<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
6 /F, Precious Industrial Centre, 18 Cheung Yue Street, Cheung Sha Wan, Kowloon,
- --------------------------------------------------------------------------------
Hong Kong
---------
(Address of principal executive offices)
852-2745-7798
-------------
(Registrant's telephone number,
including area code)
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
---- ----
Ordinary Shares, $0.01 par value per share, outstanding as of August 1, 1999:
94,579,348
<PAGE>
TOMMY HILFIGER CORPORATION
INDEX TO FORM 10-Q
June 30, 1999
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1 Financial Statements
Condensed Consolidated Statements of Operations for the three months ended June 30,
1999 and 1998.................................................................................. 3
Condensed Consolidated Balance Sheets as of June 30, 1999 and March 31, 1999..................... 4
Condensed Consolidated Statements of Cash Flows for the three months ended June 30,
1999 and 1998.................................................................................. 5
Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months
ended June 30, 1999 and the year ended March 31, 1999.......................................... 6
Notes to Condensed Consolidated Financial Statements............................................. 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............ 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk....................................... 17
PART II - OTHER INFORMATION
Item 1 Legal Proceedings................................................................................ 18
Item 6 Exhibits and Reports on Form 8-K................................................................. 18
Signatures................................................................................................ 19
</TABLE>
2
<PAGE>
PART I
ITEM 1 - FINANCIAL STATEMENTS
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) For the Three Months Ended
June 30,
----------------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Net revenue................................................................... $ 419,103 $ 287,656
Cost of goods sold............................................................ 221,606 152,988
------------- --------------
Gross profit.................................................................. 197,497 134,668
Depreciation and amortization................................................. 22,478 16,832
Other selling, general and administrative expenses............................ 112,789 76,034
Special charges............................................................... - 19,800
------------- --------------
Total selling, general and administrative expenses............................ 135,267 112,666
Income from operations........................................................ 62,230 22,002
Interest expense.............................................................. 10,667 7,122
Interest income............................................................... 2,907 1,701
------------- --------------
Income before income taxes.................................................... 54,470 16,581
Provision for income taxes.................................................... 15,741 3,606
------------- --------------
Net income.................................................................... $ 38,729 $ 12,975
============= ==============
Earnings per share:
Basic earnings per share...................................................... $ 0.41 $ 0.15
============= ==============
Weighted average shares outstanding........................................... 94,360 87,285
============= ==============
Diluted earnings per share.................................................... $ 0.40 $ 0.15
============= ==============
Weighted average shares and share equivalents outstanding..................... 95,980 88,614
============= ==============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) June 30, March 31,
1999 1999
------------ -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents............................................... $ 235,296 $ 241,950
Accounts receivable..................................................... 144,233 186,640
Inventories............................................................. 267,419 222,928
Other current assets.................................................... 55,466 48,638
------------ -------------
Total current assets............................................. 702,414 700,156
Property and equipment, at cost, less accumulated
depreciation and amortization.............................................. 250,988 228,294
Intangible assets, net of accumulated amortization.............................. 1,266,916 1,275,485
Other assets.................................................................... 3,177 2,685
------------ -------------
Total Assets..................................................... $ 2,223,495 $ 2,206,620
============ =============
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings................................................... $ 783 $ 1,234
Current portion of long-term debt....................................... 42,500 40,000
Accounts payable........................................................ 14,339 27,310
Accrued expenses and other current liabilities.......................... 184,924 188,606
------------ -------------
Total current liabilities........................................ 242,546 257,150
Long-term debt.................................................................. 596,776 609,245
Deferred tax liability.......................................................... 240,972 242,546
Other liabilities............................................................... 5,160 5,430
Shareholders' equity
Preference Shares, $0.01 par value-shares authorized 5,000,000;
none issued............................................................ - -
Ordinary Shares, $0.01 par value-shares authorized 150,000,000;
issued and outstanding 94,579,348 and 94,324,088, respectively......... 946 943
Capital in excess of par value.......................................... 578,882 572,809
Retained earnings....................................................... 557,641 518,912
Accumulated other comprehensive income (loss)........................... 572 (415)
------------ -------------
Total shareholders' equity....................................... 1,138,041 1,092,249
------------ -------------
Commitments and contingencies
Total Liabilities and Shareholders' Equity....................... $ 2,223,495 $ 2,206,620
============ =============
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
-----------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Cash flows from operating activitities
Net income...................................................................... $ 38,729 $ 12,975
Adjustments to reconcile net income to net cash from operating activities
Depreciation and amortization............................................. 22,748 16,832
Deferred taxes............................................................ (6,900) (929)
Provision for special charges............................................. - 19,800
Changes in operating assets and liabilities
Decrease (increase) in assets
Accounts receivable............................................... 42,407 35,042
Inventories....................................................... (44,491) (46,184)
Other assets...................................................... (2,087) 5,983
Decrease in liabilities
Accounts payable.................................................. (12,971) (21,800)
Accrued expenses and other liabilities............................ (6,292) (12,635)
----------- ----------
Net cash provided by operating activities.............................. 31,143 9,084
----------- ----------
Cash flows from investing activities
Purchases of property and equipment............................................. (33,065) (13,959)
Acquisition of businesses, net of cash acquired................................. - (736,508)
----------- ----------
Net cash used in investing activities.................................. (33,065) (750,467)
----------- ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt....................................... - 649,151
Payments on long-term debt..................................................... (10,000) (10,000)
Proceeds from the exercise of employee stock options........................... 4,732 4,634
Short-term bank borrowings (repayments)........................................ (451) (7,794)
Other.......................................................................... 987 (85)
----------- ----------
Net cash provided by (used in) financing activities.................... (4,732) 635,906
----------- ----------
Net decrease in cash................................................... (6,654) (105,477)
Cash and cash equivalents, beginning of period................................... 241,950 157,051
----------- ----------
Cash and cash equivalents, end of period......................................... $ 235,296 $ 51,574
=========== ==========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
TOMMY HILFIGER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Capital in Accumulated
excess other Total
Ordinary of par Retained comprehensive shareholders'
shares value earnings income (loss) equity
----------- ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1998..................... $ 752 $ 173,040 $ 345,195 $ 75 $ 519,062
Net income............................... - - 173,717 - 173,717
Foreign currency translation............. - - - (490) (490)
Issuance of shares in connection
with the Acquisition................... 180 377,335 - - 377,515
Exercise of employee stock options....... 11 15,169 - - 15,180
Tax benefits from exercise of stock
options................................ - 7,265 - - 7,265
----------- ------------ ------------ -------------- -------------
Balance, March 31, 1999..................... 943 572,809 518,912 (415) 1,092,249
Net income............................... - - 38,729 - 38,729
Foreign currency translation............. - - - 987 987
Exercise of employee stock options....... 3 4,729 - - 4,732
Tax benefits from exercise of stock
options............................. - 1,344 - - 1,344
----------- ----------- ------------ -------------- -------------
Balance, June 30, 1999 (Unaudited).......... $ 946 $ 578,882 $ 557,641 $ 572 $ 1,138,041
=========== =========== ============ ============== =============
</TABLE>
Comprehensive income consists of net income and foreign currency
translation and totaled $173,227 for the fiscal year ended March 31, 1999 and
$39,716 for the three months ended June 30, 1999.
See Accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
TOMMY HILFIGER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared by Tommy Hilfiger Corporation ("THC" or the "Company"; unless the
context indicates otherwise, all references to the "Company" include THC and its
subsidiaries) in a manner consistent with that used in the preparation of the
consolidated financial statements included in the Company's Annual Report as
filed with the Securities and Exchange Commission on Form 10-K (the "Form
10-K"). Certain items contained in these statements are based on estimates. In
the opinion of management, the accompanying financial statements reflect all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair presentation of the financial position and results of operations and cash
flows for the periods presented. All significant intercompany accounts and
transactions have been eliminated.
Operating results for the three-month period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 2000. These unaudited financial statements should be read in
conjunction with the financial statements included in the Form 10-K.
The financial statements as of and for the three-month periods ended June
30, 1999 and 1998 are unaudited. The Condensed Consolidated Balance Sheet as of
March 31, 1999, as presented, has been prepared from the Consolidated Balance
Sheet as of March 31, 1999 included in the Company's Form 10-K.
Note 2 - Share Split
On June 4, 1999, the Company announced that its Board of Directors had
approved and declared a two-for-one split of the Company's Ordinary Shares, par
value $0.01 per share (the "Ordinary Shares"). The split was effected in the
form of a dividend of one Ordinary Share per Ordinary Share issued and
outstanding or held by the Company in its treasury (the "Share Split"), and was
paid on July 9, 1999 to shareholders of record at the close of business on June
18, 1999. Accordingly, all share amounts, earnings per share and share
equivalents have been restated to reflect the Share Split. In connection with
the Share Split, the Board of Directors of the Company also approved an increase
in the number of authorized Ordinary Shares to 150,000,000 from 75,000,000.
Note 3 - Acquisition of Womenswear, Jeanswear and Canadian Licensees
On May 8, 1998, following the approval by the shareholders of the Company
on May 5, 1998, the Company acquired from related parties Pepe Jeans USA, Inc.,
the Company's United States womenswear and jeanswear licensee ("Pepe USA"), TJ
Far East Limited, Pepe USA's buying agency affiliate, and Tomcan Investments
Inc., the parent corporation of Tommy Hilfiger Canada Inc. ("TH Canada"), the
Company's Canadian licensee (collectively, the "Acquired Companies") (the
"Acquisition"). The aggregate purchase price was $1,166,239, comprised of the
following: cash - $755,760, the issuance of 18,091,860 Ordinary Shares of the
Company - $377,515, and related transaction costs. For accounting purposes, the
Ordinary Shares of the Company were valued at $23.185 per share (the average
closing price for the five days before and after the announcement of the
Acquisition) reduced by a valuation adjustment of $41,960 to reflect
restrictions on the sale of the shares. The cash portion of the purchase price
was funded from a combination of debt financing and cash on hand.
