any suit so brought. It is understood, however, that if there is a dispute between Licensor and Licensee as to whether the suit was brought as a result of Licensee's failure to use the mark in accordance with the terms of this Agreement, Licensee may be required to conduct such defense unless and until it is determined that no such misuse of the Trademark occurred and that Licensee are not at fault. In the event appropriate action is not taken by Licensor within thirty (30) days of its receipt of notice from Licensee, Licensee shall have the right to defend such claim or action in its own name, but no settlement or compromise of any such claim or action may be made without the prior written approval of Licensor. In either case, Licensor and Licensee shall keep each other fully advised of all developments and shall cooperate fully with each other and in all respects in connection with any such defense is made. Such indemnification shall be deemed to apply solely to the amount of the judgment, if any, against Licensee, and sums paid by Licensee in connection with its defense. Such indemnification shall not apply to any damages sustained by Licensee by reason of such claimed infringement other than those specified above. The provisions of this Article and Licensor's obligations hereunder shall survive any termination or rescission of this Agreement. -29- 18.4 INSURANCE. (a) Requirements. Without limiting Licensee's liability pursuant to the indemnity provisions of this Agreement, Licensee shall maintain commercial general liability insurance in the amount of at least * (combined single limit per occurrence) with a broad form property damage liability coverage. This insurance shall include broad form blanket contractual liability, personal injury liability, advertising liability, products and completed operations liability. Each coverage shall be written on an "occurrence" form. (b) Theft and Destruction Coverage. Licensee shall purchase insurance against theft and destruction of the Licensed Products which shall (1) be written on an "all risk" basis; (2) provide that Licensee shall be reimbursed for loss in an amount equal to the manufacturer's selling price for the products (this may be accomplished by either a selling price endorsement or business interruption insurance); (3) provide that Licensor is added as a loss payee in respect to losses to Licensed Products as their interests may appear; (4) be in effect while goods are on premises owned, rented or controlled by Licensee and while in transit or storage; and (5) include a brand and label clause stating, among other things, that the insurer will pay the cost of removing Licensor's name from damaged merchandise and relabeling goods. (c) General Provisions. The insurance described in subArticles 18.4(a) and 18.4(b) shall include: (1) an endorsement stating that Licensor shall receive at least thirty (30) days written notice prior to cancellation or non- renewal of coverage; (2) an endorsement naming Licensor as an additional insured; and (3) a mutual waiver of subrogation for insured property losses. (d) Approved Carrier/Policy Changes. All insurance shall be obtained from an insurance company approved by Licensor which approval shall not be unreasonably withheld. Licensee shall give at least thirty (30) days prior written notice to Licensor of the cancellation of, or any modification in, such insurance policy that would affect Licensor's status or benefits thereunder. This insurance may be obtained for Licensor by Licensee in conjunction with a policy which covers products other than the Licensed Products. (e) Evidence of Coverage. No later than thirty (30) days from the effective date hereof, Licensee shall furnish to Licensor evidence, in form and substance satisfactory to Licensor, of the maintenance and renewal of the required insurance including, but not limited to, copies of policies with applicable riders and endorsements, and certificates of insurance. (f) Territory. The insurance set forth in this Section must cover all countries in the Territory in which Licensee sells or manufactures Licensed Products. ARTICLE 19. SEVERABILITY 19.1 SEVERABILITY. If any provision or any portion of any provision of this Agreement * This information has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. -30- shall be construed to be illegal, invalid, or unenforceable, such shall be deemed stricken and deleted from this Agreement to the same extent and effect as if never incorporated herein, but all other provisions of this Agreement and any remaining portion of any provision which is not deemed illegal, invalid or unenforceable in part shall continue in full force and effect. ARTICLE 20. NOTICES 20.1 NOTICES. All reports, approvals and notices required or permitted to be given under this Agreement shall, unless specifically provided otherwise in this Agreement, be deemed to have been given if personally delivered or if mailed by certified or registered mail, if to Licensor, to: TOMMY HILFIGER LICENSING, INC. 913 N. Market Street Wilmington, Delaware 19801 Attention: Mr. Joel Horowitz President Copy to: Steven R. Gursky, Esq. Gursky & Associates, P.C. 21 East 40th Street New York, New York 10016 and if to Licensee, to: PEPE JEANS LONDON CORPORATION 11 Lower Square Old Isleworth Middlesex United Kingdom TW76BN Attention: Sydney R. Neil Group Chief Financial Officer The parties may change their address for receipt of notices at any time upon notice to the other party. ARTICLE 21. SUSPENSION OF OBLIGATIONS 21.1 SUSPENSION OF OBLIGATIONS. If Licensee shall be prevented from performing any of its obligations because of governmental regulation or order, or by strike, civil unrest or war, declared or undeclared, or other calamities such as fire, flood, hurricane, tornado, earthquake, or similar acts of God, or because of other similar or dissimilar cause beyond the control of Licensee, -31- Licensee's obligations shall be suspended during the period of such conditions. If such condition continues for a period of more than sixty (60) days, Licensor shall have the right to