Document:

exv10w2

 

GUARANTEE

     FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, and in connection with
that certain funding agreement (the “Funding Agreement”), entered into by and between Principal
Life Insurance Company, an Iowa insurance company (“Principal Life”), and Principal Life Income
Fundings Trust 2007-40, a New York common law trust (the “Trust”), relating to the notes (the
“Notes”) issued by the Trust, Principal Financial Group, Inc., a Delaware corporation and the
indirect parent company of Principal Life (the “Guarantor”), hereby furnishes to the Trust its full
and unconditional guarantee of the Guaranteed Amounts (as hereinafter defined) as follows:

     1. Guarantee.

          (a) The Guarantor hereby fully, irrevocably, absolutely and unconditionally guarantees, as a
guarantee of payment and not merely as a guarantee of collection, immediate payment when due to the
Trust any payments required to be made by Principal Life to the Trust under the Funding Agreement
which shall become due and payable regardless of whether such payment is due at maturity, on an
interest payment date or as a result of redemption or otherwise (the “Scheduled Payments”) but
shall be unpaid by Principal Life (the “Guaranteed Amounts”). Notwithstanding anything to the
contrary contained herein, in no event shall the Guaranteed Amounts exceed the Deposit (as defined
in the Funding Agreement) of the Funding Agreement, plus accrued but unpaid interest and any other
amounts due and owing under the Funding Agreement, less any amounts paid by Principal Life to the
Trust.

          (b) In the event that Principal Life fails to make a Scheduled Payment in full when due (the
“Payment Notice Date”), then the Trust or Citibank, N.A., as indenture trustee for the benefit of
the holders of the Notes (the “Indenture Trustee”), pursuant to the indenture (the “Indenture”)
between the Trust and the Indenture Trustee, may present the Guarantor with notice (each, a
“Payment Notice”) of such failure in writing on or after the Payment Notice Date. The Payment
Notice shall identify (1) the Funding Agreement, (2) the Trust, (3) the Payment Notice Date and (4)
the amount of the Scheduled Payments not paid by Principal Life to the Trust as of the Payment
Notice Date. Upon receipt of such Payment Notice, the Guarantor will immediately pay the
Guaranteed Amounts pursuant to Section 7.

          (c) In the event that, after receipt of a Payment Notice from the Trust, the Guarantor fails
to make immediate payment to the Trust or the Indenture Trustee of the Guaranteed Amounts, then
the Trust and the Indenture Trustee may enforce the obligations of the Guarantor under this
Guarantee, including by immediately bringing suit directly against the Guarantor (without first
bringing suit against Principal Life) for the Guaranteed Amounts not paid to the Trust as of the
Payment Notice Date.

          (d) This Guarantee is an unsecured, unsubordinated and contingent obligation of the Guarantor
and ranks equally with all other unsecured and unsubordinated obligations of the Guarantor.

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     2. Termination. This Guarantee is a continuing and irrevocable guarantee of the
Guaranteed Amounts now or hereafter existing and shall terminate and be of no further force and
effect with respect to the Funding Agreement and the Notes upon the full payment of the Scheduled
Payments or upon the earlier extinguishment of the obligations of Principal Life under the Funding
Agreement.

     3. Amendments. Subject to the trust agreement relating to the Trust and the Indenture, no
provision of this Guarantee may be waived, amended, supplemented or modified, except by a written
instrument executed by the Trust and the Guarantor.

     4. Assignment; Governing Law. This Guarantee shall inure to the benefit of the Trust and its
successors, assigns and pledgees. This Guarantee shall be governed by, and construed in accordance
with, the laws of the State of New York without regard to conflict of law principles.

     5. Notices. All notices given pursuant to this Guarantee shall be in writing, and shall
either be delivered, mailed or telecopied to the locations listed below or at such other address or
to the attention of such other persons as such party shall have designated for such purpose in a
written notice complying as to delivery with the terms of this Section 5. Each such notice shall
be effective (i) if given by telecopy, when transmitted to the applicable number so specified in
this Section 5 (such notice shall also be sent by mail, with first class postage prepaid), (ii) if
given by mail, three days after deposit in the mails with first class postage prepaid, or (iii) if
given by any other means, when actually delivered at such address.

If to the Guarantor:

Principal Financial Group, Inc.

711 High Street

Des Moines, Iowa 50392

Attention: General Counsel

Telephone: (515) 247-5111

Facsimile: (515) 248-3011

With a copy to:

Principal Life Insurance Company

711 High Street

Des Moines, Iowa 50392

Attention: Jim Fifield

Telephone: (515) 248-9196

Facsimile: (866) 496-6527

If to the Trust:

Principal Life Income Fundings Trust (followed by the number of the Trust specified in this Guarantee)

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c/o U.S. Bank Trust National Association

100 Wall Street, 16th Floor

New York, New York 10005

Attention: Thomas E. Tabor

Telephone: (212) 361-6184

Facsimile: (212) 809-5459

With a copy to:

Citibank, N.A.

