Employment Agreement - J Crew Group Inc. and Kenneth S. Pilot
EMPLOYMENT AGREEMENT
AGREEMENT, dated this 26th day of August, 2002 (the "Agreement"), among
J. Crew Group, Inc., a New York corporation (the "Parent") and its operating
subsidiary J. Crew Operating Corp. (the "Employer"), with offices at 770
Broadway, New York, NY, and Kenneth S. Pilot (the "Employee").
1. Employment, Duties and Agreements.
(a) The Employer hereby agrees to employ the Employee as its Chief
Executive Officer, and the Parent agrees to cause the Employee to be elected as
a member of the Board of Directors of the Parent (the "Board") and of the Board
of Directors of the Employer, if any, and to serve as Parent's Chief Executive
Officer, and the Employee hereby accepts such positions and agrees to serve the
Employer and the Parent in such capacities during the employment period fixed by
Section 3 hereof (the "Employment Period"). The Employee shall report to the
Board and shall have such duties, authority and responsibilities as are
consistent with his position as chief executive officer. During the Employment
Period, the Employee shall be subject to, and shall act in accordance with, all
reasonable instructions and directions of the Board and of the Employer that are
not inconsistent with his position.
(b) During the Employment Period, excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee shall devote his full
working time, energy and attention to the performance of his duties and
responsibilities hereunder and shall faithfully and diligently endeavor to
promote the business and best interests of the Employer.
(c) During the Employment Period, the Employee may not, without the
prior written consent of the Employer, operate, participate in the management,
operations or control of, or act as an employee, officer, consultant, agent or
representative of, any type of business or service (other than as an employee of
the Employer), provided that it shall not be a violation of the foregoing or of
Section 1(b) above for the Employee to (i) act or serve as a director, trustee
or committee member of any civic or charitable organization, or (ii) manage his
personal, financial and legal affairs, so long as such activities (described in
clauses (i) and (ii)) do not interfere with the performance of his duties and
responsibilities to the Employer as provided hereunder.
2. Compensation.
(a) As compensation for the agreements made by the Employee herein and
the performance by the Employee of his obligations hereunder, during the
Employment Period, the Employer shall pay the Employee, pursuant to the
Employer's normal and customary payroll procedures, a base salary (the "Base
Salary") at the rate of $700,000 per annum, as may be increased hereunder or by
the Board. If the Target Performance Objectives (as defined below) for the
fiscal year ended January 2004 are achieved, the Base Salary shall be increased
to not less than the rate of $800,000 per annum for the fiscal year ended
January 2005 and thereafter. The Board shall review the Employee's Base Salary
at the end of the fiscal year ended January 2006 and each fiscal year thereafter
and may (but is not required to) increase (but not decrease) the Base Salary.
<PAGE>
(b) In addition to the Base Salary, during the Employment Period the
Employee shall have an opportunity to earn an annual bonus (the "Bonus") with a
target amount of 85% of Base Salary based on the achievement of annual
performance objectives which shall be established and approved by the Board or
any authorized committee thereof for the Employee and the other members of the
management team of the Employer. Such bonus shall be paid no later than April 15
of the following year. The Bonus shall equal forty-two and a half percent
(42.5%) of Base Salary if the "Threshold Performance Objectives" are achieved,
eighty-five percent (85%) of Base Salary if the "Target Performance Objectives"
are achieved, and one-hundred-seventy percent (170%) of Base Salary if the
"Stretch Performance Objectives" are achieved. The Employee shall have the
option (to be exercised in his sole discretion) of receiving up to fifty percent
of the Bonus payable in any year in fully vested shares of Parent common stock
(the imputed value of which, as of the date such bonus would have been paid or
as soon as practicable thereafter, shall be the Fair Market Value (as defined in
the J. Crew Group, Inc. 1997 Stock Option Plan (the "Option Plan"), but in no
event will such imputed value be less than $6.82 per share), and the Employee
shall be given an opportunity to defer a portion or all of the Bonus that would
be payable in shares of Parent common stock for up to five years from the date
it would have otherwise been paid, provided such election is made at least six
months prior to the end of the fiscal year to which such Bonus relates. The term
of the deferral will be set forth in a separate Senior Executive Deferred
Compensation Plan, which the Employer will adopt prior to any such deferral. In
respect of the fiscal year ended January 2003, the Bonus shall be at least equal
to eighty-five percent (85%) of the Base Salary, prorated from the Effective
Date through the end of the fiscal year, regardless of whether the performance
objectives for such fiscal year are achieved. In respect of the fiscal year
ended January 2004, the Bonus shall be at least equal to fifty percent (50%) of
Target, which is equal to forty-two and one half percent (42.5%) of Base Salary,
regardless of whether the performance objectives for such fiscal year are
achieved. If the Target Performance Objectives for the fiscal year ended January
2004 are achieved, the Bonus in respect of the fiscal year ended January 2005
and thereafter shall be increased to fifty percent (50%) of Base Salary if the
Threshold Performance Objectives are achieved and one hundred percent (100%) of
Base Salary if the Target Performance Objectives are achieved; such Bonus shall
remain at one-hundred-seventy percent (170%) of Base Salary for the achievement
of the Stretch Performance Objectives.
(c) As soon as practicable after the Effective Date (as defined in
Section 3 below) but in no event later than ten (10) days after the Effective
Date, the Employer will pay the Employee $100,000 (the "Signing Bonus");
provided that the Employee will be required to immediately pay back 100% of such
Signing Bonus in the event he is terminated for Cause or voluntarily terminates
his employment hereunder (other than for Good Reason as defined below) prior to
the first anniversary of the Effective Date, and that the Employee will be
required to immediately pay back 50% of such Signing Bonus in the event he is
terminated for Cause (as defined below) or voluntarily terminates his employment
hereunder (other than for Good Reason as defined below) on or after the first
anniversary of the Effective Date and prior to the second anniversary of the
Effective Date; provided, further, that to the extent the Employee fails to pay
back any portion of the Signing Bonus as provided herein, the Employer shall
have the right to offset any other payments provided hereunder or otherwise owed
to the Employee.
