Exhibit 10.2

 

COLDWATER CREEK INC.

 

SEVERANCE AND CHANGE OF CONTROL AGREEMENT

 

This Severance and Change of Control Agreement (this “Agreement”), is made and
entered into by and between (the “Executive”) and COLDWATER CREEK Inc., a
Delaware corporation (the “Company”).    Certain capitalized terms used in this
Agreement are defined in Section 1 below.

 

RECITALS

 

1.                                       It is possible that the Company could
terminate Executive’s employment with the Company.  The Board of Directors of
the Company (the “Board”) recognizes that such consideration can be a
distraction to Executive and can cause Executive to consider alternative
employment opportunities.  The Board believes it is in the best interests of the
Company and its stockholders to assure that the Company will have the continued
dedication and objectivity of Executive, notwithstanding the possibility, threat
or occurrence of such a termination.

 

2.                                       The Board believes that it is in the
best interests of the Company and its stockholders to provide Executive with an
incentive to continue his or her employment and to motivate Executive to
maximize the value of the Company for the benefit of its stockholders.

 

3.                                       The Board believes that it is
imperative to provide Executive with certain severance benefits upon certain
terminations of Executive’s employment with the Company.  These benefits will
provide Executive with enhanced financial security and incentive and
encouragement to remain with the Company.

 

4.                                       Certain capitalized terms used in the
Agreement are defined in Section 5 below.

 

AGREEMENT

 

In consideration of the mutual covenants herein contained and the continued
employment of Executive by the Company, the parties agree as follows:

 

5.                                       Definition of Terms.  The following
terms referred to in this Agreement shall have the following meanings:

 

(a)                                  Cause.  “Cause” shall mean (i) a failure by
Executive to substantially perform Executive’s duties as an employee, other than
a failure resulting from Executive’s complete or partial incapacity due to
physical or mental illness or impairment; (ii) a felony conviction or a plea of
“no contest,” and which has a material adverse effect on the business or affairs
of the Company or its affiliates or stockholders; (iii) intentional or willful
misconduct or refusal to follow the lawful instructions of the Board;
(iv) material fraud or dishonesty against the Company or having a material
adverse effect on the Company’s business or reputation; (v) material violation
of Company policy or agreement, including without limitation the Company’s Code
of Business Conduct and the Confidentiality and Intellectual Property Agreement
and Agreement for Non-Solicitation or Recruitment; or (vi) failure to cooperate
with the Company in

 

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any investigation or formal proceeding.  For these purposes, no act or failure
to act shall be considered “intentional or willful” unless it is done, or
omitted to be done, in bad faith without a reasonable belief that the action or
omission is in the best interests of the Company.

 

(b)                                 Change of Control.  “Change of Control”
shall mean the occurrence of any of the following events:

 

(i)                                     the approval by the shareholders of the
Company of a plan of complete liquidation or dissolution of the Company or the
closing of a sale or disposition by the Company of all or substantially all of
the Company’s assets, other than a sale or disposition to a subsidiary of the
Company or to an entity, the voting securities of which are owned by the
stockholders of the Company in substantially the same proportions as their
ownership of the Company’s voting securities immediately prior to such sale or
disposition;

 

(ii)                                  a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent directly or indirectly (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation;

 

(iii)                               any “person” (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the total voting power represented by the Company’s then
outstanding voting securities; or

 

(iv)                              a contest for the election or removal of
members of the Board that results in the replacement during any twelve
(12)-month period of at least fifty percent (50%) of the Incumbent Directors of
the Board, whose appointment is not endorsed by the majority of the Incumbent
Directors of the Board prior to such contest.  “Incumbent Directors” is defined
as:  (x) Directors as of the date of this Agreement; and (y) Directors elected
other than in connection with an actual or threatened proxy contest;

 

provided, however, that such transaction also satisfies the requirements for a
change in the ownership or effective control of the Company, or a change in the
ownership of a substantial portion of the assets of the Company, under
Section 409A of the Code, as determined pursuant to Treasury Regulation
Section 1.409A-3(i)(5),  or other applicable guidance issued under Section 409A.

