Document:

Exhibit 10.14

 

EXECUTION
COPY

 

EMPLOYMENT AGREEMENT

 

EMPLOYMENT
AGREEMENT (“Agreement”) dated as of April 24, 2006 between Rafaella
Apparel Group, Inc. (the “Company”) and Christa Michalaros (the “Executive”)
(together, the “Parties”).

 

WHEREAS, the
Parties wish to establish the terms of Executive’s employment with the Company.

 

Accordingly,
the Parties agree as follows:

 

1.                                       Term.  Subject to earlier termination pursuant to Section 4
of this Agreement, this Agreement and the employment relationship hereunder
shall commence on April 25, 2006 (the “Effective Date”) and continue from
the Effective Date until June 30, 2007; provided that this Agreement and
the employment relationship created hereunder shall continue thereafter for
consecutive one (1) year periods commencing on each July 1 (the “Renewal
Date”) unless either party gives the other party prior written notice of the
party’s election to terminate this Agreement at least sixty (60) days prior to
the Renewal Date, in which case the Term shall terminate on the day prior to
the Renewal Date.  As used in this
Agreement, the “Term” shall refer to the period beginning on the Effective Date
and ending on the date the Executive’s employment terminates in accordance with
this Section 1 or Section 4. 
In the event that the Executive’s employment with the Company
terminates, the Company’s obligation to continue to pay all base salary, as
adjusted, bonus and other benefits then accrued shall terminate except as may
be provided for in Section 3.6 and Section 4 of this Agreement.

 

2.                                       Duties
and Title.

 

2.1                                 Title.  The Company shall employ the Executive to
render exclusive and full-time services to the Company and its
subsidiaries.  The Executive shall serve
in the capacity of Chief Executive Officer of the Company (the “CEO”) and shall
serve as a member of the Board of Directors of the Company (and any subsidiary
of the Company if so appointed or nominated by or on behalf of the Company),
and shall report solely to the Board of Directors of the Company (the “Board”).

 

2.2                                 Duties.  The Executive will have such authority and
responsibilities and will perform such executive duties customarily performed
by a chief executive officer of a company in similar lines of business as the
Company and its subsidiaries or as may be assigned to Executive by the Board
consistent with the position and authority of the Executive as CEO.  The executive offices of the Company shall be
located in New York County, New York, and the Executive’s principal place of
employment shall be at such offices.  The
Executive will devote all her full working time and attention to the
performance of such duties and to the promotion of the business and interests
of the Company and its subsidiaries; provided that the Executive may engage in
philanthropic and passive investment activities which are not in conflict with
or do not materially interfere with the performance of her duties.

 

3.                                       Compensation
and Benefits by the Company.  As
compensation for all services performed by the Executive for the Company and
its subsidiaries, the Company shall provide the Executive the following during
the Term:

 

 

3.1                                 Base
Salary.  The Company will pay to the
Executive an annual base salary of $700,000, payable in accordance with the
customary payroll practices of the Company (“Base Salary”).

 

3.2                                 Bonuses.

 

(a)                                  The
Executive shall be eligible to receive an annual bonus (“Bonus”) under a plan
established by the Company in the amount determined by the Board based on
achievement of performance measures derived from the annual business plan
presented by management and approved by the Board.  The Executive’s target bonus shall be one
hundred percent (100%) of Base Salary, provided that the Executive shall be
eligible to receive a Bonus of up to 200% of Base Salary, based on the achievement
of performance measures derived from the annual business plan presented by
management and approved by the Board, with the actual amount of each Bonus
being determined by the Board.  The Bonus
will be paid on September 30th of the Company’s fiscal year following the
Company’s fiscal year in which the services required for payment have been
performed.  With respect to the first
full fiscal year in the Term, the Executive shall receive a Bonus, payable on September 30,
2007, equal to no less than $350,000.

 

(b)                                 On
the Effective Date, the Executive shall receive a payment equal to $60,000,
subject to all withholdings required by applicable law.

 

3.3                                 Participation
in Employee Benefit Plans.  The
Executive shall be entitled, if and to the extent eligible, to participate in
all of the applicable benefit plans of the Company, which may be available to
other senior executives of the Company, on the same terms as such other
executives.  The Company may at any time
or from time to time amend, modify, suspend or terminate any employee benefit
plan, program or arrangement for any reason without Executive’s consent if such
amendment, modification, suspension or termination is consistent with the
amendment, modification, suspension or termination for other employees of the
Company.

 

3.4                                 Vacation.  The Executive shall be entitled to four (4) weeks
of paid vacation annually; provided, however, that the Executive
shall not be entitled to use more than two consecutive weeks of vacation at any
time; and provided, further, that the Executive shall not be
entitled to use more than two consecutive business days as vacation days during
each of the first six calendar months after the Effective Date, except for one (1) week
in July, provided that the spring line is complete prior to such week in
July.  Executive shall not be entitled to
payment for unused vacation days upon the termination of her employment except
as set forth in Section 4 below. 
The carry-over and accrual of vacation days shall be in accordance with
Company policy.

 

3.5                                 Expense
Reimbursement.  The Executive shall
be entitled to receive reimbursement for all appropriate business expenses
incurred by her in connection with her duties under this Agreement in
accordance with the policies of the Company as in effect from time to time.

