Sample Business Contracts

Severance Agreement - J Crew Operating Corp. and Trudy Sullivan

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                                  July 12, 2001

Ms. Trudy Sullivan
544 E. 86th St., Apt. 12W
New York, NY 10028

Dear Trudy:

         This letter will confirm our understanding of the arrangements under
which the Employment Agreement between you (the "Executive") and J. Crew
Operating Corp. (the "Company") dated February 18, 2000 (the "Employment
Agreement") is terminated. The terms and conditions of the termination of your
employment with the Company are set out below.

               1. The Parties hereby acknowledge and confirm that the
                  Executive's employment with the Company has terminated
                  effective as of June 15, 2001 (the "Termination Date"). During
                  the two-month period immediately following the Termination
                  Date (the "Consulting Period"), the Executive shall provide
                  such consulting services to the Company as the Company may,
                  from time to time, request. In full payment for the consulting
                  services provided hereunder, the Company will pay the
                  Executive a fee at the rate of $41,666 per month, payable no
                  less frequently than twice per month. The Company will also
                  reimburse the Executive for reasonable travel expenses
                  incurred by her that are authorized in advance by the Company,
                  upon presentation of appropriate documentation in accordance
                  with the Company's expense report policy.

               2. Subject to this Agreement becoming effective (as described in
                  Paragraph 18 hereof), the Company will continue to pay the
                  Executive her base salary of $500,000 per annum for the
                  12-month period beginning on the day immediately following the
                  end of the Consulting Period (the "Severance Period"), payable
                  in accordance with the Company's regular payroll policies for
                  its employees. The Executive will also continue to have
                  medical coverage during both the Consulting Period and the
                  Severance Period on the same terms and conditions as medical
                  coverage is then made available to employees of the Company.

               3. The consulting and severance payments described in Paragraphs
                  1 and 2 above shall be reduced by any required tax
                  withholdings and shall not be taken into account as
                  compensation and no service credit shall be given after the
                  Termination Date for purposes of determining the benefits
                  payable under any other plan, program, agreement or
                  arrangement of the Company. The Executive acknowledges that,
                  except for the payments described herein, she is not entitled
                  to any payment in the nature of severance or termination pay
                  from the Company.

               4. The Executive currently has vested options to purchase 22,560
                  shares of Common Stock of J. Crew Group, Inc. ("Common Stock")
                  at $6.82 per share and vested options to purchase 6,480 shares
                  of Common Stock at $10.00 per share. The Company hereby agrees
                  that notwithstanding the provisions of the stock option
                  agreements with the Executive (a) options to purchase an
                  additional 7,520


                  shares of Common Stock at $6.82 per share and options to
                  purchase and additional 6,480 shares of Common Stock at $10.00
                  per share shall vest and become exercisable on January 31,
                  2002 (such additional options together with the options
                  vested on the Termination Date are collectively referred to
                  as the "Vested Options"), (b) the expiration date of the
                  Vested Options shall be the tenth anniversary of the grant
                  date of such options, and (c) the Executive shall have the
                  right to exercise the Vested Options in accordance with the
                  provisions of the stock option agreements until such
                  expiration date. All other unvested options (totaling 7,520
                  options to purchase Common Stock at $6.82 per share and 19,440
                  options to purchase Common Stock at $10.00 per share) shall
                  terminate effective on the Termination Date.

               5. By signing this Agreement, the Executive agrees that in
                  exchange for the additional consideration set forth herein,
                  the Executive hereby voluntarily, fully and unconditionally
                  releases and forever discharges the Company, its present and
                  former parent corporation(s), subsidiaries, divisions,
                  affiliates and otherwise related entities and their respective
                  incumbent and former employees, directors, plan
                  administrators, officers and agents, individually and in their
                  official capacities (collectively, the "Releasees"), from any
                  and all charges, actions, causes of action, demands, debts,
                  dues, bonds, accounts, covenants, contracts, liabilities, or
                  damages of any nature whatsoever, whether now known or
                  claimed, to whomever made, which the Executive has or may have
                  against any or all of the Releasees for or by reason of any
                  cause, nature or thing whatsoever, up to the present time,
                  arising out of or related to her employment with the Company
                  or the termination of such employment, including, by way of
                  examples and without limiting the broadest application of the
                  foregoing, any actions, causes of action, or claims under any
                  contract or federal, state or local decisional law, statues,
                  regulations or constitutions, any claims for notice, pay in
                  lieu of notice, wrongful dismissal, breach of contract,
                  defamation or other tortious conduct, discrimination on the
                  basis of actual or perceived disability, age, sex, race or any
                  other factor (including, without limitation, any claim
                  pursuant to Title VII of the Civil Rights Act of 1964,
                  Americans with Disabilities Act of 1990, the Family Medical
                  Leave Act of 1993, the Age Discrimination in Employment Act of
                  1967, as amended, or the New York State equal employment
                  laws), any claim pursuant to any other applicable employment
                  standards or human rights legislation or for severance pay,
                  salary, bonus, incentive or additional compensation, vacation
                  pay, insurance, other benefits, interest, and/or attorney's
                  fees. The Executive acknowledges that this general release is
                  not made in connection with an exit incentive or other
                  employment termination program offered to a group or class of
                  employees. If the Executive has made or should hereafter make
                  any complaint, charge, claim, allegation or demand, or
                  commence or threaten to commence any action, complaint,
                  charge, claim or proceeding, against any or all of the
                  Releasees for or by reason of any cause, matter or thing
                  whatsoever existing up to the present time, this Agreement may
                  be raised as and shall constitute a complete bar to any such
                  action, complaint, charge, claim, allegation or proceeding,
                  and, subject to a favorable ruling by a tribunal of final
                  jurisdiction, the Releasees shall recover from the Executive,
                  and the Executive shall pay to the Releasees, all costs
                  incurred by them, including their attorneys' fees, as a
                  consequence of any such action, complaint charge, claim,
                  allegation or proceeding; provided, however, that this shall
                  not limit the Executive from enforcing her rights under this
                  Agreement and in the event any action is commenced to enforce
                  her rights under this Agreement, each party shall bear its own
                  legal fees and expenses.