(d) As soon as practicable after the Effective Date (as defined in
Section 3 below) but in no event later than ten (10) days after the Effective
Date, the Employer will pay the Employee $420,000 (the "Make Whole Payment");
provided that the Employee will be required to immediately pay back 100% of such
Make Whole Payment in the event he is terminated for Cause or voluntarily
terminates his employment hereunder (other than for Good Reason as defined
below) prior to the first anniversary of the Effective Date, and that the
Employee will be required to immediately pay back 50% of such Make Whole Payment
in the event he is terminated for Cause (as defined below) or voluntarily
2
<PAGE>
terminates his employment hereunder (other than for Good Reason as defined
below) on or after the first anniversary of the Effective Date and prior to the
second anniversary of the Effective Date; provided, further, that to the extent
the Employee fails to pay back any portion of the Make Whole Payment as provided
herein, the Employer shall have the right to offset any other payments provided
hereunder or otherwise owed to the Employee. In addition, on each of the first
and second anniversaries of the Effective Date, the Employer will pay the
Employee $60,000, provided the Employee is actively employed with the Employer
on each such anniversary (unless the Employee's employment is terminated by
reason of the Employee terminating his employment for Good Reason or the
Employer terminating his employment without Cause in which case such amounts
shall be paid as scheduled).
(e) (i) On or as soon as practicable after the Effective Date, the
Parent shall grant the Employee a ten-year option (the "Initial Option") to
purchase 150,000 shares of common stock of the Parent at an exercise price of
$6.82 per share, which shall vest and become exercisable as follows: twenty-five
percent (25%) shall become exercisable on each of the first, second, third and
fourth anniversaries of the Effective Date; provided that the Employee is still
employed by the Employer on each such anniversary.
(ii) If the Board-approved budgeted EBITDA targets for the
fiscal year ended January 2004 are achieved, the Employer will, no later than
May 31, 2004, grant the Employee a ten-year option (the "Additional Option", and
together with the Initial Option, the "Options") to purchase 25,000 shares of
common stock of the Parent at an exercise price equal to the then Fair Market
Value (as defined in the Option Plan) of such common stock (but in no case less
than $6.82 per share), which shall vest and become exercisable at a rate of
twenty-five percent (25%) on each of the first, second, third and fourth
anniversaries of the date of grant; provided that the Employee is still employed
by the Employer on each such anniversary.
(iii) The Options shall be subject to and governed by the Option
Plan (a copy of which has been provided to the Employee) and shall be evidenced
by stock option grant agreements as provided under the Option Plan.
(f) (i) As soon as practicable after the Effective Date, the
Employer shall cause the Parent to grant to the Employee 70,000 shares of common
stock of the Parent (the "Granted Shares"). The Employer, the Parent or their
designees shall have the right to purchase one hundred percent (100%) of the
Granted Shares for $1.00 per share if the Employee's employment is terminated
for Cause or the Employee voluntarily resigns (other than for Good Reason) prior
to the first anniversary of the Effective Date, and the Employer shall have the
right to repurchase fifty percent (50%) of the Granted Shares for $1.00 per
share if the Employee's employment is terminated for Cause or the Employee
voluntarily resigns (other than for Good Reason) on or after the first
anniversary of the Effective Date and prior to the second anniversary of the
Effective Date.
(ii) As soon as practicable after the Effective Date, the
Employer will cause the Parent to grant the Employee 35,000 restricted shares of
common stock of the Parent (the "Restricted Shares"), which shall vest as
follows: 25% of such shares shall vest on each of the first, second, third and
fourth anniversaries of the date of grant if the Employee is actively employed
with the Employer on each such anniversary.
(iii) The Employee shall execute an Internal Revenue Code
Section 83(b) election with respect to the Granted Shares and the Restricted
Shares. The Granted Shares and the Restricted Shares may be held in escrow until
the forfeiture provisions described above have expired.
3
<PAGE>
(g) All shares of common stock of the Parent acquired by the Employee
pursuant to this Agreement or otherwise shall be subject to the Stockholders'
Agreement attached to the Option Plan as Exhibit B, including without limitation
the Parent's call rights provided therein.
(h) During the Employment Period: (i) the Employee shall be entitled to
participate in all savings and retirement plans, practices, policies and
programs of the Employer and fringe benefits of the Employer which are made
available generally to other executive officers of the Employer and (ii) the
Employee and/or the Employee's family, as the case may be, shall be eligible for
participation in, and shall receive all benefits under, all welfare benefit
plans, practices, policies and programs provided by the Employer which are made
available generally to other executive officers of the Employer (for the
avoidance of doubt, such plans, practices, policies or programs shall not
include any plan, practice, policy or program which provides benefits in the
nature of severance or continuation pay).
(i) During the Employment Period, the Employee shall be entitled to
paid vacation of at least five weeks per year. The Employee shall not be
permitted to carry forward vacation time from year to year.
(j) With respect to the Employee's relocation to the New York area, the
Employer will provide the following benefits or reimbursements of expenses:
(i) If required, the Employer will provide the Employee with
temporary living quarters in the New York area for up to six months after the
Effective Date (in particular, the Employee may utilize the two-bedroom
apartment that the Employer currently leases near the Employer's headquarters
or, at the Employee's option, he may find other suitable housing at
substantially the same cost of $7,500 per month).