 

3.6                                 Equity.  The Executive shall be eligible to
participate in the Company’s Equity Incentive Plan (the “Equity Incentive Plan”).  The Executive shall receive an initial grant
under the Equity Incentive Plan representing four percent (4.0%) of the value
of the 

 

2

 

outstanding capital stock of the Company on a fully-diluted, as
converted basis as of the Effective Date. 
The equity granted pursuant to this Section 3.6 shall be subject to
the terms of the Equity Incentive Plan and an award agreement between the
Company and the Executive; provided, however, that if there is any
inconsistency between the provisions of this Agreement and the Equity Incentive
Plan or award agreement, the provisions of this Agreement shall prevail.  The terms of the initial grant shall include,
but not be limited to, the following:

 

(a)                                  The
grant shall be an option to purchase 444,444 shares of common stock of the
Company at any option price per share equal to the fair market value of a share
of common stock of the Company on the date of grant of $5.33 per share.

 

(b)                                 The
options shall vest in equal one-quarter installments if the Executive is
employed by the Company on each of the first, second, third and fourth anniversaries
of the Effective Date.  In addition, all
of the Executive’s unvested options shall vest immediately prior to the
occurrence of a Liquidity Event (as defined in the Equity Incentive Plan), and
the Executive shall be given reasonable prior notice of any such event.

 

(c)                                  The
Executive shall not be permitted to sell shares acquired upon the exercise of
the option for a period of one (1) year commencing on the date of
consummation of an Initial Public Offering without the consent of Cerberus (as
these terms are defined in the Equity Incentive Plan).

 

(d)                                 Section 10(a)(i) of
the Equity Incentive Plan shall apply for purposes of determining the
applicable repurchase price only in the event of the Executive’s termination of
employment by the Company for Cause.  In
the event that the Executive’s employment with the Company is terminated for
any reason other than by the Company for Cause, Section 10(a)(ii) shall
apply for purposes of determining the applicable repurchase price.

 

(e)                                  Section 12
of the Equity Incentive Plan shall have no application following an Initial
Public Offering.

 

(f)                                    The
option exercise price of the shares as to which the option shall be exercised
shall be paid to the Company at the time of exercise (i) in cash, (ii) by
certified check, (iii) with shares otherwise issuable to the Executive
upon exercise of the option with a fair market value on the date of option
exercise equal to the aggregate option price of the shares with respect to
which such option or portion of such option is being exercised, or (iv) by
such other method permitted by the administrator of the Equity Incentive Plan,
in its sole discretion, as may be allowed under applicable law.

 

3.7                                 Car
Allowance.  During the Term, the
Company will pay for the Executive’s use of a car and driver for commuting to
and from work.

 

4.                                       Termination
of Employment.

 

4.1                                 By
the Company for Cause or Due to the Executive’s Resignation, Death or
Disability.  If (i) the Company
terminates the Executive’s employment with the Company for Cause (as defined
below); (ii) the Executive’s employment terminates due to her death; (iii) the
Company terminates the Executive’s employment with the Company due to the
Executive’s Disability (as defined below); or (iv) the Executive resigns
for any reason, the 

 

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Executive, or the Executive’s legal representatives (as appropriate),
shall be entitled to receive the following:

 

(a)                                  the Executive’s
accrued but unpaid Base Salary and benefits set forth in Section 3.3, if
any, to the date of termination;

 

(b)                                 the unpaid portion of
the Bonus, if any, relating to the fiscal year prior to the fiscal year of the
Executive’s death, Disability, resignation or termination by the Company for
Cause, payable in accordance with Section 3.2;

 

(c)                                  expenses reimbursable
under Section 3.5 incurred but not yet reimbursed to the Executive to the
date of termination; and

 

(d)                                 any rights the
Executive shall have under the Company’s benefit plans and COBRA, and any
rights the Executive shall have to indemnification under Section 7 of this
Agreement, the by-laws or certificate of incorporation of the Company, or
otherwise under law, and any rights the Executive may have under any directors
and officers liability policies maintained by the Company or its affiliates.

 

For the purposes of this Agreement, “Disability” means a determination
by the Company in accordance with applicable law that as a result of a physical
or mental injury or illness, the Executive is unable to perform the essential
functions of her job with or without reasonable accommodation for a period of (i) 90
consecutive days; or (ii) 180 days in any one (1) year period.

 

For the purposes of this Agreement, “Cause” means with respect to
conduct during the Executive’s employment or service relationship with the
Company or its affiliates (i) commission of a felony by Executive whether
or not committed during the Term; (ii) acts of dishonesty by Executive
resulting or intending to result in personal gain or enrichment at the expense
of the Company or its subsidiaries; (iii) Executive’s material breach of
her obligations under this Agreement; (iv) conduct by Executive in
connection with her duties hereunder that is fraudulent, unlawful or grossly
negligent, including, but not limited to, acts of discrimination; (v) engaging
in personal conduct by Executive (including but not limited to employee
harassment or discrimination, the use or possession at work of any illegal
controlled substance) which seriously discredits or damages the Company or its
subsidiaries; (vi) contravention of specific lawful written direction from
the Board or continuing inattention to the duties to be performed by Executive
under the terms of Section 2.2 of this Agreement; or (vii) breach of
the Executive’s covenants set forth in Section 5 below before termination
of employment; provided, that, the Executive shall have fifteen (15) days after
notice from the Company to cure the deficiency leading to the Cause
determination (except with respect to (i) above), if curable.  A termination for “Cause” shall be effective
immediately (or on such other date set forth by the Company).

 

4.2                                 By
the Company Without Cause, the Executive for Good Reason or Nonrenewal of the
Term by the Company.  If during the
Term the Company terminates Executive’s employment without Cause (which may be
done at any time without prior notice), the Executive resigns for Good Reason
(as defined below), or the Company elects not to renew the Term pursuant to Section 1,
in addition to the payments upon termination specified in Section 4.1, the
Executive shall receive the incremental severance payments set forth in this 

 

4

 

Section 4.2 upon execution without revocation of a valid release
agreement in a form reasonably acceptable to the Company:

 

(a)                                  payment for accrued
unused vacation days, payable within thirty (30) days after the date of
termination;

 

(b)                                 continued Base Salary
for twelve (12) months after the date of termination, payable on the last
business day of the month; and

 

(c)                                  a prorated bonus
equal to the Bonus earned as of the date of termination based on the
achievement of prorated performance measures derived from the annual business
plan for the fiscal year of termination as measured on the date of termination,
or, in the first year of the Term, the minimum bonus as provided in Section 3.2(a),
payable in a lump sum within thirty (30) days after the date of termination.