7
<PAGE>
Purchase price allocation
The Acquisition has been accounted for as a purchase and, accordingly, the
operating results of the Acquired Companies are included in the consolidated
results of the Company from the date of the Acquisition. The purchase price has
been allocated as follows:
<TABLE>
<S> <C>
Cash.............................................................................$ 19,252
Accounts receivable.............................................................. 57,343
Inventory........................................................................ 67,723
Other current assets............................................................. 13,359
Property and equipment........................................................... 49,212
Intangible assets, including goodwill............................................ 1,307,376
Other assets..................................................................... 1,075
Short-term bank borrowings....................................................... (15,965)
Accounts payable................................................................. (17,183)
Accrued expenses and other current liabilities................................... (51,457)
Long-term debt................................................................... (10,000)
Deferred tax liability........................................................... (252,320)
Other liabilities................................................................ (2,176)
------------
Total purchase price.............................................................$ 1,166,239
============
</TABLE>
Pro forma results
The pro forma combined condensed results of operations of the Company and
the Acquired Companies for the three months ended June 30, 1998, after giving
effect to certain pro forma adjustments, are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
--------------------------------
<S> <C>
Net revenue.............................................................$ 336,106
Gross profit............................................................ 156,859
Income from operations.................................................. 31,810
Net income.............................................................. 16,708
Diluted earnings per share..............................................$ 0.18
Weighted average shares and share
equivalents outstanding................................................. 94,578
</TABLE>
The pro forma results of operations, before special, acquisition-related
charges of $19,800, for the three months ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
--------------------------------
<S> <C>
Net income..............................................................$ 28,588
Diluted earnings per share..............................................$ 0.30
</TABLE>
The foregoing pro forma statement of operations data assumes that the
Acquisition took place as of the beginning of the quarter. The results also
reflect (a) the elimination of certain revenues, cost of goods sold and royalty
expense, (b) amortization of intangible assets, principally over 40 years, (c)
incremental interest and other expenses and (d) applicable income tax effects.
8
<PAGE>
Special acquisition related charges
During the quarter ended June 30, 1998, the Company recorded a special
charge for non-recurring expenses of $19,800, before income taxes, related to
the Acquisition. This special charge consists of provisions of $7,000 for the
write-off of the fixed assets and operating leases of the Company's specialty
stores, $7,000 for redundant MIS equipment, furniture, fixtures and other
equipment, $3,800 for severance and other employee costs and $2,000 for the
termination of certain vendor contracts.
At June 30, 1999, $5,415 of the special charge remains in accrued
liabilities. The balance principally relates to the closure of the specialty
stores and restructuring of the related leases.
Note 4 - Inventories
Inventories are summarized as follows:
<TABLE>
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
Finished Goods............................$ 263,119 $ 219,254
Raw Materials............................. 4,300 3,674
------------- --------------
$ 267,419 $ 222,928
============= ==============
</TABLE>
Note 5 - Notes and Credit Facilities
The debt financing portion of the Acquisition purchase price consisted of
$250,000 of 6.50% notes maturing on June 1, 2003 (the "2003 Notes"), $200,000 of
6.85% notes maturing on June 1, 2008 (the "2008 Notes") and $200,000 of term
loan borrowings pursuant to new $450,000 term and revolving credit facilities
(the "Credit Facilities"). The 2003 Notes and the 2008 Notes (collectively, the
"Notes") were issued by Tommy Hilfiger U.S.A., Inc. ("TH USA") and guaranteed by
THC. The indenture under which the Notes were issued contains covenants that,
among other things, restrict the ability of subsidiaries of THC to incur
additional indebtedness, restrict the ability of THC and its subsidiaries to
incur indebtedness secured by liens or enter into sale and leaseback
transactions and restrict the ability of THC and TH USA to engage in mergers or
consolidations.
The Credit Facilities, which are guaranteed by THC, consist of an unsecured
$250,000 TH USA five-year revolving credit facility, of which up to $150,000 may
be used for direct borrowings, and an unsecured $200,000 five-year term credit
facility which was borrowed by TH USA in connection with the Acquisition. The
revolving credit facility, which accrues interest at varying interest rates,
will be available for letters of credit, working capital and other general
corporate purposes. The Credit Facilities replaced the Company's secured
revolving credit agreement which had been in place since April 1, 1996.
Borrowings under the term loan facility bear interest at varying rates
(5.53% as of June 30, 1999) and are repayable in quarterly installments as
follows: $40,000 in the 12-month period ending March 31, 2000, $50,000 in each
of the next two succeeding 12-month periods and $60,000 in the next succeeding
12-month period.
The Credit Facilities contain a number of covenants that, among other
things, restrict the ability of subsidiaries of THC to dispose of assets, incur
additional indebtedness, create liens on assets, pay dividends or make other
payments in respect of capital stock, make investments, loans and advances,
engage in transactions with affiliates, enter into sale and leaseback
transactions, engage in mergers or consolidations or change the businesses
conducted by them. The Credit Facilities also restrict the ability of THC to
create liens on assets or enter into sale and leaseback transactions. Under the
Credit Facilities, subsidiaries of THC may not pay dividends or make other
payments in respect of capital stock to THC that in the aggregate exceed 33% of
the Company's cumulative consolidated net income, commencing with the fiscal
year ended March 31, 1998, less certain deductions. In addition, under the
Credit Facilities, THC and TH USA are required to comply with and maintain
specified financial ratios and tests (based on the Company's consolidated
financial results), including, without limitation, an interest expense coverage
ratio, a maximum leverage ratio and a minimum consolidated net worth test.
The Company was in compliance with all covenants in respect of the Notes
and the Credit Facilities as of, and for the period ended, June 30, 1999.
Note 6 - Summarized Financial Information
The following presents summarized financial information of TH USA, a wholly
owned subsidiary of THC, and its consolidated subsidiaries, as of June 30, 1999
and March 31, 1999 and for the three months ended June 30, 1999 and 1998. TH USA
is the issuer and THC is the guarantor of the Notes. The Company has not
presented separate financial statements and other disclosures concerning TH USA
because management has determined that such information is not material to
holders of the Notes.
9
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------- --------------
<S> <C> <C>
Current assets...................................................... $ 588,390 $ 595,819
Noncurrent assets................................................... 1,502,079 1,478,790
Current liability due to THC........................................ 43,373 26,494
Other current liabilities........................................... 219,569 240,851
Noncurrent liability due to THC..................................... 815,829 801,511
Other noncurrent liabilities........................................ 846,479 852,329
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1999 1998
----- -----
<S> <C> <C>
Net Revenue...................................................... $ 416,070 $ 285,147
Gross Profit..................................................... 189,484 128,997
Net income (loss)................................................ 10,805 (3,941)
</TABLE>
Note 7 - Segment Reporting
The Company has three reportable segments: Wholesale, Retail and Licensing.
The Company's reportable segments are business units that offer different
products and services or similar products through different distribution
channels. The Wholesale segment consists of the design and sourcing of men's
sportswear and jeanswear, women's casualwear and jeanswear and childrenswear for
wholesale distribution. The Retail segment reflects the operations of the
Company's outlet, specialty and flagship stores. The Licensing segment consists
of the operations of licensing the Company's trademarks for specified products
in specified geographic areas. The Company evaluates performance and allocates
resources based on segment profits. The accounting policies of the reportable
segments are the same as those described in Note 1, "Summary of Significant
Accounting Policies", to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission. Segment profits are comprised of segment net revenue less cost of
goods sold and selling, general and administrative expenses. Excluded from
segment profits, however, are the vast majority of executive compensation,
marketing, brand image marketing costs associated with its flagship stores,
amortization of intangibles including goodwill, special charges and interest
costs. Financial information for the Company's reportable segments is as
follows:
<TABLE>
<CAPTION>
Wholesale Retail Licensing Total
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Quarter Ended June 30, 1999
- ---------------------------
Total segment revenue............................ $ 353,582 $ 52,123 $ 28,105 $ 433,810
Segment profits.................................. 65,053 11,988 15,146 92,187
Depreciation and amortization
included in segment profits.................... 10,020 2,107 285 12,412
Quarter Ended June 30, 1998
- ---------------------------
Total segment revenue............................ $ 233,807 $ 41,235 $ 24,011 $ 299,053
Segment profits.................................. 46,025 8,062 13,966 68,053
Depreciation and amortization
included in segment profits.................... 6,527 2,230 279 9,036
</TABLE>
A reconciliation of total segment revenue to consolidated net revenue is as
follows:
<TABLE>
<CAPTION>
Quarter Ended June 30,
-------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Total segment revenue................................. $ 433,810 $ 299,053
Intercompany revenue.................................. (14,707) (11,397)
------------- --------------
Consolidated net revenue.............................. $ 419,103 $ 287,656
============= ==============
</TABLE>
Intercompany revenue represents buying agency commissions from consolidated
subsidiaries.
10
<PAGE>
A reconciliation of total segment profits to consolidated income before
income taxes is as follows:
<TABLE>
<CAPTION>
Quarter Ended June 30,
--------------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Segment profits.......................................... $ 92,187 $ 68,053
Corporate expenses not allocated......................... 29,957 26,251
Special charge........................................... - 19,800
Interest expense, net.................................... 7,760 5,421
------------- --------------
Consolidated income before income taxes.................. $ 54,470 $ 16,581
============= ==============
</TABLE>
The Company does not disaggregate assets on a segment basis for internal
management reporting and, therefore, such information is not presented.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(dollar amounts in thousands)
General
In May 1998, the Company acquired its licensed jeanswear, womenswear and
Canadian businesses for an aggregate purchase price of $755,760 in cash plus
18,091,860 Ordinary Shares of the Company. The cash portion of the purchase
price was funded through a combination of cash on hand, the issuance of debt
securities in a public offering, and bank borrowings. The Company has included
the results of the Acquired Companies in its consolidated statements of
operations from the date of the Acquisition. Because of the significance of the
Acquired Companies, Management's Discussion and Analysis is presented on both a
pro forma and actual basis.