Citibank Agency and Trust

388 Greenwich Street, 14th Floor

New York, New York 10013

Attention: Nancy Forte

Telephone: (212) 816-5685

Facsimile: (212) 816-5527

     6. Representations and Warranties. The Guarantor represents and warrants that: (i) it is duly
organized and in good standing under the laws of the jurisdiction of its organization and has full
capacity and right to make and perform this Guarantee, and all necessary authority has been
obtained; (ii) this Guarantee constitutes a legal, valid and binding obligation of the Guarantor
enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors’ rights and general principles of equity, regardless of whether
enforcement is sought in a proceeding in equity or at law; (iii) the making and performance of this
Guarantee does not and will not violate the provisions of any applicable law, regulation or order,
and does not and will not result in the breach of, or constitute a default under, any material
agreement, instrument or document to which it is a party or by which it or any of its property may
be bound or affected, except to the extent disclosed in the registration statement registering the
issuance of this Guarantee and the Funding Agreement, as amended, supplemented or modified from
time to time (the “Registration Statement”), and to the extent that any such violation, breach or
default does not result in a material adverse effect on the Guarantor; and (iv) all consents,
approvals, licenses and authorizations of, and filings and registrations with, any governmental
authority required under applicable law and regulations for the making and performance of this
Guarantee have been obtained or made and are in full force and effect, except to the extent
disclosed in the Registration Statement and to the extent that the failure to acquire any such
consent, approval, license, authorization, filing or registration does not result in a material
adverse effect on the Guarantor.

     7. Notice of, and Consent to, Security Interest. The Trust hereby notifies the Guarantor that
it has granted to the Indenture Trustee, on behalf of the holders of the Notes, a security interest
in the Collateral (as defined in the Indenture), including, but not limited to, any and all payment
to be made by the Guarantor to the Trust under this Guarantee. The Trust hereby notifies the
Guarantor that it has collaterally assigned to the Indenture Trustee, for the benefit of the
holders of the Notes, this Guarantee. The Guarantor, by executing this Guarantee, hereby (i)
affirms that it has made or simultaneously will make changes to its books and records to reflect
such security interest and collateral assignment, (ii) consents to the security interest

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granted, and collateral assignment made, by the Trust to the Indenture Trustee of this
Guarantee, (iii) agrees to make all payments due under this Guarantee to the Collection Account (as
defined in the Indenture) or any other account designated in writing to the Guarantor by the
Indenture Trustee and (iv) agrees to comply with all orders of the Indenture Trustee with respect
to this Guarantee without any further consent from the Trust.

          8. WAIVER OF JURY TRIAL; FINAL AGREEMENT. TO THE EXTENT ALLOWED BY APPLICABLE LAW, THE
GUARANTOR WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING ON OR ARISING
OUT OF THIS GUARANTEE. THIS GUARANTEE REPRESENTS THE FINAL AGREEMENT BETWEEN THE GUARANTOR AND THE
TRUST AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS AMONG SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

	 	 	 	 	 
	 	 	PRINCIPAL FINANCIAL GROUP, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Elizabeth D. Swanson
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Name:
	 	Elizabeth D. Swanson
	 
	 	 	 	 
	 

	 	Title:
	 	Counsel
	 
	 	 	 	 
	 

	 	Date:
	 	The Effective Date (as defined in the Funding

Agreement)

Acknowledged and Agreed:

THE PRINCIPAL LIFE INCOME FUNDINGS

TRUST DESIGNATED IN THIS GUARANTEE

	 	 	 	 	 
	By:	 	U.S. Bank Trust National Association,
	 	 	not in its individual capacity, but solely in its
	 	 	capacity as trustee
	 
	 	 	 	 
	By:	 	Bankers Trust Company, N.A.,
	 	 	under Limited Power of Attorney, dated March 2, 2007
	 
	 	 	 	 
	By:

	 	/s/ Diana L. Cook
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:

	 	Diana L. Cook	 	 
	 
	 	 	 	 
	Title:

	 	Vice President	 	 
	 
	 	 	 	 
	Date:	 	The Effective Date (as defined in the Funding
	 	 	Agreement)

4exv10w1

 

Exhibit 10.1

CONFIDENTIAL

SEPARATION AGREEMENT

     THIS SEPARATION AGREEMENT (this “Agreement”) is made and entered into by and between Megan L.
Featherston, a resident of Minnesota (“Executive”), and Wilsons Leather Holdings Inc., a Minnesota
corporation (the “Company”).