(ii) If required, the Employer will provide round-trip business
class airline tickets, purchased through the Employer's travel service, for up
to three trips for the Employee's wife and child during the Employee's first six
months of employment in connection with finding suitable housing.
(iii) With respect to the Employee's primary residence in the
San Francisco area, the Employer will (A) cause its standard relocation firm to
purchase such residence; (B) pay the reasonable selling commission; and (C)
reimburse the Employee for the Loss on such residence, up to a maximum (in the
case of (C)) of $100,000. "Loss" shall be calculated according to the Employer's
standard relocation policy, and shall generally mean the excess, if any, of the
original purchase price of the residence plus amounts paid by the Employee to
make capital improvements to such residence (excluding ordinary repairs), over
the amount received for the residence inclusive of reimbursed selling costs.
(iv) The Employer will reimburse the Employee for all
reasonable costs associated with the purchase of a primary residence in the New
York metropolitan area, including closing costs (except mortgage points).
(v) The Employer will reimburse the Employee for all
reasonable, standard costs of moving the Employee's home furnishings and
personal belongings approved by the Employer in advance, which approval shall
not be unreasonably withheld.
(vi) The Employer will provide standard and reasonable meal
reimbursement for the Employee for the first ninety (90) days of the Employee's
employment with the Employer.
4
<PAGE>
(vii) In accordance with the Employer's Relocation Benefits
Program, the relocation benefits described in this Section 2(i) will be grossed
up, subject to a limit of $50,000 in the aggregate, to the extent they are
taxable to the Employee.
(k) The Employer shall promptly reimburse the Employee for all
reasonable business expenses upon the presentation of statements of such
expenses in accordance with the Employer's policies and procedures now in force
or as such policies and procedures may be modified with respect to all senior
executive officers of the Employer. In addition, the Employer will cause the
Texas Pacific Group to make office space available to the Employee at its San
Francisco offices when the Employee is in the San Francisco area.
(l) Following receipt of an invoice or similar notice from the
Employee, the Employer shall promptly pay the Employee's reasonable attorneys'
and financial advisor's fees and expenses incurred in connection with the
preparation of this Agreement, not to exceed $15,000 in the aggregate.
(m) The Employer shall reimburse the Employee for annual tax advisor
fees, not to exceed $5,000 each year.
(n) In addition to the indemnification of the Employee as provided
for under the Parent's and the Employer's certificates of incorporation and
by-laws, the Employer and the Parent shall provide, at their expense, the
Employee with coverage under their directors' and officers' liability insurance
policy at the same level provided the other directors and officers of the
Employer and the Parent. The Parent and the Employer shall indemnify the
Employee to the extent permitted under law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director, officer or employee of the Employer or the Parent or any of their
respective subsidiaries, including without limitation actions related to the
Employee serving as a fiduciary of employee benefit plans maintained by the
Employer or the Parent (whether or not he continues to be a director, officer or
employee at the time of incurring such expenses or liabilities), if such action
is brought against the Employee in his capacity as an officer, director or
employee of the Employer or the Parent or any of their respective subsidiaries.
Indemnification shall not extend to actions commenced by the Employee or to
matters as to which the Employee is finally adjudged to be liable for willful
misconduct in the performance of his duties. The provisions of this Section 2(n)
shall survive the termination of the Employee's employment.
3. Employment Period.
The Employment Period shall commence on September 9, 2002 (the
"Effective Date") and shall terminate on the day preceding the fifth anniversary
of the Effective Date (the "Scheduled Termination Date"). Notwithstanding the
foregoing, the Employee's employment hereunder may be terminated during the
Employment Period prior to the Scheduled Termination Date upon the earliest to
occur of the following events (at which time the Employment Period shall be
terminated).
(a) Death. The Employee's employment hereunder shall terminate upon
his death.
(b) Disability. The Employer shall be entitled to terminate the
Employee's employment hereunder for "Disability" if, as a result of the
Employee's incapacity due to physical or mental illness or injury, the Employee
shall have been unable to perform his duties hereunder for a period of
one-hundred eighty (180) consecutive days, and within thirty (30) days after
Notice of Termination (as
5
<PAGE>
defined in Section 4 below) for Disability is given following such 180-day
period the Employee shall not have returned to the performance of his duties on
a full-time basis.
(c) Cause. The Employer may terminate the Employee's employment
hereunder for Cause. For purposes of this Agreement, the term "Cause" shall
mean: (i) a material violation by the Employee of any of the provisions of this
Agreement which is not cured by the Employee within twenty (20) days of written
notice thereof by the Employer; (ii) the failure by the Employee to attempt in
good faith to reasonably and substantially perform his duties hereunder (other
than as a result of physical or mental illness or injury), after the Employer
delivers to the Employee a written demand for reasonable and substantial
performance that specifically identifies the manner in which the Employer
believes that the Employee has not reasonably and substantially performed the
Employee's duties and provides the Employee fifteen (15) days to cure such
non-performance; (iii) the Employee's willful misconduct or gross negligence in
connection with his duties (including without limitation the Employee's willful
violation of the Sarbanes-Oxley Act of 2002) which is materially injurious to
the Employer; or (iv) the indictment of the Employee for a felony (other than as
a result of a traffic infraction or vicarious liability). If, within ninety (90)
days after the Employee's termination of employment hereunder other than for
Cause, new facts come to the attention of the Board that would have entitled the
Board to terminate the Employee's employment for Cause as a result of his
willful misconduct pursuant to clause (iii) above, the Employee's employment
shall, at the election of the Board, be deemed to have been terminated for Cause
retroactively to the date the events giving rise to Cause occurred, provided
that the Employee shall have the right to challenge the accuracy and impact of
such facts in arbitration pursuant to Section 11(j) hereof.