Results of Operations
The following table sets forth the Condensed Consolidated Statements of
Operations data as well as the Pro Forma Statements of Operations data (which
are disclosed in Note 3 to the Condensed Consolidated Financial Statements) as a
percentage of net revenue.
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------------
Actual Pro Forma Actual
-------- -------------- --------
1999 1998 1998
-------- --------- --------
<S> <C> <C> <C>
Net revenue ............................................. 100.0 % 100.0 % 100.0 %
Cost of goods sold ...................................... 52.9 53.3 53.2
-------- --------- --------
Gross profit............................................. 47.1 46.7 46.8
Depreciation and amortization............................ 5.4 6.1 5.9
Other SG&A expenses...................................... 26.9 25.2 26.4
-------- --------- --------
SG&A expenses before special charges..................... 32.3 31.3 32.3
Special charges.......................................... - 5.9 6.9
-------- --------- --------
Total SG&A expenses...................................... 32.3 37.2 39.2
-------- --------- --------
Income from operations................................... 14.8 9.5 7.6
Interest expense, net.................................... 1.8 2.9 1.8
-------- --------- --------
Income before taxes...................................... 13.0 6.6 5.8
Provision for income taxes............................... 3.8 1.6 1.3
-------- --------- --------
Net income............................................... 9.2 5.0 4.5
======== ========= ========
</TABLE>
Three months ended June 30, 1999 (Actual) compared to three
months ended June 30, 1998 (Pro Forma)
The following discussion of the Company's results of operations for the
quarter ended June 30, 1999 compared to the quarter ended June 30, 1998 is
presented on a pro forma basis for the 1998 quarter, assuming the Acquired
Companies had been combined with the Company for the entire quarter. The pro
forma financial information is derived by applying pro forma adjustments to the
historical financial statements of the Company and the Acquired Companies. The
pro forma adjustments consist of (a) the elimination of certain revenues, cost
of goods sold and royalty expense, (b) amortization of intangible assets,
principally over 40 years, (c) incremental interest and other expenses and (d)
applicable income tax effects. These pro forma results are not necessarily
indicative of the results that would have occurred had the businesses been
combined for the period indicated.
12
<PAGE>
Net revenue increased to $419,103 in the first quarter of fiscal 2000 from
$336,106 in the corresponding quarter of fiscal 1999, an improvement of 24.7%.
This increase is due to increases in each of the Company's operating divisions,
as outlined below.
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------
1999 1998 % Increase
----------- -------------- ----------
<S> <C> <C> <C>
Wholesale...................... $ 353,582 $ 283,788 24.6 %
Retail......................... 52,123 41,235 26.4 %
Licensing...................... 13,398 11,083 20.9 %
----------- -------------- ---------
Total.......................... $ 419,103 $ 336,106 24.7 %
=========== ============== =========
</TABLE>
The Wholesale increase consists of increases in menswear sales of 6.0% (to
$185,856 from $175,279), womenswear sales of 61.1% (to $115,192 from $71,518)
and childrenswear sales of 42.0% (to $52,534 from $36,991). Each of these
improvements is due to volume increases which resulted primarily from increased
sales to existing customers. The increased sales to existing customers is
principally due to the expansion of the in-store shop and fixtured area
programs, whereby certain of the Company's customers have increased the amount
of square footage where the Company's products are featured.
The improvement in the Company's Retail division is due to an increase in
the number of stores and an increase in sales at existing stores. At June 30,
1999, the Company operated 80 retail stores as compared to 72 stores at June 30,
1998. Retail stores opened since June 30, 1998 contributed $7,687 of net revenue
during the quarter ended June 30, 1999.
Revenue from the Licensing division, which consists of third party
licensing royalties and buying agency commissions, increased due to the
incremental revenue associated with newly licensed products and a general
increase in sales of existing licensed products. Of the increase, approximately
$1,053, was due to products introduced under licenses entered into since June
30, 1998.
Gross profit as a percentage of net revenue increased to 47.1% in the first
quarter of fiscal 2000 from 46.7% in the first quarter of fiscal 1999. This
increase is mainly due to better wholesale margins, particularly in menswear,
where the Company sold less product through off-price channels than in the prior
year.
Selling, general and administrative expenses, before the special charge
described below, increased to $135,267, or 32.3% of net revenue in the first
quarter of fiscal 2000, from $105,249, or 31.3% of net revenue in the first
quarter of fiscal 1999. The increase in expenses is principally due to increased
volume-related expenses to support the higher revenue and increased depreciation
and amortization. In addition, the Company incurred higher marketing and
advertising costs to promote the brand and incurred expenses related to the
start up of two new divisions, which were the primary reasons for the increase
as a percentage of net revenue.
During the quarter ended June 30, 1998, the Company recorded a special
charge for non-recurring expenses of $19,800, before income taxes, related to
the Acquisition. This special charge consists of provisions of $7,000 for the
write-off of the fixed assets and operating leases of the Company's specialty
stores, $7,000 for redundant MIS equipment, furniture, fixtures and other
equipment, $3,800 for severance and other employee costs and $2,000 for the
termination of certain vendor contracts.
Interest expense, net of interest income, decreased to $7,760 in the first
quarter of fiscal year 2000 from $9,767 in the corresponding quarter of last
year. The decrease from 1999 to 2000 is primarily due to higher cash balances
and lower interest rates on the Company's variable rate debt.
The provision for income taxes increased to 28.9% of income before taxes in
the quarter ended June 30, 1999 from 24.2% in the corresponding quarter last
year. This increase was primarily attributable to the relative level of earnings
in the various taxing jurisdictions to which the Company's earnings are subject,
together with the effects of the special charges which were tax effected at a
higher rate than the Company's weighted average tax rate in the June 30, 1998
quarter.
13
<PAGE>
Three months ended June 30, 1999 (Actual) compared to three
months ended June 30, 1998 (Actual)
Net revenue increased to $419,103 in the first quarter of fiscal 2000 from
$287,656 in the corresponding quarter of fiscal 1999, an improvement of 45.7%.
This increase is due to increases in each of the Company's operating divisions,
as outlined below.
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------
1999 1998 % Increase
----------- -------------- ----------
<S> <C> <C> <C>
Wholesale...................... $ 353,582 $ 233,807 51.2 %
Retail......................... 52,123 41,235 26.4 %
Licensing...................... 13,398 12,614 6.2 %
----------- -------------- ----------
Total.......................... $ 419,103 $ 287,656 45.7 %
=========== ============== ==========
</TABLE>
The Wholesale increase is due to volume increases which resulted from the
Acquisition and from increased sales to existing customers. This increase is
principally attributed to the change in status of Pepe USA and TH Canada, which
contributed to the Company in the form of wholesale revenue for the entire
quarter ended June 30, 1999, compared to a combination of royalty income and
wholesale revenue (since the Acquisition) in the quarter ended June 30, 1998. A
comparison of Wholesale revenue components after adjusting for these changes is
made in the pro forma section of Management's Discussion and Analysis.
The improvement in the Company's Retail division is due to an increase in
the number of stores and an increase in sales at existing stores. At June 30,
1999, the Company operated 80 retail stores as compared to 72 stores at June 30,
1998. Retail stores opened since June 30, 1998 contributed $7,687 of net revenue
during the quarter ended June 30, 1999.
Revenue from the Licensing division, which consists of third-party
licensing royalties and buying agency commissions, increased due to the
incremental revenue associated with newly licensed products and a general
increase in sales of existing licensed products and buying agency services.
Offsetting this increase, in part, was the inclusion of royalties from Pepe USA
and TH Canada for a partial quarter in fiscal 1999. Approximately $1,053 of the
fiscal 2000 revenue amount was due to products introduced under licenses entered
into since June 30, 1998.
Gross profit as a percentage of net revenue increased to 47.1% in the first
quarter of fiscal 2000 from 46.8% in the first quarter of fiscal 1999. This
increase is mainly due to better wholesale margins, particularly in menswear,
where the Company sold less product through off-price channels than in the prior
year.
Selling, general and administrative expenses, before the special charge
described above, increased to $135,267, or 32.3% of net revenue in the first
quarter of fiscal 2000, from $92,866, or 32.3% of net revenue in the first
quarter of fiscal 1999. The increase in expenses is principally due to increased
volume-related expenses to support the higher revenue and increased depreciation
and amortization. In addition, the Company incurred higher marketing and
advertising costs to promote the brand and incurred expenses related to the
start up of two new divisions. Included in selling, general and administrative
expenses is goodwill amortization of $8,632 and $5,755 for the quarters ended
June 30, 1999 and 1998, respectively, recorded in connection with the
Acquisition.
Interest expense, net of interest income, increased to $7,760 in the first
quarter of fiscal year 2000 from $5,421 in the corresponding quarter of last
year. In the June 30, 1999 quarter, the debt incurred in connection with the
Acquisition was outstanding for the entire quarter as compared to a partial
quarter in 1998. This increase was partially offset by a reduction in the
interest rates on the Company's variable rate debt to 5.69% in the quarter ended
June 30, 1999 from 6.62% in the quarter ended June 30, 1998.
The provision for income taxes increased to 28.9% of income before taxes in
the quarter ended June 30, 1999 from 21.7% in the corresponding quarter last
year. This increase was primarily attributable to the relative level of earnings
in the various taxing jurisdictions to which the Company's earnings are subject,
together with the effects of the special charges which were tax effected at a
higher rate than the Company's weighted average tax rate in the June 30, 1998
quarter.
14
<PAGE>
Liquidity and Capital Resources
The Company's primary ongoing funding requirements are to finance working
capital and the continued growth of the business. Principally, this includes 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 childrenswear 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. Additionally, the Company
required financing in May 1998 to acquire its womenswear, jeanswear and Canadian
licensees as discussed further below.
