BLUE NILE, INC.
CHANGE OF CONTROL SEVERANCE PLAN
The
Blue Nile, Inc. Change of Control Severance Plan (the “
Plan ”) is established effective March 4,
2009. The purpose of the Plan is to provide for the payment of
severance benefits to certain eligible executives of Blue Nile,
Inc. or, following a Change of Control (as defined below), the
surviving entity resulting from such transaction or the parent
company of such surviving entity (the “ Company
”). This Plan supersedes any severance plan, policy or
practice with respect to Qualifying Terminations (as defined
below), whether formal or informal, written or unwritten,
previously announced or maintained by the Company. This Plan
document also is the Summary Plan Description for the
Plan.
Section 2. Eligibility For
Benefits.
(a) General Rules. Subject to the requirements of the
Plan, the Company will grant the severance benefits described in
Section 3 to Eligible Employees.
(1) Definition of “Eligible Employee.” For
purposes of this Plan, Eligible Employees are those employees of
the Company determined by the Plan Administrator, in its sole
discretion, to be eligible for severance benefits under the Plan.
The Plan Administrator shall make the determination of whether an
employee is an Eligible Employee, and such determination shall be
binding and conclusive on all persons. The Plan Administrator shall
maintain a current schedule of Eligible Employees with the General
Counsel of the Company or such other Company officer as may be
designated by the Plan Administrator. Temporary employees and
independent contractors are not eligible for severance benefits
under the Plan.
(2) Obligations of Eligible Employees. In order to
receive any benefits under the Plan:
(i) the Eligible Employee must suffer a Qualifying
Termination;
(ii) the Eligible Employee must remain on the job
until the date of his or her Qualifying Termination;
(iii) the Eligible Employee must execute and return to
the Company a general waiver and release in substantially the form
attached hereto as Exhibit A, Exhibit B or
Exhibit C , as applicable, within the time frame set
forth therein (the “ Release ”) and such
release must become effective in accordance with its terms —
but not later than the 60 th day following the termination of employment
— provided, however, the Plan Administrator has the
authority, in its discretion, to modify the form of the release as
necessary to comply with changes in applicable law and to
incorporate the release into a termination agreement with the
Eligible Employee; and
(iv) the Eligible Employee must remain in compliance
with his or her continuing obligations to the Company, including
obligations under his or her Employee Nondisclosure, Proprietary
Information, Inventions, Nonsolicitation and Noncompetition
Agreement (such form, or any similar form, the “
Proprietary Agreement ”).
(b) Exceptions to Benefit Entitlement. An employee who
otherwise is an Eligible Employee will not receive benefits under
the Plan (or will receive reduced benefits under the Plan) in the
following circumstances, as determined by the Company in its sole
discretion:
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(1) The employee is covered by any other severance or
separation pay plan, policy or practice of the Company or has
executed an individually negotiated employment contract or
agreement with the Company relating to severance benefits, in
either case with respect to severance benefits payable upon an
event that constitutes a Qualifying Termination (used herein as
defined herein), and such agreement, plan, policy or practice is in
effect on his or her termination date. In such case, the
employee’s severance benefit upon a Qualifying Termination,
if any, shall be governed by the terms of such agreement, plan,
policy or practice.
(2) The employee’s employment terminates other
than as a result of a Qualifying Termination (including a
termination for Cause prior to the effective date of a previously
scheduled Qualifying Termination, or a termination as a result of
death or disability, or the employee voluntarily terminates
employment with the Company other than as a Resignation for Good
Reason). Voluntary terminations include, but are not limited to,
resignation, retirement, failure to return from a leave of absence
on the scheduled date and/or termination in order to accept
employment with another entity (including but not limited to any
entity that is wholly or partly owned (directly or indirectly) by
the Company or an affiliate of the Company).
(3) The employee has not signed an enforceable
Proprietary Agreement covering the employee’s period of
employment with the Company (and with any predecessor) and does not
confirm in writing that he or she is and shall remain subject to
the terms of that Proprietary Agreement.