(d) Without Cause; for Good Reason. The Employer may terminate the
Employee's employment hereunder during the Employment Period without Cause, and
the Employee may terminate his employment hereunder during the Employment Period
for Good Reason. For purposes of this Agreement, the term "Good Reason" shall
mean: (i) a material diminution of the authority, duties or responsibilities of
the Employee as provided in Section 1 hereof; (ii) a diminution in the
Employee's title; (iii) removal of the Employee from, or failure to elect the
Employee to, the Board or to the Board of Directors of the Employer, if any such
Board exists and is functioning; or (iv) a material breach of any provision of
this Agreement by the Employer or the Parent, provided that in each of clause
(i) through (iv), the Employee serves notice on the Employer specifically
identifying the conduct that the Employee believes constitutes Good Reason and
gives the Employer fifteen (15) days to cure such conduct; or (v) a relocation
of the primary office of the Employee from the New York City metropolitan area,
and in each of clause (i) through (v), without the prior written consent of the
Employee.
(e) Voluntarily. The Employee may voluntarily terminate his employment
hereunder, provided that the Employee provides the Employer with notice of his
intent to terminate his employment at least forty-five (45) days in advance of
the Date of Termination (as defined in Section 4 below).
4. Termination Procedure.
(a) Notice of Termination. Any termination of the Employee's employment
by the Employer or by the Employee during the Employment Period (other than
termination pursuant to Section 3(a)) shall be communicated by written "Notice
of Termination" to the other party hereto in accordance with Section 11(a).
(b) Date of Termination. "Date of Termination" shall mean (i) if the
Employee's employment is terminated by his death, the date of his death, (ii) if
the Employee's employment is
6
<PAGE>
terminated pursuant to Section 3(b), thirty (30) days after Notice of
Termination, (iii) if the Employee voluntarily terminates his employment, the
date specified in the notice given pursuant to Section 3(e) herein which shall
not be less than forty-five (45) days after the Notice of Termination and (iv)
if the Employee's employment is terminated for any other reason, the date on
which a Notice of Termination is given or any later date (within thirty (30)
days, or any alternative time period agreed upon by the parties, after the
giving of such notice) set forth in such Notice of Termination.
5. Termination Payments.
(a) Without Cause or For Good Reason. In the event of the termination
of the Employee's employment during the Employment Period by the Employer
without Cause or by the Employee for Good Reason, in addition to the Employee's
accrued but unused vacation and his Base Salary through the Date of Termination
(to the extent not theretofore paid) and any unpaid payments described in
Section 2(c) hereof to which the Employee is entitled, the Employee shall be
entitled to (i) any Bonus (as described in Section 2(b) herein) earned by the
Employee in respect of the fiscal year ending before the Date of Termination,
and (ii) a lump-sum payment payable within ten (10) days after the Date of
Termination equal to two times the Employee's then current Base Salary. The
payments provided in clauses (i) and (ii) hereof are subject to and conditioned
upon the Employee executing a valid general release and waiver (in substantially
the form attached hereto), waiving all claims the Employee may have against the
Employer, its successors, assigns, affiliates, employees, officers and
directors. Except as provided in this Section 5(a), the Employer shall have no
additional obligations under this Agreement (except as specifically provided
elsewhere in this Agreement).
(b) Disability or Death. If the Employee's employment is terminated
during the Employment Period as a result of the Employee's death or Disability,
the Employer shall pay the Employee or the Employee's estate, as the case may
be, within thirty (30) days following the Date of Termination, the Employee's
accrued but unused vacation and his Base Salary through the Date of Termination
(to the extent not theretofore paid). In addition, the Employee shall be
entitled to (i) any Bonus (as described in Section 2(b) herein) earned by the
Employee in respect of the fiscal year ending before the Date of Termination,
and (ii) a pro rata Bonus for the fiscal year in which the Date of Termination
occurs equal to the product of the Bonus that the Employee would have earned for
such fiscal year pursuant to Section 2(b) herein and a fraction, the numerator
of which is the number of calendar days beginning on the first day of the
Employer's fiscal year in which the Date of Termination occurs and ending on and
including the Date of Termination and the denominator of which is 365. Except as
provided in this Section 5(b), the Employer shall have no additional obligations
under this Agreement (except as specifically provided elsewhere in this
Agreement).
(c) Termination on the Scheduled Termination Date. If the Employee's
employment is terminated on the Scheduled Termination Date other than for Cause,
the Employer shall pay the Employee, within thirty (30) days following the
Scheduled Termination Date, the Employee's accrued but unused vacation and his
Base Salary through the Date of Termination (to the extent not theretofore
paid). In addition, the Employee shall be entitled to a pro rata Bonus for the
fiscal year in which the Scheduled Termination Date occurs equal to the product
of the Bonus that the Employee would have earned for such fiscal year pursuant
to Section 2(b) herein and a fraction, the numerator of which is the number of
calendar days beginning on the first day of the Employer's fiscal year in which
the Scheduled Termination Date occurs and ending on and including the Scheduled
Termination and the denominator of which is 365. Except as provided in this
Section 5(c), the Employer shall have no additional obligations under this
Agreement (except as specifically provided elsewhere in this Agreement).
7
<PAGE>
(d) Cause or Voluntarily. If the Employee's employment is terminated
during the Employment Period by the Employer for Cause or voluntarily by the
Employee (other than for Good Reason), the Employee shall be entitled to the
Employee's accrued but unused vacation and his Base Salary through the Date of
Termination (to the extent not theretofore paid). Except as provided in this
Section 5(d), the Employer shall have no additional obligations under this
Agreement (except as specifically provided elsewhere in this Agreement).