BACKGROUND

     A. Executive was employed by the Company pursuant to an offer letter dated March 2, 2006
(“Offer Letter”).

     B. Executive’s employment with the Company has ended effective February 28, 2007 (the
“Separation Date”).

     C. Under the Offer Letter, Executive is entitled to certain severance benefits upon an
involuntary termination without cause, subject to signing a separation agreement in a form
determined by the Company.

     D. This Agreement constitutes the separation agreement required by the Offer Letter.

     E. The parties desire to resolve all issues now between them and have agreed to a full
settlement of such issues as set forth in this Agreement.

     NOW THEREFORE, in consideration of the mutual promises and provisions contained in this
Agreement and the Release referred to below, the parties, intending to be legally bound, agree as
follows:

AGREEMENTS

     1. Final Pay/Benefits Continuation. Executive confirms that she has been paid in full
for her base salary, compensation, benefits and any accrued and unused vacation time owing to her
through the Separation Date, except as specifically set forth in this Agreement.

 

 

CONFIDENTIAL

The Company will
pay to Executive in March 2007 the guaranteed STI Plan award for fiscal
year 2006, in the amount of $120,000, in accordance with the Offer Letter. Executive will
have the right to continue her group health, dental and/or vision insurance coverage after the
Separation Date under such terms as are made available to similarly-situated former employees of
the Company, pursuant to the terms of the applicable plan documents and laws regarding continuation
coverage. Except as provided in subparagraph 4.b. of this Agreement, such continuation coverage
shall be at Executive’s own expense. To the extent that Executive is currently a participant in
any retirement, pension, or profit sharing plans of the Company, Executive will be entitled to her
rights and benefits under these plans at the times and under the terms and conditions set forth in
any such plan.

     2. Expense Reimbursement. The Company will reimburse Executive for her regular and
necessary business expenses incurred through the Separation Date in accordance with the Company’s
regular policies and practices. Executive will submit all requests for reimbursement to the
Company no later than March 16, 2007.

     3. Release by Executive. At the same time that Executive executes this Agreement, she
shall execute a Release in the form attached to this Agreement as Exhibit A (the “Release”). This
Agreement will not be interpreted or construed to limit the Release in any manner.

     4. Severance Arrangements. The Company will make the severance payments to Executive
and on her behalf as set forth in subparagraphs 4.a., 4.b. and 4.c. below in satisfaction of all
amounts that may be owed by the Company under the Offer Letter and in lieu of any further payments
or compensation that Executive would otherwise be entitled to receive under any other agreement
with the Company or any Affiliate

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CONFIDENTIAL

(as
defined in paragraph 6 below) or as an employee or officer of
the Company or any Affiliate. The
Company will make such payments only if (i) Executive has signed this Agreement and the
Release and has not rescinded this Agreement or the Release within the rescission period set forth
in paragraph 22 below (the “Rescission Period”), (ii) the Company has received written confirmation
from Executive, dated not earlier than the day after the expiration of the Rescission Period, that
Executive has not rescinded and will not rescind this Agreement or the Release, and (iii) Executive
has not breached her obligations pursuant to this Agreement or the Release.

          a. Severance Pay. The Company shall pay Executive as severance pay an amount equal to
Executive’s annual base salary as of the Separation Date. Payment will be made in accordance with
the Company’s regular payroll schedule for the period commencing on the first payroll date
following expiration of the Rescission Period and continuing for one year thereafter.

          b. Health Insurance. If Executive elects to continue her group health, dental and/or
vision insurance under the terms of paragraph 1 above and the terms of the applicable plans,
Executive shall complete all paperwork necessary to carry out such election effective March 1,
2007, as specified by the Company or its agents in accordance with the applicable plans. Upon such
election by Executive, the Company shall pay on Executive’s behalf a portion of the cost of the
premiums that she is required to pay to maintain such continuation coverage for a period of up to
twelve (12) months following the Separation Date, or, if earlier, until such continuation coverage
ceases in accordance with the terms and conditions of the applicable plans and laws. The premium
portion to be paid by the Company shall be equal to the portion of the health,

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CONFIDENTIAL

dental and/or vision
insurance premiums that would be paid by the Company if Executive were an employee of the Company,
at the
same level of coverage that was in effect on the Separation Date. The Company shall deduct
Executive’s portion of such premiums from payments to Executive pursuant to subparagraph 4.a.,
provided, however, if payments owed to Executive pursuant to subparagraph 4.a. are not sufficient
to cover Executive’s portion of the premiums, Executive shall pay such portion to the Company in
accordance with the requirements of continuation coverage.

          c. Outplacement. The Company will provide to Executive executive-level outplacement
assistance services for up to 12 months through a provider designated by the Company. Executive
will not be paid cash in lieu of outplacement services.