 

The Company
shall have no obligation to provide the benefits set forth above in the event
that Executive breaches the provisions of Section 5.

 

For purposes
of this Agreement, “Good Reason” shall mean the occurrence of any one or more
of the following events: (1) if the Consulting and Chairman Agreement
between the Company and Ronald Frankel, dated as of June 20, 2005, does
not expire or is not terminated by the Company on June 20, 2006, (2) subject
to her reporting obligations under Section 2.1, any director of the
Company who is a Rafaella Designee interferes in any material respect with
Executive’s performance of her duties of employment or the functions, power or
authority of Executive as CEO, which is not cured within fifteen (15) days
after written notice thereof is given by the Executive to the Company, (3) the
principal executive office of the Company or Executive’s principal place of
employment is moved from New York County, New York, (4) a material adverse
change in the nature or scope of Executive’s authority, power, function, or
duties as CEO, which is not cured within fifteen (15) days after written notice
thereof is given by the Executive to the Company, or (5) a material breach
by the Company of a material obligation of the Company under Section 3
which is not cured with fifteen (15) days after written notice thereof is given
by the Executive to the Company.

 

4.3                                 Nonrenewal
of the Term by the Executive.  Upon
termination of the Executive’s employment due to the Executive’s election not
to renew the Term pursuant to Section 1, the Executive shall receive the
payments specified in Section 4.1 and the Bonus for the fiscal year ending
at the end of the Term, determined in accordance with Section 3.2(a) (subject
to the minimum bonus for the fiscal year ending June 30, 2007 provided in Section 3.2(a)),
payable ninety (90) days after the end of the fiscal year; provided that the
Company in its sole discretion may elect, by written notice to the Executive
given no later than fifteen (15) days prior to the end of the Term, to pay to
the Executive the incremental severance payments set forth in Section 4.2(a) and
(b) in exchange for the Executive’s (i) agreement to be subject to
and legally bound by the covenants set forth in Section 5.3 and Section 5.4
of this Agreement and (ii) execution and nonrevocation of a valid release
agreement in a form reasonably acceptable to the Company and the Executive.

 

4.4                                 No
Mitigation.  The Executive shall not
be required to mitigate, by seeking employment or otherwise, any payment or
benefit provided by this Agreement or any benefit plan (including the Equity
Incentive Plan and the grant to the Executive thereunder) 

 

5

 

maintained by the Company, including without limitation any payment or
benefit made or vested upon or as a result of the termination of Executive’s
employment, nor will any compensation, income or other benefit from any source
whatsoever mitigate, offset or reduce any payment or benefit to which the
Executive is otherwise entitled under this Agreement or any benefit plan
(including the Equity Incentive Plan and the grant to the Executive
thereunder).

 

4.5                                 Removal
from any Boards and Position.  If the
Executive’s employment is terminated for any reason under this Agreement, she
shall be deemed to resign (i) if a member, from the Board or board of
directors of any subsidiary of the Company or any other board to which she has
been appointed or nominated by or on behalf of the Company and (ii) from
any position with the Company or any subsidiary of the Company, including, but
not limited to, as an officer of the Company and any of its subsidiaries.

 

4.6                                 Nondisparagement.  The Executive agrees that she will not at any
time (whether during or after the Term) publish or communicate to any person or
entity any Disparaging (as defined below) remarks, comments or statements
concerning the Company, Cerberus Capital Management, L.P., their parents,
subsidiaries and affiliates, and their respective present and former members,
partners, directors, officers, shareholders, employees, agents, attorneys, successors
and assigns.  “Disparaging” remarks,
comments or statements are those that impugn the character, honesty, integrity
or morality or business acumen or abilities in connection with any aspect of
the operation of business of the individual or entity being disparaged.

 

5.                                       Restrictions
and Obligations of the Executive.

 

5.1                                 Confidentiality.  (a)  During the course of the Executive’s
service relationship with the Company and its affiliates during the Term, the
Executive will have access to certain trade secrets
and confidential information relating to the Company and its subsidiaries (the “Protected
Parties”) which is not readily available from sources outside the Company.  The confidential and proprietary information
and, in any material respect, trade secrets of the Protected Parties are among
their most valuable assets, including but not limited to, their customer,
supplier and vendor lists, databases, competitive strategies, computer
programs, frameworks, or models, their marketing programs, their sales, financial,
marketing, training and technical information, their product development (and
proprietary product data) and any other information, whether communicated
orally, electronically, in writing or in other tangible forms concerning how
the Protected Parties create, develop, acquire or maintain their products and
marketing plans, target their potential customers and operate their retail and
other businesses.  The Protected Parties
invested, and continue to invest, considerable amounts of time and money in
their process, technology, know-how, obtaining and developing the goodwill of
their customers, their other external relationships, their data systems and
data bases, and all the information described above (hereinafter collectively
referred to as “Confidential Information”), and any misappropriation or
unauthorized disclosure of Confidential Information in any form would
irreparably harm the Protected Parties. 
The Executive acknowledges that such Confidential Information
constitutes valuable, highly confidential, special and unique property of the
Protected Parties.  The Executive shall
hold in a fiduciary capacity for the benefit of the Protected Parties all
Confidential Information relating to the Protected Parties and their
businesses, which shall have been obtained by the Executive during the
Executive’s employment by the Company or its subsidiaries and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement).  Except as required by law, an order of a court
or governmental agency with jurisdiction, or a 