terminate this Agreement. If the act of force majeure consists of a fire, flood, hurricane, tornado, earthquake or nuclear war and if the act prevents Licensee from manufacturing and/or timely delivering the Licensed Products, whether due to an inability to obtain fabric or other materials, destruction of manufacturing facilities, inability to deliver finished product, or otherwise, Licensee shall have a period of not to exceed ninety (90) days to find alternate sources and Licensee shall advise Licensor on a weekly basis of the progress it has made in that regard. If, in Licensor's reasonable opinion, Licensee shall fail to diligently proceed to obtain alternate sources, or if the condition shall continue to exist for a period of ninety (90) days, Licensor shall have the right to terminate this Agreement. ARTICLE 22. EXHIBITS 22.1 EXHIBITS. All Exhibits are incorporated into this Agreement. The forms of Licensor may be revised by Licensor at any time. ARTICLE 23. OTHER PROVISIONS 23.1 HEADINGS. The headings of the Articles and Articles of this Agreement are for convenience only and in no way limit or affect the terms or conditions of this Agreement. 23.2 COUNTERPARTS. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 23.3 CONSTRUCTION. This Agreement shall be interpreted and construed in accordance with the laws of the State of New York with the same force and effect as if fully executed and to be performed therein. 23.4 JURISDICTION. The parties hereby consent to the jurisdiction of the United States District Court for the Southern District of New York and of any of the courts of the State of New York in any dispute arising under this Agreement and agree further that service of process or notice in any such action, suit or proceeding shall be effective if in writing and delivered in person or sent as provided in Article 20.1 hereof. 23.5 COMPLIANCE WITH LAWS. Licensee shall comply with all laws, rules, regulations and requirements of any governmental body which may be applicable to the operations of Licensee contemplated hereby, including, without limitation, as they relate to the manufacture, distribution, sale or promotion of Licensed Products, notwithstanding the fact that the Licensor may have approved -32- such item or conduct. IN WITNESS WHEREOF, the parties have executed this Agreement. TOMMY HILFIGER LICENSING, INC. By: /s/ Virginia M. Cleary Title: Assistant Secretary PEPE JEANS LONDON CORPORATION By: /s/ Lawrence S. Stroll Title: Group CEO SEL INTERNATIONAL INVESTMENTS CORP., as to Article 11.6 only By: /s/ Lawrence S. Stroll Title: Director -33- TOMMY HILFIGER LICENSING, INC. TRADEMARK REGISTRATIONS IN CLASS 25 REGISTRATION/ COUNTRY TRADEMARK APPLICATION NUMBER Austria TOMMY HILFIGER 131.765 FLAG LOGO DESIGN 131.766 CREST DESIGN 137.606 TOMMY JEANS 144.359 Benelux (Belgium, Holland, Luxembourg) TOMMY HILFIGER 426,561 429,870 426,561 587,912 524,087 FLAG LOGO DESIGN 425,504 G/M91341-2/AUD 525,311 CREST DESIGN 492,977 542,161 TOMMY JEANS 504,923 551,020 Czech Republic TOMMY HILFIGER 170820 FLAG LOGO DESIGN 170821 CREST DESIGN 171263 TOMMY JEANS 173586 REGISTRATION/ COUNTRY TRADEMARK APPLICATION NUMBER Denmark TOMMY HILFIGER VR01.175-1988 VR04.173-1988 FLAG LOGO DESIGN VR07.690-1989 CREST DESIGN VR08.882-1991 Finland TOMMY HILFIGER 102733 104075 134970 FLAG LOGO DESIGN 107592 4074/95 CREST DESIGN 120879 TOMMY JEANS 126874 France TOMMY HILFIGER 1.362.238 1.460.956 FLAG LOGO DESIGN w/ words "TOMMY HILFIGER" 93.470.085 FLAG LOGO DESIGN 1.460.958 CREST DESIGN 1.659.719 TOMMY JEANS 1.688.331 Germany TOMMY HILFIGER 1109376 1161454 39522688.0 2.061.836 FLAG LOGO DESIGN w/ words "TOMMY HILFIGER" 39523559.6 FLAG LOGO DESIGN 1161455 REGISTRATION/ COUNTRY TRADEMARK APPLICATION NUMBER Germany (ctd.) CREST DESIGN 2008483 TOMMY JEANS H66049/25W2 Greece TOMMY HILFIGER 83.364 89.451 FLAG LOGO DESIGN w/ words "TOMMY HILFIGER" 118.811 FLAG LOGO DESIGN 89.449 CREST DESIGN 103.364 TOMMY JEANS 105.727 Hungary TOMMY HILFIGER H133030 FLAG LOGO DESIGN H133031 CREST DESIGN H133029 TOMMY JEANS H133898 Iceland TOMMY HILFIGER 601/1991 FLAG LOGO DESIGN 600/1991 CREST DESIGN 598/1991 TOMMY JEANS 1186/1991 Ireland TOMMY HILFIGER 122464 FLAG LOGO DESIGN 158780 REGISTRATION/ COUNTRY TRADEMARK APPLICATION NUMBER CREST DESIGN 143279 TOMMY JEANS 148793 Israel TOMMY HILFIGER 79086 FLAG LOGO DESIGN 79085 CREST DESIGN 79088 TOMMY JEANS 80839 Italy TOMMY HILFIGER 470291 506426 FLAG LOGO DESIGN 506424 MI94C000342 CREST DESIGN 622481 TOMMY JEANS 626341 Norway TOMMY HILFIGER 132363 FLAG LOGO DESIGN 136584 CREST DESIGN 157091 TOMMY JEANS 154338 Poland TOMMY HILFIGER 72050 FLAG LOGO DESIGN 73614 CREST DESIGN 73615 TOMMY JEANS 75145 REGISTRATION/ COUNTRY TRADEMARK APPLICATION NUMBER Portugal TOMMY HILFIGER 237882 FLAG LOGO DESIGN 241862 301840 CREST DESIGN 271390 TOMMY JEANS 276421 Slovenia TOMMY HILFIGER 9180345 FLAG LOGO DESIGN w/ words "TOMMY HILFIGER" 9180346 CREST DESIGN 9180344 TOMMY JEANS 9181742 Spain TOMMY HILFIGER 1.148.653/8 FLAG LOGO DESIGN w/ words "TOMMY HILFIGER" 01.773.419/1 FLAG LOGO DESIGN 01.729.292/1 CREST DESIGN 1.618.567 TOMMY JEANS 1.654.164 Sweden TOMMY HILFIGER 207346 258267 FLAG LOGO DESIGN 211267 265070 257924 CREST DESIGN 235386 TOMMY JEANS 247080 REGISTRATION/ COUNTRY TRADEMARK APPLICATION NUMBER Switzerland TOMMY HILFIGER 384775 384754 FLAG LOGO DESIGN 384808 430951 CREST DESIGN 1431/96 388767 1431/96 TOMMY JEANS 392373 Ukraine TOMMY HILFIGER 94061933/T FLAG LOGO DESIGN 94061934/T CREST DESIGN 94061935/T TOMMY JEANS 94061937/T United Kingdom TOMMY HILFIGER 1576084 (England, Northern 1300553 Ireland, Scotland, Wales) FLAG LOGO DESIGN w/ 2021519 words "TOMMY HILFIGER" 1297398 TOMMY JEANS 1473971 CMT (COMMUNITY TRADEMARK APPLICATIONS) TOMMY HILFIGER NOT YET PROVIDED FLAG LOGO DESIGN w/words "TOMMY HILFIGER" NOT YET PROVIDED FLAG LOGO DESIGN NOT YET PROVIDED CREST DESIGN NOT YET PROVIDED TOMMY JEANS NOT YET PROVIDED EXHIBIT A TOMMY HILFIGER LICENSING, INC. STATEMENT OF ROYALTIES FOR______________TO______________19__ (QUARTER) LICENSEE NAME_________________________ LICENSEE ADDRESS______________________ ______________________________________ LICENSEE PRODUCT(S)___________________ ---------------------------------------------------------------------------------------------------------------------- CUSTOMER INVOICE ITEM UNIT NUMBER GROSS LESS LESS LESS NET SALES NET ROYALTY NAME NUMBER STYLE NO. WHOLESALE SOLD ALLOWANCES MARKDOWNS TRADE RETURNS AMOUNT PRICE DISCOUNTS DISCOUNTS ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- TOTALS SEND STATEMENT TO: TOMMY HILFIGER LICENSING, INC. I CERTIFY THAT THE 913 N. Market Street ABOVE IS ACCURATE Wilmington, Delaware 19801 U.S.A. SIGNATURE