(e) (i) In the event the Employee is subject to excise taxes pursuant
to Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
or any similar excise taxes or penalties under any successor provision to
Section 280G of the Code or any similar state excise tax as a result of a change
in control of the Employer or the Parent, the Employee will have the option (to
be exercised in his sole discretion) to waive any portion of any payments or
benefits due hereunder in order to avoid any such excise tax.
(ii) In the event that the Parent is contemplating a transaction
that could cause it or the Employer to be considered to have experienced an
event within the meaning of Section 280G(b)(2)(A)(i) of the Code, upon receipt
from the Employee of a written request, in which he agrees to waive any portion
of the payments and benefits (including equity acceleration) to which he could
be entitled contingent on such transaction (within the meaning of such Code
Section 280G), the Parent shall, in conformity with the requirements set forth
at Q&A 7 of Prop. Reg. Section 1.280G-1, use its reasonable best efforts to seek
approval from the stockholders of the Parent of payment of such payments or
benefits. Nothing herein is intended to represent or ensure that such approval
will be obtained.
6. Non-Solicitation.
During the Employment Period and for a period of one year following the
Date of Termination, the Employee hereby agrees not to, directly or indirectly,
solicit or hire or assist any other person or entity in soliciting or hiring any
employee of the Parent, the Employer or any of their subsidiaries to perform
services for any entity (other than the Parent, the Employer or their
subsidiaries), or attempt to induce any such employee to leave the employ of the
Parent, the Employer or their subsidiaries; provided that the Employee shall be
permitted to solicit and hire the employee of the Employer who served as the
Employee's administrative assistant immediately prior to the Date of
Termination; provided, further that the Employee shall be permitted to provide
references for employees of the Parent or Employer who have indicated they are
seeking employment with another entity independent of any action by the
Employee.
7. Non-Compete.
The Employee hereby agrees that, during the Employment Period and for a
one-year period thereafter, the Employee (i) shall not engage (either as owner,
investor, partner, employer, employee, consultant or director) in or otherwise
perform services for any Competitive Business which operates within a 100 mile
radius of the location of any store of the Employer or its affiliates or in the
same area as the Employer directs its mail order operations or any other area in
which the Employer or any of its subsidiaries conducts business or in which the
Employer or any of its subsidiaries' customers are located as of the Date of
Termination, provided that the foregoing restriction shall not prohibit the
Employee from owning a passive investment of not more than 5% of the total
outstanding securities of any publicly-traded company and (ii) shall not solicit
or cause another to solicit any customers or suppliers of the Employer or any of
its subsidiaries to terminate or otherwise adversely modify their relationship
with the Employer or any such subsidiary. The term "Competitive Business" means
the
8
<PAGE>
retail, mail order and internet apparel and accessories business and any other
business of the Employer or its affiliates on the Date of Termination.
8. Confidentiality; Non-Disclosure; Non-Disparagement.
(a) The Employee hereby agrees that, during the Employment Period and
thereafter, he will hold in strict confidence any proprietary or Confidential
Information related to the Employer and its affiliates, except that he may
disclose such information pursuant to law, court order, regulation or similar
order. For purposes of this Agreement, the term "Confidential Information" shall
mean all information of the Employer or any of its affiliates (in whatever form)
which is not generally known to the public, including without limitation any
inventions, processes, methods of distribution, customer lists or customers' or
trade secrets.
(b) The Employee hereby agrees that, upon the termination of the
Employment Period, he shall not take, without the prior written consent of the
Employer, any drawing, blueprint, specification or other document (in whatever
form) of the Employer or its affiliates, which is of a confidential nature
relating to the Employer or its affiliates, or, without limitation, relating to
its or their methods of distribution, or any description of any formulas or
secret processes and will return any such information (in whatever form) then in
his possession.
(c) During the Employment Term and for the one-year period thereafter,
the Employee hereby agrees not to materially defame or disparage the Employer,
the Parent or their respective affiliates, and their officers, directors,
members or employees, and the Employer and the Parent hereby agree that it shall
not materially disparage or defame the Employee through any official statement
of the Employer or Parent or through any director or executive officer of the
Parent or the Employer, in each case except as required by law, court order,
regulation or similar order, provided that, in the event the Employee's
employment is terminated for Cause, the Employer and the Parent shall be
permitted, in its discretion, to disclose the facts and circumstances
surrounding such termination, and the Employee shall be permitted to defend
himself.
9. Injunctive Relief.
It is impossible to measure in money the damages that will accrue to
the Employer in the event that the Employee breaches any of the restrictive
covenants provided in Sections 6, 7 and 8 hereof. In the event that the Employee
breaches any such restrictive covenant, the Employer shall be entitled to an
injunction restraining the Employee from violating such restrictive covenant. If
the Employer shall institute any action or proceeding to enforce any such
restrictive covenant, the Employee hereby waives the claim or defense that the
Employer has an adequate remedy at law and agrees not to assert in any such
action or proceeding the claim or defense that the Employer has an adequate
remedy at law.
10. Representations.
(a) The parties hereto hereby represent that they each have the
authority to enter into this Agreement, and the Employee hereby represents to
the Employer that the execution of, and performance of duties under, this
Agreement shall not constitute a breach of or otherwise violate any other
agreement to which the Employee is a party.
(b) The Employee hereby represents to the Employer that he will not
utilize or disclose any confidential information obtained by the Employee in
connection with his former employment with
9
<PAGE>
respect to his duties and responsibilities hereunder, and the Employer covenants
that it will not ask the Employee to do so.
