Exhibit 10.7
THE TALBOTS, INC.
2003 EXECUTIVE STOCK BASED INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
August 7, 2007

         
To:
  Trudy F. Sullivan    
 
  President and Chief Executive Officer    

     We are pleased to notify you that by the determination of the Compensation
Committee (the “Committee”) of the Board of Directors of The Talbots, Inc.
(together with its subsidiaries, the “Company”) a nonqualified stock option to
purchase 325,000 shares of Common Stock of the Company, $0.01 par value (“Common
Shares”), at a price of $22.70 per share, has been granted to you, effective
August 7, 2007, under the 2003 Executive Stock Based Incentive Plan, as amended
and restated (the “Plan”). This nonqualified stock option (the “Option”) may be
exercised only upon the terms and conditions set forth below.
     1.  Purpose of Option.
     The purpose of the Plan under which this Option has been granted is to
advance the interests of the Company and its shareholders by providing
incentives to certain key employees of the Company and its Affiliates.
     2.  Acceptance of Option Agreement.
     Your execution of this nonqualified stock option agreement (the
“Agreement”) will indicate your acceptance of and your willingness to be bound
by all of its terms. It imposes no obligation upon you to purchase any shares
unless you choose to exercise the Option in the manner set forth in paragraph 5.

 

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     3.  When Option May Be Exercised.
     Your entitlement to exercise this Option shall vest as follows:
          (i) 33-1/3% of the total shares covered by the Option (subject to
rounding down to a whole share) shall vest on a date one (1) year following the
effective date of the grant;
          (ii) 33-1/3% of the total shares covered by the Option (subject to
rounding down to a whole share) on a date two (2) years following the effective
date of the grant;
          (iii) 33-1/3% of the total shares covered by the Option on a date
three (3) years following the effective date of the grant.
     This Option may not be exercised for less than ten (10) shares at any one
time (or the remaining shares then purchasable, if less than ten) and expires at
the end of eight (8) years from the date of grant, whether or not it has been
exercised, unless sooner terminated as provided in paragraphs 6, 7, 8, 9 and 10
below.
     4. Tandem Stock-Settled Stock Appreciation Right in Favor of Company.
          (i) Each Option includes a stock-settled stock appreciation right
(“SAR”) relating to one Common Share, exercisable solely by the Company in its
discretion, with an exercise price per share equal to the per share exercise
price of the Option. The SAR may only be exercised by the Company if,
concurrently with the Executive’s notice of exercise of the Option, the Company
causes its SAR to be exercised in its discretion by providing notice of such
exercise to you. An SAR may be exercised for all or part of any Common Shares
which are covered by each Option exercise by you.
          The SAR, if so exercised by the Company concurrently with your
exercise of the Option, represents the obligation of the Company to deliver to
you a whole number of shares at the time you exercise the Option, equal in value
(based on Fair Market Value on the exercise date) to the excess, if any, of the
Fair Market Value per share of the aggregate number of Common Shares covered by
your Option exercise over the exercise price per share of the Common Shares
covered by your Option

 

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exercise. Fractional shares will not be delivered and the number of shares to be
delivered upon any such exercise of the SAR shall be rounded down to the nearest
whole share and cash shall be paid to you for any fractional share.
          “Fair Market Value” means the closing price of the Common Shares on
the Option exercise date on the New York Stock Exchange or, if not so listed, on
the then principal stock exchange on which the Common Shares are then listed.
          (ii) The Company shall have no right to exercise an SAR hereunder
except contemporaneously with, and for up to the same number of shares covered
by, your exercise of this Option. An SAR with respect to a share shall vest,
become exercisable, and terminate at the same times and under the same terms as
the Option. The exercise of an Option with respect to any share shall (unless
and to the extent the SAR is then exercised by the Company for shares covered by
the Option exercise) cause the related SAR to automatically terminate. The
exercise by the Company of an SAR for Common Shares hereunder shall
automatically terminate the corresponding Option for such Common Shares.
     5.  How Option May Be Exercised.
     This Option is exercisable by a written notice signed by you and delivered
to the Company at its executive offices, signifying your election to exercise
the Option. The notice must state the number of Common Shares as to which your
Option is being exercised and must be accompanied by cash, shares of Common
Stock, or any combination thereof, or other payment in such form as the
Committee may determine in its discretion, for such amount (i) as is required
for withholding taxes plus (ii) where the Company does not concurrently exercise
its SAR with respect to such Option exercise, the full purchase price of the
shares being acquired at the time of exercise. Any shares of Common Stock
delivered to the Company in satisfaction of all or any portion of such
withholding taxes or purchase price shall be appropriately endorsed for transfer
and assignment to the Company. In all events (including any “cashless exercise”
procedure) no share shall be issued upon an Option exercise until full payment
therefor has been delivered to and received by the Company.