The Company's cash and cash equivalents balance decreased from $241,950 at
March 31, 1999 to $235,296 at June 30, 1999. This represented an overall
decrease of $6,654 due primarily to the excess of capital expenditures and
scheduled debt repayments over cash generated from operations. A detailed
analysis of the changes in cash and cash equivalents is presented in the
Condensed Consolidated Statements of Cash Flows.
Capital expenditures were $33,065 during the three months ended June 30,
1999. Significant capital expenditures included additions related to the
Company's in-store shop and fixtured area expansion programs and the
construction of product showrooms.
At June 30, 1999, accrued expenses and other current liabilities included
$54,488 of open letters of credit for inventory purchased. Additionally, at June
30, 1999, TH USA was contingently liable for unexpired bank letters of credit of
$78,458 related to commitments of TH USA to suppliers for the purchase of
inventories.
On May 8, 1998, the Company acquired its womenswear, jeanswear and Canadian
licensees for an aggregate purchase price of $755,760 in cash and 18,091,860
Ordinary Shares of the Company. The cash portion of the purchase price was
funded from a combination of debt financing and cash on hand. The debt financing
portion of the purchase price consisted of $250,000 of the 2003 Notes, $200,000
of the 2008 Notes and $200,000 of term loan borrowings pursuant to the Credit
Facilities. The Notes were issued by TH USA and guaranteed by THC. The indenture
under which the Notes were issued contains covenants that, among other things,
restrict the ability of subsidiaries of THC to incur additional indebtedness,
restrict the ability of THC and its subsidiaries to incur indebtedness secured
by liens or enter into sale and leaseback transactions and restrict the ability
of THC and TH USA to engage in mergers or consolidations.
The Credit Facilities, which are guaranteed by THC, consist of an unsecured
$250,000 TH USA five-year revolving credit facility, of which up to $150,000 may
be used for direct borrowings, and an unsecured $200,000 five-year term credit
facility which was borrowed by TH USA in connection with the Acquisition. The
term loan bears interest at variable rates which, on a weighted average annual
basis, amounted to 5.53% and 5.69% as of, and for the period ended, June 30,
1999, respectively. The revolving credit facility, which accrues interest at
varying interest rates, will be available for letters of credit, working capital
and other general corporate purposes. The Credit Facilities replaced the
Company's secured revolving credit agreement, which had been in place since
April 1, 1996.
Borrowings under the term loan facility are repayable in quarterly
installments as follows: $40,000 in the 12-month period ending March 31, 2000;
$50,000 in each of the next two succeeding 12-month periods; and $60,000 in the
next succeeding 12-month period.
Under the Credit Facilities, subsidiaries of THC may not pay dividends or
make other payments in respect of capital stock to THC that in the aggregate
exceed 33% of the Company's cumulative consolidated net income, commencing with
the fiscal year ended March 31, 1998, less certain deductions. The Credit
Facilities also contain a number of other restrictive covenants that are more
fully explained in Note 5 to the Condensed Consolidated Financial Statements.
The Company was in compliance with all covenants in respect of the Notes
and the Credit Facilities as of, and for the period ended, June 30, 1999.
The Company attempts to mitigate the risks associated with adverse
movements in interest rates by establishing and maintaining a favorable balance
of fixed and floating rate debt and cash on hand. Management also believes that
significant flexibility remains available in the form of additional borrowing
capacity and the ability to prepay term debt, if so desired, in response to
changing conditions in the debt markets. Because such flexibility exists, the
Company does not normally enter into specific hedging transactions to further
mitigate interest rate risks, except in the case of specific, material borrowing
transactions such as those associated with the Acquisition. No interest rate
hedging contracts were in place as of June 30, 1999.
There were no significant committed capital expenditures at June 30, 1999.
The Company expects fiscal 2000 capital expenditures to approximate $130,000 to
$150,000. The Company intends to fund such cash requirements for fiscal 2000 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.
15
<PAGE>
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 historically 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, other than those in Canada, and its licensing revenues. Inventory
purchases from contract manufacturers throughout the world, other than those in
Canada, 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.
The Company does, however, seek to protect against adverse movements in
foreign currency which might affect certain firm commitments or transactions.
These include the purchase of inventory, capital expenditures and the collection
of certain foreign receivables. The Company enters into forward contracts with
maturities of up to one year to sell or purchase foreign currency in order to
hedge against such risks. The Company does not use financial instruments for
speculative or trading purposes. No significant gain or loss was inherent in
such contracts at June 30, 1999.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging
Activities" ("SFAS 133"). It is expected that SFAS 133 will be effective for the
Company beginning in fiscal 2002. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Management of
the Company anticipates that, due to the limited use of derivative instruments,
the nature of such instruments and the nature of the underlying transactions
being hedged, the adoption of SFAS 133 will not have a significant effect on the
Company's results of operations or its financial position.
Year 2000
During the year ended March 31, 1998, the Company initiated a comprehensive
program to evaluate and address the impact of the year 2000 on its operations
and those of the Acquired Companies in order to ensure that its computer systems
properly recognize calendar year 2000. This program included steps to identify
each item or element that would require date code remediation and make
appropriate modifications to ensure a seamless transition to the year 2000. The
Company has now completed its internal date remediation program and is in the
final testing phase of this program.
The Company has used internal staff resources to accomplish most of this
activity, which cost less than $500. Certain other costs, which are capitalized,
represent investment in new hardware and software systems, the timing of which
was planned to coincide with the integration of the Acquired Companies.
Principal among these is a new investment in packaged financial systems software
to which the Company and its major subsidiaries converted during 1999. Such
costs represent only a nominal percentage of capital expenditures. The estimate
of costs of the Year 2000 compliance effort and the timetable for internal Year
2000 modifications are management's best estimates. There can be no guarantee
that these estimates will prove accurate and actual results could differ
materially from the estimates. Based upon progress to date, however, the Company
believes that it is unlikely that actual results would differ significantly from
the estimates.
The Company is also corresponding with significant suppliers, customers,
transportation carriers and general service providers whose computer systems'
functionality could impact the Company and in particular its ability to schedule
forward production and procurement of merchandise from suppliers and to fulfill
customer orders. These communications will facilitate coordination of Year 2000
conversions and will additionally permit the Company to determine its exposure
to the failure of third parties to address their own Year 2000 issues.
Although the Company is not aware of any material issues that would impede
its ability to prepare its internal systems for the year 2000, and therefore has
not prepared a contingency plan, there can be no assurance that the systems of
other companies on which the
16
<PAGE>
Company's processes rely will be timely converted, or that a failure to
successfully convert by another company, or a conversion that is incompatible
with the Company's systems, would not have an adverse impact on the Company's
operations. The need for contingency plans in this regard will continue to be
assessed.
The foregoing commentary should be considered to fall within the coverage
of the "Safe Harbor Statement" under the Private Securities Litigation Reform
Act of 1995 included in this report.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are indicated by
words or phrases such as "anticipate," "estimate," "project," "management
expects," "the Company believes" and similar words or phrases. Such statements
are based on current expectations and are subject to certain risks,
uncertainties and assumptions, including, but not limited to, economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the sections entitled "Liquidity and Capital Resources" and "Exchange
Rates" in Item 2 above, which sections are incorporated herein by reference.
17
<PAGE>
PART II
ITEM 1 - LEGAL PROCEEDINGS
Saipan Litigation. On January 13, 1999, two actions were filed against the
-----------------
Company and other garment manufacturers and retailers asserting claims that
garment factories located on the island of Saipan, which allegedly supply
product to the Company and other co-defendants, engage in unlawful practices
relating to the recruitment and employment of foreign workers. One action,
brought in San Francisco Superior Court (the "State Action"), was filed by a
union and three public interest groups alleging unfair competition and false
advertising by the Company and others. It seeks equitable relief, restitution
and disgorgement of profits relating to the allegedly wrongful conduct, as well
as interest and an award of fees to the plaintiffs' attorneys. The other, an
action seeking class action status filed in federal court for the Central
District of California (the "Federal Action"), was brought on behalf of an
alleged class consisting of the Saipanese factory workers. The defendants
include both companies selling goods purchased from factories located on the
island of Saipan and the factories themselves. This complaint alleges claims
under RICO, the Alien Tort Claims Act, federal anti-peonage and indentured
servitude statutes and state and international law. It seeks equitable relief
and damages, including treble and punitive damages, interest and an award of
fees to the plaintiffs' attorneys.
In addition, the same law firm that filed the State Action and the Federal
Action has filed an action seeking class action status in the Federal Court in
Saipan. This action is brought on behalf of Saipanese garment factory workers
against the Saipanese factories and alleges violation of federal and Saipanese
wage and employment laws. The Company is not a defendant in this action.
In the State Action, all defendants, including the Company, have filed a
demurrer challenging the legal sufficiency of the complaint. In the Federal
Action, all defendants, including the Company, have filed a motion to transfer
venue and a motion to dismiss the complaint for failure to state a claim. These
motions have been fully briefed by the parties, and hearings on the motions
commenced in August 1999.
Shareholder Derivative Litigation. On February 2, 1998, February 12, 1998
---------------------------------
and February 17, 1998, three alleged holders of Ordinary Shares filed purported
derivative actions in New York State court on behalf of the Company against the
members of the Board of Directors. The actions were later consolidated and an
amended complaint was served on May 29, 1998. The amended complaint alleged that
the Board's approval of the Acquisition constituted a breach of fiduciary duty
and corporate waste, and sought equitable relief and damages in favor of the
Company, and an award of fees to the plaintiffs' attorneys. On June 15, 1998,
the Company and its directors moved to dismiss the consolidated action on
several grounds. On December 9, 1998, the Court dismissed the action, ruling
that the British Virgin Islands, the Company's place of incorporation, is the
appropriate forum in which to litigate these derivative claims. In January 1999,
the plaintiffs filed a notice of appeal with respect to the Court's ruling.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Material Contracts
(a) Tommy Hilfiger U.S.A. 1992 Stock Incentive Plan, as amended
and restated
(b) Tommy Hilfiger (Eastern Hemisphere) Limited 1992 Stock
Incentive Plan, as amended and restated
(c) Memorandum of Agreement, dated as of January 1, 1999,
between Tandem Distribution Services, Inc. and Tommy
Hilfiger U.S.A., Inc.