11. Miscellaneous.
(a) Any notice or other communication required or permitted under this
Agreement shall be effective only if it is in writing and delivered personally
or sent by registered or certified mail, postage prepaid, addressed as follows
(or if it is sent through any other method agreed upon by the parties):
If to the Employer:
J. Crew Group, Inc.
770 Broadway, Twelfth Floor
New York, New York 10003
Attention: Board of Directors and Secretary
with a copy to:
Paul Shim, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
If to the Employee, to the address on record with the Employer; or, for either
party, to such other address as any party hereto may designate by notice to the
others, and shall be deemed to have been given upon receipt.
(b) This Agreement shall constitute the entire agreement among the
parties hereto with respect to the Employee's employment hereunder, and
supersedes and is in full substitution for any and all prior understandings or
agreements with respect to the Employee's employment (it being understood that
any stock options granted to the Employee shall be governed by the Option Plan
and related stock option grant agreement and that all shares of Common Stock
acquired by the Employee will be subject to the Stockholders' Agreement.)
(c) This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by an
instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of any party hereto at any
time to require the performance by any other party hereto of any provision
hereof shall in no way affect the full right to require such performance at any
time thereafter, nor shall the waiver by any party hereto of a breach of any
provision hereof be taken or held to be a waiver of any succeeding breach of
such provision or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
(d) The parties hereto acknowledge and agree that each party has
reviewed and negotiated the terms and provisions of this Agreement and has had
the opportunity to contribute to its revision. Accordingly, the rule of
construction to the effect that ambiguities are resolved against the drafting
party shall not be employed in the interpretation of this Agreement. Rather, the
terms of this Agreement shall be construed fairly as to both parties hereto and
not in favor or against either party.
10
<PAGE>
(e) (i) This Agreement is binding on and is for the benefit of the
parties hereto and their respective successors, permitted assigns, heirs,
executors, administrators and other legal representatives. Neither this
Agreement nor any right or obligation hereunder may be assigned by the Employee.
(ii) The Parent and Employer shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Parent and/or Employer to
assume this Agreement in the same manner and to the same extent that the Parent
or Employer would have been required to perform it if no such succession had
taken place, and shall deliver to the Employee a copy of any document(s)
embodying any such assumption. No other assignment of this Agreement may be made
by the Parent or the Employer. As used in the Agreement, "the Employer" shall
mean both the Employer as defined above and any such successor that assumes this
Agreement, by operation of law or otherwise, and "the Parent" shall mean both
the Parent as defined above and any such successor that assumes this Agreement,
by operation of law or otherwise.
(f) The Employer and the Parent shall be jointly and severally liable
for the obligations of either under this Agreement.
(g) Any provision of this Agreement (or portion thereof) which is
deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this Section, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions thereof in such jurisdiction or rendering that or any other
provisions of this Agreement invalid, illegal, or unenforceable in any other
jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable
because its scope is considered excessive, such covenant shall be modified so
that the scope of the covenant is reduced only to the minimum extent necessary
to render the modified covenant valid, legal and enforceable. No waiver of any
provision or violation of this Agreement by Employer shall be implied by
Employer's forbearance or failure to take action.
(h) The Employer may withhold from any amounts payable to the Employee
hereunder all federal, state, city or other taxes that the Employer may
reasonably determine are required to be withheld pursuant to any applicable law
or regulation, (it being understood, that the Employee shall be responsible for
payment of all taxes in respect of the payments and benefits provided herein).
(i) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to its principles of
conflicts of law.
(j) Any disagreement, dispute, controversy or claim arising out of or
relating to this Agreement or the interpretation hereof or any agreements
relating hereto or contemplated herein or the interpretation, breach,
termination, validity or invalidity hereof shall be settled exclusively and
finally by arbitration; provided that neither the Employer nor the Parent shall
be required to submit claims for injunctive relief to enforce the covenants
contained in Sections 6, 7 and 8 of this Agreement to arbitration. The
arbitration shall be conducted in accordance with the Commercial Arbitration
Rules (the "Rules") of the American Arbitration Association (the "AAA"), except
as amplified or otherwise varied hereby. The Employer and the Employee jointly
shall appoint one individual to act as arbitrator within thirty (30) days of
initiation of the arbitration. If the parties shall fail to appoint such
arbitrator as provided above, such arbitrator shall be appointed by the
President of the New York Bar Association and shall be a person who maintains
his or her principal place of business in the New York metropolitan area and
shall be an attorney, accountant or other professional licensed to practice by
the State of New York who has substantial experience in employment and executive
compensation matters. All fees and expenses of such arbitrator shall be shared
equally by the Employer and the Employee. The situs of the arbitration shall be
11
<PAGE>
New York City. Any decision or award of the arbitral tribunal shall be final and
binding upon the parties to the arbitration proceeding. The parties hereto
hereby waive to the extent permitted by law any rights to appeal or to seek
review of such award by any court or tribunal. The arbitration award shall be
paid within thirty (30) days after the award has been made. Judgment upon the
award may be entered in any federal or state court having jurisdiction over the
parties and shall be final and binding. Each party shall be required to keep all
proceedings related to any such arbitration and the final award and judgment
strictly confidential; provided that either party may disclose such award as
necessary to enter the award in a court of competent jurisdiction or to enforce
the award, and to the extent required by law, court order, regulation or similar
order
(k) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
(l) The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
any provision hereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
J. CREW GROUP, INC.
/s/ Dick Boyce
_____________________________________
Name: Dick Boyce
Title: Chairman, Compensation
Committee
J. CREW OPERATING CORP.
/s/ David Kozel
_____________________________________
Name: David Kozel
Title: Executive Vice-President,
Human Resources
/s/ Kenneth S. Pilot
_____________________________________
Kenneth S. Pilot
13
<PAGE>
Attachment
SEPARATION AGREEMENT AND GENERAL RELEASE AND WAIVER
---------------------------------------------------
This Separation Agreement and General Release and Waiver (this
"Agreement") is made as of [DATE], among J. Crew Group, Inc., a New York
---------
corporation (the "Parent") and its operating subsidiary J. Crew Operating Corp.
