Lawyers Issue Open Letter to J. Crew Shareholders Outlining Options in Advance of March 1 Vote on Proposed Buyout

Feb 23, 2011, 14:59 ET from Grant & Eisenhofer P.A.

WILMINGTON, Del., Feb. 23, 2011 /PRNewswire/ -- Lawyers representing shareholders of J. Crew Group have issued the following open letter to all J. Crew shareholders explaining their options in advance of a scheduled vote on March 1 to consider a proposed buyout of the apparel company by private equity firm TPG Capital and J. Crew CEO Millard Drexler.

Law firms Grant & Eisenhofer, along with Bernstein Litowitz Berger & Grossman, Chimicles & Tikellis and Labaton Sucharow, were appointed by Delaware Court of Chancery, to represent J. Crew shareholders in litigation challenging the terms of the proposed buyout.

The full text of the letter to shareholders follows:

Dear J. Crew Shareholder:

We represent the plaintiffs in In re J Crew Group, Inc. Shareholders Litigation, pending before the Court of Chancery of the State of Delaware and docketed at C.A. No. 6043-VCS (the "Litigation"). The Litigation asserts claims alleging numerous breaches of fiduciary duty and aiding and abetting of breaches of that duty relating to the proposed buyout of your company, J. Crew Group. Inc. ("J. Crew" or the "Company"), by private equity firm TPG Capital, L.P. and J. Crew CEO Millard Drexler. While this type of communication is unusual, we have received many calls and questions from investors regarding the status of the litigation and your legal options. Through the Q&A below we attempt to address some of the questions many of you have.

What is the status of the Litigation?

The Litigation remains ongoing. Between November 24 and December 3, 2010, certain shareholders of J. Crew filed complaints alleging that the process by which J. Crew's Board of Directors approved the proposed buyout by TPG Capital and Mr. Drexler was legally deficient, and that the price offered was inadequate compensation for J. Crew's public shareholders. Those actions pending before the Delaware Court of Chancery were consolidated into the Litigation.

On January 16, 2011, following extensive negotiations, we entered into a memorandum of understanding ("MOU") with counsel for the defendants that required the defendants in the Litigation to take specific steps for the benefit of J. Crew shareholders, and in exchange, we were prepared to recommend that the Court approve a proposed final settlement of the litigation. The MOU imposed significant structural changes to the sales process designed to extend the period during which the Company could solicit alternative bids and make the extended period more fair and attractive to alternative bidders than we believed the initial period had been. The MOU also provided an additional $10 million payment to shareholders in the event the extended process did not entice new bidders to top the pending offer from TPG. We believed that the significant structural changes were precedent-setting and, if implemented as contemplated, could have gone a long way to remedying what we and many shareholders perceived as severe deficiencies in the underlying sales process. Thereafter, however, defendants took certain action that we believe to be contrary to the terms of the MOU, and undermine the intended benefits of the structural changes we negotiated. After careful deliberation, we concluded, based on our own duties to J. Crew shareholders, to inform defendants that we believed that they had breached the MOU, and that, as a result, we were no longer prepared to recommend that the Court approve a final settlement of the Litigation. The defendants dispute that they did anything to breach the MOU.

The Litigation, therefore, remains pending. In addition, Plaintiffs believe that the Defendants have breached their fiduciary duties in connection with certain actions taken since the MOU was signed, and intend to seek monetary damages on behalf of a class of all J. Crew shareholders (excluding Defendants and their affiliates). During an in-chambers conference on February 11, 2011, the Court indicated that it would not intervene to stop or delay the vote on the proposed transaction, currently scheduled for March 1, 2011.

What are your options?

With the vote on the proposed buyout by TPG and Mr. Drexler scheduled to proceed on March 1, 2011, shareholders essentially have three options:

1. Sell your shares in the open market and accept the publicly traded price.

As of February 22, 2011, J. Crew's stock was trading at $43.26. As a shareholder of a publicly traded corporation, you have the option to sell your shares in the open market.

2. Vote in favor of the proposed merger and accept the merger consideration.

If the merger receives the requisite level of support from the Company's shareholders, and you have not opted to exercise appraisal rights (discussed below), each outstanding share of the Company's common stock will be exchanged for the right to receive $43.50 in cash when the transaction closes.

3. Vote "NO" or ABSTAIN and remain a shareholder of J Crew if the Merger fails to pass or take the Merger Consideration if the Merger does pass.

If the merger does not receive the requisite level of support from the Company's shareholders, you will remain a shareholder of J. Crew. If you vote "NO" or ABSTAIN from the vote, yet the merger still receives the requisite shareholder vote, your shares will be converted to a right to receive $43.50 in cash when the transaction closes.

4. Vote "NO" or ABSTAIN and elect APPRAISAL RIGHTS.

If you believe that the merger consideration is inadequate, or doubt that process that resulted in the merger agreement was sufficient to provide assurance that the proposed merger consideration represents a truly fair price, you have the option to seek appraisal for your shares in accordance with Section 262 of the Delaware General Corporation Law, 8 Del. C. Section 262, pursuant to which a Court would determine the "fair value" of your shares as of the closing date. You can elect to seek appraisal by properly notifying the Company, in writing, of your intent to do so PRIOR TO SHAREHOLDER VOTE, CURRENTLY SCHEDULED FOR MARCH 1, 2011. The procedures for pursuing appraisal rights which must be followed are set forth in pages 132 to 135 of the Company's Proxy Statement filed by the Company on Form DEFM-14A on January 25, 2011.

By electing appraisal, YOU DO NOT GIVE UP THE OPPORTUNITY TO ACCEPT THE MERGER CONSIDERATION. Rather, if you vote "no" or abstain from voting and elect the appraisal remedy, but the transaction still gets the requisite vote, you still have the option to [withdraw your request for appraisal and] accept the merger consideration at any time within 60 days of the closing of the proposed buyout.

What should you do?

That's up to you. We can pursue legal claims through litigation, but there is only so much we, as lawyers, can do. If TPG and Mr. Drexler hear from enough shareholders that you are dissatisfied with the price, that you will vote against the Merger and you will seek to exercise your appraisal rights, they might increase the price to get the deal done. They also might not. You can assume that the Merger price will not be increased without significant shareholder action.

Both Glass, Lewis & Co., LLC (on February 18, 2011) and Institutional Shareholder Services (on February 22, 2011) have recommended that shareholders vote AGAINST the proposed merger. Whether you follow these recommendations is up to you. But please recognize, without some action on your part, the chance of getting a higher price other than through a monetary judgment that may take years to achieve is greatly reduced.

If you have further questions, you may contact us at 212-262-7477. If you decide to pursue appraisal rights, please inform us.

Very truly yours,

Stuart M. Grant

Grant & Eisenhofer P.A.

Wilmington, DE

Robert J. Kriner, Jr.

Chimicles & Tikellis LLP

Wilmington, DE

This is NOT a proxy solicitation. We are not asking for your proxy card. Executed proxy cards should be returned according to the Company's instructions.

Allan Ripp for Grant & Eisenhofer, P.A. 212-262-7477

SOURCE Grant & Eisenhofer P.A.