 

6

 

subpoena or other lawful process, the Executive shall not, during the
period the Executive is employed by the Company or its subsidiaries or at any
time thereafter, disclose any Confidential Information, directly or indirectly,
to any person or entity for any reason or purpose whatsoever, nor shall the
Executive use it in any way, except in the course of the Executive’s employment
with, and for the benefit of, the Protected Parties or to enforce any rights or
defend any claims hereunder or under any other agreement to which the Executive
is a party, provided that such disclosure is relevant to the enforcement of such
rights or defense of such claims and is only disclosed in the formal
proceedings related thereto.  The
Executive shall take all reasonable steps to safeguard the Confidential
Information relating to the Protected Parties and their businesses, which shall
have been obtained by the Executive during the Executive’s employment by the
Company or its subsidiaries and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement) and to protect it against disclosure, misuse,
espionage, loss and theft.  The Executive
understands and agrees that the Executive shall acquire no rights to any such
Confidential Information.

 

(b)                                 All
files, records, documents, drawings, specifications, data, computer programs,
evaluation mechanisms and analytics and similar items relating thereto or to
the Business (for the purposes of this Agreement, “Business” shall be as
defined in Section 5.3 hereof), as well as all customer lists, specific
customer information, compilations of product research and marketing techniques
of the Company and its subsidiaries, whether prepared by the Executive or
otherwise coming into the Executive’s possession, shall remain the exclusive
property of the Company and its subsidiaries, and the Executive shall not
remove any such items from the premises of the Company and its subsidiaries,
except in furtherance of the Executive’s duties under any employment agreement.

 

(c)                                  It
is understood that while employed by the Company or its subsidiaries, the
Executive will promptly disclose to it, and assign to it the Executive’s
interest in any invention, improvement or discovery made or conceived by the
Executive, either alone or jointly with others, which arises out of the Executive’s
employment.  At the Company’s request and
expense, the Executive will assist the Company and its subsidiaries during the
period of the Executive’s employment by the Company or its subsidiaries and
thereafter in connection with any controversy or legal proceeding relating to
such invention, improvement or discovery and in obtaining domestic and foreign
patent or other protection covering the same.

 

(d)                                 As
requested by the Company and at the Company’s expense, from time to time and
upon the termination of the Executive’s employment with the Company for any
reason, the Executive will promptly deliver to the Company and its subsidiaries
all copies and embodiments, in whatever form, of all Confidential Information
in the Executive’s possession or within her control (including, but not limited
to, memoranda, records, notes, plans, photographs, manuals, notebooks,
documentation, program listings, flow charts, magnetic media, disks, diskettes,
tapes and all other materials containing any Confidential Information)
irrespective of the location or form of such material.  If requested by the Company, the Executive
will provide the Company with written confirmation that all such materials have
been delivered to the Company as provided herein.

 

5.2                                 Non-Solicitation
or Hire.  During the Term and for a
period of twelve (12) months following the termination of the Executive’s
employment for any reason other than due to nonrenewal of the Term by the
Executive pursuant to Section 1 (subject to Section 4.3 of this
Agreement), the Executive shall not directly or indirectly solicit or attempt
to 

 

7

 

solicit or induce, directly or indirectly, (a) any party who is a
customer of the Company or its subsidiaries, or who was a customer of the
Company or its subsidiaries at any time during the twelve (12) month period
immediately prior to the date the Executive’s employment terminates, for the
purpose of marketing, selling or providing to any such party women’s career and
sports apparel for the moderate and better categories, (b) any supplier to
the Company or any subsidiary to terminate, reduce or alter negatively its
relationship with the Company or any subsidiary or in any manner interfere with
any agreement or contract between the Company or any subsidiary and such
supplier or (c) any employee of the Company or any of its subsidiaries or
any person who was an employee of the Company or any of its subsidiaries during
the twelve (12) month period immediately prior to the date the Executive’s
employment terminates to terminate such employee’s employment relationship with
the Protected Parties in order, in either case, to enter into a similar
relationship with the Executive, or any other person or any entity in
competition with the Business of the Company or any of its subsidiaries.

 

5.3                                 Non-Competition.  During the Term and for a period of twelve
(12) months following the termination of Executive’s employment by the Company
for any reason other than due to nonrenewal of the Term by the Executive
pursuant to Section 1 (subject to Section 4.3 of this Agreement), the
Executive shall not, whether individually, as a director, manager, member,
stockholder, partner, owner, employee, consultant or agent of any business, or
in any other capacity, other than on behalf of the Company or a subsidiary,
organize, establish, own, operate, manage, control, engage in, participate in,
invest in, permit her name to be used by, act as a consultant or advisor to,
render services for (alone or in association with any person, firm, corporation
or business organization), or otherwise assist any person or entity that
engages in or owns, invests in, operates, manages or controls any venture or
enterprise which engages or proposes to engage in the women’s career and sports
apparel for the moderate and better categories business in the geographic
locations where the Company and its subsidiaries engage or propose to engage in
such business (the “Business”). 
Notwithstanding the foregoing, nothing in this Agreement shall prevent
the Executive from owning for passive investment purposes not intended to
circumvent this Agreement, less than five percent (5%) of the publicly traded
common equity securities of any company engaged in the Business (so long as the
Executive has no power to manage, operate, advise, consult with or control the
competing enterprise and no power, alone or in conjunction with other
affiliated parties, to select a director, manager, general partner, or similar
governing official of the competing enterprise other than in connection with
the normal and customary voting powers afforded the Executive in connection
with any permissible equity ownership).