11. Computation of Net Income Per Ordinary Share
27. Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended June 30, 1999, the Company filed a Current Report
on Form 8-K, dated June 4, 1999, reporting matters under Item 5 thereof.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:
Tommy Hilfiger Corporation
Date: August 9, 1999 By: /s/ Joel J. Horowitz
-------------- --------------------------
Joel J. Horowitz
Chief Executive Officer and President
Tommy Hilfiger Corporation
Date: August 9, 1999 By: /s/ Joseph Scirocco
-------------- --------------------------
Joseph Scirocco
Principal Accounting Officer
Tommy Hilfiger Corporation
19
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10. Material Contracts
(a) Tommy Hilfiger U.S.A. 1992 Stock Incentive Plan, as amended
and restated
(b) Tommy Hilfiger (Eastern Hemisphere) Limited 1992 Stock
Incentive Plan, as amended and restated
(c) Memorandum of Agreement, dated as of January 1, 1999,
between Tandem Distribution Services, Inc. and Tommy
Hilfiger U.S.A., Inc.
11. Computation of Net Income Per Ordinary Share
27. Financial Data Schedule
20
<PAGE>
EXHIBIT 10(a)
TOMMY HILFIGER U.S.A.
1992 STOCK INCENTIVE PLAN
(Restated to Incorporate All Amendments
through July 9, 1999)
<PAGE>
SECTION 1. Purpose; Definitions.
The purpose of the Plan is to give the Company and its Affiliates a
significant advantage in attracting, retaining and motivating officers,
employees and directors and to provide the Company and its subsidiaries with the
ability to provide incentives more directly linked to the profitability of the
Company's businesses and increases in stockholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by or
---------
in control of the Company and designated by the Committee as such.
b. "Award" means a Stock Appreciation Right, Stock Option or
-----
Restricted Stock.
c. "Board" means the Board of Directors of the Company.
-----
d. "Cause" has the meaning set forth in Section 5(i).
-----
e. "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time, and any successor thereto.
f. "Committee" means the Committee referred to in Section 2.
---------
g. "Company" means Tommy Hilfiger U.S.A., Inc., a Delaware
-------
corporation.
h. "Disability" means permanent and total disability as determined
----------
under procedures established by the Committee for purposes of the Plan.
i. "Fair Market Value" means, as of any given date, the mean between
-----------------
the highest and lowest reported sales prices of the Stock on the New York Stock
Exchange Composite Tape or, if not listed on such exchange, on any other
national securities exchange on which the Stock is listed or on NASDAQ. If
there is no regular public trading market for such Stock, the Fair Market Value
of the Stock shall be determined by the Committee in good faith.
<PAGE>
j. "Incentive Stock Option" means any Stock Option intended to be
----------------------
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
k. "Non-Qualified Stock Option" means any Stock Option that is not
--------------------------
an Incentive Stock Option.
l. "Plan" means the Tommy Hilfiger U.S.A. 1992 Stock Incentive Plan,
----
As Amended, as set forth herein and as hereinafter amended from time to time.
m. "Restricted Stock" means an award granted under Section 7.
----------------
n. "Retirement" means retirement from active employment under a
----------
pension plan of the Company, any subsidiary or Affiliate, or under an employment
contract with any of them, or termination of employment at or after age 55 under
circumstances which the Committee, in its sole discretion, deems equivalent to
retirement.
o. "Stock" means the Ordinary Shares, par value $0.01 per share, of
-----
Tommy Hilfiger Corporation, a British Virgin Islands corporation.
p. "Stock Appreciation Right" means a right granted under Section 6.
------------------------
q. "Stock Option" means an option granted under Section 5.
------------
r. "Termination of Employment" means the termination of the
-------------------------
participant's employment with the Company and any subsidiary or Affiliate. A
participant employed by a subsidiary or an Affiliate shall also be deemed to
incur a Termination of Employment if the subsidiary or Affiliate ceases to be
such a subsidiary or Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of the Company or another subsidiary
or Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
2
<PAGE>
SECTION 2. Administration.
The Plan shall be administered by the Compensation Committee of the
Board. If at any time no Committee shall be in office, the functions of the
Committee specified in the Plan shall be exercised by the Board.
The Committee shall have plenary authority to grant Awards pursuant to
the terms of the Plan to officers, employees and directors of the Company and
its subsidiaries and Affiliates.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) subject to Section 4, to select the officers, employees and
directors to whom Awards may from time to time be granted;
(b) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights and Restricted Stock or
any combination thereof are to be granted hereunder;
(c) to determine the number of shares of Stock to be covered by each
Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to Section
5(a)), any vesting restriction or limitation and any vesting acceleration or
forfeiture waiver regarding any Award and the shares of Stock relating thereto,
based on such factors as the Committee shall determine);
(e) to modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time, including, but not limited to, with respect to
performance goals and measurements applicable to performance-based Awards
pursuant to the terms of the Plan;
(f) to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred; and
(g) to determine under what circumstances a Stock Option may be
settled in cash or Stock under Section 5(j).
3
<PAGE>
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award shall
be made in the sole discretion of the Committee or such delegate at the time of
the grant of the Award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.
SECTION 3. Stock Subject to Plan.
Subject to adjustment as provided herein, the total number of shares
of Stock available for grant under the Plan shall be 17,440,000 shares of Stock,
less the number of shares of Stock which have been made the subject of an Award
under the Tommy Hilfiger (Eastern Hemisphere) Limited 1992 Stock Incentive Plan,
as amended. Shares of Stock subject to an Award under the Plan may be authorized
and unissued shares or may be treasury shares.
If any shares of Restricted Stock are forfeited for which the
participant did not receive any benefits of ownership (as such phrase is
construed by the Commission or its Staff), or if any Stock Option (and related
Stock Appreciation Right, if any) terminates without being exercised, or if any
Stock Appreciation Right is exercised for cash, shares subject to such Awards
shall again be available for distribution in connection with Awards under the
Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
the Committee or Board may make such substitution or adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in the
number, kind and option price of shares subject to outstanding Stock Options and
Stock Appreciation Rights, in the number and
4
<PAGE>
kind of shares subject to other outstanding Awards granted under the Plan and/or
such other substitution or adjustments in the consideration receivable upon
exercise as it may determine to be appropriate in its sole discretion; provided,
however, that the number of shares subject to any Award shall always be a whole
number. Such adjusted option price shall also be used to determine the amount
payable by the Company upon the exercise of any Stock Appreciation Right
associated with any Stock Option.
SECTION 4. Eligibility.
Officers, employees and directors of the Company, its subsidiaries and
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its subsidiaries and Affiliates
are eligible to be granted Awards under the Plan. No grant shall be made to
Thomas J. Hilfiger, Joel J. Horowitz, Silas K.F. Chou, Ronald K.Y. Chao or
Lawrence S. Stroll pursuant to this Plan.
SECTION 5. Stock Options.
Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and Non-
Qualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights). Incentive Stock Options
may be granted only to employees of the Company and its subsidiaries (within the
meaning of Section 424(f) of the Code). To the extent that any Stock Option is
not designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Non-Qualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Stock to be
5
<PAGE>
subject to such Stock Option to be granted to such individual and specifies the
terms and provisions of the Stock Option. The Company shall notify a participant
of any grant of a Stock Option, and a written option agreement or agreements
shall be duly executed and delivered by the Company to the participant.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under Section 422 of the Code or, without
the consent of the optionee affected, to disqualify any Incentive Stock Option
under such Section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable
------------
under a Stock Option shall be determined by the Committee and set forth in the
option agreement, and shall not be less than the Fair Market Value of the Stock
subject to the Stock Option on the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
-----------
Committee, but no Stock Option shall be exercisable more than 15 years after the
date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock
--------------
Options shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time, in whole or in part, accelerate the exercisability of any Stock
Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
------------------
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company specifying the
number of shares of Stock subject to the Stock Option to be purchased.
6
<PAGE>
The option price of Stock to be purchased upon exercise of any Option
shall be paid in full in cash (by certified or bank check or such other
instrument as the Company may accept) or, if and to the extent set forth in the
option agreement, may also be paid by one or more of the following: (i) in the
form of unrestricted Stock already owned by the optionee (and, in the case of
the exercise of a Non-Qualified Stock Option, Restricted Stock subject to an
Award hereunder) based in any such instance on the Fair Market Value of the
Stock on the date the Stock Option is exercised; provided, however, that, in the
case of an Incentive Stock Option, the right to make a payment in the form of
already owned shares of Stock may be authorized only at the time the Stock
Option is granted; (ii) by requesting the Company to withhold from the number of
shares of Stock otherwise issuable upon exercise of the Stock Option that number
of shares having an aggregate fair market value on the date of exercise equal to
the exercise price for all of the shares of Stock subject to such exercise; or
(iii) by a combination thereof, in each case in the manner provided in the
option agreement.
In the discretion of the Committee, payment for any shares subject to
a Stock Option may also be made by delivering a properly executed exercise
notice to the Company, together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds to
pay the purchase price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock, the number
of shares of Stock to be received upon such exercise equal to the number of
shares of Restricted Stock used for payment of the option exercise price shall
be subject to the same forfeiture restrictions to which such Restricted Stock
was subject, unless otherwise determined by the Committee.
