EXHIBIT 10.1 - EMPLOYMENT AGREEMENT

 

 

                                                                   Exhibit 10

                                                                   ------------

 

                              EMPLOYMENT AGREEMENT

 

         EMPLOYMENT AGREEMENT (the "Agreement"), dated as of October 1, 2005

(the "Effective Date"), between ANNTAYLOR STORES CORPORATION, a Delaware

corporation (the "Company"), and Katherine Lawther Krill (the "Executive").

 

         WHEREAS, the Executive has been employed in the position of President

of the Company pursuant to an Employment Agreement dated January 29, 2004 (the

"Prior Agreement");

 

         WHEREAS, the Executive has been promoted to the position of Chief

Executive Officer of the Company, effective as of the Effective Date, and the

parties wish to set forth the terms and conditions of Executive's continued

employment with the Company;

 

         NOW, THEREFORE, in consideration of the premises and the respective

covenants and agreements of the parties herein contained, and intending to be

legally bound hereby, the parties hereto agree as follows:

 

         1. Employment. The Company hereby agrees to continue to employ the

     Executive, and the Executive hereby agrees to be employed by and continue

     to serve the Company, effective as of the Effective Date, on the terms and

     conditions set forth herein.

 

         2. Term. The term of this Agreement shall commence as of the Effective

     Date and will end on October 1, 2008; provided, however, that commencing

     on October 1, 2008, and each such anniversary thereafter, the term of the

     Executive's employment shall automatically be extended for one additional

     year, unless, no later than the April 1 immediately preceding such

     anniversary, either party shall have given notice (a "Non-Renewal Notice")

     to the other that it does not wish to extend this Agreement. References

     hereinafter to the "Term" of this Agreement shall refer to both the

     initial term and any extended term of the Agreement hereunder.

     Notwithstanding expiration of the Term or other provisions that survive by

     their intent, the provisions of Sections 4, 7 and 8 hereof shall continue

     in effect.

 

         3. Position and Duties. The Executive shall serve as Chief Executive

      Officer of the Company ("CEO"), and shall have such responsibilities,

     duties and authority consistent with such position as may from time to

     time be determined by the Board of Directors of the Company (the "Board").

     The Executive shall devote substantially all of her working time and

     efforts to the business and affairs of the Company; provided that, this

     Agreement shall not be interpreted to prohibit the Executive from making

     passive investments, engaging in charitable activities or, subject to the

     prior approval of the Board, serving on the board of directors of other

     corporations. The Executive shall report directly to the Board and, for as

     long as the Executive is employed by the Company as the CEO, the Company

     shall nominate the Executive for re-election as a member of the Board. At

     the time of her termination of employment with the Company, the Executive

     shall resign from the Board if requested to do so by the Company.

 

         4. Indemnification. To the fullest extent permitted by law and the

     Company's certificate of incorporation and by-laws, the Company shall

     indemnify the Executive for all amounts (including, without limitation,

     judgments, fines, awards, settlement payments, losses, damages, costs and

     expenses, including reasonable attorneys' fees) incurred or paid by the

     Executive in connection with any action, proceeding, suit or investigation

     arising out of or relating to the performance by the Executive of services

     for, or acting as a fiduciary of any employee benefit plans, programs or

     arrangements of the Company or as a director, officer or employee of, the

     Company or any subsidiary thereof. The Executive shall be covered by the

     Company's D&O insurance policy in accordance with its terms, as in effect

     from time to time. Following the Term, the Company shall continue to

     indemnify the Executive with respect to such services performed during the

     Term, to the same extent as the Company indemnifies its officers,

     directors, employees and fiduciaries, as applicable.

 

         5. Compensation and Related Matters.

 

            (a)   Annual Compensation.

 

                 (i)      Base Salary. During the period of the Executive's

                         employment hereunder, the Company shall pay to the

                         Executive an annual base salary at a rate not less

                         than $1,000,000 (effective as of the Effective Date),

                          such salary to be paid in conformity with the

                         Company's policies relating to salaried employees.

                         This salary may be (but is not required to be)

                         increased from time to time, subject to and in

                         accordance with the annual executive performance

                         review procedures of the Company and, if increased,

                         shall not thereafter be decreased.