(c) Definition of “Cause”. “
Cause ” for termination includes one of the
following events that has a material negative impact on the
business or reputation of the Company:
(1) indictment or conviction of any felony or any
crime involving dishonesty or moral turpitude;
(2) dishonesty which is not the result of an
inadvertent or innocent mistake by employee with respect to the
Company;
(3) employee’s continued willful violation of
his or her obligations to the Company after there has been
delivered to employee a written demand for performance from the
Company’s Board of Directors (the
“Board” ) which describes the basis for
the Board’s belief that employee has not substantially
satisfied his or her obligations to the Company;
(4) employee’s violation or breach of any
material written Company policy, agreement with the Company, or any
statutory or fiduciary duty to the Company; or
(5) damaging or misappropriating or attempting to
damage or misappropriate any property, including any confidential
or proprietary information, of the Company.
(d) Definition of “Change of Control”. A
“ Change of Control ” means the
occurrence, in a single transaction or in a series of related
transactions, of any one or more of the following
events:
(1) any Exchange Act Person becomes the Owner,
directly or indirectly, of securities of the Company representing
more than fifty percent (50%) of the combined voting power of the
Company’s then outstanding securities other than by virtue of
a merger, consolidation or similar transaction. Notwithstanding the
foregoing, a Change of Control shall not be deemed to occur solely
because the level of Ownership held by any Exchange Act Person (the
“Subject Person” ) exceeds the designated
percentage threshold of the outstanding voting securities as a
result of a repurchase or other acquisition of voting securities by
the Company reducing the number of shares outstanding, provided
that if a Change of Control would occur (but for the operation of
this sentence) as a result of the acquisition of voting securities
by the Company, and after such share acquisition, the Subject
Person becomes the Owner of any additional voting securities that,
assuming the repurchase or other acquisition had not occurred,
increases the percentage of the then outstanding voting securities
Owned by the Subject Person over the designated percentage
threshold, then a Change of Control shall be deemed to
occur;
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(2) there is consummated a merger, consolidation or
similar transaction involving (directly or indirectly) the Company
and, immediately after the consummation of such merger,
consolidation or similar transaction, the stockholders of the
Company immediately prior thereto do not Own, directly or
indirectly, outstanding voting securities representing more than
fifty percent (50%) of the combined outstanding voting power of the
surviving Entity in such merger, consolidation or similar
transaction or more than fifty percent (50%) of the combined
outstanding voting power of the parent of the surviving Entity in
such merger, consolidation or similar transaction;
(3) there is consummated a sale, lease, license or
other disposition of all or substantially all of the consolidated
assets of the Company and its Subsidiaries, other than a sale,
lease, license or other disposition of all or substantially all of
the consolidated assets of the Company and its Subsidiaries to an
Entity, more than fifty percent (50%) of the combined voting power
of the voting securities of which are Owned by stockholders of the
Company in substantially the same proportions as their Ownership of
the Company immediately prior to such sale, lease, license or other
disposition; or
(4) during any two (2) year period, individuals
who, on the date this Plan is adopted by the Board, are members of
the Board (the “Incumbent Board” ) cease
for any reason to constitute at least a majority of the members of
the Board; (provided, however, that if the appointment or election
(or nomination for election) of any new Board member was approved
or recommended by a majority vote of the members of the Incumbent
Board then still in office, such new member shall, for purposes of
this Plan, be considered as a member of the Incumbent
Board).
(e) Definition of “Entity”.
“Entity” means a corporation, partnership,
limited liability company or other entity.
(f) Definition of “Exchange Act Person”. An
“ Exchange Act Person ” means any natural
person, entity or “group” (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended), except that “Exchange Act Person” shall not
include (1) the Company or any subsidiary of the Company,
(2) any employee benefit plan of the Company or any subsidiary
of the Company or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any subsidiary of
the Company, (3) an underwriter temporarily holding securities
pursuant to an offering of such securities, (4) an entity
owned, directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of stock
of the Company; or (5) any natural person, entity or
“group” (within the meaning of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended) that, as of the
effective date of this Plan, is the owner, directly or indirectly,
of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company’s then
outstanding securities.