No shares of Stock shall be issued until full payment therefor has
been made. Subject to any forfeiture restrictions that may apply if a Stock
Option is exercised using Restricted Stock, an optionee shall have all of the
rights of a stockholder of the Company holding the Stock that is subject to such
Stock Option (including, if applicable, the right to vote the shares and the
right to receive dividends), when the optionee has given written notice of
exercise, has paid in full for such shares and, if
7
<PAGE>
requested, has given the representation described in Section 10(a).
(e) Non-transferability of Stock Options. No Stock Option shall be
------------------------------------
transferable by the optionee other than (i) by will or by the laws of descent
and distribution or (ii) in the case of a Non-Qualified Stock Option, pursuant
to a qualified domestic relations order (as defined in the Code or Title I of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder). All Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee or by the guardian or legal representative of the
optionee or, in the case of a Non-Qualified Stock Option, its alternate payee
pursuant to such qualified domestic relations order, it being understood that
the terms "holder" and "optionee" include the guardian and legal representative
of the optionee named in the option agreement and any person to whom an option
is transferred by will or the laws of descent and distribution or, in the case
of a Non-Qualified Stock Option, pursuant to a qualified domestic relations
order.
(f) Termination by Death. If an optionee's employment terminates by
--------------------
reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent then exercisable, or on such accelerated basis as the
Committee may determine, for a period of one year (or such other period as the
Committee may specify in the option agreement) from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of employment due to death, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Disability. If an optionee's employment
-----------------------------------
terminates by reason of Disability, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine, for a period of one year (or such shorter period as the Committee may
specify in the option agreement) from the date of such termination of employment
or until the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that if the optionee dies within such
one-year period (or such shorter period), any unexercised Stock Option held by
such optionee shall, notwithstanding
8
<PAGE>
the expiration of such three-year (or such shorter) period, continue to be
exercisable to the extent to which it was exercisable at the time of death for a
period of 12 months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. In the event
of termination of employment by reason of Disability, if an Incentive Stock
Option is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment
-----------------------------------
terminates by reason of Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of such Retirement or on such accelerated basis as the Committee may
determine, for a period of three years (or such shorter period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such three-year (or such shorter) period, any unexercised Stock Option
held by such optionee shall, notwithstanding the expiration of such three-year
(or such shorter) period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(i) Other Termination. Unless otherwise determined by the Committee,
-----------------
if an optionee incurs a Termination of Employment for any reason other than
death, Disability or Retirement, any Stock Option held by such Optionee shall
thereupon terminate, except that such Stock Option, to the extent then
exercisable, or on such accelerated basis as the Committee may determine, may be
exercised for the lesser of three months from the date of such Termination of
Employment or the balance of such Stock Option's term if such Termination of
Employment of the optionee is without Cause; provided, however, that if the
optionee dies within such three-month period, any unexercised Stock Option held
by such optionee shall
9
<PAGE>
notwithstanding the expiration of such three-month period, continue to be
exercisable to the extent to which it was exercisable at the time of death for a
period of 12 months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. In the event
of Termination of Employment for any reason other than death, Disability or
Retirement, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option. Unless
otherwise determined by the Committee, for the purposes of the Plan "Cause"
shall mean (i) the conviction of the optionee for committing a felony under
Federal law or the law of the state in which such action occurred, (ii)
dishonesty in the course of fulfilling the optionee's employment duties or (iii)
willful and deliberate failure on the part of the optionee to perform his
employment duties in any material respect.
(j) Cashing Out of Stock Option. On receipt of written notice of
---------------------------
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Stock, equal to the excess of the Fair Market
Value of the Stock over the option price times the number of shares of Stock for
which to the Option is being exercised on the effective date of such cash out.
SECTION 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
------------------
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in
accordance with Section 6(b) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the Committee.
Upon such exercise and surrender, the optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 6(b). Stock Options which
have been so surrendered
10
<PAGE>
shall no longer be exercisable to the extent the related Stock Appreciation
Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
--------------------
to such terms and conditions as shall be determined by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate
are exercisable in accordance with the provisions of Section 5 and this
Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash, shares of Stock or both
equal in value to the excess of the Fair Market Value of one share of Stock
over the option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be awarded either
--------------
alone or in addition to other Awards granted under the Plan. The Committee
shall determine the officers and employees to whom and the time or times at
which grants of Restricted Stock will be awarded, the number of shares to be
awarded to any participant, the time or times within which such Awards may be
subject to forfeiture and any other terms and conditions of the Awards, in
addition to those contained in Section 7(c).
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals of the participant or of the Company
or subsidiary, division or department of the Company for or within which the
participant is primarily employed or upon such other factors or criteria as the
Committee shall determine. The provisions of Restricted Stock Awards need not
be the same with respect to each recipient.
11
<PAGE>
(b) Awards and Certificates. Shares of Restricted Stock shall be
-----------------------
evidenced in such manner as the Committee may deem appropriate, including book-
entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the name of such participant and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Tommy Hilfiger
U.S.A. 1992 Stock Incentive Plan, As Amended, and a
Restricted Stock Agreement. Copies of such Plan and Agreement
are on file at the offices of Tommy Hilfiger U.S.A., Inc., 18
Thatcher Road, Dayton, New Jersey 08810."
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Stock covered
by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be
---------------------
subject to the following terms and conditions:
(i) Subject to the provisions of the Plan and the Restricted
Stock Agreement referred to in Section 7(c)(vi), during a period set by the
Committee, commencing with the date of such Award (the "Restriction
Period"), the participant shall not be permitted to sell, assign, transfer,
pledge or otherwise encumber shares of Restricted Stock. The Committee may
provide for the lapse of such restrictions in installments or otherwise and
may accelerate or waive such restrictions, in whole or in part, in each case
based on period of service, performance of the participant or of the Company
or the subsidiary, division or department for which the participant is
employed or such other factors or criteria as the Committee may determine.
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i) and the Restricted Stock Agreement,
12
<PAGE>
the participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a stockholder of the Company holding the class or
series of Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any cash
dividends. If so determined by the Committee in the applicable Restricted
Stock Agreement and subject to Section 10(f) of the Plan, (1) cash dividends
on the shares of Stock that are the subject of the Restricted Stock Award
shall be automatically deferred and reinvested in additional Restricted
Stock, and (2) dividends payable in Stock shall be paid in the form of
Restricted Stock.
(iii) Except to the extent otherwise provided in the applicable
Restricted Stock Agreement and Sections 7(c)(i) and 7(c)(iv), upon a
participant's Termination of Employment for any reason during the
Restriction Period, all shares still subject to restriction shall be
forfeited by the participant.
(iv) In the event of Termination of Employment of a participant
for any reason (other than for Cause), the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such participant's shares of Restricted Stock.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
unlegended certificates for such shares shall be delivered to the
participant.
(vi) Each Award shall be confirmed by, and be subject to the terms
of, a Restricted Stock Agreement.
SECTION 8. Term, Amendment and Termination.
The Plan will terminate on December 31, 2002. Under the Plan, Awards
outstanding as of December 31, 2002 shall not be affected or impaired by the
termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option or a recipient of a Stock Appreciation Right or
13
<PAGE>
Restricted Stock Award theretofore granted without the optionee's or recipient's
consent.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any holder without the holder's consent.
SECTION 9. Unfunded Status of Plan.
It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or make payments; provided, however, that, unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 10. General Provisions.
(a) The Committee may require each person purchasing or receiving
shares pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Commission, any stock exchange upon which the
Stock is then listed and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Company or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) The adoption of the Plan shall not confer upon any employee any
right to continued employment nor shall it interfere in any way with the right
of the Company
14
<PAGE>
or any subsidiary or Affiliate to terminate the employment of any employee at
any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any Federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Committee, withholding obligations may be settled with Stock, including
Stock that is part of the Award that gives rise to the withholding requirement.
The obligations of the Company under the Plan shall be conditional on such
payment or arrangements, and the Company, its Subsidiaries and its Affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the participant. The Committee may establish
such procedures as it deems appropriate, including the making of irrevocable
elections, for the settlement of withholding obligations with Stock.
(e) At the time of grant, the Committee may provide in connection
with any grant made under the Plan that the shares of Stock received as a result
of such grant shall be subject to a right of first refusal pursuant to which the
participant shall be required to offer to the Company any shares that the
participant wishes to sell at the then Fair Market Value of the Stock, subject
to such other terms and conditions as the Committee may specify at the time of
grant.
(f) The reinvestment of dividends in additional Restricted Stock at
the time of any dividend payment shall only be permissible if sufficient shares
of Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).
(g) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid.
(h) The Plan and all Awards made and actions taken thereunder shall
be governed by and construed in accordance with the laws of Delaware.
15
<PAGE>
SECTION 11. Effective Date of Plan.
The Plan shall be effective on the date it is approved by the
shareholders of the Company.
16
<PAGE>
EXHIBIT 10(b)
TOMMY HILFIGER (EASTERN HEMISPHERE) LIMITED
1992 STOCK INCENTIVE PLAN
(Restated to Incorporate All Amendments
through July 9, 1999)
<PAGE>
SECTION 1. Purpose; Definitions.
The purpose of the Plan is to give the Company and its Affiliates a
significant advantage in attracting, retaining and motivating officers,
employees and directors and to provide the Company and its subsidiaries with the
ability to provide incentives more directly linked to the profitability of the
Company's businesses and increases in stockholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by or
---------
in control of the Company and designated by the Committee as such.
b. "Award" means a Stock Appreciation Right, Stock Option or
-----
Restricted Stock.
c. "Board" means the Board of Directors of the Company.
-----
d. "Cause" has the meaning set forth in Section 5(i).
-----
e. "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time, and any successor thereto.
f. "Committee" means the Committee referred to in Section 2.