 

                 (ii)     Annual Bonus. During the period of the Executive's

                         employment hereunder, the Executive shall be eligible

                         to participate in the Company's annual bonus plan as

                         in effect from time to time, and shall be entitled to

                         receive such amounts (a "Bonus") as may be authorized,

                         declared and paid by the Company pursuant to the terms

                         of such plan. The Company currently maintains a

                         Management Performance Compensation Plan (the

                         "Performance Plan") providing performance bonus

                         compensation pursuant to which the Executive has been

                         participating. It is agreed that the Executive shall

                         participate in the Performance Plan. Commencing with

                         the Company's 2006 fiscal year, the Executive's

                         Performance Percentage (as that term is defined in the

                         Performance Plan) shall be established at 100% per

                         annum. The business criterion to be used in

                         determining the relevant Performance Goal (as that

                          term is defined in the Performance Plan) shall be

                         determined by the Compensation Committee of the Board

                         (the "Compensation Committee") and approved by the

                         Board. The Executive shall also participate in the

                         Long Term Cash Incentive Compensation Plan and the

                         2004 Long Term Cash Incentive Plan and any successor

                         plan (together, the "Long-Term Plans"). Commencing

                         with any awards granted under the Long-Term Plans on

                         or after the Effective Date, her Target Award (as

                         defined in the Long-Term Plans) shall be 50%. Any

                          awards granted under the Performance Plan and the

                         Long-Term Plans prior to the Effective Date shall be

                         subject to the terms and conditions under which the

                         awards were granted.

 

            (b)   Stock Option. In connection with her promotion to CEO and the

                 execution of this Agreement, the Executive has been granted a

                 ten-year time-vested non-qualified stock option (the

                 "Option"), to acquire 200,000 shares of the Company's common

                 stock ("Shares") under the Company's 2003 Equity Incentive

                 Plan, as amended (the "2003 Plan"). The exercise price per

                 Share shall be equal to the Fair Market Value (as defined in

                 the 2003 Plan) of a Share on the date of Board approval of

                 this Agreement, which shall be the date of grant of the

                 Option. The Option shall become vested and exercisable with

                  respect to an aggregate of 66,666 Shares on the first

                 anniversary of the Effective Date and with respect to an

                 additional 66,667 Shares on each of the second and third

                 anniversaries of the Effective Date, provided the Executive

                 has remained continuously employed by the Company until the

                 applicable date (except as provided in this Agreement).

                 Subject to the provisions herein, the Option shall contain

                 such other terms and conditions as are set forth in the

                 Company's standard form of stock option agreements, which

                 shall include, but not be limited to, accelerated

                 exercisability upon the occurrence of a "change in control",

                 which term shall have the same meaning as the term

                 "Acceleration Event," as defined in the 2003 Plan (hereinafter

                 referred to as a "Change in Control").

 

             (c)   Time-Vested Restricted Stock. In connection with her promotion

                 to CEO and the execution of this Agreement, the Executive has

                 been granted an aggregate of 200,000 time-vested restricted

                 Shares (the "Time-Vested Restricted Shares") under the 2003

                 Plan, subject to approval by the Company's shareholders at the

                 Company's 2006 annual meeting of an amendment to the 2003 Plan

                 increasing the number of shares available for issuance under

                 the 2003 Plan (the "Amendment"), which Amendment the Board has

                 approved concurrently with its approval of this Agreement. An

                 aggregate of 66,666 Time-Vested Restricted Shares shall vest

                 on, and be delivered to the Executive promptly following, the

                 first anniversary of the Effective Date, and an aggregate of

                 66,667 Time-Vested Restricted Shares shall vest on, and be

                  delivered to the Executive promptly following, each of the

                 second and third anniversaries of the Effective Date, in each

                 case, provided the Executive has remained continuously

                 employed by the Company until the applicable anniversary date

                 (except as provided in this Agreement). The Company shall

                 enter into a restricted stock award agreement with the

                 Executive for the above grant of Time-Vested Restricted

                 Shares, incorporating the vesting terms in this Agreement and

                 otherwise on the terms and conditions set forth in the

                 Company's standard form of restricted stock award agreement,

                 which shall include, but not be limited to, accelerated

                 vesting upon the occurrence of a Change in Control.