(g) Definition of “Own,” “Owned,”
“Owner,” “Ownership”. A person or
Entity shall be deemed to “Own,” to have
“Owned,” to be the “Owner” of, or to have
acquired “Ownership” of securities if such person or
Entity, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting
power, which includes the power to vote or to direct the voting,
with respect to such securities.
(h) Definition of “Qualifying Termination”.
A “ Qualifying Termination ” means the
Eligible Employee suffers an involuntary termination without Cause
or a Resignation for Good Reason, in either case that
(i) constitutes a “separation from service” (as
defined under Treasury Regulation Section 1.409A-1(h)),
(ii) occurs other than as a result of death or disability, and
(iii) occurs on or (A) within twenty-four
(24) months following the effective date of the Change of
Control in the case of the Executive Chairman and Chief Executive
Officer or (B) within twelve (12) months following the
effective date of the Change of Control in the case of all other
Eligible Employees.
(g) Definition of “Resignation for Good
Reason”. A “ Resignation for Good
Reason ” means the Eligible Employee has resigned
from all positions he or she then holds with the Company (or any
successor thereto):
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(1) because one of the following actions has been
taken without his or her express written consent:
(i) there is a material reduction (where material is
considered greater than 10%) of the Eligible Employee’s
annual base salary;
(ii) there is a material change in the Eligible
Employee’s position or responsibilities (including the person
or persons to whom the Eligible Employee has reporting
responsibilities);
(iii) the Eligible Employee is required to relocate
his or her principal place of employment to a location that would
increase his or her one way commute distance by more than
twenty-five (25) miles; or
(iv) the Company materially breaches its obligations
under this Plan or any then-existing employment agreement with the
Eligible Employee; and
(2) the Eligible Employee provides written notice to
the Company’s Board within the 30-day period immediately
following such action; and
(3) such action is not remedied by the Company within
thirty (30) days following the Company’s receipt of such
written notice; and
(4) the Eligible Employee’s resignation is
effective not later than sixty (60) days after the expiration
of such thirty (30) day cure period.
Section 3. Amount Of Benefit.
(a) Severance Benefits. Subject to the terms and
conditions of the Plan, the Eligible Employee shall receive the
severance benefits set forth on the Participation Notice provided
to the Eligible Employee, in the substantially attached hereto as
in Exhibit D , at the time such individual is
designated an Eligible Employee, or as may be amended thereafter by
the Plan Administrator. The Eligible Employee must sign and return
the Participation Notice to the Company within thirty
(30) days after designation to agree to the terms and
conditions of the Plan.
(b) Additional Benefits. Notwithstanding the foregoing,
the Company may, in its sole discretion, authorize benefits in an
amount in addition to those benefits set forth in Section 3(a) to
an Eligible Employee. The provision of any such benefits to an
Eligible Employee shall in no way obligate the Company to provide
such benefits to any other Eligible Employee or to any other
employee, even if similarly situated. Receipt of benefits under
this Plan pursuant to such exceptions may be subject to a covenant
of confidentiality and non-disclosure.
(c) Certain Reductions. The Company shall reduce an
Eligible Employee’s severance benefits under this Plan, in
whole or in part, by any other severance benefits, pay in lieu of
notice, or other similar benefits payable to the Eligible Employee
by the Company in connection with the Eligible Employee’s
Qualifying Termination, including but not limited to any payments
or benefits that are due pursuant to (i) any other severance
plan, policy or practice, or any individually negotiated employment
contract or agreement with the Company relating to severance
benefits, in each case, as is in effect on the Eligible
Employee’s termination date, (ii) any applicable legal
requirement, including, without limitation, the Worker Adjustment
and Retraining Notification Act (the “ WARN Act
”), or (iii) any Company policy or practice providing
for the Eligible Employee to remain on the payroll without being in
active service for a limited period of time after being given
notice of the termination of the Eligible Employee’s
employment. The benefits provided under this Plan are intended to
satisfy, to the greatest extent possible, any and all statutory
obligations that may arise out of an Eligible Employee’s
termination of employment, and the Plan Administrator shall so
construe and implement the terms of the Plan. In the
Company’s sole discretion, such reductions may be applied on
a retroactive basis, with severance benefits previously paid being
recharacterized as payments pursuant to the Company’s
statutory obligation.