EXHIBIT B TOMMY HILFIGER LICENSING, INC. Page______ of ________ Date__________________ FORM MUST BE SUBMITTED COMPLETE SUBMIT TO THE ATTENTION OF: TOMMY HILFIGER LICENSING, INC. 25 WEST 39TH STREET NEW YORK, NEW YORK 10018 SAMPLE APPROVAL FORM (ALL SAMPLES SUBMITTED FOR APPROVAL MUST BE IN CORRECT FABRIC) NAME OF LICENSEE ________________________________________________________ LICENSED PRODUCT ________________________________________________________ LICENSEE'S ADDRESS ______________________________________________________ SEASON ____________ STYLE NUMBER ______________ FABRICATION ____________ WHOLESALE PRICE _________________ COLORS ______________________________ SIZES ___________________________ FACTORY ______________________________ START TAKING ORDERS ____________________ END TAKING ORDERS _____________ START SHIP _____________________________ END SHIP ______________________ APPROVED ___________________ DISAPPROVED __________________ COMMENTS ________________________________________________________________ _________________________________________________________________________ _________________________________________________________________________ ______________________________ ______________________________ SIGNATURE OF LICENSEE SIGNATURE OF LICENSOR DATE RETURNED TO LICENSEE ______________________________________ EXHIBIT C THIRD PARTY MANUFACTURING AGREEMENT THIS AGREEMENT made this ___ day of ________ 1996, by and between ____________________________________, a ____________ corporation, having an office at _________________ ____________________________________ (hereinafter referred to as the "Company") and __________________ having an office at ______________________________________ (hereinafter referred to as the "Manufacturer"). W I T N E S S E T H : WHEREAS the Manufacturer is engaged in the manufacture of garments and/or other items of apparel; WHEREAS, the Company wishes to contract with the Manufacturer for manufacture of certain garments and/or other items of apparel from time to time, which garments and/or other items of apparel (the "Products") will bear the trademark Tommy Hilfiger, the trade name Tommy Hilfiger, all related logos, crests, emblems or symbols, and all combinations, form and derivatives thereof as are from time to time used by the Company or any of its affiliates, whether registered or unregistered as shown in the attached Exhibit A (the "Trademarks"); and WHEREAS, the Company has been licensed by Tommy Hilfiger Licensing, Inc. ("THLI"), a Delaware corporation, to use the Marks. THLI is the owner of all rights, title and interests in and to the Trademarks. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereby agree as follows: 1. THE PRODUCTS. Company and THLI have created certain designs and patterns from which the Manufacturer will create three dimensional samples. The Company shall advise the Manufacturer if the samples meet the Company's quality requirement within twenty-one (21) days of receipt. The Manufacturer shall make any modifications to the samples as required by the Company. Samples accepted by the Company shall be designated as prototypes for the purposes of this Agreement. 2. TERM. (a) The term of this Agreement shall be for ____ (__) year(s) commencing on the ____ day of __________, 1996 and terminating on the ____ day of __________________. EXHIBIT D (b) In the event that the Manufacturer shall have faithfully performed each and every obligation of this Agreement during the Term referred to in Article 2(a) above, then this Agreement shall automatically renew from month to month commencing immediately upon expiration of the term, unless either party has given the other thirty (30) days written notice of its intention to terminate the Agreement. 3. MANUFACTURE. (a) Manufacturer shall only produce the specific number of products as requested by the Company and at no time shall produce excess goods or overruns. Manufacturer shall not sell any products bearing the Trademarks to any third parties without the express written consent of the Company. (b) Manufacturer shall manufacture the Products and Packaging to conform in quality and specifications to the prototypes as defined in Article 1 above and as outlined in the Quality Assurance Manual developed by the Company. (c) All Products and Packaging manufactured by Manufacturer shall be delivered to locations specified by the Company or directly to the Company, whichever the Company may direct. (d) Manufacturer shall not enter into any agreement with any third party for the manufacture of the Products without the prior written consent of the Company, which consent may be withheld in the Company's sole discretion. In order to maintain the Company's high standard of quality control and to insure that appropriate measures are taken against counterfeiting, the Manufacturer will advise the Company of the following information prior to obtaining the Company's written consent: (i) name and address of each proposed manufacturer; (ii) type and style of the Products to be manufactured; (iii) quantity of the Products to be manufactured; and (iv) any other relevant information. The Manufacturer will also obtain the signature of an authorized representative from each third party manufacturer approved by the Company on an agreement, in a form substantially similar to this Agreement, designated to protect the THLI's rights in the Trademarks. The Manufacturer acknowledges that it shall remain primarily liable and completely obligated under all of the provisions of