------
(the "Employer," and together with the Parent, "Crew"), with offices at 770
-------- ----
Broadway, New York, NY, and Kenneth S. Pilot (the "Employee").
--------
WHEREAS, Crew engaged the Employee to be the Chief Executive Officer
of the Employer and the Parent;
WHEREAS, the Employee, the Parent and the Employer are parties to an
Employment Agreement dated August 26, 2002 (the "Employment Agreement");
--------------------
WHEREAS, Section 5(a) of the Employment Agreement provides that, as a
condition to the receipt of certain benefits described therein, the Employee
shall be required to execute a general release of claims in the form appended to
the Employment Agreement;
WHEREAS, the parties wish to confirm the termination of the Employee's
employment with Crew and set forth their agreement as to the manner in which the
Employee's employment with Crew will be closed out;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, receipt of which is hereby
acknowledged, Crew and the Employee agree as follows:
1. Termination of Employment. The parties hereto hereby agree that
-------------------------
the Employee's employment with Crew terminated on [_______] (the "Date of
-------
Termination"). The Employee hereby resigns, effective as of the Date of
-----------
Termination, all positions, titles, duties, authorities and responsibilities
with, arising out of or relating to his employment with Crew and its affiliates
and agrees to execute all additional documents and takes such further steps as
may be required to effectuate such resignation.
2. Certain Payments and Benefits.
-----------------------------
(a) Pursuant to Section 5(a) of the Employment Agreement, Crew shall
pay the Employee $[______], which represents two times the Employee's current
base salary of $[_______] (the "Termination Payment")[, and shall also pay
-------------------
$[______], representing the Employee's accrued obligations].
(b) The Termination Payment shall be reduced by any required tax
withholding. The Termination Payment shall not be taken into account as
compensation and no service credit shall be given after the Date of Termination
for purposes of determining the benefits payable to the Employee or the
Employee's family under any plan, program, agreement or arrangement of Crew. The
Employee acknowledges that, except for the Termination Payment, he is not
entitled to any payment in the nature of severance or termination pay from Crew.
<PAGE>
(c) The Employee shall be entitled to any benefit to which the
Employee may be entitled under any tax qualified pension plan of Crew or its
affiliates, continuation of health insurance benefits, at the Employee's cost,
to the extent provided in Section 4980B of the Internal Revenue Code of 1986 and
Section 601 of the Employee Retirement Income Security Act of 1974, as amended
(which provisions are commonly known as "COBRA") and any other similar benefits
required to be provided by law.
3. General Release and Waiver
--------------------------
(a) The Employee hereby releases, remises and acquits the Employer,
the Parent and all of their respective affiliates, and their respective
officers, directors, shareholders, members, agents, employees, consultants,
independent contractors, attorneys, advisers, successors and assigns, jointly
and severally, from any and all claims, known or unknown, which the Employee or
the Employee's heirs, successors or assigns have or may have against any of such
parties arising on or prior to the date this Agreement is executed by the
Employee and any and all liability which any of such parties may have to the
Employee, whether denominated claims, demands, causes of action, obligations,
damages or liabilities arising from any and all bases, however, denominated,
including but not limited to, the Age Discrimination in Employment Act, the
Americans with Disabilities Act of 1990, the Family and Medical Leave Act of
1993, Title VII of the United States Civil Rights Act of 1964, 42 U.S.C. ss.
1981, the New York Human Rights Law, N.Y. Exec. Law Article 15 et seq., New York
Executive Law ss. 296, ss. 8-107 of the Administrative Code and Charter of New
York City, or any other federal, state or local law and any workers'
compensation or disability claims under any such laws or claims under any
contract (including without limitation the Employment Agreement). This release
relates to any and all claims, including without limitation claims arising from
and during the Employee's employment relationship with the Employer, the Parent
and their respective affiliates or as a result of the termination of such
relationship. The Employee further agrees that the Employee will not file or
permit to be filed on the Employee's behalf any such claim. Notwithstanding the
preceding sentence or any other provision of this Agreement, this release is not
intended to interfere with the Employee's right to file a charge with the Equal
Employment Opportunity Commission (the "EEOC") in connection with any claim he
----
believes he may have against the Employer, the Parent or their respective
affiliates. However, by executing this Agreement, the Employee hereby waives the
right to recover in any proceeding the Employee may bring before the EEOC or any
state human rights commission or in any proceeding brought by the EEOC or any
state human rights commission on the Employee's behalf. This release is for any
relief, no matter how denominated, including, but not limited to, injunctive
relief, wages, back pay, front pay, compensatory damages, or punitive damages.
This release shall not apply to any obligation of the Employer, the Parent or
their respective affiliates pursuant to this Agreement or any rights in the
nature of indemnification (including without limitation pursuant to Crew's
directors' and officer's liability insurance policy) which the Employee may have
with respect to claims against the Employee relating to or arising out of his
employment with the Employer, the Parent or their respective affiliates.
(b) The Employee acknowledges that the Termination Payment
constitutes good and valuable consideration for the release contained in this
Section 3.
2
<PAGE>
4. Confidentiality of Agreement. The Employee and Crew shall keep
----------------------------
the terms of this Agreement confidential and shall not directly or indirectly
disseminate any information (in any form) regarding this Agreement to any person
or entity except as may be agreed to in writing by the other party.