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(d) Best After Tax. If any payment or benefit
(including payments and benefits pursuant to this Plan) that an
Eligible Employee would receive in connection with a Change of
Control from the Company or otherwise (“
Payment ”) would (i) constitute a
“parachute payment” within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended
(the “ Code ”), and (ii) but for
this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the “ Excise Tax
”), then the Company shall cause to be determined, before any
amounts of the Payment are paid to the Eligible Employee, which of
the following two alternative forms of payment would maximize the
Eligible Employee’s after-tax proceeds: (i) payment in
full of the entire amount of the Payment (a “ Full
Payment ”), or (ii) payment of only a part of
the Payment so that the Eligible Employee receives the largest
payment possible without the imposition of the Excise Tax (a
“ Reduced Payment ”), whichever amount
results in the Participant ’s receipt, on an
after-tax basis, of the greater amount of the Payment
notwithstanding that all or some portion of the Payment may be
subject to the Excise Tax. For purposes of determining whether to
make a Full Payment or a Reduced Payment, the Company shall cause
to be taken into account all applicable federal, state and local
income and employment taxes and the Excise Tax (all computed at the
highest applicable marginal rate, net of the maximum reduction in
federal income taxes which could be obtained from a deduction of
such state and local taxes). If a Reduced Payment is made,
(i) the Payment shall be paid only to the extent permitted
under the Reduced Payment alternative, and the Eligible Employee
shall have no rights to any additional payments and/or benefits
constituting the Payment, and (ii) reduction in payments
and/or benefits shall occur in the following order:
(1) reduction of cash payments; (2) cancellation of
accelerated vesting of equity awards other than stock options;
(3) cancellation of accelerated vesting of stock options; and
(4) reduction of other benefits paid to the Eligible Employee.
In the event that acceleration of compensation from the Eligible
Employee’s equity awards is to be reduced, such acceleration
of vesting shall be canceled in the reverse order of the date of
grant.
The
independent professional firm engaged by the Company for general
tax audit purposes as of the day prior to the effective date of the
Change of Control shall make all determinations required to be made
under this Section 3(d). If the firm so engaged by the Company
is serving as accountant or auditor for the individual, entity or
group effecting the Change of Control, the Company shall appoint a
nationally recognized independent professional firm to make the
determinations required hereunder. The Company shall bear all
expenses with respect to the determinations by such firm required
to be made hereunder.
The
firm engaged to make the determinations hereunder shall provide its
calculations, together with detailed supporting documentation, to
the Company and the Eligible Employee within thirty (30) calendar
days after the date on which the Eligible Employee’s right to
a Payment is triggered (if requested at that time by the Company or
the Eligible Employee) or such other time as requested by the
Company or the Eligible Employee. If the firm determines that no
Excise Tax is payable with respect to a Payment, either before or
after the application of the Reduced Amount, it shall furnish the
Company and the Eligible Employee with a statement reasonably
acceptable to the Eligible Employee that no Excise Tax will be
imposed with respect to such Payment. Any good faith determinations
of the firm made hereunder shall be final, binding and conclusive
upon the Company and the Eligible Employee.