this Agreement in respect of such subcontracting arrangement. (e) Manufacturer shall adhere to all federal, state and local laws which pertain to the manufacture of clothing and apparel, including the Flammable Fabrics Act, as amended, and regulations thereunder and Manufacturer guarantees, that with regard to all products, fabrics or related materials used for the manufacture of the Products, which are to be sold by the Company for which flammability standards have been issued, amended or continued in effect under the Flammable Fabrics Act, as amended, reasonable and representative tests, as prescribed by the Consumer Product Safety Commission have been performed which show that the Products at the time of their shipment or delivery conform to the above-referenced flammability standards as are applicable. EXHIBIT D 4. INSPECTION. (a) Company shall have the right to send any representative or agent to inspect Manufacturer's premises or its subcontractors' premises to the extent the Manufacturer may have subcontractors as provided in 3(c) above. (b) Such rights of inspection shall include the right to inspect, test, and take samples of the Products, whether finished or semi-finished, at any time during the manufacturing process. (c) Company shall have the right to reject any Products or Packaging as not meeting the standards described in Article 1 above. (d) Manufacturer shall not have the right to sell or otherwise distribute any rejected Products or Packaging. All such products shall be destroyed according to methods and procedures provided by the Company. 5. NOTICES. (a) Manufacturer warrants and represents that the Trademarks will appear on all of the Products in the manner set forth in the attached Exhibit A. The Trademarks shall appear on the Packaging in the form shown in Exhibit A. (b) No other trademarks or notices shall appear on Products or Packaging without the Company's prior written consent in each instance. 6. USE OF TRADEMARKS. (a) Manufacturer shall not at any time use, promote, advertise, display or otherwise commercialize the Trademarks or any material utilizing or reproducing the Trademarks in a manner that will adversely affect any rights of ownership of the Company therein or in a manner that would derogate or detract from its repute. Manufacturer shall not use the Trademarks, in any manner whatsoever (including, without limitation, for advertising, promotion and publicity purposes), without obtaining the prior written approval of the Company. (b) The Trademarks shall be used in the form as shown in attached Exhibit A. (c) The Company assumes no liability to Manufacturer or third parties with respect to Manufacturer's use of the Trademarks other than in strict conformity with the specifications set forth in this Agreement. (d) Manufacturer's use of the Trademarks on the Products and/or Packaging shall EXHIBIT D inure to the benefit of the Company. Manufacturer shall take any and all steps required by the Company and the law to perfect the Company's rights therein. 7. PROPERTY OF OWNER. (a) Manufacturer recognizes the great value of the goodwill associated with the Trademarks and the identification of the Products with the Trademarks and acknowledges that the Trademarks and all rights therein and goodwill pertaining thereto belong exclusively to the Company. Manufacturer further recognizes and acknowledges that a breach by Manufacturer of any of its covenants, agreements or other undertakings hereunder will cause the Company irreparable damage, which cannot be adequately remedied in damages in an action at law, and may, in addition thereto, constitute an infringement of the Company's rights in the Trademarks, thereby entitling the Company to equitable remedies, costs and reasonable attorney's fees. (b) To the extent any rights in and to the Trademarks are deemed to accrue to Manufacturer, Manufacturer hereby assigns any and all such rights, at such time as they may be deemed to accrue, including the related goodwill, to the Company. (c) Manufacturer shall (i) never challenge the validity or the Company's ownership of the Trademarks or any application for registration thereof, or any trademark registration thereof and (ii) never contest the fact that Manufacturer's rights under this Agreement are solely those of a manufacturer and terminate upon expiration or termination of this Agreement. Manufacturer shall, at any time, whether during or after the term of the Agreement, execute any documents reasonably requested by the Company to confirm the Company's ownership rights. All rights in the Trademarks other than those specifically granted herein are reserved by the Company for its own use and benefit. (d) Without limiting the generality of any other provision of this Agreement, Manufacturer shall not (i) use the Trademarks, in whole or in part, as a corporate or trade name or (ii) join any name or names with the Trademarks so as to form a new trademark. Manufacturer agrees not to register, or attempt to register, the Trademarks in its own name or any other name, anywhere in the world. (e) All provisions of this Article shall survive the expiration or termination of this Agreement. 8. TRADEMARK PROTECTION. (a) In the event that Manufacturer learns of any infringement or imitation of the Trademarks or of any use by any person or entity of a trademark similar to the Trademarks, it shall promptly notify the Company. The Company thereupon shall take such action as it deems advisable for the protection of its rights in and to the Trademark and, if requested to do so by the Company, Manufacturer shall cooperate with the Company in all respects. In no event, however, shall the Company be required to take any action if it deems it inadvisable to do so. EXHIBIT D (b) Company shall have the right to defend, at its cost and expense, and with counsel of its own choice, any action or proceeding brought against Manufacturer for alleged trademark infringement arising out of Manufacturer's use of the Trademarks in accordance with the provisions of this Agreement. (c) Manufacturer shall cooperate with the Company in the execution, filing and prosecution of any trademark, copyright or design patent applications that the Company may desire to file and for that purpose Manufacturer shall supply to the Company from time to time such samples as may be reasonably required. (d) All provisions of this Article shall survive the expiration or termination of this Agreement. 