 

5.4                                 Property.  The Executive acknowledges that all originals
and copies of materials, records and documents generated by her or coming into
her possession during her employment by the Company or its subsidiaries are the
sole property of the Company and its subsidiaries (“Company Property”).  During the Term, and at all times thereafter,
the Executive shall not remove, or cause to be removed, from the premises of
the Company or its subsidiaries, copies of any record, file, memorandum,
document, computer related information or equipment, or any other item relating
to the business of the Company or its subsidiaries, except in furtherance of
her duties under the Agreement.  When the
Executive’s employment with the Company terminates, or upon request of the
Company at any time, the Executive shall promptly deliver to the Company all
copies of Company Property in her possession or control.

 

6.                                       Remedies;
Specific Performance.  The Parties
acknowledge and agree that the Executive’s breach or threatened breach of any
of the restrictions set forth in Section 5 will 

 

8

 

result in irreparable and continuing damage to the Protected Parties
for which there may be no adequate remedy at law and that the Protected Parties
shall be entitled to equitable relief, including specific performance and
injunctive relief as remedies for any such breach or threatened or attempted
breach.  The Executive also agrees that
such remedies shall be in addition to any and all remedies, including damages,
available to the Protected Parties against her for such breaches or threatened
or attempted breaches.  In addition,
without limiting the Protected Parties’ remedies for any breach of any
restriction on the Executive set forth in Section 5, except as required by
law, the Executive shall not be entitled to any payments set forth in Section 4.2
hereof if the Executive has materially breached the covenants applicable to the
Executive contained in Section 5, the Executive will immediately return to
the Protected Parties any such payments previously received under Section 4.2
upon such a material breach, and, in the event of such material breach, the
Protected Parties will have no obligation to pay any of the amounts that remain
payable by the Company under Section 4.2.

 

7.                                       Indemnification.  The Company agrees, to the extent permitted
by applicable law and its organizational documents, to indemnify, defend and
hold harmless the Executive from and against any and all losses, suits,
actions, causes of action, judgments, damages, liabilities, penalties, fines,
costs or claims of any kind or nature (“Indemnified Claim”), including
reasonable legal fees and related costs incurred by Executive in connection
with the preparation for or defense of any Indemnified Claim, whether or not
resulting in any liability, to which Executive may become subject (including
without limitation as a witness) or liable or which may be incurred by or
assessed against Executive, relating to or arising out of her employment by the
Company or the services to be performed pursuant to this Agreement, provided
that the Company shall only defend, but not indemnify or hold Executive
harmless, from and against an Indemnified Claim in the event there is a final,
non-appealable, determination that Executive’s liability with respect to such
Indemnified Claim resulted from Executive’s willful misconduct or gross
negligence.  At Executive’s request, the
Company shall advance to Executive the cost of all reasonable legal fees and
related costs incurred by Executive arising out of or relating to any
Indemnified Claim, provided as a condition to any such advance the Company may
require that the Executive agree to repay the funds advanced to the extent it
is determined by a final, non-appealable judgment of a court of competent
jurisdiction that Executive is not entitled to indemnification for such
reasonable legal fees and related costs. 
The Company’s obligations under this section shall be in addition
to any other right, remedy or indemnification which Executive may have or be
entitled to at common law or otherwise. 
The provisions of this Section 7 shall survive the termination of
this Agreement for any reason.

 

8.                                       Other
Provisions.

 

8.1                                 Notices.  Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid or overnight mail and shall be deemed given when
so delivered personally, or sent by facsimile transmission or, if mailed, four (4) days
after the date of mailing or one (1) day after overnight mail, as follows:

 

9

 

(a)               If the Company, to:

 

Rafaella Apparel Group, Inc.

1411 Broadway

New York, New York  10018

Attention:  Secretary

Telephone: 
(212) 403-0300

Fax  (212) 764-9275

 

With copies to:

 

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY  10022

Attention:  David E. Rosewater, Esq.

Telephone:  (212) 756-2000

Fax:  (212) 593-5955

 

and

 

Cerberus Capital Management, L.P.

299 Park Avenue

New York, New York  10171

Attention:  George Kollitides

Telephone:  (212) 891-2100

Fax: 
(212) 284-7916

 

(b)              If the Executive, to
the Executive’s home address reflected in the Company’s records,

 

With a copy to:

 

My CIO Wealth Partners, LLC

One Logan Square

Philadelphia, PA  19103

Attention: 
David Lees

Telephone: 
(2670 295-2281

Fax: 
(267) 295-2279

 

8.2                                 Entire
Agreement.  This Agreement contains
the entire agreement between the Parties with respect to the subject matter
hereof and supersedes all prior agreements, written or oral, with respect
thereto.  To the extent that any
provision of this Agreement conflicts with any current or future policy or
procedure of the Company, the provisions of this Agreement shall prevail.

 

8.3                                 Representations
and Warranties by Executive.  The
Executive represents and warrants that she is not a party to or subject to any
restrictive covenants, legal restrictions or other agreements in favor of any
entity or person which would in any way 

 

10

 

preclude, inhibit, impair or
limit the Executive’s ability to perform her obligations under this Agreement,
including, but not limited to, non-competition agreements, non-solicitation
agreements or confidentiality agreements.

 

8.4                                 Waiver
and Amendments.  This Agreement may
be amended, modified, superseded, canceled, renewed or extended, and the terms
and conditions hereof may be waived, only by a written instrument signed by the
Parties or, in the case of a waiver, by the party waiving compliance.  No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any right, power or privilege
hereunder, nor any single or partial exercise of any right, power or privilege
hereunder, preclude any other or further exercise thereof or the exercise of
any other right, power or privilege hereunder.