(e) Code Section 409A. The Company intends that
each installment of the payments and benefits provided under the
Plan (the “ Plan Payments ”) is a
separate “payment” for purposes of Code Section 409A
(together, with any state law of similar effect, “
Section 409A ”), and that all payments
under this Plan are exempt from Section 409A, to the greatest
extent possible, pursuant to Treasury
Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and
1.409A-1(b)(9). However, if the Company determines that some or all
of the Plan Payments constitute “deferred compensation”
under Section 409A and at the time of a Qualifying Termination an
Eligible Employee is a “specified employee” of the
Company or any successor entity thereto, as such term is defined in
Section 409A(a)(2)(B)(i) (a “ Specified
Employee ”), then, solely to the extent necessary to
avoid the incurrence of the adverse personal tax consequences under
Section 409A, the timing of the Plan Payments shall be delayed
as follows: on the earlier to occur of (i) the date that is
six months and one day after the termination date or (ii) the
date of the Eligible Employee’s death (such earlier date, the
“ Delayed Initial Payment Date ”), the
Company shall (A) pay to the Eligible Employee a lump sum
amount equal to the sum of the Plan Payments that the Eligible
Employee would otherwise have received through the Delayed Initial
Payment Date (including reimbursement for any premiums paid by the
Eligible Employee for health insurance coverage under COBRA) if the
commencement of the payment of the Plan Payments had not been
delayed pursuant to this paragraph and (B) commence paying the
balance of the Plan Payments in accordance with the applicable
payment schedules set forth on Exhibit D .
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Section 4. Company Property.
(a) Return of Company Property. An Eligible Employee
will not be entitled to any severance under the Plan unless and
until the Eligible Employee returns all Company Property, unless
otherwise expressly permitted by the Company to retain one or more
items of Company Property. For this purpose, “ Company
Property ” means all paper and electronic company
documents (and all copies thereof) created and/or received by the
Eligible Employee during his or her period of employment with the
Company and other Company Property which the Eligible Employee had
in his or her possession or control at any time, including, but not
limited to, Company and/or Employer files, notes, drawings records,
plans, forecasts, reports, studies, analyses, proposals,
agreements, financial information, research and development
information, sales and marketing information, operational and
personnel information, specifications, code, software, databases,
computer-recorded information, tangible property and equipment
(including, but not limited to, leased vehicles, computers,
computer equipment, software programs, facsimile machines, mobile
telephones, servers), credit and calling cards, entry cards,
identification badges and keys; and any materials of any kind which
contain or embody any proprietary or confidential information of
the Company and/or an Employer (and all reproductions thereof in
whole or in part). As a condition to receiving benefits under the
Plan, Eligible Employees must not make or retain copies,
reproductions or summaries of any such Company Property. However,
an Eligible Employee is not required to return his or her personal
copies of documents evidencing the Eligible Employee’s hire,
termination, compensation, benefits and stock options and any other
documentation received as a shareholder of the Company.
(b) Transition of Work. An Eligible Employee will not
be entitled to any severance benefit under the Plan unless and
until the Eligible Employee (1) has satisfactorily
transitioned his or her work and information concerning his or her
work to the Company to the extent reasonably requested in writing
by the Company and (2) has provided the Company with all
logins, passwords, passcodes and similar information created by the
Eligible Employee for documents, email and electronic files that
the Eligible Employee created or used on Company
systems.
Section 5. Withholdings and
Deductions.
All
payments under the Plan will be subject to applicable withholding
for federal, state and local taxes. If an Eligible Employee is
indebted to the Company at his or her termination date, the Company
reserves the right to offset any Play Payments by the amount of
such indebtedness. Additionally, if an Eligible Employee is subject
to withholding for taxes related to any non-Plan benefits, the
Company may offset any Plan Payments by the amount of such
withholding taxes. However, Plan Payments will not be subject to
any other deductions such as, but not limited to, 401(k) plan
contributions and/or 401(k) loan repayments or other employee
benefit and benefit plan contributions.
Section 6. Right To Interpret Plan; Amendment and
Termination.
(a) Exclusive Discretion. The Plan Administrator is the
Compensation Committee of the Board of Directors. As Plan
Administrator, the Company is the named fiduciary charged with the
responsibility for administering the Plan. The Plan Administrator
shall have the exclusive discretion and authority to establish
rules, forms, and procedures for the administration of the Plan and
to construe and interpret the Plan and to decide any and all
questions of fact, interpretation, definition, computation or
administration arising in connection with the operation of the
Plan, including, but not limited to, the eligibility to participate
in the Plan and amount of benefits paid under the Plan. The Plan
Administrator may delegate any or all of its administrative duties
to an officer of the Company and any such delegation shall convey
with it the fu
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