9. TRANSSHIPMENT. Manufacturer hereby acknowledges the Company's strict policy against transshipment of the Products. Transshipment includes any products sewn or otherwise manufactured in one country and then shipped to the United States with a second company's "country of origin" labels and export licenses to avoid adverse trade restrictions and import quotas. Transshipment can involve both the raw materials used to manufacture the Products and the finished Products. The Manufacturer further acknowledges that transshipment in any form violates U.S. federal law and the Company reserves the right to immediately terminate this agreement according to the terms contained herein, upon receipt of proof of transshipment of the Products by the Manufacturer. 10. SECONDS, THIRDS OR EXCESS GOODS. Manufacturer shall not have the right to sell any Products or Packaging which are determined to be seconds, thirds or are in excess of the amount of the products requested by the Company. All seconds or excess products, including trims, shall be purchased by the Company at the reasonable fair market price. Manufacturer shall not have the right to sell any thirds, which shall be destroyed by Manufacturer, who shall supply a Certificate of Destruction to the Company. The Company shall have the right to inspect any seconds or excess products to ensure that they comply with the terms of this Agreement. 11. STOLEN GOODS OR DAMAGED GOODS. Manufacturer will provide the Company with immediate notice of any stolen Products or damaged Products including Products that are in production. With regard to damaged Products (i.e., Thirds), Manufacturer shall not have the right to sell any damaged Products and all damaged Products (i.e., Thirds) will be destroyed by the Manufacturer. With regard to stolen Products, Manufacturer shall cooperate with the Company with respect to any action regarding the stolen Products. 12. DESIGN OWNERSHIP. All rights, including without limitation, copyright, trade secret and design patent, to designs for the Products including, without limitation, artwork, prints patterns, package designs, labels advertising or promotional materials or any other designs using or used on or affixed thereto, and to any package design, bearing the Trademarks shall be the property of the Company. All Products manufactured from designs submitted by Manufacturer and approved by the EXHIBIT D Company, shall bear the Trademarks. 13. CONFIDENTIALITY. During the term of this Agreement and thereafter, each party shall keep strictly secret and confidential any and all information acquired from the other party hereto or its designee and shall take all necessary precautions to prevent unauthorized disclosure of such information. The Manufacturer acknowledges that it will receive from the Company prints, designs, ideas, sketches, and other materials which the Company intends to use on or in connection with lines of merchandise which have not yet been put into the channels of distribution. The parties recognize that these materials are valuable property of the Company. The Manufacturer acknowledges the need to preserve the confidentiality and secrecy of these materials and agrees to take all necessary steps to ensure that use by it or by its employees and/or agents will in all respects preserve such confidentiality and secrecy. The Manufacturer shall take all reasonable precautions to protect the secrecy of the materials, samples, and designs prior to their commercial distribution or the showing of samples for sale, and shall not manufacture any merchandise employing or adapted from any of said designs except for the Company or its affiliates or designees. 14. FORCE MAJEURE. (a) No failure or omission by either of the parties to perform any of its obligations under this Agreement shall be deemed a breach of this Agreement if such failure or omission is the result of acts of God, war, riot, accidents, compliance with any action or restriction of any government or agency thereof, strikes or labor disputes, inability to obtain suitable raw materials, fuel, power or transportation, or any other factor or circumstance beyond the control of the party, which is not attributable to the negligence of such party. (b) Any suspension of performance by reason of this Article shall be limited to the period during which such cause of failure exists, but such suspension shall not affect the running of the term of this Agreement. However, if the suspension of performance by reason of this Article exceeds six months, either party may give written notice of termination of this Agreement. 15. MANUFACTURER'S WARRANTIES AND REPRESENTATIONS. Manufacturer warrants and represents that: (a) It has and will have throughout the Term of this Agreement, the full power, authority and legal right to execute and deliver, and to perform fully and in accordance with all of the terms of, this Agreement. (b) The entering of this Agreement by Manufacturer does not violate any agreements, rights or obligations existing between Manufacturer and any other person, entity, or corporation. (c) It is not engaged in and will not engage in any activities which are in violation of EXHIBIT D any applicable Domestic, Foreign or International Laws, Rules or Regulations, including without limitation Laws, Rules or Regulations governing labor, the environment, the sale of goods, U.S. Customs Laws or illegal transshipment. The Company maintains a policy against engaging in any illegal activities and will not buy or sell products provided throughout the use of any unlawful or unethical practices. 