 

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     The Company shall prepare and file with the Securities and Exchange
Commission a Form S-8 registration statement under the Securities Act of 1933
with respect to the Plan and the Common Shares underlying the Option covered by
this Agreement. The Company will endeavor to keep such registration statement
effective at all times that this Agreement is outstanding, but in the event that
such registration statement is not effective at the time of exercise, your
written notice of exercise to the Company must contain a statement by you (in
form acceptable to the Company) that such shares are being acquired by you for
investment only and not with a view to their distribution or resale, and the
undersigned agrees to refrain from sales of Common Shares until such time as the
Company advises her that such registration statement has become effective. The
undersigned agrees that any such sales will be effected by means of a broker’s
transaction using the facilities of the stock exchange where the Common Shares
are then listed.
     If a person or persons other than you give notice of the exercise of this
Option, and provided notice of exercise by such person or persons is permitted
under the Plan, then the Company may require the submission to the Company of
appropriate proof of the authority of such person or persons to exercise this
Option.
     Certificates for the Common Shares purchased or issued hereunder will be
issued as soon as practicable. The Company, however, shall not be required to
issue or deliver a certificate for any shares until it has complied with all
requirements of the Securities Act of 1933, the Securities Exchange Act of 1934,
any stock exchange on which the Company’s Common Stock may then be listed and
all applicable state laws in connection with the issuance or sale of such shares
or the listing of such shares on such stock exchange. Until the date of issuance
of the certificate for such shares to you (or any person succeeding to your
rights pursuant to the Plan), you (or such other person, as the case may be)
shall have no rights as a stockholder with respect to any Common Shares subject
to this Option.
     6. Termination of Employment.
          (i) If your employment with the Company or an Affiliate (as such term
is defined in the Plan) is terminated without Cause by the Company or for Good
Reason by you, the then outstanding and unvested portion of this Option shall
become immediately exercisable and fully vested and will be exercisable at any
time within three (3) years after the

 

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date you ceased such employment (but in no event after the Option has expired).
          (ii) If your employment with the Company or an Affiliate is terminated
for Cause by the Company or terminated without Good Reason by you, the unvested
portion of the Option shall immediately lapse and expire and you may exercise,
within three (3) months from the date of such termination (but in no event after
the Option has expired), that portion of the Option which was vested at the date
of such termination.
     “Termination without Cause,” “termination for Good Reason,” “termination
for Cause” and “termination without Good Reason” shall have the meanings set
forth in the Employment Agreement between you and the Company dated June 28,
2007 (“Employment Agreement”).
     7. Period of Related Employment.
     If your employment with the Company or an Affiliate shall cease solely by
reason of a period of Related Employment, you may, during such period of Related
Employment, exercise the Option as if you continued such employment.
     8. Disability.
     If your employment with the Company or an Affiliate is terminated by reason
of your disability (as such term is defined in Paragraph 12 of the Plan), the
then outstanding and unvested portion of this Option shall become immediately
exercisable and fully vested and you may exercise the Option at any time within
three (3) years after the date you ceased such employment (but in no event after
the Option has expired).
     9. Retirement.
     If your employment with the Company or an Affiliate is terminated upon
early, normal or deferred retirement under a qualified retirement program of the
Company or an Affiliate, the unvested portion of the Option shall immediately
lapse and expire and you may exercise, within three (3) years from the date of
such termination (but in no event after the Option has expired), that portion of
the Option which was vested at the date of such termination.

 

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     10. Death.
     If you die while employed by the Company or an Affiliate and this Option
has not expired and has not been fully exercised, the then outstanding and
unvested portion of this Option shall become immediately exercisable and fully
vested and your executors, administrators, heirs or distributees, as the case
may be, may exercise the Option at any time within one (1) year after the date
of death (but in no event after the Option has expired).
     11. Change in Control.
     This Option, to the extent then outstanding and unvested, shall become
immediately exercisable and fully vested upon a Change in Control Event (as such
term is defined in the Plan).
     12. Non-Transferability of Option.
     This Option may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of by you, except by will or the laws of descent and
distribution, and shall be exercisable during your lifetime only by you, except
as otherwise set forth herein or in the Plan.
     13. Dilution and Other Adjustments.
     If at any time after the date of the grant of this Option, there is any
change in the outstanding Common Stock of the Company by reason of any stock
split, stock dividend, split-up, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, a sale by the Company of all or part of its assets, any distribution to
shareholders other than a normal cash dividend, or other extraordinary or
unusual event, then the number of Common Shares available for this Option
including the related SAR as well as the terms of this Option including the
related SAR shall be appropriately adjusted for any such change by the
Committee, whose adjustment shall be conclusive and binding.

 

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     14. Trading Black Out Periods.
     By entering into this Agreement the undersigned expressly agrees that:
(i) during all periods of employment of the undersigned with the Company or its
Affiliates, or while the undersigned is otherwise maintained on the payroll of
the Company or its Affiliates, the undersigned shall abide by all trading “black
out” periods with respect to purchases or sales of Company stock or exercises of
stock options for the Company’s stock established from time to time by the
Company (“Trading Black Out Periods”) and (ii) upon any cessation or termination
of employment with the Company or its Affiliates for any reason, the undersigned
agrees that for a period of six (6) months following the effective date of any
termination of employment or, if later, for a period of six (6) months following
the date as of which the undersigned is no longer on the payroll of the Company
or its Affiliates, the undersigned shall continue to abide by all such Trading
Black Out Periods established from time to time by the Company.
     15. Subject to Terms of the Plan.
     This Agreement shall be subject in all respects to the terms and conditions
of the Plan and in the event of any question or controversy relating to the
terms of the Plan, the decision of the Committee shall be final and conclusive,
except as expressly set forth in this Agreement or as expressly set forth in the
Employment Agreement.
     16. Tax Status.
     It is the intent of the Company that this Option not be classified as an
“incentive stock option” under the provisions of Section 422 of the Internal
Revenue Code of 1986, as amended. The income tax implications of your receipt of
this Option and your exercise of this Option should be discussed with your tax
counsel.

 

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                  Sincerely yours,    
 
                THE TALBOTS, INC.    
 
           
 
  By:   /s/ John Fiske    
 
     
 
  John Fiske III    
 
        Senior Vice President,    
 
        Human Resources    

     
Agreed to and accepted:
   
 
   
/s/ Trudy F. Sullivan
   
 
TRUDY F. SULLIVAN