     5. Stock Options. Executive acknowledges and agrees that the options listed in this
paragraph below are Executive’s only options to purchase shares of the common stock of the
Company’s parent, Wilsons The Leather Experts Inc., and that such options are exercisable only to
the extent reflected in the “Amount Exercisable” column below. Executive further agrees and
acknowledges that all of the options to purchase common stock of Wilsons The Leather Experts Inc.
will expire and cease to be outstanding in accordance with the terms of the applicable Stock Option
Agreement and plan.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Plan	 	Date of Grant	 	Exercise Price	 	Number of Shares	 	Amount Exercisable
	       2000 Plan

	 	03/23/06
	 	$	3.66	 	 	 	150,000	 	 	 	0	 

     6. Confidential Information and Restrictive Covenants.

          a. Confidential Information. Except as authorized in writing by an officer of the
Company, Executive shall not at any time divulge,

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CONFIDENTIAL

furnish or
make accessible to anyone or use in
any way other than in the ordinary course of the business of the
Company, any confidential, proprietary or secret knowledge or information of the Company or
any of its Affiliates that Executive has acquired or will acquire about the Company or any of its
Affiliates, whether developed by herself or by others, concerning (i) any trade secrets, (ii) any
confidential, proprietary or secret designs, processes, formulae, plans, devices or material
(whether or not patented or patentable) directly or indirectly useful in any aspect of the business
of the Company or any of its Affiliates, (iii) any customer or supplier lists, (iv) any
confidential, proprietary or secret development or research work, (v) any strategic or other
business, marketing or sales plans, (vi) any financial data or plans, (vii) any non-public
information regarding Company employees, compensation, stock ownership or benefits, or (viii) any
other confidential or proprietary information or secret aspects of the business of the Company or
any of its Affiliates. Executive acknowledges that the above-described knowledge and information
constitutes a unique and valuable asset of the Company and its Affiliates and represents a
substantial investment of time and expense by the Company and its Affiliates, and that any
disclosure or other use of such knowledge or information other than for the sole benefit of the
Company and its Affiliates would be wrongful and would cause irreparable harm to the Company.
Executive will refrain from any acts or omissions that would reduce the value of such knowledge or
information to the Company. The foregoing obligations of confidentiality shall not apply to any
knowledge or information that (i) is now or subsequently becomes generally publicly known in the
form in which it was obtained from the Company or any of its Affiliates, other than as a direct or
indirect result of the breach of this Agreement by Executive, (ii) is independently made available
to Executive in good faith by a third party who has not violated a confidential relationship with

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CONFIDENTIAL

the
Company or any of its Affiliates, or (iii) is required to be disclosed by law or legal process.
Executive understands and agrees that her obligations under this Agreement to maintain the
confidentiality of the confidential information are in addition to any obligations of Executive
under applicable statutory or common law. For purposes of this Agreement, “Affiliate” shall mean
any entity related to the Company in the present or past, including without limitation its
predecessors, parent (Wilsons The Leather Experts Inc.), subsidiaries, joint venture partners, and
any entities under common control with the Company, and any successors of any of them.

          b. Agreement Not to Hire. For a period of twelve (12) consecutive months after the
Separation Date, Executive will not, directly or indirectly, hire, engage, or solicit any person
who is an employee of the Company or any of its Affiliates, or who was an employee of the Company
or any of its Affiliates at any time during the 180-day period immediately preceding the Separation
Date, in any manner or capacity, including without limitation as a proprietor, principal, agent,
partner, officer, director, stockholder, employee, member of any association, consultant or
otherwise.

          c. Agreement Not to Interfere. For a period of twelve (12) consecutive months after
the Separation Date, Executive will not, directly or indirectly, induce or attempt to induce any
vendor, supplier, independent contractor or customer of the Company or of any of its Affiliates to
cease doing business with or terminate or alter its relationship with the Company or any of its
Affiliates.

          d. Acknowledgment. Executive agrees that the restrictions and agreements contained
in this paragraph 6 are reasonable and necessary to protect the legitimate interests of the Company
and that any violation of this paragraph 6 will cause substantial and irreparable harm to the

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CONFIDENTIAL

Company that would not be quantifiable and for
which no adequate remedy would exist at law. Executive acknowledges that it would be
difficult to fully compensate the Company for damages resulting from any breach by her of the
provisions of paragraph 6 of the Agreement. Accordingly, in the event of any actual or threatened
breach of such provisions, the Company will (in addition to any other remedies it may have) be
entitled to temporary and/or permanent injunctive and other equitable relief to enforce such
provisions, and such relief may be granted without the necessity of proving actual damages.

          e. Blue Pencil Doctrine. If the duration of, or business activities covered by, this
paragraph 6 are in excess of what is valid and enforceable under applicable law, such provision
will be construed to cover only that duration or those activities as are valid and enforceable.
Executive acknowledges the uncertainty of the law in this respect and expressly stipulates that
this paragraph 6 be given the construction which renders its provisions valid and enforceable to
the maximum extent (not exceeding its express terms) possible under applicable laws.