 

            (d)   Performance-Based Restricted Stock Grant. In connection with

                 her promotion to CEO and the execution of this Agreement, the

                 Executive has been granted an aggregate of 200,000

                 performance-based restricted Shares (the "Performance-Based

                 Restricted Shares") under the 2003 Plan, subject to

                 shareholder approval of the Amendment. An aggregate of 66,666

                 Performance-Based Restricted Shares shall be eligible to vest

                 and be delivered to the Executive on the March 15 following

                 the end of the Company's 2006 fiscal year, and an aggregate of

                 66,667 Performance-Based Restricted Shares shall be eligible

                 to vest and be delivered to the Executive on the March 15

                 following the end of the Company's 2007 and 2008 fiscal years,

                 in each case subject to the attainment by the Company of

                 specified corporate performance goals with respect to the

                 applicable fiscal year, as determined by the Compensation

                 Committee and approved by the Board. A portion of the

                 Performance-Based Restricted Shares scheduled to vest on the

                 March 15 following the end of a particular fiscal year may

                 vest and be delivered to Executive upon partial achievement of

                 performance goals for such fiscal year, as determined by the

                 Compensation Committee. Any portion of the Performance-Based

                 Restricted Shares scheduled to vest on the March 15 following

                 the end of a particular fiscal year which do not so vest shall

                 be immediately forfeited. The Company shall enter into a

                 restricted stock award agreement with the Executive for the

                  above grant of Performance-Based Restricted Shares,

                 incorporating the vesting terms in this Agreement and

                 otherwise on the terms and conditions set forth in the

                 Company's standard form of restricted stock award agreement,

                 which shall include, but not be limited to, accelerated

                 vesting upon the occurrence of a Change in Control.

 

            (e)   Ongoing Annual Equity Grants. The Executive shall be eligible

                  to receive, in the discretion of the Compensation Committee,

                 additional annual equity grants during the Term, which grants,

                 if made, shall be in amounts consistent with the Executive's

                 position as CEO and appropriate with respect to the annual

                 grants made to other senior executives of the Company.

 

            (f)   Other Benefits. During the Executive's employment hereunder,

                 the Executive shall continue to be entitled to participate in

                 all other employee benefit plans, programs and arrangements of

                 the Company, as now or hereinafter in effect, which are

                 applicable to the Company's employees generally or to its

                  executive officers, as the case may be, subject to and on a

                 basis consistent with the terms, conditions and overall

                 administration of such plans, programs and arrangements;

                 provided, however, that the Executive hereby acknowledges and

                 agrees that she will not participate in the Company's Special

                 Severance Plan. During the period of the Executive's

                 employment hereunder, the Executive shall be entitled to

                 participate in and receive any fringe benefits or perquisites

                 which may become available to the Company's executive

                 employees. Without limiting the generality of the foregoing,

                 the Company shall provide the Executive with reimbursement of

                 expenses incurred by the Executive for financial, tax and real

                 estate planning services in an amount not to exceed $25,000

                 per year.

 

            (g)   Vacations and Other Leaves. The Executive shall be eligible

                 for a paid time off bank of 25 days per year and paid holidays

                 and sick days, all as determined in accordance with applicable

                 Company plans and policies.

 

            (h)   Expenses. During the Executive's employment hereunder, the

                 Executive shall be entitled to receive prompt reimbursement

                 for all reasonable and customary expenses incurred by the

                 Executive in performing services hereunder, including all

                 expenses of travel and accommodations while away from home on

                 business or at the request of and in the service of the

                 Company; provided that, such expenses are incurred and

                 accounted for in accordance with the policies and procedures

                 established by the Company.

 

            (i)   Life Insurance. During the Term of this Agreement and

                 throughout the Severance Period (as defined in Section

                 6A(d)(3)), the Company shall maintain a supplemental life

                 insurance policy on behalf of the Executive which provides for

                 a death benefit equal to no less than seven million dollars

                 ($7,000,000), the proceeds of which shall be paid upon the

                 death of the Executive to the beneficiary designated by the

                 Executive.

 

            (j)   Transportation. During the Executive's employment hereunder,

                 for security purposes the Company shall require that the

                 Executive be transported by a car and driver as provided by

                 the Company with the full cost of such transportation

                 grossed-up for taxes to be paid by the Company.

 

         6. Termination. (a) The Executive's employment hereunder may be

     terminated without breach of this Agreement only under the following

     circumstances:

 

                 (i)      Death. The Executive's employment hereunder shall

                         terminate upon her death.

 

                 (ii)     Cause. The Company may terminate the Executive's

                         employment hereunder for "Cause." For purposes of this

                          Agreement, the Company shall have "Cause" to terminate

                         the Executive's employment hereunder upon (1) the

                         Executive's conviction for the commission of any act

                         or acts constituting a felony under the laws of the

                         United States or any state thereof, (2) action by the

                         Executive toward the Company involving dishonesty, (3)

                         the Executive's refusal to abide by or follow

                         reasonable written directions of the Board, which does

                         not cease within ten business days after such written

                         notice regarding such refusal has been given to the

                          Executive by the Board, (4) the Executive's gross

                         nonfeasance which does not cease within ten business

                         days after written notice regarding such nonfeasance

                         has been given to the Executive by the Board, or (5)

                         failure of the Executive to comply with the provisions

                         of Section 7 (prior to cessation of employment

                         following a Change of Control of the Company) or 8 of

                         this Agreement, or other willful conduct by the

                         Executive which is intended to have and does have a

                         material adverse impact on the Company.