 

8.5                                 Governing
Law, Dispute Resolution and Venue.

 

(a)                                  This
Agreement shall be governed and construed in accordance with the laws of the
State of New York applicable to agreements made and not to be performed
entirely within such state, without regard to conflicts of laws principles.

 

(b)                                 The parties agree
irrevocably to submit to the exclusive jurisdiction of the federal courts or,
if no federal jurisdiction exists, the state courts, located in the City of New
York, Borough of Manhattan, for the purposes of any suit, action or other
proceeding brought by any party arising out of any breach of any of the
provisions of this Agreement and hereby waive, and agree not to assert by way
of motion, as a defense or otherwise, in any such suit, action, or proceeding,
any claim that it is not personally subject to the jurisdiction of the
above-named courts, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is
improper, or that the provisions of this Agreement may not be enforced in or by
such courts.  In addition, the parties
agree to the waiver of a jury trial.

 

8.6                                 Assignability
by the Company and the Executive. 
This Agreement, and the rights and obligations hereunder, may not be
assigned by the Company or the Executive without written consent signed by the
other party; provided that the Company may assign the Agreement to any
successor that continues the business of the Company.

 

8.7                                 Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.

 

8.8                                 Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.

 

8.9                                 Severability.  If any term, provision, covenant or
restriction of this Agreement, or any part thereof, is held by a court of
competent jurisdiction of any foreign, federal, state, county or local
government or any other governmental, regulatory or administrative agency or
authority to be invalid, void, unenforceable or against public policy for any
reason, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected or impaired or invalidated.  

 

11

 

The Executive acknowledges that
the restrictive covenants contained in Section 5 are a condition of this
Agreement and are reasonable and valid in temporal scope and in all other
respects.

 

8.10                           Judicial
Modification.  If any court
determines that any of the covenants in Section 5, or any part of any of
them, is invalid or unenforceable, the remainder of such covenants and parts
thereof shall not thereby be affected and shall be given full effect, without
regard to the invalid portion.  If any
court determines that any of such covenants, or any part thereof, is invalid or
unenforceable because of the geographic or temporal scope of such provision,
such court shall reduce such scope to the minimum extent necessary to make such
covenants valid and enforceable.

 

8.11                           Tax
Withholding.  The Company or other
payor is authorized to withhold from any benefit provided or payment due
hereunder, the amount of withholding taxes due any federal, state or local
authority in respect of such benefit or payment and to take such other action
as may be necessary in the opinion of the Board to satisfy all obligations for
the payment of such withholding taxes.

 

12

 

IN WITNESS
WHEREOF, the Parties hereto, intending to be legally bound hereby, have
executed this Agreement as of the day and year first above mentioned.

 

	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Christa Michalaros

  	
   

  
	
   

  	
  Name: Christa Michalaros

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RAFAELLA APPAREL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ George Kollitides

  	
   

  
	
   

  	
   

  	
  Name: George Kollitides

  
	
   

  	
   

  	
  Title: Authorized Person

  
				

 

13Exhibit 10.15

 

EXECUTION
COPY

 

CONSULTING
AGREEMENT AND GENERAL RELEASE

 

THIS CONSULTING AGREEMENT (the “Agreement”)
is made as of this 24th day of April, 2006, by and between (the “Company”) and
Glenn S. Palmer (the “Consultant”).

 

WITNESSETH:

 

WHEREAS,  Consultant was employed by the Company
pursuant to the Employment Agreement by and between the Company and the
Consultant dated June 20, 2005 (the “Employment Agreement”);

 

WHEREAS, the
Consultant’s employment with the Company shall terminate as of April 24,
2006;

 

WHEREAS,
following the Consultant’s termination of employment with the Company, the
Company desires to retain the Consultant to provide certain consulting services
to the Company and the Consultant desires to be retained by the Company to
provide such services; provided that such services do not unreasonably
interfere with such new business activities in which the Consultant may engage
(the “New Business Activities”); and

 

WHEREAS, the
parties hereto desire to set forth their respective rights and obligations in
respect of the Consultant’s separation of employment from the Company and
consulting relationship with the Company.

 

NOW, THEREFORE, in
consideration of the covenants and conditions set forth herein, the parties,
intending to be legally bound, agree as follows:

 

1.             Employment Status and Termination.

 

(a)           The Consultant’s employment with the
Company shall terminate as of April 24, 2006 (the “Separation Date”).  Except as set forth herein, the Employment
Agreement and the Term (as defined therein) shall terminate on the Separation
Date.

 

(b)           As of the Separation Date, the
Consultant shall be deemed to resign (1) if a member, from the Board of
Directors of the Company (the “Board”) or of any subsidiary of the Company or
any other board to which he has been appointed by or on behalf of the Company
and (ii) from any position with the Company or any subsidiary of the
Company, including but limited to, as an officer of the Company and any of its
subsidiaries.

 

2.             Severance Benefits.  The Consultant and the Company hereby agree
to the following severance benefits, each of which is subject to the terms and
conditions of this Agreement:

 

(a)           The Company will pay to the
Consultant all amounts accrued but unpaid under the Employment Agreement
through the Separation Date in respect of 

 

 

salary,
payable on the next payroll date following the Separation Date, (ii) bonus
in respect of fiscal year 2006 equal to $250,000, payable on October 15,
2006 and (iii) any unreimbursed expenses, payable within 10 days of
receipt by the Company of the proper documentation.