     7. Cooperation. At any time upon reasonable request and notice from the Company,
Executive will, without further consideration but at no expense to Executive,
(a) timely execute and deliver such acknowledgements, instruments, certificates, and other
ministerial documents (including without limitation, certification as to specific actions performed
by Executive in her capacity for the Company or any of its Affiliates) as may be necessary or
appropriate to formalize and complete the Company’s or any Affiliate’s corporate records; provided,
however, that nothing in this paragraph 7 will require Executive to take any action that she
reasonably believes to be unlawful or unethical or to

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CONFIDENTIAL

 make any inaccurate statement of actual
facts, and (b) provide complete and truthful information to,
and otherwise cooperate fully with, the Company, any of its Affiliates, and any of its or their
legal counsel, agents, insurers and representatives in connection with any investigations,
litigation or other matters relating to the Company or any of its Affiliates in which the Company
determines that Executive may have relevant information. In addition, at the Company’s reasonable
request and upon reasonable notice, Executive will, during the time the Company is making salary
continuation payments to her under paragraph 4 above and without further consideration, discuss and
consult with the Company regarding business matters that she was directly and substantially
involved with while employed by the Company.

     8. Claims Involving the Company. Executive will not recommend or suggest to any
potential claimants or plaintiffs or their attorneys or agents that they initiate claims or
lawsuits against the Company, any of its Affiliates, or any of its or their directors, officers,
employees, or agents, nor will Executive voluntarily aid, assist, or cooperate with any claimants
or plaintiffs or their attorneys or agents in any claims or lawsuits now pending or commenced in
the future against the Company, any of its Affiliates, or any of its or their directors, officers,
employees, or agents; provided, however, that this paragraph 8 will not be interpreted or construed
to prevent Executive from providing information to any governmental or law enforcement agency or
from giving testimony in response to questions asked pursuant to a legally enforceable subpoena,
deposition notice or other legal process.

     9. Records, Documents, and Property. Executive confirms that she has delivered to the
Company any and all Company or Affiliate records and any and all Company or Affiliate property in
her possession or under her control, including without limitation, manuals, books,

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CONFIDENTIAL

blank forms,
documents, letters, memoranda, notes, notebooks,
reports, printouts, computer disks, computer tapes, data, tables, or calculations and all copies
thereof, documents that in whole or in part contain any trade secrets or confidential, proprietary,
or other secret information of the Company or of any of its Affiliates, and all copies thereof, and
keys, access cards, access codes, source codes, passwords, raw materials, products, product
samples, credit cards, personal computers, telephones, BlackBerry and other electronic equipment
belonging to the Company or any of its Affiliates.

     10. Non-Disparagement. Executive will not at any time disparage, defame or besmirch
the reputation, character, image, products or services of the Company, any of its Affiliates, or
the reputation or character of any of their current or former directors, officers, employees or
agents.

     11. Actions Taken by Executive. Executive represents and warrants that, during the
entire period that she has been an employee or officer of the Company or any of its Affiliates, she
acted in good faith and had no reasonable cause to believe that her conduct was unlawful.

     12. Indemnification. Notwithstanding Executive’s separation from the Company, with
respect to events that occurred during her tenure as an employee or officer of the Company,
Executive will be entitled, as a former employee or officer of the Company, to the same rights that
are afforded to other current or former employees or officers of the Company, now or in the future,
to indemnification and advancement of expenses as provided in the charter documents of the Company
and under applicable law, and to indemnification and a legal defense to the extent provided from
time to time to current officers by any applicable general liability and/or directors’ and
officers’ liability insurance policies maintained by the Company.