 

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(c)                                  Involuntary Termination.  “Involuntary
Termination” shall mean:

 

(i)                                     on or following a Change of Control, and
without Executive’s express written consent, a material reduction in Executive’s
authority, title, duties or responsibilities relative to Executive’s authority,
title, duties or responsibilities in effect immediately prior to the Change of
Control;

 

(ii)                                  without Executive’s express written
consent, a material reduction by the Company of Executive’s base salary, except
in connection with a reduction in compensation generally applicable to senior
management employees of the Company;

 

(iii)                               without Executive’s express written consent,
the relocation of Executive’s principal place of employment to a facility or a
location more than fifty (50) miles from Executive’s then current location;

 

(iv)                              any termination of Executive by the Company
which is not effected for Cause; or

 

(v)                                 the failure of the Company to obtain the
assumption of this Agreement by any successors contemplated in
Section 11(a) below.

 

A termination shall not be considered an “Involuntary Termination” unless
Executive provides notice to the Company of the existence of the condition
described in subsections (i), (ii), (iii) or (v) above within ninety (90) days
of the initial existence of such condition, the Company fails to remedy the
condition within thirty (30) days following the receipt of such notice, and
Executive terminates employment within one-hundred twenty (120) days following
the initial existence of such condition.  A termination due to death or
disability shall not be considered an Involuntary Termination.

 

(d)                                 Termination Date.  “Termination Date” shall
mean Executive’s “separation from service” within the meaning of that term under
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

 

6.                                       Term of Agreement.  This Agreement
shall terminate upon the date that all obligations of the parties hereto under
this Agreement have been satisfied.

 

7.                                       At-Will Employment.  The Company and
Executive acknowledge that Executive’s employment is and shall continue to be
at-will, as defined under applicable law.

 

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8.                                       Severance Benefits.

 

(a)                                  Involuntary Termination.  If Executive’s
employment with the Company (and any parent or subsidiary of the Company
employing Executive) terminates as a result of an Involuntary Termination at any
time (other than on or within twelve months (12) months after a Change of
Control, as described in Section 8(b) below), and Executive signs and does not
revoke a standard release of claims with the Company in a form reasonably
acceptable to the Company which becomes effective within sixty (60) days
following the Termination Date, then Executive shall be entitled to the
following severance benefits:

 

(i)                                     150% of Executive’s annual base salary
as in effect as of the Termination Date, payable in equal installments over a
period of twelve (12) months following the Termination Date in accordance with
the Company’s normal payroll policies, less applicable withholding, commencing
on the sixtieth (60th) day following the Termination Date (with an initial
catch-up payment for any installments that would have otherwise been payable in
the first sixty (60) days following the Termination Date);

 

(ii)                                  a portion of the bonus otherwise earned
based on performance for the annual bonus period during which the Termination
Date occurs, which portion is equal to the amount of the earned bonus multiplied
by a fraction, the numerator of which equals the number of days from the
commencement of the applicable bonus period through the Termination Date, and
the denominator of which equals 365, payable at such time as annual bonuses are
paid to other senior executives of the Company;

 

(iii)                               any earned but unpaid annual bonus for any
annual bonus period which had ended prior to the Termination Date, which amount
shall be paid at such time as annual bonuses are paid to other senior executives
of the Company; and

 

(iv)                              reimbursement by the Company of the group
health continuation coverage premiums for the Executive and the Executive’s
eligible dependents under Title X of the Consolidated Budget Reconciliation Act
of 1985, as amended (“COBRA”) as in effect through the lesser of (x) twelve (12)
months from the date of such termination, (y) the date upon which the Executive
and the Executive’s eligible dependents become covered under similar plans or
(z) the date the Executive no longer constitutes a “Qualified Beneficiary” (as
such term is defined in Section 4980B(g) of the Code); provided, however, that
the Executive will be solely responsible for electing such coverage within the
required time period.

 

(b)                                 Involuntary Termination On or Following
Change of Control.  If Executive’s employment with the Company (and any parent
or subsidiary of the Company employing Executive) terminates as a result of an
Involuntary Termination on or within twelve (12) months after a Change of
Control, and Executive signs and does not revoke a standard release of claims
with the Company in a form reasonably acceptable to the Company which becomes
effective within sixty (60) days following the Termination Date, then in lieu of
the severance benefits provided under Section 8(a) above, Executive shall be
entitled to the following severance benefits:

 

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(i)                                     150% of the sum of the Executive’s
annual base salary as in effect as of the Termination Date plus the target bonus
for the annual bonus period during which the Termination Date occurs, less
applicable withholding, payable in a lump sum on the sixtieth (60th) day
following the Termination Date;

 