16. THE COMPANY'S WARRANTIES AND REPRESENTATIONS. Company warrants and represents that: (a) It has, and will have throughout the Term of this Agreement, the right to authorize use of the Trademark to Manufacturer in accordance with the terms and provisions of this Agreement; and (b) The entering of this Agreement by the Company does not violate any agreements, rights or obligations existing between the Company and any other person, entity, or corporation. 17. INDEMNIFICATIONS. (a) Company hereby indemnifies Manufacturer and shall hold it harmless from any loss, liability, damage, cost or expense (including reasonable attorneys fees) arising out of any claims or suits which may be brought against Manufacturer by reason of the breach by the Company of the warranties or representations as set forth in Article 16, provided that Manufacturer gives prompt written notice, and full cooperation and assistance to the Company relative to any such claim or suit, and that the Company shall have the option to undertake and conduct the defense of any suit so brought. The Manufacturer shall cooperate fully in all respects with the Company in the conduct and defense of said suit and/or proceedings. (b) Manufacturer indemnifies and agrees to hold the Company harmless from any loss, liability, damage, cost or expense (including reasonable attorneys fees), arising out of (i) any claims or suits by reason of any unauthorized use by Manufacturer in connection with the Products or the Trademarks covered by this Agreement; (ii) Manufacturer's non-compliance with any applicable federal, state, or local law or with any other applicable governmental regulations; and (iii) any alleged defects and or inherent dangers in Products or use thereof. 18. TERMINATION. (a) Company shall have the right to terminate this Agreement, if Manufacturer breaches any of its obligations under this Agreement or such other occurrences as outlined below. (i) If any governmental agency or other body or office or official vested with EXHIBIT D appropriate authority finds that the Products are harmful or defective in any way, manner or form, or are being sold or distributed in contravention of applicable laws and regulations or in a manner likely to cause harm; or (ii) If Manufacturer manufactures the Products without the prior written approval of the Company as provided herein or in direct contradiction to the Purchase Order; or (iii) If Manufacturer is unable to pay its debts when due, or makes any assignment for the benefit of creditors, or files any petition under the bankruptcy or insolvency laws of any jurisdiction, country or place, or has or suffers a receiver or trustee to be appointed for its business or property, or is adjudicated a bankrupt or an insolvent; or (iv) If Manufacturer fails to make timely delivery of the Products. (b) In the event any of these defaults occur, the Company shall give notice of termination in writing to Manufacturer by certified mail. The Manufacturer shall have ten (10) days from the date of giving notice in which to correct any of these defaults or at the Owner's sole discretion, Manufacturer may be given additional time to correct such defaults and failing such, this Agreement shall thereupon immediately terminate. 19. ACTS UPON EXPIRATION OR TERMINATION AT THIS AGREEMENT. (a) Upon and after the expiration or termination of this Agreement, Manufacturer agrees not to make reference in its advertising or its business materials as having been formerly associated with the Company or the Trademarks. (b) Upon and after the expiration or termination of this Agreement, all rights granted to Manufacturer hereunder shall forthwith revert to the Company, who shall be free to transfer any and all rights to others to use the Trademarks in connection with the manufacture of the Products. (c) Upon and after the expiration or termination of this Agreement, Manufacturer and its Affiliates will refrain from further use of the Trademarks or any further reference to it, directly or indirectly, or of anything confusingly similar thereto, in connection with the manufacture or sale of any products. Additionally, all sketches, patterns, prototypes, samples or other materials relating to the Products shall be returned by Manufacturer to the Company. (d) In the event of expiration or termination of this Agreement, as herein provided, with the exception of the Products which Manufacturer must ship to satisfy any unfilled, confirmed orders for the current season it had received prior to said expiration or termination, the Company shall have the prior right and option to purchase any or all of the Products and Packaging Materials, as then in Manufacturer's possession or carried on its books of account. Upon such termination or EXHIBIT D expiration Manufacturer shall immediately cause physical inventories to be taken of (i) Products on hand; (ii) Products in the process of manufacture; and (iii) all Packaging Materials, which inventories shall be reduced to writing and a copy thereof shall be delivered to Company not later than fifteen (15) days from such termination or expiration. Written notice of the taking of each inventory shall be given the Company at least forty-eight (48) hours prior thereto. The Company shall have the right to be present at such physical inventory or to take its own inventory, and to exercise all rights it has available with respect to the examination of Manufacturer's books and records. If Manufacturer does not allow the Company to take such inventory it shall have no right to sell the remaining Products as provided in Article 19(f) below. (e) Manufacturer recognizes that any sale of the Products upon termination or expiration, would cause irreparable damage to the prestige of the Company and to the Trademark, and to the goodwill pertaining thereto. (f) Upon expiration or termination of this Agreement, Manufacturer shall cease the manufacture of Products. All the Products set forth on the inventories referred to in subdivision (i) and (ii) of Article 19(f) which are not purchased by the Company pursuant to such Article may be sold subject to the Company's prior right to approve the customers and the terms and conditions of each sale. Such sale shall otherwise be strictly in accordance with the terms, covenants and conditions of this Agreement as though the Agreement had not expired or terminated. 