---------
g. "Company" means Tommy Hilfiger (Eastern Hemisphere) Limited, a
-------
British Virgin Islands corporation.
h. "Disability" means permanent and total disability as determined
----------
under procedures established by the Committee for purposes of the Plan.
i. "Fair Market Value" means, as of any given date, the mean between
-----------------
the highest and lowest reported sales prices of the Stock on the New York Stock
Exchange Composite Tape or, if not listed on such exchange, on any other
national securities exchange on which the Stock is listed or on NASDAQ. If
there is no regular public trading market for such Stock, the Fair Market Value
of the Stock shall be determined by the Committee in good faith.
<PAGE>
j. "Incentive Stock Option" means any Stock Option intended to be
----------------------
and designated as an "incentive stock option" within the meaning of Section 422
of the Code.
k. "Non-Qualified Stock Option" means any Stock Option that is not
--------------------------
an Incentive Stock Option.
l. "Plan" means the Tommy Hilfiger (Eastern Hemisphere) Limited 1992
----
Stock Incentive Plan, as set forth herein and as hereinafter amended from time
to time.
m. "Restricted Stock" means an award granted under Section 7.
----------------
n. "Retirement" means retirement from active employment under a
----------
pension plan of the Company, any subsidiary or Affiliate, or under an employment
contract with any of them, or termination of employment at or after age 55 under
circumstances which the Committee, in its sole discretion, deems equivalent to
retirement.
o. "Stock" means the ordinary shares, par value $0.01 per share, of
-----
Tommy Hilfiger Corporation, a British Virgin Islands corporation.
p. "Stock Appreciation Right" means a right granted under Section 6.
------------------------
q. "Stock Option" means an option granted under Section 5.
------------
r. "Termination of Employment" means the termination of the
-------------------------
participant's employment with the Company and any subsidiary or Affiliate. A
participant employed by a subsidiary or an Affiliate shall also be deemed to
incur a Termination of Employment if the subsidiary or Affiliate ceases to be
such a subsidiary or Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of the Company or another subsidiary
or Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
2
<PAGE>
SECTION 2. Administration.
The Plan shall be administered by the Compensation Committee of the
Board. If at any time no Committee shall be in office, the functions of the
Committee specified in the Plan shall be exercised by the Board.
The Committee shall have plenary authority to grant Awards pursuant to
the terms of the Plan to officers, employees and directors of the Company and
its subsidiaries and Affiliates.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) subject to Section 4, to select the officers, employees and
directors to whom Awards may from time to time be granted;
(b) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights and Restricted Stock or
any combination thereof are to be granted hereunder;
(c) to determine the number of shares of Stock to be covered by each
Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to Section
5(a)), any vesting restriction or limitation and any vesting acceleration or
forfeiture waiver regarding any Award and the shares of Stock relating thereto,
based on such factors as the Committee shall determine);
(e) to modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time, including, but not limited to, with respect to
performance goals and measurements applicable to performance-based Awards
pursuant to the terms of the Plan;
(f) to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred; and
(g) to determine under what circumstances a Stock Option may be
settled in cash or Stock under Section 5(j).
3
<PAGE>
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award shall
be made in the sole discretion of the Committee or such delegate at the time of
the grant of the Award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.
SECTION 3. Stock Subject to Plan.
Subject to adjustment as provided herein, the total number of shares
of Stock available for grant under the Plan shall be 17,440,000 shares of Stock,
less the number of shares of Stock which have been made subject to an Award
under the Tommy Hilfiger U.S.A. 1992 Stock Incentive Plan, as amended. Shares of
Stock subject to an Award under the Plan may be authorized and unissued shares
or may be treasury shares.
If any shares of Restricted Stock are forfeited for which the
participant did not receive any benefits of ownership (as such phrase is
construed by the Commission or its Staff), or if any Stock Option (and related
Stock Appreciation Right, if any) terminates without being exercised, or if any
Stock Appreciation Right is exercised for cash, shares subject to such Awards
shall again be available for distribution in connection with Awards under the
Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
the Committee or Board may make such substitution or adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in the
number, kind and option price of shares subject to outstanding Stock Options and
Stock Appreciation Rights, in the number and
4
<PAGE>
kind of shares subject to other outstanding Awards granted under the Plan and/or
such other substitution or adjustments in the consideration receivable upon
exercise as it may determine to be appropriate in its sole discretion; provided,
however, that the number of shares subject to any Award shall always be a whole
number. Such adjusted option price shall also be used to determine the amount
payable by the Company upon the exercise of any Stock Appreciation Right
associated with any Stock Option.
SECTION 4. Eligibility.
Officers, employees and directors of the Company, its subsidiaries and
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its subsidiaries and Affiliates
are eligible to be granted Awards under the Plan. No grant shall be made to
Thomas J. Hilfiger, Joel J. Horowitz, Silas K.F. Chou, Ronald K.Y. Chao or
Lawrence S. Stroll pursuant to this Plan.
SECTION 5. Stock Options.
Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and Non-
Qualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights). Incentive Stock Options
may be granted only to employees of the Company and its subsidiaries (within the
meaning of Section 424(f) of the Code). To the extent that any Stock Option is
not designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
Non-Qualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Stock to be
5
<PAGE>
subject to such Stock Option to be granted to such individual and specifies the
terms and provisions of the Stock Option. The Company shall notify a participant
of any grant of a Stock Option, and a written option agreement or agreements
shall be duly executed and delivered by the Company to the participant.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under Section 422 of the Code or, without
the consent of the optionee affected, to disqualify any Incentive Stock Option
under such Section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable
------------
under a Stock Option shall be determined by the Committee and set forth in the
option agreement, and shall not be less than the Fair Market Value of the Stock
subject to the Stock Option on the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
-----------
Committee, but no Stock Option shall be exercisable more than 15 years after the
date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock
--------------
Options shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time, in whole or in part, accelerate the exercisability of any Stock
Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
------------------
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company specifying the
number of shares of Stock subject to the Stock Option to be purchased.
6
<PAGE>
The option price of Stock to be purchased upon exercise of any Option
shall be paid in full in cash (by certified or bank check or such other
instrument as the Company may accept) or, if and to the extent set forth in the
option agreement, may also be paid by one or more of the following: (i) in the
form of unrestricted Stock already owned by the optionee (and, in the case of
the exercise of a Non-Qualified Stock Option, Restricted Stock subject to an
Award hereunder) based in any such instance on the Fair Market Value of the
Stock on the date the Stock Option is exercised; provided, however, that, in the
case of an Incentive Stock Option, the right to make a payment in the form of
already owned shares of Stock may be authorized only at the time the Stock
Option is granted; (ii) by requesting the Company to withhold from the number of
shares of Stock otherwise issuable upon exercise of the Stock Option that number
of shares having an aggregate fair market value on the date of exercise equal to
the exercise price for all of the shares of Stock subject to such exercise; or
(iii) by a combination thereof, in each case in the manner provided in the
option agreement.
In the discretion of the Committee, payment for any shares subject to
a Stock Option may also be made by delivering a properly executed exercise
notice to the Company, together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds to
pay the purchase price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock, the number
of shares of Stock to be received upon such exercise equal to the number of
shares of Restricted Stock used for payment of the option exercise price shall
be subject to the same forfeiture restrictions to which such Restricted Stock
was subject, unless otherwise determined by the Committee.
No shares of Stock shall be issued until full payment therefor has
been made. Subject to any forfeiture restrictions that may apply if a Stock
Option is exercised using Restricted Stock, an optionee shall have all of the
rights of a stockholder of the Company holding the Stock that is subject to such
Stock Option (including, if applicable, the right to vote the shares and the
right to receive dividends), when the optionee has given written notice of
exercise, has paid in full for such shares and, if
7
<PAGE>
requested, has given the representation described in Section 10(a).
(e) Non-transferability of Stock Options. No Stock Option shall be
------------------------------------
transferable by the optionee other than (i) by will or by the laws of descent
and distribution or (ii) in the case of a Non-Qualified Stock Option, pursuant
to a qualified domestic relations order (as defined in the Code or Title I of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder). All Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee or by the guardian or legal representative of the
optionee or, in the case of a Non-Qualified Stock Option, its alternate payee
pursuant to such qualified domestic relations order, it being understood that
the terms "holder" and "optionee" include the guardian and legal representative
of the optionee named in the option agreement and any person to whom an option
is transferred by will or the laws of descent and distribution or, in the case
of a Non-Qualified Stock Option, pursuant to a qualified domestic relations
order.
(f) Termination by Death. If an optionee's employment terminates by
--------------------
reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent then exercisable, or on such accelerated basis as the
Committee may determine, for a period of one year (or such other period as the
Committee may specify in the option agreement) from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of employment due to death, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Disability. If an optionee's employment
-----------------------------------
terminates by reason of Disability, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine, for a period of one year (or such shorter period as the Committee may
specify in the option agreement) from the date of such termination of employment
or until the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that if the optionee dies within such
one-year period (or such shorter period), any unexercised Stock Option held by
such optionee shall, notwithstanding
8
<PAGE>
the expiration of such three-year (or such shorter) period, continue to be
exercisable to the extent to which it was exercisable at the time of death for a
period of 12 months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. In the event
of termination of employment by reason of Disability, if an Incentive Stock
Option is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment
-----------------------------------
terminates by reason of Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of such Retirement or on such accelerated basis as the Committee may
determine, for a period of three years (or such shorter period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such three-year (or such shorter) period, any unexercised Stock Option
held by such optionee shall, notwithstanding the expiration of such three-year
(or such shorter) period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(i) Other Termination. Unless otherwise determined by the Committee,
-----------------
if an optionee incurs a Termination of Employment for any reason other than
death, Disability or Retirement, any Stock Option held by such Optionee shall
thereupon terminate, except that such Stock Option, to the extent then
exercisable, or on such accelerated basis as the Committee may determine, may be
exercised for the lesser of three months from the date of such Termination of
Employment or the balance of such Stock Option's term if such Termination of
Employment of the optionee is without Cause; provided, however, that if the
optionee dies within such three-month period, any unexercised Stock Option held
by such optionee shall notwithstanding the expiration of such
9
<PAGE>
three-month period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from the date of such
death or until the expiration of the stated term of such Stock Option, whichever
period is the shorter. In the event of Termination of Employment for any reason
other than death, Disability or Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for purposes
of Section 422 of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option. Unless otherwise determined by the Committee, for
the purposes of the Plan "Cause" shall mean (i) the conviction of the optionee
for committing a felony under Federal law or the law of the state in which such
action occurred, (ii) dishonesty in the course of fulfilling the optionee's
employment duties or (iii) willful and deliberate failure on the part of the
optionee to perform his employment duties in any material respect.