(ii)                                  a portion of the target bonus for the
annual bonus period during which the Termination Date occurs, which portion is
equal to the amount of the target bonus multiplied by a fraction, the numerator
of which equals the number of days from the commencement of the applicable bonus
period through the Termination Date, and the denominator of which equals 365,
payable in a lump sum on the sixtieth (60th) day following the Termination Date;

 

(iii)                               any earned but unpaid annual bonus for any
annual bonus period which had ended prior to the Termination Date, which amount
shall be paid at such time as annual bonuses are paid to other senior executives
of the Company;

 

(iv)                              reimbursement by the Company of the group
health continuation coverage premiums for the Executive and the Executive’s
eligible dependents under Title X of the Consolidated Budget Reconciliation Act
of 1985, as amended (“COBRA”) as in effect through the lesser of (x) twelve (12)
months from the date of such termination, (y) the date upon which the Executive
and the Executive’s eligible dependents become covered under similar plans or
(z) the date the Executive no longer constitutes a “Qualified Beneficiary” (as
such term is defined in Section 4980B(g) of the Code); provided, however, that
the Executive will be solely responsible for electing such coverage within the
required time period; and

 

(v)                                 acceleration of the vesting and
exercisability of all of Executive’s options and other rights to acquire common
stock of the Company or its successor, or the parent of either, including
restricted stock units and performance stock units, to the extent such rights
are outstanding immediately prior to the Termination Date, or acceleration of
vesting of any deferred compensation into which such options or other rights
were converted upon the Change of Control; provided, however, that if such
rights are terminated upon the Change of Control without the payment of
consideration therefor, then the vesting and exercisability of such rights shall
be accelerated immediately prior to the Change of Control.

 

For the avoidance of doubt, the severance benefits described in this
Section 8(b) are in lieu of, and not in addition to, the severance benefits
described in Section 8(a), and in no event will Executive be eligible for
payment under both sections.

 

(c)                                  Death or Disability.   If Executive’s
employment with the Company (and any parent or subsidiary of the Company
employing Executive) terminates as a result of death or Executive becomes
disabled (which for purposes of this Section 8(c) means that Executive has
become eligible for disability benefits under the Company’s long-term disability
plan arrangements or, if none apply, would have been so eligible under the most
recent plan or arrangement, and such disability complies with the definition of
“disability” under Treasury Regulations Section 1.409A-3(i)(4), or other
applicable guidance issued under Section 409A (referred to herein as
“Disability”)), Executive (or Executive’s estate or beneficiaries in the case of
the death of Executive) shall be entitled to a portion of the target bonus for
the annual bonus

 

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period during which the death or Disability occurs.  Such portion shall be equal
to the amount of the target bonus multiplied by a fraction, the numerator of
which equals the number of days from the commencement of the applicable bonus
period through the date of death or Disability, and the denominator of which
equals 365, and shall be payable in a lump sum within sixty (60) days following
the date of death or Disability.  In the event of Disability, in addition to the
foregoing, Executive will also be entitled to monthly cash payments equal to one
twelfth (1/12th) of Executive’s annual salary in effect on the date of
Disability, commencing on the Disability date and continuing for a period of
twelve (12) months.

 

(d)                                 Accrued Wages and Vacation; Expenses. 
Without regard to the reason for, or the timing of, Executive’s termination of
employment: (i) the Company shall pay Executive any unpaid wages due for periods
prior to the Termination Date; (ii) the Company shall pay Executive all of
Executive’s accrued and unused vacation through the Termination Date;
(iii) Executive shall be entitled to receive benefits in accordance with the
terms of any applicable Company benefit plans; and (iv) following submission of
proper expense reports by Executive, the Company shall reimburse Executive for
all expenses reasonably and necessarily incurred by Executive in connection with
the business of the Company prior to the Termination Date.  These payments shall
be made promptly upon termination and within the period of time mandated by law.

 

9.                                       Limitation on Payments.  In the event
that the severance and other benefits provided for in this Agreement or
otherwise payable to Executive (i) constitute “parachute payments” within the
meaning of Section 280G of the Code and (ii) would be subject to the excise tax
imposed by Section 4999 of the Code (the “Excise Tax”), then Executive’s
benefits under this Agreement shall be either:

 

(a)                                  delivered in full or

 

(b)                                 delivered as to such lesser extent which
would result in no portion of such benefits being subject to the Excise Tax,

 

whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by
Executive on an after-tax basis, of the greatest amount of benefits,
notwithstanding that all or some portion of such benefits may be taxable under
Section 4999 of the Code.