20. NOTICES. All notices which either party hereto is required or may desire to give shall be given by addressing the same to the address hereinafter in this Article, or at such other address as may be designated in writing by any party in a notice to the other given in the manner prescribed in this Article. All such notices shall be sufficiently given when mailed by registered or certified mail. The address to which any such notices, shall be given are the following: TO COMPANY: TO MANUFACTURER: ATTENTION: ATTENTION: 21. NO PARTNERSHIP, ETC. This Agreement does not constitute and shall not be construed to create a partnership or joint venture between the Company and Manufacturer. Neither party shall have any right to obligate or bind the other party in any manner whatsoever, and nothing herein contained shall give, or is intended to give, any rights of any kind to any third persons. 22. NON-ASSIGNABILITY, ETC. This Agreement shall bind and inure to the benefit of the Company and its successors and assigns. This Agreement is personal to Manufacturer, and Manufacturer shall not franchise its rights hereunder and neither this Agreement nor any of the rights EXHIBIT D of Manufacturer hereunder shall be sold, transferred or assigned by Manufacturer and no rights hereunder shall devolve by operation of law or otherwise upon any receiver, liquidator, trustee or other party. 23. SEVERABILITY. If any provision or any portion of any provision of this Agreement shall be construed to be illegal, invalid, or unenforceable, such shall be deemed stricken and deleted from this Agreement to the same extent and effect as if never incorporated herein, but all other provisions of this Agreement and remaining portion of any provision which is not found to be illegal, invalid or unenforceable in part shall continue in full force and effect. 24. HEADINGS. The headings of the Articles of this Agreement are for convenience only and shall in no way limit or affect the term or conditions of this Agreement. 25. COUNTERPARTS. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 26. CONSTRUCTION. This Agreement shall be construed in accordance with the laws of the State of New York of the United States of America. 27. WAIVER, MODIFICATION, ETC. No waiver, modification or cancellation of any term or condition of this Agreement shall be effective unless executed in writing by the party charged therewith. No written waiver shall excuse the performance of any acts other than those specifically referred to herein. The fact that the Company has not previously insisted upon Manufacturer expressly complying with any provision of this Agreement shall not be deemed to be a waiver of the Company's future right to require compliance in respect thereof and Manufacturer specifically acknowledges and agrees that the prior forbearance in respect of any act, term or condition shall not prevent the Company from subsequently requiring full and complete compliance thereafter. Continued... EXHIBIT D 28. JURISDICTION. In the event that a court action becomes necessary the Company and Manufacturer consent to the jurisdiction of the courts of the State of New York, including all New York Courts and all Federal Courts of the State of New York. IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date first written above. COMPANY: MANUFACTURER: By: By: Name: Name: Title: Title: EXHIBIT D TOMMY HILFIGER LICENSING, INC. PAGE______ OF ______ DATE________________ FORM MUST BE SUBMITTED COMPLETED SUBMIT TO THE ATTENTION OF: TOMMY HILFIGER LICENSING, INC. 913 N. MARKET STREET WILMINGTON, DELAWARE 19801 NAME OF LICENSEE_________________________________________________________ LICENSED PRODUCT__________________________________________________________________ LICENSEE'S ADDRESS__________________________________________________________________ EXPENDITURES REFLECT THE PERIOD _____ / _____ / _____ TO _____ /_____ / _____, ALL TEARSHEETS AND ADVERTISING BILLS MUST ACCOMPANY THIS FORM. DATE OF PUBLICATION OF DOLLAR AMOUNT ADVERTISING TYPE OF ADVERTISING LICENSEE SPENT ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________ EXHIBIT E TERRITORY Albania Andorra Austria Bahrain Belgium Bulgaria Cyprus Czech Republic Denmark Egypt Finland France Germany Greece Holland Hungary Iceland Iran Iraq Ireland Israel Italy Jordan Kuwait Lebanon Lichtenstein Luxembourg Malta Norway Oman Poland Portugal Qatar Romania Saudi Arabia Solvenia Spain Sweden Switzerland Syria Turkey United Arab Emirates United Kingdom (England, Northern Ireland, Scotland, Wales) Yemen EXHIBIT F CERTIFICATION In consideration of Tommy Hilfiger Licensing, Inc. ("THLI") entering into a licensing arrangement with Pepe Jeans London Corporation for the manufacture, distribution and sale of Tommy Hilfiger (Registered) brand merchandise and in compliance with THLI's License Agreement with us (the "Agreement"), we hereby certify that: Any merchandise (including components thereof) manufactured under the Agreement will be manufactured in compliance with the wage and hour laws of the country of manufacture and without the use of child (under the age of 14), prison or slave labor; we will obtain the signature of an authorized representative of all suppliers and contract sewing shops or other designated contract facilities manufacturing Tommy Hilfiger (Registered) brand merchandise on Certification similar to this document, and return same to THLI no later than thirty (30) days after execution; and we have in effect a program of monitoring any our manufacturing facilities, and the manufacturing facilities or our suppliers, contract sewing shops and other designated contract facilities which manufacture Tommy Hilfiger (Registered) brand merchandise for compliance with the requirements set forth above. Any merchandise shipped to THLI or otherwise imported into the Territory as defined in the Agreement will be in compliance with all laws applicable to the designation of country of origin on products, accurately states the country of origin on all products; the marking of shipments with proper country of origin and shall be shipped under legally issued and valid export licenses or visas. [Name of your Company] Date: By: Authorized Signature [Notary Public Seal]1 EXHIBIT G EX-11 8 EXHIBIT 11 EXHIBIT 11 TOMMY HILFIGER CORPORATION COMPUTATION OF NET INCOME PER ORDINARY SHARES (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended Year Ended Year Ended March 31, March 31, March 31, 1997 1996 1995 ---- ---- ---- FINANCIAL STATEMENT PRESENTATION PRIMARY Average shares outstanding................................ 