Notwithstanding the foregoing, either party may disclose the information
described herein, to the extent compelled to do so by lawful service of process,
subpoena, court order, or as otherwise compelled to do by law, including full
and complete disclosure in response thereto, in which event such party agrees to
provide the other party with a copy of the document(s) seeking disclosures of
such information promptly upon receipt of such document(s) and prior to
disclosure of any such information, so that the other party may, upon notice to
the first party, take such action as it deems to be necessary or appropriate in
relation to such subpoena or request. The obligations under this Section 4 shall
cease for both parties at such time that this document (once executed by both
parties) is filed publicly with the Securities and Exchange Commission.
5. Incorporation by Reference. The following sections of the
--------------------------
Employment Agreement are hereby incorporated by reference as if repeated herein:
Section 2(n) (relating to indemnification); Section 6 ("Non-Solicitation");
Section 7 ("Non-Compete"), as agreed by the parties; Section 8
("Confidentiality; Non-Disclosure; Non-Disparagement"); Section 9 ("Injunctive
Relief"); and Section 11(j) (relating to arbitration).
6. Certain Forfeitures in Event of Breach. The Employee acknowledges
--------------------------------------
and agrees that, notwithstanding any other provision of this Agreement, in the
event the Employee materially breaches any of his obligations under Section 3 of
this Agreement, the Employee will forfeit his right to receive the Termination
Payment to the extent not theretofore paid to him as of the date of such breach
and, if already made as of the time of breach, the Employee agrees that he will
reimburse Crew, immediately, for the amount of such payment.
7. No Admission. This Agreement does not constitute an admission of
------------
liability or wrongdoing of any kind by Crew or its affiliates.
8. Heirs and Assigns. The terms of this Agreement shall be binding
-----------------
on the parties hereto and their respective successors and assigns.
9. General Provisions
------------------
(a) Integration. This Agreement constitutes the entire understanding
of Crew and the Employee with respect to the subject matter hereof and
supersedes all prior understandings, written or oral, including without
limitation the Employment Agreement. The terms of this Agreement may be changed,
modified or discharged only by an instrument in writing signed by the parties
hereto. A failure of Crew or the Employee to insist on strict compliance with
any provision of this Agreement shall not be deemed a waiver of such provision
or any other provision hereof. In the event that any provision of this Agreement
is determined to be so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
3
<PAGE>
(b) Choice of Law. This Agreement shall be construed, enforced and
interpreted in accordance with and governed by the laws of the State of New
York, without regard to its choice of law provisions.
(c) Construction of Agreement. The parties hereto acknowledge and
agree that each party has reviewed and negotiated the terms and provisions of
this Agreement and has had the opportunity to contribute to its revision.
Accordingly, the rule of construction to the effect that ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement. Rather, the terms of this Agreement shall be construed fairly
as to both parties hereto and not in favor or against either party.
(d) Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
counterpart, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same Agreement.
(e) Notice. Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing and shall be
deemed to be given when delivered personally or four days after it is mailed by
registered or certified mail, postage prepaid, return receipt requested or one
day after it is sent by a reputable overnight courier service and, in each case,
addressed as follows (or if it is sent through any other method agreed upon by
the parties):
If to Crew:
J. Crew Group, Inc.
770 Broadway, Twelfth Floor
New York, New York 10003
Attention: Board of Directors and Secretary
with a copy to:
Paul Shim, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
If to the Employee, to the address on record with Crew; or, for either party, to
such other address as any party hereto may designate by notice to the others,
and shall be deemed to have been given upon receipt.
10. Knowing and Voluntary Waiver. The Employee acknowledges that, by
----------------------------
the Employee's free and voluntary act of signing below, the Employee agrees to
all of the terms of this Agreement and intends to be legally bound thereby.
The Employee understands that he may consider whether to agree to the
terms contained herein for a period of twenty-one days after the date hereof.
Accordingly, the
4
<PAGE>
Employee may execute this Agreement by [________], to acknowledge his
understanding of and agreement with the foregoing. However, the Termination
Payment provided herein will be delayed until this Agreement is executed and
returned to Crew. The Employee acknowledges that he has been advised to consult
with an attorney prior to executing this Agreement.
This Agreement will become effective, enforceable and irrevocable on
the eighth day after the date on which it is executed by the Employee (the
"Effective Date"). During the seven-day period prior to the Effective Date, the
--------------
Employee may revoke his agreement to accept the terms hereof by indicating in
writing to Crew his intention to revoke. If the Employee exercises his right to
revoke hereunder, he shall forfeit his right to receive any of the benefits
provided for herein, and to the extent such payments have already been made, the
Employee agrees that he will immediately reimburse Crew for the amounts of such
payment.
The Employee acknowledges that, by his free and voluntary act of
signing below, he agrees to all of the terms of this Release and intends to be
legally bound thereby.
IN WITNESS WHEREOF, the Employer and the Parent have caused this
Agreement to be signed by their duly authorized representatives and the Employee
has signed this Agreement has of the day and year first above written.
J. CREW GROUP, INC.
------------------------------------------------
Name:
Title:
J. CREW OPERATING CORP.
------------------------------------------------
Name:
Title:
------------------------------------------------
Kenneth S. Pilot
Acknowledgment
--------------
STATE OF ___________________)
ss:
COUNTY OF___________________)
On the ____ day of __________, ____, before me personally came ______________
who, being by me duly sworn, did depose and say that he resides at
___________________________; and did acknowledge and represent that he has had
an opportunity to consult with attorneys and other advisers of his choosing
regarding the Separation Agreement and General Release and Waiver attached
hereto, that he has reviewed all of the terms of the Separation Agreement and
General Release and Waiver and that he fully understands all of its provisions,
including, without limitation, the general release and waiver set forth therein.
____________________________
Notary Public
Date: ______________________
5