 

Unless the Company and Executive otherwise agree in writing, any determination
required under this Section 9 shall be made in writing by the Company’s
independent public accountants or other nationally recognized tax advisory firm
(the “Accountants”), whose determination shall be conclusive and binding upon
Executive and the Company for all purposes.  For purposes of making the
calculations required by this Section 9, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code.  The Company and Executive shall furnish to
the Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section 9.  The Company
shall bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 9.   In the event that a reduction is

 

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required, the reduction shall be applied first to any benefits that are not
subject to Section 409A of the Code, and then shall be applied to benefits (if
any) that are subject to Section 409A of the Code, with the benefits payable
latest in time subject to reduction first.

 

10.                                 Section 409A; Delayed Commencement of
Benefits.  Notwithstanding any provision to the contrary in this Agreement, no
cash severance and no Company-paid health care coverage to which Executive
otherwise becomes entitled under this Agreement shall be made or provided to
Executive prior to the earlier of (i) the expiration of the six (6)-month period
measured from the Termination Date or (ii) the date of Executive’s death, if
Executive is deemed on the Termination Date to be a “specified employee” within
the meaning of that term under Code Section 409A and such delayed commencement
is otherwise required in order to avoid a prohibited distribution under Code
Section 409A(a)(2).  Upon the expiration of the applicable Code
Section 409A(a)(2) deferral period, all payments and benefits deferred pursuant
to this Section 10 (whether they would have otherwise been payable in a single
sum or in installments in the absence of such deferral) shall be paid or
reimbursed to Executive in a lump sum, and any remaining payments and benefits
due under this Agreement shall be paid or provided in accordance with the
normal  payment dates specified for them herein.  Executive shall be entitled to
interest on the deferred benefits and payments for the period the commencement
of those benefits and payments is delayed by reason of Code Section 409A(a)(2),
with such interest to accrue at the prime rate in effect from time to time
during that period and to be paid in a lump sum upon the expiration of the
deferral period.  Each installment payment under Section 8 shall be considered a
separate payment for purposes of Code Section 409A.

 

11.                                 Successors.

 

(a)                                  Company’s Successors.  Any successor to the
Company (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and/or assets shall assume the Company’s obligations under
this Agreement and agree expressly to perform the Company’s obligations under
this Agreement in the same manner and to the same extent as the Company would be
required to perform such obligations in the absence of a succession.  For all
purposes under this Agreement, the term “Company” shall include any successor to
the Company’s business and/or assets which executes and delivers the assumption
agreement described in this subsection (a) or which becomes bound by the terms
of this Agreement by operation of law.

 

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(b)                                 Executive’s Successors.  Without the written
consent of the Company, Executive shall not assign or transfer this Agreement or
any right or obligation under this Agreement to any other person or entity. 
Notwithstanding the foregoing, the terms of this Agreement and all rights of
Executive hereunder shall inure to the benefit of, and be enforceable by,
Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

 

12.                                 Notices.

 

(a)                                  General.  Notices and all other
communications contemplated by this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by U.S.
registered or certified mail, return receipt requested and postage prepaid.  In
the case of Executive, mailed notices shall be addressed to Executive at the
home address which Executive most recently communicated to the Company in
writing.  In the case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its Secretary.

 

(b)                                 Notice of Termination.  Any termination by
the Company for Cause or by Executive as a result of an Involuntary Termination
shall be communicated by a notice of termination to the other party hereto given
in accordance with this Section 12.  Such notice shall indicate the specific
termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date.  The failure by Executive to include in the notice any fact or
circumstance which contributes to a showing of Involuntary Termination shall not
waive any right of Executive hereunder or preclude Executive from asserting such
fact or circumstance in enforcing Executive’s rights hereunder, subject to the
requirements of Section 5(c).

 

13.                                 Noncompetition.

 

(a)                                  General.  In consideration of this
Agreement, but without regard to whether any payments or benefits are ever made
to Executive by the Company under the terms of this Agreement, Executive agrees
that during the period of his employment and for twelve (12) months thereafter,
Executive will not:

 

(i)                                     work directly or indirectly in any
capacity or perform any services (including as an officer, director, employee,
agent, advisor, or in any consulting capacity or as an independent contractor)
for or own any equity or other ownership interest in;

 

(ii)                                  any person, partnership, division,
corporation or any other entity in any business in direct competition with the
principal business of the Company;

 

(iii)                               in any geographical location in which the
Company actively conducts business.