 

                 (iii)    Disability. If, as a result of the Executive's

                         incapacity due to physical or mental illness, the

                         Executive shall have been absent from her duties

                         hereunder on a full-time basis for the entire period

                         of six (6) consecutive months, and within thirty (30)

                         days after written Notice of Termination (as defined

                         in Section 6(b) below) is given (which may occur

                          before or after the end of such six (6) month period)

                         shall not have returned to the performance of her

                         duties hereunder on a full-time basis, the Executive's

                          employment hereunder shall terminate for "Disability".

 

                 (iv)     Termination by the Executive for Good Reason. The

                         Executive may terminate her employment hereunder for

                         "Good Reason." For purposes of this Agreement, the

                         Executive shall have "Good Reason" to terminate her

                         employment hereunder (1) upon a failure by the Company

                         to comply with any material provision of this

                         Agreement which has not been cured within ten business

                         days after notice of such noncompliance has been given

                         by the Executive to the Company, (2) upon action by

                          the Company resulting in a diminution of the

                         Executive's title or authority, (3) upon the Company's

                         relocation of the Executive's principal place of

                         employment outside of the New York City metropolitan

                         area, or (4) one year after a Change in Control.

 

                 (v)      Termination by the Executive without Good Reason and

                         Termination by the Company without Cause. The Company

                         may terminate the Executive's employment hereunder

                         without Cause and the Executive may terminate her

                         employment voluntarily hereunder without Good Reason.

 

            (b) Notice of Termination. Any termination of the Executive's

                employment by the Company or by the Executive (other than

                termination under Section 6(a)(i) hereof) shall be communicated

                by written Notice of Termination to the other party hereto in

                accordance with Section 10 hereof. For purposes of this

                Agreement, a "Notice of Termination" shall mean a notice which

                shall indicate the specific termination provision in this

                 Agreement relied upon and shall set forth in reasonable detail

                the facts and circumstances claimed to provide a basis for

                termination of the Executive's employment under the provision

                so indicated.

 

            (c) Date of Termination. "Date of Termination" shall mean (i) if

                the Executive's employment is terminated by her death, the date

                of her death, (ii) in the event that the Term shall expire as a

                 result of a Non-Renewal Notice provided by the Company to the

                Executive, the date of the expiration of the then current Term,

                and (iii) in each other case, the date specified in the Notice

                of Termination; provided that, if within thirty days after any

                Notice of Termination is given, the party receiving such Notice

                of Termination notifies the other party that a dispute exists

                concerning the characterization for purposes of this Agreement

                of such termination and if the party disputing such matter

                prevails in such dispute as evidenced by a binding and final

                arbitration award, then the Date of Termination shall

                 retroactively be adjusted to be the date specified as such in

                the award or, if no date is so specified, then as of the date

                on which such award is issued.

 

         6A. Compensation Upon Termination or During Disability.

 

            (a)   Disability. During any period that the Executive fails to

                 perform her duties hereunder as a result of incapacity due to

                 physical or mental illness, the Executive shall continue to

                 receive her full salary at the rate then in effect for such

                 period and other applicable benefits provided to active

                 employees until her employment is terminated pursuant to

                 Section 6(a)(iii) hereof. Subject to the provisions of Section

                 7 hereof, in the event the Executive's employment is

                 terminated pursuant to Section 6(a)(iii) hereof, then

 

                 (i)      as soon as practicable thereafter, the Company shall

                          pay the Executive all unpaid amounts, if any, to which

                         the Executive is entitled as of the Date of

                         Termination under Section 5(a) hereof and shall pay or

                         provide to the Executive, in accordance with the terms

                         of the applicable plan or program, all other unpaid

                         amounts and benefits to which Executive is then

                         entitled under any compensation or benefit plan or

                         program of the Company (collectively, "Accrued

                         Obligations");

 

                 (ii)     following the Date of Termination and for a period of

                         eighteen (18) months thereafter, the Company shall pay

                         the Executive monthly an amount equal to (x) the

                         quotient of (A) the sum of (1) the Executive's annual

                         base salary at the rate in effect as of the Date of

                         T