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CONFIDENTIAL

     13. Confidentiality.

          a. General Standard. It is understood and agreed that this Agreement and summaries
thereof may be disclosed in filings with the Securities and Exchange Commission and summarized in
proxy statements disseminated to shareholders of Wilsons The Leather Experts Inc. Notwithstanding
such public filings, in order to minimize disruption and distraction from on-going business
operations, it is the intent of the parties that the terms of Executive’s separation from the
Company, including the provisions of this Agreement and the Release (collectively “Confidential
Separation Information”), will be forever treated as confidential. Accordingly, except as provided
in subparagraph 13.b. below, Executive will not disclose Confidential Separation Information to
anyone at any time and will not comment on Confidential Separation Information to anyone at any
time and will not comment on Confidential Separation Information if asked about it by employees or
former employees of the Company.

          b. Exceptions.

	 	i.	 	It will not be a violation of this Agreement
for Executive to disclose Confidential Separation Information in
reports to governmental agencies as required by law, including, but not
limited to, any federal or state tax authority.
	 
	 	ii.	 	It will not be a violation of this Agreement
for Executive to disclose Confidential Separation Information to her
immediate family, her attorneys, her accountants or tax advisors.
	 
	 	iii.	 	It will not be a violation of this Agreement
for Executive to disclose Confidential Separation Information in
connection with any litigation proceeding involving the parties’ rights
or obligations under this Agreement or the Release.

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CONFIDENTIAL

	 	iv.	 	It will not be a violation of this Agreement
for Executive to disclose Confidential Separation Information in the
course of any job search, in response to questions from prospective
employers about Executive’s departure from the Company or Executive’s
obligations under paragraph 6 of this Agreement.

     14. Full Compensation. Executive understands that the payments made and other
consideration provided by the Company under this Agreement will fully compensate Executive for and
extinguish any and all of the potential claims Executive is releasing in the Release, including
without limitation, her claims for attorneys’ fees and costs and any and all claims for any type of
legal or equitable relief.

     15. Withholding of Taxes. The Company shall withhold from payments and benefits
hereunder income and employment taxes and other amounts to the extent required by law. If there is
any dispute over the taxation of any such payment or benefit, the Company and Executive will cause
their respective tax advisors to cooperate in an effort to resolve such dispute.

     16. No Admission of Wrongdoing. Executive understands that this Agreement does not
constitute an admission that the Company, any of its Affiliates, or any of its or their directors,
officers, employees, or agents has violated any local ordinance, state or federal statute, or
principle of common law, or that the Company, any of its Affiliates, or any of its or their
directors, officers, employees, or agents has engaged in any unlawful or improper conduct toward
Executive. Executive will not characterize this Agreement or the payment of any money or other
consideration in accordance with this Agreement as an admission that the Company or any of its
Affiliates has engaged in any unlawful or improper conduct toward her or treated her unfairly.

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CONFIDENTIAL

     17. Authority. Executive represents and warrants that she has the authority to enter
into this Agreement and the Release, and that no causes of action, claims, or demands
released pursuant to this Agreement and the Release have been assigned to any person or entity not
a party to this Agreement and the Release.

     18. Legal Representation. Executive acknowledges that she has been advised by the
Company to consult with her own attorney before executing this Agreement and the Release, that she
has had a full opportunity to consider this Agreement and the Release, that she has had a full
opportunity to ask any questions that she may have concerning this Agreement, the Release, or the
settlement of her potential claims against the Company and others, and that she has not relied upon
any statements or representations made by the Company, its Affiliates or its or their attorneys,
written or oral, other than the statements and representations that are explicitly set forth in
this Agreement, the Release, and any qualified employee benefit plans sponsored by the Company in
which Executive is a participant.

     19. Assignment. This Agreement shall not be assignable, in whole or in part, by
Executive without the prior written consent of the Company. The Company may, without the consent
of Executive, assign its rights and obligations under this Agreement.

     20. Entire Agreement. This Agreement, the Release, the Stock Option Agreement, and
any qualified employee benefit plans sponsored by the Company in which Executive is a participant
are intended to define the full extent of the legally enforceable undertakings of the parties, and
no promises or representations, written or oral, that are not set forth explicitly in this
Agreement, the Release, the Stock Option Agreement, or any qualified employee benefit plans
sponsored by the Company in which Executive is a participant are intended by either party to be
legally binding. All other agreements and understandings between Executive and the Company or any
of its Affiliates (including without limitation the Offer Letter) are hereby cancelled, terminated,
and superseded.

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CONFIDENTIAL

     21. Period to Consider the Release and the Agreement. Executive understands that she
has 45 days to consider whether to sign this Agreement and the Release. If Executive signs this
Agreement and the Release before the end of the 45-day period, it will be her voluntary decision to
do so because she has decided she does not need any additional time to decide whether to sign this
Agreement and the Release.