 

Executive acknowledges that it would not be reasonably possible for Executive to
work for any competing entity without the inevitable use and/or disclosure of
confidential and trade secret

 

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information belonging to the Company, and that the use and/or disclosure of such
information would cause competitive harm to the Company.

 

(b)                                 Exceptions.  The following activities of
Executive shall not be considered a violation of the noncompetition restrictions
set forth in this section: (i) passive ownership of less than 2% of any class of
securities of a company whose securities are actively traded on a public
securities market; and (iii) engaging or participating solely in a
noncompetitive business of an entity which also separately operates a business
which is in direct competition with Company.

 

(c)                                  Reasonable and Necessary Restrictions.
Executive acknowledges that the restrictions, prohibitions and other provisions
in this Section are reasonable, fair, equitable and necessary in duration, scope
and geographic area to protect the legitimate business interests of the Company,
and are a material inducement to the Company to enter into this Agreement. 
Executive further acknowledges that while the noncompete obligations of this
Section 13 restrict Executive in regard to direct competitors of the Company,
such restrictions do not unreasonably restrict or prohibit Executive from
obtaining and earning a living within the scope of Executive’s experience,

 

(d)                                 Forfeiture of Severance Payments.  In the
event Executive breaches any provision of Section 13, in addition to any other
remedies that the Company may have at law or in equity, all severance payments
and benefits pursuant to this Agreement shall immediately cease and Executive
shall promptly reimburse the Company for any severance payments or benefits
received from, or payable by, the Company.  In addition, the Company shall be
entitled, and Executive authorizes the Company to do so by signing this
Agreement, to offset within the Company’s sole discretion all or any portion of
the amount of any unpaid reimbursements against any amount owed by the Company
to Executive.

 

(e)                                  Extension of Noncompete Provision Due To
Breach By Executive.  Executive agrees that the duration of the noncompete
obligations in this section shall be extended for the length of time Executive
is in breach of such obligations.   By example only and not limitation, if
Executive is in breach of the noncompete obligations of this Section for a
period of two (2) months, the noncompete obligation shall be extended for two
(2) months so that Executive has satisfied a total of twelve (12) months of the
noncompete obligation as agreed in Section 13.

 

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14.                                 Arbitration.

 

Any controversy involving the construction or application of any terms,
covenants or conditions of this Agreement, or any claims arising out of any
alleged breach of this Agreement, will be governed by the rules of the American
Arbitration Association and submitted to and settled by final and binding
arbitration in Spokane, Washington, except that any alleged breach of
Executive’s obligations under Section 13(a) shall not be submitted to
arbitration and instead the Company may seek all legal and equitable remedies,
including without limitation, injunctive relief.

 

15.                                 Miscellaneous Provisions.

 

(a)                                  No Duty to Mitigate.  Executive shall not
be required to mitigate the amount of any payment contemplated by this
Agreement, nor shall any such payment be reduced by any earnings that Executive
may receive from any other source.

 

(b)                                 Waiver.  No provision of this Agreement may
be modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by Executive and by an authorized officer of
the Company (other than Executive).  No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.

 

(c)                                  Integration.  This Agreement represents the
entire agreement and understanding between the parties with respect to the
payment of severance or other benefits if Executive’s employment with the
Company terminates as a result of an Involuntary Termination, and supersedes all
prior or contemporaneous agreements, whether written or oral, with respect
thereto, including, but not limited to, that certain Employment Agreement, dated
as of, between Executive and the Company.

 

(d)                                 Choice of Law.  The validity,
interpretation, construction and performance of this Agreement shall be governed
by the internal substantive laws, but not the conflicts of law rules, of the
State of Idaho.

 

(e)                                  Severability.  The invalidity or
unenforceability of any provision or provisions of this Agreement shall not
affect the validity or enforceability of any other provision hereof, which shall
remain in full force and effect.

 

(f)                                    Employment Taxes.  All payments made
pursuant to this Agreement shall be subject to withholding of applicable income
and employment taxes.

 

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

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer or member of the Board of
Directors, on the dates shown below.

 

COMPANY:

By:

 

 

 

 

 

Title:

 

 

 

 

 

Date:

 

 

 

 

 

 

 

EXECUTIVE:

 

 

 

Signature

 

 

 

 

 

 

 

Date:

 

 

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