 

(b)           Subject to the Consultant’s
execution and nonrevocation of the General Release attached to this Agreement
as Appendix A and made a part hereto, the Company will pay to the Consultant
the following:

 

(1)           Payment for accrued but
unused vacation days payable on the next payroll date following the expiration
of the revocation period set forth in the General Release;

 

(2)           Reimbursement of the
cost of continuation coverage of group health and dental benefits pursuant to
the Consolidated Omnibus Budget Reconciliation Act of 1986 for a maximum of
twelve (12) months to the extent that the Consultant elects such continuation
coverage; provided that if the Consultant obtains employment with any new
employer and receives health and dental coverage under the plan of such new
employer during such twelve (12) month period, such reimbursement shall
terminate; and

 

(3)           Payment for legal fees
in connection with the negotiation of the Employment Agreement and this Agreement
in an amount equal to $9,000, payable within 30 days of the date hereof.

 

3.             Consulting Status.

 

(a)           Consulting Term. 
The Consultant will provide the services set forth below during the
period from April 25, 2006 through April 25, 2007 (the “Consulting
Term”).  This Agreement will terminate at
the end of the Consulting Term.

 

(b)           Consulting Services. 
During the Consulting Term, the Consultant will (i) assist, if
requested by the Board, in the transition of the new chief executive officer of
the Company and (ii) provide such services as may be requested by the
Board or Michael Green.  The services
which the Consultant shall be required to provide pursuant to the foregoing
clause (ii) shall be such that they can be provided over the telephone or,
upon reasonable notice, at such times and such places that do not unreasonably
interfere with the New Business Activities.

 

(c)           Consulting Fees and Expenses. 
During the Consulting Term, the Company will pay to the Consultant the
following:

 

(1)           An aggregate of $600,000,
payable weekly in accordance with the customary payroll practices of the
Company (the “Consulting Fees”).

 

(2)           Reimbursement for
documented expenses relating to cellular telephone and Blackberry service not
to exceed $200 per month.

 

2

 

(3)           Reimbursement for
business meal expenses, provided such business meal expenses are approved in
advance by George Kollitides and properly documented.

 

(4)           Reimbursement for
automobile expenses in the amount of $1,500 per month.

 

(d)           Computer. 
During and after the Consulting Term, the Consultant will retain the use
of the computer that he used during the period of his employment with the
Company (the “Computer”).

 

(e)           Benefits. 
All salary and benefits under the Employment Agreement shall cease as of
the Separation Date.

 

(f)            Independent Contractor. 
During the Consulting Term, the Consultant will be and will be deemed
for all purposes to be an independent contractor of the Company.  The Consultant acknowledges that this
Agreement is not an employment contract. 
Consequently, the Consulting Fees set forth in Section 3(c) of
this Agreement will not be deemed to be wages, and therefore, will not be
subject to any withholdings or deductions. 
Nothing contained herein will be construed to create a relationship of
employment between the Company and the Consultant.  The Consultant will not be entitled to any
employee benefits of the Company or any of its affiliates or subsidiaries.

 

4.             Equity Grant.  The Company will grant to the Consultant an
option to purchase 111,111 shares of the Company’s common stock at an exercise
price of $5.33 per share under the Company’s Equity Incentive Plan (the “Option”).  The Option will vest on April 25, 2007,
provided that (a) there has not been a Termination for Cause (as defined
below) prior to such date and (b) if the Consultant’s relationship with
the Company terminates for any reason other than a Termination for Cause, the
Consultant continues to cooperate fully with the Company and make himself
reasonably available to the Company to respond to reasonable requests by the
Company through the end of the Consulting Term. 
The Option will be evidenced in a written agreement by and between the
Company and the Consultant (the “Stock Option Agreement”).

 

5.             Termination for Cause.  Prior to the end of the Consulting Term, the
Company may terminate this Agreement and the consulting services of the
Consultant provided hereunder for “cause” only if (i) the Consultant,
after receipt from the Company of three days’ notice of the Company’s intent to
terminate this Agreement and the Consultant’s services provided hereunder for
cause, continues to fail to respond by telephone or otherwise to a request for
assistance, even if, such failure is due to the Consultant’s death or due to
his physical or mental illness or injury (“Disability”); or (ii) breaches
the provisions of Sections 5.5 or 6 (other than subsection 6.1(c), which
the parties agree is no longer binding) of the Employment Agreement (a “Termination
for Cause”).  Such Termination for Cause
shall be effective immediately upon written notice to the Consultant by the
Company.  In the event of a Termination
for Cause, the Consultant will be entitled only to such Consulting Fees as will
have accrued as of the 

 

3

 

date of such
termination and the Company will have no further obligation to the
Consultant.  Upon a Termination for
Cause, any unexercised portion of the Option shall be forfeited as of the date
of such Termination for Cause.

 

6.             Termination Other Than For Cause.  In the event that the consulting services of
the Consultant terminate prior to the end of the Consulting Term for any reason
other than (i) a Termination for Cause, or (ii) a voluntary resignation
by the Consultant in writing for any reason (a “Voluntary Resignation”), the
Consultant will continue to receive the remaining Consulting Fees, payable in
accordance with Section 3(c), until the expiration of the Consulting Term,
subject to Section 7 of this Agreement. 
Upon a termination other than a Termination for Cause or a Voluntary
Resignation prior to the end of the Consulting Term, the Option shall vest as
provided in Section 4 (and set forth in the Stock Option Agreement) and
remain exercisable until the Option expires on its terms as set forth in the
Equity Incentive Plan and the Stock Option Agreement.