     22. Right to Rescind or Revoke. Executive understands that she has the right to
rescind or revoke this Agreement and the Release for any reason within fifteen (15) calendar days
after she signs them. Executive understands that this Agreement will not become effective or
enforceable unless and until she has not rescinded this Agreement or the Release and the Rescission
Period has expired. Executive understands that if she wishes to rescind, the rescission must be in
writing and hand-delivered or mailed to the Company. If hand-delivered, the rescission must be (a)
addressed to Corrie Lapinsky, Director Legal Services, 7401 Boone Avenue North, Brooklyn Park,
Minnesota 55428, and (b) delivered to Corrie Lapinsky within the fifteen-day period. If mailed,
the rescission must be (a) postmarked within the fifteen-day period and (b) addressed to Corrie
Lapinsky at the address in the preceding sentence.

     23. Headings. The descriptive headings of the paragraphs and subparagraphs of this
Agreement are inserted for convenience only and do not constitute a part of this Agreement.

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CONFIDENTIAL

     24. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which together will constitute
one and the same instrument.

     25. Governing Law. This Agreement and the Release will be interpreted and construed
in accordance with, and any dispute or controversy arising from any breach or asserted breach of
this Agreement or the Release will be governed by, the laws of the State of Minnesota.

            IN WITNESS WHEREOF, the parties have executed this Agreement on the date stated below.

	 	 	 	 	 
	 	 	 
	 Dated: April 18, 2007 	/s/ Megan L. Featherston

	 
	 	MEGAN L. FEATHERSTON 	 
	 	 	 
	 
	Dated: April 23, 2007 	WILSONS LEATHER HOLDINGS INC.

 	 
	 	BY:  /s/ Michael M.
Searles

	 
	 	       Michael M. Searles 	 
	 	       Its Chief Executive Officer 	 
	 

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CONFIDENTIAL

RELEASE BY MEGAN FEATHERSTON

Definitions. I intend all words used in this Release to have their plain meanings in
ordinary English. Specific terms that I use in this Release have the following meanings:

	 	A.	 	I, me, and my include both me and anyone who has or
obtains any legal rights or claims through me.
	 
	 	B.	 	Wilsons means Wilsons Leather Holdings Inc., Wilsons The Leather
Experts Inc., any company related to Wilsons Leather Holdings Inc. or Wilsons The
Leather Experts Inc. in the present or past (including without limitation any of their
predecessors, parents, subsidiaries, affiliates, and joint venture partners), and any
successors of Wilsons Leather Holdings Inc. or Wilsons The Leather Experts Inc.
	 
	 	C.	 	Company means Wilsons; the present and past officers, directors,
committees, and employees of Wilsons; any company providing insurance to Wilsons in the
present or past; the present and past fiduciaries of any employee benefit plan
sponsored or maintained by Wilsons (other than multiemployer plans); the attorneys for
Wilsons; and anyone who acted on behalf of Wilsons or on instructions from Wilsons.
	 
	 	D.	 	Agreement means the Separation Agreement between Wilsons and me that I
have executed on the same date as I am executing this Release, including all of the
documents attached to the Agreement.
	 
	 	E.	 	My Claims mean all of my rights that I now have to any relief of any
kind from the Company, whether or not I now know about those rights, including without
limitation:

	 	1.	 	all claims arising out of or relating to my employment with
Wilsons or the termination of that employment;
	 
	 	2.	 	all claims arising out of or relating to the statements,
actions, or omissions of the Company;
	 
	 	3.	 	all claims for any alleged unlawful discrimination, harassment,
retaliation or reprisal, or other alleged unlawful practices arising under any
federal, state, or local statute, ordinance, or regulation, including without
limitation, claims under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, 42
U.S.C. § 1981, the Employee Retirement Income Security Act, the Equal Pay Act,
the Worker Adjustment and Retraining Notification Act, the Family and Medical
Leave Act, the Sarbanes-Oxley Act, the Fair Credit Reporting Act, the Minnesota
Human Rights Act, and workers’ compensation non-interference or non-retaliation
statutes (such as Minn. Stat. § 176.82);

EXHIBIT
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CONFIDENTIAL

	 	4.	 	all claims for alleged wrongful discharge; breach of contract;
breach of implied contract; failure to keep any promise; breach of a covenant
of good faith and fair dealing; breach of fiduciary duty; estoppel; my
activities, if any, as a “whistleblower”; defamation; infliction of emotional
distress; fraud; misrepresentation; negligence; harassment; retaliation or
reprisal; constructive discharge; assault; battery; false imprisonment;
invasion of privacy; interference with contractual or business relationships;
any other wrongful employment practices; and violation of any other principle
of common law;
	 
	 	5.	 	all claims for compensation of any kind, including without
limitation, bonuses, commissions, stock-based compensation or stock options,
vacation pay, relocation expenses, perquisites, and expense reimbursements;
	 
	 	6.	 	all claims for back pay, front pay, reinstatement, other
equitable relief, compensatory damages, damages for alleged personal injury,
liquidated damages, and punitive damages; and
	 
	 	7.	 	all claims for attorneys’ fees, costs, and interest.