               6. The Executive acknowledges that the payments and the
                  additional vesting of options to purchase shares of common
                  stock she is receiving in connection with the foregoing
                  release is in addition to anything of value to which she
                  already is entitled from the company

               7. The Executive hereby agrees and acknowledges that she shall be
                  bound by and comply with the restrictive covenants provided in
                  Section 4 of the Employment Agreement other than the
                  non-compete restrictive covenant set forth in Section
                  4(a)(ii)(1) of the Employment Agreement which the Company
                  hereby waives (the "Restrictive Covenants"), that such
                  Restrictive Covenants are hereby made part of this Agreement
                  as if specifically restated herein and that all payments,
                  medical insurance, additional vesting of stock options and
                  continued extension of the expiration date of the Vested
                  Options are subject to and contingent upon the Executive's
                  compliance with Restrictive Covenants.

               8. The Executive acknowledges and agrees that, notwithstanding
                  any other provision of this Agreement, if the Executive
                  breaches any of her obligations under this Agreement or the
                  Restrictive Covenants under the Employment Agreement (a) she
                  will forfeit her right to receive the payments under
                  paragraphs 1 and 2 above and to have the stock options vest on
                  January 31, 2001 (to the extent the payments were not
                  theretofore paid or the options had not vested as of the date
                  of such breach), (b) the Vested Options shall expire as of the
                  date of such breach to the extent not theretofore exercised
                  and, if exercised as of the date of such breach, the Executive
                  shall immediately reimburse the Company for the profit upon
                  exercise (such profit calculated as the difference between the
                  (i) greater of either the fair market value per share of
                  Common Stock on the date of exercise or the amount paid by the
                  Company to the Executive per share of Common Stock for the
                  purchase of the shares acquired upon exercise, and (ii)
                  exercise price, times the number of options exercised).

               9. The Executive hereby agrees that a breach of the Restrictive
                  Covenants contained in Section 4 of the Employment Agreement
                  may, depending on the circumstances, cause the Company to
                  suffer irreparable harm for which money damages would not be
                  an adequate remedy and therefore, if the Executive breaches
                  any of the Restrictive Covenants, the Company would be
                  entitled to temporary and permanent injunctive relief in any
                  court of competent jurisdiction (without the need to post any
                  bond) without prejudice to any other remedies under this
                  Agreement or otherwise.

              10. This Agreement does not constitute an admission of liability
                  or wrongdoing of any kind by the Executive or the Company or
                  its affiliates.

              11. The terms of this Agreement shall be binding on the parties
                  hereto and their respective successors and assigns.

              12. This Agreement constitutes the entire understanding of the
                  Company and the Executive with respect to the subject matter
                  hereof and supersedes all prior understandings, written or
                  oral. 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 the Company or the Executive 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. If 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



              13. This Agreement shall be construed, enforced and interpreted in
                  accordance with and governed by the laws of the State of New

              14. The parties hereto acknowledge and agree that each party has
                  reviewed and negotiated the terms and provisions of this
                  Agreement and has contributed 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.

              15. 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.

              16. The Executive acknowledges that, by the Executive's free and
                  voluntary act of signing below, the Executive agrees to all of
                  the terms of this Agreement and intends to be legally bound

              17. The Executive acknowledges that she has received this
                  Agreement on or before June 20, 2001. The Executive
                  understands that she may consider whether to agree to the
                  terms contained herein for a period of twenty-one days after
                  the date hereof. However, the operation of the provisions of
                  the paragraph 1 (other than the first sentence thereof) and
                  paragraphs 2 through 5 above may be delayed until this
                  Agreement is executed by the Executive, returned to the
                  Company and becomes effective as provided below. The Executive
                  acknowledges that she has consulted with an attorney prior to
                  her execution of this Agreement or has determined by her own
                  free will not to consult with an attorney.

              18. This Agreement will become effective, enforceable and
                  irrevocable seven days after the date on which it is executed
                  by the Executive (the "Effective Date"). During the seven-day
                  period prior to the Effective Date, the Executive may revoke
                  her agreement to accept the terms hereof by indicating in
                  writing to the Company her intention to revoke. If the
                  Executive exercises her right to revoke hereunder, she shall
                  forfeit her right to receive any of the benefits provided for
                  herein, and to the extent such payments have already been
                  made, the Executive



                  agrees that she will immediately reimburse the Company for the
                  amounts of such payment.

                  If the foregoing correctly reflects our understanding, please
              sign the enclosed copy of this letter agreement, whereupon it will
              become a binding agreement between us.

                                          J. CREW OPERATING CORP.

                                          By: /s/ MARK SARVARY
                                              Mark Sarvary
                                              Chief Executive Officer

Agreed to and accepted:

By: /s/ Trudy Sullivan
    Trudy Sullivan

Dated:   July 23, 2001


STATE OF                 )

COUNTY OF                )

On the   day of         , 2001, before me personally came Trudy Sullivan who,
      ---      ---------
being by me duly sworn, did depose and say that she resides at
                             and did acknowledge and represent that she has had
an opportunity to consult with attorneys and other advisers of her choosing
regarding the Termination Agreement attached hereto, that she has reviewed all
of the terms of the Termination Agreement and that she fully understands all of
its provisions, including without limitation, the general release and waiver set
forth therein.

Notary Public