(j) Cashing Out of Stock Option. On receipt of written notice of
---------------------------
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Stock, equal to the excess of the Fair Market
Value of the Stock over the option price times the number of shares of Stock for
which to the Option is being exercised on the effective date of such cash out.
SECTION 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
------------------
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in
accordance with Section 6(b) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the Committee.
Upon such exercise and surrender, the optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 6(b). Stock Options which
have been so surrendered
10
<PAGE>
shall no longer be exercisable to the extent the related Stock Appreciation
Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
--------------------
to such terms and conditions as shall be determined by the Committee, including
the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate
are exercisable in accordance with the provisions of Section 5 and this
Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash, shares of Stock or both
equal in value to the excess of the Fair Market Value of one share of Stock
over the option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be awarded either
--------------
alone or in addition to other Awards granted under the Plan. The Committee
shall determine the officers and employees to whom and the time or times at
which grants of Restricted Stock will be awarded, the number of shares to be
awarded to any participant, the time or times within which such Awards may be
subject to forfeiture and any other terms and conditions of the Awards, in
addition to those contained in Section 7(c).
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals of the participant or of the Company
or subsidiary, division or department of the Company for or within which the
participant is primarily employed or upon such other factors or criteria as the
Committee shall determine. The provisions of Restricted Stock Awards need not
be the same with respect to each recipient.
11
<PAGE>
(b) Awards and Certificates. Shares of Restricted Stock shall be
-----------------------
evidenced in such manner as the Committee may deem appropriate, including book-
entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the name of such participant and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Tommy Hilfiger (Eastern Hemisphere) Limited 1992
Stock Incentive Plan and a Restricted Stock Agreement. Copies of such
Plan and Agreement are on file at the offices of Tommy Hilfiger
(Eastern Hemisphere) Limited, 6/F, Precious Industrial Centre, 18
Cheung Yue Street, Cheung Sha Wan, Kowloon, Hong Kong."
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Stock covered
by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject
--------------------
to the following terms and conditions:
(i) Subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vi), during a period set by the
Committee, commencing with the date of such Award (the "Restriction
Period"), the participant shall not be permitted to sell, assign, transfer,
pledge or otherwise encumber shares of Restricted Stock. The Committee may
provide for the lapse of such restrictions in installments or otherwise and
may accelerate or waive such restrictions, in whole or in part, in each case
based on period of service, performance of the participant or of the Company
or the subsidiary, division or department for which the participant is
employed or such other factors or criteria as the Committee may determine.
12
<PAGE>
(ii) Except as provided in this paragraph (ii) and Section 7(c)(i)
and the Restricted Stock Agreement, the participant shall have, with respect
to the shares of Restricted Stock, all of the rights of a stockholder of the
Company holding the class or series of Stock that is the subject of the
Restricted Stock, including, if applicable, the right to vote the shares and
the right to receive any cash dividends. If so determined by the Committee
in the applicable Restricted Stock Agreement and subject to Section 10(f) of
the Plan, (1) cash dividends on the shares of Stock that are the subject of
the Restricted Stock Award shall be automatically deferred and reinvested in
additional Restricted Stock, and (2) dividends payable in Stock shall be
paid in the form of Restricted Stock.
(iii) Except to the extent otherwise provided in the applicable
Restricted Stock Agreement and Sections 7(c)(i) and 7(c)(iv), upon a
participant's Termination of Employment for any reason during the
Restriction Period, all shares still subject to restriction shall be
forfeited by the participant.
(iv) In the event of Termination of Employment of a participant
for any reason (other than for Cause), the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such participant's shares of Restricted Stock.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
unlegended certificates for such shares shall be delivered to the
participant.
(vi) Each Award shall be confirmed by, and be subject to the terms
of, a Restricted Stock Agreement.
SECTION 8. Term, Amendment and Termination.
The Plan will terminate on December 31, 2002. Under the Plan, Awards
outstanding as of December 31, 2002 shall not be affected or impaired by the
termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a
13
<PAGE>
Stock Option or a recipient of a Stock Appreciation Right or Restricted Stock
Award theretofore granted without the optionee's or recipient's consent.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any holder without the holder's consent.
SECTION 9. Unfunded Status of Plan.
It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or make payments; provided, however, that, unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 10. General Provisions.
(a) The Committee may require each person purchasing or receiving
shares pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Commission, any stock exchange upon which the
Stock is then listed and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Nothing contained in the Plan shall prevent the Company or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) The adoption of the Plan shall not confer upon any employee any
right to continued employment nor shall it interfere in any way with the right
of the Company
14
<PAGE>
or any subsidiary or Affiliate to terminate the employment of any employee at
any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any Federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Committee, withholding obligations may be settled with Stock, including
Stock that is part of the Award that gives rise to the withholding requirement.
The obligations of the Company under the Plan shall be conditional on such
payment or arrangements, and the Company, its Subsidiaries and its Affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the participant. The Committee may establish
such procedures as it deems appropriate, including the making of irrevocable
elections, for the settlement of withholding obligations with Stock.
(e) At the time of grant, the Committee may provide in connection
with any grant made under the Plan that the shares of Stock received as a result
of such grant shall be subject to a right of first refusal pursuant to which the
participant shall be required to offer to the Company any shares that the
participant wishes to sell at the then Fair Market Value of the Stock, subject
to such other terms and conditions as the Committee may specify at the time of
grant.
(f) The reinvestment of dividends in additional Restricted Stock at
the time of any dividend payment shall only be permissible if sufficient shares
of Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Awards).
(g) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid.
(h) The Plan and all Awards made and actions taken thereunder shall
be governed by and construed in accordance with the laws of the British Virgin
Islands.
15
<PAGE>
SECTION 11. Effective Date of Plan.
The Plan shall be effective on the date it is approved by the
shareholders of the Company.
16
<PAGE>
EXHIBIT 10(c)
Memorandum of Agreement
1. Tandem will contract the following areas of its premises to Tommy Hilfiger
USA, Inc.:
Building # Location Square Feet
---------- -------- -----------
73 High Cube Space 60,000
71/72 Floors 1, 2, 3, 4 and 5 240,000
71/72 Basement 30,000
71/72 1/2 Receiving Area 12,500
-------
342,500
2. The cost to utilize this area is for the sum of $2.00 per square foot from
January 1, 1999 through March 31, 1999 per annum. From April 1, 1999 the
cost to utilize this area is for the sum of $4.00 per square foot per annum.
This includes all sewer, electric, heat and taxes.
3. All racking, leasehold improvements and material handling equipment
currently on the premises are included.
4. This agreement will commence on January 1, 1999.
5. This agreement will provide 10 doors in Building #73 for THUSA's exclusive
use and half use of the 10 doors in the Shipping Area of Building #71/72.
6. From July 1, 1999 Tandem will contract the following additional areas of its
premises to Tommy Hilfiger USA, Inc.:
Building # Location Square Feet
---------- -------- -----------
71/72 Floors 6, 7 and 8 90,000
71/72 1/2 Shipping Area 12,500
-------
102,500
7. This additional space utilization will now provide THUSA exclusive use of
all 20 doors since THUSA will occupy the entire building. The cost to
utilize the additional space is for the sum of $4.00 per square foot per
annum. This includes all sewer, electric, heat and taxes and full
maintenance as well as all racking, leasehold improvements and material
handling equipment currently on the premises.
8. THUSA is to provide Tandem with a 12 month notice in writing in advance to
terminate this agreement either partially or in full.
Agreed upon this 28th day of January 1999.
/s/ Arthur Bargonetti /s/ Dom Telesco
- ------------------------ --------------------------
Tommy Hilfiger USA, Inc. Tandem Distribution Services, Inc.
<PAGE>
EXHIBIT 11
Tommy Hilfiger Corporation
Computation of Net Income Per Ordinary Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1999 1998
----- -----
<S> <C> <C>
FINANCIAL STATEMENT PRESENTATION
BASIC
Weighted average shares outstanding................................. 94,360 87,285
========== =========
Net income..........................................................$ 38,279 $ 12,975
========== =========
Per share amount....................................................$ 0.41 $ 0.15
========== =========
DILUTED
Weighted average shares outstanding................................. 94,360 87,285
Net effect of dilutive stock options based on the
treasury stock method using average market price.................... 1,620 1,329
---------- ---------
Total............................................................... 95,980 88,614
========== =========
Net Income..........................................................$ 38,279 $ 12,975
========== =========
Per share amount....................................................$ 0.40 $ 0.15
========== =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TOMMY
HILFIGER CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999
AND CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 235,296
<SECURITIES> 0
<RECEIVABLES> 144,233
<ALLOWANCES> 0
<INVENTORY> 267,419
<CURRENT-ASSETS> 702,414
<PP&E> 250,988
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,223,495
<CURRENT-LIABILITIES> 242,546
<BONDS> 596,776
0
0
<COMMON> 946
<OTHER-SE> 1,137,095
<TOTAL-LIABILITY-AND-EQUITY> 2,223,495
<SALES> 0
<TOTAL-REVENUES> 419,103
<CGS> 0
<TOTAL-COSTS> 221,606
<OTHER-EXPENSES> 143,027
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54,470
<INCOME-TAX> 15,741
<INCOME-CONTINUING> 38,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,729
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.40
</TABLE>