	 	 	 	However, My Claims do not include any claims that the law does not allow to
be waived, any claims that may arise after the date on which I sign this Release, or
any claims for breach of the Agreement.

Agreement to Release My Claims. I will receive consideration from Wilsons as set forth in
the Agreement if I sign and do not rescind this Release as provided below. I understand and
acknowledge that the consideration is in addition to anything of value that I would be entitled to
receive from Wilsons if I did not sign this Release or if I rescinded this Release. In exchange
for that consideration I give up and release all of My Claims. I will not make any demands or
claims against the Company for compensation or damages relating to My Claims. The consideration
that I am receiving is a fair compromise for the release of My Claims.

Additional Agreements and Understandings. Even though Wilsons will provide consideration
for me to settle and release My Claims, the Company does not admit that it is responsible or
legally obligated to me. In fact, the Company denies that it is responsible or legally obligated
to me for My Claims, denies that it engaged in any unlawful or improper conduct toward me, and
denies that it treated me unfairly.

Confidentiality. I understand that the terms of this Release are confidential and that I
may not disclose those terms to any person except under the circumstances described in the
Agreement.

Advice to Consult with an Attorney. I understand and acknowledge that I am hereby being
advised by the Company to consult with an attorney prior to signing this Release and I have done
so. My decision whether to sign this Release is my own voluntary decision made with full knowledge
that the Company has advised me to consult with an attorney.

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CONFIDENTIAL

Acknowledgement of Receipt of Information. I confirm that I have received from Wilsons a
written disclosure of information relating to employees affected by the restructuring of Wilsons’
senior management, which includes the job titles and ages of senior managers who are being offered
severance pay in exchange for a release of claims and information about senior managers who are not
being offered severance pay, and that I understand the information contained on such disclosure.

Period to Consider the Release. I understand that I have 45 days from the day that I
receive this Release and the information disclosure, not counting the day upon which I receive
them, to consider whether I wish to sign this Release. If I sign this Release before the end of
the 45-day period, it will be my voluntary decision to do so because I have decided that I do not
need any additional time to decide whether to sign this Release. I also agree that any changes made
to this Release or the Agreement before I sign it, whether material or immaterial, will not restart
the 45-day period.

My Right to Rescind this Release. I understand that I may rescind this Release at any time
within 15 days after I sign it, not counting the day upon which I sign it. This Release will not
become effective or enforceable unless and until the 15-day rescission period has expired without
my rescinding it.

Procedure for Accepting or Rescinding the Release. To accept the terms of this Release, I
must deliver the Release, after I have signed and dated it, to Wilsons by hand or by mail within
the 45-day period that I have to consider this Release. To rescind my acceptance, I must deliver a
written, signed statement that I rescind my acceptance to Wilsons by hand or by mail within the
15-day rescission period. All deliveries must be made to Wilsons at the following address:

	 	 	 
	 

	 	Corrie Lapinsky
	 

	 	Director, Legal Services
	 

	 	Wilsons Leather
	 

	 	7401 Boone Avenue North
	 

	 	Brooklyn Park, Minnesota 55428

If I choose to deliver my acceptance or the rescission of my acceptance by mail, it must be
postmarked within the period stated above and properly addressed to Wilsons at the address stated
above.

Interpretation of the Release. This Release should be interpreted as broadly as possible
to achieve my intention to resolve all of My Claims against the Company. If this Release is held
by a court to be inadequate to release a particular claim encompassed within My Claims, this
Release will remain in full force and effect with respect to all the rest of My Claims.

My Representations. I am legally able and entitled to receive the consideration being
provided to me in settlement of My Claims. I have not been involved in any personal bankruptcy or
other insolvency proceedings at any time since I began my employment with Wilsons. No child
support orders, garnishment orders, or other orders requiring that money owed to me by Wilsons be
paid to any other person are now in effect.

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CONFIDENTIAL

I have read this Release carefully. I understand all of its terms. In signing this Release, I
have not relied on any statements or explanations made by the Company except as specifically set
forth in the Agreement and the Release signed by Wilsons. I am voluntarily releasing My Claims
against the Company. I intend this Release and the Agreement to be legally binding.

	 	 	 	 	 
	 	 	 
	Dated: April 18, 2007 	/s/ Megan L. Featherston
 	 
	 	Megan L. Featherston 	 
	 	 	 
	 

A-4

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