 

7.             Mitigation.  If at any time during the first six (6) months
of the Consulting Term, the Consultant’s relationship with the Company terminates,
the Company’s obligations, if any, to the Consultant which arise upon such
termination of the Consultant’s relationship pursuant to Section 6, shall
not be subject to mitigation or offset by the Consultant.  If the Consultant’s relationship with the
Company terminates at any time during the second six (6) months of the
Consulting Term, (a) the Consultant shall not be required to mitigate the
amount of any payment provided for pursuant to Section 6 of this Agreement
by seeking other employment, and (b) if the Consultant thereafter provides
services for pay to anyone other than the Company or any of its subsidiaries
from the date the Consultant’s relationship with the Company hereunder is
terminated until the end of the period during which the Consultant is receiving
payments pursuant to Section 6, the amounts paid to the Consultant during
such period shall be offset (or if paid to the Consultant, refunded to the
Company by the Consultant) by the amounts of salary, bonus or other cash or
kind compensation earned by, paid or granted to the Consultant during such
period as a result of the Consultant’s performing such service (regardless of
when such earned amounts are actually paid to the Consultant).

 

8.             Nondisparagement.

 

(a)           The Consultant hereby acknowledges
that he remains subject to Section 5.5 of the Employment Agreement.

 

(b)           The Company agrees to use reasonable
best efforts to ensure that representatives of the Company who are authorized
to discuss the Consultant’s performance while at the Company do not disparage,
make negative statements about or act in any manner that is intended to or does
damage to the Consultant’s personal or business reputation; provided that in
all events the Company shall direct its officers and directors

 

(c)           that they shall not disparage, make
negative statements about or act in an manner that is intended to or does
damage the Consultant’s personal or business reputation.

 

4

 

9.             Property.

 

(a)           Unless otherwise agreed to by the
Consultant and the Company, the Consultant agrees that prior to or on the
Separation Date, he will deliver to the Company all copies of Company Property
(as defined in the Employment Agreement) in his possession or under his
control.

 

(b)           Any Company Property that remains in
the possession of the Consultant following the Separation Date pursuant to Section 8(a) and
all Company Property, coming into his possession in the course of his services
under this Agreement will be the sole property of the Company or any of its
subsidiaries or affiliates, as applicable. 
At the end of the Consulting Term, or upon the termination of the
Consultant’s consulting services hereunder or upon the request of the Company,
if earlier, the Consultant will return all Company Property in his possession
or under his control as of such date.

 

10.           Notices.  Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid or overnight mail and shall be deemed given when
so delivered personally, or sent by facsimile transmission or, if mailed, four (4) days
after the date of mailing or one (1) day after overnight mail, as follows:

 

(a)                                  If the Company, to:

 

Rafaella Apparel Group, Inc.

1411 Broadway

New York, New York  10018

Attention: 
Secretary

Telephone: 
(212) 403-0300

Fax  (212) 764-9275

 

With copies to:

 

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY  10022

Attention:  David E. Rosewater, Esq.

Telephone:  (212) 756-2000

Fax:  (212) 593-5955

 

and

 

Cerberus Capital Management, L.P.

299 Park Avenue

New York, New York  10171

Attention:  George Kollitides

Telephone: 
(212) 891-2100

Fax: 
(212) 284-7916

 

5

 

(b)           If to the Consultant, to the
Consultant’s home address reflected in the Company’s records, with a copy to

 

Eaton &
Van Winkle

3 Park Avenue

New York,
NY  10016

Attention:  Vincent J. McGill, Esq.

Telephone:  (212) 779-9910

Fax:  (212) 779-9928

 

Either party may
change the address provided above by delivering written notice of such change
of address to the other party.

 

11.           General.

 

(a)           This Agreement contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and supersedes all prior agreements and understandings, if any, with
respect hereto and cannot be modified, amended, waived or terminated, in whole
or in part, except in a writing signed by both parties; provided, however, that
the provisions of Sections 5.5, 6 (other than subsection 6.1(c)), 7, 8 and
9 of the Employment Agreement shall survive to the extent necessary to give
effect to the provisions thereof.

 

(b)           The covenants, agreements,
representations and warranties contained in or made pursuant to this Agreement
shall survive this Agreement.

 

(c)           This Agreement will inure to the
benefit of and be binding on the successors of the Company.  None of the parties may assign this Agreement
without the written consent of the other party.

 

(d)           The headings used in this Agreement
are solely for the convenience of reference and shall not be given any effect
in the construction or interpretation of this Agreement.  This Agreement shall be construed without regard
to any presumption of any other rule requiring construction against the
party causing this Agreement to be drafted.

 

(e)           The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof,
in such jurisdiction and shall not in any manner affect such clause or
provision in any other jurisdiction, or any other clause or provision of this
Agreement in any other jurisdiction.

 

6

 

(f)            This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.

 

12.           Governing Law, Dispute Resolution and
Venue.

 

(a)           This Agreement shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and not to be performed entirely within such state, without
regard to conflicts of laws principles.

 

(b)           The parties agree irrevocably to
submit to the exclusive jurisdiction of the federal courts or, if no federal
jurisdiction exists, the state courts, located in the City of New York, Borough
of Manhattan, for the purposes of any suit, action or other proceeding brought
by any party arising out of any breach of any of the provisions of this
Agreement and hereby waive, and agree not to assert by way of motion, as a
defense or otherwise, in any such suit, action, or proceeding, any claim that
it is not personally subject to the jurisdiction of the above-named courts,
that the suit, action or proceeding is brought in an inconvenient forum, that
the venue of the suit, action or proceeding is improper, or that the provisions
of this Agreement may not be enforced in or by such courts.  In addition, the parties agree to the waiver
of a jury trial.

 

IN WITNESS WHEREOF, the parties
hereto have executed the Agreement as of the day and year first above written.

 

	
   

  	
  RAFAELLA
  APPAREL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
  /s/ George
  Kollitides

  	
   

  
	
   

  	
  Name: George
  Kollitides

  
	
   

  	
  Title:
  Authorized Person

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CONSULTANT

  
	
   

  	
   

  
	
   

  	
  /s/ Glenn S.
  Palmer

  	
   

  

 

7

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