37,059 35,767 34,963 Net effect of dilutive stock options on the treasury stock method using average market price................... 826 1,474 1,383 ------- ------- ------- Total..................................................... 37,885 37,241 36,346 ======= ======= ======= Net Income................................................ $86,382 $61,500 $40,715 ======= ======= ======= Per Share Amount.......................................... $ 2.28 $ 1.65 $ 1.12 ======= ======= ======= FULLY DILUTED Average shares outstanding................................ 37,059 35,767 34,963 Net effect of dilutive stock options based on the treasury stock method using ending market price........... 979 1,606 1,666 ------- ------- ------- Total..................................................... 38,038 37,373 36,629 ======= ======= ======= Net Income................................................ $86,382 $61,500 $40,715 ======= ======= ======= Per Share Amount......................................... $ 2.27 $ 1.65 $ 1.11 ======= ======= =======
EX-21 9 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF TOMMY HILFIGER CORPORATION State or Other Jurisdiction Name of Subsidiary of Incorporation or Organization Tommy Hilfiger U.S.A., Inc. Delaware Tommy Hilfiger Retail, Inc. Delaware Tommy Hilfiger Licensing, Inc. Delaware Tommy Hilfiger Flagship Stores, Inc. Delaware TH Flagship Holding Corporation I Delaware TH Flagship Holding Corporation II Delaware Tommy Hilfiger Retail (UK) Company United Kingdom Tommy Hilfiger (Eastern Hemisphere) Limited British Virgin Islands Tommy Hilfiger (HK) Limited Hong Kong Tommy Hilfiger (India) Limited British Virgin Islands Tommy Hilfiger (Singapore) Pte. Ltd. Singapore EX-23 10 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-52810, 33-77168, 33-89298, 33-80439, and 333-20993) of Tommy Hilfiger Corporation of our report dated May 21, 1997 appearing under Item 8 in this Annual Report on Form 10-K. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP New York, New York June 20, 1997 EX-24 11 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz my true and lawful attorney with power to act and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 15th day of April, 1997. /s/ Benjamin M.T. Ng Benjamin M.T. Ng POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Benjamin M.T. Ng my true and lawful attorney with power to act and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 15th day of April, 1997. /s/ Joel J. Horowitz Joel J. Horowitz POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz and Benjamin M.T. Ng, each of them severally, my true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 18th day of April, 1997. /s/ Silas K.F. Chou Silas K.F. Chou POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz and Benjamin M.T. Ng, each of them severally, my true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 15th day of April, 1997. /s/ Thomas J. Hilfiger Thomas J. Hilfiger POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz and Benjamin M.T. Ng, each of them severally, my true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 15th day of April, 1997. /s/ Lawrence S. Stroll Lawrence S. Stroll POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz and Benjamin M.T. Ng, each of them severally, my true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 2nd day of April, 1997. /s/ Joseph M. Adamko Joseph M. Adamko POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz and Benjamin M.T. Ng, each of them severally, my true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 22nd day of April, 1997. /s/ Clinton V. Silver Clinton V. Silver POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz and Benjamin M.T. Ng, each of them severally, my true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 18th day of April, 1997. /s/ Ronald K.Y. Chao Ronald K.Y. Chao POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz and Benjamin M.T. Ng, each of them severally, my true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 18th day of April, 1997. /s/ Lester M.Y. Ma Lester M.Y. Ma POWER OF ATTORNEY WHEREAS, Tommy Hilfiger Corporation proposes to file with Securities and Exchange Commission, under the Securities and Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the fiscal year ended March 31, 1997: NOW, THEREFORE, I hereby appoint Joel J. Horowitz and Benjamin M.T. Ng, each of them severally, my true and lawful attorney or attorneys with power to act with or without the other and with full power of substitution and resubstitution, to execute in my name, place, and stead, in any and all capacities, said Annual Report on Form 10-K and all instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission, all as fully to all intents and purposes as I might or could do in person, and I hereby ratify and approve the acts of said attorney. IN WITNESS WHEREOF, I have executed this instrument this 10th day of April, 1997. /s/ Steven A. Sorrillo Steven A. Sorrillo EX-27 12 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Tommy Hilfiger Corporation Consolidated Balance Sheet as of March 31, 1997 and Consolidated Statement of Operations for the year then ended and is qualified in its entirety by reference to such financial statements. YEAR MAR-31-1997 MAR-31-1997 109,908 0 79,984 0 123,847 332,353 121,540 0 463,085 61,686 1,510 0 0 372 397,092 463,085 0 661,688 0 344,884 185,556 0 0 131,248 44,866 0 0 0 0 86,382 2.28 0
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